Trans American Aquaculture, Inc S-1/A, filed Oct 5, 2023
Trans American Aquaculture, Inc (GRPS)
As filed with the Securities and Exchange Commission on October 5, 2023
Registration No. 333-274059
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE
AMENDMENT NO. 1
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
TRANS AMERICAN AQUACULTURE, INC.
(Exact name of registrant as specified in its charter)
| Colorado | 0273 | 02-0685828 | ||
|
(State or Other Jurisdiction of Incorporation) |
(Primary Standard Classification Code) |
(IRS Employer Identification No.) |
1022 Shadyside Lane
Dallas, TX 75223
(972) 358-6037
(Address, including zip code, and telephone number, including area code of registrant’s principal executive offices)
Registered Agents Inc.
1942 Broadway Street
STE 314C
Boulder, CO 80302
(303) 578-5550
(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
(801) 634-1984
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
Approximate date of commencement of proposed sale to the public: As soon as practicable and from time to time 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, please 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. (Check one):
| 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 13(a) of the Exchange Act. ☐
The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(A) of the Securities Act or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(A), may determine.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.
| PRELIMINARY PROSPECTUS | SUBJECT TO COMPLETION | DATED OCTOBER 5, 2023 |
533,695,874 Shares of Common Stock
143,518,605 Shares of Common Stock Underlying Exercises of Warrants
309,803,922 Shares of Common Stock Underlying Conversions of Series D Preferred Stock
This prospectus relates to the offer and resale of up to 533,695,874 shares of common stock, par value $0.000001 per share (the “Shares”) of Trans American Aquaculture, Inc., a Colorado corporation (the “Company”), that may be purchased by GHS Investments LLC, a Nevada limited liability company (“GHS”), pursuant to the Equity Financing Agreement dated January 20, 2023 between the Company and GHS (the “EFA”). GHS is also referred to herein as the “Selling Security Holder.” If issued presently, the additional 533,695,874 shares of common stock registered for resale by the Selling Security Holder under the EFA, all of which have yet to be issued, would represent 27.97% of our issued and outstanding shares of common stock as of October 5, 2023. Additionally, the additional 533,695,874 shares of our common stock registered for resale herein to be issued under the EFA, all of which have yet to be issued, would represent approximately 33% of the Company’s public float (all current free-trading shares not held by affiliates).
The prospectus also relates to the offer and resale of up to 143,518,605 shares of common stock, par value $0.000001 per share (the “Warrant Exercise Shares”) of the Company that may be exercised by GHS.
Lastly, the prospectus also relates to the offer and resale of up to 309,803,922 shares of common stock, par value $0.000001 per share (the “Preferred Conversion Shares”) of the Company that may be converted by GHS pursuant to their ownership of 790 shares of Series D Preferred Stock of the Company (the “Series D Preferred Stock”).
We will not receive any of the proceeds from the sales of the Shares, the Warrant Exercise Shares, or the Preferred Conversion Shares by the Selling Security Holder.
The Selling Security Holder identified in this prospectus may offer the shares of Common Stock from time to time through public or private transactions at prevailing market prices or at privately negotiated prices. The Selling Security Holder can offer all, some or none of its shares of Common Stock, thus we have no way of determining the number of shares of Common Stock it will hold after this offering. See “Plan of Distribution.”
For purposes of shares to be issued under the EFA, the Selling Security Holder is an “underwriter” within the meaning of Section 2(a)(11) of the Securities Act.
Our Common Stock is currently quoted on the OTC Markets under the symbol “GRPS.” On October 2, 2023, the last reported sale price of our Common Stock on the OTC Markets was $0.00354.
Investing in our Common Stock involves a high degree of risk. You should review carefully the risks and uncertainties described under the heading “Risk Factors” beginning on page 4 of this prospectus, and under similar headings in any amendments or supplements to this prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
The date of this prospectus is October 5, 2023
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You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that which is contained in this prospectus. This prospectus may be used only where it is legal to sell these securities. The information in this prospectus may only be accurate on the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of securities.
The registration statement of which this prospectus forms a part that we have filed with the U.S. Securities and Exchange Commission (the “SEC”) and includes exhibits that provide more detail of the matters discussed in this prospectus. You should read this prospectus and the related exhibits filed with the SEC, together with the additional information described under the heading “Where You Can Find More Information” before making your investment decision.
You should rely only on the information provided in this prospectus or in any prospectus supplement or any free writing prospectuses or amendments thereto. Neither we, nor the Selling Security Holder, have authorized anyone else to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. You should assume that the information in this prospectus is accurate only as of the date hereof. Our business, financial condition, results of operations and prospects may have changed since that date.
Neither we, nor the Selling Security Holder, are offering to sell or seeking offers to purchase these securities in any jurisdiction where the offer or sale is not permitted. Neither we, nor the Selling Security Holder, have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the securities as to distribution of the prospectus outside of the United States.
Information contained in, and that can be accessed through, our web site, www.transamaqua.com, does not constitute part of this prospectus.
This prospectus includes market and industry data that has been obtained from third party sources, including industry publications, as well as industry data prepared by our management on the basis of its knowledge of and experience in the industries in which we operate (including our management’s estimates and assumptions relating to such industries based on that knowledge). Management’s knowledge of such industries has been developed through its experience and participation in these industries. While our management believes the third-party sources referred to in this prospectus are reliable, neither we nor our management have independently verified any of the data from such sources referred to in this prospectus or ascertained the underlying economic assumptions relied upon by such sources. Internally prepared and third-party market forecasts in particular are estimates only and may be inaccurate, especially over long periods of time. In addition, the underwriters have not independently verified any of the industry data prepared by management or ascertained the underlying estimates and assumptions relied upon by management. Furthermore, references in this prospectus to any publications, reports, surveys or articles prepared by third parties should not be construed as depicting the complete findings of the entire publication, report, survey or article. The information in any such publication, report, survey or article is not incorporated by reference in this prospectus.
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This summary highlights information contained elsewhere in this prospectus; it does not contain all the information you should consider before investing in our Common Stock. You should read the entire prospectus before making an investment decision. Throughout this prospectus, the terms the “Company”, “GRP”, “we,” “us,” “our,” and “our company” refer to Trans American Aquaculture, Inc., a Colorado corporation and its wholly-owned subsidiary, Trans American Aquaculture, LLC, a Texas limited liability company.
Company Overview
Trans American Aquaculture, Inc. (“GRP” or the "Company"), through its wholly-owned subsidiary, Trans American Aquaculture, LLC, a Texas limited liability company (“TAA”), is an aquaculture company that specializes in the growth, development, and sale of sustainable raised farmed shrimp to the world-wide market.
Our Business
We provide extra-large farm-raised Pacific white shrimp, 100% free of antibiotics and hormones, to the U.S. domestic seafood market. Grown at our 1,800 square foot farm located in Rio Hondo, Texas and the largest scale aquaculture farm in the U.S., our shrimp are meticulously raised to exceed industry standards using only authentic, sustainable practices. Within our controlled facility, each harvest is responsibly raised and cultivated onsite with minimal ecological footprint, promising our customers a superior product developed from the highest standard of care.
In addition to the quality of the products, what sets our shrimp apart from any other domestic shrimp is the clean, sweet taste to our shrimp. This is a byproduct of the natural environment along with our tried-and-true methods that provide a unique combination unlike anywhere else.
We have and will continue to utilize superior genetic linage broodstock for cultivation of own post larvae in our onsite maturation and hatchery. These facilities allow us to continually develop animals with increasing growth rates, lower mortality, and stronger disease resistance.
Available Information
All reports of the Company filed with the SEC are available free of charge through the SEC’s website at www.sec.gov. In addition, the public may read and copy materials filed by the Company at the SEC’s Public Reference Room located at 100 F Street, N.E., Washington, D.C. 20549. The public may also obtain additional information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330.
Where You Can Find Us
The Company’s executive offices are located at 1022 Shady Side Lane, Dallas, Texas 75223, and our telephone number is (972) 358-6037. Our website address is www.transamaqua.com. Information contained on our website does not form part of this prospectus and is intended for informational purposes only.
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| Common Stock outstanding before the offering | 1,374,155,277 shares of Common Stock. | |
| Common Stock to be outstanding after giving effect to the issuance of 987,018,401 shares of Common Stock (533,695,874 shares of Common Stock pursuant to the EFA, 143,518,605 shares of Common Stock underlying exercises of warrants, and 309,803,922 shares of Common Stock underlying conversions of Series D Preferred Stock) | 2,361,173,678 shares of Common Stock. | |
| Use of Proceeds | We will not receive any of the proceeds from any sale of the shares of Common Stock by the Selling Security Holder. We will receive proceeds from the purchase of the Common Stock under the EFA from the Selling Security Holder. See “Use of Proceeds.” | |
| Risk Factors | The Common Stock offered hereby involves a high degree of risk and should not be purchased by investors who cannot afford the loss of their entire investment. See “Risk Factors” beginning on page 4. | |
| Trading Symbol | The Company’s Common Stock is quoted on the OTC Markets under the symbol “GRPS.” |
The number of shares of Common Stock outstanding is based on an aggregate of 1,374,155,277 shares outstanding as of October 5, 2023 and excludes the shares of Common Stock issuable upon the exercise of the Warrant Exercise Shares, issuable upon conversion of the Preferred Conversion Shares, and purchase of the Shares under the EFA.
For a more detailed description of the Warrant Exercise Shares, the Preferred Conversion Shares, and the EFA, see “Private Placement”.
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Readers of this Prospectus should carefully consider the risks and uncertainties described below.
Our failure to successfully address the risks and uncertainties described below would have a material adverse effect on our business, financial condition and/or results of operations, and the trading price of our common stock may decline and investors may lose all or part of their investment. We cannot assure you that we will successfully address these risks or other unknown risks that may affect our business.
As an enterprise engaged in the commercialization of new technology, our business is inherently risky. Our common shares are considered speculative during the development of our business operations. Prospective investors should consider carefully the risk factors set out below.
Risks Related to Our Business
We need to continue as a going concern if our business is to succeed.
Our independent registered public accounting firm reports on our audited financial statements for the years ended December 31, 2022 and 2021, indicate that there are a number of factors that raise substantial risks about our ability to continue as a going concern. Such factors identified in the report are our accumulated deficit since inception, our failure to attain profitable operations, the excess of liabilities over assets, and our dependence upon obtaining adequate additional financing to pay our liabilities. If we are not able to continue as a going concern, investors could lose their investments.
If we do not obtain additional financing or sufficient revenues, our business will fail.
Our current operating funds are less than necessary to fulfill our operating costs and we will need to obtain additional financing in order to continue our business operations. Although we are generating revenues, we are not generating net income.
We will require additional financing to execute our business plan through raising additional capital and/or generating greater revenues.
Obtaining additional financing is subject to a number of factors, including acceptance of our products and current financial condition as well as general market conditions.
These factors affect the timing, amount, terms or conditions of additional financing unavailable to us. If additional financing is not arranged, we will face the risk of going out of business. Our management is currently engaged in actively pursuing multiple financing options in order to obtain the capital necessary to execute our business plan.
The most likely source of future funds presently available to us is through the additional sales of equity or through convertible debt instruments. Any sales of share capital or conversion of convertible debt will most likely result in dilution to existing shareholders.
There is no history upon which to base any assumption as to the likelihood we will prove successful, and we can provide investors with no assurance that we will generate any operating revenues or achieve profitable operations. If we are unsuccessful in addressing these risks, our business will most likely fail.
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We are currently in default of secured debt, which is currently in default, and, if the lender forecloses, you may lose all of your investment and our business would fail.
On June 15, 2017, we issued a Secured Promissory Note, as addended, to King’s Aqua Farm, LLC in the principal amount of $5,600,000, which is currently in default. The note is secured by a deed of trust and security agreement dated June 15, 2017. The deed of trust contains a security agreement that covers the personal property located at 16455 FM 1847 Rio Hondo, TX 78583. In the event that the lender forecloses on the collateral secured by the loan, you could lose all of your investment and our business would fail.
We are heavily reliant on Adam Thomas, our Chief Executive Officer, and Fernando Granda, farm manager, and the departure or loss of either Mr. Thomas or Mr. Granda could disrupt our business.
We depend heavily on the continued efforts of Adam Thomas, Chief Executive Officer and director and Fernando Granda, farm manager. Mr. Thomas is essential to our strategic vision and day-to-day operations and would be difficult to replace. Mr. Granda is a farm manager with 35 years of experience. The departure or loss of either Mr. Thomas or Mr. Granda, or the inability to hire and retain qualified replacements, could negatively impact our ability to manage our business.
If we are unable to recruit and retain key management, technical and sales personnel, our business would be negatively affected.
For our business to be successful, we need to attract and retain highly qualified technical, management and sales personnel. The failure to recruit additional key personnel when needed with specific qualifications and on acceptable terms or to retain good relationships with our partners might impede our ability to continue to commercialize and sell our products. To the extent the demand for skilled personnel exceeds supply, we could experience higher labor, recruiting and training costs in order to attract and retain such employees. We face competition for qualified personnel from other companies with significantly more resources available to them and thus may not be able to attract the level of personnel needed for our business to succeed.
Our financial results are substantially dependent on shrimp prices, and those prices are subject to large short– and long–term fluctuations due to variations in supply and demand caused by factors such as biological factors, shifts in consumption and license changes.
Our chief product is shrimp. Accordingly, the results of our operations will be substantially dependent on shrimp prices. Global and regional prices of shrimp are subject to significant fluctuations due to supply and demand. Historically, prices have been driven primarily by the global and regional supply and demand for shrimp. The demand for shrimp is affected by a number of different factors, such as changes in customer preferences, changes in public attitude towards shrimp, relative pricing of substitute products, such as fish, poultry, pork, turkey, and beef, as well as general economic conditions, such as levels of employment, inflation, growth in gross domestic product, or GDP, disposable income and consumer confidence. Demand for shrimp could decrease in the future and put downward pressure on shrimp prices. The variable global supply and demand for shrimp causes drastic price fluctuations on the regional level.
The supply of shrimp fluctuates strongly due to variations in factors, such as feeding efficiency, biological factors, including the temperatures of waters and shrimp diseases. Also, shrimp are generally sold as a fresh commodity with a limited time span available between harvesting and consumption further limiting producers’ ability to control supply. The consequence of these dynamics is that shrimp farmers are expected to be price takers in the market from week-to-week. Increases in harvests may therefore result in a significant reduction in shrimp prices.
In addition, an increased utilization of current production licenses or issuance of new production licenses could result in short– and/or long–term over-production in the industry, which may result in a significant reduction in shrimp prices. Short-term or long-term decreases in the price of shrimp may have a material adverse effect on our revenues. We will have limited flexibility to adjust our product mix away from shrimp in order to accommodate changing pricing circumstances.
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We may be unable to effectively hedge our exposure to short– and medium– term fluctuations in shrimp prices.
We may seek to manage our exposure to short– and medium-term fluctuations in shrimp prices through sales contracts and shrimp futures as well as through secondary processing activities (as prices for secondary processed shrimp may be more stable than for primary processed shrimp). However, our contracts and financial future may not be fulfilled, or may not be available in the future, or may be ineffective in hedging our exposure to shrimp price fluctuations. In addition, our sales contracts and financial futures may result in price achievement below prices in an environment of rising prices. Furthermore, our secondary processing activities may not reduce the impact of fluctuating shrimp prices on our operations. An inability to effectively hedge our exposure to shrimp prices may have a material adverse effect on our financial condition, results of operations or future cash flows.
Our financial results are substantially dependent on the procurement of broodstock strong genetic lineages.
Our end product success is dependent upon the procurement of broodstock genetic lineages of shrimp. This is vital for the continued genetic programs necessary to create larvae and ensure successful shrimp production for human consumption.
Our success is dependent on sales channels and the ability to sell the shrimp.
We believe that we currently have a strong sales program with various buyers, but we do not have contracts in place with those buyers. If our sales channels were to cease doing business with us, our sales programs and profitability would be negatively affected.
Our success is dependent on external factors that affect shrimp mortality.
We must ensure that our shrimp are safe and are not contaminated by a various diseases (both known and unknown). This includes ensuring the shrimp are not contaminated by: new or previously unknown diseases; known diseases that appear for the first time in new shrimp species (meaning the disease has expanded to a new host range); known diseases that appear for the first time in a new location (meaning the disease has expanded to a new geographic range); and known diseases with a new presentation or higher virulence due to changes in the causative agent. We must also ensure that our shrimp are not contaminated by infections that commonly affect shrimp, including: white spot, yellow head, early mortality syndrome (EMS), taura syndrome, infectious hypodermal and hematopoietic necrosis, and infectious myonecrosis. Each of these diseases and infections can contaminate the shrimp and result in a loss of all distribution supply and related revenue.
We rely on steady winds in the valley to help with oxygen levels. If we increase the stocking densities of our shrimp, we will need to add artificial aeration (supplemental oxygen) to ensure that the shrimp receives consistent oxygen levels. Failure to maintain adequate oxygen levels will result in shrimp that is not safe to distribute.
Our shrimp product is subject to external factors, like weather. Low temperatures affect the mortality rates of the shrimp. While more applicable to the end of the harvest season, occasional cold fronts will increase the mortality rates in late September and early October. Natural disasters, including hurricanes and floods, also increase the mortality rates of shrimp.
Failure to ensure food safety and compliance with food safety standards could result in serious adverse consequences for the Company.
As our end products are mainly for human consumption, food safety issues (both actual and perceived) may have a negative impact on the reputation of, and the demand for, our products. In addition to the need to comply with relevant food safety regulations, it is of critical importance that our products are safe, and perceived as safe and healthy in all relevant markets.
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Our products may be subject to contamination by food-borne pathogens, such as listeria monocytogenes, clostridia, salmonella and E. coli, or other contaminants. These pathogens are substances are found in the environment; therefore, there is a risk that one or more of these organisms and pathogens can be introduced into our products as a result of improper handling, poor processing hygiene or cross-contamination by us, the ultimate consumer or any intermediary. We will have little, if any, control of handling procedures once we ship our products for distribution.
Furthermore, we may not be able to prevent contamination of our shrimp by pollutants, such as polychlorinated biphenyls, or PCBs, dioxins or heavy metals. Such contamination is primarily the result of environmental contamination of shrimp feed raw materials, such as shrimp meal or raw materials from crops, which could result in a corresponding contamination of our shrimp feed and our shrimp. Residues of environmental pollutants present in our shrimp feed may pass undetected in our products and may reach consumers due to failure in surveillance and control systems.
An inadvertent shipment of contaminated products may be a violation of law and may lead to product liability claims, product recalls (which may not entirely mitigate the risk of product liability claims), increased scrutiny and penalties, including injunctive relief and plant closings, by regulatory agencies, and adverse publicity.
Increased quality demands from authorities in the future relating to food safety may have a material adverse effect on our business, financial condition, results of operations or cash flow. Legislation and guidelines with tougher requirements are expected and may imply higher costs for the food industry. In particular, the ability to trace products through all stages of development, certification and documentation is becoming increasingly required under food safety regulations. Further, limitations on additives and use of medical products in the shrimp industry may be imposed, which could result in higher costs for us.
The food industry in general experiences high levels of customer awareness with respect to food safety and product quality, information and traceability. If we fail to meet new and exacting customer requirements, we could see reduced demand for our products.
Government regulation, including food safety and aquaculture regulation, affects our business.
Shrimp farming and processing industries are subject to regional, federal and local governmental regulations relating to the farming, processing, packaging, storage, distribution, advertising, labeling, quality and safety of food products. New laws and regulations, or stricter (or otherwise adverse to that of the Company) interpretations of existing laws or regulations, may materially affect our business or operations in the future. Our operations are also subject to extensive and increasingly stringent regulations administered by environmental agencies in the jurisdictions in which we plan to operate. Failure to comply with these laws, regulations or interpretations could have serious consequences, including criminal, civil and administrative penalties, loss of production, injunctions, product recalls and negative publicity. Some environmental Non-Government Organizations, or NGOs, have advocated for shrimp farming to be restricted to farming in a contained environment, which would substantially increase our costs.
Relevant authorities may introduce further regulations for the operations of aquaculture facilities, such as enhanced standards of production facilities, capacity requirements, shrimp feed quotas, shrimp density, site allocation conditions, water allocation or other parameters for production. Furthermore, authorities may impose stricter environmental requirements upon shrimp farming, e.g., restrictions or a ban on discharges of waste substances from the production facilities, stricter requirements for seabed restoration, stricter requirements to prevent shrimp escapes and new requirements regarding animal welfare. Investments necessary to meet new regulatory requirements and penalties for failure to comply with such requirements could be significant. Likewise, an absence of or ineffective government regulation may lead to unsustainable farming practices at an industry-wide level. The industry has been unable to cooperate to create sustainable practices in the absence of government regulation. We may rely on such regulation to help create and enforce practices that ensures the long-term sustainability of the industry. Ineffective regulation can hinder the industry's ability to implement sustainable and profitable practices. Accordingly changes in regulation or ineffective government regulation may have a material adverse effect on the shrimp farming industry as a whole, which could harm our business, financial condition, results of operations or cash flow.
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Trade restrictions resulting in suboptimal distribution of shrimp may be intensified, creating a negative impact on the price of ours shrimp in some countries.
Farmed shrimp is produced in a limited number of countries and sold globally. Historically, trade restrictions have inhibited the optimal distribution of some species of farmed shrimp to the markets and impacted the price yield for the farmed shrimp producers in the countries affected by such restrictions. Trade restrictions could include import prohibitions, minimum import prices and high import duties, reducing the competitiveness of our products as compared to other available products. Continuous effects of such trade restrictions or introduction of new trade restrictions may have a significant impact on our ability to sell in certain regions, or our ability to charge competitive prices for its products in such regions.
Our shrimp farming operations may be dependent on shrimp farming licenses.
Most of the jurisdictions in which we plan to operate may require us to obtain a license for each shrimp farm owned and operated in that jurisdiction. We plan to obtain and hold a license to own and operate each of our shrimp farms where a license is required. In order to maintain the licenses, we will have to operate each of our shrimp farms and, if we pursue acquisitions or construction of new shrimp farms in the future, we will need to obtain additional licenses to operate those farms, where a license is required. Licenses in each jurisdiction are subject to certain requirements, and we will be at risk of penalties (including, in some cases, criminal charges), sanctions or even loss of license if we fail to comply with license requirements or related regulations. We may also be exposed to dilution of our licenses where a government issues new licenses to shrimp farmers other than us, thereby reducing the current value of our shrimp farming licenses. Governments may change the way licenses are distributed or otherwise dilute or invalidate our licenses. If we are unable to maintain or obtain new shrimp farming licenses, or if new licensing regulations dilute the value of our licenses, this may have a material adverse effect on our business.
Licenses generally require—and future licenses may require—that we leave the seabed under our shrimp farms fallow for a period of time following harvest. We may resume operation after a set period of time, provided that certain environmental and shrimp health targets are met. These requirements may increase or become more stringent, which could increase our costs.
Natural disasters may have an adverse effect on our business.
Natural disasters such as major fires, floods, tropical storms and hurricanes could also adversely impact our business and operating results. Such events could lead to the loss of use of one or more of our properties for an extended period of time and disrupt our operations. If any such event were to affect our business, we would likely be adversely impacted. Although we may be covered by insurance from a natural disaster, the timing of our receipt of insurance proceeds, if any, is out of our control. In some cases, however, we may receive no proceeds from insurance for natural disasters. Additionally, a natural disaster affecting our business may affect the level and cost of insurance coverage we may be able to obtain in the future, which may adversely affect our financial position.
We are subject to general business risks.
Ownership and operation of our Company involves certain risks, including without limitation, changing consumer spending patterns and behavior, adverse changes in general economic and local market conditions, changes in the global economy, changing tax rates, the ability of the enterprise to provide for proper staffing, and increases in shrimping operations and labor costs. Most, if not all of such risks are beyond the control of the Company and our management, including the Board of Directors. If cash flow is insufficient to pay for operations and management does not desire to invest additional capital into the Company and we are unable to raise additional capital from other sources, investors may sustain a loss of all their investment.
Our business lacks diversification which increases the risk of failure.
We have a single business strategy, which is an aquaculture company that specializes in the growth and development of farm-raised shrimp. Our success is entirely dependent upon the success of our business. If our business were to suffer adverse economic consequences, there would be substantially greater impact on the Company than if we had a number of different streams of product lines and revenues.
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Risks Related to Our Organization and Our Common Stock
You may experience dilution of your ownership interests because of the future issuance of additional shares of our common or preferred stock or other securities that are convertible into or exercisable for our common or preferred stock.
We are authorized to issue an aggregate of 3,000,000,000 shares of common stock and 20,000,000 shares of “blank check” preferred stock (106,144 of which have been designated). In the future, we may issue our authorized but previously unissued equity securities, resulting in the dilution of the ownership interests of our present stockholders. We may issue additional shares of our common stock or other securities that are convertible into or exercisable for our common stock in connection with hiring or retaining employees, future acquisitions, future sales of our securities for capital raising purposes, or for other business purposes. The future issuance of any such additional shares of our common stock may create downward pressure on the trading price of the common stock. We will need to raise additional capital in the near future to meet our working capital needs, and there can be no assurance that we will not be required to issue additional shares, warrants or other convertible securities in the future in conjunction with these capital raising efforts, including at a price (or exercise or conversion prices) below the price an investor paid for stock.
Because the SEC imposes additional sales practice requirements on brokers who deal in our shares that are penny stocks, some brokers may be unwilling to trade them. This means that investors may have difficulty reselling their shares and may cause the price of the shares to decline.
Our shares qualify as penny stocks and are covered by Section 15(g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which imposes additional sales practice requirements on broker/dealers who sell our securities in this offering or in the aftermarket. In particular, prior to selling a penny stock, broker/dealers must give the prospective customer a risk disclosure document that: contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; contains a description of the broker/dealers’ duties to the customer and of the rights and remedies available to the customer with respect to violations of such duties or other requirements of Federal securities laws; contains a brief, clear, narrative description of a dealer market, including “bid” and “ask” prices for penny stocks and the significance of the spread between the bid and ask prices; contains the toll free telephone number for inquiries on disciplinary actions established pursuant to section 15(A)(i); defines significant terms used in the disclosure document or in the conduct of trading in penny stocks; and contains such other information, and is in such form (including language, type size, and format), as the SEC requires by rule or regulation. Further, for sales of our securities, the broker/dealer must make a special suitability determination and receive from you a written agreement before making a sale to you. Because of the imposition of the foregoing additional sales practices, it is possible that brokers will not want to make a market in our shares. This could prevent reselling of shares and may cause the price of the shares to decline.
We do not expect to declare or pay any dividends.
Besides dividends owed to the holder of the Series D Preferred Stock, we have not declared or paid any dividends on our common stock since our inception, and we do not anticipate paying any such dividends for the foreseeable future.
Volatility of Stock Price.
Our common shares are currently publicly traded on the OTC Markets under the symbol “GRPS.” In the future, the trading price of our common shares may be subject to wide fluctuations. Trading prices of the common shares may fluctuate in response to a number of factors, many of which will be beyond our control. In addition, the stock market in general, and the market for technology companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of such companies. Market and industry factors may adversely affect the market price of the common shares, regardless of our operating performance. Readers should carefully consider the risks and uncertainties described below before deciding whether to invest in shares of our common stock.
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Our failure to successfully address the risks and uncertainties described below would have a material adverse effect on our business, financial condition and/or results of operations, and the trading price of our common stock may decline and investors may lose all or part of their investment. We cannot assure you that we will successfully address these risks or other unknown risks that may affect our business.
As an enterprise engaged in the development of new technology, our business is inherently risky. Our common shares are considered speculative during the development of our new business operations. Prospective investors should consider carefully the risk factors set out herein. The market price of our common stock has fluctuated significantly.
Being a public company is expensive and administratively burdensome.
As a public reporting company, we are subject to the information and reporting requirements of the Securities Act, the Exchange Act and other federal securities laws, rules and regulations related thereto, including compliance with the Sarbanes-Oxley Act. Complying with these laws and regulations requires the time and attention of our Board of Directors and management team, and increases our expenses. We estimate we will incur approximately $200,000 to $300,000 annually in connection with being a public company.
Among other things, we are required to:
| · | Maintain and evaluate a system of internal controls over financial reporting in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act and the related rules and regulations of the SEC and the Public Company Accounting Oversight Board; | |
| · | Prepare and distribute periodic reports in compliance with our obligations under federal securities laws; | |
| · | Institute a more comprehensive compliance function, including with respect to corporate governance; and | |
| · | Involve, to a greater degree, our outside legal counsel and accountants in the above activities. |
The costs of preparing and filing annual and quarterly reports, proxy statements and other information with the SEC and furnishing audited reports to stockholders are expensive and much greater than that of a privately-held company, and compliance with these rules and regulations may require us to hire additional financial reporting, internal controls and other finance personnel, and will involve a material increase in regulatory, legal and accounting expenses and the attention of management. There can be no assurance that we will be able to comply with the applicable regulations in a timely manner, if at all. In addition, being a public company makes it more expensive for us to obtain director and officer liability insurance. In the future, we may be required to accept reduced coverage or incur substantially higher costs to obtain this coverage.
If we fail to establish and maintain an effective system of internal control, we may not be able to report our financial results accurately or to prevent fraud. Any inability to report and file our financial results accurately and timely could harm our reputation and adversely impact the trading price of our common stock.
Effective internal control is necessary for us to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial reports or prevent fraud, we may not be able to manage our business as effectively as we would if an effective control environment existed, and our business and reputation with investors may be harmed. As a result, our small size and any current internal control deficiencies may adversely affect our financial condition, results of operation and access to capital. We have not performed an in-depth analysis to determine if historical un-discovered failures of internal controls exist, and may in the future discover areas of our internal control that need improvement.
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Public company compliance may make it more difficult to attract and retain officers and directors.
The Sarbanes-Oxley Act and new rules subsequently implemented by the SEC have required changes in corporate governance practices of public companies. As a public company, we expect these new rules and regulations to increase our compliance costs in 2022 and beyond and to make certain activities more time consuming and costly. As a public company, we also expect that these new rules and regulations may make it more difficult and expensive for us to obtain director and officer liability insurance in the future and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our Board of Directors or as executive officers.
You could lose all of your investment.
An investment in our securities is speculative and involves a high degree of risk. Potential investors should be aware that the value of an investment in the Company may go down as well as up. In addition, there can be no certainty that the market value of an investment in the Company will fully reflect its underlying value. You could lose your entire investment.
The ability of our Board of Directors to issue additional stock may prevent or make more difficult certain transactions, including a sale or merger of the Company.
Our Board of Directors is authorized to issue up to 20,000,000 shares of preferred stock (106,144 of which have been designated) with powers, rights and preferences designated by it. Shares of voting or convertible preferred stock could be issued, or rights to purchase such shares could be issued, to create voting impediments or to frustrate persons seeking to effect a takeover or otherwise gain control of the Company. The ability of the Board of Directors to issue such additional shares of preferred stock, with rights and preferences it deems advisable, could discourage an attempt by a party to acquire control of the Company by tender offer or other means. Such issuances could therefore deprive stockholders of benefits that could result from such an attempt, such as the realization of a premium over the market price for their shares in a tender offer or the temporary increase in market price that such an attempt could cause. Moreover, the issuance of such additional shares of preferred stock to persons friendly to the Board of Directors could make it more difficult to remove incumbent officers and directors from office even if such change were to be favorable to stockholders generally.
Our stock may be traded infrequently and in low volumes, so you may be unable to sell your shares at or near the quoted bid prices if you need to sell your shares.
Until our common stock is listed on a national securities exchange such as the New York Stock Exchange or the Nasdaq, we expect our common stock to remain eligible for quotation on the OTC Markets, or on another over-the-counter quotation system. In those venues, however, the shares of our common stock may trade infrequently and in low volumes, meaning that the number of persons interested in purchasing our common shares at or near bid prices at any given time may be relatively small or non-existent. An investor may find it difficult to obtain accurate quotations as to the market value of our common stock or to sell his or her shares at or near bid prices or at all. In addition, if we fail to meet the criteria set forth in SEC regulations, various requirements would be imposed by law on broker-dealers who sell our securities to persons other than established customers and accredited investors. Consequently, such regulations may deter broker-dealers from recommending or selling our common stock, which may further affect the liquidity of our common stock. This would also make it more difficult for us to raise capital.
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There currently is no active public market for our common stock and there can be no assurance that an active public market will ever develop. Failure to develop or maintain a trading market could negatively affect the value of our common stock and make it difficult or impossible for you to sell your shares.
There is currently no active public market for shares of our common stock and one may never develop. Our common stock is quoted on the OTC Markets. The OTC Markets is a thinly traded market and lacks the liquidity of certain other public markets with which some investors may have more experience. We may not ever be able to satisfy the listing requirements for our common stock to be listed on a national securities exchange, which is often a more widely-traded and liquid market. Some, but not all, of the factors which may delay or prevent the listing of our common stock on a more widely-traded and liquid market include the following: our stockholders’ equity may be insufficient; the market value of our outstanding securities may be too low; our net income from operations may be too low; our common stock may not be sufficiently widely held; we may not be able to secure market makers for our common stock; and we may fail to meet the rules and requirements mandated by the several exchanges and markets to have our common stock listed. Should we fail to satisfy the initial listing standards of the national exchanges, or our common stock is otherwise rejected for listing, and remains listed on the OTC Markets or is suspended from the OTC Markets, the trading price of our common stock could suffer and the trading market for our common stock may be less liquid and our common stock price may be subject to increased volatility, making it difficult or impossible to sell shares of our common stock.
Our common stock is subject to the “penny stock” rules of the SEC and the trading market in the securities is limited, which makes transactions in the stock cumbersome and may reduce the value of an investment in the stock.
Rule 15g-9 under the Exchange Act 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 or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require: (a) that a broker or dealer approve a person’s account for transactions in penny stocks; and (b) 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: (a) obtain financial information and investment experience objectives of the person and (b) 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: (a) sets forth the basis on which the broker or dealer made the suitability determination; and (b) confirms 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 and cause a decline in the market value of our common stock.
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 or 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 stocks.
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Our stock price may be volatile.
The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including the following:
| · | The continued effects of the COVID-19 pandemic and its variants; | |
| · | The impact of conflict between the Russian Federation and Ukraine on our operations; | |
| · | Geo-political events, such as the crisis in Ukraine, government responses to such events and the related impact on the economy both nationally and internationally; | |
| · | Changes in our industry; | |
| · | Competitive pricing pressures; | |
| · | Our ability to obtain working capital financing; | |
| · | Additions or departures of key personnel; | |
| · | Sales of our common stock; | |
| · | Our ability to execute our business plan; | |
| · | Operating results that fall below expectations; | |
| · | Loss of any strategic relationship; | |
| · | Regulatory developments; and | |
| · | Economic and other external factors. |
In addition, the 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.
Offers or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.
If our stockholders sell substantial amounts of our common stock in the public market, including upon the expiration of any statutory holding period under Rule 144, or issued upon the conversion of preferred stock or exercise of warrants, it could create a circumstance commonly referred to as an "overhang" and in anticipation of which the market price of our common stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.
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Offers or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.
If our stockholders sell substantial amounts of our common stock in the public market, including upon the expiration of any statutory holding period under Rule 144, or issued upon the conversion of preferred stock or exercise of warrants, it could create a circumstance commonly referred to as an "overhang" and in anticipation of which the market price of our common stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.
Risks Related to the Offering
Our existing stockholders may experience significant dilution from the sale of our common stock pursuant to the GHS Equity Financing Agreement.
The sale of our common stock to GHS in accordance with the EFA may have a dilutive impact on our shareholders. As a result, the market price of our common stock could decline. In addition, the lower our stock price is at the time we exercise Puts, the more shares of our common stock we will have to issue to GHS in order to exercise a Put under the EFA. If our stock price decreases, then our existing shareholders would experience greater dilution for any given dollar amount raised through the offering.
The perceived risk of dilution may cause our stockholders to sell their shares, which may cause a decline in the price of our common stock. Moreover, the perceived risk of dilution and the resulting downward pressure on our stock price could encourage investors to engage in short sales of our common stock. By increasing the number of shares offered for sale, material amounts of short selling could further contribute to progressive price declines in our common stock.
The issuance of shares pursuant to the EFA may have a significant dilutive effect.
Depending on the number of shares we issue pursuant to the EFA, it could have a significant dilutive effect upon our existing shareholders. Although the number of shares that we may issue pursuant to the EFA will vary based on our stock price (the higher our stock price, the less shares we have to issue), there may be a potential dilutive effect to our shareholders, based on different potential future stock prices, if the full amount of the EFA is realized. Dilution is based upon common stock put to GHS and the stock price discounted to GHS’s purchase price.
GHS will pay less than the then-prevailing market price of our common stock which could cause the price of our common stock to decline.
Our common stock to be issued under the EFA will be purchased at a 20% discount, or 80% of the lowest traded price for our Common Stock during the ten consecutive trading days immediately preceding each Put.
GHS has a financial incentive to sell our shares immediately upon receiving them to realize the profit between the discounted price and the market price. If GHS sells our shares, the price of our common stock may decrease. If our stock price decreases, GHS may have further incentive to sell such shares. Accordingly, the discounted sales price in the EFA may cause the price of our common stock to decline.
We may not have access to the full amount under the financing agreement.
The lowest traded price of our Common Stock for the ten consecutive trading days ended September 26, 2023 was $0.0032. At that price we would be able to sell shares to GHS under the EFA at the discounted price of $0.00256. At that discounted price, the 533,695,874 shares would only represent $1,366,261, which is below the full amount of the EFA. In addition, any single drawdown must be at least $10,000 and cannot exceed $500,000 and any single drawdown may not exceed 200% of the average daily trading dollar volume of our Common Stock during the ten trading days preceding the Put.
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There could be unidentified risks involved with an investment in our securities.
The foregoing risk factors are not a complete list or explanation of the risks involved with an investment in the securities. Additional risks will likely be experienced that are not presently foreseen by us. Prospective investors must not construe this the information provided herein as constituting investment, legal, tax or other professional advice. Before making any decision to invest in our securities, you should read this entire Prospectus and consult with your own investment, legal, tax and other professional advisors. An investment in our securities is suitable only for investors who can assume the financial risks of an investment in us for an indefinite period of time and who can afford to lose their entire investment. We make no representations or warranties of any kind with respect to the likelihood of the success or the business of our Company, the value of our securities, any financial returns that may be generated or any tax benefits or consequences that may result from an investment in us.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains various “forward-looking statements.” You can identify forward-looking statements by the use of forward-looking terminology such as “believes,” “expects,” “may,” “would,” “could,” “should,” “seeks,” “approximately,” “intends,” “plans,” “projects,” “estimates” or “anticipates” or the negative of these words and phrases or similar words or phrases. You can also identify forward-looking statements by discussions of strategy, plans or intentions. These statements may be impacted by a number of risks and uncertainties.
The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance taking into account all information currently available to us. These beliefs, assumptions and expectations are subject to risks and uncertainties and can change as a result of many possible events or factors, not all of which are known to us. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. You should carefully consider these risks before you make an investment decision with respect to our securities. For a further discussion of these and other factors that could impact our future results, performance or transactions, see the section entitled “Risk Factors.”
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Equity Financing Agreement
On January 20, 2023, we entered the EFA and Registration Rights Agreement (the “Registration Rights Agreement”) with GHS, pursuant to which GHS agreed to purchase up to $10,000,000 in shares of our Common Stock, from time to time over the course of 24 months after effectiveness of a registration statement on Form S-1 (the “Registration Statement”) of the underlying shares of Common Stock.
The EFA grants us the right, from time to time at our sole discretion (subject to certain conditions) during the term of the EFA, to direct GHS to purchase shares of Common Stock on any business day (a “Put”), provided that at least ten Trading Days (as defined in the EFA) have passed since the closing of the most recent Put. The purchase price of the shares of Common Stock contained in a Put shall be 80% of the lowest traded price of our Common Stock during the ten consecutive Trading Days preceding the date of the Put notice. In the event that we uplist to Nasdaq or an equivalent national exchange, the discount will be 90%. No Put will be made in an amount less than $10,000 or greater than $500,000 and any single drawdown may not exceed 200% of the average daily trading dollar volume of our Common Stock during the ten trading days preceding the Put. In no event are we entitled to make a Put or is GHS entitled to purchase that number of shares of Common Stock of the Company, which when added to the sum of the number of shares of Common Stock beneficially owned (as such term is defined under Section 13(d) and Rule 13d-3 of the Exchange Act), by GHS, would exceed 4.99% of the number of shares of Common Stock outstanding on such date, as determined in accordance with Rule 13d-1(j) of the Exchange Act.
The EFA will terminate upon any of the following events: when GHS has purchased an aggregate of $10,000,000 in the Common Stock of the Company pursuant to the EFA; or on the date that is 24 months from the date of the EFA. Actual sales of shares of Common Stock to GHS under the EFA will depend on a variety of factors to be determined by us from time to time, including, among others, market conditions, the trading price of the Common Stock and determinations by us as to the appropriate sources of funding for the Company and its operations. The net proceeds under the EFA to us will depend on the frequency and prices at which we sell shares of our stock to GHS.
The Registration Rights Agreement provides that we shall (i) use our best efforts to file with the SEC the Registration Statement within 60 calendar days of the date of the Registration Rights Agreement; and (ii) have the Registration Statement declared effective by the SEC within 60 calendar days after the date the Registration Statement is filed with the SEC, but in no event more than calendar 120 days after the Registration Statement is filed.
We will use the proceeds from the Puts for general corporate and working capital purposes and acquisitions or assets, businesses or operations or for purposes our Board of Directors deems to be in the best interests of the Company.
Securities Purchase Agreements
On January 20, 2023, we entered into a Securities Purchase Agreement with GHS (the “GHS SPA”) pursuant to which we sold to GHS 250 shares of Series D Preferred Stock for $250,000 ($1,000 for each share of Series D Preferred Stock). In addition, pursuant to the GHS SPA, we issued to GHS warrants to purchase 46,296,296 shares of Common Stock exercisable at $0.005175 per share and terminating on January 20, 2028.
On April 18, 2023, we entered into an Amended Securities Purchase Agreement with GHS (the “Amended SPA”) pursuant to which we sold to GHS 102 shares of Series D Preferred Stock for $102,000 ($1,000 for each share of Series D Preferred Stock). In addition, pursuant to the Amended SPA, we issued to GHS warrants to purchase 20,606,061 shares of Common Stock exercisable at $0.00391 per share and terminating on January 20, 2028.
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In addition, pursuant to the Amended SPA, within five calendar days of filing a registration statement registering the resale of the maximum aggregate number of shares of Common Stock issuable pursuant to the conversion of the Series D Preferred Stock and the shares issuable upon the exercise of the warrants issuable under the Amended SPA, upon satisfaction of applicable deliveries and closing conditions being met and as long as no Event of Default (as defined in the Amended SPA) has occurred or is occurring, GHS agrees to purchase an additional 250 shares of Series D Preferred Stock for an additional $250,000 ($1,000 per share of Series D Preferred Stock) and we will issue to GHS warrants to purchase shares of Common Stock equal to 50% of the number of shares issuable upon conversion of the shares of Series D Preferred Stock sold to GHS.
Lastly, pursuant to the Amended SPA, within five calendar days of the effectiveness of a registration statement registering the resale of the maximum aggregate number of shares of Common Stock issuable pursuant to the conversion of the Series D Preferred Stock and the shares issuable upon the exercise of the warrants issuable under the Amended SPA, upon satisfaction of applicable deliveries and closing conditions being met and as long as no Event of Default (as defined in the Amended SPA) has occurred or is occurring, GHS agrees to purchase an additional 250 shares of Series D Preferred Stock for an additional $250,000 ($1,000 per share of Series D Preferred Stock) and we will issue to GHS warrants to purchase shares of Common Stock equal to 50% of the number of shares issuable upon conversion of the shares of Series D Preferred Stock sold to GHS.
On May 22, 2023, we entered into a Securities Purchase Agreement with GHS (the “May 2023 SPA”) pursuant to which we sold to GHS 192 shares of Series D Preferred Stock for $184,000 ($1,000 for each share of Series D Preferred Stock and eight commitment shares). In addition, pursuant to the May 2023 SPA, we issued to GHS warrants to purchase 42,666,667 shares of Common Stock exercisable at $0.00345 per share and terminating on May 22, 2028.
On July 6, 2023, we entered into a Securities Purchase Agreement with GHS (the “July 2023 SPA”) pursuant to which we sold to GHS 100 shares of Series D Preferred Stock for $96,000 ($1,000 for each share of Series D Preferred Stock and four commitment shares). In addition, pursuant to the July 2023 SPA, we issued to GHS warrants to purchase 19,047,620 shares of Common Stock exercisable at $0.004025 per share and terminating on July 6, 2028.
On September 26, 2023, we entered into a Securities Purchase Agreement with GHS (the “September 2023 SPA”) pursuant to which we sold GHS 151 shares of Series D Preferred Stock for $146,000 ($1,000 for each share of Series D Preferred Stock and five commitment shares). At the initial closing, GHS purchased 76 shares of Series D Preferred Stock and, within 25 calendar days from the initial closing, GHS agreed to purchase 70 shares of Series D Preferred Stock. In addition, pursuant to the September 2023 SPA, we issued to GHS warrants to purchase 14,901,961 shares of Common Stock exercisable at $0.003795 per share and terminating on September 26, 2028.
See “Plan of Distribution” elsewhere in this prospectus for more information.
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The Selling Security Holder will receive all the proceeds from the resales of the Shares under this prospectus. We will not receive any proceeds from these resales. To the extent we receive proceeds from the Puts to the Selling Security Holder, we will use those proceeds for general corporate and working capital purposes and acquisitions or assets, businesses or operations or for purposes our Board of Directors deems to be in the best interests of the Company. We have agreed to bear the certain expenses relating to the registration of the shares of Common Stock being registered herein for Selling Security Holder.
See “Plan of Distribution” elsewhere in this prospectus for more information.
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This prospectus covers the offering of up to 987,018,401 shares of Common Stock being offered by the Selling Security Holder, which includes shares of Common Stock acquirable upon the issuance of Puts to the Selling Security Holder, as described herein and also shares underlying the exercises of warrants and the conversions of shares of Series D Preferred Stock. We are registering the Shares in order to permit the Selling Security Holder to offer their shares of Common Stock for resale from time to time.
The table below lists the Selling Security Holder and other information regarding the “beneficial ownership” of the shares of Common Stock by the Selling Security Holder. In accordance with Rule 13d-3 of the Exchange Act, “beneficial ownership” includes any shares of Common Stock as to which the Selling Security Holder has sole or shared voting power or investment power and any shares of Common Stock the Selling Security Holder has the right to acquire within 60 days.
For purposes of shares to be issued under the EFA, the Selling Security Holder is an “underwriter” within the meaning of Section 2(a)(11) of the Securities Act.
The second column indicates the number of shares of Common Stock beneficially owned by the Selling Security Holder, based on its ownership as of October 5, 2023. The second column also assumes purchase of all shares of stock to be acquired under the maximum amount of securities to be sold by the Company to the Selling Security Holder, without regard to any limitations on purchase described in this prospectus or in the EFA.
The third column lists the shares of Common Stock being offered by this prospectus by the Selling Security Holder. Such aggregate amount of Common Stock does not take into account any applicable limitations on purchase of the securities under the EFA.
This prospectus covers the resale of (i) all of the shares of Common Stock issued and issuable upon the Company issuing a Put, (ii) all of the shares of Common Stock exercisable upon the exercise of the warrants, (iii) all of the shares of Common Stock exercisable upon the conversion of the Series D Preferred Stock, and (iv) any securities issued or then issuable upon any full anti-dilution protection, stock split, dividend or other distribution, recapitalization or similar event with respect to the shares of Common Stock.
Because the issuance price of the common shares may be adjusted, the number of shares of Common Stock that will actually be issued upon issuance of the common shares may be more or less than the number of shares of Common Stock being offered by this prospectus. The Selling Security Holder can offer all, some or none of its shares of Common Stock, thus we have no way of determining the number of shares of Common Stock it will hold after this offering. Therefore, the fourth and fifth columns assume that the Selling Security Holder will sell all shares of Common Stock covered by this prospectus. See “Plan of Distribution.”
The Selling Security Holder identified below has confirmed to us that it is not a broker-dealer or an affiliate of a broker-dealer within the meaning of United States federal securities laws.
|
Number of Shares of Common Stock Owned Prior to Offering(1) |
Maximum Number of Shares of Common Stock to be Sold Pursuant to this Prospectus |
Number of Shares of Common Stock Owned After Offering |
Percentage Beneficially Owned After Offering |
|||||||||||||
| GHS Investments, LLC (1) | 0 | 987,018,401 | (2) | – | – | |||||||||||
| TOTAL | 0 | 987,018,401 | – | – | ||||||||||||
_______________
| (1) | GHS Investments, LLC is a limited liability company organized under the laws of Nevada. Mark Grober has dispositive power over the shares owned by GHS. |
| (2) | 533,695,874 shares to be issued pursuant to the EFA; 143,518,605 shares to be issued upon exercise of warrants, and 309,803,922 shares to be issued upon conversion of the Series D Preferred Stock. |
Material Relationships with Selling Security Holder
The Selling Security Holder has not at any time during the past three years acted as one of our employees, officers or directors or had a material relationship with us except with respect to transactions described above in “Private Placement.”
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MARKET PRICE OF COMMON STOCK AND OTHER STOCKHOLDER MATTERS
Our Common Stock is currently quoted on the OTC Markets, which is sponsored by OTC Markets Group, Inc. The OTC Markets is a network of security dealers who buy and sell stock. The dealers are connected by a computer network that provides information on current “bids” and “asks,” as well as volume information. Our shares are quoted on the OTC Markets under the symbol “GRPS.”
The table below sets forth for the periods indicated the quarterly high and low bid prices as reported by OTC Markets. Limited trading volume has occurred during these periods. These quotations reflect inter-dealer prices, without retail mark-up, mark-down, or commission and may not necessarily represent actual transactions.
| 2023: | High | Low | ||||||
| First Quarter | $ | 0.0060 | $ | 0.0025 | ||||
| Second Quarter | $ | 0.0053 | $ | 0.0024 | ||||
| Third Quarter | $ | 0.0048 | $ | 0.0028 | ||||
| 2022: | High | Low | ||||||
| First Quarter | $ | 0.0083 | $ | 0.0035 | ||||
| Second Quarter | $ | 0.0059 | $ | 0.0034 | ||||
| Third Quarter | $ | 0.0061 | $ | 0.0014 | ||||
| Fourth Quarter | $ | 0.0120 | $ | 0.0038 | ||||
| 2021: | High | Low | ||||||
| First Quarter | $ | 0.0400 | $ | 0.0057 | ||||
| Second Quarter | $ | 0.0175 | $ | 0.0080 | ||||
| Third Quarter | $ | 0.0165 | $ | 0.0085 | ||||
| Fourth Quarter | $ | 0.0132 | $ | 0.0048 | ||||
Our common stock is considered to be penny stock under rules promulgated by the SEC. Under these rules, broker-dealers participating in transactions in these securities must first deliver a risk disclosure document which describes risks associated with these stocks, broker-dealers’ duties, customers’ rights and remedies, market and other information, and make suitability determinations approving the customers for these stock transactions based on financial situation, investment experience and objectives. Broker-dealers must also disclose these restrictions in writing, provide monthly account statements to customers, and obtain specific written consent of each customer. With these restrictions, the likely effect of designation as a penny stock is to decrease the willingness of broker-dealers to make a market for the stock, to decrease the liquidity of the stock and increase the transaction cost of sales and purchases of these stocks compared to other securities.
The high and low bid price for shares of our Common Stock on October 2, 2023, was $0.0035 and $0.0033, respectively, based upon bids that represent prices quoted by broker-dealers on the OTC Markets.
Approximate Number of Equity Security Holders
As of October 2, 2023, there were approximately 3,833 stockholders of record. Because shares of our Common Stock are held by depositaries, brokers and other nominees, the number of beneficial holders of our shares is substantially larger than the number of stockholders of record.
Dividends
Besides dividends owed to the holder of the Series D Preferred Stock , we have not declared or paid a cash dividend to our stockholders since we were organized and does not intend to pay dividends in the foreseeable future. Our board of directors presently intends to retain any earnings to finance our operations and does not expect to authorize cash dividends in the foreseeable future. Any payment of cash dividends in the future will depend upon our earnings, capital requirements and other factors.
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Section 15(g) of the Securities Exchange Act of 1934
Our shares are covered by section 15(g) of the Exchange Act that imposes additional sales practice requirements on broker/dealers who sell such securities to persons other than established customers and accredited investors (generally institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouses). For transactions covered by the Rule, the broker/dealer must make a special suitability determination for the purchase and have received the purchaser's written agreement to the transaction prior to the sale. Consequently, the Rule may affect the ability of broker/dealers to sell our securities and also may affect your ability to sell your shares in the secondary market.
Section 15(g) also imposes additional sales practice requirements on broker/dealers who sell penny securities. These rules require a one-page summary of certain essential items. The items include the risk of investing in penny stocks in both public offerings and secondary marketing; terms important to in understanding of the function of the penny stock market, such as bid and offer quotes, a dealers spread and broker/dealer compensation; the broker/dealer compensation, the broker/dealers’ duties to its customers, including the disclosures required by any other penny stock disclosure rules; the customers’ rights and remedies in cases of fraud in penny stock transactions; and, the FINRA’s toll free telephone number and the central number of the North American Securities Administrators Association, for information on the disciplinary history of broker/dealers and their associated persons.
Penny Stock
Our stock is considered a penny stock. The SEC has adopted rules that regulate broker-dealer practices in transactions in penny stocks. Penny stocks are generally equity securities with a market price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that: (a) contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; (b) contains a description of the broker’s or dealer’s duties to the customer and of the rights and remedies available to the customer with respect to a violation of such duties or other requirements of the securities laws; (c) contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price; (d) contains a toll-free telephone number for inquiries on disciplinary actions; (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and (f) contains such other information and is in such form, including language, type size and format, as the SEC shall require by rule or regulation.
The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with: (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) a monthly account statement showing the market value of each penny stock held in the customer’s account. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written acknowledgment of the receipt of a risk disclosure statement, a written agreement as to transactions involving penny stocks, and a signed and dated copy of a written suitability statement.
These disclosure requirements may have the effect of reducing the trading activity for our Common Stock. Therefore, stockholders may have difficulty selling our securities.
Rule 10B-18 Transactions
During the year ended December 31, 2022, there were no repurchases of our common stock by the Company.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
This Management’s Discussion and Analysis of Financial Condition and Results of Operations contain certain forward-looking statements. Historical results may not indicate future performance. Our forward-looking statements reflect our current views about future events; are based on assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements. Factors that may cause differences between actual results and those contemplated by forward-looking statements include, but are not limited to, those discussed in the “Risk Factors” section. We undertake no obligation to publicly update or revise any forward-looking statements, including any changes that might result from any facts, events, or circumstances after the date hereof that may bear upon forward-looking statements. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements.
Critical Accounting Policies
The following discussions are based upon our financial statements and accompanying notes, which have been prepared in accordance with GAAP Financial Measures of the United States.
The preparation of these financial statements requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingencies. We continually evaluate the accounting policies and estimates used to prepare the financial statements. We base our estimates on historical experiences and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates made by management.
Business Overview
Founded in 2017, we are a leading aquaculture company that provides premium quality, farm-raised pacific white shrimp, 100% free of antibiotics and hormones, to the U.S. domestic seafood market. Grown at our 1,880-acre farm located in Rio Hondo, Texas, on the largest scale aquaculture farm in the U.S., our shrimp are meticulously raised to exceed industry standards using only authentic, responsible practices. Within our controlled facility, each harvest is responsibly raised and cultivated onsite with minimal ecological footprint, promising our customers a superior product developed from the highest standard of care.
We have and will continue to utilize superior genetic linage broodstock for cultivation of own post larvae in our onsite genetics, maturation and hatchery facilities. These facilities allow us to continually develop animals with increasing growth rates, lower mortality, and stronger disease resistance. We began formal production runs in 2018 and to date have produced almost one million lbs. of shrimp for consumption.
Going Concern Uncertainty
As shown in the accompanying financial statements, during the year ended December 31, 2022, we reported a net loss of $922,817. As of December 31, 2022, our current liabilities exceeded its current assets by $ 2,490,346. As of December 31, 2022, we had $0 of cash.
As shown in the accompanying financial statements, during the year ended December 31, 2021, we reported a net loss of $1,401,828. As of December 31, 2021, our current liabilities exceeded its current assets by $1,975,276. As of December 31, 2021, we had $0 of cash.
We will require additional funding to finance the growth of our operations and achieve our strategic objectives. These factors, as relative to capital raising activities, create doubt as to our ability to continue as a going concern. We are seeking to raise additional capital and are targeting strategic partners to accelerate the sales and marketing of our products and begin generating revenues. Our ability to continue as a going concern is dependent upon the success of future capital offerings or alternative financing arrangements, expansion of our operations and generating sales. The accompanying financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern. Management is actively pursuing additional sources of financing sufficient to generate enough cash flow to fund its operations; however, management cannot make any assurances that such financing will be secured.
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Results of Operations for the Three-Months Ended June 30, 2023 and 2022
Revenues
For the three-months ended June 30, 2023, total revenues were $0 compared to $12,116 for the same period in 2022, a decrease of $12,116 or 100%. This decrease primarily consisted of remaining inventory from 2021 harvest season that was subsequently sold in early 2022. No consumable shrimp inventory remained at the end of 2022, so there were no off-season sales during the first half 2023.
Cost of Goods Sold and Gross Profit
For the three-months ended June 30, 2023, cost of goods sold was $0 compared to $41,894 for the same period in 2022, a decrease of $41,894 or 100%. This decrease was the result of having no sales in early 2023 compared to 2022, when our remaining inventory at yearend was sold to customers in small batches.
Gross loss for the three-months ended June 30, 2023 was $0 with a gross margin of 0% compared to a gross loss of $29,778 for the same period in 2022 with a gross loss margin of 245%.
Operating Expenses
General and administrative expenses for three-months ended June 30, 2023 increased by $127,915, or 269%, to $175,472 from $47,557 for the three-months ended June 30, 2022. The increase primarily due to increases in payroll and payroll-related expense, professional fees, and small tools expense.
Payroll and payroll-related expenses for three-months ended June 30, 2023, increased by $51,194 to $56,760 from $5,586 for the three-months ended June 30, 2022. The increase was primarily due to adding the salary of the company’s CEO of $42,250 per quarter beginning April 1, 2023. This amount was accrued, not yet paid.
Professional fees for the three-months ended June 30, 2023, increased by $83,019 to $84,874 from $1,855 for the three-months ended June 30, 2022. This increase was due to increased legal and accounting fees due to our merger with GRPS and the filing of this Registration Statement.
Small tools expense increased to $7,879 for the three-month period ended June 30, 2023, from $78 in the same period for 2022, and increase of $7,801. This increase was due to increased workflow due to our shrimp harvest later in 2023.
Other Income (Expense)
For the three-months ended June 30, 2023, we had other net expenses of $120,596 compared to other net expense of $49,941 for the same period in 2022, an increase in other net expense of $70,655. This increase was due almost entirely to an increase in interest expense for notes payable to shareholders (former members of the TAA limited liability company) of $47,510, and additional accrued interest on the farm note of $67,815, of which $23,736 was paid.
Net Income (Loss)
As a result of the above, we reported a net loss of $296,069 for the three-months ended June 30, 2023 compared to a net loss of $127,277 for the three-months ended June 30, 2022.
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Results of Operations for the Six-Months Ended June 30, 2023 and 2022
Revenues
For the six-months ended June 30, 2023, total revenues were $0 compared to $48,636 for the same period in 2022, a decrease of $48,636 or 100%. This decrease primarily consisted of remaining inventory from 2021 harvest season that was subsequently sold in early 2022. No consumable shrimp inventory remained at the end of 2022, so there were no off-season sales during the first half 2023.
Cost of Goods Sold and Gross Profit
For the six-months ended June 30, 2023, cost of goods sold was $0 compared to $130,754 for the same period in 2022, a decrease of $130,754 or 100%. This decrease was the result of having no sales in early 2023 compared to 2022, when our remaining inventory at yearend was sold to customers in small batches.
Gross profit for the six-months ended June 30, 2023 was $0 with a gross margin of 0% compared to a gross loss of $82,118 for the same period in 2022, resulting in a gross loss margin of 168%.
Operating Expenses
General and administrative expenses for six-months ended June 30, 2023 increased by $206,346 or 148%, to $345,574 from $139,228 for the six-months ended June 30, 2022. The increase primarily due to increases in payroll, professional and legal fees, and small tools expense.
Payroll related expenses for six-months ended June 30, 2023, increased by $51,647 to $58,665 from $7,017 for the six-months ended June 30, 2022. The increase was primarily due to adding a salary for the CEO of $42,250 per quarter beginning April 1, 2023, plus related payroll taxes and fees.
Professional fees for the six-months ended June 30, 2023, increased by $173,449 to $236,144 from $62,695 for the six-months ended June 30, 2022. This increase was primarily due to additional legal fees related to the merger with GRPS and audit and accounting fees incurred related to filing this Registration Statement. Small tools expense increased by $9,526 to $9,941 from $415 during the six-months ended June 30, 2022, because of increased workflow related to our shrimp harvest in the fourth quarter of 2023.
Other Income (Expense)
For the six-months ended June 30, 2023, we had other net expenses of $235,625 compared to other net expense of $100,655 for the same period in 2022, an increase in other net expense of $134,970. This increase was primarily due to an increase in interest expense on the farm note of $44,788 and the increase in interest expense for the notes payable due to shareholders (the former members of the TAA limited liability company).
Net Income (Loss)
As a result of the above, we reported a net loss of $554,263 for the six-months ended June 30, 2023, after a tax benefit of $26,937, compared to a net loss of $322,001 for the six-months ended June 30, 2022.
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Results of Operations For the Years Ended December 31, 2022 and 2021
Revenues
For the year ended December 31, 2022, total revenues were $49,001 compared to $316,112 for the same period in 2021, a decrease of $267,111 or 84%. This decrease primarily consisted of reduction in the production of shrimp for consumption sales. In 2022, the Company focused efforts primarily on the development of genetic lines and did not produce a meaningful harvest. What shrimp revenue we did have was a result of inventory and late season sales.
Cost of Goods Sold and Gross Profit
For the year ended December 31, 2022, cost of goods sold were $287,132 compared to $973,418 for the same period in 2021, a decrease of $686,286 or 70%. This decrease was primarily a result of a reduction of shrimp production related activities.
The gross loss for the year ended December 31, 2022 was $238,131 with an operating loss margin of 485% compared to a gross loss of $657,306 for the same period in 2021, producing an operating loss margin of 208%, due to significantly reduced shrimp production.
Operating Expenses
General and administrative expenses for year ended December 31, 2022 decreased by $83,816, or 36%, to $148,609 from $232,425 for the year ended December 31, 2021. The decrease is due to a reduction in travel expenses and insurance expenses, offset in part by an increase of $32,892 in legal and accounting fees related to the corporate merger. In addition, depreciation decreased by $9,063 due to certain assets being fully depreciated
Other Income (Expense)
For the year ended December 31, 2022, we had interest expenses of $485,446 compared to interest expenses of $544,544 for the same period in 2021, a decrease in other losses of $59,098. This decrease in other expense primarily consisted of a reduction in interest and financing charges.
Net Income (Loss)
As a result of the above, we reported a net loss of $922,817 for the year ended December 31, 2022 compared to a net loss of $1,401,828 for the year ended December 31, 2021.
Liquidity and Capital Resources
As of June 30, 2023, we were overdrawn in cash by $4,541, compared to overdrawn cash of $288 as of December 31, 2022. We currently do not have sufficient cash to fund our operations for the next 12 months and we will require working capital to complete development and production, testing and marketing of our products and to pay for ongoing operating expenses. We anticipate adding management positions for corporate development and the corresponding operations of the Company, but this will not occur prior to obtaining additional capital. Management is currently working with a key investor to ensure adequate liquidity. Currently, loans from banks or other lending sources for lines of credit or similar short-term borrowings are not available to us. We have been able to raise working capital to fund operations through the issuances of convertible preferred stock. As of June 30, 2023, our current liabilities exceeded our current assets by $2,578,712.
As of December 31, 2022 and 2021, we had cash of $0 and $0, respectively. As of December 31, 2022, our current liabilities exceeded our current assets by $2,490,346.
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Cash Flows from Operating Activities
During the six-months ended June 30, 2023, net cash used in operating activities was $494,877, an increase usage of $147,303 largely resulting from a net operating loss of $554,263, an increase of $336,672 in inventory due to a build in preparation for our annual harvest, an increase of $26,937 in a deferred tax liability, offset by an increase in accrued interest expense of $177,735 due mainly to non-payment of monthly amounts due on the note that is secured by our farm property and increased interest expense on notes payable to shareholders, and an increase of $100,000 in common stock issued for consulting services.
By comparison, during the six-months ended June 30, 2022, net cash used by operating activities was $347,574, resulting from a net operating loss of $322,001 and a decrease in accounts payable of $68,547, offset in part by depreciation expense of $42,974.
During the year ended December 31, 2022, net cash used in operating activities was $505,903, resulting from a net operating loss of $922,817, offset by $383,267 of increased accrued interest expense due to the amount of shareholder notes and non-payment on the farm note, and an increase in deferred tax liability of $26,937 due to increased tax depreciation arising as a result of the merger.
By comparison, during the year ended December 31, 2021, net cash used by operating activities was $1,264,491, resulting from a net operating loss of $1,401,828, offset by an increase in accrued interest expense of $63,603, attributable to increased borrowing from members.
Cash Flows from Investing Activities
During the six-months ended June 30, 2023, we had net cash used in investing activities of $15,132, due to purchases of equipment to be used on the farm. During the six-months ended June 30, 2022, net cash used by investing activities was $0.
During the year ended December 31, 2022, we had no net cash used in investing activities. During the year ended December 31, 2021, net cash used by investing activities of $4,159, which was comprised of the purchase of equipment.
Cash Flows from Financing Activities
During the six-months ended June 30, 2023, net cash provided by financing activities was $505,469, comprised mainly of proceeds from the sale of preferred shares, offset by a payment in arrears of the farm note and a preferred stock dividend paid to GHS on Series D Preferred Stock. During the six-months ended June 30, 2022, net cash provided by financing activities was $349,285, comprised mainly $418,467 of capital contributions by members of the former limited liability company, offset by $69,838 of note payments for our farm note.
During the year ended December 31, 2022, net cash provided by financing activities was $509,778 which was mainly comprised of member contributions of $510,136 and shareholder loans of $112,975 received after the corporate merger, offset by payments on third party notes and shareholder notes totaling $16,649. During the year ended December 31, 2021, net cash used by financing activities was $1,271,392 which mainly comprised of member loan proceeds of $816,560 and capital contributions from members of $595,709, offset by loan payments to third parties of $144,753.
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Factors That May Affect Future Results
Management’s Discussion and Analysis contains information based on management’s beliefs and forward-looking statements that involve several risks, uncertainties, and assumptions. There can be no assurance that actual results will not differ materially from the forward-looking statements as a result of various factors, including but not limited to, our ability to obtain the equity/debt funding or borrowings necessary to produce, market and launch our products, our ability to successfully serially produce and market our products; our success establishing and maintaining production lines; the acceptance of our products by customers; our continued ability to pay operating costs; our ability to meet demand for our products; the amount and nature of competition from our competitors; the effects of technological changes on products and product demand; and our ability to successfully adapt to market forces and technological demands of our customers.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our consolidated financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity capital expenditures or capital resources.
Recent Accounting Pronouncements
We have provided a discussion of recent accounting pronouncements in NOTE 2 to the Audited Annual Consolidated Financial Statements for 2022.
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Organization
Trans American Aquaculture, Inc.
Trans American Aquaculture, Inc. was originally incorporated in the State of Delaware on September 18, 2006 as “Omega Environmental, Inc.” After several name changes, the entity was redomiciled in Colorado on July 25, 2018 as “XYZ Hemp Inc.” After several name changes, the Company filed Articles of Amendment on October 23, 2022 changing the name to “Gold River Productions, Inc.” On August 9, 2023, the Company filed Articles of Amendment changing the name to “Trans American Aquaculture, Inc.”
Our principal executive offices are located at 1022 Shady Side Lane, Dallas, TX 75223 and our phone number is (972) 358-6037.
Trans American Aquaculture, LLC
Trans American Aquaculture, LLC was organized in the State of Texas on April 4, 2017. TAA was founded by Luis Arturo Granda Roman, Cesar Granda, and Adam Thomas.
Change of Control
On August 28, 2022, we entered into a Stock Purchase Agreement by, between, and among Adam Thomas and Richard Goulding (the “SPA”) pursuant to which Mr. Goulding sold to Mr. Thomas 9,078,000 shares of Series A Preferred Stock (retaining 640,000 shares of Series A Preferred Stock) and 5,000 shares of the Series B Preferred Stock (together, with the shares of Series A Preferred Stock acquired, the “Acquired Shares”) for $5,000. In addition to the cash payment, Mr. Thomas agreed to the following covenants:
| · | take reasonable steps to cause to occur, within seven days of closing, the reverse merger or acquisition by the Company, of TAA; | |
| · | form the Series C Preferred Stock to be issued in the reverse acquisition which will include a provision limiting conversion or transfer for a minimum of 12 months from issuance; | |
| · | cancel and withdraw the Series A Preferred Stock; | |
| · | refrain from transferring the Series B Preferred Stock and the Series A Preferred Stock prior to the cancelation of the Series A Preferred Stock for 12 months; | |
| · | at closing, increase the authorized shares of common stock of the Company to 3,000,000,000; | |
| · | immediately prior to closing, Mr. Goulding will convert his remaining, unacquired, 640,000 shares of Series A Preferred Stock into 64,000,000 shares of Common Stock; | |
| · | take reasonable steps to cause the similar conversion of the other outstanding shares Series A Preferred Stock, by the holders thereof; | |
| · | enter into the Assumption Agreement (as defined below); |
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| · | issue an aggregate of 15,248,503 shares of previously-earned common stock to the following individuals: |
| o | Scott Fetterman (748,503 shares); | |
| o | Stephen Swinson (4,000,000 shares); | |
| o | John Patrick Love (4,000,000 shares); | |
| o | John Ohlin (1,500,000 shares); and | |
| o | David Eckert (5,000,000 shares). |
In addition, each of the parties to the SPA covenanted that, within nine months of closing, to reasonably cooperate in the process of forming a new company to be formed by Mr. Goulding (“Newco”) and issuing not less than 35% of the shares of Newco, calculated fully diluted, pro rata, to the shareholders of the Gold River Productions, Inc (including those holding in street name, through DTCC) as then existed, to once again attempt to become a separate public company (the “Makeup” or the “Makeup Company”), without dilution to the Gold River Productions, Inc, by issuance of shares of Newco to the existing shareholders of the Gold River Productions, Inc. All parties to the SPA agreed to reasonably cooperate and work jointly, including providing all documentation when necessary, and upon request, to enable the Makeup Company to file with FINRA and the SEC in accordance with the reasonable desires of Mr. Goulding. The costs of the Makeup are to be borne by Newco. Until the Makeup, the Makeup Company will operate as a separate entity, with Mr. Goulding maintaining operational autonomy and checkbook control under his sole control and authority, without interference by Mr. Thomas.
The closing of the SPA took place on August 28, 2022.
On August 29 2022, pursuant to the SPA, we entered into an Assignment of Rights and Assumption of Liabilities Agreement with Mr. Goulding (the “Assumption Agreement”) pursuant to which we sold, assigned, transferred, conveyed, and delivered to Mr. Goulding all of the Assets (as defined in the Assumption Agreement) and Liabilities (as defined in the Assumption Agreement) and any rights or obligations in the Assets and Liabilities to which we were entitled or obligated.
Reverse Acquisition
On September 13, 2022, we entered into the Definitive Equity Exchange Agreement with TAA, the members of TAA, and Adam Thomas, the managing member of TAA and controlling shareholder of the Company (the “Exchange Agreement”), pursuant to which we issued to the members of TAA, on a pro-rata basis, 100,000 shares of our Series C Preferred Stock, representing 85% of our fully-diluted outstanding shares of common stock, on an as-converted basis. The members of TAA relinquished all of their ownership interests of TAA to the Company.
The Exchange Agreement went effective on September 13, 2022 and, at that time, TAA became a wholly-owned subsidiary of the Company.
Our Business
We provide extra-large farm-raised Pacific white shrimp, 100% free of antibiotics and hormones, to the U.S. domestic seafood market. Grown in Texas within the largest scale aquaculture farm in the U.S., our shrimp are meticulously raised to exceed industry standards using only authentic, sustainable practices. Within our controlled facility, each harvest is responsibly raised and cultivated onsite with minimal ecological footprint, promising our customers a superior product developed from the highest standard of care.
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In addition to the quality of the products, what sets our shrimp apart from any other domestic shrimp is the clean, sweet taste to our shrimp. We believe this to be a byproduct of the natural environment along with our tried-and-true methods that provide a unique combination unlike anywhere else.
We have and will continue to utilize superior genetic linage broodstock for cultivation of our own post larvae in our onsite maturation and hatchery. We believe that these facilities allow us to continually develop animals with increasing growth rates, lower mortality, and stronger disease resistance, which are all instrumental to increasing bottom line profits.
We believe that our onsite maturation and hatchery facilities give us a distinct advantage on all other farms in Texas. In addition to being able to provide two full harvests, our team is the only one in the U.S. that has been capable of producing shrimp of greater than 28 grams on a large-scale consistent basis. We believe that this gives us a product that is unique worldwide, “a jumbo, farm raised shrimp that is 100% a product of the United States.”
Our Products
We produce premium quality, sustainably raised, farmed shrimp for sale to markets, distributors, and restaurants. Our main product is Pacific White Leg Shrimp Head-on and Headless/Shell-on, which is favored by high-end markets, ethnic stores, and businesses in addition to American, Mexican, European, and Asian customers. Vannamei (species of shrimp we develop) is the most widely farm raised shrimp in the world, accounting for 80% of all farm raised shrimp in the world.1
We produce, market and sell Pacific White Leg farm-raised shrimp for sale to markets, businesses, and restaurants. We also sell broodstock for sale to foreign producers of shrimp.
Head-on and Headless/Shell-on shrimp are the most common forms of shrimp sold throughout the world. The typical size is 18 grams, which translates to 31/35 count. This count means that there are 31-35 individual shrimp per pound. We focus on producing shrimp that are in excess of 28 grams, resulting in a 21/25 count. Our reason for focusing on this size is the lack of supply in the market and the premium selling price due to the scarcity. Many global producers are reluctant to sell shrimp at this size due to the complexity of the grow out once the shrimp reach a certain size. This is where we believe our competitive advantage comes in with our experience in growing “jumbo” shrimp.
Broodstock are a group of mature shrimps that are used for breeding purposes. These are essentially the “alphas” of the group having grown to the largest sizes, resisted various strains of potential diseases, and adverse climate conditions. The males and females are then bred to produce larvae that are genetically superior than previous lines. The process continues over and over until a superior genetic line is achieved. The product cycle for post-larvae (PL) is 21 days, so new PLs can be sold every 21 days. Broodstock take longer to develop but we believe that this process is worth the wait as, in time, a superior shrimp is more consistently produced.
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1 https://www.worldwildlife.org/industries/farmed-shrimp.
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Shrimp Life Cycle
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Sourcing
The main source of our nauplii (the first development stage of shrimp) will be at our hatchery and maturation operation. We believe that it will be important to develop and maintain our own genetic linage in order to ensure differentiation and genetic variability in order to grow stronger, healthier shrimp. Since the development stage is a relatively short on (21 days), it will allow us to quickly develop genetically superior shrimp.
Our Markets
United States
The United States is the second largest import market and second largest consumer market for shrimp in the world having consumed 1.6B lbs. of shrimp in 2021.2 The majority of imported and consumed shrimp is of smaller variety (<22 grams). We focus on growing larger shrimp (28+ grams) as there is strong demand for large, sustainably produced shrimp but limited quantities as our competitors focus on intensive methods that produce smaller shrimp. Our focus will be to sell to retailers first and niche markets second, where the pricing makes economic sense.
Worldwide
The total global value for shrimp trade in 2022 was $24B USD 3. The total global production of farm raised shrimp in 2022 was slightly over 4.0 MMT or 8.8 billion pounds. In the last decade, to keep up with global demand, production of farm raised shrimp has grown 60% and now accounts for more than 54% of all global shrimp produced for food.
The demand and production of farm raised shrimp is at an all-time high with annual production growth estimated to be 6.72% CARG (compounded annual growth rate) through 2028. 4 Global growth rates had stagnated during the COVID Pandemic, however in the U.S., imports grew by 7.4% YoY, with global consumption rates increasing by 14% by late 2021. Post COVID production output increased significantly for Ecuador, which is now on par with India in terms of total production volume, resulting in a total global supply in line with demand, which had impacted global prices negatively. The demand for shrimp continues to rise and, more importantly, the demand for premium quality product should impact prices positively going forward as demand starts to again outpace supply.
The world's largest consumer markets for shrimp are (in order): China, the U.S., and the EU+UK, with China consuming roughly 24% (1.8 MMT) of all produced shrimp. The U.S. and EU account for roughly 10% each. Japan, being the 4th largest consumer of shrimp, prefers larger, higher quality head on shrimp, but per capita consumption is very dependent on the value of the Yen.
Recent developments around the use of antibiotics in Indian grown shrimp by the EU, could significantly impact the exports by Indian countries. Indian shrimp imports account for almost 40% of total imports for both the EU and the U.S. While the U.S. has not expressed the same concern as the EU, the Food and Drug Administration (the “FDA”) does follow closely the decisions of the EU on seafood imports. Any reduction in importation of Indian shrimp to either the EU or U.S. will have dramatic effects on regional prices.
Pacific Vannemei is the leading species of farm raised shrimp and is the preferred shrimp in China, the U.S., and the EU. Head on/shell on (“HOSO”) are preferred in both China and the EU. The U.S. preference for head less/shell on and other highly processed end products forms (breaded, cooked) causes increases in unit cost not experienced in Chinese and European markets.
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1 https://www.worldstopexports.com/big-export-sales-for-frozen-shrimps/
2 https://research.rabobank.com/far/en/documents/124852_Rabobank_Global-Seafood-Trade_Sharma-Nikolik_Oct2022.pdf
3 https://www.prnewswire.com/news-releases/global-shrimp-market-report-2023-sector-to-reach-69-35-billion-by-2028-at-a-6-7-cagr-301835697.html
4 https://siamcanadian.com/us-shrimp-imports-see-second-straightmonth-of-y-o-y-volume-value-declines-undercurrentnews/
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Major Producers: (According to Food & Agriculture Organization of the United Nations): China, Thailand, Indonesia, Brazil, Ecuador, Mexico, Venezuela, Honduras, Guatemala, Nicaragua, Belize, Viet Nam, Malaysia, Taiwan P.C., Pacific Islands, Peru, Colombia, Costa Rica, Panama, El Salvador, the United States of America, India, Philippines, Cambodia, Suriname, Saint Kitts, Jamaica, Cuba, Dominican Republic, Bahamas.
Imports: Shrimp demand improved in the U.S., supported by lower import prices. Demand was slightly higher among all European markets in early 2021, which was up from 2020. 5
Import Trends6, 7
| · | U.S.: +9% | |
| · | Japan: +2.3% | |
| · | EU: +11% | |
| · | China: +27% |
The data shows viable, healthy global markets overall. The largest consumer markets can be identified as China, the U.S., and the EU as all three are major importers of Pacific White Shrimp (White leg, Vannamei Shrimp). Each has also shown recent growth in demand of 14%, 3.5% and 3.4% respectively, demonstrating increased opportunity in already sizeable markets. Currently there no export tariffs from the U.S. to China, or the EU.
Target Markets and Segmentation
United States
| · | Volume Import of Shrimp: .837 8 MMT /1.85B lbs. | |
| · | Price Per Pound: $4.13 9 USD | |
| · | Total Market Value: $7.6 Billion USD | |
| · | Top Suppliers (competition): Mazzetta Co., NPC (Saudi Arabian National Prawn Company) | |
| · | Major Distributors (companies to sell to): Chicken of the Sea, Mazzetta Co., Eastern Fish | |
| · | Mid-Level Distributors (companies to sell to): Sea Pak Shrimp & Seafood, National Fish and Seafood |
________________________________
5 https://siamcanadian.com/us-shrimp-imports-see-second-straightmonth-of-y-o-y-volume-value-declines-undercurrentnews/
6 https://www.seafoodsource.com/news/supply-trade/india-held-the-top-spot-as-highest-exporter-of-shrimp-to-the-us-in-2022#:~:text=
India%20shipped%20303%2C574%20metric%20tons,the%20past%20nine%20years%20running
7 https://www.fao.org/in-action/globefish/market-reports/resource-detail/en/c/1633618/
8 https://siamcanadian.com/us-shrimp-imports-see-second-straightmonth-of-y-o-y-volume-value-declines-undercurrentnews/
9 https://www.seafoodsource.com/news/supply-trade/india-held-the-top-spot-as-highest-exporter-of-shrimp-to-the-us-in-2022#:~:text=
India%20shipped%20303%2C574%20metric%20tons,the%20past%20nine%20years%20running.
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European Union
| · | Volume Import of Shrimp: .800 MMT/ 1.7B lbs. | |
| · | Price Per Pound: $3.56 USD | |
| · | Total Market Value: $6.0 Billion USD |
Japan
| · | Volume Import of Shrimp: .200 MMT/ .441B lbs. | |
| · | Price Per Pound: $7.70 USD | |
| · | Total Market Value: $3.4 Billion USD |
China
| · | Volume import of Shrimp: 1.3 MMT/ 2.87B lbs. | |
| · | Price Per Pound: $4.45 USD | |
| · | Total Market Value: $12.7 Billion USD |
Conclusion: While China continues to be a net importer of shrimp, we have decided to focus on these three markets listed above due to the high demand and varying market conditions. The U.S. is an obvious choice as it imports >90% of all shrimp consumed. The U.S. is the second largest import market in the world, and the home market, where quality and transparency are demanded by consumers. The EU is the second largest import market for shrimp and, in addition, the EU presents attractive opening as there have been recent discussions about banning all Indian farm raised shrimp over reports of the use of antibiotics. Indian Shrimp represents over 40% of all imports to the EU. If this occurs, we believe this will significantly affect the supply to the EU. Industry experts are also concerned about a domino effect in which the FDA could follow suit and tighten inspection requirements from not only Indian imports but also Thai and Vietnamese shrimp Imports. While these events could potentially affect supply in the U.S. and EU, we believe that it presents a unique opportunity for us to gain market entry.
Marketing
We are currently marketing directly to retail through our sales team. We understand the immediate needs to establish our brand and position. We also recognize the limitations of our competition in this space (lack of promotion, no or improper use of social media, etc.). This allows us to develop appropriate strategies and clear goals both long and short term.
Strategic Relationships: We have partnerships with marketing professionals who can help us with building our brand, differentiate from the competition and generate leads.
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Investment: We will seek to invest time and money into promotional efforts that will help us reach our goals.
Differentiation: We believe that we have a top-tier quality product, responsible and sustainable means of production, and the ability to quickly increase our scale to meet demand. These are all attractive features to our buyers and their customers.
Competition
We face competition from various importers of shrimp to the U.S. including: Chicken of the Sea, Order, Aqua Star Importers, Eastern Fish Co., Mseafood Corporation. Locally, we face competition from Bower’s Shrimp Farm located in Collegeport, Texas.
Intellectual Property
Besides our company name and website (www.transamaqua.com) and trade secrets, we don’t own any material intellectual property.
Suppliers
We do not rely on a single supplier and have multiple options for almost all of our required inputs.
Government Regulation
Our farm and operations require various permits from the Texas Parks and Wildlife Department (“TPWD”). We are technically considered a mariculture facility and thus exempt from requiring a water intake permit from the Arroyo Colorado River.
As it relates to our operations, we do require an operating permit from TPWD for the facility and have to get permission to stock the ponds for our grow out. The permission requires an animal health testing to confirm no presences of disease.
Properties
Our farm sits on 1,880 acres in Arroyo City, Texas with 1,144 acres of grow out ponds suitable for shrimp farming. The development of the maturation-hatchery complex and 484 acres of grow-out ponds are fully operational as of today. The remaining 660 acres will be cleared and prepared for stocking in March 2024 with funds raised and cashflow reinvested from harvests in 2023. Both the farm and hatchery are in the process of GAA/BAP certification.
Our principal executive offices are located at 1022 Shady Side Lane, Dallas, TX 75223. Our CEO allows us to use this address free of charge.
Employees
As of October 5, 2023, we had nine full-time employee and three part-time employees.
Legal Proceedings
From time to time, we may become involved in litigation relating to claims arising out of our operations in the normal course of business. We are not currently involved in any pending legal proceeding or litigation and, to the best of our knowledge, no governmental authority is contemplating any proceeding to which we are a party or to which any of our properties is subject, which would reasonably be likely to have a material adverse effect on our business, financial condition and operating results.
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DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Executive Officers and Directors
The following table sets forth the name, age, and position of each executive officer and director of the Company:
| Director's Name | Age | Position |
| Adam Thomas | 41 | Chief Executive Officer, Chief Financial Officer, and Director |
| Luis Fernando Granda Arias | 65 | Chief Operating Officer |
| Luis Arturo Granda Roman | 43 | Director |
| Bolivar Prieto Torres | 43 | Director |
| Jeffery Sedacca | 69 | Director |
| Malcolm McNeill | 76 | Director and Audit Committee Chairman |
Adam Thomas, CEO, CFO, and Director. Mr. Thomas has served as Chief Executive Officer, Chief Financial Officer, and Director of the Company since August 2022 and as Chief Executive Officer of TAA since April 2016. Mr. Thomas holds a bachelor’s degree in aviation management from Bowling Green State University and holds an MBA from Capital University. He has over fifteen years’ experience in operations, strategy, and financial operations. Mr. Thomas is highly qualified and experienced in managing budgets, P&L, and strategic growth. Prior to his involvement with TAA, Mr. Thomas was a Vice President at JPMorgan Chase where he led various operational and strategy groups both domestic and international. This experience led him to a Head of Corporate Strategy role at a legal and financial consulting firm where he led multiple successful mergers & acquisitions that grew annual revenue from $30M to 100M. Mr. Thomas is not, and has not been during the past five years, the director of any other public companies.
Luis Fernando Granda Arias, COO. Mr. Arias has served as Chief Operating Officer since June 12, 2023. Mr. Arias brings almost 40 years of experience in operating shrimp farms and hatcheries. In the early 1980’s, he was one of the first individuals to successfully cause broodstock prawns to spawn in artificial conditions inside a hatchery. In addition, Mr. Arias has successfully commissioned and operated profitably over 10 shrimp farms in Ecuador ranging in size from less than 100 acres to over 3,000 acres. He brings decades of wisdom and expertise to our operation. Mr. Arias is not, and has not been during the past five years, the director of any other public companies.
Luis Arturo Granda Roman, Director. Mr. Roman has served as Director of the Company since February 2023. Mr. Roman is one of the founders of TAA. He has been involved in aquaculture his entire 38 years but, professionally, for the last 20 years. Mr. Roman is a second-generation shrimp farmer and his father, Luis Fernando Granda Arias serves our COO. Mr. Roman has designed, commissioned, and operated three hatcheries, producing 180MM post-larvae/month, where he has successfully improved quality and survival rates. He has also commissioned and managed a 3700-acre shrimp farm in Ecuador. In addition to his aquaculture operations background, he was instrumental in the design and development of a large feed manufacturing facility in southern Ecuador. Mr. Roman has an undergraduate degree in Mariculture from Texas A&M, Galveston, and a Master in Aquaculture from National Center of Aquaculture and Marine, Ecuador. Mr. Roman is not, and has not been during the past five years, the director of any other public companies.
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Bolivar Prieto Torres, Director. Mr. Torres has served as Director of the Company since February 2023. Mr. Prieto Torres is the President of Excellaqua, S.A., one of the largest and most successful shrimp hatcheries in Ecuador. Mr. Torres has held numerous executive level positions within the aquaculture industry. His direct experience related to shrimp cultivation, shrimp production, shrimp processing, as well as international shrimp trade brings invaluable experience to the company’s board of directors. Mr. Torres holds a degree in Agricultural Engineering from the Litoral Polytechnic School of Mechanical Engineering and Production Sciences in Guayaquil, Ecuador. Mr. Torres is not, and has not been during the past five years, the director of any other public companies.
Jeffery Sedacca, Director. Mr. Sedacca has served as Director of the Company since February 2023. Mr. Sedacca is a current board member of the Global Seafood Alliance (GSA). The Global Seafood Alliance is the leading group based in North America that advances responsible seafood practices worldwide through education, advocacy, and demonstration. Founded in 1997 and the driver behind certifications such as BAP (Best Aquaculture Practices), GSA found its footing with worldwide implications in 1997 (Walmart and other adopted in early 2000’s) when it was endorsed and supported by Walmart and Darden Restaurants. Mr. Sedacca is a respected authority on the U.S. domestic shrimp industry as well as imported products.
Mr. Sedacca was the CEO of Sunnyvale Seafood until he retired in late 2021. Sunnyvale Seafood is the U.S. sales arm and wholly-owned subsidiary of Goulian Aquatic Products Co., Ltd., a Chinese listed public company with annual revenues of $670,000,000 and a public market capitalization of over $4 billion. Prior to Mr. Sedacca’s position as CEO of Sunnyvale Seafood, Mr. Sedacca was President at National Fish and Seafood where he ran the shrimp division. Mr. Sedacca was also the principal owner and executive of Lumar, a shrimp producer based in the U.S. Gulf and Guatemala. Mr. Sedacca is a current board member of Gulf Shellfish Institute and Sterling Caviar/Aquafarms. Mr. Sedacca has direct sales channels into the buyer/decision makers of some of the largest seafood buyers in the U.S.
Mr. Sedacca has for decades been a vocal advocate for U.S. domestic aquaculture production. He is unquestionably recognized as a shrimp industry expert as he ran the shrimp division for National Fish and Seafood over a multi-year period. Mr. Sedacca now focuses his energies on select aquaculture companies and projects in the U.S.
Mr. Sedacca is not, and has not been during the past five years, the director of any other public companies.
Malcolm McNeill, Director. Mr. McNeill has served as Director of the Company since February 2023. Mr. McNeill’s background is in accounting and finance. He worked with Price Waterhouse & Co. and has served as a financial executive or consultant to companies in the energy sector, including upstream oil and gas, interstate pipeline, independent power, biofuel development and private equity. Since August 2022 he has served with Global Energy Mentors, a group of experienced professionals advising start-up companies in the energy sector; from December 2018 to November 2021, he served as a contract CFO for Falcon Seaboard Diversified, Inc. an upstream oil and gas company; and from January 2016 to September 2018, he served as a contract CFO for Nearshore Natural Gas LLC, a developer of independent power in the Republic of Chad. Mr. McNeill is a certified public accountant and is the Audit Committee Chair on the Board. Mr. McNeill is not, and has not been during the past five years, the director of any other public companies.
Legal Proceedings
During the past ten years there have been no events under any bankruptcy act, no criminal proceedings and no judgments, injunctions, orders or decrees material to the evaluation of the ability and integrity of any of our directors or executive officers, and none of these persons has been involved in any judicial or administrative proceedings resulting from involvement in mail or wire fraud or fraud in connection with any business entity, any judicial or administrative proceedings based on violations of federal or state securities, commodities, banking or insurance laws or regulations, or any disciplinary sanctions or orders imposed by a stock, commodities or derivatives exchange or other self-regulatory organization.
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Family Relationships
Mr. Roman and Arias are father and son. Mr. Thomas is related to Messrs. Arias and Roman through marriage (Mr. Thomas’ wife is Mr. Mr. Arias’ niece and Mr. Roman’s first cousin. Besides that, there are no family relationships between any of our directors and executive officers.
Audit Committee
Malcolm McNeill is currently the sole member of the audit committee and he serves as Chairman. A summary of the audit committee’s responsibilities include:
| · | the recommendation for appointment, remuneration and terms of appointment of auditors of the Company; | |
| · | review and monitor the auditor’s independence and performance, and effectiveness of audit process; | |
| · | examination of the financial statement and the auditors’ report thereon; | |
| · | approval or any subsequent modification of transactions of the Company with related parties; | |
| · | scrutiny of inter-corporate loans and investments; | |
| · | valuation of undertakings or assets of the Company, wherever it is necessary; | |
| · | evaluation of internal financial controls and risk management systems; | |
| · | monitoring the end use of funds raised through public offers and related matters; and | |
| · | any other responsibility as may be assigned by the board from time to time. |
Our board of directors has not yet established a compensation committee or a nominating and corporate governance committee.
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Summary Compensation for Named Executive Officers
During the years ended December 31, 2022 and 2021, there was no compensation paid to or accrued by our named executive officers (Messrs. Thomas and Goulding).
We currently have not entered into an employment agreement with Mr. Thomas; however, effective June 12, 2023, our board of directors approved the following compensation for Mr. Thomas:
| · | effective April 1, 2023, Mr. Thomas will receive an annual base salary of $169,000 for his service as Chief Executive Officer; | |
| · | Mr. Thomas will be eligible to receive incentive compensation of up to $41,000 in the form of cash and stock, at Mr. Thomas’ election; and | |
| · | Mr. Thomas is eligible to receive employment benefits as generally provided by our policies and benefit plans for employees. |
Summary Compensation for Directors
During the year ended December 31, 2022, there was no compensation paid to or accrued by our directors.
Effective June 12, our board of directors approved the following compensation for non-management directors:
| · | annual retainer of $43,000 for board membership, inclusive of all Board meeting and committee meeting attendance fees; | |
| · | annual retainer for service on the Audit Committee of $10,000; | |
| · | annual retainer for service as the Chairperson of any committee established by the board, other than the Audit Committee, of $5,000; and | |
| · | reimbursement for reasonable out-of-pocket expenses actually incurred in connection with participation and/or attendance of board and committee meetings. |
The annual retainer fees for non-management director and committee Chairpersons will be paid in one annual payment at the end of each fiscal year. Newly-appointed directors and/or committee Chairpersons will be paid on a pro rata basis in relation to time served during their first calendar quarter of service. Subject to approval of the Board of Directors, a non-management director may receive payment of the annual retainer in restricted shares of common stock of the Company, which will vest at the rate of 1/3 per year over a period of three years after the date of such grant.
Equity Awards
As of December 31, 2022, there were no outstanding equity awards.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Principal Shareholders
The table below sets forth information as to our directors, named executive officers, and executive officers and each person owning of record or was known by the Company to own beneficially shares of stock greater than 5% of the 1,374,260,921 (1,374,155,277 common plus 105,790 preferred) shares as of October 5, 2023. The table includes preferred stock that is convertible into common stock and information as to the ownership of the Company's Stock by each of its directors, named executive officers, and executive officers and by the directors and executive officers as a group. There were no stock options outstanding as of October 5, 2023. Except as otherwise indicated, all shares are owned directly, and the persons named in the table have sole voting and investment power with respect to shares shown as beneficially owned by them. The address for each of our directors, named executive officers, and executive officers is 1022 Shady Side Lane, Dallas, TX 75223.
| Name and Position | Shares of Common Stock Owned |
Shares of Series C Preferred Stock Owned(1) | Amount and Nature of Beneficial Ownership(2) |
Percentage of Beneficial Ownership Before Offering | Percentage of Beneficial Ownership (Assuming All Shares are Sold) |
| Adam Thomas, CEO, CFO and Director | 0 | 11,610 | 0 | 9.87% | 9.87% |
Richard Goulding, Former CEO and Director 18 Northshore Drive Palm Coast, FL 32137 |
0 | 0 | 0 | 0 | 0 |
| Luis Fernando Granda Arias, COO | 0 | 0 | 0 | 0 | 0 |
| Luis Arturo Granda Roman, Director | 0 | 18,062 | 0 | 15.35% | 15.35% |
| Bolivar Prieto Torres, Director | 0 | 9,033 | 0 | 7.68% | 7.68% |
| Jeffery Sedacca, Director | 0 | 0 | 0 | 0 | 0 |
| Malcolm McNeill, Director | 0 | 0 | 0 | 0 | 0 |
| Total named executive officers, executive officers, and directors (seven persons) | 0 | 0 | 0 | 0 | |
| > 5% Beneficial Stockholders: | |||||
Cesar Granda 5129 Bellerive Bend Dr. College Station, TX 77845 |
0 | 10,642 | 0 | 9.05% | 9.05% |
Rafael Verduga Puerto Lucia Bloque F department 3W Salinas, Santa Elena - Ecuador |
0 | 18,166 | 0 | 15.44% | 15.44% |
Jorge Bravo Jose Maria Pena 415-35 y Venezuela, Loja, Ecuador Ec110101 |
0 | 14,417 | 0 | 12.25% | 12.25% |
*Less than 1%
| (1) | The shares of Series C Preferred Stock are not convertible until 12 months after issuance. The shares of Series C Preferred Stock are convertible into 85% of the fully diluted issued and outstanding shares of Common Stock. | |
| (2) | Under Rule 13d-3 of the Exchange Act, a beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or shares: (i) voting power, which includes the power to vote, or to direct the voting of shares; and (ii) investment power, which includes the power to dispose or direct the disposition of shares. Certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person, the amount of shares outstanding is deemed to include the number of shares beneficially owned by such person (and only such person) by reason of these acquisition rights. As a result, the percentage of outstanding shares of any person as shown in the above table does not necessarily reflect the person’s actual ownership or voting power with respect to the number of shares of common stock actually outstanding on the date of this prospectus. |
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Certain Relationships and Related Transactions
Except as disclosed below, for transactions with our executive officers and directors, please see the disclosure under “EXECUTIVE COMPENSATION” above.
On October 1, 2021, TAA issued to Excellaqua, S.A. an unsecured promissory note in the principal amount of $45,923.27. The lender is owned by Bolivar Prieto Torres, a director of the Company.
On October 1, 2021, TAA issued to Luis Arturo Granda Roman an unsecured promissory note in the principal amount of $8,873.09. The lender is a director of the Company.
On October 1, 2021, TAA issued to Adam Thomas an unsecured promissory note in the principal amount of $138,330.05. The lender is a director and executive officer of the Company.
Mr. Thomas is also owed $20,811 for unreimbursed business expenses through December 31, 2022.
On December 31, 2022, the Company issued an unsecured promissory note to Adam Thomas for $63,514.
On March 29, 2023, TAA issued Jeffery Sedacca an unsecured promissory note in the principal amount of $50,000. The lender is a director of the Company.
Director Independence
We are not currently subject to listing requirements of any national securities exchange or inter-dealer quotation system which has requirements that a majority of the board of directors be “independent” and, as a result, we are not at this time required to have our Board of Directors comprised of a majority of “independent directors.”
We currently have not established any committees of the Board of Directors. Our Board of Directors may designate from among its members an executive committee and one or more other committees in the future. We do not have a nominating committee or a nominating committee charter. Further, we do not have a policy with regard to the consideration of any director candidates recommended by security holders. To date, other than as described above, no security holders have made any such recommendations. The entire Board of Directors performs all functions that would otherwise be performed by committees. Given the present size of our board it is not practical for us to have committees. If we are able to grow our business and increase our operations, we intend to expand the size of our board and allocate responsibilities accordingly.
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The total number of shares of capital stock which we have the authority to issue is: 3,020,000,000. These shares are divided into two classes with 3,000,000,000 shares designated as common stock at $0.000001 par value (the “Common Stock”) and 20,000,000 shares designated as preferred stock at $0.000001 par value (the “Preferred Stock”).The Preferred Stock of the Company is issuable by authority of the Board of Director(s) of the Company in one or more classes or one or more series within any class and such classes or series shall have such voting powers, full or limited, or no voting powers, and such designations, preferences, limitations or restrictions as our Board of Directors may determine, from time to time. Out of the Preferred Stock, the following series have been designated:
| · | Series B Preferred Stock (5,000 shares authorized); | |
| · | Series C Preferred Stock (100,000 shares authorized); | |
| · | Series D Preferred Stock (1,144 shares authorized). |
We have 1,374,155,277 common shares and 105,790 preferred shares outstanding (including 5,000 shares of Series B Preferred Stock, 100,000 shares of Series C Preferred Stock, and 1,144 shares of Series D Preferred Stock) as of the date of this prospectus.
Common Stock
Our Certificate of Incorporation authorize us to issue 20,000,000,000 shares of common stock, par value $0.000001 per share. The holders of outstanding common shares are entitled to receive dividends out of assets or funds legally available for the payment of dividends of such times and in such amounts as the board from time to time may determine. Holders of common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders. The common shares are not entitled to pre-emptive rights and are not subject to conversion or redemption. Upon liquidation, dissolution or winding up of the Company, the assets legally available for distribution to stockholders are distributable ratably among the holders of the common shares after payment of liquidation preferences, if any, on any outstanding payment of other claims of creditors. Each outstanding common share is duly and validly issued, fully paid and non-assessable.
Preferred Stock
Our Certificate of Incorporation authorize us to issue 20,000,000 shares of preferred stock, par value $0.000001 per share. Our Board of Directors has the authority to issue additional shares of preferred stock in one or more series, and fix for each series, the designation of and number of shares to be included in each such series. Our Board of Directors is also authorized to set the powers, privileges, preferences, and relative participating, optional or other rights, if any, of the shares of each such series and the qualifications, limitations or restrictions of the shares of each such series.
Unless our Board of Directors provides otherwise, the shares of all series of preferred stock will rank on parity with respect to the payment of dividends and to the distribution of assets upon liquidation. Any issuance by us of shares of our preferred stock may have the effect of delaying, deferring or preventing a change of our control or an unsolicited acquisition proposal. The issuance of preferred stock also could decrease the amount of earnings and assets available for distribution to the holders of common stock or could adversely affect the rights and powers, including voting rights, of the holders of common stock.
Series B Preferred Stock
There are presently 5,000 shares of Series B Preferred Stock issued and outstanding.
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Conversion Rights
The shares of Series B Preferred Stock are not convertible into shares of Common Stock.
Voting Rights
The shares of Series B Preferred Stock have 1,000,000 votes per share. The holders of Preferred Stock vote together with the Common Stock in the same class.
Dividend Rights
Any dividends (other than dividends on Common Stock payable solely in Common Stock) set aside or paid will be set aside or paid among the holders of the Preferred Stock and Common Stock in proportion to the greatest whole number of shares of Common Stock which would be held by each such holder if all shares of Preferred Stock were converted at the then effective conversion rate.
Series C Preferred Stock
There are presently 100,000 shares of Series C Preferred Stock issued and outstanding.
Conversion Rights
The shares of Series C Preferred Stock are not convertible until 12 months after issuance. The shares of Series C Preferred Stock are convertible into 85% of the fully diluted issued and outstanding shares of Common Stock.
Voting Rights
The shares of Series C Preferred Stock vote, as a class, in an amount equal to 66% of the outstanding votes. The holders of Preferred Stock vote together with the Common Stock in the same class. In order to exercise voting power, a minimum of 51% of the then outstanding Series C Preferred Stock will be required to vote in the affirmative. However, 75% of the then outstanding Series C Preferred Stock will be required to vote in the affirmative for the following:
| · | any merger or acquisition of a substantial asset or company; | |
| · | any sale of all or substantially all of the assets of the Company; and | |
| · | amendments to the Company’s Articles of Incorporation. |
Dividend Rights
Any dividends (other than dividends on Common Stock payable solely in Common Stock) set aside or paid will be set aside or paid among the holders of the Preferred Stock and Common Stock in proportion to the greatest whole number of shares of Common Stock which would be held by each such holder if all shares of Preferred Stock were converted at the then effective conversion rate.
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Series D Preferred Stock
There are presently 790 shares of Series D Preferred Stock issued and outstanding.
Conversion Rights
Each share of Series D Preferred Stock is convertible, at any time, into the number of shares of Common Stock determined by dividing the Stated Value ($1,200, subject to increase) by the Conversion Price ($0.00306 per share (90% of the VWAP of the Common Stock during the ten trading days prior to the July 2023 SPA, subject to adjustments)).
Voting Rights
The Series D Preferred Stock will vote together with the Common Stock, on an as-converted basis subject to beneficial ownership limitations (4.99%). However, without the affirmative vote of the holders of a majority of the outstanding shares of Series D Preferred Stock, directly and/or indirectly:
| · | alter or change adversely the powers, preferences, or rights given to the Series D Preferred Stock or alter or amend the Certificate of Designation for the Series D Preferred Stock; | |
| · | authorize or create any class of stock ranking as to redemption or distribution of assets upon a liquidation senior to or otherwise pari passu with the Series D Preferred Stock or authorize or create any class of stock ranking as to dividends senior to, or otherwise pari passu with the Series D Preferred Stock; | |
| · | amend its Articles of Incorporation or other charger documents in any manner that adversely affects any rights of the holders of Series D Preferred Stock; | |
| · | increase the number of authorized shares of Series D Preferred Stock; or | |
| · | enter into any agreement with respect to any of the above. |
Dividend Rights
Each share of Series D Preferred Stock is entitled to receive cumulative dividends of 8% per annum, payable quarterly, beginning on issuance. Dividends can be paid in cash or in shares of Series D Preferred Stock, at the discretion of the Company.
Liquidation Preference
Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, the holders of the Series D Preferred Stock are entitled to receive out of the assets, whether capital or surplus, of the Company an amount equal to the Stated Value ($1,200 subject to increase), plus any accrued and unpaid dividends and any other fees or liquidated damages then due and owning for each share of Series D Preferred Stock before any distribution or payment is made to the holders of the Common Stock and any other securities which are not explicitly senior or pari passu to the Series D Preferred Stock.
Stock Options
We currently have no outstanding stock options.
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Dividend Policy
We have never declared a cash dividend on our common stock and our Board of Directors does not anticipate that we will pay cash dividends in the foreseeable future (besides dividends owed to the holder of the Series D Preferred Stock). Any future determination to pay cash dividends will be at the discretion of our board of directors and will depend upon our financial condition, operating results, capital requirements, restrictions contained in our agreements and other factors which our Board of Directors deems relevant.
Transfer Agent
We have appointed Mountain Share Transfer LLC, 2030 Powers Ferry Road SE, Suite 212, Atlanta, GA, 30339, to act as transfer agent for the common stock.
Charter and Bylaws
Our Articles of Incorporation and Bylaws contain provisions that could have the effect of delaying or preventing changes in control or changes in our management without the consent of our board of directors, including, among other things:
| · | the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; | |
| · | the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of our board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors; and | |
| · | the ability of our board of directors, by majority vote, to amend our bylaws, which may allow our board of directors to take additional actions to prevent a hostile acquisition and inhibit the ability of an acquirer to amend our by-laws to facilitate a hostile acquisition. |
Authorized but Unissued Shares
Our authorized but unissued shares of Common Stock and Preferred Stock will be available for future issuance without stockholder approval, except as may be required under the listing rules of any stock exchange on which our Common Stock is then listed. We may use additional shares for a variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefit plans. The existence of authorized but unissued shares of Common Stock and Preferred Stock could render more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.
Limitations on Liability and Indemnification of Officers and Directors
Under our Articles of Incorporation, to the fullest extent allowable under the Colorado Business Corporation Act (“CBCA”), our directors have no personal liability to us or our stockholders for monetary damages for breach of fiduciary duty as a director.
| 46 |
The common stock offered by this prospectus is being offering by the Selling Security Holder. The common stock may be sold or distributed from time to time by the Selling Share Holder directly to one or more purchasers or through brokers, dealers, or underwriters who may act solely as agents at market price prevailing at the time of sale, at prices related to the prevailing market prices, at negotiated prices , or at fixed prices, which may be changed . The Selling Security Holder may use any one or more of the following methods when selling securities:
| · | ordinary brokers’ transactions; | |
| · | transactions involving cross or block trades; | |
| · | through brokers, dealers, or underwriters may act solely as agents; | |
| · | “at the market” into an existing market for the common stock; | |
| · | in other ways not involving market makers or established business markets, including direct sales to purchasers or sales effected through agents; | |
| · | in privately negotiated transactions; or | |
| · | any combination of the foregoing. |
In order to comply with the securities laws of certain states, if applicable, the shares may be sold only through registered or licensed brokers or dealers. In addition, in certain states, the shares may not be sold unless they have been registered or qualified for sale in the state or an exemption from the state’s registration or qualification requirement is available and complied with.
For purposes of shares to be issued under the EFA, the Selling Security Holder is an “underwriter” within the meaning of Section 2(a)(11) of the Securities Act.
GHS has informed us that it intends to use an unaffiliated broker-dealer to effectuate all sales, if any, of the common stock that it may purchase from us pursuant to the EFA or exercise pursuant to the warrants or convert pursuant to the shares of Series D Preferred Stock. Such sales will be made at prices and at terms then prevailing or at prices related to the then current market price. Each such unaffiliated broker-dealer will be an underwriter within the meaning of Section 2(a)(11) of the Securities Act. GHS has informed us that each such broker-dealer will receive commissions from GHS that will not exceed customary brokerage commissions.
Brokers, dealers, underwriters or agents participating in the distribution of the shares as agents may receive compensation in the form of commissions, discounts, or concessions from the Selling Security Holder and/or purchasers of the common stock for whom the broker-dealers may act as agent. The compensation paid to a particular broker-dealer may be less than or in excess of customary commissions. Neither we nor GHS can presently estimate the amount of compensation that any agent will receive.
We know of no existing arrangements between GHS or any other stockholder, broker, dealer, underwriter or agent relating to the sale or distribution of the shares offered by this prospectus. At the time a particular offer of shares is made, a prospectus supplement, if required, will be distributed that will set forth the names of any agents, underwriters or dealers and any compensation from the Selling Security Holder, and any other required information.
| 47 |
We will pay the expenses incident to the registration, offering, and sale of the shares to GHS. We have agreed to indemnify GHS and certain other persons against certain liabilities in connection with the offering of shares of common stock offered hereby, including liabilities arising under the Securities Act or, if such indemnity is unavailable, to contribute amounts required to be paid in respect of such liabilities. GHS has agreed to indemnify us against liabilities under the Securities Act that may arise from certain written information furnished to us by GHS specifically for use in this prospectus or, if such indemnity is unavailable, to contribute amounts required to be paid in respect of such liabilities.
GHS has represented to us that at no time prior to the EFA has GHS or its agents, representatives or affiliates engaged in or effected, in any manner whatsoever, directly or indirectly, any short sale (as such term is defined in Rule 200 of Regulation SHO of the Exchange Act) of our common stock or any hedging transaction , which establishes a net short position with respect to our common stock. GHS agreed that during the term of the EFA, it, its agents, representatives or affiliates will not enter into or effect, directly or indirectly, any of the foregoing transactions.
We have advised GHS that it is required to comply with Regulation M promulgated under the Exchange Act. With certain exceptions, Regulation M precludes the selling stockholder, any affiliated purchasers, and any broker-dealer or other person who participates in the distribution from bidding for or purchasing, or attempting to induce any person to bid for or purchase any security which is the subject of the distribution until the entire distribution is complete. Regulation M also prohibits any bids or purchases made in order to stabilize the price of a security in connection with the distribution of that security. All of the foregoing may affect the marketability of the securities offered by this prospectus.
This offering will terminate on the date that all shares offered by this prospectus have been sold by GHS.
Our common stock is quoted on the OTC Markets under the symbol “GRPS.”
For purposes of shares to be issued under the EFA, the Selling Security Holder is an “underwriter” within the meaning of Section 2(a)(11) of the Securities Act.
For purposes of shares to be issued under the EFA, the Selling Security Holder and any broker-dealers or agents that are involved in selling the securities may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. The Selling Security Holder has informed us that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the securities.
Because the Selling Security Holder is deemed to be an “underwriter” within the meaning of the Securities Act (for purposes of shares to be issued under the EFA), it will be subject to the prospectus delivery requirements of the Securities Act, including Rule 172 thereunder. In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under this prospectus. The Selling Security Holder has advised us that there is no underwriter or coordinating broker acting in connection with the proposed sale of the resale securities by the Selling Security Holder.
We agreed to keep this prospectus effective until the earlier of (i) the date on which the securities may be resold by the Selling Security Holder without registration and without regard to any volume or manner-of-sale limitations by reason of Rule 144, without the requirement for us to be in compliance with the current public information requirement under Rule 144 under the Securities Act or any other rule of similar effect or (ii) all of the securities have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale securities will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale securities covered hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale securities may not simultaneously engage in market making activities with respect to the Common Stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the Selling Security Holder will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of the Common Stock by the Selling Security Holder or any other person. We will make copies of this prospectus available to the Selling Security Holder and have informed the Selling Security Holder of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).
| 48 |
SHARES ELIGIBLE FOR FUTURE SALE
The sale of a substantial number of shares of our Common Stock, or the perception that such sales could occur, could adversely affect prevailing market prices for our Common Stock. In addition, any such sale or perception could make it more difficult for us to sell equity, or equity related, securities in the future at a time and price that we deem appropriate. If and when this Registration Statement becomes effective, we might elect to adopt a stock option plan and file a Registration Statement under the Securities Act registering the shares of Common Stock reserved for issuance thereunder. Following the effectiveness of any such Registration Statement, the shares of Common Stock issued under such plan, other than shares held by affiliates, if any, would be immediately eligible for resale in the public market without restriction.
The sale of shares of our Common Stock which are not registered under the Securities Act, known as “restricted” shares, typically are effected under Rule 144. As of October 5, 2023, we had outstanding an aggregate of 1,374,155,277 shares of Common Stock of which approximately 306,763,528 shares are restricted Common Stock. All our shares of Common Stock might be sold under Rule 144 after having been held for six months and one year after “Form 10 information” has been provided by us. No prediction can be made as to the effect, if any, that future sales of “restricted” shares of our Common Stock, or the availability of such shares for future sale, will have on the market price of our Common Stock or our ability to raise capital through an offering of our equity securities.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
As of December 31, 2022, the Company had no securities authorized for issuance under equity compensation plans either approved or not approved by the Company’s shareholders.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION OF SECURITIES ACT LIABILITIES
We have not entered into indemnification agreements with any of our directors, executive officers and other key employees. However, we may do so in the future. Such indemnification agreements will likely require us to indemnify our directors to the fullest extent permitted by Colorado law. We may also agree to indemnify each of our directors and certain officers against certain liabilities, including liabilities under the Securities Act. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the provisions described above, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and would be, therefore, unenforceable. In the event we do enter into such indemnification agreements and a claim for indemnification against such liabilities (other than our payment of expenses incurred or paid by our director, officer or controlling person 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, 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 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.
| 49 |
The legality of the issuance of the shares of Common Stock offered by this Prospectus will be passed upon for us by Business Legal Advisors, LLC of Draper, Utah.
No expert or counsel named in this prospectus as having prepared or certified any part of this prospectus or having given an opinion upon the validity of the securities being registered or upon other legal matters in connection with the registration or offering of the Common Stock was employed on a contingency basis, or had, or is to receive, in connection with the offering, a substantial interest, direct or indirect, in the registrant or any of its parents or subsidiaries. Nor was any such person connected with the registrant or any of its parents or subsidiaries as a promoter, managing or principal underwriter, voting trustee, director, officer, or employee.
The financial statements of the Company as of December 31, 2021 and 2022, which include an explanatory paragraph relating to our ability to continue as a going concern, included in this Prospectus have been audited by Burton McCumber & Longoria, L.L.P., an independent auditor, as stated in their report appearing herein. Such financial statements have been so included in reliance upon the reports of such firm given its authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 under the Securities Act (SEC File No. 333-274059) relating to the shares of common stock being offered by this prospectus, and reference is made to such registration statement. This prospectus constitutes the prospectus of the Company, filed as part of the registration statement, and it does not contain all information in the registration statement, as certain portions have been omitted in accordance with the rules and regulations of the SEC.
Upon the effective date of the registration statement of which this prospectus is a part, we will be required to file reports and other documents with the SEC. We do not presently intend to voluntarily furnish you with a copy of our Prospectus. You may read and copy any materials we file with the SEC at the public reference room of the SEC at 100 F Street, NE., Washington, DC 20549, between the hours of 10:00 a.m. and 3:00 p.m., except federal holidays and official closings, at the Public Reference Room. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Our SEC filings are also available to you on the Internet website for the SEC at http://www.sec.gov.
| 50 |
As of June 30, 2023 and 2022
and for the Three- and Six-Months Ended June 30, 2023 and 2022
(Unaudited)
As of December 31, 2022 and 2021
and for the Years Ended December 31, 2022 and 2021
(Audited)
| F-1 |
Trans American Aquaculture, Inc.
(Formerly Gold River Productions, Inc.)
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | -0- | $ | -0- | ||||
| Other receivable | 54,076 | 46,038 | ||||||
| Inventory | 498,232 | 161,560 | ||||||
| TOTAL CURRENT ASSETS | 552,308 | 207,598 | ||||||
| PROPERTY AND EQUIPMENT | 7,935,825 | 7,920,692 | ||||||
| Less accumulated depreciation | (496,028 | ) | (457,920 | ) | ||||
| NET PROPERTY AND EQUIPMENT | 7,439,796 | 7,462,772 | ||||||
| TOTAL ASSETS | $ | 7,992,104 | $ | 7,670,370 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Bank overdraft | $ | 4,541 | $ | 288 | ||||
| Accounts payable | 369,048 | 223,476 | ||||||
| Accrued interest expense | 624,605 | 446,870 | ||||||
| Other accrued expenses | 100,109 | 138,532 | ||||||
| Income tax payable | 54,076 | 46,038 | ||||||
| Due to related parties | 1,527,041 | 1,516,025 | ||||||
| Current portion of notes payable | 451,599 | 326,716 | ||||||
| TOTAL CURRENT LIABILITIES | 3,131,020 | 2,697,945 | ||||||
| LONG-TERM LIABILITIES | ||||||||
| Notes payable net of current portion | 4,415,073 | 4,581,215 | ||||||
| Deferred tax liability, net | -0- | 26,937 | ||||||
| TOTAL LONG-TERM LIABILITIES | 4,415,073 | 4,608,152 | ||||||
| STOCKHOLDERS' EQUITY | ||||||||
| Common stock, $.000001 par value, 3,000,000,000 shares authorized, 1,452,655,528 shares issued and outstanding | 20 | -0- | ||||||
| Preferred Stock, Series A, .000001 par value 9,078,000 shares authorized, 9,078,000 issued and outstanding | -0- | -0- | ||||||
| Preferred Stock, Series B, .000001 par value 5,000 shares authorized, 5,000 issued and outstanding | -0- | -0- | ||||||
| Preferred Stock, Series C, $.000001 par value, 100,000 shares authorized, 100,000 issued and outstanding | -0- | -0- | ||||||
| Preferred Stock, Series D, .000001 par value, 1,144 shares authorized, 544 issued and outstanding | -0- | -0- | ||||||
| Additional paid in capital - common stock | 99,980 | -0- | ||||||
| Additional paid in capital - preferred stock (Series C) | 1,287,091 | 1,287,091 | ||||||
| Additional paid in capital - preferred stock (Series D) | 544,000 | -0- | ||||||
| Retained earnings (deficit) | (1,485,080 | ) | (922,817 | ) | ||||
| TOTAL STOCKHOLDERS' EQUITY | 446,011 | 364,274 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 7,992,104 | $ | 7,670,370 | ||||
The accompanying notes are an integral part of these financial statements.
| F-2 |
Trans American Aquaculture, Inc.
(Formerly Gold River Productions, Inc.)
Consolidated Statements of Operations
| For the three months ended | For the six months ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| REVENUES | ||||||||||||||||
| Sales and service | $ | -0- | $ | 12,116 | $ | -0- | $ | 48,636 | ||||||||
| COST OF REVENUES | ||||||||||||||||
| Cost of revenues | -0- | 41,894 | -0- | 130,754 | ||||||||||||
| GROSS PROFIT | -0- | (29,778 | ) | -0- | (82,118 | ) | ||||||||||
| GENERAL AND ADMINISTRATIVE EXPENSES | 175,472 | 47,557 | 345,574 | 139,228 | ||||||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||
| Other income | 700 | -0- | 1,750 | -0- | ||||||||||||
| Interest expense | (121,296 | ) | (49,941 | ) | (237,375 | ) | (100,655 | ) | ||||||||
| TOTAL OTHER INCOME (EXPENSE) | (120,596 | ) | (49,941 | ) | (235,625 | ) | (100,655 | ) | ||||||||
| NET INCOME (LOSS) BEFORE TAXES | (296,069 | ) | (127,277 | ) | (581,200 | ) | (322,001 | ) | ||||||||
| INCOME TAX EXPENSE (BENEFIT) | -0- | -0- | (26,937 | ) | -0- | |||||||||||
| NET INCOME (LOSS) | $ | (296,069 | ) | $ | (127,277 | ) | $ | (554,263 | ) | $ | (322,001 | ) | ||||
| Basic and Diluted Net loss per common share | (0.000204 | ) | (0.000382 | ) | ||||||||||||
| Weighted average common shares outstanding - basic | 1,449,322,195 | 1,449,322,195 | ||||||||||||||
The accompanying notes are an integral part of these financial statements.
| F-3 |
Trans American Aquaculture, Inc.
(Formerly Gold River Productions, Inc.)
Consolidated Statements of Stockholders’ Deficit
(Unaudited)
For the three months and six months ended June 30, 2023 and 2022
| Members’ | Common Stock | Preferred Stock, Series A | Preferred Stock, Series B | Preferred Stock, Series C | Preferred Stock, Series D | Retained | ||||||||||||||||||||||||||||||||||
| Capital | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | (Deficit) | Total | ||||||||||||||||||||||||||||
| Balance December 31, 2021 | $ | 776,955 | -0- | $ | -0- | -0- | $ | -0- | -0- | $ | -0- | -0- | $ | -0- | -0- | $ | -0- | $ | -0- | $ | 776,955 | |||||||||||||||||||
| Contributions | 561,549 | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | 561,549 | |||||||||||||||||||||||||||
| Distributions | (16,470 | ) | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | (16,470 | ) | |||||||||||||||||||||||||
| Net loss | (216,211 | ) | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | (216,211 | ) | |||||||||||||||||||||||||
| Balance March 31, 2022 | $ | 1,105,823 | -0- | $ | -0- | -0- | $ | -0- | $ | -0- | $ | -0- | -0- | $ | -0- | -0- | $ | -0- | $ | -0- | $ | 1,105,823 | ||||||||||||||||||
| Contributions | 99,557 | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | |||||||||||||||||||||||||||
| Distributions | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | |||||||||||||||||||||||||||
| Net loss | (127,277 | ) | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | ||||||||||||||||||||||||||
| Balance June 30, 2022 | $ | 1,078,103 | -0- | $ | -0- | -0- | $ | -0- | -0- | $ | -0- | -0- | $ | -0- | -0- | $ | -0- | $ | -0- | $ | -0- | |||||||||||||||||||
| Balance December 31, 2022 | $ | -0- | 1,432,655,528 | $ | -0- | 9,078,000 | $ | -0- | 5,000 | $ | -0- | 100,000 | $ | 1,287,091 | -0- | $ | -0- | $ | (922,817 | ) | $ | 364,274 | ||||||||||||||||||
| Issuance of common shares | -0- | 20,000,000 | 100,000 | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | 100,000 | |||||||||||||||||||||||||||
| Issuance of preferred shares | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | 250 | 250,000 | -0- | 250,000 | |||||||||||||||||||||||||||
| Net loss | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | (258,194 | ) | (258,194 | ) | |||||||||||||||||||||||||
| Balance March 31, 2023 | $ | – | 1,452,655,528 | $ | 100,000 | 9,078,000 | $ | -0- | $ | 5,000 | $ | -0- | 100,000 | $ | 1,287,091 | 250 | $ | 250,000 | $ | (1,181,011 | ) | $ | 456,080 | |||||||||||||||||
| Issuance of preferred shares | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | 286 | 286,000 | -0- | 286,000 | |||||||||||||||||||||||||||
| Stock Dividends | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | 8 | 8,000 | (8,000 | ) | -0- | ||||||||||||||||||||||||||
| Net loss | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | (296,069 | ) | (296,069 | ) | |||||||||||||||||||||||||
| Balance June 30, 2023 | $ | -0- | 1,452,655,528 | $ | 100,000 | 9,078,000 | $ | -0- | 5,000 | $ | -0- | 100,000 | $ | 1,287,091 | 544 | $ | 544,000 | $ | (1,485,080 | ) | $ | 446,011 | ||||||||||||||||||
The accompanying notes are an integral part of these financial statements.
| F-4 |
Trans American Aquaculture, Inc.
(Formerly Gold River Productions, Inc.)
Consolidated Statements of Cash Flows
| For the six months ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Unaudited | Unaudited | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (554,263 | ) | $ | (322,001 | ) | ||
| Noncash items included in net loss: | ||||||||
| Depreciation expense | 38,108 | 42,974 | ||||||
| Common stock issued for professional services | 100,000 | -0- | ||||||
| (Increase) decrease in: | ||||||||
| Other receivable | (8,038 | ) | -0- | |||||
| Inventory | (336,672 | ) | -0- | |||||
| Deferred tax liability | (26,937 | ) | -0- | |||||
| Increase (decrease) in: | ||||||||
| Accounts payable and other accrued expenses | 107,152 | (68,547 | ) | |||||
| Income tax payable | 8,038 | -0- | ||||||
| Accrued interest expense | 177,735 | -0- | ||||||
| CASH USED IN OPERATING ACTIVITIES | (494,877 | ) | (347,574 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Cash paid for the purchase of fixed assets | (15,132 | ) | -0- | |||||
| CASH USED IN INVESTING ACTIVITIES | (15,132 | ) | -0- | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Payment of bank overdraft | (288 | ) | -0- | |||||
| Proceeds from shareholder notes payable | 88,700 | 9,332 | ||||||
| Payments on shareholder notes payable | (77,684 | ) | (8,676 | ) | ||||
| Payments on notes payable | (41,260 | ) | (69,838 | ) | ||||
| Contributions | -0- | 418,467 | ||||||
| Stock Dividends | (8,000 | ) | -0- | |||||
| Issuance of Preferred Shares | 544,000 | -0- | ||||||
| CASH PROVIDED BY FINANCING ACTIVITIES | 505,469 | 349,285 | ||||||
| NET DECREASE | (4,541 | ) | 1,711 | |||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | -0- | (3,876 | ) | |||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | (4,541 | ) | $ | (2,165 | ) | ||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Cash paid for interest | $ | 23,736 | $ | 50,021 | ||||
| Cash paid for income taxes | $ | -0- | $ | -0- | ||||
| NON-CASH | ||||||||
| Common stock issued for services rendered | $ | 100,000 | $ | -0- | ||||
The accompanying notes are an integral part of these financial statements.
| F-5 |
Trans American Aquaculture, Inc.
(Formerly Gold River Productions, Inc.)
Consolidated Notes to Financial Statements
June 30, 2023 and 2022
NOTE 1 – BUSINESS ORGANIZATION
Business Organization
Trans American Aquaculture, Inc. formerly Gold River Productions, Inc. (GRP), (“the Company”) was incorporated in the State of Delaware on September 18, 2006, as Polythene Metro Corp before being acquired by Gold River Productions, Inc. on January 25, 2007. The Company was re-incorporated in the State of Colorado in July 2018. In February 2023, pursuant to shareholder and Board approval, the Company changed its name to Trans American Aquaculture, Inc., reflective of its new management and operations, and applied to the Financial Industry Regulatory Authority (“FINRA”) to change its ticker symbol from GRPS to TAAQ.
On August 28, 2022, Richard Goulding, executive and selling party of Gold River Productions, Inc. and Adam Thomas, purchaser, executed a Stock Purchase Agreement (“SPA”). Under the terms of the SPA, Mr. Goulding, agreed to sell to Adam Thomas, CEO of TAA, 9,078,000 shares of the Company’s Series A Preferred Stock, and to retain 640,000 shares for later conversion to the Company’s common stock. Each share of Series A Preferred Stock is convertible into 100 shares of the Company’s common stock. In addition, Mr. Thomas agreed to purchase all of the Company’s outstanding shares of Series B Preferred Stock from Mr. Goulding for a cash payment of $5,000.
In further consideration for the sale of the shares of Series A and Series B Preferred Stock, Mr. Goulding agreed to:
| 1. | Increase the authorized shares of the Company’s common stock to three billion (3,000,000,000) shares; | |
| 2. | Convert his retained 640,000 shares of Series A Preferred Stock, to 64,000,000 shares of common stock; | |
| 3. | Issue to various former employees and consultants of the Company an aggregate amount of 15,248,503 shares of the Company’s common stock; and | |
| 4. | Complete the assignment of assets and assumption of liabilities as they existed immediately prior to the closing of the stock purchase agreement on August 29, 2022. |
Following the purchase of the shares of Class A and Class B Preferred Stock, Mr. Thomas and TAA agreed to:
| 1. | To have the Company issue shares of a Class C Preferred Stock to the former members of TAA, such shares to be convertible into 85% of the Company’s common stock, but limited as to this conversion for a minimum of 12 months from the date of issuance; and | |
| 2. | To cancel and withdraw the shares of Series A Preferred Stock. |
On August 29, 2022, Gold River Productions, Inc. and Goulding executed an Assignment of Rights and Assumption of Liabilities Agreement whereby Gold River Productions, Inc. assigned all of its assets and liabilities to Mr. Richard Goulding (Mr. Goulding), Chairman of the Board and CEO of GRP, resulting in GRP becoming a public shell company without any assets or liabilities and became the accounting acquiree.
| F-6 |
Trans American Aquaculture, Inc.
(Formerly Gold River Productions, Inc.)
Notes to Consolidated Financial Statements
June 30, 2023 and 2022
On September 13, 2022, Gold River Productions, Inc. and Trans American Aquaculture, LLC (“TAA”) executed a Definitive Equity Exchange Agreement in a transaction accounted for as a reverse acquisition, whereby TAA became the accounting acquiror. TAA operates a large land-based shrimp farming and technology company located in South Texas. The Company produces premium quality, farm-raised white shrimp, 100% free of antibiotics and hormones, and cultivated using safe and sustainable practices. Its principal markets consist of seafood distributors, restaurants, and grocery store chains in the United States. Using decades of experience in the shrimp aquaculture industry, products are grown with our superior technology and our proprietary genetics which results in a superior fresh product always grown in the United States.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The accompanying consolidated financial statements include the accounts of Trans American Aquaculture, Inc and its wholly-owned subsidiary Trans American Aquaculture, LLC, a Texas Limited Liability Company. All significant intercompany balances and transactions have been eliminated in consolidation. The accompanying financial statements have been prepared on the accrual basis of accounting.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents.
Inventory
The inventory at June 30, 2023 consists of 4,000 brood stock shrimp that were born and raised on the Texas farm and are valued at the lower of cost or net realizable value on the first-in, first-out basis. The brood shrimp can be sold as stock to other aqua farms or processed for retail sale to consumers. Management has determined no allowance for inventory obsolescence is required based on its assessment of the inventory’s usefulness. As of June 30, 2023 and December 31, 2022, the net realizable value of shrimp on the aqua farm was $498,232 and $161,560, respectively.
Property and Equipment
Property and equipment are stated at cost. Maintenance and repairs are expensed while expenditures for renewals which prolong the lives of the assets are capitalized. When items are disposed of, the cost and accumulated depreciation are eliminated from the accounts and any net gain or loss is included in the consolidated statement of income.
For financial reporting purposes, depreciation of property and equipment is provided for by using the straight-line method based on the estimated service lives of the property as follows:
| Land improvements | 40 years |
| Buildings and structures | 40 years |
| Farm equipment | 10 – 20 years |
| Autos and trucks | 10 years |
| F-7 |
Trans American Aquaculture, Inc.
(Formerly Gold River Productions, Inc.)
Notes to Consolidated Financial Statements
June 30, 2023 and 2022
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If it is determined that an asset has been impaired, the amount of the impairment is charged to operations. No impairments were recognized for the periods ended June 30, 2023 and 2022.
Income Taxes
The Company uses an asset and liability approach to financial accounting and reporting for income taxes. The difference between the financial statement and tax basis of assets and liabilities is determined annually.
Deferred income tax assets and liabilities are computed for those differences that have future tax consequences using the currently enacted tax laws and rates that apply to the periods in which they are expected to affect taxable income. Valuation allowances are established, if necessary, to reduce the deferred tax asset to the amount that will more likely than not be realized. Income tax expense is the current tax payable or refundable for the period, plus or minus the net change in the deferred tax assets and liabilities.
The Company's income tax returns are subject to examination by the appropriate tax jurisdictions. As of July 31, 2023, the Company needs to file federal and state income tax returns for 2020, 2021 and 2022. During 2020, the Company had taxable income primarily as a result of a short-term capital gain of $445,500 on the sale of a joint venture interest. This resulted in taxable income of $155,200 and an unremitted federal income tax liability of $33,180. With accrued penalties and interest through June 30, 2023, the total due the IRS is $54,076. All liabilities, including federal taxes, were indemnified by Goulding as part of the transaction and accordingly a receivable due from the previous owner of the Company has been recorded in other assets. The Company intends to file its 2020 federal tax return and pay the tax due, plus penalties in interest once it has sufficient cash to do so.
Use of Estimates
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
Revenue Recognition
The Company recognizes revenues according to the Financial Accounting Standard Board (“FASB”) Accounting Standard Codification (“ASC 606”) and Accounting Standard Update ASU 2014-09 “Revenues from Contracts with Customers.” Under the 606, revenues is recognized when the customer obtains control of promised goods or services in amounts that reflect the consideration which the entity expected to receive in exchange of goods and service. The Company does not collect sales, value-add and other taxes collected on behalf of third parties. To determine revenue recognition, the Company performs the following five steps: (1) identify the contract with customer; (2) identify the performance obligations in contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligation in the contract; and (5) recognize revenues when (or as) the entity satisfies a performance obligation.
The Company recognizes revenue as a single performance obligation when it transfers its products to customers, being when the goods are shipped and transfers to a buyer and when performance obligation under contracted sales are completed.
Advertising and Promotion
All costs associated with advertising and promoting the Company's goods and services are expensed in the year incurred.
| F-8 |
Trans American Aquaculture, Inc.
(Formerly Gold River Productions, Inc.)
Notes to Consolidated Financial Statements
June 30, 2023 and 2022
Concentrations of Credit Risk
The Company's financial instruments that are exposed to credit risk consist primarily of temporary cash investments and accounts receivable.
The Company maintains its cash balances at a large financial institution. At times such balances may exceed federally insured limits. The Company has not experienced any losses in an account. The Company believes it is not exposed to any significant credit risk on cash and had no balances in excess of the $250,000 FDIC limit for the three months ended June 30, 2023 and December 31, 2022.
For the six months ended June 30, 2022, one customer accounted for 100% of total revenues earned. As of June 30, 2022, there was no accounts receivable due from this customer. There was no customer concentration for the six months ended June 30, 2023.
The Company’s sole source of expected future revenue consists of the sale of a single live product which requires substantial care. Production risks such as weather, disease and other factors could affect the Company’s ability to realize revenue from its inventory stock.
Subsequent Events
In preparing these financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through September 18, 2023, the date the financial statements were issued.
Net Loss Per Share
Basic net loss per share is calculated by dividing the net loss available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is calculated by using the weighted-average number of common shares outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the dilutive potential shares of common stock had been issued. The dilutive effect of the Company’s is reflected in diluted net loss per share by application of the treasury stock method. The dilutive securities are excluded from the computation of diluted net loss per share when net loss is recorded for the period as their effect would be anti-dilutive.
NOTE 3 – PROPERTY AND EQUIPMENT
As of June 30, 2023 and December 31, 2022, the Company had the following property and equipment.
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| PROPERTY AND EQUIPMENT | ||||||||
| Autos and trucks | $ | 66,845 | $ | 66,845 | ||||
| Building and improvements | 656,389 | 656,389 | ||||||
| Farm equipment | 440,282 | 425,149 | ||||||
| Other equipment | 646,066 | 646,066 | ||||||
| 1,809,582 | 1,794,449 | |||||||
| Less accumulated depreciation | (496,028 | ) | (457,920 | ) | ||||
| 1,313,553 | 1,336,529 | |||||||
| Land | 6,126,243 | 6,126,243 | ||||||
| NET PROPERTY AND EQUIPMENT | $ | 7,439,796 | $ | 7,462,772 | ||||
| F-9 |
Trans American Aquaculture, Inc.
(Formerly Gold River Productions, Inc.)
Notes to Consolidated Financial Statements
June 30, 2023 and 2022
Depreciation expense for the six months ended June 30, 2023 and 2022, totaled approximately $38,108 and $42,974, respectively. Amount of depreciation expense in cost of goods sold or inventory totaled $35,150 and $36,526 for the six months ended June 30, 2023 and 2022, respectively.
NOTE 4 –LONG-TERM DEBT
Long-term debt as of June 30, 2023 and December 31, 2022, consisted of the following:
| Note to an entity by the former owner of farm property, interest at 6.00%, due in monthly installments of $38,687 including interest, secured by real property, due in 2039 | $ | 4,716,672 | $ | 4,750,369 | ||||
| Note to former owner of farm property, interest at 6.00%, due in monthly installments of $1,450 including interest, secured by real property, due in 2023 | – | 6,152 | ||||||
| Note to auto financing company, interest rate at 2.9%, due in monthly installments of $719, secured by vehicle, due in 2023 | – | 1,410 | ||||||
| Note to a bank, interest at 3.75%, due in monthly installments of $719.02 including interest, secured by real property, due in 2050 | 150,000 | 150,000 | ||||||
| 4,866,672 | 4,907,931 | |||||||
| Less Current Portion | (451,599 | ) | (326,716 | ) | ||||
| Net Long Term Debt | $ | 4,415,073 | $ | 4,581,215 |
The estimated long-term debt maturities as of June 30, 2023 are as follows:
| June 30, 2023 | $ | 451,599 | ||
| June 30, 2024 | 106,890 | |||
| June 30, 2025 | 222,108 | |||
| June 30, 2026 | 235,738 | |||
| June 30, 2027 | 250,207 | |||
| Thereafter | 3,600,130 | |||
| $ | 4,866,672 |
The amount of interest expense incurred was approximately $121,296 and $100,655 for the quarters ended June 30, 2023 and 2022, respectively.
On June 30, 2022 the Company was in default on the farm property note for the $4,716,672 due to failure to remit timely monthly payments. The lender has not called the loan due and is actively involved with the company on a repayment plan.
| F-10 |
Trans American Aquaculture, Inc.
(Formerly Gold River Productions, Inc.)
Notes to Consolidated Financial Statements
June 30, 2023 and 2022
NOTE 5 – RELATED PARTY NOTES PAYABLE
As of June 30, 2023, shareholders have loaned the Company approximately $1,527,041 which accrues interest at 12% per annual and are due December 31, 2023. Accrued interest of $326,050 and $12,368 as of June 30, 2023 and June 30, 2022 respectively has been recorded in accrued interest expense on the balance sheet.
NOTE 6 – INCOME TAX
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be covered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. An allowance of $95,107 has been recorded as of June 30, 2023 due to uncertainty of the realization of deferred tax asset in future periods.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted by the end of the reporting period, and any adjustment to tax payable in respect of previous years.
In accordance with FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, included in ASC Topic 740, Income Taxes, the Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. There were no uncertain tax positions that required recognition by the Company. As of the date of these consolidated financial statements, the Company’s federal and various state tax returns will generally remain open for the last
three years.
The Company’s provision for income taxes attributable to income before income taxes for the periods ended June 30, 2023 and 2022, consisted of the following:
| 2023 | 2022 | |||||||
| Deferred tax asset related to: | ||||||||
| NOL Carryover | $ | 186,629 | $ | -0- | ||||
| Deferred tax asset (liability) related to: | ||||||||
| Property and equipment | (91,522 | ) | -0- | |||||
| 95,107 | -0- | |||||||
| Less: allowance | (95,107 | ) | -0- | |||||
| Net deferred tax asset, net | $ | -0- | $ | -0- | ||||
| 2023 | 2022 | |||||||
| Current expense | ||||||||
| Federal | $ | -0- | $ | -0- | ||||
| State | -0- | -0- | ||||||
| -0- | -0- | |||||||
| Deferred income tax expense (benefit) | (26,937 | ) | -0- | |||||
| Total income tax expense (benefit) | $ | (26,937 | ) | $ | -0- | |||
| F-11 |
Trans American Aquaculture, Inc.
(Formerly Gold River Productions, Inc.)
Notes to Consolidated Financial Statements
June 30, 2023 and 2022
NOTE 7 – EQUITY FINANCING AND SECURITIES PURCHASE AGREEMENT
Equity Financing Agreement
On January 20, 2023, the Company entered into an Equity Financing Agreement (“the EFA”) and Registration Rights Agreement (the “Registration Rights Agreement”) with GHS Investments, LLC, pursuant to which GHS agreed to purchase up to $10,000,000 in shares of the Company common stock, from time to time over the course of 24 months after effectiveness of a registration statement on Form S-1 of the underlying shares of the Company’s common stock.
The EFA grants Trans America the right, to direct GHS to purchase shares of the Company’s common stock on any business day (a “Put”), provided that at least ten trading days (as defined in the EFA) have passed since the closing of the most recent Put. The purchase price of the shares of common stock contained in a Put shall be 80% of the lowest traded price of the Company common stock during the ten consecutive Trading Days preceding the date of the Put notice. In the event The Company up lists to Nasdaq or an equivalent national exchange, the purchase price will be 90%. No Put will be made in an amount less than $10,000 or greater than $500,000 and any single drawdown may not exceed 200% of the average daily trading dollar volume of Trans America’s common stock during the ten trading days preceding the Put. In no event is the Company entitled to make a Put or is GHS entitled to purchase and own cumulative shares greater than 4.99% of the Company’s shares of common stock outstanding on such date.
The EFA will terminate upon any of the following events: when GHS has purchased an aggregate of $10,000,000 in the common stock of the Company pursuant to the EFA; or on the date that is 24 months from the date of the EFA.
Actual sales of shares of common stock to GHS under the EFA will depend on a variety of factors, including, the number of public shares the Company has available for trading on the open market (excluding closely held and restricted stock), market conditions, the trading price of the common stock, the number of shares outstanding, and the Company’s determinations as to the appropriate sources of funding for the Company and its operations. The net proceeds under the EFA to us will depend on the frequency and prices at which we sell shares of our stock to GHS.
The Registration Rights Agreement provides that the Company shall (i) use its best efforts to file with the SEC the Registration Statement within 60 calendar days of the date of the Registration Rights Agreement;
and (ii) have the Registration Statement declared effective by the SEC within 60 calendar days after the date the Registration Statement is filed with the SEC, but in no event more than calendar 120 days after the Registration Statement is filed.
The Company will use the proceeds from the Puts for general corporate and working capital purposes and acquisitions or assets, businesses, or operations or for purposes the Board of Directors deems to be in the best interests of the Company.
Securities Purchase Agreement
On January 20, 2023, The Company entered into a Securities Purchase Agreement with GHS (the “GHS SPA”) pursuant to which 250 shares of Series D Preferred Stock for $250,000 were sold to GHS at a price per share of $1,000. In addition, pursuant to the GHS SPA, the Company issued to GHS warrants to purchase 46,296,296 shares of common stock exercisable at $0.005175 per share and terminating on January 20, 2028.
| F-12 |
Trans American Aquaculture, Inc.
(Formerly Gold River Productions, Inc.)
Notes to Consolidated Financial Statements
June 30, 2023 and 2022
On April 18, 2023, the Company entered into an Amended Securities Purchase Agreement with GHS (the “Amended SPA”) pursuant to which we sold to GHS 102 shares of Series D Preferred Stock for $102,000 ($1,000 for each share of Series D Preferred Stock). In addition, pursuant to the Amended SPA, the Company issued to GHS warrants to purchase 20,606,061 shares of Common Stock exercisable at $0.00391 per share and terminating on January 20, 2028.
On May 22, 2023, the Company entered into an Amended Securities Purchase Agreement with GHS (the “Amended SPA”) pursuant to which we sold to GHS 192 shares of Series D Preferred Stock for $192,000 ($1,000 for each share of Series D Preferred Stock). In addition, pursuant to the Amended SPA, the Company issued to GHS warrants to purchase 42,666,667 shares of Common Stock exercisable at $0.00345 per share and terminating on January 20, 2028.
NOTE 8 – SUBSEQUENT EVENTS
On July 6, 2023, the Company entered into an Amended Securities Purchase Agreement with GHS (the “Amended SPA”) pursuant to which we sold to GHS 96 shares of Series D Preferred Stock for $96,000 ($1,000 for each share of Series D Preferred Stock). In addition, pursuant to the Amended SPA, the Company issued to GHS warrants to purchase 19,047,620 shares of Common Stock exercisable at $0.004025 per share and terminating on January 20, 2028.
In addition, pursuant to the Amended SPA, following the filing a registration statement on Form S-1 with the SEC registering the resale of the maximum aggregate number of shares of common stock issuable pursuant to the conversion of the Series D Preferred Stock and the shares issuable upon the exercise of the warrants issuable under the Amended SPA, upon satisfaction of applicable deliveries and closing conditions GHS agrees to purchase an additional 250 shares of Series D Preferred Stock for an additional $250,000 ($1,000 per share of Series D Preferred Stock) and we will issue to GHS warrants to purchase shares of common stock equal to 50% of the number of shares issuable upon conversion of the shares of Series D Preferred Stock sold to GHS.
Lastly, pursuant to the Amended SPA, following the effectiveness of a registration statement registering this resale of shares of common stock, GHS agrees to purchase an additional 250 shares of Series D Preferred Stock for an additional $250,000 ($1,000 per share of Series D Preferred Stock). Additionally, the Company will issue to GHS warrants to purchase shares of common stock equal to 50% of the number of shares issuable upon conversion of the shares of Series D Preferred Stock sold to GHS, amounting to 23,148,148 common shares.
NOTE 9 - GOING CONCERN
The Company follows FASB ASU 2014-10 – Development Stage Entities because its principal operations have commenced, but there has been no significant revenue therefrom. To date, the Company's activities since inception have consisted principally of acquiring property, equipment, and other operating assets, raising capital, starting up production, recruiting and training personnel and raising capital. The Company's ability to continue as a going concern is dependent on its ability to raise additional capital and implement its business plan as well as continuing to develop its brood stock in order to fulfill recently signed contracts. The financial statements do not include any adjustments that might be necessary if the business plan cannot be implemented or if additional capital cannot be raised, either of which could result in the Company not be able to continue as a going concern.
The Company is in the process of raising additional capital to support the completion of the developmental stage activities and ramp up ongoing full shrimp harvest cycles and establish its customer base. Therefore, the Company's activities are subject to significant risks and uncertainties, including failing to secure additional funding to operationalize the Company's current technology.
| F-13 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of
Trans American Aquaculture, Inc.
(formerly Gold River Productions, Inc.)
Opinion
We have audited the accompanying consolidated balance sheets of Trans American Aquaculture, Inc. (formerly Gold River Productions, Inc.) and Subsidiary (“the Company”), a Colorado Corporation, as of December 31, 2022 and 2021 and related consolidated statements of operations, stockholders’ equity and cash flows for the years then ended, and related notes to the consolidated financial statements (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America
Substantial Doubt about the Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 8 to the financial statements, the Company is a development stage company because its principal operations have commenced, but there has been no significant revenue therefrom which raises substantial doubt about its ability to continue as a going concern. In addition, the Company is in default on the farm property note for $4,750,369 and other creditors due to failure to remit timely monthly payments during 2022. Management's plans in regard to these matters are also described in Note 8. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. See Critical Audit Matters section of this report.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
| F-14 |
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
As discussed in Note 8 to the financial statements, the Company is a development stage company because its principal operations have commenced, but there has been no significant revenue therefrom which raises substantial doubt about its ability to continue as a going concern. In addition, the Company is in default on the farm property note for $4,750,369 and other creditors due to failure to remit timely monthly payments during 2022. The Company is in the process of raising additional capital to support the completion of the developmental stage activities and ramp up ongoing full shrimp harvest cycles and establish its customer base. The Company's activities are subject to significant risks and uncertainties, including failing to secure additional funding to operationalize the Company's current technology. Accordingly, the Company's ability to continue as a going concern is highly dependent on its ability to raise additional capital and implement its business plan as well as continuing to develop its brood stock in order to realize revenue. See Substantial Doubt about the Company’s Ability to Continue as a Going Concern section of this report.
We have served as the Company’s auditor since 2021.
Brownsville, Texas
July 31, 2023
| F-15 |
Trans American Aquaculture, Inc.
(Formerly Gold River Productions, Inc.)
| December 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | -0- | $ | -0- | ||||
| Other receivable | 46,038 | -0- | ||||||
| Inventory | 161,560 | 48,636 | ||||||
| TOTAL CURRENT ASSETS | 207,598 | 48,636 | ||||||
| PROPERTY AND EQUIPMENT | 7,920,692 | 7,920,692 | ||||||
| Less accumulated depreciation | (457,920 | ) | (371,971 | ) | ||||
| NET PROPERTY AND EQUIPMENT | 7,462,772 | 7,548,721 | ||||||
| TOTAL ASSETS | $ | 7,670,370 | $ | 7,597,357 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Bank overdraft | $ | 288 | $ | 3,876 | ||||
| Accounts payable | 223,476 | 221,152 | ||||||
| Accrued interest expense | 446,870 | 63,603 | ||||||
| Other accrued expenses | 138,532 | 107,171 | ||||||
| Income tax payable | 46,038 | -0- | ||||||
| Due to related parties | 1,516,025 | 1,419,520 | ||||||
| Current portion of notes payable | 326,716 | 208,590 | ||||||
| TOTAL CURRENT LIABILITIES | 2,697,945 | 2,023,912 | ||||||
| LONG-TERM LIABILITIES | ||||||||
| Notes payable net of current portion | 4,581,215 | 4,796,491 | ||||||
| Deferred tax liability, net | 26,937 | -0- | ||||||
| TOTAL LONG-TERM LIABILITIES | 4,608,152 | 4,796,491 | ||||||
| COMMITMENTS AND CONTINGENCIES | -0- | -0- | ||||||
| STOCKHOLDERS' EQUITY | ||||||||
| Common stock, $.000001 par value, 3,000,000,000 shares authorized, 1,432,655,528 shares issued and outstanding | -0- | -0- | ||||||
| Preferred Stock, Series A, .000001 par value 9,078,000 shares authorized, 9,078,000 issued and outstanding | -0- | -0- | ||||||
| Preferred Stock, Series B, .000001 par value 5,000 shares authorized, 5,000 issued and outstanding | -0- | -0- | ||||||
| Preferred Stock, Series C, $.000001 par value, 100,000 shares authorized, 100,000 issued and outstanding and outstanding | -0- | -0- | ||||||
| Additional paid in capital - preferred stock (Series C) | 1,287,091 | -0- | ||||||
| Retained earnings (deficit) | (922,817 | ) | 776,955 | |||||
| TOTAL STOCKHOLDERS' EQUITY | 364,274 | 776,955 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 7,670,370 | $ | 7,597,357 | ||||
The accompanying notes are an integral part of these financial statements.
| F-16 |
Trans American Aquaculture, Inc.
(Formerly Gold River Productions, Inc.)
Consolidated Statements of Operations
| For the years ended | ||||||||
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| REVENUES | ||||||||
| Sales and service | $ | 49,001 | $ | 316,112 | ||||
| COST OF REVENUES | ||||||||
| Cost of revenues | 287,132 | 973,418 | ||||||
| GROSS PROFIT | (238,131 | ) | (657,306 | ) | ||||
| GENERAL AND ADMINISTRATIVE EXPENSES | 148,609 | 232,425 | ||||||
| OTHER INCOME (EXPENSE) | ||||||||
| Other income | 1,745 | 32,447 | ||||||
| Other expense | (25,440 | ) | -0- | |||||
| Interest expense | (485,446 | ) | (544,544 | ) | ||||
| TOTAL OTHER EXPENSE | (509,141 | ) | (512,097 | ) | ||||
| NET LOSS BEFORE TAXES | (895,880 | ) | (1,401,828 | ) | ||||
| INCOME TAX EXPENSE (BENEFIT) | 26,937 | -0- | ||||||
| NET LOSS | $ | (922,817 | ) | $ | (1,401,828 | ) | ||
| Basic and Diluted Net loss per common share | (0.000713 | ) | ||||||
| Weighted average common shares outstanding - basic | 1,294,840,264 | |||||||
The accompanying notes are an integral part of these financial statements.
| F-17 |
Trans American Aquaculture, Inc.
(Formerly Gold River Productions, Inc.)
Consolidated Statements of Stockholders’ Equity
For the years ended December 31, 2022 and 2021
| Members’ | Common Stock | Preferred Stock, Series A | Preferred Stock, Series B | Preferred Stock, Series C | Retained Earnings | ||||||||||||||||||||||||||
| Capital | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | (Deficit) | Total | |||||||||||||||||||||
| Balance December 31, 2020 | $ | 544,830 | -0- | $ | -0- | -0- | $ | -0- | -0- | $ | -0- | -0- | $ | -0- | $ | -0- | $ | 544,830 | |||||||||||||
| Member contributions | 1,633,953 | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | 1,633,953 | ||||||||||||||||||||
| Net loss | (1,401,828 | ) | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | (1,401,828 | ) | ||||||||||||||||||
| Balance December 31, 2021 | $ | 776,955 | 1,248,901,842 | $ | -0- | 9,718,000 | $ | -0- | 5,000 | $ | -0- | -0- | $ | -0- | $ | -0- | $ | 776,955 | |||||||||||||
| Member contributions | 510,136 | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | 510,136 | ||||||||||||||||||||
| Reverse acquisition | (1,287,091 | ) | 15,248,503 | -0- | -0- | -0- | -0- | -0- | 100,000 | 1,287,091 | -0- | -0- | |||||||||||||||||||
| Preferred Series A conversion | -0- | 64,000,000 | -0- | (640,000 | ) | -0- | -0- | -0- | -0- | -0- | -0- | -0- | |||||||||||||||||||
| New shares issued | -0- | 104,505,183 | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | ||||||||||||||||||||
| Net loss | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | (922,817 | ) | (922,817 | ) | ||||||||||||||||||
| Balance December 31, 2022 | $ | -0- | 1,432,655,528 | $ | -0- | 9,078,000 | $ | -0- | 5,000 | $ | -0- | 100,000 | $ | 1,287,091 | $ | (922,817 | ) | $ | 364,274 | ||||||||||||
The accompanying notes are an integral part of these financial statements.
| F-18 |
Trans American Aquaculture, Inc.
(Formerly Gold River Productions, Inc.)
Consolidated Statements of Cash Flows
| For the years ended | ||||||||
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (922,817 | ) | $ | (1,401,828 | ) | ||
| Noncash items included in net loss: | ||||||||
| Depreciation expense | 85,949 | 98,889 | ||||||
| (Increase) decrease in: | ||||||||
| Other receivable | (46,038 | ) | -0- | |||||
| Inventory | (112,924 | ) | (48,636 | ) | ||||
| Other assets | -0- | 17,024 | ||||||
| Increase (decrease) in: | ||||||||
| Accounts payable | 2,324 | 22,240 | ||||||
| Accrued interest expense | 383,267 | 63,603 | ||||||
| Other accrued expenses | 31,361 | (15,784 | ) | |||||
| Income tax payable | 46,038 | -0- | ||||||
| Deferred tax liability,net | 26,937 | -0- | ||||||
| CASH USED IN OPERATING ACTIVITIES | (505,903 | ) | (1,264,491 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Cash paid for purchase of fixed assets | -0- | (4,159 | ) | |||||
| CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES | -0- | (4,159 | ) | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Bank overdraft | 288 | 3,876 | ||||||
| Proceeds from shareholder notes payable | 112,975 | 816,560 | ||||||
| Payments on shareholder notes payable | (16,469 | ) | -0- | |||||
| Proceeds from notes payable | -0- | -0- | ||||||
| Payments on notes payable | (97,151 | ) | (144,753 | ) | ||||
| Contributions | 510,136 | 595,709 | ||||||
| CASH PROVIDED BY FINANCING ACTIVITIES | 509,779 | 1,271,392 | ||||||
| NET INCREASE (DECREASE) | 3,876 | 2,741 | ||||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR | (3,876 | ) | (2,741 | ) | ||||
| CASH AND CASH EQUIVALENTS AT END OF YEAR | $ | -0- | $ | -0- | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Cash paid for interest | $ | 85,463 | $ | 239,810 | ||||
| Cash paid for income taxes | $ | -0- | $ | -0- | ||||
| NON-CASH | ||||||||
| Capitalization of related party notes to members' capital | $ | 1,038,243 | ||||||
The accompanying notes are an integral part of these financial statements.
| F-19 |
Trans American Aquaculture, Inc.
(Formerly Gold River Productions, Inc.)
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
NOTE 1 – BUSINESS ORGANIZATION
Trans American Aquaculture, Inc. formerly Gold River Productions, Inc. (GRP), (“the Company”) was incorporated in the State of Delaware on September 18, 2006, as Polythene Metro Corp before being acquired by Gold River Productions, Inc. on January 25, 2007. The Company was re-incorporated in the State of Colorado in July 2018. In February 2023, pursuant to shareholder and Board approval, the Company changed its name to Trans American Aquaculture, Inc., reflective of its new management and operations, and applied to the Financial Industry Regulatory Authority (“FINRA”) to change its ticker symbol from GRPS to TAAQ.
On August 29, 2022, the Company entered into an agreement to purchase Trans American Aquaculture, LLC (“TAA”) in a transaction accounted for as a reverse acquisition, whereby TAA became the accounting acquiror. TAA operates a large land-based shrimp farming and technology company located in South Texas. The Company produces premium quality, farm-raised white shrimp, 100% free of antibiotics and hormones, and cultivated using safe and sustainable practices. Its principal markets consist of seafood distributors, restaurants, and grocery store chains in the United States. Using decades of experience in the shrimp aquaculture industry, products are grown with our superior technology and our proprietary genetics which results in a superior fresh product always grown in the United States. Immediately prior to the purchase, GRP assigned all of its assets and liabilities to Mr. Richard Goulding (Mr. Goulding), Chairman of the Board and CEO of GRP, resulting in GRP becoming a public shell company without any assets or liabilities and became the accounting acquiree.
Under the terms of the stock purchase agreement, Mr. Goulding, agreed to sell to Adam Thomas, CEO of TAA, 9,078,000 shares of the Company’s Series A Preferred Stock, and to retain 640,000 shares for later conversion into the Company’s common stock. Each share of Series A Preferred Stock is convertible into 100 shares of the Company’s common stock. In addition, Mr. Thomas agreed to purchase all of the Company’s outstanding shares of Series B Preferred Stock from Mr. Goulding for a cash payment of $5,000.
In further consideration for the sale of the shares of Series A and Series B Preferred Stock, Mr. Goulding agreed to:
| 1. | Increase the authorized shares of the Company’s common stock to three billion (3,000,000,000) shares. |
| 2. | Convert his retained 640,000 shares of Series A Preferred Stock, to 64,000,000 shares of common stock. | |
| 3. | Issue to various former employees and consultants of the Company an aggregate amount of 15,248,503 shares of the Company’s common stock, and | |
| 4. | Complete the assignment of assets and assumption of liabilities as they existed immediately prior to the closing of the stock purchase agreement on August 29, 2022. |
Following the purchase of the shares of Class A and Class B Preferred Stock, Mr. Thomas and TAA agreed to:
| 1. | To have the Company issue shares of a Class C Preferred Stock to the former members of TAA, such shares to be convertible into 85% of the Company’s common stock, but limited as to this conversion for a minimum of 12 months from the date of issuance; and | |
| 2. | To cancel and withdraw the shares of Series A Preferred Stock. |
| F-20 |
Trans American Aquaculture, Inc.
(Formerly Gold River Productions, Inc.)
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting and Presentation
The accompanying consolidated financial statements include the accounts of Trans American Aquaculture, Inc and its wholly-owned subsidiary Trans American Aquaculture, LLC, a Texas Limited Liability Company. All significant intercompany balances and transactions have been eliminated in consolidation. The accompanying financial statements have been prepared on the accrual basis of accounting.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents.
Inventory
The inventory at December 31, 2022, consists of 4,000 brood stock shrimp that were born and raised on the Texas farm and are valued at the lower of cost or net realizable value on the first-in, first-out basis. The brood shrimp can be sold as stock to other aqua farms or processed for retail sale to consumers. Management has determined no allowance for inventory obsolescence is required based on its assessment of the inventory’s usefulness. As of December 31, 2022 and 2021, the net realizable value of shrimp on the aqua farm was $161,560 and $48,636, respectively.
Property and Equipment
Property and equipment are stated at cost. Maintenance and repairs are expensed while expenditures for renewals which prolong the lives of the assets are capitalized. When items are disposed of, the cost and accumulated depreciation are eliminated from the accounts and any net gain or loss is included in the consolidated statement of income.
For financial reporting purposes, depreciation of property and equipment is provided for by using the straight-line method based on the estimated service lives of the property as follows:
| Land improvements | 40 years |
| Buildings and structures | 40 years |
| Farm equipment | 10 – 20 years |
| Autos and trucks | 10 years |
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If it is determined that an asset has been impaired, the amount of the impairment is charged to operations. No impairments were recognized for the years ended December 31, 2022 and 2021.
| F-21 |
Trans American Aquaculture, Inc.
(Formerly Gold River Productions, Inc.)
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
The Company uses an asset and liability approach to financial accounting and reporting for income taxes. The difference between the financial statement and tax basis of assets and liabilities is determined annually.
Deferred income tax assets and liabilities are computed for those differences that have future tax consequences using the currently enacted tax laws and rates that apply to the periods in which they are expected to affect taxable income. Valuation allowances are established, if necessary, to reduce the deferred tax asset to the amount that will more likely than not be realized. Income tax expense is the current tax payable or refundable for the period, plus or minus the net change in the deferred tax assets and liabilities.
The Company's income tax returns are subject to examination by the appropriate tax jurisdictions. As of August 9, 2023, the Company needs to file federal and state income tax returns for 2020, 2021 and 2022. During 2020, the Company had taxable income primarily as a result of a short-term capital gain of $445,500 on the sale of a joint venture interest. This resulted in taxable income of $155,200 and an unremitted federal income tax liability of $33,180. With accrued penalties and interest through December 31, 2022, the total due the IRS is $46,038. All liabilities, including federal taxes, were indemnified by Goulding as part of the transaction and accordingly a receivable due from the previous owner of the Company has been recorded in other assets. The Company intends to file its 2020 federal tax return and pay the tax due, plus penalties in interest once it has sufficient cash to do so.
Use of Estimates
The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
Revenue Recognition
The Company recognizes revenues according to the Financial Accounting Standard Board (“FASB”) Accounting Standard Codification (“ASC 606”) and Accounting Standard Update ASU 2014-09 “Revenues from Contracts with Customers.” Under the 606, revenues are recognized when the customer obtains control of promised goods or services in amounts that reflect the consideration which the entity expected to receive in exchange of goods and service. The Company does not collect sales, value-add and other taxes collected on behalf of third parties. To determine revenue recognition, the Company performs the following five steps: (1) identify the contract with customer; (2) identify the performance obligations in contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligation in the contract; and (5) recognize revenues when (or as) the entity satisfies a performance obligation.
The Company recognizes revenue as a single performance obligation when it transfers its products to customers, being when the goods are shipped and transfers to a buyer and when performance obligation under contracted sales are completed.
| F-22 |
Trans American Aquaculture, Inc.
(Formerly Gold River Productions, Inc.)
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Advertising and Promotion
All costs associated with advertising and promoting the Company's goods and services are expensed in the period incurred.
Concentrations of Credit Risk
The Company's financial instruments that are exposed to credit risk consist primarily of temporary cash investments and accounts receivable.
The Company maintains its cash balances at a large financial institution. At times such balances may exceed federally insured limits, though the Company has not experienced any losses in any accounts. The Company believes it is not exposed to any significant credit risk on cash and it had no balances in excess of the $250,000 FDIC limit for the years ended December 31, 2022, and 2021.
For the years ended December 31, 2022, and 2021, one customer accounted for 100% and 91% of total revenues earned. As of December 31, 2022, and 2021, there was no accounts receivable due from this customer.
The Company’s sole source of expected future revenue consists of the sale of a single live product which requires substantial care. Production risks such as weather, disease and other factors could affect the Company’s ability to realize revenue from its inventory stock.
Subsequent Events
In preparing these financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through July 31, 2023, the date the financial statements were issued (See NOTE 7).
Net Loss Per Share
Basic net loss per share is calculated by dividing the net loss available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is calculated by using the weighted-average number of common shares outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the dilutive potential shares of common stock had been issued. The dilutive effect of the Company’s restricted stock units is reflected in diluted net loss per share by application of the treasury stock method. The dilutive securities are excluded from the computation of diluted net loss per share when net loss is recorded for the period as their effect would be anti-dilutive.
| F-23 |
Trans American Aquaculture, Inc.
(Formerly Gold River Productions, Inc.)
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 2022 and 2021 are as follows:
| December 31, 2022 | December 31, 2021 | |||||||
| PROPERTY AND EQUIPMENT | ||||||||
| Autos and trucks | $ | 66,845 | $ | 66,845 | ||||
| Building and improvements | 656,389 | 656,389 | ||||||
| Farm equipment | 425,149 | 425,149 | ||||||
| Other equipment | 646,066 | 646,066 | ||||||
| 1,794,449 | 1,794,449 | |||||||
| Less accumulated depreciation | (457,920 | ) | (371,971 | ) | ||||
| 1,336,529 | 1,422,478 | |||||||
| Land | 6,126,243 | 6,126,243 | ||||||
| NET PROPERTY AND EQUIPMENT | $ | 7,462,772 | $ | 7,548,721 | ||||
Depreciation expense for the years ending December 31, 2022 and 2021 totaled $85,949 and $98,889, respectively. Amount of depreciation expense in cost of goods sold totaled $84,238 and $84,238 at December 31, 2022 and 2021, respectively.
NOTE 4 – LONG-TERM DEBT
Long-term debt as of December 31, 2022 and 2021, consisted of the following:
| December 31, 2022 | December 31, 2021 | |||||||
| Note to an entity by the former owner of farm property, interest at 6.00%, due in monthly installments of $38,687 including interest, secured by real property, due in 2039 | $ | 4,750,369 | $ | 4,829,655 | ||||
| Note to former owner of farm property, interest at 6.00%, due in monthly installments of $1,450, including interest, secured by real property, due in 2023 | 6,152 | 15,481 | ||||||
| Note to auto financing company, interest rate at 2.9%, due in monthly installments of $719, secured by vehicle, due in 2023 | 1,410 | 9,944 | ||||||
| Note to a bank, interest at 3.75%, due in monthly installments of $719.02 including interest, secured by real property, due in 2050 | 150,000 | 150,000 | ||||||
| 4,907,931 | 5,005,081 | |||||||
| Less Current Portion | (326,716 | ) | (208,590 | ) | ||||
| Net Long Term Debt | $ | 4,581,215 | $ | 4,796,491 | ||||
| F-24 |
Trans American Aquaculture, Inc.
(Formerly Gold River Productions, Inc.)
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
NOTE 4 –LONG-TERM DEBT (CONTINUED)
The estimated long-term debt maturities as of December 31, 2022 are as follows:
| December 31, 2023 | $ | 326,716 | ||
| December 31, 2024 | 209,267 | |||
| December 31, 2025 | 222,108 | |||
| December 31, 2026 | 250,207 | |||
| December 31, 2027 | 252,713 | |||
| Thereafter | 3,663,895 | |||
| $ | 4,907,931 |
As of December 31, 2022 and 2021, accrued interest of approximately $209,953 and $63,603 has been recorded in accrued interest expense on the balance sheet related to the above outstanding debt.
On December 31, 2022 the Company was in default on the farm property note for the $4,750,369 due to failure to remit timely monthly payments. The lender has not called the loan due and is actively involved with the company on a repayment plan.
NOTE 5 – RELATED PARTY NOTES PAYABLE
As of December 31, 2022 and 2021, notes payable to shareholders are approximately $1,516,025 and $1,419,520, respectively, which accrue interest ranging from 12% to 18% per annum and are due December 31, 2023. Accrued interest expense of approximately $236,917 and $0 as of December 31, 2022 and 2021, respectively has been recorded in accrued interest expense on the balance sheet.
NOTE 6 – INCOME TAX
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be covered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted by the end of the reporting period, and any adjustment to tax payable in respect of previous years.
| F-25 |
Trans American Aquaculture, Inc.
(Formerly Gold River Productions, Inc.)
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
NOTE 6 – INCOME TAX (CONTINUED)
In accordance with FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, included in ASC Topic 740, Income Taxes, the Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. There were no uncertain tax positions that required recognition by the Company. As of the date of these consolidated financial statements, the Company’s federal and various state tax returns will generally remain open for the last three years.
The Company’s provision for income taxes attributable to income before income taxes for the period from September 29, 2022 through December 31, 2022 and December 31, 2021, consisted of the following:
| 2022 | 2021 | |||||||
| Deferred tax asset related to: | ||||||||
| NOL Carryover | $ | 59,323 | $ | -0- | ||||
| Deferred tax asset (liability) related to: | ||||||||
| Property and equipment | (86,260 | ) | -0- | |||||
| Net deferred tax asset liability | $ | (26,937 | ) | $ | -0- | |||
| 2022 | 2021 | |||||||
| Current expense | ||||||||
| Federal | $ | -0- | $ | -0- | ||||
| State | -0- | -0- | ||||||
| -0- | -0- | |||||||
| Deferred income tax expense (benefit) | -0- | -0- | ||||||
| Total income tax expense (benefit) | $ | -0- | $ | -0- | ||||
NOTE 7 – SUBSEQUENT EVENTS
Equity Financing Agreement
On January 20, 2023, the Company entered into an Equity Financing Agreement (“the EFA”) and Registration Rights Agreement (the “Registration Rights Agreement”) with GHS Investments, LLC, pursuant to which GHS agreed to purchase up to $10,000,000 in shares of the Company common stock, from time to time over the course of 24 months after effectiveness of a registration statement on Form S-1 of the underlying shares of the Company’s common stock.
| F-26 |
Trans American Aquaculture, Inc.
(Formerly Gold River Productions, Inc.)
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
NOTE 7 – SUBSEQUENT EVENTS (CONTINUED)
The EFA grants the Company the right to direct GHS to purchase shares of the Company’s common stock on any business day (a “Put”), provided that at least ten trading days (as defined in the EFA) have passed since the closing of the most recent Put. The purchase price of the shares of common stock contained in a Put shall be 80% of the lowest traded price of the Company common stock during the ten consecutive Trading Days preceding the date of the Put notice. In the event The Company up lists to Nasdaq or an equivalent national exchange, the purchase price will be 90%. No Put will be made in an amount less than $10,000 or greater than $500,000 and any single drawdown may not exceed 200% of the average daily trading dollar volume of the Company’s common stock during the ten trading days preceding the Put. In no event is the Company entitled to make a Put or is GHS entitled to purchase and own cumulative shares greater than 4.99% of the Company’s shares of common stock outstanding on such a date. The EFA will terminate upon any of the following events: when GHS has purchased an aggregate of $10,000,000 in the common stock of the Company pursuant to the EFA; or on the date that is 24 months from the date of the EFA.
Actual sales of shares of common stock to GHS under the EFA will depend on a variety of factors, including, the number of public shares the Company has available for trading on the open market (excluding closely held and restricted stock), market conditions, the trading price of the common stock, the number of shares outstanding, and the Company’s determinations as to the appropriate sources of funding for the Company and its operations. The net proceeds under the EFA to us will depend on the frequency and prices at which we sell shares of our stock to GHS.
The Registration Rights Agreement provides that the Company shall (i) use its best efforts to file the SEC the Registration Statement within 60 calendar days of the date of the Registration Rights Agreement and (ii) have the Registration Statement declared effective by the SEC within 60 calendar days after the date the Registration Statement is filed with the SEC, but in no event more than calendar 120 days after the Registration Statement is filed.
The Company will use the proceeds from the Puts for general corporate and working capital purposes and acquisitions or assets, businesses, or operations or for purposes the Board of Directors deems to be in the best interests of the Company.
Securities Purchase Agreement
On January 20, 2023, The Company entered into a Securities Purchase Agreement with GHS (the “GHS SPA”) pursuant to which 250 shares of Series D Preferred Stock for $250,000 were sold to GHS at a price per share of $1,000. In addition, pursuant to the GHS SPA, the Company issued to GHS warrants to purchase 46,296,296 shares of common stock exercisable at $0.005175 per share and terminating on January 20, 2028.
On April 18, 2023, the Company entered into an Amended Securities Purchase Agreement with GHS (the “Amended SPA”) pursuant to which it sold to GHS 102 shares of Series D Preferred Stock for $102,000 ($1,000 for each share of Series D Preferred Stock). In addition, pursuant to the Amended SPA, the Company issued to GHS warrants to purchase 20,606,061 shares of Common Stock exercisable at $0.00391 per share and terminating on January 20, 2028.
On May 22, 2023, the Company entered into an Amended Securities Purchase Agreement with GHS (the “Amended SPA”) pursuant to which it sold to GHS 192 shares of Series D Preferred Stock for $192,000 ($1,000 for each share of Series D Preferred Stock). In addition, pursuant to the Amended SPA, the Company issued to GHS warrants to purchase 42,666,667 shares of Common Stock exercisable at $0.00345 per share and terminating on January 20, 2028.
| F-27 |
Trans American Aquaculture, Inc.
(Formerly Gold River Productions, Inc.)
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
NOTE 7 – SUBSEQUENT EVENTS (CONTINUED)
On July 6, 2023, the Company entered into an Amended Securities Purchase Agreement with GHS (the “Amended SPA”) pursuant to which it sold to GHS 96 shares of Series D Preferred Stock for $96,000 ($1,000 for each share of Series D Preferred Stock). In addition, pursuant to the Amended SPA, the Company issued to GHS warrants to purchase 19,047,620 shares of Common Stock exercisable at $0.004025 per share and terminating on January 20, 2028.
In addition, pursuant to the Amended SPA, following the filing a registration statement on Form S-1 with the SEC registering the resale of the maximum aggregate number of shares of common stock issuable pursuant to the conversion of the Series D Preferred Stock and the shares issuable upon the exercise of the warrants issuable under the Amended SPA, upon satisfaction of applicable deliveries and closing conditions GHS agrees to purchase an additional 250 shares of Series D Preferred Stock for an additional $250,000 ($1,000 per share of Series D Preferred Stock) and it will issue to GHS warrants to purchase shares of common stock equal to 50% of the number of shares issuable upon conversion of the shares of Series D Preferred Stock sold to GHS.
Lastly, pursuant to the Amended SPA, following the effectiveness of a registration statement registering this resale of shares of common stock, GHS agrees to purchase an additional 250 shares of Series D Preferred Stock for an additional $250,000 ($1,000 per share of Series D Preferred Stock). Additionally, the Company will issue to GHS warrants to purchase shares of common stock equal to 50% of the number of shares issuable upon conversion of the shares of Series D Preferred Stock sold to GHS, amounting to 23,148,148 shares.
On January 9, 2023, the Company issued 20,000,000 common shares to William Tynan in exchange for services rendered in the amount of $100,000.
NOTE 8 - GOING CONCERN
The Company follows FASB ASU 2014-10 – Development Stage Entities because its principal operations have commenced, but there has been no significant revenue therefrom. To date, the Company's activities since inception have consisted principally of acquiring property, equipment, and other operating assets, raising capital, starting up production, recruiting and training personnel and raising capital. The Company's ability to continue as a going concern is dependent on its ability to raise additional capital and implement its business plan as well as continuing to develop its brood stock in order to fulfill recently signed contracts. The financial statements do not include any adjustments that might be necessary if the business plan cannot be implemented or if additional capital cannot be raised, either of which could result in the Company not be able to continue as a going concern.
The Company is in the process of raising additional capital to support the completion of the developmental stage activities and ramp up ongoing full shrimp harvest cycles and establish its customer base. Therefore, the Company's activities are subject to significant risks and uncertainties, including failing to secure additional funding to operationalize the Company's current technology.
| F-28 |
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13 - Other Expenses of Issuance and Distribution
We estimate that expenses in connection with the distribution described in this Registration Statement (other than brokerage commissions, discounts or other expenses relating to the sale of the shares by the Selling Security Holder) will be as set forth below. We will pay all of the expenses with respect to the distribution, and such amounts, with the exception of the SEC registration fee, are estimates.
|
Amount to Be Paid |
||||
| SEC registration fee | $ | _____ | ||
| State filing fees | 500.00 | |||
| Edgarizing costs | 500.00 | |||
| Accounting fees and expenses | 1,000.00 | |||
| Legal fees and expenses | 20,000.00 | |||
| Total | $ | 22,301.16 | ||
Item 14 - Indemnification of Directors and Officers
The CBCA generally provides that a corporation may indemnify a person made party to a proceeding because the person is or was a director against liability incurred in the proceeding if: the person’s conduct was in good faith; the person reasonably believed, in the case of conduct in an official capacity with the corporation, that such conduct was in the corporation’s best interests, and, in all other cases, that such conduct was at least not opposed to the corporation’s best interests; and, in the case of any criminal proceeding, the person had no reasonable cause to believe that the person’s conduct was unlawful. The CBCA prohibits such indemnification in a proceeding by or in the right of the corporation in which the person was adjudged liable to the corporation, or in connection with any other proceeding in which the person was adjudged liable for having derived an improper personal benefit. The CBCA further provides that, unless limited by its articles of incorporation, a corporation shall indemnify a person who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which the person was a party because the person is or was a director or officer of the corporation, against reasonable expenses incurred by the person in connection with the proceeding. In addition, a director or officer, who is or was a party to a proceeding, may apply for indemnification to the court conducting the proceeding or to another court of competent jurisdiction. The CBCA allows a corporation to indemnify and advance expenses to an officer, employee, fiduciary or agent of the corporation to the same extent as a director.
As permitted by the CBCA, our Articles of Incorporation and bylaws provide that we shall indemnify our directors and officers to the fullest extent permitted by the CBCA. In addition, we may also indemnify and advance expenses to an officer who is not a director to a greater extent, not inconsistent with public policy, and if provided for by its bylaws, general or specific action of the Company’s board of director or shareholders.
Section 7-108-402(1) of the CBCA permits a corporation to include in its articles of incorporation a provision eliminating or limiting the personal liability of directors to the corporation or its shareholders for monetary damages for any breach of fiduciary duty as a director (except for breach of a director’s duty of loyalty, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, unlawful distributions, or any transaction from which the director derived improper personal benefit). Further, Section 7-108-402(2) of the CBCA provides that no director or officer shall be personal liable for any injury to persons or property arising from a tort committed by an employee, unless the director or officer was either personally involved in the situation giving rise to the litigation or committed a criminal offense in connection with such situation.
As permitted by the CBCA, our Articles of Incorporation provide that the personal liability of our directors to the Company or our shareholders is limited to the fullest extent permitted by the CBCA.
| II-1 |
Item 15 - Recent Sales of Unregistered Securities
Common Stock
On October 8, 2020, we issued 12, 500,000 shares of Common Stock to Artin Babayan for $12,500.
On March 15, 2021, we issued 115,000,000 shares of Common Stock to Big Hollow Family LLC for services.
On March 17, 2021, we issued 10,000,000 shares of Common Stock to Sam Elias and 30,000,000 shares of Common Stock to Monique Todd for services.
On April 6, 2021, we issued 10,000,000 shares of Common Stock to Bruce I. Bond and 10,000,000 shares of Common Stock to Brenton V. Goulding for services.
On April 7, 2021, we issued 10,000,000 shares of Common Stock to Patricia J. Goulding, 10,000,000 shares of Common Stock to Blane R. Goulding, and 10,000,000 shares of Common Stock to Bryce E. Goulding for services.
On April 7, 2021, we issued 25,000,000 shares of Common Stock to Frederick J Berger for $50,000.
On July 14, 2021, we issued 5,000,000 shares of Common Stock to Danielle T. Morosco for services.
On July 29, 2021, we issued 5,000,000 shares of Common Stock to James D. Wachendorfer for services.
On July 30, 2021, we issued 25,000,000 shares of Common Stock to Michael M. Berkowitz for services.
On August 13, 2021, we issued 4,000,000 shares of Common Stock to Stephen M. Swinson for services.
On August 13, 2021, we issued 7,000,000 shares of Common Stock to Jessica Verville for services.
On December 9, 2021, we issued 10,000,000 shares of Common Stock to Joseph R. Pickrel for services.
On October 28, 2022, we issued 66,316,932 shares of Common Stock to Kenneth Maciora for services.
On December 1, 2022, we issued 748,503 shares of Common Stock to Scott Fetterman for $75.
On January 23, 2023, we issued 20,000,000 shares of Common Stock to William Tynan for services valued at $100,000.
| II-2 |
Series C Preferred Stock
On June 6, 2023, we issued an aggregate of 100,000 shares of Series C Preferred Stock to Adam Thomas, Cesar Granda, Luis Arturo Granda Roman, Waleed Kopara, Excellaqua S.A., Javier Eduardo Tandazo, Louis Borrego, Tami Hiraoka, Nech Investments LLC, Peter Borrego, Verduga Regalado Rafael Ernesto Jardines de Puerto Lucia, and Jorge Anibal Bravo as part of the consideration for the reverse merger and the equity exchange.
The sales of the securities above were made in reliance on Section 4(a)(2) under the Securities Act and were made without general solicitation or advertising. The securities offered have not been registered under the Securities Act, and may not be offered or sold in the United States without registration or an applicable exemption from the registration requirements of the Securities Act. There were no sales commissions paid in connection with the sales of these securities.
Series D Preferred Stock and Warrants (GHS Securities Purchase Agreements)
On January 20, 2023, we entered into the GHS SPA pursuant to which we sold to GHS 250 shares of Series D Preferred Stock for $250,000 ($1,000 for each share of Series D Preferred Stock). In addition, pursuant to the GHS SPA, we issued to GHS warrants to purchase 46,296,296 shares of Common Stock exercisable at $0.005175 per share and terminating on January 20, 2028.
On April 18, 2023, we entered into the Amended SPA pursuant to which we sold to GHS 102 shares of Series D Preferred Stock for $120,000 ($1,000 for each share of Series D Preferred Stock). In addition, pursuant to the Amended SPA, we issued to GHS warrants to purchase 20,606,061 shares of Common Stock exercisable at $0.00391 per share and terminating on January 20, 2028.
On May 22, 2023, we entered into the May 2023 SPA pursuant to which we sold to GHS 192 shares of Series D Preferred Stock for $184,000 ($1,000 for each share of Series D Preferred Stock and eight commitment shares). In addition, pursuant to the May 2023 SPA, we issued to GHS warrants to purchase 42,666,667 shares of Common Stock exercisable at $0.00345 per share and terminating on May 22, 2028.
On July 6, 2023, we entered into the July 2023 SPA pursuant to which we sold to GHS 100 shares of Series D Preferred Stock for $96,000 ($1,000 for each share of Series D Preferred Stock and four commitment shares). In addition, pursuant to the July 2023 SPA, we issued to GHS warrants to purchase 19,047,620 shares of Common Stock exercisable at $0.004025 per share and terminating on July 6, 2028.
On September 26, 2023, we entered into the September 2023 SPA pursuant to which we sold GHS 151 shares of Series D Preferred Stock for $146,000 ($1,000 for each share of Series D Preferred Stock and five commitment shares). In addition, pursuant to the September 2023 SPA, we issued to GHS warrants to purchase 14,901,961 shares of Common Stock exercisable at $0.003795 per share and terminating on September 26, 2028.
The sales of Series D Preferred Stock and warrants were made in reliance on Rule 506(b) of Regulation D promulgated under the Securities Act and were made without general solicitation or advertising. The purchaser represented that it was an “accredited investor” with access to information about the Company sufficient to evaluate the investment and that the securities were being acquired without a view to distribution or resale in violation of the Securities Act. The securities offered have not been registered under the Securities Act, and may not be offered or sold in the United States without registration or an applicable exemption from the registration requirements of the Securities Act. $8,880 in sales commissions were paid to ICON Capital Group, LLC in connection with the sales of these securities.
| II-3 |
Item 16 - Exhibits
The following exhibits are included with this Registration Statement:
| II-4 |
| 10.7 | Securities Purchase Agreement dated July 5, 2023 with GHS | S-1 | 333-274059 | 10.7 | 8/18/23 | |||||||
| 10.8 | Securities Purchase Agreement dated September 26, 2023 with GHS | X | ||||||||||
| 10.9 | Common Stock Purchase Warrant issued January 20, 2023 to GHS | S-1 | 333-274059 | 10.8 | 8/18/23 | |||||||
| 10.10 | Common Stock Purchase Warrant issued April 18, 2023 to GHS | S-1 | 333-274059 | 10.9 | 8/18/23 | |||||||
| 10.11 | Common Stock Purchase Warrant issued May 22, 2023 to GHS | S-1 | 333-274059 | 10.10 | 8/18/23 | |||||||
| 10.12 | Common Stock Purchase Warrant issued July 5, 2023 to GHS | S-1 | 333-274059 | 10.11 | 8/18/23 | |||||||
| 10.13 | Common Stock Purchase Warrant issued September 26, 2023 to GHS | X | ||||||||||
| 10.14 | Letter Agreement dated November 15, 2022 with ICON Capital Group, LLC | S-1 | 333-274059 | 10.12 | 8/18/23 | |||||||
| 10.15 | Letter Agreement dated November 15, 2022 with ICON Capital Group, LLC (Preferred and Warrants) | S-1 | 333-274059 | 10.13 | 8/18/23 | |||||||
| 21.1 | List of Subsidiaries | S-1 | 333-274059 | 21.1 | 8/18/23 | |||||||
| 23.1 | Consent of Burton McCumber & Longoria, L.L.P., independent registered public accounting firm | X | ||||||||||
| 23.2 | Consent of Attorney (included in Exhibit 5.1) | -- | ||||||||||
| 101.INS | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) | |||||||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |||||||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||||||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |||||||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |||||||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |||||||||||
| 104 | Cover Page Interactive Data File (formatted in Inline XBRL, and included in exhibit 101). | |||||||||||
| 107 | Filing Fee Table | X |
| II-5 |
Item 17 - Undertakings
(A) The undersigned Registrant hereby undertakes:
| (1) | To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement to: | |
| (i) | To include any prospectus required by Section 10(a)(3) of the Securities Act; | |
| (ii) | Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and | |
| (iii) | Include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. | |
| (2) | That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. | |
| (3) | To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. | |
| (4) | Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. | |
(B) The issuer is subject to Rule 430C (ss. 230. 430C of this chapter): Each prospectus filed pursuant to Rule 424(b)(ss. 230.424(b) of this chapter) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A (ss. 230. 430A of this chapter), shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
| II-6 |
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Dallas, Texas on October 5, 2023.
TRANS AMERICAN AQUACULTURE, INC.
| By: | /s/ Adam Thomas | |
| Adam Thomas | ||
|
Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Financial and Accounting Officer) |
||
| Date: | October 5, 2023 |
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
| By: | /s/ Adam Thomas | |
|
Adam Thomas, Director, Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Financial and Accounting Officer) |
||
| Date: | October 5, 2023 |
| By: | /s/ Luis Arturo Granda Roman | |
| Luis Arturo Granda Roman, Director | ||
| Date: | October 5, 2023 |
| By: | /s/ Bolivar Prieto Torres | |
| Bolivar Prieto Torres, Director | ||
| Date: | October 5, 2023 |
| By: | /s/ Jeffery Sedacca | |
| Jeffery Sedacca, Director | ||
| Date: | October 5, 2023 |
| By: | /s/ Malcolm McNeill | |
| Malcolm McNeill, Director | ||
| Date: | October 5, 2023 |
| S-1 |
Exhibit 3.10
ARTICLES OF AMENDMENT
GOLD RIVER PRODUCTIONS INC.
filed pursuant to §7-90-301, et seq. and §7-110-106 of the Colorado Revised Statutes (C.R.S.)
Pursuant to the provisions of Title 7 of the Colorado Revised Statutes of the State of Colorado, Trans American Aquaculture, Inc., a Colorado corporation, does hereby amend its Articles of Incorporation.
1. The name of the corporation whose Articles of Incorporation are being amended by these Articles of Amendment is Trans American Aquaculture, Inc., a Colorado corporation.
2. After the filing and effectiveness pursuant to the Colorado Business Corporations Act of these Articles of Amendment the Articles of Incorporation of the Corporation, Article 4 of the Corporation's Articles of Incorporation is hereby amended as follows:
(a) By replacing the first Paragraph of Article IV with the following:
“The total number of shares of stock that the corporation shall have authority to issue is three billion twenty million (3,020,000,000), consisting of, in part, (i) three billion (3,000,000,000) shares of Common Stock, $0.000001 par value per share, (ii) five thousand (5,000) shares of “Series B Preferred Stock,” $0.000001 par value per share, (iii) one hundred thousand (100,000) shares of “Series C Preferred Stock,” $0.000001 par value per share, and (iv) One- Thousand and Two-Hundred and Ninety (1,290) shares of “Series D Preferred Stock,” $0.000001 par value per share. The balance of the twenty million 20,000,000 shares of preferred stock shall remain undesignated.”
(b) By adding the Certificate of Designation of Preferences, Rights and Limitations of Series D Convertible Preferred Stock attached hereto as Exhibit A.
3. The amendment to the Articles of Incorporation of Trans American Aquaculture, Inc., a Colorado corporation, set forth in paragraph 2 above was duly adopted by the Board of Directors of the corporation as of September 25, 2023. The amendment was duly adopted by the shareholders. The number of votes cast for the amendment by the shareholders was sufficient for approval.
In witness whereof, the corporation, by and through its undersigned officer thereunto duly authorized, has executed these Articles of Amendment on September 25, 2023.
GOLD RIVER PRODUCTIONS, INC.
By: /s/ Adam Thomas
Adam Thomas
Chief Executive Officer, Chairman
| 1 |
GOLD RIVER PRODUCTIONS INC.
CERTIFICATE OF DESIGNATION OF PREFERENCES, RIGHTS AND LIMITATIONS
OF
SERIES D CONVERTIBLE PREFERRED STOCK
The undersigned, Adam Thomas does hereby certify that:
1. He is the Chief Executive Officer, of GOLD RIVER PRODUCTIONS INC. (D/B/A Trans American Aquaculture)., a Colorado corporation (the “Corporation” or the “Company”).
2. The Corporation is authorized to issue up to 20,000,000 shares of preferred stock, of which 9,153,000 shares have been issued.
3. The following resolutions were duly adopted by the board of directors of the Corporation (the “Board of Directors”):
WHEREAS, the Articles of Incorporation of the Corporation provides for a class of its authorized stock known as preferred stock, consisting of Twenty Million (20,000,000) shares, $.000001 par value per share, issuable from time to time in one or more series;
WHEREAS, the Board of Directors is authorized to fix the dividend rights, dividend rate, voting rights, conversion rights, rights and terms of redemption and liquidation preferences of any wholly unissued series of preferred stock and the number of shares constituting any series and the designation thereof, of any of them; and
WHEREAS, it is the desire of the Board of Directors, pursuant to its authority as aforesaid, to fix the rights, preferences, restrictions and other matters relating to Series D Preferred Stock, a series of the preferred stock, which shall consist of, except as otherwise set forth in the Purchase Agreement, up to One-Thousand, Two-Hundred and Ninety (1,290) shares of the preferred stock which the Corporation has the authority to issue, as follows:
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby provide for the issuance of Series D Preferred Stock, a series of preferred stock for cash or exchange of other securities, rights or property and does hereby fix and determine the rights, preferences, restrictions, and other matters relating to such series of preferred stock as follows:
TERMS OF PREFERRED STOCK
Definitions. For the purposes hereof, the following terms shall have the following meanings:
“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 of the Securities Act.
“Alternate Consideration” shall have the meaning set forth in Section 7(e).
| 2 |
“Bankruptcy Event” means any of the following events: (a) the Corporation or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Corporation or any Significant Subsidiary thereof, (b) there is commenced against the Corporation or any Significant Subsidiary thereof any such case or proceeding that is not dismissed within sixty (60) days after commencement, (c) the Corporation or any Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered, (d) the Corporation or any Significant Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within sixty (60) calendar days after such appointment, (e) the Corporation or any Significant Subsidiary thereof makes a general assignment for the benefit of creditors, (f) the Corporation or any Significant Subsidiary thereof calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts, or (g) the Corporation or any Significant Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.
“Beneficial Ownership Limitation” shall have the meaning set forth in Section 6(d).
“Business Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.
“Buy-In” shall have the meaning set forth in Section 5(c)(iv).
“Change of Control Transaction” means the occurrence after the date hereof of any of (a) an acquisition after the date hereof by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Corporation, by contract or otherwise) of in excess of 49% of the voting securities of the Corporation (other than by means of conversion or exercise of Preferred Stock and the Securities issued together with the Preferred Stock), (b) the Corporation merges into or consolidates with any other Person, or any Person merges into or consolidates with the Corporation and, after giving effect to such transaction, the stockholders of the Corporation immediately prior to such transaction own less than 33% of the aggregate voting power of the Corporation or the successor entity of such transaction, (c) the Corporation sells or transfers all or substantially all of its assets to another Person and the stockholders of the Corporation immediately prior to such transaction own less than 33% of the aggregate voting power of the acquiring entity immediately after the transaction, (d) a replacement at one time or within a one year period of more than one-half of the members of the Board of Directors which is not approved by a majority of those individuals who are members of the Board of Directors on the Original Issue Date (or by those individuals who are serving as members of the Board of Directors on any date whose nomination to the Board of Directors was approved by a majority of the members of the Board of Directors who are members on the Original Issue Date), or (e) the execution by the Corporation of an agreement to which the Corporation is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (d) above.
“Closing” means the closing of the purchase and sale of the Securities pursuant to Section 2.1 of the respective Purchase Agreements.
“Closing Date” means the applicable Trading Day on which all of the Transaction Documents have been executed and delivered by the applicable parties thereto and all conditions precedent to (i) each Holder’s obligations to pay the Subscription Amount for a Closing and (ii) the Corporation’s obligations to deliver the Securities have been satisfied or waived.
“Commission” or the “SEC” means the United States Securities and Exchange Commission.
| 3 |
“Common Stock” means the Corporation’s common stock, par value $.000001 per share, and stock of any other class of securities into which such securities may hereafter be reclassified or changed.
“Common Stock Equivalents” means any securities of the Corporation or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.
“Conversion Amount” means the sum of the Stated Value at issue. “Conversion Date” shall have the meaning set forth in Section (a).
“Conversion Price” shall have the meaning set forth in Section 5(b).
“Conversion Shares” means, collectively, the shares of Common Stock issuable upon conversion of the shares of Preferred Stock in accordance with the terms hereof.
“Corporation Redemption” has the meaning set forth in Section 8. “Corporation Redemption Price” has the meaning set forth in Section 8.
“Corporation Redemption Payment Date” has the meaning set forth in Section 8. “Corporation Redemption Notice” has the meaning set forth in Section 8.
“Designation, Amount and Par Value” The series of preferred stock shall be designated as Series D Convertible Preferred Stock and the number of shares so designated shall be up to One-Thousand, Two-Hundred and Ninety (1,290) (which shall not be subject to increase without the written consent of all of the Holders of the Preferred Stock. Each share of Preferred Stock shall have a par value of $.000001 per share and a stated value of $1,200, subject to increase set forth in Section 3 and/or elsewhere in this Certificate of Designation below. “DTC” means the Depository Trust Company.
“DTC/FAST Program” means the DTC’s Fast Automated Securities Transfer Program. "Dividend" shall have the meaning set forth in Section 2.
“DWAC Eligible” means that (a) the Common Stock is eligible at DTC for full services pursuant to DTC’s Operational Arrangements, including without limitation transfer through DTC’s DWAC system, (b) the Corporation has been approved (without revocation) by the DTC’s underwriting department, (c) the Transfer Agent is approved as an agent in the DTC/FAST Program, (d) the Conversion Shares are otherwise eligible for delivery via DWAC, and (e) the Transfer Agent does not have a policy prohibiting or limiting delivery of the Conversion Shares via DWAC.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“New York Courts” shall have the meaning set forth in Section 12(d). “Fundamental Transaction” shall have the meaning set forth in Section 7(e). “GAAP” means United States generally accepted accounting principles. “Holders” means Holders of the Preferred Stock.
“Indemnified Party” shall have the meaning set forth in Section 11(f).
| 4 |
“Indebtedness” means (a) any liabilities for borrowed money or amounts owed in excess of $100,000 (other than trade accounts payable incurred in the ordinary course of business), (b) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether or not the same are or should be reflected in the Corporation’s balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business, and (c) the present value of any lease payments in excess of $10,000 due under leases required to be capitalized in accordance with GAAP.
“Junior Securities” means the Common Stock and all other Common Stock Equivalents of the Corporation other than those securities which are explicitly senior or pari passu to the Preferred Stock in dividend rights or liquidation preference.
“Late Fees” shall have the meaning set forth in Section 2(d).
“Liens” means a lien, charge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.
“Liquidation” shall have the meaning set forth in Section 4. “Losses” shall have the meaning set forth in Section 11(f).
“Notice of Conversion” shall have the meaning set forth in Section 5.
“Original Issue Date” means the date of the first issuance of any shares of the Preferred Stock regardless of the number of transfers of any particular shares of Preferred Stock and regardless of the number of certificates which may be issued to evidence such Preferred Stock.
“Permitted Governmental Indebtedness” means Indebtedness for the purpose of supporting product sales by the Borrower.
“Permitted Indebtedness” means (i)) Indebtedness of the Corporation set forth in Corporation’s most recent SEC report filed with the SEC by the Corporation on Form 10-Q or Form 10-K (the “SEC Reports”) provided none of such Indebtedness, has been increased, extended and/or otherwise changed), (ii) Indebtedness secured by Permitted Liens described in clauses “(iii)” of the definition of Permitted Liens, and (iv) Permitted Governmental Indebtedness.
“Permitted Liens” means (i) any Lien for taxes not yet due or delinquent or being contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with GAAP, (ii) any statutory Lien arising in the ordinary course of business by operation of law with respect to a liability that is not yet due or delinquent, (iii) any Lien created by operation of law, such as materialmen’s liens, mechanics’ liens and other similar liens, arising in the ordinary course of business with respect to a liability that is not yet due or delinquent or that are being contested in good faith by appropriate proceedings, (iv) Liens (a) upon or in any equipment acquired or held by the Borrower or any of its Subsidiaries to secure the purchase price of such equipment or indebtedness incurred solely for the purpose of financing the acquisition or lease of such equipment, and (b) existing on such equipment at the time of its acquisition, provided that the Lien is confined solely to the property so acquired and improvements thereon, and the proceeds of such equipment and (v) any Liens for Permitted Indebtedness set forth in (i) and (ii) of the definition of Permitted Indebtedness provided as to “(ii)” of Permitted Indebtedness such Liens were in existence and not amended, supplemented and/or modified since the original issuance date any such Indebtedness was incurred.
“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.
“Piggy-Back Registration” shall have the meaning set forth in Section 11(a).
| 5 |
“Preferred Stock” shall mean Series D Convertible Preferred Stock.
“Premium Rate” shall have the meaning set forth in Section 8(a).
“Purchase Agreement” means that certain Securities Purchase Agreement, dated on or about the Original Issue Date, among the Corporation and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.
“Qualified Offering” means an underwritten financing transaction resulting in net proceeds to the Company of at least five million dollars ($5,000,000) within twelve (12) calendar months from the issuance of the Preferred Shares and the Company’s stock being listed on a National Exchange.
“Registration Statement” shall have the meaning set forth in Section 11(a).
“Securities” means the Preferred Stock and the Underlying Shares.
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Share Delivery Date” shall have the meaning set forth in Section 5(c)(i).
“Stated Value” shall mean $1,200, subject to increase set forth in Section 3 and/or elsewhere in this Certificate of Designation.
“Subscription Amount” shall mean, as to each Holder, the aggregate amount to be paid for the Preferred Stock purchased pursuant to the Purchase Agreement as specified below such Holder’s name on the signature page of the Purchase Agreement and next to the heading “Subscription Amount,” in United States dollars and in immediately available funds.
“Subsidiary” means any subsidiary of the Corporation as set forth on Schedule 3.1(a) of the Purchase Agreement and shall, where applicable, also include any direct or indirect subsidiary of the Corporation formed or acquired after the date of the Purchase Agreement.
“Successor Entity” shall have the meaning set forth in Section 3.
“Trading Day or Date” means a day on which the principal Trading Market is open for business.
“Trading Market” means any of the following markets or exchanges on which the Common Stock (or any other common stock of any other Person that references the Trading Market for its common stock) is listed or quoted for trading on the date in question: The NASDAQ Global Market, The NASDAQ Global Select Market, The NASDAQ Capital Market, the New York Stock Exchange, NYSE Arca, the NYSE MKT, or the OTCQX Marketplace, the OTCQB Marketplace, the OTC Pink Marketplace or any other tier operated by OTC Markets Group Inc. (or any successor to any of the foregoing).
“Transaction Documents” means this Certificate of Designation, the Purchase Agreement, all exhibits and schedules thereto and hereto and any other documents or agreements executed in connection with the transactions contemplated pursuant to the Purchase Agreement.
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“Transfer Agent” means Mountain Share Transfer LLC, the current transfer agent of the Company, with a mailing address of 2030 Powers Ferry Road SE, Suite # 212, Atlanta, GA 30339 and any successor transfer agent of the Company.
“Triggering Event” shall have the meaning set forth in Section 10(a).
“Triggering Redemption Amount” means, for each share of Preferred Stock, the sum of (a) 130% of the Stated Value and (b) all accrued but unpaid dividends thereon and (c) all liquidated damages, Late Fees and other costs, expenses or amounts due in respect of the Preferred Stock including, but not limited to legal fees and expenses of legal counsel to the Holder in connection with, related to and/or arising out of a Triggering Event.
“Triggering Redemption Payment Date” shall have the meaning set forth in Section 10(b).
“Underlying Shares” means the shares of Common Stock issued and issuable upon conversion of the Preferred Stock.
“VWAP” means, for or as of any date for the Common Stock, the dollar volume-weighted average price for the Common Stock on the Trading Market during the period beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time, as reported by Bloomberg through its “HP” function (set to weighted average) or, if the foregoing does not apply, the dollar volume-weighted average price of the Common Stock in the over-the- counter market on the electronic bulletin board for the Common Stock during the period beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time, as reported by Bloomberg, or, if no dollar volume- weighted average price is reported for the Common Stock by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for the Common Stock as reported in the “pink sheets” by OTC Markets Group Inc. (formerly Pink Sheets LLC). If the VWAP cannot be calculated for the Common Stock on such date on any of the foregoing bases, the VWAP of the Common Stock on such date shall be the fair market value as mutually determined by the Company and the Holder. All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination, recapitalization or other similar transaction during such period.
Dividends.
Dividends in Cash or in Kind. Each share of Preferred Stock shall be entitled to receive, and the Corporation shall pay, cumulative dividends of eight percent (8%) per annum, payable quarterly, beginning on the Original Issuance Date and ending on the date that such share of Preferred Share has been converted or redeemed (the “Dividend End Date”). Dividends may be paid in cash or in shares of Preferred Stock at the discretion of the Company.
Dividend Calculations. Subject to Section 3(a), dividends on the Preferred Stock shall be calculated on the basis of a 360-day year, consisting of twelve (12) thirty (30) calendar day periods, and shall accrue and compound daily commencing on the Original Issue Date, and shall be deemed to accrue from such date whether or not earned or declared and whether or not there are profits, surplus or other funds of the Corporation legally available for the payment of dividends. Dividends shall cease to accrue with respect to any Preferred Stock redeemed or converted, provided that the Corporation actually delivers the Conversion Shares within the time period required by Section 6(c)(i) herein.
Late Fees. Any dividends that are not paid a Dividend Payment Date shall continue to accrue and shall entail a late fee (“Late Fees”), which must be paid in cash, at the rate of 14% per annum or the lesser rate permitted by applicable law which shall accrue and compound daily from the Dividend Payment Date through and including the date of actual payment in full.
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Other Securities. So long as any Preferred Stock shall remain outstanding, neither the Corporation nor any Subsidiary thereof shall redeem, purchase or otherwise acquire directly or indirectly any Junior Securities or pari passu securities other than any Preferred Stock purchased to the terms of this Certificate of Designation. So long as any Preferred Stock shall remain outstanding, neither the Corporation nor any Subsidiary thereof shall directly or indirectly pay or declare any dividend or make any distribution upon (other than a dividend or distribution described in Section 2 or dividends due and paid in the ordinary course on preferred stock of the Corporation at such times when the Corporation is in compliance with its payment and other obligations hereunder), nor shall any distribution be made in respect of, any Junior Securities or pari passu securities as long as any dividends due on the Preferred Stock remain unpaid, nor shall any monies be set aside for or applied to the purchase or redemption (through a sinking fund or otherwise) of any Junior Securities or pari passu securities.
Voting Rights. The Preferred Stock will vote together with the common stock on an as-converted basis subject to the Beneficial Ownership Limitations. However, as long as any shares of Preferred Stock are outstanding, the Corporation shall not, without the affirmative vote of the Holders of a majority of the then outstanding shares of the Preferred Stock directly and/or indirectly (a) alter or change adversely the powers, preferences or rights given to the Preferred Stock or alter or amend this Certificate of Designation, (b) authorize or create any class of stock ranking as to redemption or distribution of assets upon a Liquidation (as defined in Section 5) senior to, or otherwise pari passu with, the Preferred Stock or, authorize or create any class of stock ranking as to dividends senior to, or otherwise pari passu with, the Preferred Stock, (c) amend its Articles of Incorporation or other charter documents in any manner that adversely affects any rights of the Holders, (d) increase the number of authorized shares of Preferred Stock, or (e) enter into any agreement with respect to any of the foregoing.
Liquidation. Upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (a “Liquidation”), the Holders shall be entitled to receive out of the assets, whether capital or surplus, of the Corporation an amount equal to the Stated Value, plus any accrued and unpaid dividends thereon and any other fees or liquidated damages then due and owing thereon under this Certificate of Designation, for each share of Preferred Stock before any distribution or payment shall be made to the holders of any Junior Securities, and if the assets of the Corporation shall be insufficient to pay in full such amounts, then the entire assets to be distributed to the Holders shall be ratably distributed among the Holders in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full. A Fundamental Transaction or Change of Control Transaction shall not be deemed a Liquidation. The Corporation shall mail written notice of any such Liquidation, not less than forty-five (45) days prior to the payment date stated therein, to each Holder.
Conversion.
Conversions at Option of Holder. Each share of Preferred Stock shall be convertible, at any time and from time to time from and after the Original Issue Date at the option of the Holder thereof, into that number of shares of Common Stock (subject to the limitations set forth in Section 5(d)) determined by dividing the Stated Value of such share of Preferred Stock by the Conversion Price. Holders shall effect conversions by providing the Corporation with the form of conversion notice attached hereto as Annex A (a “Notice of Conversion”). Each Notice of Conversion shall specify the number of shares of Preferred Stock to be converted, the number of shares of Preferred Stock owned prior to the conversion at issue, the number of shares of Preferred Stock owned subsequent to the conversion at issue and the date on which such conversion is to be effected, which date may not be prior to the date the applicable Holder delivers by facsimile or email such Notice of Conversion to the Corporation (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion to the Corporation is deemed delivered hereunder. No ink-original Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required. The calculations and entries set forth in the Notice of Conversion shall control in the absence of manifest or mathematical error. To effect conversions of shares of Preferred Stock, a Holder shall not be required to surrender the certificate(s) representing the shares of Preferred Stock to the Corporation unless all of the shares of Preferred Stock represented thereby are so converted, in which case such Holder shall deliver the certificate representing such shares of Preferred Stock promptly following the Conversion Date at issue. Shares of Preferred Stock converted into Common Stock or redeemed in accordance with the terms hereof shall be canceled and shall not be reissued.
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b) Conversion Price. The conversion price (the “Conversion Price”) for the Preferred Stock shall be the amount equal to $ per share (90% of the lowest VWAP of the Common Stock during the ten (10) Trading Days immediately preceding the execution of the Purchase Agreement), subject to adjustments.. All such foregoing determinations will be appropriately adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction that proportionately decreases or increases the Common Stock during such measuring period. Nothing herein shall limit a Holder’s right to pursue actual damages including, but not limited to, as a result of a Triggering Event pursuant to Section 10 hereof and the Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law. Following an “Event of Default,” as defined in the Purchase Agreement, the Conversion price shall equal the lower of: (a) the then applicable Conversion Price; or (b) a price per share equaling eighty five percent (85%) of the lowest traded price for the Company’s common stock during the fifteen (15) Trading Days immediately preceding, but not including, the Conversion Date. Upon the consummation of any Qualified Offering, the Investor shall have the option to convert any portion of Preferred Stock into the securities offered in the Qualified Offering at a thirty percent (30%) discount to the Purchase Price of the Qualified Offering.
c) Mechanics of Conversion
i. Delivery of Conversion Shares Upon Conversion. Not later than two (2) Trading Days after each Conversion Date (the “Share Delivery Date”), the Corporation shall deliver, or cause to be delivered, to the converting Holder (A) the number of Conversion Shares being acquired upon the conversion of the Preferred Stock, which Conversion Shares shall be free of restrictive legends and trading restrictions, and (B) a bank check in the amount of accrued and unpaid dividends (if the Corporation has elected or is required to pay accrued dividends in cash). The Corporation shall deliver the Conversion Shares electronically through the Depository Trust Company or another established clearing corporation performing similar functions.
ii. Failure to Deliver Conversion Shares. If, in the case of any Notice of Conversion, such Conversion Shares are not delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to the Corporation at any time on or before its receipt of such Conversion Shares, to rescind such Conversion, in which event the Corporation shall promptly return to the Holder any original Preferred Stock certificate delivered to the Corporation and the Holder shall promptly return to the Corporation the Conversion Shares issued to such Holder pursuant to the rescinded Conversion Notice.
iii. Obligation Absolute; Partial Liquidated Damages. The Corporation’s obligation to issue and deliver the Conversion Shares upon conversion of Preferred Stock in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by a Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by such Holder or any other Person of any obligation to the Corporation or any violation or alleged violation of law by such Holder or any other person, and irrespective of any other circumstance which might otherwise limit such obligation of the Corporation to such Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Corporation of any such action that the Corporation may have against such Holder. In the event a Holder shall elect to convert any or all of the Stated Value of its Preferred Stock, the Corporation may not refuse conversion based on any claim that such Holder or any one associated or affiliated with such Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and/or enjoining conversion of all or part of the Preferred Stock of such Holder shall have been sought and obtained, and the Corporation posts a surety bond for the benefit of such Holder in the amount of 150% of the Stated Value of Preferred Stock which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to such Holder to the extent it obtains judgment. In the absence of such injunction, the Corporation shall issue Conversion Shares and, if applicable, cash, upon a properly noticed conversion. If the Corporation fails to deliver to a Holder such Conversion Shares pursuant to Section 5 on the second Trading Day after the Share Delivery Date applicable to such conversion, the Corporation shall pay to such Holder, in cash, as liquidated damages and not as a penalty, for each $5,000 of Stated Value of Preferred Stock being converted, $100 per Trading Day (increasing to $150 per Trading Day on the third Trading Day and increasing to $200 per Trading Day on the sixth Trading Day after such damages begin to accrue) for each Trading Day after such second Trading Day after the Share Delivery Date until such Conversion Shares are delivered or Holder rescinds such conversion. All liquidated damages shall be paid to the Holder not later than the fifth (5th) Trading Day after notice is provided to the Company by the Holder stating that any such liquidated damages are due pursuant to this Section 5. Nothing herein shall limit a Holder’s right to pursue actual damages or declare a Triggering Event pursuant to Section 10 hereof for the Corporation’s failure to deliver Conversion Shares within the period specified herein and such Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit a Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.
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iv. Compensation for Buy-In on Failure to Timely Deliver Conversion Shares Upon Conversion. In addition to any other rights available to the Holder, if the Corporation fails for any reason to deliver to a Holder the applicable Conversion Shares by the Share Delivery Date pursuant to Section 5, and if after such Share Delivery Date such Holder is required by its brokerage firm 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 such Holder of the Conversion Shares which such Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “Buy-In”), then the Corporation shall (A) pay in cash to such Holder (in addition to any other remedies available to or elected by such Holder) the amount, if any, by which (x) such Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that such Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of such Holder, either reissue (if surrendered) the shares of Preferred Stock equal to the number of shares of Preferred Stock submitted for conversion (in which case, such conversion shall be deemed rescinded) or deliver to such Holder the number of shares of Common Stock that would have been issued if the Corporation had timely complied with its delivery requirements under Section 5. For example, if a Holder purchases shares of Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of shares of Preferred Stock with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Corporation shall be required to pay such Holder $1,000. The payment of all amounts due by the Company to the Holder shall be paid in cash no later than the fifth (5th) Business Day after notice is provided by a Holder to the Company requesting the payment of any such liquidated damages. The Holder shall provide the Corporation written notice indicating the amounts payable to such Holder in respect of the Buy-In and, upon request of the Corporation, 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 Corporation’s failure to timely deliver the Conversion Shares upon conversion of the shares of Preferred Stock as required pursuant to the terms hereof.
v. Reservation of Shares Issuable Upon Conversion. The Company covenants that it will reserve and keep available out of its authorized and unissued shares of Common Stock a number of shares of Common Stock at least equal to the Required Minimum for the sole purpose of issuance upon conversion of the Preferred Stock and payment of dividends on the Preferred Stock, all as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Purchasers, not less than such aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 7, but ignoring any Beneficial Ownership Limitations or other restrictions and/or limitations on conversions set forth herein or elsewhere) upon the conversion of the then outstanding shares of the Preferred Stock and payment of dividends hereunder. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable, and, at such times as a registration statement covering such shares is then effective under the Securities Act, will be registered for public resale in accordance with such registration statement. For purposes of this Certification of Designation, the term “Required Minimum” shall be defined as the product of (i) 300%, multiplied by (ii) the quotient of (A)(x) all outstanding Stated Value of all issued and outstanding shares of the Preferred Stock, (y) all unpaid dividends thereon (whether accrued or not), and (z) all fees and/or any costs and expenses relating to the Transaction Documents including, but not limited to Late Fees and liquidation damages, divided by (B) the Conversion Price on the date of Closing. The Required Minimum shall be increased from time to time to ensure appropriate coverage for Securities issued or issuable to Purchaser.
vi. Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of the Preferred Stock. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, the Corporation 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 Conversion Price or round up to the next whole share.
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vii. Transfer Taxes and Expenses. The issuance of Conversion Shares on conversion of this Preferred Stock shall be made without charge to any Holder for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such Conversion Shares, provided that the Corporation shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such Conversion Shares upon conversion in a name other than that of the Holders of such shares of Preferred Stock and the Corporation shall not be required to issue or deliver such Conversion Shares unless or until the Person or Persons requesting the issuance thereof shall have paid to the Corporation the amount of such tax or shall have established to the satisfaction of the Corporation that such tax has been paid. In the event that the Holder requests same-day processing for a Notice of Conversion, such Holder shall pay all Transfer Agent fees required for such same-day processing and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Conversion Shares.
d) Beneficial Ownership Limitation. The Corporation shall not effect any conversion of the Preferred Stock, and a Holder shall not have the right to convert any portion of the Preferred Stock, to the extent that, after giving effect to the conversion set forth on the applicable Notice of Conversion, such Holder (together with such Holder’s Affiliates, and any Persons acting as a group together with such Holder or any of such Holder’s Affiliates) 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 such Holder and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of the Preferred Stock with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) conversion of the remaining, unconverted Stated Value of Preferred Stock beneficially owned by such Holder or any of its Affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Corporation subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, the Preferred Stock or the Warrants) beneficially owned by such Holder or any of its Affiliates. Except as set forth in the preceding sentence, for purposes of this Section 6(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. To the extent that the limitation contained in this Section 6(d) applies, the determination of whether the Preferred Stock is convertible (in relation to other securities owned by such Holder together with any Affiliates) and of how many shares of Preferred Stock are convertible shall be in the sole discretion of such Holder, and the submission of a Notice of Conversion shall be deemed to be such Holder’s determination of whether the shares of Preferred Stock may be converted (in relation to other securities owned by such Holder together with any Affiliates) and how many shares of the Preferred Stock are convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance with this restriction, the Holder will be deemed to represent to the Corporation each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and the Corporation 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 6(d), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i) the Corporation’s most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public announcement by the Corporation or (iii) a more recent written notice by the Corporation or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Corporation shall within two (2) Trading Days confirm orally and in writing to such 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 Corporation, including the Preferred Stock, by such Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of Preferred Stock held by the applicable Holder.
Section 6. Intentionally Omitted.
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Section 7. Certain Adjustments.
a) Stock Dividends and Stock Splits. If the Corporation, at any time while this Preferred Stock is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions that is payable in shares of Common Stock on shares of Common Stock or any other Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Corporation upon conversion of, or payment of a dividend on, the Preferred Stock), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Corporation, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Corporation) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section 7(a) shall become effective immediately after the record date for the determination of stockholders 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) Most Favored Nation Provision. From the date hereof until the date when the Holder no longer holds any Preferred Stock, upon any issuance by the Company or any of its Subsidiaries of Common Stock or Common Stock Equivalents for cash consideration, Indebtedness or a combination of units thereof (a “Subsequent Financing”), the Holder may elect, in its sole discretion, to exchange (in lieu of conversion), if applicable, all or some of the shares of Preferred Stock then held for any securities or units issued in a Subsequent Financing on a $1.00 for $1.00 basis. The Company shall provide the Holder with notice of any such Subsequent Financing in the manner set forth below Additionally, if in such Subsequent Financing there are any contractual provisions or side letters that provide terms more favorable to the investors than the terms provided for hereunder, then the Company shall specifically notify the Holder of such additional or more favorable terms and such terms, at Holder’s option, shall become a part of the transaction documents with the Holder. The types of terms contained in another security that may be more favorable to the holder of such security include, but are not limited to, terms addressing stock sale price, private placement price per share, and warrant coverage.
c) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 7(a) above, if at any time the Corporation 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 shares of Common Stock (the “Purchase Rights”), then the Holder of will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of such Holder’s Preferred Stock (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 shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, 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 Preferred Stock is outstanding, if the Corporation shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property 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 Preferred Stock, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Preferred Stock (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 shares of Common Stock are to be determined for the participation in such Distribution (provided, however, 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).
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e) Fundamental Transaction.
1) General. The Company shall not enter into or be party to a Fundamental Transaction unless (i) the Successor Entity (as defined below) assumes in writing all of the obligations of the Company under this Certificate of Designation in accordance with the provisions of this Section 7.e) pursuant to written agreements in form and substance satisfactory to the Holder and approved by the Holder prior to such Fundamental Transaction, including agreements to deliver to the Holder in exchange for shares of Preferred Stock a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to the Preferred Stock, including, without limitation, which is convertible into a corresponding number of shares of capital stock equivalent to the shares of Common Stock acquirable and receivable upon conversion of the Preferred Stock (without regard to any limitations on the conversion of the Preferred Stock) prior to such Fundamental Transaction, and with a conversion price which applies the conversion price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such adjustments to the number of shares of capital stock and such conversion price being for the purpose of protecting the economic value of the Preferred Stock immediately prior to the consummation of such Fundamental Transaction) and (ii) if the Fundamental Transaction occurs within six (6) months of the Closing Date, the Successor Entity (including its Parent Entity) is a publicly traded corporation whose common stock is quoted on or listed for trading on an Eligible Market. Upon the consummation of each Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of the applicable Fundamental Transaction, the provisions of this Certificate of Designation 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 Certificate of Designation with the same effect as if such Successor Entity had been named as the Company herein. Upon consummation of each Fundamental Transaction, the Successor Entity shall deliver to the Holder confirmation that there shall be issued upon conversion of the Preferred Stock at any time after the consummation of the applicable Fundamental Transaction, in lieu of the shares of Common Stock (or other securities, cash, assets or other property) issuable upon the conversion of the Preferred Stock prior to the applicable Fundamental Transaction, such shares of publicly traded common stock (or its equivalent) of the Successor Entity (including its Parent Entity) which the Holder would have been entitled to receive upon the happening of the applicable Fundamental Transaction had the Preferred Stock been converted immediately prior to the applicable Fundamental Transaction (without regard to any limitations on the conversion of the Preferred Stock), as adjusted in accordance with the provisions of this Certificate of Designation. Notwithstanding the foregoing, and without limiting Section 5 hereof, the Holder may elect, at its sole option, by delivery of written notice to the Company to waive this Section 7.e) to permit the Fundamental Transaction without the assumption of the Preferred Stock. In addition to and not in substitution for any other rights hereunder, prior to the consummation of each Fundamental Transaction pursuant to which holders of shares of Common Stock are entitled to receive securities or other assets with respect to or in exchange for shares of Common Stock (a “Corporate Event”), the Company shall make appropriate provision to insure that the Holder will thereafter have the right to receive upon a conversion of the Preferred Stock at any time after the consummation of the applicable Fundamental Transaction but prior to the Expiration Date, in lieu of the shares of the Common Stock (or other securities, cash, assets or other property) issuable upon the conversion of the Preferred Stock prior to such Fundamental Transaction, such shares of stock, securities, cash, assets or any other property whatsoever (including warrants or other purchase or subscription rights) which the Holder would have been entitled to receive upon the happening of the applicable Fundamental Transaction had the Preferred Shares been exercised immediately prior to the applicable Fundamental Transaction (without regard to any limitations on the conversion of the Preferred Stock). Provision made pursuant to the preceding sentence shall be in a form and substance reasonably satisfactory to the Holder.
2) Black Scholes Value. Notwithstanding the foregoing and the provisions of Section 5 above, at the request of the Holder delivered at any time commencing on the earliest to occur of (x) the public disclosure of any Fundamental Transaction, (y) the consummation of any Fundamental Transaction and (z) the Holder first becoming aware of any Fundamental Transaction through the date that is ninety (90) days after the public disclosure of the consummation of such Fundamental Transaction by the Company pursuant to a Current Report on Form 8-K filed with the SEC, the Company or the Successor Entity (as the case may be) shall purchase the Preferred Stock from the Holder on the date of such request by paying to the Holder cash in an amount equal to the Black Scholes Value.
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3) Fundamental Transaction. If, at any time while any Preferred Stock 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 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 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 conversion of the Preferred Stock, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 6 on the conversion of the Preferred Stock), the number of shares of Common 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 into which each share of Preferred Stock is convertible immediately prior to such Fundamental Transaction (without regard to any limitation in Section 6 on the conversion of the Preferred Stock). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Conversion 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 conversion of this Note following such Fundamental Transaction. Notwithstanding anything to the contrary, in the event of a Fundamental Transaction, the Company or any Successor Entity shall, at the Holder’s option, exercisable at any time concurrently with, or within 30 days after, the consummation of the Fundamental Transaction, purchase the shares of Preferred Stock from the Holder by paying to the Holder an amount of cash equal to the Black Scholes Value of the remaining unconverted shares of Preferred Stock on the date of the consummation of such Fundamental Transaction. “Black Scholes Value” means the value of the unconverted shares of Preferred Stock remaining on the date of the Holder’s request pursuant to Section 7(e)(2) which value is calculated using the Black Scholes Option Pricing Model for a “call” or “put” option, as elected by the Holder, as obtained from the “OV” function on Bloomberg utilizing (i) an underlying price per share equal to the greater of (1) the highest Closing Sale Price of the Common Stock during the period beginning on the Trading Day immediately preceding the announcement of the applicable Fundamental Transaction (or the consummation of the applicable Fundamental Transaction, if earlier) and ending on the Trading Day of the Holder’s request pursuant to Section 7(e)(2) and (2) the sum of the price per share being offered in cash in the applicable Fundamental Transaction (if any) plus the value of the non-cash consideration being offered in the applicable Fundamental Transaction (if any), (ii) a strike price equal to the Conversion Price in effect on the date of the Holder’s request pursuant to Section 7(e)(2), (iii) a risk-free interest rate corresponding to the U.S. Treasury rate as of the date of the Holder’s request pursuant to Section 7(e)(2) if such request is prior to the date of the consummation of the applicable Fundamental Transaction, (iv) a zero cost of borrow and (v) an expected volatility equal to the greater of 100% and the 30 day volatility obtained from the “HVT” function on Bloomberg (determined utilizing a 365 day annualization factor) as of the Trading Day immediately following the earliest to occur of (A) the public disclosure of the applicable Fundamental Transaction, (B) the consummation of the applicable Fundamental Transaction and (C) the date on which the Holder first became aware of the applicable 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 Certificate of Designation and the other Transaction Documents in accordance with the provisions of this Section 7(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 the Preferred Stock a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to the Preferred Stock which is convertible into a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon conversion of the Preferred Stock (without regard to any limitations on the conversion of the Preferred Stock) prior to such Fundamental Transaction, and with a conversion price which applies the Conversion Price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such conversion price being for the purpose of protecting the economic value of the Preferred Stock 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 Note and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Note and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.
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f) Calculations. All calculations under this Section 7 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 7, 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 of shares of Common Stock (excluding any treasury shares of the Corporation) issued and outstanding.
g) Notice to the Holders.
i. Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 7, the Corporation shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.
ii. Notice to Allow Conversion by Holder. If (A) the Corporation shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Corporation shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Corporation shall authorize the granting to all holders of the Common Stock of 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 stockholders of the Corporation shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Corporation is a party, any sale or transfer of all or substantially all of the assets of the Corporation, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property (E) the Corporation shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation (F) the Corporation shall take any action to effectuate an Corporation Redemption, or (G) a Triggering Event shall have occurred, then, in each case, the Corporation shall cause to be filed at each office or agency maintained for the purpose of conversion of this Preferred Stock, and shall cause to be delivered to each Holder at its last address as it shall appear upon the stock books of the Corporation, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified (unless a greater or lesser time period is expressly required elsewhere in this Certificate of Designation), 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 the 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 hereunder constitutes, or contains, material, non-public information regarding the Corporation or any of the Subsidiaries, the Corporation shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to convert the Conversion Amount of this Preferred Stock (or any part hereof) during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice except as may otherwise be expressly set forth in this Certificate of Designation.
(h) Participation in Subsequent Financing.
(i) Upon a Subsequent Financing, a Holder of at least one hundred (100) shares of Preferred Stock (each such Holder, a “Significant Purchaser”) shall have the right to participate in up to an amount of the Subsequent Financing equal to 100% of the Subsequent Financing (the “Participation Maximum”) on the same terms, conditions and price provided for in the Subsequent Financing.
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(ii) At least five (5) Trading Days prior to the closing of the Subsequent Financing, the Company shall deliver to each Significant Purchaser a written notice of its intention to effect a Subsequent Financing (“Pre-Notice”), which Pre-Notice shall ask such Significant Purchaser if it wants to review the details of such financing (such additional notice, a “Subsequent Financing Notice”). Upon the request of a Significant Purchaser, and only upon a request by such Significant Purchaser, for a Subsequent Financing Notice, the Company shall promptly, but no later than one (1) Trading Day after such request, deliver a Subsequent Financing Notice to such Significant Purchaser. The Subsequent Financing Notice shall describe in reasonable detail the proposed terms of such Subsequent Financing, the amount of proceeds intended to be raised thereunder and the Person or Persons through or with whom such Subsequent Financing is proposed to be effected and shall include a term sheet or similar document relating thereto as an attachment.
(iii) Any Significant Purchaser desiring to participate in such Subsequent Financing must provide written notice to the Company by not later than 5:30 p.m. (New York City time) on the fifth (5th) Trading Day after all of the Significant Purchasers have received the Pre-Notice that such Significant Purchaser is willing to participate in the Subsequent Financing, the amount of such Purchaser’s participation, and representing and warranting that such Significant Purchaser has such funds ready, willing, and available for investment on the terms set forth in the Subsequent Financing Notice. If the Company receives no such notice from a Significant Purchaser as of such fifth (5th) Trading Day, such Significant Purchaser shall be deemed to have notified the Company that it does not elect to participate.
(iv) If by 5:30 p.m. (New York City time) on the fifth (5th) Trading Day after all of the Significant Purchasers have received the Pre-Notice, notifications by the Significant Purchasers of their willingness to participate in the Subsequent Financing (or to cause their designees to participate) is, in the aggregate, less than the total amount of the Subsequent Financing, then the Company may effect the remaining portion of such Subsequent Financing on the terms and with the Persons set forth in the Subsequent Financing Notice.
(v) If by 5:30 p.m. (New York City time) on the fifth (5th) Trading Day after all of the Purchasers have received the Pre-Notice, the Company receives responses to a Subsequent Financing Notice from Significant Purchasers seeking to purchase more than the aggregate amount of the Participation Maximum, each such Significant Purchaser shall have the right to purchase its Pro Rata Portion (as defined below) of the Participation Maximum. “Pro Rata Portion” means the ratio of (x) the Subscription Amount of Securities purchased on the Closing Date by a Significant Purchaser participating under this Section 7(h) and (y) the sum of the aggregate Subscription Amounts of Securities purchased on the Closing Date by all Significant Purchasers participating under this Section 7(h).
(vi) The Company must provide the Significant Purchasers with a second Subsequent Financing Notice, and the Significant Purchasers will again have the right of participation set forth above in this Section 7(h), if the Subsequent Financing subject to the initial Subsequent Financing Notice is not consummated for any reason on the terms set forth in such Subsequent Financing Notice within ten (10) Trading Days after the date of the initial Subsequent Financing Notice.
(vii) The Company and each Significant Purchaser agree that if any Significant Purchaser elects to participate in the Subsequent Financing, the transaction documents related to the Subsequent Financing shall not include any term or provision whereby such Significant Purchaser shall be required to agree to any restrictions on trading as to any of the Securities purchased hereunder or be required to consent to any amendment to or termination of, or grant any waiver, release or the like under or in connection with, this Agreement, without the prior written consent of such Significant Purchaser. In addition, the Company and each Significant Purchaser agree that, in connection with a Subsequent Financing, the transaction documents related to the Subsequent Financing shall include a requirement for the Company to issue a widely disseminated press release by 9:30 am (New York City time) on the Trading Day of execution of the transaction documents in such Subsequent Financing (or, if the date of execution is not a Trading Day, on the immediately following Trading Day) that discloses the material terms of the transactions contemplated by the transaction documents in such Subsequent Financing.
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(viii) Notwithstanding anything to the contrary in this Section 7(h) and unless otherwise agreed to by such Significant Purchaser, the Company shall either confirm in writing to such Significant Purchaser that the transaction with respect to the Subsequent Financing has been abandoned or shall publicly disclose its intention to issue the securities in the Subsequent Financing, in either case in such a manner such that such Significant Purchaser will not be in possession of any material, non-public information, by the tenth (10th) Business Day following delivery of the Subsequent Financing Notice. If by such tenth (10th) Business Day, no public disclosure regarding a transaction with respect to the Subsequent Financing has been made, and no notice regarding the abandonment of such transaction has been received by such Significant Purchaser, such transaction shall be deemed to have been abandoned and such Significant Purchaser shall not be deemed to be in possession of any material, non-public information with respect to the Company or any of its Subsidiaries.
(ix) Notwithstanding the foregoing, this Section 7(h) shall not apply in respect of an Exempt Issuance.
Section 8. Corporation Redemption.
(a) The Corporation shall have the right to redeem (a “Corporation Redemption”), all (but not less than all), shares of the Preferred Stock issued and outstanding at any time after the Original Issue Date, upon five (5) business days’ notice, at a redemption price per Preferred Stock then issued and outstanding (the “Corporation Redemption Price”), equal to the product of (i) the Premium Rate multiplied by (ii) the sum of (x) the Stated Value, (y) all accrued but unpaid dividends, and (z) all other amount due to the Holder pursuant to this Certificate of Designation and/or any Transaction Document including, but not limited to Late Fees, liquidated damages and the legal fees and expenses of the Holder’s counsel relating to this Certification of Designation, any other Transaction Document and/or the transactions contemplated thereunder and/or hereunder. “Premium Rate” means (a) 1.15 if all of the Preferred Stock is redeemed within ninety (90) calendar days from the issuance date thereof; and (b) 1.2 if all of the Preferred Stock is redeemed after ninety (90) calendar days from the issuance date thereof.
(b) The Corporation may not deliver to a holder a Corporation Redemption Notice unless on or prior to the date of delivery of such Corporation Redemption Notice, the Corporation shall have segregated on the books and records of the Corporation an amount of cash sufficient to pay the Corporation Redemption Price for each share of Preferred Stock then issued and duly. Any Corporation Redemption Notice delivered shall be irrevocable and shall be accompanied by a statement executed by Corporation duly authorized officer of the Corporation.
(c) The Corporation Redemption Price required to be paid by the Corporation to each Holder shall be paid in the cash to each Holder of shares of Preferred Stock no later than five (5) calendar days from the date of mailing of the Corporation Redemption Notice (the “Corporation Redemption Payment Date”).
(d) Notwithstanding the delivery of a Corporation Redemption Notice, a Holder may convert some or all of its shares of Preferred Stock until the date it receives in full Corporation Redemption Price, provided, however, that notwithstanding anything to the contrary provided herein or elsewhere (i) in the event a Holder would be precluded from converting any shares of Preferred Stock, due to the limitation contained in Section 5, the Corporation Redemption Payment Date, for such Holder only, shall automatically be extended by one hundred twenty (120) days (or such shorter period as so provided to the Corporation by the Holder at any time and (ii) if a Mandatory Conversion has occurred prior to the Corporation Redemption Payment Date and for whatever reason including, but not limited to, the Beneficial Ownership Limitation, a Holder still owns Preferred Stock, any such Holder may elect to extend the Corporation Redemption Payment Date as to any or all of such Holder’s Preferred Stock for up to one hundred twenty (120) days following the Corporation Redemption Payment Date to allow such Holder to convert its remaining Preferred Stock into Conversion Shares.
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Section 9. Negative Covenants. From the date hereof until the date no shares of Preferred Stock are issued and outstanding, unless Holders of at least 75% in Stated Value of the then outstanding shares of Preferred Stock shall have otherwise given prior written consent, the Corporation shall not, and shall not permit any of the Subsidiaries to, directly or indirectly:
(a) other than Permitted Indebtedness, enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed money of any kind, including but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;
(b) other than Permitted Liens, enter into, create, incur, assume or suffer to exist any Liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;
(c) amend its charter documents, including, without limitation, its articles of incorporation and bylaws, in any manner that materially and adversely affects any rights of the Holder;
(d) repay, repurchase or offer to repay, repurchase or otherwise acquire of any shares of its Common Stock, Common Stock Equivalents or Junior Securities, other than as to the Conversion Shares as permitted or required under the Transaction Documents,
(e) pay cash dividends or distributions on Junior Securities of the Corporation;
(f) enter into any transaction with any Affiliate of the Corporation which would be required to be disclosed in any public filing with the Commission, unless such transaction is made on an arm’s-length basis and expressly approved by a majority of the disinterested directors of the Corporation (even if less than a quorum otherwise required for board approval); or
(g) enter into any agreement with respect to any of the foregoing.
Section 10. Redemption Upon Triggering Events.
(a) “Triggering Event” means, wherever used herein any of the following events (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):
i. the Corporation shall fail to deliver Conversion Shares issuable upon a conversion hereunder that comply with the provisions hereof prior to the fifth Trading Day after such shares are required to be delivered hereunder, or the Corporation shall provide written notice to any Holder, including by way of public announcement, at any time, of its intention not to comply with requests for conversion of any shares of Preferred Stock in accordance with the terms hereof;
ii. the Corporation shall fail for any reason to pay in full the amount of cash due pursuant to a Buy-In within five (5) Trading Days after notice therefor is delivered hereunder.
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iii. the Corporation shall fail to have available a sufficient number of authorized and unreserved shares of Common Stock to issue to such Holder upon a conversion hereunder;
iv. unless specifically addressed elsewhere in this Certificate of Designation as a Triggering Event, the Corporation shall fail to observe or perform any other covenant, agreement or warranty contained in, or otherwise commit any breach of the Transaction Documents, and such failure or breach shall not, if subject to the possibility of a cure by the Corporation, have been cured within 5 calendar days after the date on which written notice of such failure or breach shall have been delivered;
v. the Corporation shall redeem Junior Securities or pari passu securities;
vi. the Corporation shall be party to a Change of Control Transaction;
vii. there shall have occurred a Bankruptcy Event;
viii. any monetary judgment, writ or similar final process shall be entered or filed against the Corporation, any subsidiary or any of their respective property or other assets for more than $50,000 (provided that amounts covered by the Corporation’s insurance policies are not counted toward this $50,000 threshold), and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of thirty (30) Trading Days;
ix. the electronic transfer by the Corporation of shares of Common Stock through the Depository Trust Company or another established clearing corporation once established subsequent to the date of this Certificate of Designation is no longer available or is subject to a ‘freeze” and/or “chill”;
x. the Corporation shall no longer be DWAC eligible ; or
xi. any “Event of Default,” as defined in the Purchase Agreement.
b) Upon the occurrence of a Triggering Event, each Holder shall (in addition to all other rights it may have hereunder or under applicable law) have the right, exercisable at the sole option of such Holder, to require the Corporation to (A) redeem all of the Preferred Stock then held by such Holder for a redemption price, in cash, equal to the Triggering Redemption Amount, or (B) at the option of each Holder either (i) redeem all of the Preferred Stock then held by such Holder though the issuance to such Holder of such number of shares of Common Stock equal to the quotient of (x) the Triggering Redemption Amount, divided by (y) the lowest of (1) the Conversion Price, and (2) 85% of the lowest traded price of the Common Stock during the fifteen (15) Trading Days immediately prior to the date of election hereunder, and (ii) increase the dividend rate on all of the outstanding Preferred Stock held by such Holder retroactively to the initial Closing Date to 18% per annum thereafter. The Triggering Redemption Amount, whether payable in cash or in shares, shall be due and payable or issuable, as the case may be, within five (5) Trading Days of the date on which the notice for the payment therefor is provided by a Holder (the “Triggering Redemption Payment Date”). If the Corporation fails to pay in full the Triggering Redemption Amount hereunder on the date such amount is due in accordance with this Section (whether in cash or shares of Common Stock), the Corporation will pay interest thereon at a rate equal to the lesser of 18% per annum or the maximum rate permitted by applicable law, accruing and compounding daily from such date until the Triggering Redemption Amount, plus all such interest thereon, is paid in full.
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Section 11. Registration Rights.
a) If at any time on or after the issuance date of the Preferred Stock, there is no effective registration statement registering, or no current prospectus available for, the resale of the Conversion Shares by the Holder, and the Company proposes to file any Registration Statement with respect to any offering of equity securities, or securities or other obligations exercisable or exchangeable for, or convertible into, equity securities, by the Company for its own account or for shareholders of the Company for their account (or by the Company and by shareholders of the Company), other than a Registration Statement in connection with a merger or acquisition, then the Company shall (x) give written notice of such proposed filing to the Holders as soon as practicable but in no event less than ten (10) days before the anticipated filing date of the Registration Statement, which notice shall describe the amount and type of securities to be included in such Registration Statement, the intended method(s) of distribution, and the name of the proposed managing underwriter or underwriters, if any, of the offering, and (y) offer to the Holders the opportunity to register the sale of such number of Preferred Stock as such Holders may request in writing within five (5) days following receipt of such notice (a “Piggy-Back Registration”). The Company shall cause such Preferred Stock to be included in such registration and shall cause the managing underwriter or underwriters of a proposed underwritten offering to permit the Preferred Stock requested to be included in a Piggy-Back Registration on the same terms and conditions as any similar securities of the Company and to permit the sale or other disposition of such Preferred Stock in accordance with the intended method(s) of distribution thereof. All Holders proposing to distribute their Preferred Stock through a Piggy-Back Registration that involves an underwriter or underwriters shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such Piggy-Back Registration.
b) Any Holder may elect to withdraw such Holder’s request for inclusion of Preferred Stock in any Piggy-Back Registration by giving written notice to the Company of such request to withdraw prior to the effectiveness of the Registration Statement. The Company (whether on its own determination or as the result of a withdrawal by persons making a demand pursuant to written contractual obligations) may withdraw a Registration Statement at any time prior to the effectiveness of such Registration Statement. Notwithstanding any such withdrawal, the Company shall pay all expenses incurred by the Holders in connection with such Piggy-Back Registration (including but not limited to any legal fees).
c) The Company shall notify the Holders at any time when a prospectus relating to such Holder’s Securities is required to be delivered under the Securities Act, upon discovery that, or upon the happening of any event as a result of which, the prospectus included in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing. At the request of such Holder, the Company shall also prepare, file and furnish to such Holder a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of the Preferred Stock, such prospectus shall 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 in light of the circumstances then existing. The Holders shall not offer or sell any Preferred Stock covered by the Registration Statement after receipt of such notification until the receipt of such supplement or amendment.
d) the Company may request a Holder to furnish the Company such information with respect to such Holder and such Holder’s proposed distribution of the Preferred Stock pursuant to the Registration Statement as the Company may from time to time reasonably request in writing or as shall be required by law or by the Commission in connection therewith, and such Holders shall furnish the Company with such information.
e) All fees and expenses incident to the performance of or compliance with this Section 11 by the Company shall be borne by the Company whether or not any Preferred Stock are sold pursuant to a Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses of the Company’s counsel and independent registered public accountants) (A) with respect to filings made with the Commission, (B) with respect to filings required to be made with any Trading Market on which the Common Stock are then listed for trading, (C) in compliance with applicable state securities or Blue Sky laws reasonably agreed to by the Company in writing (including, without limitation, fees and disbursements of counsel for the Company in connection with Blue Sky qualifications or exemptions) and (D) with respect to any filing that may be required to be made by any broker through which a Holder intends to make sales of Preferred Stock with FINRA, (ii) printing expenses, (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company, (v) Securities Act liability insurance, if the Company so desires such insurance, and (vi) fees and expenses of all other persons or entities retained by the Company in connection with the consummation of the transactions contemplated by this Section 11.
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f) The Company and its successors and assigns shall indemnify and hold harmless each purchaser, each Holder, the officers, directors, members, partners, agents and employees (and any other individuals or entities with a functionally equivalent role of a person holding such titles, notwithstanding a lack of such title or any other title) of each of them, each individual or entity who controls each purchaser or any such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, members, stockholders, partners, agents and employees (and any other individuals or entities with a functionally equivalent role of a person holding such titles, notwithstanding a lack of such title or any other title) of each such controlling individual or entity (each, an “Indemnified Party”), to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable attorneys’ fees) and expenses (collectively, “Losses”), as incurred, arising out of or relating to (1) any untrue or alleged untrue statement of a material fact contained in a Registration Statement, any related prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any such prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading or (2) any violation or alleged violation by the Company of the Securities Act, the Exchange Act or any state securities law, or any rule or regulation thereunder, in connection with the performance of its obligations under this Section 11, except to the extent, but only to the extent, that such untrue statements or omissions are based upon information regarding a purchaser or such Holder furnished to the Company by such party for use therein. The Company shall notify each purchaser and each Holder promptly of the institution, threat or assertion of any proceeding arising from or in connection with the transactions contemplated by this Section 11 of which the Company is aware. If the indemnification hereunder is unavailable to an Indemnified Party or insufficient to hold an Indemnified Party harmless for any Losses, then the Company shall contribute to the amount paid or payable by such Indemnified Party, in such proportion as is appropriate to reflect the relative fault of the Company and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of the Company and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, the Company or the Indemnified Party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include any reasonable attorneys’ or other fees or expenses incurred by such party in connection with any proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for herein was available to such party in accordance with its terms. It is agreed that it would not be just and equitable if contribution pursuant to this Section 11(f) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding sentence. Notwithstanding the provisions of this Section 11(f), neither the purchaser nor any Holder shall be required to contribute, in the aggregate, any amount in excess of the amount by which the net proceeds actually received by such party from the sale of all of their Registrable Securities pursuant to such Registration Statement or related prospectus exceeds the amount of any damages that such party has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission.
Section 12. Miscellaneous.
a) Notices. Any and all notices or other communications or deliveries to be provided by the Holders hereunder including, without limitation, any Notice of Conversion, shall be in writing and delivered personally or sent by a nationally recognized overnight courier service and by facsimile or e-mail, addressed to the Corporation, at 1022 Shadyside Lane, Dallas, TX 75223; Attention: Chief Executive Officer, e-mail adamt@transamaqua.com, or such other e-mail or address as the Corporation may specify for such purposes by prior written notice to the Holders delivered in accordance with this Section 12. Any and all notices or other communications or deliveries to be provided by the Corporation hereunder shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number or address of such Holder appearing on the books of the Corporation, or if no such facsimile number or address appears on the books of the Corporation, at the principal place of business of such Holder, as set forth in the Purchase Agreement. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number 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 date of transmission, if such notice or communication is delivered via facsimile at the facsimile number 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.
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b) Absolute Obligation. Except as expressly provided herein, no provision of this Certificate of Designation shall alter or impair the obligation of the Corporation, which is absolute and unconditional, to pay liquidated damages, accrued dividends and accrued interest, as applicable, on the shares of Preferred Stock at the time, place, and rate, and in the coin or currency, herein prescribed.
c) Lost or Mutilated Preferred Stock Certificate. If a Holder’s Preferred Stock certificate shall be mutilated, lost, stolen or destroyed, the Corporation shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated certificate, or in lieu of or in substitution for a lost, stolen or destroyed certificate, a new certificate for the shares of Preferred Stock so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such certificate, and of the ownership hereof reasonably satisfactory to the Corporation.
d) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Certificate of Designation shall be governed by and construed and enforced in accordance with the internal laws of the State of Nevada, without regard to the principles of conflict of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors, officers, stockholders, employees or agents) shall be commenced in the state and federal courts sitting in the Borough of Manhattan, New York, New York, (the “New York Courts”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), 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 such New York Courts, or such New York Courts are improper or 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 Certificate of Designation 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 applicable law. Each party hereto 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 Certificate of Designation or the transactions contemplated hereby. If any party shall commence an action or proceeding to enforce any provisions of this Certificate of Designation, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.
e) Waiver. Any waiver by the Corporation or a Holder of a breach of any provision of this Certificate of Designation shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Certificate of Designation or a waiver by any other Holders. The failure of the Corporation or a Holder to insist upon strict adherence to any term of this Certificate of Designation on one or more occasions shall not be considered a waiver or deprive that party (or any other Holder) of the right thereafter to insist upon strict adherence to that term or any other term of this Certificate of Designation on any other occasion. Any waiver by the Corporation or a Holder must be in writing.
f) Severability. If any provision of this Certificate of Designation is invalid, illegal or unenforceable, the balance of this Certificate of Designation shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law.
g) Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.
h) Headings. The headings contained herein are for convenience only, do not constitute a part of this Certificate of Designation and shall not be deemed to limit or affect any of the provisions hereof.
i) Status of Converted or Redeemed Preferred Stock. Shares of Preferred Stock may only be issued pursuant to a Purchase Agreement. If any shares of Preferred Stock shall be converted, redeemed or reacquired by the Corporation, such shares shall resume the status of authorized but unissued shares of preferred stock and shall no longer be designated as Preferred Stock.
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RESOLVED, FURTHER, that the Chairman, the president or any vice-president, and the secretary or any assistant secretary, of the Corporation be and they hereby are authorized and directed to prepare and file this Certificate of Designation of Preferences, Rights and Limitations in accordance with the foregoing resolution and the provisions of Colorado law.
IN WITNESS WHEREOF, the undersigned have executed this Certificate this 25th day of September 2023.
/s/ Adam Thomas
Name: Adam Thomas
Title: Chief Executive Officer
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ANNEX A
NOTICE OF CONVERSION
(TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO CONVERT SHARES OF PREFERRED STOCK)
The undersigned hereby elects to convert the number of shares of Series D Convertible Preferred Stock indicated below into shares of common stock, par value $.000001 per share (the “Common Stock”), of GOLD RIVER PRODUCTIONS INC., a Colorado corporation (the “Corporation”), according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a Person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as may be required by the Corporation in accordance with the Purchase Agreement. No fee will be charged to the Holders for any conversion, except for any such transfer taxes.
Conversion calculations:
Date to Effect Conversion: _____________________________________________________________________________
Number of shares of Preferred Stock owned prior to Conversion: ________________________________________________
Number of shares of Preferred Stock to be Converted: ________________________________________________________
Stated Value of shares of Preferred Stock to be Converted: _____________________________________________________
Dollar amount of Interest to be Converted: _________________________________________________________________
Other amounts owed to the Undersigned by the
Corporation under the Certificate of Designation and/or any
other Transaction Document to be Converted: ______________________________________________________________
Number of shares of Common Stock to be Issued: ____________________________________________________________
Applicable Conversion Price: ____________________________________________________________________________
Number of shares of Preferred Stock subsequent to Conversion: __________________________________________________
Address for Delivery: ____________________
Or
DWAC Instructions:
Broker no: ____________
Account no: _____________
Name of Entity Holder _____________ (Please Print)
By: _____________________________________________
Name:
Title:
Name of Individual Holder ________________(Please Print)
________________________(Signature of Individual Holder)
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Exhibit 5.1
14888 Auburn Sky Drive, Draper, UT 84020 |
Brian Higley |
(801) 634-1984 |
Attorney at Law |
| brian@businesslegaladvisor.com | Licensed in Utah |
October 5, 2023
Adam Thomas, CEO
Trans American Aquaculture, Inc.
1022 Shadyside Lane
Dallas, TX 75223
| Re: | Registration Statement on Form S-1 |
Dear Mr. Thomas:
I have acted as counsel for Trans American Aquaculture, Inc., a Colorado corporation (the “Company”) in connection with the Company’s Registration Statement on Form S-1 (the “Registration Statement”) filed with the U.S. Securities and Exchange Commission under the Securities Act of 1933, as amended.
I have reviewed the Registration Statement, including the prospectus (the “Prospectus”) that is a part of the Registration Statement. The Registration Statement registers the offering and sale by a certain selling stockholder of the Company of (i) 533,695,874 shares of the Company’s Common Stock, (ii) 143,518,605 shares of the Company’s Common Stock underlying exercises of warrants, and (iii) 309,803,922 shares of the Company’s Common Stock underlying conversions of Series D Preferred Stock (the “Shares”).
In connection with this opinion, I have reviewed originals or copies (certified or otherwise identified to my satisfaction) of the Company’s Articles of Incorporation, as amended, the Company’s Bylaws, resolutions adopted by the Company’s Board of Directors, the Registration Statement, the exhibits to the Registration Statement, and such other records, documents, statutes and decisions, and such certificates or comparable documents of public officials and of officers and representatives of the Company, and have made such inquiries of such officers and representatives, as I have deemed relevant in rendering this opinion.
In such examination, I have assumed the genuineness of all signatures, the legal capacity of all natural persons, the authenticity of all documents submitted to me as originals, the conformity to original documents of all documents submitted to me as certified, conformed or photostatic copies and the authenticity of the originals of such latter documents.
The opinions expressed below are limited to the laws of the State of Colorado (including the applicable provisions of the Colorado Constitution, applicable judicial and regulatory decisions interpreting these laws, and applicable rules and regulations underlying these laws) and the federal laws of the United States.
Based on the foregoing and in reliance thereon and subject to the assumptions, qualifications and limitations set forth herein, I am of the opinion that pursuant to the corporate laws of the State of Colorado, including all relevant provisions of the state constitution and all judicial interpretations interpreting such provisions, the Shares, when issued, will be legally issued, fully paid and non-assessable.
I hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the use of my firm’s name in the related Prospectus under the heading “Legal Matters.”
| Very truly yours, | |
| /s/ Brian Higley |
Exhibit 10.8
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this “Agreement”) is dated as of September 26th 2023, between Trans American Aquaculture, Inc., a Colorado corporation (the “Company”), and the purchaser identified on the signature page hereto (including its successors and assigns, the “Purchaser”).
WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506 promulgated thereunder, the Company desires to issue and sell to the Purchaser, and the Purchaser desires to purchase from the Company, securities of the Company as more fully described in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and the Purchaser agrees as follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this Agreement: (a) capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Certificate of Designation (as defined herein), and (b) the following terms have the meanings set forth in this Section 1.1:
“Acquiring Person” shall have the meaning ascribed to such term in Section 4.5. “Action” shall have the meaning ascribed to such term in Section 3.1(j).
“Additional Closing” means the closing of the purchase and sale of the Securities pursuant to Sections 2.1(b) and 2.1(c), which shall each occur on a Closing Date. The Additional Closing will be for the purchase of Preferred Shares as follows: (a) Seventy (70) shares for the aggregate purchase price of $70,000.
“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.
“Board of Directors” means the board of directors of the Company.
“Business Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.
“Certificate of Designation” means the Certificate of Designation, as amended, to be filed prior to the Initial Closing by the Company with the Secretary of State of the State of Colorado, in the form of Exhibit A attached hereto.
“Closing Date” means the Trading Day on which all of the Transaction Documents have been executed and delivered by the applicable parties thereto in connection with the Initial Closing or Additional Closing, as applicable, and, to the extent applicable, all conditions precedent to (i) the Purchaser’s obligations to pay the Subscription Amount as to such Closing and (ii) the Company’s obligations to deliver the Securities as to such Closing, in each case, have been satisfied or waived.
“Closing” means each of the Initial Closing and Additional Closing.
“Commission” means the United States Securities and Exchange Commission.
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“Commitment Shares” means five (5) Preferred Shares issued upon the Initial Closing as an equity incentive.
“Common Stock” means the common stock of the Company, par value $0.000001 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 instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.
“Company Counsel” means Brian Higley, Esq.
“Conversion Shares” means the Common Stock issuable upon conversion of the Preferred Stock.
“Disclosure Schedules” shall have the meaning ascribed to such term in Section 3.1.
“Dividend” means eight percent (8%) per annum of the stated value of any Preferred Stock, paid quarterly by the Company, and at the Company’s discretion, in cash or in Preferred Stock.
“Equity Conditions” means (i) there are currently no uncured Events of Default and/or (ii) upon or following the Additional Closing, there remains an effective Registration Statement available to the Purchaser for the resale of the shares of Common Stock issuable upon conversion of the Preferred Stock and exercise of the Warrants..
“Evaluation Date” shall have the meaning ascribed to such term in Section 3.1(r).
“Event of Default” means any of the following events: (i) the suspension, cessation from trading or delisting of the Company's Common Stock on the Principal Market for a period of two (2) consecutive trading days or more; (ii) the failure by the Company to timely comply with the reporting requirements of the Exchange Act (including applicable extension periods or such delays which are consented to by the Purchaser); (iii) the failure for any reason by the Company to issue Commitment Shares, Dividends, Conversion Shares, or Warrant Shares to the Purchaser within the required time periods; (iv) the Company breaches any representation, warranty, covenant or other term of condition contained in the definitive agreements between the parties; (v) the Company files for Bankruptcy or receivership or any money judgment writ, liquidation or a similar process is entered by or filed against the Company for more than $50,000 and remains unvacated, unbonded or unstayed for a period of twenty (20) calendar days; (vi) any cessation of operations by the Company or failure by the Company to maintain any assets, intellectual, personal or real property or other assets which are necessary to conduct its business (vii) the Company shall lose the "bid" price for its Common stock on the Principal Market; (viii) if at any time the Common Stock is no longer DWAC eligible; (ix) the Registration Statement registering the resale of the Registrable Securities is not filed with the Commission by the thirtieth (30th) calendar day following the initial Closing Date; or (x) upon or following the Additional Closing, the Registration Statement registering the resale of the Registrable Securities ceases to be effective for any reason.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“FCPA” means the Foreign Corrupt Practices Act of 1977, as amended. “GAAP” means generally accepted accounting principles in the U.S.
“Initial Closing” means the closing of the purchase and sale of the Securities pursuant to Section 2.1(a), which shall occur on a Closing Date. The Initial Closing will be for the purchase of seventy-six (76) shares of Preferred Stock at the aggregate purchase price of $76,000.
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“Intellectual Property Rights” shall have the meaning ascribed to such term in Section 3.1(o).
“Liens” means a lien, charge, pledge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.
“Material Adverse Effect” shall have the meaning assigned to such term in Section 3.1(b).
“Material Permits” shall have the meaning ascribed to such term in Section 3.1(m).
“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.
“Preferred Stock” means, one hundred and fifty-one (151) shares of the Company’s Series D Preferred Stock issued hereunder having the rights, preferences and privileges set forth in the Certificate of Designation, in the form of Exhibit A hereto.
“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial proceeding, such as a deposition), whether commenced or threatened.
“Purchaser Party” shall have the meaning ascribed to such term in Section 4.7.
“Registration Statement” means any Registration Statement under which the shares of the Company’s common stock are registered. The Company shall use its best efforts to file a registration statement registering the resale of the Securities underlying the transactions contemplated herein within thirty (30) calendar days from the execution of this Agreement.
“Required Approvals” shall have the meaning ascribed to such term in Section 3.1(e).
“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.
“Rule 424” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.
“SEC Reports” shall have the meaning ascribed to such term in Section 3.1(g).
“Securities” means the Preferred Stock, Conversion Shares, Warrant and the Warrant Shares.
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Short Sales” means all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange Act (but shall not be deemed to include the location and/or reservation of borrowable shares of Common Stock).
“Stated Value” means $1,200 per share of Series D Preferred Stock. 4
“Subscription Amount” shall mean the aggregate amount to be paid for the Preferred Stock and Warrants purchased hereunder as specified on the signature page under the heading “Subscription Amount,” in United States dollars and in immediately available funds.
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“Subsidiary” means any subsidiary of the Company as set forth on Schedule 3.1(a) 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 principal Trading Market is open for trading.
“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 MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, the OTCQB or the OTC Markets (or any successors to any of the foregoing).
“Transaction Documents” means this Agreement, the Certificate of Designation, the Warrants, all exhibits and schedules thereto and hereto and any other documents or agreements executed in connection with the transactions contemplated hereunder.
“Transfer Agent” means Mountain Share Transfer, LLC, the current transfer agent of the Company, with a mailing address of 2030 Powers Ferry Road SE, Suite # 212, Atlanta, GA 30339 and any successor transfer agent of the Company.
“Warrants” means the Common Stock purchase warrants, in the form set forth as Exhibit B hereto, delivered to the Purchaser at each Closing, which Warrants shall be exercisable immediately and have a term of exercise equal to five (5) years from such initial exercise date.
“Warrant Shares” means the shares of Common Stock issuable upon exercise of the Warrants.
ARTICLE II.
PURCHASE AND SALE
2.1 (a) Initial Closing. (i) Upon the execution of this Securities Purchase Agreement, the Company agrees to sell, and the Purchaser agrees to purchase, Seventy-Six (76) shares of Preferred Stock at price of $1,000 per share of Preferred Stock. Concurrently with the issuance of the Preferred Stock, the Company shall issue to Purchaser a Warrant to purchase up to a number of Warrant Shares equal to 50% of the number of Conversion Shares issuable upon conversion of the Preferred Stock issued at the Initial Closing. The Purchaser shall deliver to the Company, via wire transfer immediately available funds equal to the Purchaser’s Subscription Amount as set forth on the signature page hereto executed by the Purchaser, and the Company shall deliver to the Purchaser such number of shares of the Preferred Stock purchased and the Warrant, as determined pursuant to Section 2.2(a) and the Purchaser shall deliver the other items set forth in Section 2.2 deliverable at the Initial Closing. Upon satisfaction of the covenants and conditions set forth in Sections 2.2 and 2.3, the Initial Closing shall occur at the offices of Pryor Cashman LLP, counsel to the Purchaser, or such other location as the parties shall mutually agree.
(b) Additional Closing. (i) Upon the terms and subject to the conditions set forth herein within twenty-five (25) calendar days from the Initial Closing, the Company agrees to sell, and the Purchaser agrees to purchase, seventy (70) shares of Preferred Stock at price of $1,000 per share of Preferred Stock. Concurrently with the issuance of the Preferred Stock, the Company shall issue to Purchaser a Warrant to purchase up to a number of Warrant Shares equal to 50% of the number of Conversion Shares issuable upon conversion of the Preferred Stock issued at such Additional Closing. The Purchaser shall deliver to the Company, via wire transfer immediately available funds equal to the Purchaser’s Subscription Amount as set forth on the signature page hereto executed by the Purchaser, and the Company shall deliver to the Purchaser such number of shares of the Preferred Stock purchased and the Warrant, as determined pursuant to Section 2.2(a) and the Purchaser shall deliver the other items set forth in Section 2.2 deliverable at the Additional Closing. Upon satisfaction of the covenants and conditions set forth in Sections 2.2 and 2.3, the Additional Closing shall occur at the offices of Pryor Cashman LLP, counsel to the Purchaser, or such other location as the parties shall mutually agree.
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2.2 Deliveries.
(a) On or prior to the applicable Closing Date (or as otherwise indicated below), the Company shall deliver or cause to be delivered to the Purchaser the following:
(i) At the Initial Closing, this Agreement duly executed by the Company;
(ii) At the Initial Closing, a certificate evidencing the five (5) Commitment Shares;
(iii) At the Initial Closing, a certificate evidencing seventy-six (76) shares of Preferred Stock;
(iv) An original Warrant, registered in the name of Purchaser, for the number of shares of Common Stock set forth in Section 2.1(a), duly executed by the Company; and
(v) At each Additional Closing, a certificate evidencing the shares of Preferred Stock being Purchased;
(vi) At each Additional Closing, an original Warrant, registered in the name of Purchaser, for the number of shares of Common Stock set forth in Sections 2.1(b) and 2.1(b), as applicable, duly executed by the Company; and
(vii) An irrevocable letter of instruction to the Company's Transfer Agent, instructing the Transfer Agent to maintain for the benefit of the Purchaser, 140,000,000 shares of its common stock and at all times thereafter three times (3x) the number of common shares needed to by the Purchaser to convert and/or exercise all shares of Preferred Stock and Warrants held by the Purchaser. The reserve amount shall be increased from time to time to ensure appropriate coverage for Securities issued or issuable to Purchaser.
(b) On or prior to the applicable Closing Date, the Purchaser shall deliver or cause to be delivered to the Company, as applicable, the following:
(i) This Agreement duly executed by the Purchaser; and
(ii) the Purchaser’s Subscription Amount by wire transfer to the account specified in writing by the Company together with the subscription form attached as an Exhibit below.
2.3 Closing Conditions.
(a) The obligations of the Company hereunder in connection with a Closing are subject to the following conditions being met:
(i) the accuracy in all material respects on the applicable Closing Date of the representations and warranties of the Purchaser contained herein (unless as of a specific date therein in which case they shall be accurate as of such date);
(ii) all obligations, covenants and agreements of the Purchaser required to be performed at or prior to the applicable Closing Date shall have been performed; and
(iii) the delivery by the Purchaser of the items set forth in Section 2.2(b) of this Agreement.
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(b) The obligations of the Purchaser hereunder in connection with a Closing are subject to the following conditions being met:
(i) the accuracy in all material respects when made and on the applicable Closing Date of the representations and warranties of the Company contained herein (unless as of a specific date therein);
(ii) all obligations, covenants and agreements of the Company required to be performed at or prior to the applicable Closing Date shall have been performed;
(iii) the delivery by the Company of the items set forth in Section 2.2(a) of this Agreement;
(iv) there shall have been no Material Adverse Effect with respect to the Company since the date hereof; and
(v) from the date hereof to the applicable Closing Date, trading in the Common Stock shall not have been suspended by the Commission or the Company’s principal Trading Market and, at any time prior to the applicable Closing Date, trading in securities shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are reported by such service, or on any Trading Market, nor shall a banking moratorium have been declared either by the United States or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in the reasonable judgment of the Purchaser, makes it impracticable or inadvisable to purchase the Securities at a Closing.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. Except as set forth in the Disclosure Schedules, which Disclosure Schedules shall be deemed a part hereof and shall qualify any representation or otherwise made herein to the extent of the disclosure contained in the corresponding section of the Disclosure Schedules, the Company hereby makes the following representations and warranties to the Purchaser:
(a) Subsidiaries. All of the direct and indirect subsidiaries of the Company are set forth on Schedule 3.1(a). The Company owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiary, and all of the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities. If the Company has no subsidiaries, all other references to the Subsidiaries or any of them in the Transaction Documents shall be disregarded.
(b) Organization and Qualification. The Company and each of the Subsidiaries is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. Neither the Company nor any Subsidiary is in violation nor default of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents. Each of the Company and the Subsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in:
(i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business, prospects or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”) and no Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.
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(c) Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and each of the other Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of this Agreement and each of the other Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, the Board of Directors or the Company’s stockholders in connection herewith or therewith other than in connection with the Required Approvals. This Agreement and each other Transaction Document to which it is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.
(d) No Conflicts. The execution, delivery and performance by the Company of this Agreement and the other Transaction Documents to which it is a party, the issuance and sale of the Securities and the consummation by it of the transactions contemplated hereby and thereby do not and will not: (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Company or any Subsidiary, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) subject to the Required Approvals, conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.
(e) Filings, Consents and Approvals. Except as otherwise disclosed on Schedule 3.1(e), the Company has timely filed all quarterly and annual reports required to be filed by it with OTC Markets or, if applicable, the SEC pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “1934 Act”) (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents (other than exhibits to such documents) incorporated by reference therein, being hereinafter referred to herein as the “SEC Documents”). The Company has delivered to Purchaser true and complete copies of the SEC Documents, except for such exhibits and incorporated documents, and except as such Documents are available EDGAR filings on the SEC’s sec.gov website or OTCMarkets.com. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the 1934 Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, 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 light of the circumstances under which they were made, not misleading. None of the statements made in any such SEC Documents is, or has been, required to be amended or updated under applicable law (except for such statements as have been amended or updated in subsequent filings prior the date hereof). As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with United States generally accepted accounting principles, consistently applied, during the periods involved and fairly present in all material respects the consolidated financial position of the Company and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). Except as set forth in the financial statements of the Company included in the SEC Documents, the Company has no liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to March 31 , 2023, and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in such financial statements, which, individually or in the aggregate, are not material to the financial condition or operating results of the Company. The Company is not subject to the reporting requirements of the 1934 Act. For the avoidance of doubt, filing of the documents required in this Section 3(e) via the SEC’s Electronic Data Gathering, Analysis, and Retrieval system (“EDGAR”) shall satisfy all delivery requirements of this Section 3(e).
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The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than: (i) the filings required pursuant to Section 4.4 of this Agreement, (ii) the notice and/or application(s) to each applicable Trading Market for the issuance and sale of the Securities, and (iii) such filings as are required to be made under applicable state and federal securities laws (collectively, the “Required Approvals”).
(f) Issuance of the Securities. The Securities are duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents. The Conversion Shares, when issued in accordance with the terms of the Preferred Stock, will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company. The Company shall reserve from its duly authorized capital stock a number of shares equal to 300% of the Common Stock issuable pursuant to the Preferred Stock. The Warrant Shares, when issued in accordance with the terms of the Warrant, will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company. The Company shall reserve from its duly authorized capital stock a number of shares of Common Stock issuable pursuant to the Warrants equal to the amount set forth in Section 2.1(a).
(g) Capitalization. The capitalization of the Company is as set forth on Schedule 3.1(g), which Schedule 3.1(g) shall also include the number of shares of Common Stock owned beneficially, and of record, by Affiliates of the Company as of the date hereof. Except as set forth on Schedule 3.1(g) or as set forth in such applicable report, the Company has not issued any capital stock since its most recently filed periodic report under the Exchange Act, other than pursuant to the exercise of employee stock options under the Company’s stock option plans, the issuance of shares of Common Stock to employees pursuant to the Company’s employee stock purchase plans and pursuant to the conversion and/or exercise of Common Stock Equivalents outstanding as of the date of the most recently filed periodic report under the Exchange Act (“SEC Reports”). No Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents. Except as set forth on Schedule 3.1(g) and except as a result of the purchase and sale of the Securities, there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock or Common Stock Equivalents. The issuance and sale of the Securities will not obligate the Company to issue shares of Common Stock or other securities to any Person and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under any of such securities. All of the outstanding shares of capital stock of the Company are duly authorized, validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. No further approval or authorization of any stockholder, the Board of Directors or others is required for the issuance and sale of the Securities. There are no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s stockholders.
(h) Intentionally omitted.
(i) Intentionally omitted.
(j) Litigation. Except as disclosed in Schedule 3.1(j), there is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”) which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any Subsidiary, nor any director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty. There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the Commission involving the Company or any current or former director or officer of the Company. The Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company or any Subsidiary under the Exchange Act or the Securities Act.
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(k) Labor Relations. Except as disclosed in Schedule 3.1(k), no labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company, which could reasonably be expected to result in a Material Adverse Effect. None of the Company’s or its Subsidiaries’ employees is a member of a union that relates to such employee’s relationship with the Company or such Subsidiary, and neither the Company nor any of its Subsidiaries is a party to a collective bargaining agreement, and the Company and its Subsidiaries believe that their relationships with their employees are good. To the knowledge of the Company, no executive officer of the Company or any Subsidiary, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any other contract or agreement or any restrictive covenant in favor of any third party, and the continued employment of each such executive officer does not subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing matters. The Company and its Subsidiaries are in compliance with all U.S. federal, state, local and foreign laws and regulations relating to employment and employment practices, terms and conditions of employment and wages and hours, except where the failure to be in compliance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(l) Compliance. Neither the Company nor any Subsidiary: (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived) except as disclosed in Schedule 3.1(l), (ii) is in violation of any judgment, decree or order of any court, arbitrator or other governmental authority, except as set forth on Schedule 3.1(l) or (iii) is or has been in violation of any statute, rule, ordinance or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws relating to taxes, other than tax payments related to payroll that are late, environmental protection, occupational health and safety, product quality and safety and employment and labor matters, except in each case as could not have or reasonably be expected to result in a Material Adverse Effect.
(m) Regulatory Permits. The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Reports, except where the failure to possess such permits could not reasonably be expected to result in a Material Adverse Effect (“Material Permits”), and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any Material Permit.
(n) Title to Assets. Except as disclosed in Schedule 3.1(n), the Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by them and good and marketable title in all personal property owned by them that is material to the business of the Company and the Subsidiaries, in each case free and clear of all Liens, except for (i) Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries and (ii) Liens for the payment of federal, state or other taxes, for which appropriate reserves have been made therefor in accordance with GAAP and, the payment of which is neither delinquent nor subject to penalties. Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases with which the Company and the Subsidiaries are in compliance.
(o) Intellectual Property. The Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property rights and similar rights as described in the SEC Reports as necessary or required for use in connection with their respective businesses and which the failure to so have could have a Material Adverse Effect (collectively, the “Intellectual Property Rights”). Except as disclosed on Schedule 3.1(o), none of, and neither the Company nor any Subsidiary has received a notice (written or otherwise) that any of, the Intellectual Property Rights has expired, terminated or been abandoned, or is expected to expire or terminate or be abandoned, within two (2) years from the date of this Agreement. Neither the Company nor any Subsidiary has received, since the date of the latest audited financial statements included within the SEC Reports, a written notice of a claim or otherwise has any knowledge that the Intellectual Property Rights violate or infringe upon the rights of any Person, except as could not have or reasonably be expected to not have a Material Adverse Effect. To the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights. The Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties, except where failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
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(p) Insurance. Except as set forth on Schedule 3.1(p), by no later than the effectiveness of the Registration Statement, the Company and the Subsidiaries will be insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged, including, but not limited to, directors and officers insurance coverage at least equal to the aggregate Subscription Amount.
(q) Transactions with Affiliates and Employees. Except as set forth in the SEC Reports, none of the officers or directors of the Company or any Subsidiary and, to the knowledge of the Company, none of the employees of the Company or any Subsidiary is presently a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, providing for the borrowing of money from or lending of money to or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee, stockholder, member or partner, in each case in excess of $120,000 other than for: (i) payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and (iii) other employee benefits, including stock option agreements under any stock option plan of the Company. Except as set forth on Schedule 3.1(q), all employee salaries and contractor fees have been paid to date and no such amounts are outstanding or past due.
(r) Sarbanes-Oxley; Internal Accounting Controls. Except as may be disclosed in the SEC Reports, the Company and the Subsidiaries are in compliance with any and all applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and any and all applicable rules and regulations promulgated by the Commission thereunder that are effective as of the date hereof and as of each Closing Date. Except as disclosed in the SEC Reports, the Company and the Subsidiaries maintain a system of 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. The Company and the Subsidiaries have established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and the Subsidiaries and designed such disclosure controls and procedures to ensure that information required to be disclosed by the Company in the reports 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. The Company’s certifying officers have evaluated the effectiveness of the disclosure controls and procedures of the Company and the Subsidiaries as of the end of the period covered by the most recently filed periodic report under the Exchange Act (such date, the “Evaluation Date”). The Company presented in its most recently filed periodic report under the Exchange Act the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date. Since the Evaluation Date, there have been no changes in the internal control over financial reporting (as such term is defined in the Exchange Act) of the Company and its Subsidiaries that have materially affected, or is reasonably likely to materially affect, the internal control over financial reporting of the Company and its Subsidiaries.
(s) Certain Fees. No brokerage or finder’s fees or commissions are or will be payable by the Company or any Subsidiary to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by the Transaction Documents, other than as set forth on Schedule 3.1(s). The Purchaser shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by the Transaction Documents.
(t) Private Placement. Assuming the accuracy of the Purchaser’s representations and warranties set forth in Section 3.2, no registration under the Securities Act is required for the offer and sale of the Securities by the Company to the Purchaser as contemplated hereby. The issuance and sale of the Securities hereunder does not contravene the rules and regulations of the Trading Market.
(u) Investment Company. The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the Securities, will not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended. The Company shall conduct its business in a manner so that it will not become an “investment company” subject to registration under the Investment Company Act of 1940, as amended.
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(v) Registration Rights. The Company shall use its best efforts to file a registration statement registering the resale of the Securities within twenty (20) calendar days from the execution of this Agreement. The Company shall use is best efforts to have the registration statement declared “effective” within sixty (60) calendar days from its filing. The Company shall use its best efforts to have a registration statement registering the resale of the Securities remain effective until such time that the Investor no longer holds any such Securities. No other Person has any right to cause the Company to effect the registration under the Securities Act of any securities of the Company or any Subsidiary.
(w) Listing and Maintenance Requirements. The Company has not in the twelve (12) months preceding the date hereof, received notice from any Trading Market on which the Common Stock is or has been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such Trading Market. The Company is and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance requirements.
(x) [RESERVED]
(y) Disclosure. Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Company confirms that neither it nor any other Person acting on its behalf has provided the Purchaser or its agents or counsel with any information that it believes constitutes or might constitute material, non-public information. The Company understands and confirms that the Purchaser will rely on the foregoing representation in effecting transactions in securities of the Company. All of the disclosure furnished by or on behalf of the Company to the Purchaser regarding the Company and its Subsidiaries, their respective businesses and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement, is true and correct and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. The press releases disseminated by the Company during the twelve months preceding the date of this Agreement taken as a whole do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made and when made, not misleading. The Company acknowledges and agrees that the Purchaser does not make and has not made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 3.2 hereof.
(z) No Integrated Offering. Assuming the accuracy of the Purchaser’s representations and warranties set forth in Section 3.2, 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 this offering of the Securities to be integrated with prior offerings by the Company for purposes of (i) the Securities Act which would require the registration of any such securities under the Securities Act, or (ii) any applicable shareholder approval provisions of any Trading Market on which any of the securities of the Company are listed or designated.
(aa) Tax Status. Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, the Company and its Subsidiaries each (i) has made or filed all United States federal, state and local income and all foreign income and franchise tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations and (iii) has set aside on its books provision reasonably adequate for the payment of all material taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company or of any Subsidiary know of no basis for any such claim. Immediately after closing of this transaction, the Company covenants to pay to the Past Due Taxes.
(bb) No General Solicitation. Neither the Company nor any person acting on behalf of the Company has offered or sold any of the Securities by any form of general solicitation or general advertising. The Company has offered the Securities for sale only to the Purchaser.
(cc) Foreign Corrupt Practices. Neither the Company nor any Subsidiary, nor to the knowledge of the Company or any Subsidiary, any agent or other person acting on behalf of the Company or any Subsidiary, has: (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company or any Subsidiary (or made by any person acting on its behalf of which the Company is aware) which is in violation of law or (iv) violated in any material respect any provision of FCPA.
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(dd) Accountants. The Company’s accounting firm is set forth on Schedule 3.1(dd) of the Disclosure Schedules. To the knowledge and belief of the Company, such accounting firm: (i) is a registered public accounting firm as required by the Exchange Act and (ii) shall express its opinion with respect to the financial statements to be included in the Company’s Annual Report for the fiscal year ending December 31, 2021.
(ee) Acknowledgment Regarding Purchaser’s Purchase of Securities. The Company acknowledges and agrees that the Purchaser is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated thereby. The Company further acknowledges that the Purchaser is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated thereby and any advice given by the Purchaser or any of its representatives or agents in connection with the Transaction Documents and the transactions contemplated thereby is merely incidental to the Purchaser’s purchase of the Securities. The Company further represents to the Purchaser that the Company’s decision to enter into this Agreement and the other Transaction Documents has been based solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives.
(ff) Acknowledgment Regarding Purchaser’s Trading Activity. Anything in this Agreement or elsewhere herein to the contrary notwithstanding, it is understood and acknowledged by the Company that: (i) the Purchaser has not been asked by the Company to agree, nor has the Purchaser agreed, to desist from purchasing or selling, securities of the Company, or “derivative” securities based on securities issued by the Company or to hold the Securities for any specified term, (ii) past or future open market or other transactions by the Purchaser, specifically including, without limitation, “derivative” transactions, before or after a closing of this or future private placement transactions, may negatively impact the market price of the Company’s publicly-traded securities (iii) Omit and (iv) the Purchaser shall not be deemed to have any affiliation with or control over any arm’s length counter-party in any “derivative” transaction. The Company further understands and acknowledges that (y) the Purchaser may engage in hedging activities at various times during the period that the Securities are outstanding, including, without limitation, during the periods that the value of the Warrant Shares deliverable with respect to the Warrants are being determined, and (z) such hedging activities (if any) could reduce the value of the existing stockholders’ equity interests in the Company at and after the time that the hedging activities are being conducted. The Company acknowledges that such aforementioned hedging activities do not constitute a breach of any of the Transaction Documents.
(gg) Regulation M Compliance. The Company has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase any other securities of the Company, other than, in the case of clauses (ii) and (iii), compensation paid to the Company’s placement agent in connection with the placement of the Securities.
(hh) Reserved.
(ii) Stock Options. The Company has not knowingly granted, and there is no and has been no Company policy or practice to knowingly grant, stock options prior to, or otherwise knowingly coordinate the grant of stock options with, the release or other public announcement of material information regarding the Company or its Subsidiaries or their financial results or prospects.
(jj) Office of Foreign Assets Control. Neither the Company nor any Subsidiary nor, to the Company's knowledge, any director, officer, agent, employee or affiliate of the Company or any Subsidiary is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”).
(kk) U.S. Real Property Holding Corporation. The Company is not and has never been a U.S. real property holding corporation within the meaning of Section 897 of the Internal Revenue Code of 1986, as amended, and the Company shall so certify upon Purchaser’s request.
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(ll) Bank Holding Company Act. Neither the Company nor any of its Subsidiaries or Affiliates is subject to the Bank Holding Company Act of 1956, as amended (the “BHCA”) and to regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). Neither the Company nor any of its Subsidiaries or Affiliates owns or controls, directly or indirectly, five percent (5%) or more of the outstanding shares of any class of voting securities or twenty-five percent or more of the total equity of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve. Neither the Company nor any of its Subsidiaries or Affiliates exercises a controlling influence over the management or policies of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve.
(mm) Money Laundering. The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance with applicable financial record-keeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, applicable money laundering statutes and applicable rules and regulations thereunder (collectively, the “Money Laundering Laws”), and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any Subsidiary with respect to the Money Laundering Laws is pending or, to the knowledge of the Company or any Subsidiary, threatened.
3.2 Representations and Warranties of the Purchaser. The Purchaser hereby represents and warrants as of the date hereof and as of each Closing to the Company as follows (unless as of a specific date therein):
(a) Organization; Authority. The Purchaser is either an individual or an entity duly incorporated or formed, validly existing and in good standing under the laws of the jurisdiction of its incorporation or formation with full right, corporate, partnership, limited liability company or similar power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of the Transaction Documents and performance by the Purchaser of the transactions contemplated by the Transaction Documents have been duly authorized by all necessary corporate, partnership, limited liability company or similar action, as applicable, on the part of the Purchaser. Each Transaction Document to which it is a party has been duly executed by the Purchaser, and when delivered by the Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of the Purchaser, enforceable against it in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.
(b) Own Account. The Purchaser understands that the Securities are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Securities as principal for its own account and not with a view to or for distributing or reselling such Securities or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing any of such Securities in violation of the Securities Act or any applicable state securities law and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such Securities in violation of the Securities Act or any applicable state securities law (this representation and warranty not limiting the Purchaser’s right to sell the Securities in compliance with applicable federal and state securities laws).
(c) Purchaser Status. At the time the Purchaser was offered the Securities, it was, and as of the date hereof it is and on each date on which it converts any shares of Preferred Stock or exercises any Warrants, either: (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act.
(d) Experience of the Purchaser. The Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. The Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.
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(e) General Solicitation. The Purchaser is not purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.
The Company acknowledges and agrees that the representations contained in Section 3.2 shall not modify, amend or affect the Purchaser’s right to rely on the Company’s representations and warranties contained in this Agreement or any representations and warranties contained in any other Transaction Document or any other document or instrument executed and/or delivered in connection with this Agreement or the consummation of the transaction contemplated hereby.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions.
(a) The Securities may only be disposed of in compliance with state and federal securities laws. As a condition of transfer, any such transferee shall agree in writing to be bound by the terms of this Agreement and shall have the rights and obligations of the Purchaser under this Agreement.
(b) The Purchaser agrees to the imprinting, so long as is required by this Section 4.1, of a legend on any of the Securities in the following form:
THIS SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.
The Company acknowledges and agrees that the Purchaser may from time to time pledge pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security interest in some or all of the Securities to a financial institution that is an “accredited investor” as defined in Rule 501(a) under the Securities Act and who agrees to be bound by the provisions of this Agreement and, if required under the terms of such arrangement, the Purchaser may transfer pledged or secured Securities to the pledgees or secured parties. Such a pledge or transfer would not be subject to approval of the Company and no legal opinion of legal counsel of the pledgee, secured party or pledgor shall be required in connection therewith. Further, no notice shall be required of such pledge. At the appropriate Purchaser’s expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured party of Securities may reasonably request in connection with a pledge or transfer of the Securities, including, if the Securities are registered under a registration statement, the preparation and filing of any required prospectus supplement under Rule 424(b)(3) under the Securities Act or other applicable provision of the Securities Act to appropriately amend the list of selling stockholders thereunder.
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(c) Certificates evidencing the Conversion Shares and the Warrant Shares shall not contain any legend (including the legend set forth in Section 4.1(b) hereof): (i) while a registration statement covering the resale of such security is effective under the Securities Act, (ii) following any sale of such Conversion Shares or Warrant Shares pursuant to Rule 144, (iii) if such Conversion Shares or Warrant Shares are eligible for sale under Rule 144 without volume or manner-of-sale restrictions, or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission). If all or any shares of Preferred Stock or Warrants are converted at a time when there is an effective registration statement to cover the resale of the Conversion Shares or Warrant Shares, as applicable, or if such Conversion Shares or Warrant Shares may be sold under Rule 144 and the Company is then in compliance with the current public information required under Rule 144, or if the Conversion Shares or Warrant Shares may be sold under Rule 144 without the requirement for the Company to be in compliance with the current public information required under Rule 144 as to such Conversion Shares or Warrant Shares and without volume or manner-of-sale restrictions or if such legend is not otherwise required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission) then such Conversion Shares or Warrant Shares shall be issued free of all legends. The Company agrees that following the Effective Date or at such time as such legend is no longer required under this Section 4.1(c), it will, no later than the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined below) following the delivery by a Purchaser to the Company or the Transfer Agent of a certificate representing Conversion Shares or Warrant Shares, as applicable, issued with a restrictive legend (such date, the “Legend Removal Date”), deliver or cause to be delivered to such Purchaser a certificate representing such shares that is free from all restrictive and other legends. The Company may not make any notation on its records or give instructions to the Transfer Agent that enlarge the restrictions on transfer set forth in this Section 4. Certificates for Conversion Shares or Warrant Shares subject to legend removal hereunder shall be transmitted by the Transfer Agent to the Purchaser by crediting the account of the Purchaser’s prime broker with the Depository Trust Company System as directed by such Purchaser. 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 a certificate representing Conversion Shares or Warrant Shares, as applicable, issued with a restrictive legend.
(d) In addition to such Purchaser’s other available remedies, (i) the Company shall pay to a Purchaser, in cash, as partial liquidated damages and not as a penalty, for each $1,000 of the value of the Conversion shares for which the Preferred Stock is being converted, or Warrant Shares for which a Warrant is being exercised (based on the Warrant’s then exercise price), $10 per Trading Day for each Trading Day after the Legend Removal Date (increasing to $20 per Trading Day after the fifth Trading Day) until such certificate is delivered without a legend. Nothing herein shall limit such Purchaser’s right to pursue actual damages for the Company’s failure to deliver certificates representing any Securities as required by the Transaction Documents, and such Purchaser shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief, and (ii) if after the Legend Removal Date such Purchaser purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by such Purchaser of all or any portion of the number of shares of Common Stock, or a sale of a number of shares of Common Stock equal to all or any portion of the number of shares of Common Stock that such Purchaser anticipated receiving from the Company without any restrictive legend, then, the Company shall pay to such Purchaser, in cash, an amount equal to the excess of such Purchaser’s total purchase price (including brokerage commissions and other out-of-pocket expenses, if any) for the shares of Common Stock so purchased (including brokerage commissions and other out-of-pocket expenses, if any) (the “Buy-In Price”) over the product of (A) such number of Warrant Shares that the Company was required to deliver to such Purchaser by the Legend Removal Date multiplied by (B) the highest closing sale price of the Common Stock on any Trading Day during the period commencing on the date of the delivery by such Purchaser to the Company of the applicable Warrant Shares and ending on the date of such delivery and payment under this Section 4.1(d).
(e) In the event a Purchaser shall request delivery of unlegended shares as described in this Section 4.1 and the Company is required to deliver such unlegended shares, (i) the Purchaser shall pay all fees and expenses associated with or required by the legend removal and/or transfer including but not limited to legal fees, Transfer Agent fees and overnight delivery charges and taxes, if any, imposed by any applicable government upon the issuance of Common Stock; and (ii) the Company may not refuse to deliver unlegended shares based on any claim that such Purchaser or anyone associated or affiliated with such Purchaser has not complied with Purchaser’s obligations under the Transaction Documents, or for any other reason, unless, an injunction or temporary restraining order from a court, on notice, restraining and or enjoining delivery of such unlegended shares shall have been sought and obtained by the Company and the Company has posted a surety bond for the benefit of such Purchaser in the amount of the greater of (i) 150% of the amount of the aggregate purchase price of the Conversion Shares or Warrant Shares, as applicable (based on exercise price in effect upon exercise) which is subject to the injunction or temporary restraining order, or (ii) the VWAP of the Common Stock on the Trading Day before the issue date of the injunction multiplied by the number of unlegended shares to be subject to the injunction, which bond shall remain in effect until the completion of the litigation of the dispute and the proceeds of which shall be payable to such Purchaser to the extent Purchaser obtains judgment in Purchaser’s favor.
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4.2 Acknowledgment of Dilution of Voting Power. The Company acknowledges that the issuance of the Securities will result in dilution of the voting power of the outstanding shares of Common Stock, which dilution will be substantial.
4.3 Integration. The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities in a manner that would require the registration under the Securities Act of the sale of the Securities or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market such that it would require shareholder approval prior to the closing of such other transaction unless shareholder approval is obtained before the closing of such subsequent transaction.
4.4 Securities Laws Disclosure; Publicity. The Company, at its discretion shall issue a press release disclosing the material terms of the transactions contemplated herein.
4.5 Shareholder Rights Plan. No claim will be made or enforced by the Company or, with the consent of the Company, any other Person, that the Purchaser is an “Acquiring Person” under any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or similar anti-takeover plan or arrangement in effect or hereafter adopted by the Company, or that the Purchaser could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities under the Transaction Documents or under any other agreement between the Company and the Purchaser.
4.6 Non-Public Information. Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Company covenants and agrees that neither it, nor any other Person acting on its behalf, will provide the Purchaser or its agents or counsel with any information that the Company believes constitutes material non-public information, unless prior thereto the Purchaser shall have entered into a written agreement with the Company regarding the confidentiality and use of such information. The Company understands and confirms that the Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of the Company.
4.7 Indemnification of Purchaser. Subject to the provisions of this Section 4.7, the Company will indemnify and hold the Purchaser and their respective directors, officers, shareholders, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls the Purchaser (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such controlling persons (each, a “Purchaser Party”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Purchaser Party may suffer or incur (“Losses”) as a result of or relating to (a) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents or (b) any action instituted against the Purchaser Parties in any capacity, or any of them or their respective Affiliates, by any stockholder of the Company who is not an Affiliate of such Purchaser Party, with respect to any of the transactions contemplated by the Transaction Documents (unless such action is based upon a breach of such Purchaser Party’s representations, warranties or covenants under the Transaction Documents or any agreements or understandings such Purchaser Party may have with any such stockholder or any violations by such Purchaser Party of state or federal securities laws or any conduct by such Purchaser Party which constitutes fraud, gross negligence, willful misconduct or malfeasance). If any action shall be brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof with counsel of its own choosing reasonably acceptable to the Purchaser Party. Any Purchaser Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the extent that (i) the employment thereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable period of time to assume such defense and to employ counsel or such defense once started is subsequently delayed owing to lack of timely payment by the Company of legal fees and expenses or (iii) in such action there is, in the reasonable opinion of counsel, a material conflict on any material issue between the position of the Company and the position of such Purchaser Party, in which case the Company shall be responsible for the reasonable fees and expenses of no more than one such separate counsel. The Company will not be liable to any Purchaser Party under this Agreement (y) for any settlement by a Purchaser Party effected without the Company’s prior written consent, which shall not be unreasonably withheld or delayed; or (z) to the extent, but only to the extent that a loss, claim, damage or liability is attributable to any Purchaser Party’s breach of any of the representations, warranties, covenants or agreements made by such Purchaser Party in this Agreement or in the other Transaction Documents. The indemnification required by this Section 4.7 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or are incurred. The indemnity agreements contained herein shall be in addition to any cause of action or similar right of any Purchaser Party against the Company or others and any liabilities the Company may be subject to pursuant to law. Notwithstanding anything to the contrary herein, all indemnity obligations under this Section 4.7 shall be limited to the Purchase Price.
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4.8 Certain Transactions and Confidentiality. The Purchaser, covenants that neither it, nor any Affiliate acting on its behalf or pursuant to any understanding with it will (i) execute any Short Sales, of any of the Company’s securities during the period commencing with the execution of this Agreement and ending at such time that the transactions contemplated by this Agreement are first publicly announced pursuant to the initial press release as described in Section 4.4 or (ii) from the date hereof until the earlier of the 12 month anniversary of the date hereof and the date that the Preferred Stock is no longer outstanding, execute any Short Sales of the Common Stock (a “Prohibited Short Sale”). The Purchaser covenants that until such time as the transactions contemplated by this Agreement are publicly disclosed by the Company pursuant to the initial press release as described in Section 4.4, the Purchaser will maintain the confidentiality of the existence and terms of this transaction and the information included in the Transaction Documents and the Disclosure Schedules. Notwithstanding the foregoing, and notwithstanding anything contained in this Agreement to the contrary, the Company expressly acknowledges and agrees that (i) the Purchaser does not make any representation, warranty or covenant hereby that it will not engage in effecting transactions in any securities of the Company after the time that the transactions contemplated by this Agreement are first publicly announced pursuant to the initial press release as described in Section 4.4, (ii) except for a Prohibited Short Sale, the Purchaser shall not be restricted or prohibited from effecting any transactions in any securities of the Company in accordance with applicable securities laws from and after the time that the transactions contemplated by this Agreement are first publicly announced pursuant to the initial press release as described in Section 4.4 and (iii) the Purchaser shall have no duty of confidentiality to the Company or its Subsidiaries after the issuance of the initial press release as described in Section 4.4.
4.9 Form D; Blue Sky Filings. The Company agrees to timely file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof, promptly upon request of the Purchaser. The Company shall take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for, or to qualify the Securities for, sale to the Purchaser under applicable securities or “Blue Sky” laws of the states of the United States, and shall provide evidence of such actions promptly upon request of the Purchaser.
4.10 Redemption.
The Company shall have the right to redeem the Securities, in accordance with the following schedule:
| i. | The Preferred Shares can be redeemed by the Company, at its election, on a pro-rata basis upon the occurrence of the following events: |
| a. | One-third (1/3) of the Preferred Shares (thirty-two (32) shares) may be redeemed within five (5) business days following the filing of the Registration Statement. |
| b. | One-third (1/3) of the Preferred Shares (thirty-two (32) shares) may be redeemed within five (5) business days following the effectiveness of the Registration Statement. |
| c. | One-third (1/3) of the Preferred Shares (thirty-two (32) shares) may be redeemed within five (5) business days following the realization of revenues by the Company after its initial harvest (anticipated to occur around____ ). |
| ii. | The Company shall have the right to redeem the Securities upon five (5) business days’ of written notice at a price equal to the outstanding Stated Value together with any accrued but unpaid dividends and all other amounts due pursuant to this Agreement and the Certificate of Designation; |
| iii. | The Company shall honor all conversions of Preferred Stock until the receipt by the Purchaser of the applicable redemption amounts set forth in this Section 4.10. |
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4.11 Dividends The Company shall pay a dividend of eight percent (8%) per annum on the Preferred Stock, for as long as the relevant Preferred Stock has not been redeemed or converted. Dividends shall be paid quarterly, and at the Company’s discretion, in cash or Preferred Stock calculated at the purchase price.
4.12 Event of Default Following any Event of Default, all outstanding Preferred Stock shall come immediately due for redemption and the redemption amount shall accrue dividends at the lesser of (a) 10% per annum or (b) the maximum legal rate. Redemption following an Event of Default shall occur at an amount equaling the product of one hundred and thirty percent (130%), multiplied by the sum of the Stated Value, all accrued but unpaid dividends and all other amounts due pursuant to this Agreement and the Certificate of Designation for all Preferred Stock.
4.13 Conversion and Exercise Procedures. The forms of Notice of Conversion included in the Preferred Stock and Notice of Exercise included in the Warrant set forth the totality of the procedures required of the Purchaser in order to convert the Preferred Stock and exercise the Warrant, respectively. No additional legal opinion, other information or instructions shall be required of the Purchaser to convert their Preferred Stock or exercise their Warrant. Without limiting the preceding sentences, no ink-original Notice of Conversion or Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion or Notice of Exercise form be required in order to convert the Preferred Stock or exercise the Warrant, respectively. The Company shall honor conversion of the Preferred Stock and exercises of the Warrant and shall deliver Conversion Shares or Warrant Shares, as applicable, in accordance with the terms, conditions and time periods set forth in the Transaction Documents.
4.14 DTC Program. For so long as the Preferred Stock or any Warrant is outstanding, the Company will employ as the Transfer Agent for the Common Stock and Warrant Shares a participant in the DTC Automated Securities Transfer Program and cause the Common Stock to be transferable pursuant to such program.
4.15 Most Favored Nations. From the date hereof until the date when the Purchaser no longer holds any Securities, upon any issuance by the Company or any of its subsidiaries of Common Stock, Common Stock Equivalents for cash consideration, indebtedness or a combination of units hereof (a “Subsequent Financing”), Purchaser may elect, in its sole discretion, to exchange (in lieu of conversion), if applicable, all or some of the Securities then held for any securities or units issued in a Subsequent Financing on a $1.00 for $1.00 basis. The Company shall provide the Purchaser with notice of any such Subsequent Financing in the manner set forth below. Additionally, if in such Subsequent Financing there are any contractual provisions or side letters that provide terms more favorable to the investors than the terms provided for hereunder, then the Company shall specifically notify the Purchaser of such additional or more favorable terms and such terms, at Purchaser’s option, shall become a part of the transaction documents with the Purchaser. The types of terms contained in another security that may be more favorable to the holder of such security include, but are not limited to, terms addressing stock sale price, price per share, and warrant coverage.
ARTICLE V.
MISCELLANEOUS
5.1 Termination. This Agreement may be terminated by the Purchaser, as to the Purchaser’s obligations hereunder, if the Initial Closing has not been consummated within five (5) Business Days of the date hereof or the Additional Closing has not been consummated within five (5) Business Days of the filing of the Registration Statement registering the resale of the Registrable Securities; provided, however, that such termination will not affect the right of any party to sue for any breach by any other party (or parties).
5.2 Fees and Expenses. At the Initial Closing, the Company has agreed to reimburse the Purchaser $3,000 for its legal fees in connection with the transaction contemplated by the Transaction Documents, which such amount may be withheld from the Purchaser’s Subscription Amount deliverable at Closing. Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all Transfer Agent fees (including, without limitation, any fees required for same-day processing of any instruction letter delivered by the Company), stamp taxes and other taxes and duties levied in connection with the delivery of any Securities to the Purchaser.
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5.3 Entire Agreement. The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.
5.4 Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of: (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto at or prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the second (2nd) Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as set forth on the signature pages attached hereto.
5.5 Amendments; Waivers. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Company and the holders of at least 75% in interest of the Securities then outstanding or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.
5.6 Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.
5.7 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Purchaser (other than by merger). The Purchaser may assign any or all of its rights under this Agreement to any Person to whom the Purchaser assigns or transfers any Securities, provided that such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions of the Transaction Documents that apply to the “Purchaser.”
5.8 No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.7 and this Section 5.8.
5.9 Governing Law. All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of Nevada, 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 Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state or federal courts sitting in the Borough of Manhattan, New York, New York Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the Borough of Manhattan, New York, New York for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), 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 Agreement 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 the Transaction Documents, then, in addition to the obligations of the Company under Section 4.7, the prevailing party in such action, suit or proceeding shall be reimbursed by the other party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.
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5.10 Survival. The representations and warranties contained herein shall survive each Closing and the delivery of the Securities.
5.11 Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to each other party, it being understood that the parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf' format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf' signature page were an original thereof.
5.12 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.
5.13 Rescission and Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) any of the other Transaction Documents, whenever any Purchaser exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then the Purchaser may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights.
5.14 Replacement of Securities. If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction. The applicant for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs (including customary indemnity) associated with the issuance of such replacement Securities.
5.15 Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, the Purchaser and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in the Transaction Documents and hereby agree to waive and not to assert in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.
5.16 Payment Set Aside. To the extent that the Company makes a payment or payments to the Purchaser pursuant to any Transaction Document or the Purchaser enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other Person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.
5.17 Liquidated Damages. The Company’s obligations to pay any partial liquidated damages or other amounts owing under the Transaction Documents is a continuing obligation of the Company and shall not terminate until all unpaid partial liquidated damages and other amounts have been paid notwithstanding the fact that the instrument or security pursuant to which such partial liquidated damages or other amounts are due and payable shall have been canceled.
5.18 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.
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5.19 Construction. The parties agree that each of them and/or their respective counsel have reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments thereto. In addition, each and every reference to share prices and shares of Common Stock in any Transaction Document shall be subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this Agreement.
5.20 WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY.
(Signature Pages Follow)
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IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
| TRANS AMERICAN AQUACULTURE, INC. | Address for Notice: | |
| By: | /s/ Adam Thomas | |
| Name: Adam Thomas | ||
| Title: Chairman & CEO | ||
With a copy to (which shall not constitute notice):
Business Legal Advisors, LLC
Attn: Brian Higley, Esq.
Email: brian@businesslegaladvisor.com
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
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[PURCHASER SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
| Name of Purchaser: | GHS Investments LLC |
| Signature of Authorized Signatory of Purchaser: | /s/ Mark Grober |
| Name of Authorized Signatory: | Mark Grober |
| Title of Authorized Signatory: | Member |
| Address for Notice to Purchaser: | 420 Jericho Turnpike, Suite 102 |
| Jericho, NY 11753 | |
| Address for Delivery of Securities to Purchaser (if not same as address for notice): | |
| *Book Entry please | |
| Facsimile Number: | (212) 574-3326 |
| Subscription Amount: 146 | $146,000 total between two closings |
| Subscription Date: | 9/29/2023 |
| Shares of Preferred Stock: 146 + 5 Commitment Shares | = 151 total |
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Exhibit A
Certificate of Designation
| 24 |
[list of Disclosure Schedules: content to be provided by Company]:
(please read each section for specific content, topic below listed for convenience only)
Schedule 3.1(a) - subsidiaries
Schedule 3.1(e) – Filings, Consents and Approvals
Schedule 3.1(g) - capitalization
Schedule 3.1(j) - litigation
Schedule 3.1(k) - labor disputes
Schedule 3.1(l) - compliance
Schedule 3.1(n) - title to assets
Schedule 3.1(o) -intellectual property
Schedule 3.1(p) - insurance
Schedule 3.1(s) – certain fees
Schedule 3.1(aa) - tax status
Schedule 3.1(dd) - accountants
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FORM OF CLOSING NOTICE
TO:
DATE: September 26, 2023
We refer to the Securities Purchase Agreement, dated September 26, 2023 (the “Agreement”), entered into by and between Trans American Aquaculture, Inc., and you. Capitalized terms defined in the Agreement shall, unless otherwise defined herein, have the same meaning when used herein.
We hereby:
1) Give you notice that we require you to purchase shares of Series D Preferred Stock; and
2) The purchase price per share, pursuant to the terms of the Agreement, is $1,000; and
3) Certify that, as of the date hereof, the conditions set forth in Section 2.3 of the Agreement, as related to the obligations of the Company, are satisfied.
Closing will occur in accordance with the terms and conditions of Section 2 of the Agreement.
|
TRANS AMERICAN AQUACULTURE, INC. | |
| By: /s/ Adam Thomas | |
| Name: Adam Thomas | |
| Title: Chairman and CEO |
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Schedule 3.1(a)
As of the date hereof, Trans American Aquaculture, Inc., a Colorado corporation, has the following wholly owned subsidiaries:
1.
2.
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Schedule 3.1(e) - Filings, Consents and Approvals
Liabilities over $100,000
| Adam Thomas | $138,330.05 |
| Cesar Granda | $182,138.97 |
| Louis Borrego | $165,488.94 |
| Tami Hiraoka | $166,578.45 |
| Nech Investments | $163,207.24 |
| Cesar Orsini | $194,000.00 |
| Martha Cotlear | $200,000.00 |
| SBA - EIDL | $150,000.00 |
| Lewis Brisbois | $214,152.18 |
| Kings Aqua Farm LLC | $4,760,758.00 |
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Schedule 3.1(g)
Common Shares par value $0.000001: 3,000,000,000 authorized, 1,374,155,277 issued and outstanding;
Preferred Shares par value $0.000001: 20,000,000 preferred authorized, 106,144 issued and outstanding.
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Schedule 3.1(p)
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Schedule 3.1(dd)
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Exhibit 10.13
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND, ACCORDINGLY, MAY NOT BE TRANSFERRED UNLESS (I) SUCH SECURITIES HAVE BEEN REGISTERED FOR SALE PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, (II) SUCH SECURITIES MAY BE SOLD PURSUANT TO RULE 144, OR (III) THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT THAT SUCH TRANSFER MAY LAWFULLY BE MADE WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.
COMMON STOCK PURCHASE WARRANT
GOLD RIVER PRODUCTIONS INC.
| Warrant Shares: 14,901,961 | Issue Date: September 26, 2023 |
THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, GHS Investments, LLC 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 Issue Date to subscribe for and purchase from GOLD RIVER PRODUCTIONS INC. (d/b/a Trans American Aquaculture), a Colorado corporation (the “Company”), up to 15,882,353 shares (as subject to adjustment hereunder, the “Warrant Shares”) of Common Stock. This Warrant shall expire on the five (5) year anniversary of the Issue Date. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).
Section 1. Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the “Purchase Agreement”), executed September 26, 2023, among the Company and the purchasers signatory thereto.
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 Issue Date by delivery to the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly executed facsimile copy (or e-mail attachment) of the Notice of Exercise in the form annexed hereto. Within two (2) Trading Days 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© 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 type of guarantee or notarization) of any Notice of Exercise form 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 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.
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b) Exercise Price. The exercise price per share of the Common Stock under this Warrant shall be $0.0037951, subject to adjustment hereunder (the “Exercise Price”).
c) Cashless Exercise. If at any time there is no effective registration statement registering, or no current prospectus available for, the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised, in whole or in part, at any 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) = the VWAP (as defined below) immediately preceding the time of delivery of the Notice of Exercise giving rise to the applicable “cashless exercise”, as set forth in the applicable Notice of Exercise (to clarify, the “last VWAP” will be the last VWAP as calculated over an entire Trading Day such that, in the event that this Warrant is exercised at a time that the Trading Market is open, the prior Trading Day’s VWAP shall be used in this calculation);
(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.
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 characteristics of the Warrants being exercised, and the holding period of the Warrant Shares being issued may be tacked on to the holding period of this Warrant. The Company agrees not to take any position contrary to this Section 2(c).
“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 in the “Pink Sheets” published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the 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 Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.
_________________________
1 The Exercise Price will be equal to 115% of the Closing Bid price of the Common Stock on the Trading Day immediately preceding the Issue Date.
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| d) | Mechanics of Exercise. |
i. Delivery of Warrant Shares Upon Exercise. Warrant Shares purchased hereunder shall 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 or 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 the Holder or (B) the Warrant Shares are eligible for resale by the Holder without volume or manner-of-sale limitations pursuant to Rule 144, 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 one (1) Trading Day 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 payment of the aggregate Exercise Price (other than in the case of a Cashless Exercise) is received within three Trading Days of 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.
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.
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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 Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock 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 shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.
v. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional 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 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 stockholder 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 shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock 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 three Trading Days 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% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock 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 the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock 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 written 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, Splits and Reclassifications. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its 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 shares of Common Stock 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 shares of the 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 (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock 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 stockholders 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 or grant any option to purchase, or 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 then in effect shall be reduced and only reduced to an amount equal to the Base Share Price and the number of Warrant Shares issuable hereunder shall be increased such that the aggregate Exercise Price payable hereunder, after taking into account the decrease in the Exercise Price, shall be equal to the aggregate Exercise Price prior to such adjustment. The Company shall notify the Holder, in writing, no later than the Trading Day following the issuance or deemed issuance of any 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 Common Stock or Common Stock Equivalents at the lowest possible conversion or exercise price at which such securities may be 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 all record holders of any class of shares 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 shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, 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 shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a "Distribution"), at any time after the issuance of this Warrant, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations 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 shares of Common Stock are to be determined for the participation in such Distribution (provided, however, 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).
e) Fundamental Transaction.
(1) 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 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 (other than as a result of a stock split, combination or reclassification of shares of Common Stock covered by Section 3(a) above), 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 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
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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 Common 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 share of Common Stock 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, purchase this Warrant from the Holder by paying to the Holder an amount of cash equal to the Black Scholes Value of the remaining unexercised portion of this Warrant on the date of the consummation of such Fundamental Transaction. “Black Scholes Value” means the value of this Warrant based on the Black and Scholes Option Pricing Model obtained from the “OV” function on Bloomberg, L.P. (“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 five-year period, (B) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg 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 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 (D) a remaining option time equal to five years from the date of the public announcement of the applicable Fundamental Transaction. The payment of the Black Scholes Value will be made by wire transfer of immediately available funds within five Business Days of the Holder’s election (or, if later, on the effective date 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 and the other Transaction Documents 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 shares of Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such 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 and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.
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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 of 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 stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company 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 is 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 ten (10) 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 the 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.
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Section 4. Transfer of Warrant.
a) Transferability. Subject to compliance with any applicable securities laws and the conditions set forth in Section 4(d) hereof and to the provisions of Section 4.1 of the Purchase Agreement, 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. The Holder shall be required to physically surrender this Warrant to the Company within three (3) Trading Days of the date the Holder delivers an assignment form to the Company assigning this Warrant 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.
b) New Warrants. 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 original Issue Date and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.
c) Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company 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.
d) Transfer Restrictions. If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be either (i) registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws or (ii) eligible for resale without volume or manner-of-sale restrictions or current public information requirements pursuant to Rule 144, the Company may require, as a condition of allowing such transfer, that the Holder or transferee of this Warrant, as the case may be, comply with the provisions of Section 5.7 of the Purchase Agreement.
e) Representation by the Holder. The Holder, by the acceptance hereof, represents and warrants that it is acquiring this Warrant and, upon any exercise hereof, will acquire the Warrant Shares issuable upon such exercise, for its own account and not with a view to or for distributing or reselling such Warrant Shares or any part thereof in violation of the Securities Act or any applicable state securities law, except pursuant to sales registered or exempted under the Securities Act.
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Section 5. Miscellaneous.
a) No Rights as Stockholder Until Exercise. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in Section 3.
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 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).
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 certificate 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 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.
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e) Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Purchase Agreement.
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. 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.
h) Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement.
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 Common Stock or as a stockholder 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 and the Holder.
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.
********************
(Signature Page Follows)
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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.
|
GOLD RIVER PRODUCTIONS INC. | ||
| By: | /s/ Adam Thomas | |
| Name: Adam Thomas | ||
| Title: Chairman and CEO | ||
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NOTICE OF EXERCISE
TO: GOLD RIVER PRODUCTIONS INC.
(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. 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: ___________________________________________________________________________________________________
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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: ________________________________ |
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Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the use in this Form S-1/A of Trans American Aquaculture, Inc. of our report dated July 31, 2023, relating to our audits of
the December 31, 2022 and 2021 financial statements of Trans American Aquaculture, Inc., which are appearing in the Prospectus, which
is part of this Registration Statement.
We also consent to the reference to our firm under the caption "Experts" in such Prospectus.
/s/ Burton McCumber & Longoria, L.L.P.
Burton McCumber & Longoria, L.L.P.
Brownsville, Texas
October 5, 2023