Quality Industrial Corp 10-Q for FY2024 Q3
Quality Industrial Corp. (QIND)
About this 10-Q
Quality Industrial Corp filed this 10-Q on November 19, 2024, covering the quarter ended September 30, 2024 (FY2024 Q3).
Headline figures
Quarter ended September 30, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $2.66M
- Net loss
- $469.11K
- compared with a net loss of $1.94M a year earlier
- Diluted EPS
- $0.00
- compared with -$0.02 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For the quarterly period ended
For the transition period from __________ to__________
Commission File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
(Address of principal executive offices)
(Registrant’s telephone number)
(Former name, former address, and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. ☒
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.
| ☐ Large accelerated filer | ☐ Accelerated filer | |
| ☒ | ||
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.
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐
Yes
Securities registered pursuant to Section 12(b) of the Act: None
State the number of shares outstanding of each
of the issuer’s classes of common stock, as of the latest practicable date:
TABLE OF CONTENTS
| Page | ||
| PART I – FINANCIAL INFORMATION | ||
| Item 1: | Financial Statements | 1 |
| Item 2: | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 2 |
| Item 3: | Quantitative and Qualitative Disclosures About Market Risk | 7 |
| Item 4: | Controls and Procedures | 7 |
| PART II – OTHER INFORMATION | ||
| Item 1: | Legal Proceedings | 8 |
| Item 1A: | Risk Factors | 8 |
| Item 2: | Unregistered Sales of Equity Securities and Use of Proceeds | 8 |
| Item 3: | Defaults Upon Senior Securities | 8 |
| Item 4: | Mine Safety Disclosures | 8 |
| Item 5: | Other Information | 8 |
| Item 6: | Exhibits | 8 |
i
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Our financial statements included in this Form 10-Q are as follows:
1
QUALITY INDUSTRIAL CORP.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| September 30, 2024 Unaudited | December 31, 2023 Audited | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash & Cash Equivalents | $ | $ | ||||||
| Inventory | ||||||||
| Accounts Receivable | ||||||||
| Deposits, Advances & Prepayments | ||||||||
| Other Current Assets | ||||||||
| Total Current Assets | ||||||||
| Non-Current Assets | ||||||||
| Related Party Receivables | ||||||||
| Long Term Investments | ||||||||
| Property, Plant and Equipment | ||||||||
| Right-of-Use assets | ||||||||
| Goodwill | ||||||||
| Total Non-current Assets | ||||||||
| Total Assets | ||||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current Liabilities | ||||||||
| Accounts Payable | ||||||||
| - | - | |||||||
| Operating Lease Liabilities | ||||||||
| Convertible Notes, net of discount | ||||||||
| Other Payables - Current | ||||||||
| Other Current Liabilities | ||||||||
| Total Current Liabilities | ||||||||
| Non-Current Liabilities | ||||||||
| Operating Lease Liabilities – Non-Current Portion | ||||||||
| Other Payables – Long-term | ||||||||
| Total Long-Term Liabilities | ||||||||
| Total Liabilities | ||||||||
| Stockholders’ Equity | ||||||||
| Preferred stock; $ | ||||||||
| Common stock; $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated Deficit | ( | ) | ( | ) | ||||
| Noncontrolling interest | ||||||||
| Total stockholders’ Equity | ||||||||
| Total liabilities and stockholders’ Equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
F-1
QUALITY INDUSTRIAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| 30-Sep-24 Unaudited | 30-Sep-23 Unaudited | 30-Sep-24 Unaudited | 30-Sep-23 Unaudited | |||||||||||||
| Revenue | $ | $ | $ | |||||||||||||
| Cost of revenues | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| Professional fees | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Income (loss) from operations | ( | ) | ( | ) | ( | ) | ||||||||||
| Other (income) expenses | ||||||||||||||||
| Interest expense | ||||||||||||||||
| Other Income | ( | ) | ||||||||||||||
| Total other (income) expense, net | ( | ) | ||||||||||||||
| Net Income (Loss) before Provision of Income Tax | ( | ) | ( | ) | ( | ) | ||||||||||
| Corporate Income Tax | ||||||||||||||||
| Net Income (Loss) | ( | ) | ( | ) | ( | ) | ||||||||||
| Less: net income attributable to noncontrolling interest | ||||||||||||||||
| Net income (loss) attributable to QIND stockholders | $ | ( | ) | ( | ) | $ | ( | ) | ( | ) | ||||||
| Weighted average common shares outstanding | ||||||||||||||||
| Net income (loss) per common share - basic and diluted | $ | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
F-2
QUALITY INDUSTRIAL CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(UNAUDITED)
For the Nine Months Ended September 30, 2024
| Preferred Stock | Common Stock | Additional Paid-in | Minority | Accumulated | Total Stockholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Interest | Deficit | Equity | |||||||||||||||||||||||||
| Balance, December 31, 2023 | ( | ) | ||||||||||||||||||||||||||||||
| Common stock issued for conversion of notes | ||||||||||||||||||||||||||||||||
| Minority Interest | — | — | ||||||||||||||||||||||||||||||
| Net Income | — | — | ||||||||||||||||||||||||||||||
| Balance, March 31, 2024 | ( | ) | ||||||||||||||||||||||||||||||
| Common stock issued for services | ||||||||||||||||||||||||||||||||
| Common stock issued as commitment fees | ||||||||||||||||||||||||||||||||
| Common stock issued for conversion of notes and accrued interest | ||||||||||||||||||||||||||||||||
| Cancellation of shares for transfer of assets | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Minority Interest | — | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Net Income | — | |||||||||||||||||||||||||||||||
| Balance, June 30, 2024 | ( | ) | ||||||||||||||||||||||||||||||
| Common stock issued for conversion of notes and accrued interest | ||||||||||||||||||||||||||||||||
| Common stock cancelled | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Series B shares issued | ||||||||||||||||||||||||||||||||
| Common stock issued as staff compensation | ||||||||||||||||||||||||||||||||
| Common stock issued as commitment | ||||||||||||||||||||||||||||||||
| Common stock issued for services | ||||||||||||||||||||||||||||||||
| Minority Interest | — | |||||||||||||||||||||||||||||||
| Net Income | — | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Balance, September 30, 2024 | ( | ) | ||||||||||||||||||||||||||||||
For the Nine Months Ended September 30, 2023
| Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
| Balance, December 31, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Common stock issued for cash | — | — | ||||||||||||||||||||||||||
| Imputed Interest | — | — | ||||||||||||||||||||||||||
| Net Loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance, March 31, 2023 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Common stock issued for services | ||||||||||||||||||||||||||||
| Common stock issued as staff compensation | ||||||||||||||||||||||||||||
| Net Income | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance, June 30, 2023 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Common stock issued for cash | — | |||||||||||||||||||||||||||
| Common stock issued for services | — | |||||||||||||||||||||||||||
| Common stock issued as staff compensation | — | |||||||||||||||||||||||||||
| Net Income | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance, September 30, 2023 | — | ( | ) | ) | ||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
F-3
QUALITY INDUSTRIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| September 30, 2024 | September 30, 2023 | |||||||
| Cash flows from operating activities | ||||||||
| Loss for the period | ( | ) | ||||||
| Adjustment to reconcile net gain (loss) to net cash | ||||||||
| Finance cost | ||||||||
| Non-Cash Stock Compensation Expense | ||||||||
| Stock issued for Services | ||||||||
| Amortization | ||||||||
| Commitment fees | ||||||||
| Corporate Income Tax Expense | ||||||||
| Depreciation-PPE | ||||||||
| Other income | ( | ) | ||||||
| Discount on convertible Notes | ||||||||
| Changes in Assets and Liabilities, net | ||||||||
| Current Assets | ( | ) | ( | ) | ||||
| Other Current Liabilities | ||||||||
| Net cash (used in) provided by operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Addition of Fixed Assets | ( | ) | ||||||
| Right of use Assets | ( | ) | ||||||
| Changes in Non-current assets | ( | ) | ( | ) | ||||
| Changes in Non-Current Liabilities | ||||||||
| Net cash used in investing activities | ||||||||
| Cash flows from financing activities | ||||||||
| Common Stock issued | ( | ) | ||||||
| Lease Finance | ||||||||
| Preferred Stock Issued | ||||||||
| Finance cost | ( | ) | ||||||
| Discount on convertible Notes | ||||||||
| Additional Paid-up Capital | ||||||||
| Changes in Retained Earnings & MI | ||||||||
| Note converted | ||||||||
| Net cash generated from financing activities | ||||||||
| Net increase/(decrease) in cash and cash equivalents | ||||||||
| Cash and cash equivalents at the beginning of the period | ||||||||
| Cash and cash equivalents at end of the period | ||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
F-4
QUALITY INDUSTRIAL CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1: OUR HISTORY
The Company was incorporated in the state of Nevada under the name Sensor Technologies, Inc. on May 4, 1998. In March 2006 the Company changed its name to Bixby Energy Systems Inc. In September 2006, the Company changed its name to Power Play Development Corporation. In April 2007, the Company changed its name to National League of Poker, Inc. In October 2007 the Company changed its name back to Power Play Development Corporation. In October 2011 the Company changed its name to Bluestar Technologies, Inc. In March 2018, the Company then changed its name to Wikisoft Corp.
In May 2016, the Company’s Board of Directors terminated the services of all prior officers and directors and the board appointed Robert Stevens as the Board Appointed Receiver for the Company. This was a private receivership where the receiver was appointed by the board to act on behalf of the Company and no court filings were ever made in connection with the receivership. On April 16, 2019, in connection with the Merger described below, Robert Stevens resigned from all of his positions with the Company and the board-appointed receivership was concluded. At that time Rasmus Refer was appointed as the Company’s CEO and Director, and he resigned from such positions in August and November 2020, respectively. On August 31, 2020, Carsten Kjems Falk was appointed as CEO, and Paul C Quintal was on December 1, 2021, appointed as the sole director of the Company.
On April 11, 2019, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with WikiSoft Acquisition Corp., a Delaware corporation which was then the Company’s wholly owned subsidiary (“Merger Sub”) and WikiSoft Corp., a privately held Delaware corporation (“WikiSoft DE”). In connection with the closing of this merger transaction, Merger Sub merged with and into WikiSoft DE (the “Merger”) on April 24, 2019. Pursuant to the Merger, the Company acquired WikiSoft DE which then became its wholly owned subsidiary.
On March 19, 2020, the Company entered into an Agreement and Plan of Merger (the “Short Form Merger Agreement”) with WikiSoft DE, pursuant to which it was agreed that the Company would merge with and into WikiSoft DE, with the Company surviving. Thereafter, on March 25, 2020, WikiSoft DE merged with and into the Company, with the Company (i.e., WikiSoft Corp. - the NV corporation) surviving pursuant to a Certificate of Ownership and Merger filed in with Delaware Secretary of State, whereby the then wholly owned subsidiary (WikiSoft DE) merged with and into the Company, with the Company surviving. On March 25, 2020, the Company filed Articles of Conversion in Nevada, whereby the then subsidiary (WikiSoft DE) merged with and into the Company, with the Company surviving. Prior to the Merger, the Company did not have any business operations, and at the closing of the Merger, the Company’s business was as described in detail below.
Wikisoft Corp. had a vision to become one of the largest portals of information for businesses and business professionals. Built on open-source software, the portal wikiprofile.com, was initially launched in January 2018, and the portal was relaunched in June 2021.
We changed ownership on May 28,
2022, when ILUS at the time, acquired
In line with the change in control and business direction, our Company changed its name to Quality Industrial Corp. with the ticker QIND, with a market effective date of August 4, 2022. As a result of these transactions, Quality Industrial Corp. is a public company focused on the industrial, oil & gas and utility sectors and a subsidiary to ILUS. The Company filed articles of merger with the Secretary of State of Nevada in order to effectuate a merger with our wholly owned subsidiary, Quality Industrial Corp. Shareholder approval was not required under Section 92A.180 of the Nevada Revised Statutes. As part of the merger, our board of directors authorized a change in our name to “Quality Industrial Corp.” and our Articles of Incorporation have been amended to reflect this name change. Our common stock trades under the symbol “QIND.”
F-5
After ILUS acquired control of QIND, on May 28, 2022, ILUS signed a binding letter of intent on June 28, 2022, for the Company to acquire control of Quality International, an international process manufacturing company, manufacturing custom solutions for the oil & gas, petrochemical & refinery, chemical & fertilizer, power & desalination, water & wastewater, and offshore industries.
On March 9, 2023, we changed the SIC code of the Company to SIC 3590 - Misc. Industrial & Commercial Machinery and Equipment to reflect the new business direction.
On March 27, 2024, the Company signed a definitive Share Purchase Agreement with Al Shola Gas LLC (“ASG” or the “ASG Acquisition”). ASG is an Engineering and Distribution Company in the LPG Industry in the U.A.E. and was established in 1980. The company are one of the leading suppliers & contractors of LPG centralized pipeline systems. Al Sholas gas LLC has been consolidated since acquired on March 27, 2024.
On April 1, 2024, after several failed effort negotiations with the purpose of restructuring the deal and obtaining information from the selling shareholders of Quality International, the QI Purchase Agreement with Quality International was terminated by Quality International and subsequently the Board of Directors of the Company approved the cancellation of the agreement with Quality International Co Ltd FZC signed on January 18, 2023, and amended on July 27, 2023. Quality International Co Ltd FZC is no longer consolidated with our financial statements.
NOTE 2. SUMMARY OF SIGNIFICANT POLICIES
Basis of Presentation and Principles of consolidation
The accompanying consolidated financial statements represent the results of operations, financial position, and cash flows of QIND, and all of its majority-owned and controlled subsidiary are prepared in conformity with generally accepted accounting principles in the United States of America (U.S. GAAP). The accounts of ASG have been included since acquired on March 27, 2024. All significant inter-company accounts and transactions have been eliminated.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) for interim financial information. It is management’s opinion that the accompanying unaudited condensed consolidated financial statements are prepared in accordance with instructions for Form 10-Q and include all adjustments (consisting only of normal recurring accruals) which are necessary for a fair presentation of the results for the periods presented. Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the Annual Report on Form 10-K of Quality Industrial Corp. as of and for the year ended December 31, 2023, filed with the SEC on April 8, 2024. The results of operations for the Nine months ended September 30, 2024, are not necessarily indicative of the results to be expected for the full year or for future periods.
Use of estimates
A critical accounting estimate is an estimate that: (i) is made in accordance with generally accepted accounting principles, (ii) involves a significant level of estimation uncertainty and (iii) has had or is reasonably likely to have a material impact on the Company’s financial condition or results of operations.
The Company’s consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (U.S. GAAP). The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and judgments that affect reported amounts and related disclosures. On an ongoing basis, management evaluates and updates its estimates. Management employs judgment in making its estimates but they are based on historical experience and currently available information and various other assumptions that the Company believes to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources. Actual results could differ from those estimates. Management believes that its judgment is applied consistently and produces financial information that fairly depicts the results of operations for all periods presented.
F-6
Significant estimates include estimates used to review the Company’s, impairments and estimations of long-lived assets, revenue recognition of contract-based revenue, allowances for uncollectible accounts, and the valuations of non-cash capital stock issuances. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Accounts receivable
Accounts receivables are recorded at the invoice amount less an allowance for credit losses. The allowance is an estimate based on historical collection experience, current and future economic and market conditions, and a review of the current status of each customer’s trade accounts receivable. Management evaluates the aging of the accounts receivable balances and the financial condition of its customers and all other forward-looking information that is reasonably available to estimate the amount of accounts receivable that may not be collected in the future and before recording the appropriate provision.
The duration of such receivables extends from 30 days to beyond 90 days. Payments are received only when a project is completed, and approvals are obtained. Provisions are created based on the estimated irrecoverable amounts determined by referring to past default experience and future economic and market conditions.
Inventories
In accordance with ASC 330, the Company states inventories at the lower of cost or net realizable value. Cost, which includes material, labor and overhead, is determined on a first-in, first-out basis. The Company makes adjustments to reduce the cost of inventory to its net realizable value, if required, for estimated excess, obsolete, zero usage or impaired balances. Factors influencing these adjustments include changes in market demand, product life cycle and engineering changes.
Property, Plant & Equipment
Property, Plant and Equipment
are recorded at cost, except when acquired in a business combination where property, plant and equipment are recorded at fair value. Depreciation
of property, plant and equipment is recognized over the estimated useful lives of the respective assets using the straight-line method.
| Property, Plant and Equipment | Years | |
| Machinery | ||
| Vehicles | ||
| Furniture, Fixtures & Office Equipment |
Expenditures that extend the useful life of existing property, plant and equipment are capitalized and depreciated over the remaining useful life of the related asset. Expenditures for repairs and maintenance are expensed as incurred. When property, plant and equipment are retired or sold, the cost and related accumulated depreciation is removed from the Company’s balance sheet, with any gain or loss reflected in operations.
Depreciation expense for the
three months ended September 30, 2024, and 2023 was $
F-7
Deposits
Advances have been paid to the suppliers and subcontractors in the ordinary course of business for the procurement of specialized material and equipment required in the process of designing, engineering and installing Central Gas distribution and monitoring systems. The Company is engaged in the design, engineering, supply and monitoring of Central Gas systems supplying and installing equipment such as pressure regulators, pipelines, safety equipment, tapping points, metering units, valves and storage tanks. To undertake these projects, the Company is required to make upfront investments in materials and machinery. These projects involve many processes and take substantial time to complete. We estimate that the deposit will be utilized in the next 12 months, however, some will only be returned upon cancellation such as office lease deposit, internet and utilities.
End-of-service benefits
Employee
end-of-service benefits in our subsidiary Al Shola Gas amounting to $ as of September
30, 2024, are provided to employees, in the UAE when they leave a job. Eligibility begins
after one year of continuous service and varies based on contract type and length of service.
| Employee end of service benefits Al Shola Gas | September 30, 2024 (unaudited) | |||
| Balance at Beginning | ||||
| Add: charge for the period | ||||
| Less: Settlement for the period | ( | ) | ||
| Balance at the end of the period | ||||
Goodwill
Goodwill represents the cost of acquired companies in excess of the fair value of the net assets at the acquisition date and is subject to annual impairment. Goodwill is the excess of the purchase price paid for an acquired entity and the amount of the price not assigned to acquired assets and liabilities. It arises when an acquirer pays a high price to acquire a business. This asset only arises from an acquisition, and it cannot be generated internally. Goodwill is an intangible asset, and so is listed within the long-term assets section of the acquirers’ balance sheet.
The Company accounts for business combinations by estimating the fair value of consideration paid for acquired businesses and assigning that amount to the fair values of assets acquired and liabilities assumed, with the remainder assigned to goodwill. If the fair value of assets acquired and liabilities assumed exceeds the fair value of consideration paid, a gain on bargain purchase is recognized. The estimates of fair values are determined utilizing customary valuation procedures and techniques, which require us, among other things, to estimate future cash flows and discount rates. Such analyses involve significant judgments and estimations.
The Company follows the guidance prescribed in Accounting Standards Codification (“ASC”) 350, Goodwill and Other Intangible Assets, to test goodwill and intangible assets for impairment annually if an event occurs or circumstances change which indicates that its carrying amount may not exceed its fair value.
F-8
Fair value of financial instruments
The carrying value of cash, accounts payable, warrants, accrued expenses, and debt, short term as well as long term, is recorded at fair value. Management believes the Company is not exposed to significant interest or credit risks arising from these financial instruments.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Company utilizes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable.
| ● | Level 1. Quoted prices in active markets for identical assets or liabilities. These are typically obtained from real-time quotes for transactions in active exchange markets involving identical assets. |
| ● | Level 2. Quoted prices for similar assets and liabilities in active markets; quoted prices included for identical or similar assets and liabilities that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. These are typically obtained from readily available pricing sources for comparable instruments. |
| ● | Level 3. Unobservable inputs, where there is little or no market activity for the asset or liability. These inputs reflect the reporting entity’s own beliefs about the assumptions that market participants would use in pricing the asset or liability, based on the best information available in the circumstances. |
Revenue Recognition
The Company recognizes revenue in accordance with Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (ASC 606).
The principal activity of the Company is to engage in general trading, manufacturing and fabrication or steel and steel products and mainly manufacturing of pressure vessels, tanks, heat exchangers and construction of storage tanks and piping. Revenue from contracts with customers is recognized when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The Company has generally concluded that it is the principal in its revenue arrangements because it typically controls the goods or services before transferring them to the customer.
Stock-based compensation
The Company recognizes all stock-based compensation using the fair value provisions prescribed by ASC Topic 718, Compensation - Stock Compensation. Accordingly, compensation costs for awards of stock-based compensation settled in shares are determined based on the fair value of the share-based instrument at the time of grant and are recognized as expense over the vesting period of the share-based instrument, net of estimated forfeitures.
In accordance with ASC 718, the Company will generally apply the same guidance to both employee and non-employee share-based awards. However, the Company will also follow specific guidance for share-based awards to non-employees related to the attribution of compensation cost and the inputs to the option-pricing model for expected term. Non-employee share-based payment equity awards are measured at the grant-date fair value of the equity instruments, similar to employee share-based payment equity awards.
F-9
The Company calculates the fair value of option grants and warrant issuances utilizing the Binomial pricing model. The amount of stock-based compensation recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest. ASC 718 requires forfeitures to be estimated at the time stock options are granted and warrants are issued to employees and non-employees, and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The term “forfeiture” is distinct from “cancellations” or “expirations” and represents only the unvested portion of the surrendered stock option or warrant. The Company estimates forfeiture rates for all unvested awards when calculating the expenses for the period. In estimating the forfeiture rate, the Company monitors both stock option and warrant exercises as well as employee termination patterns. The resulting stock-based compensation expense for both employee and non-employee awards is generally recognized on a straight-line basis over the period in which the Company expects to receive the benefit, which is generally the vesting period.
Earnings (loss) per share
The Company reports earnings
(loss) per share in accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification
(“ASC”) 260-10 “Earnings Per Share,” which provides for the calculation of “basic” and
“diluted” earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income or loss
available to common stockholders by the weighted average common shares outstanding for the period. Diluted earnings per share reflect
the potential dilution of securities that could share in the earnings of an entity.
| Particulars | Three Months Ended September 30, 2024 (unaudited) | Three Months Ended September 30, 2023 (unaudited) | Nine Months Ended September 30, 2024 (unaudited) | Nine Months Ended September 30, 2023 (unaudited) | ||||||||||||
| Basic and diluted EPS* | ||||||||||||||||
| Numerator | ||||||||||||||||
| Net income/(loss) | ( | ) | ( | ) | ( | ) | ||||||||||
| Net Income attributable to common stockholders | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Denominator | ||||||||||||||||
| Weighted average shares outstanding | ||||||||||||||||
| Number of shares used for basic EPS computation | ||||||||||||||||
| Basic EPS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Number of shares used for diluted EPS computation* | ||||||||||||||||
| Diluted EPS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| * |
Income taxes
The Company accounts for income tax positions in accordance with Accounting Standards Codification Topic 740-10-50, “Income Taxes” (“ASC Topic 740”). This standard prescribes a recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. There was no material impact on the Company’s financial position or results of operations as a result of the application of this standard. Deferred tax assets have not been created the majority of the company’s income belongs to the subsidiary, which is registered in an income tax-free jurisdiction since any losses incurred cannot be utilized in the future, rendering deferred tax assets irrelevant, The profits of a foreign subsidiary corporation are ordinarily not subject to tax in the United States as in accordance with the general Internal Revenue Service rule, foreign subsidiaries are not considered U.S. corporations even if they are wholly owned.
F-10
Recently issued accounting pronouncements
The Company has evaluated all other recent accounting pronouncements and believes that none of them are expected to have a material effect on the Company’s financial position, results of operations, or cash flows.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that are material to stockholders.
Lease liabilities
The Company accounts for leases under ASC Topic 842, Leases (Topic 842). Under Topic 842, at the commencement date of the lease, the Company recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include, if any, the exercise price of a purchase option reasonably certain to be exercised by the Company and payments of penalties for terminating a lease, if the lease term reflects the Company exercising the option to terminate.
The variable lease payments that do not depend on an index or a rate are recognized as expenses in the period on which the event or condition that triggers the payment occurs.
In calculating the present value of lease payments, the Company uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments, or a change in the assessment to purchase the underlying asset.
The Company’s subsidiary,
Al Shola Gas, has entered into commercial vehicles. These leases generally have a lease term of
The Company has a Lease arrangement for which the liability has been recorded separately. The Company determines whether an arrangement contains a lease at inception. A lease liability and corresponding right of use (ROU) asset are recognized for qualifying leased assets based on the present value of fixed and certain index-based lease payments at lease commencement.
The Company’s obligations under its leases are secured by the lessor’s title to the leased assets. There are no restrictions placed upon the Company by entering into these leases. The Company determines if an arrangement is or contains a lease at contract inception and recognizes an ROU asset and a lease liability based on the present value of fixed, and certain index-based lease payments at the lease commencement date. Variable payments are excluded from the present value of lease payments and are recognized in the period in which the payment is made.
F-11
The Company generally uses its incremental borrowing rate as the discount rate for measuring its lease liabilities, as the Company cannot determine the interest rate implicit in the lease because it does not have access to certain lessor-specific information. Lease expense is recognized on a straight-line basis over the lease term. The Company does not have significant finance leases. The Company has elected not to separate payments for lease components from payments for non-lease components for all classes of leases.
When accounting for finance leases in accordance with ASC 842, the entity recognizes interest on the lease liability and amortization of the ROU asset in the income statement and classify payments of the principal portion of the lease liability as financing activities and payments of interest on the lease liability as operating activities.
Reclassifications
Certain reclassifications have been made to the December 31, 2023, balance sheet to conform to the September 30, 2024, presentation. These reclassifications had no impact on the net loss or loss per share as previously reported.
NOTE 3. GOING CONCERN
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.
Management evaluated all relevant conditions and events that are reasonably known or reasonably knowable, in the aggregate, as of the date the consolidated financial statements are issued and determined. The Company’s ability to continue as a going concern is dependent on the Company’s ability to continue to generate sufficient revenues and raise capital within one year from the date of filing.
QIND has planned future acquisitions, and we intend to disclose these acquisitions, as they happen, in our ongoing reports with the Securities and Exchange Commission. Over the next twelve months, management plans to use borrowings and security sales to mitigate the effects of cash flow deficits; however, no assurance can be given that debt or equity financing, if and when required, will be available.
NOTE 4. CURRENT ASSETS
Cash and Cash Equivalents
For purposes of the statements
of cash flows, in accordance with ASC 230-10-20, the Company considers all highly liquid investments and short-term debt instruments
with original maturities of three months or less to be cash equivalents. The Company held no cash equivalents as of September 30,
2024, and December 31, 2023.
| September 30, 2024 | December 31, 2023 | |||||||
| Cash and Cash Equivalents | ||||||||
| Cash in hand | ||||||||
| Cash at bank | ||||||||
| Total | $ | $ | ||||||
F-12
Accounts Receivables
Accounts receivable arises from our subsidiary
Al Shola Gas consolidated as of March 31, 2024. The duration of such receivables extends from 30 days to beyond 90 days. Payments are
received only when a project is completed, and approvals are obtained.
| Accounts Receivables Ageing Al Shola Gas | September 30, 2024 (unaudited) | |||
| 1-30 days | ||||
| 31-60 days | ||||
| 61-90 days | ||||
| +90 days | ||||
| Total | $ | |||
Other Current Assets
On August 25, 2023, the
Company issued
NOTE 6. NON-CURRENT ASSETS
Related Party Receivables
As of September 30, 2024,
and December 31, 2023, the Company had amounts due from Ilustrato Pictures International, Inc. (“ILUS”), a majority shareholder
of the Company, of $
Long Term Investments
As of September 30, 2024,
and December 31, 2023, Long Term investments were and $
On July 27, 2023, our
Company borrowed from Mahavir Investments Limited the principal amount of $
F-13
On August 25, 2023, the
Company issued to Artelliq Software Trading
The loan agreements with Mahavir and Artelliq were unwound with the cancellation of the agreement with Quality International and was not an obligation of the Company as of March 31, 2024, including accrued interest. The liability balances were charged against the investment as part of the cancellation with Quality International on April 1, 2024.
Goodwill
The Company acquired a
The Company acquired
NOTE 7. CURRENT LIABILITIES
Accounts Payable
| Al Shola Gas Accounts Payables Ageing | September 30, 2024 (unaudited) | |||
| 0-30 days | ||||
| 31-60 days | ||||
| 61-90 days | ||||
| +90 days | ||||
| Total | $ | |||
Operating Lease Liabilities - Current
As disclosed, we acquired
F-14
Convertible Notes
On August 3, 2022, the
Company issued a two-year convertible promissory note in the principal amount of $
On March 17, 2023, the
Company issued a two-year convertible promissory note in the principal amount of $
On May 23, 2023, the
Company issued to Jefferson Street Capital LLC a one-year convertible promissory note in the principal amount of $
On July 31, 2023, the
Company issued to 1800 Diagonal Lending Ltd. a promissory note in the principal amount of $
On August 15, 2023, the
Company issued to 1800 Diagonal Lending Ltd. a promissory note in the principal amount of $
On June 16, 2023, the
Company issued to Sky Holdings Ltd. a six-month convertible promissory note in the principal amount of $
On December 20, 2023,
the Company issued a two-year convertible promissory note in the principal amount of $
On December 20, 2023, the
Company issued a one-year convertible promissory note in the principal amount of $
F-15
On January 18, 2024, we issued
a convertible promissory note 1800 Diagonal Lending LLC in the principal amount of $
On February 6, 2024,
we issued a six-month convertible promissory note to Exchange Listing LLC in the principal amount of $
On March 12, 2024, we issued
a convertible promissory note to 1800 Diagonal Lending LLC in the principal amount of $
On May 21, 2024, we issued
a one-year convertible promissory note Jefferson Street Capital LLC in the principal amount of $
On July 3, 2024, we issued
a convertible promissory note 1800 Diagonal Lending LLC in the principal amount of $
On September 20, 2024, we entered into a loan agreement with J.J. Astor
& Co. The Note is the senior secured with a Principal Amount of $
On September 25, 2024, we
issued a convertible promissory note 1800 Diagonal Lending LLC in the principal amount of $
F-16
Certain convertible notes include original issuance discounts or other
issuance type costs resulting in debt discounts upon execution. These discounts are amortized into interest expense over the term of the
convertible note. During the three and six months ended September 30, 2024, amortization related to these discounts totaled $
Debt & Interest Payable
| Lender | Date of Issue | Maturity Date | Principal Amount | Paid | Converted | Outstanding | Interest | |||||||||||||||||||
| RB Capital Partners Inc. | ||||||||||||||||||||||||||
| RB Capital Partners Inc. | ||||||||||||||||||||||||||
| Jefferson | ||||||||||||||||||||||||||
| Sky Holdings | ||||||||||||||||||||||||||
| RB Capital Partners Inc. | ||||||||||||||||||||||||||
| Sean Levi | ||||||||||||||||||||||||||
| Exchange Listing LLC | ||||||||||||||||||||||||||
| Jefferson | ||||||||||||||||||||||||||
| 1800 Diagonal Lending | ||||||||||||||||||||||||||
| 1800 Diagonal Lending | ||||||||||||||||||||||||||
| J.J. Astor & Co | ||||||||||||||||||||||||||
| Less: Interest Paid | ( | ) | ||||||||||||||||||||||||
Total | ||||||||||||||||||||||||||
| Lender | Date of Issue | Maturity Date | Discount | |||||||
| 1800 Diagonal Lending | ||||||||||
| 1800 Diagonal Lending | ||||||||||
| Jefferson | ||||||||||
| J.J. Astor & Co | ||||||||||
| 1800 Diagonal Lending | ||||||||||
| 1800 Diagonal Lending | ||||||||||
| Jefferson Capital (JC) | ||||||||||
| Less: Amortized | ( | ) | ||||||||
| Balance as of September 30, 2024 | ||||||||||
F-17
Options and Warrants
In accordance with ASC 470, warrants have been classified as a liability and recorded at their fair value.
On April 19, 2023, the Company issued a common
share purchase warrant to Exchange Listings LLC (the “Exchange Common Share Purchase Warrant”). The holder is entitled, upon
the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the date of issuance
hereof, to purchase from the Company,
On May 23, 2023, the Company issued a common share
purchase warrant to Jefferson Street Capital LLC (the “Jefferson Common Share Purchase Warrant”). The holder is entitled,
upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the date of
issuance hereof, to purchase from the Company,
In
connection with the ASG Acquisition, we acquired bank debt totaling approximately $
The Company acquired a
| Other Payables - Current | September 30, 2024 (unaudited) | December 31, 2023 | ||||||
| Mahavir Loan | ||||||||
| Artelliq loan | ||||||||
| Payable Al Shola Gas | ||||||||
| Other payables | ||||||||
| Total | $ | $ | ||||||
| Other Current Liabilities | September 30, 2024 | December 31, 2023 | ||||||
| Accrued Interest on Convertible note | ||||||||
| Payroll Liabilities COO* | ||||||||
| Audit fee provision | ||||||||
| Retirement benefits | ||||||||
| Corporate Tax payable | ||||||||
| Total | ||||||||
| * |
NOTE 8. NON-CURRENT LIABILITIES
Operating Lease Liabilities - Non-Current portion
As disclosed, we acquired
F-18
| DUSTER | X TRAIL | KICKS | URWAN | MICROBUS | SUNNY | ASX | YARIS | Renault | Total | |||||||||||||||||||||||||||||||
| Year 2024 | ||||||||||||||||||||||||||||||||||||||||
| Year 2025 | ||||||||||||||||||||||||||||||||||||||||
| Year 2026 | ||||||||||||||||||||||||||||||||||||||||
| Year 2027 | ||||||||||||||||||||||||||||||||||||||||
| Year 2028 | ||||||||||||||||||||||||||||||||||||||||
| Weighted average remaining lease term (in years) | ||||
| Weighted average discount rate | % |
Other Payables - Long term
In
connection with the ASG Acquisition, we acquired bank debt totaling approximately $
The Company acquired a
NOTE 9. STOCKHOLDERS’ EQUITY
The Company’s authorized
capital stock consists of
As of September 30, 2024, and December 31, 2023, there were
As of September 30, 2024, and December 31, 2023, there were
For the Nine months ended September 30, 2023:
On March 17, 2023, the
Company issued to RB Capital Partners Inc. a two-year convertible promissory note in the principal amount of $
F-19
On May 4, 2023, the Company
issued to Nicolas Link
On May 4, 2023, the Company
issued to John-Paul Backwell
On May 4, 2023, the Company
issued to Carsten Kjems Falk
On May 4, 2023, the Company
issued to Krishnan Krishnamoorthy
On May 4, 2023, the Company
issued to Louise Bennett
On May 8, 2023, the Company
issued to Exchange Listing LLC
On June 1, 2023, the
Company issued to Jefferson Street Capital LLC
On July 17, 2023, the Company issued to Sky Holdings
Ltd.
On August 25, 2023, the Company issued to Artelliq
Software Trading
On September 15, 2023, the Company issued to Nicolas
Link
On September 15, 2023, the Company issued to John-Paul
Backwell
On September 15, 2023, the Company issued to Carsten
Kjems Falk
On September 15, 2023, the Company issued to Louise
Bennett
For the Nine months ended September 30, 2024:
On January 11, 2024,
the Company issued
On January 19, 2024,
the Company issued
F-20
On February 15, 2024,
the Company issued
On April 26, 2024, we entered
into an asset purchase agreement with Mr. Refer, the previous owner of the legacy business. Mr. Refer bought the intangible legacy assets
of Wikisoft for a total consideration of
On May 7, 2024, the Company
issued
On April 30, 2024, the Company
issued
On May 14, 2024, the
Company issued
On June 3, 2024, the
Company issued
On June 5, 2024, the
Company issued
On July 9, 2024, the
Company issued
On August 9, 2024, the
Company issued
On September 9, 2024,
the Company issued
On September 13, 2024,
the Company issued
On September 21, 2024, the Company cancelled
On September 21, 2024,
the Company issued
On September 24, 2024,
the Company issued
F-21
NOTE 10. BUSINESS COMBINATION DISCLOSURE
In Accordance with ASC 805-10-50, ASC 805-30-50, and ASC 805-10-25-6
On March 27, 2024, QIND
entered into a definitive Stock Purchase Agreement with the shareholders of AL SHOLA AL MODEA GAS DISTRIBUTION L.L.C to acquire
QIND acquired majority ownership
of AL SHOLA GAS, effective as of March 27, 2024, resulting in AL SHOLA GAS becoming a subsidiary in a transaction accounted for as a business
combination. The Company and its auditors considered all pertinent facts pursuant to ASC 805-10-25-6 that the Share Purchase Agreement
signing date is the acquisition date of the company, with the value of $
The audited pro forma financial
statements of AL SHOLA GAS for the periods ended December 31, 2023, have been filed through 8-K on June 7, 2024. The acquired business
contributed revenues of $
In accordance with ASC 805-30-50-1 (b) and ASC 805-20-50-1(c), the following table summarizes the consideration transferred to acquire AL SHOLA GAS and the amounts of identified assets acquired and liabilities assumed at the acquisition date, as well as the fair value of the noncontrolling interest in AL SHOLA GAS at the acquisition date:
The Payment Schedule signed on March 27, 2024, outlines a series of payment requirements as follows:
| ● | Tranche 1: $ |
| ● | Tranche 2: Within 12 months of closing and at the soonest possible time, $ |
| Consideration paid | September 30, 2024 |
March 31, 2024 |
||||||
| Total | |
|
||||||
As of September 30, 2024, $
| Cash or National Exchange listed stock | $ | |||
| Cash | $ | |||
| Total | $ |
F-22
| Date of Acquisition | USD | |||
| Cash and cash equivalents | $ | |||
| Trade receivables & Other receivables | ||||
| Inventories | ||||
| Deposits, prepayments and advances | ||||
| Property, plant, and equipment | ||||
| Right of use assets | ||||
| Trade and other payables | ( | ) | ||
| Lease liabilities | ( | ) | ||
| Bank borrowings | ( | ) | ||
| Total identifiable net assets | $ | |||
| Non-Controlling Share ( | ||||
| Parent Share ( | ||||
| Goodwill | $ | |||
During the quarter ended March
31, 2024, we consolidated this acquired business since January 1, 2024, rather than since the acquisition date of March 27, 2024. The
impact on our March 31, 2024, results would have resulted in revenue of $
NOTE 11. SUBSEQUENT EVENTS
In accordance with ASC 855-10-50, the company lists events that are deemed to have a determinable significant effect on the balance sheet at the time of occurrence or on future operations, and without disclosure of it, the financial statements would be misleading.
On
October 16, 2024, the Company entered into a Share Purchase Agreement with Safeguard Investments LLC, pursuant to which the Investor
acquired
On October 22, 2024,
the Company issued
On May 23, 2024, Quality Industrial
Corp. entered into a binding term sheet with Actelis Networks, Inc, a Delaware corporation traded on the NASDAQ under the symbol ASNS,
pursuant to which Actelis would acquire between
On November 18, 2024, Quality Industrial Corp.,
a Nevada corporation (the “Company”), Fusion Fuel Green PLC, an Irish public limited company (the “Fusion Fuel”),
Ilustrato Pictures International Inc., a Nevada corporation , a stockholder of the Company (“Ilustrato”), and certain
other stockholders of the Company (together with Ilustrato, the “Sellers” and the Sellers together with the Company and Fusion
Fuel, the “Parties”), entered into a Stock Purchase Agreement, dated as of November 18, 2024 (the “Purchase Agreement”).
Under the Purchase Agreement, the Sellers will transfer an aggregate of
F-23
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements
Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include but are not limited to changes in economic conditions, incorporating acquisitions, changes in the supply chain for raw materials, effects of Covid and wars, including the Ukraine war, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.
General
The following is a discussion by management of its view of the Company’s business, financial condition, and corporate performance for the past year. The purpose of this information is to provide management’s recap of the past year, and to give an understanding of management’s current outlook for the near future. This section is meant to be read in conjunction with the Financial Statements of this Quarterly Report on Form 10-Q.
Overview
QIND is a Nevada Corporation that is majority-owned by ILUS. ILUS functions as QIND’s parent company, and as such it concentrates on providing strategic management oversight that includes financial, administration, marketing, and human resources support to its operating companies. QIND functions as the Industrial subsidiary of ILUS.
Factors Affecting Our Performance
The primary factors affecting our results of operations include but are not limited to:
General Macro Economic Conditions
Our business is impacted by the global economic environment, employment levels, consumer confidence, government, and municipal spending. Global instability in securities markets and the Russian invasion of Ukraine are among other factors that can impact our financial performance. In particular, changes in the U.S. economic climate can impact the demand of our product range. The Industrial and Manufacturing sectors are impacted by the overall economic environment as addressed in the risk factors. Tenders can be withdrawn and lead times for the manufacturing can be affected which can result in cancellation of orders if not delivered on time.
Recent Developments
On March 27, 2024, we entered into a definitive Stock Purchase Agreement with the shareholders of Al Shola Al Modea Gas Distribution LLC (“ASG” or “Al Shola Gas”) to acquire a 51% interest in ASG. The Closing of the transaction took place when both parties signed the definitive Share Purchase Agreement. Al Shola Gas is an Industrial and Utilities company in the Liquefied Petroleum Gas (LPG) Industry in the United Arab Emirates and was established in 1980. The company is one of the region’s leading LPG suppliers and contractors of LPG centralized pipeline systems. It is approved by The General Directorate of Civil Defense, Government of Dubai, as a Central Gas Contractor and LPG Supplier. Al Shola Gas has been consolidated into the financials from the quarter ended June 30, 2024.
2
On April 1, 2024, after several failed effort negotiations with the purpose of restructuring the deal and obtaining information from the selling shareholders of Quality International, the Purchase Agreement with Quality International was terminated by Quality International and subsequently, the Board of Directors of the Company approved the cancellation of the agreement with Quality International Co Ltd FZC signed on January 18, 2023, and amended on July 27, 2023. The company is in the process of unwinding the remaining part of the transaction consisting of $2M buy-back commitment, with management aiming to recover the investment or parts of it. However, if recovery proves unattainable, the investment may need to be written off.
On May 23, 2024, Quality Industrial Corp. entered into a binding term sheet with Actelis Networks, Inc, a Delaware corporation traded on the NASDAQ under the symbol ASNS, pursuant to which Actelis would acquire between 61% to 75% of the issued and outstanding shares of the Company’s share capital. We originally intended to close the transaction, pending regulatory requirements and due diligence, within 60 days. On August 30, 2024, we agreed to further extend the non-solicitation and no-shop periods provided in the Term Sheet until October 1, 2024, unless mutually terminated earlier by the parties. On October 10, 2024, ASNS provided the Company with written notice of ASNS’ intent to terminate the Term Sheet in accordance with the termination provisions thereof, which require a 30-day written notice of termination. The 30-day period ended, and the Term Sheet was definitively canceled on November 11, 2024.
On November 18, 2024, Quality Industrial Corp., a Nevada corporation (the “Company”), Fusion Fuel Green PLC, an Irish public limited company (the “Fusion Fuel”), Ilustrato Pictures International Inc., a Nevada corporation , a stockholder of the Company (“Ilustrato”), and certain other stockholders of the Company (together with Ilustrato, the “Sellers” and the Sellers together with the Company and Fusion Fuel, the “Parties”), entered into a Stock Purchase Agreement, dated as of November 18, 2024 (the “Purchase Agreement”). Under the Purchase Agreement, the Sellers will transfer an aggregate of 78,312,334 shares of common stock and 20,000 shares of Series B Preferred Stock of the Company, constituting approximately 69.36% of the capital stock of the Company, to Fusion Fuel (the “Transferred Shares”). Fusion Fuel will issue 3,818,969 Class A ordinary shares and 4,171,327 preferred shares to the Sellers, subject to adjustment, with provisions for the preferred shares to convert into 41,713,270 ordinary shares subject to shareholder approval and Nasdaq listing clearance. The Purchase Agreement also provides for a post-closing merger of the Company into a newly formed subsidiary of Fusion Fuel, resulting in the Company becoming a wholly-owned subsidiary of Fusion Fuel. The transaction is subject to customary closing conditions, including regulatory approvals. The Parties have also agreed to several post-closing covenants, including actions related to shareholder meetings and financing arrangements. The agreement contains customary representations, warranties, and indemnification provisions, and certain unwinding and termination rights.
Planned Developments
In the final quarter of 2024, the Company intends to allocate resources to its operating subsidiary, Al Shola Gas, with the objectives of enhancing efficiency, driving increased sales, expanding into new territories, and positively influencing our financial performance, supported by our parent company, Fusion Fuel Green PLC, which is listed on the NASDAQ under the symbol “HTOO.” Furthermore, the Company plans to invest in new vehicles, specifically bobtail trucks, for Al Shola Gas to augment their Bulk LPG supply capabilities, thereby enhancing our revenue stream. We anticipate that both our revenue and operating expenses will experience an increase as we implement our expansion plan related to Al Shola Gas. This increase will primarily be attributed to administrative and operating costs associated with our business activities.
Results of Operation for the Three and Nine Months Ended September 30, 2024, and 2023
Revenues
We earned $2,662,050 & $5,979,256 in revenue for the Three and Nine months ended September 30, 2024, compared with $0 in revenue for the Three and Nine months ended September 30, 2023. The increase in revenue is a result of revenue from our acquisition of Al Shola Gas consolidated from the second quarter of 2024. In the third quarter, Al shola Gas, grew its revenue with 17% compared with the same quarter last year. We expect the revenue to grow in the last three months of the year compared with Q3. The last quarter of the year has historically been the strongest for our operating business Al Shola Gas.
3
Gross Profit
We earned $1,080,762 & $3,649,260 in Gross Profit for the three and nine months ended September 30, 2024, compared with $0 in Gross Profit for the Three and Nine months ended September 30, 2023. Gross profit % increased to 40.6% for the three months ended September 30, 2024, compared with Gross Profit % of 38.9% for the Nine months ended September 30, 2024. The increase in gross profit % is attributable to a strategic shift in our operating business, Al Shola Gas, to Bulk LPG with higher margins.
Operating Expenses
Operating expenses increased to $1,187,583 for the Three months ended September 30, 2024, compared to $825,608 for the three months ended September 30, 2023. Operating expenses increased to $2,098,762 for the Nine months ended September 30, 2024, compared to $900,0675 for the Nine months ended September 30, 2023.
Our operating expenses for the Three and Nine month ended September 30, 2024, were mainly as a result of administrative and operating costs associated with the business activities of our subsidiary Al Shola Gas, and increased costs associated with the intended uplist to NASDAQ including but not limited to a reaudit of 2022 and 2023 fiscal years with our new independent auditor enabling a registration statement once uplisted. Our operating expenses for the Three and Nine month ended September 30, 2023, were mainly the result of issuance of shares to our management
We anticipate that our operating expenses will increase as we undertake our control plan associated with operating business Al Shola Gas. The increase will be attributable to administrative and operating costs associated with our business activities and the professional fees associated with our reporting obligations.
Non-Operating Expenses
We had other non-operating expenses of $140,833 for the Three months ended September 30, 2024, compared to $129,336 for the Three months ended September 30, 2023. Non-operating expenses increased to $306,684 for the Nine months ended September 30, 2024, from $174,574 for the Nine months ended September 30, 2023.
Our non-operating expenses for the Three and Nine month ended September 30, 2024, compared to the same periods in 2023, were higher due to stock issued discount and interest of debts.
Our Interest on Convertible notes for the three and Nine month ended September 30, 2024, compared to the same periods in 2023 increased. The management plan to pay off some or all of the notes with an intended uplist to NASDAQ.
Non-Operating Income
We had other non-operating income of $0 for the three months ended September 30, 2024, as compared $0 for the same period ended 2023. We had other non-operating income of $427,554 for the Nine months ended September 30, 2024, as compared $0 for the same period ended 2023. Our other income for the Nine months ended September 30, 2024, was a result of reversal of interest payments on the loan agreements with Mahavir and Artelliq in the first quarter which was unwound with cancellation of the agreement with Quality International.
4
Net Income/Net Loss
We incurred Net loss of $283,750 for the three months ended September 30, 2024, compared to a net loss of $1,939,269 for the Three months ended September 30, 2023. We earned Net Income of $271,383 for the Nine months ended September 30, 2024, compared to a net loss of $3,606,026 for the Nine months ended September 30, 2023.
The Net loss for the three months ended September 30, 2024, were mainly associated with one off costs with the intended uplist to NASDAQ.
Liquidity and Capital Resources
As of September 30, 2024, we had total current assets of $6,346,815 and total current liabilities of $10,123,134. We had a working capital deficit of $3,776,319 as of September 30, 2024. This compares with a working capital deficit of $6,089,634 as of December 31, 2023.
Operating activities provided $(1,675,954) in cash for the Nine months ended September 30, 2024, as compared with $(2,792,079) used in cash for the Nine months ended September 30, 2023.
Investing activities used $881,025 in cash for the nine months ended September 30, 2024, as compared with $470,000 used in cash for the Nine months ended September 30, 2023. We expect our investing cash flow will grow upon uplist to a national exchange as result of investing in long-term assets for the company’s growth.
Financing activities used $1,014,064 in cash for the nine months ended September 30, 2024, as compared with $2,324,222 in cash provided for the same period ended 2023. Our financing cash flow for Q3 2024, were mainly the result of changes in retained earnings and minority interest, proceeds from conversion notes and additional paid in capital from share issuances.
Going Concern
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.
Management evaluated all relevant conditions and events that are reasonably known or reasonably knowable, in the aggregate, as of the date the consolidated financial statements are issued and determined. The Company’s ability to continue as a going concern is dependent on the Company’s ability to continue to generate sufficient revenues and raise capital within one year from the date of filing.
Over the next twelve months, management plans to use borrowings and security sales to mitigate the effects of cash flow deficits; however, no assurance can be given that debt or equity financing, if and when required, will be available.
5
Impact of Acquisitions
Historically a significant component of our growth has been through the acquisition of businesses in our targeted sectors. We typically incur upfront costs as we incorporate and integrate acquired businesses into our operating philosophy and operational excellence. This includes consolidation of supplies and raw materials, optimized logistics and production processes, and other restructuring and improvements initiatives. The benefits of these integration efforts and upcoming planned acquisitions may not positively impact our financial results in the short term but has historically been the case in the medium to long term.
Critical Accounting Policies
In December 2001, the SEC requested that all registrants list their most “critical accounting policies” in the Management Discussion and Analysis. The SEC indicated that a “critical accounting policy” is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of inherently uncertain matters. Our critical accounting policies are disclosed in the Notes of our unaudited financial statements included in this Quarterly Report on Form 10-Q.
Goodwill
The Company continues to review its goodwill for possible impairment or loss of value at least annually or more frequently upon the occurrence of an event or when circumstances indicate that a reporting unit’s carrying amount is greater than its fair value. On September 30, 2024, we performed a goodwill impairment evaluation. We performed a qualitative assessment of factors to determine whether it was necessary to perform the goodwill impairment test. Based on the results of the work performed, the Company has concluded that no impairment loss was warranted on September 30, 2024. Factors including non-renewal of a major contract or other substantial changes in business conditions could have a material adverse effect on the valuation of goodwill in future periods and the resulting charge could be material to the future periods’ results of operations.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
Recently Issued Accounting Pronouncements
In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which simplifies the accounting for goodwill impairments by eliminating step two from the goodwill impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. ASU 2017-04 also clarifies that an entity should consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The new standard is effective for fiscal years beginning after December 15, 2019, for both interim and annual reporting periods. The Company is currently assessing the potential impact of the adoption of ASU 2017-04 on its consolidated financial statements.
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The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
A smaller reporting company is not required to provide the information required by this Item.
Item 4. Controls and Procedures
We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
In designing and evaluating our disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
As required by SEC Rule 15d-15, our management carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q.
Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of the end of the period covered by this report.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) of the Exchange Act that occurred during the quarter ended September 30, 2024, that has materially affected or is reasonably likely to materially affect, our internal control over financial reporting.
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Part II: Other Information
Item 1 - Legal Proceedings
We know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers, or any affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interests.
Item 1A. Risk Factors
There have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults upon Senior Securities
None
Item 4. Mine Safety Disclosures
None
Item 5. Other Information
Item 6. Exhibits
| * | Filed previously |
| ** | Provided herewith |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Quality Industrial Corp. | ||
| Date: | November 19, 2024 | |
| By: | /s/ John-Paul Backwell | |
| John-Paul Backwell | ||
| Title: |
Chief Executive Officer (principal executive) |
|
| By: | /s/ Krishnan Krishnamoorthy | |
| Krishnan Krishnamoorthy | ||
| Title: | Chief Financial Officer (principal accounting, and financial officer) |
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Exhibit 4.5
| STATE OF NEVADA | ||
| FRANCISCO V. AGUILAR |  |
Commercial Recordings Division |
| Secretary of State | 401 N. Carson Street | |
| Carson City, NV 89701 | ||
| Telephone (775) 684-5708 | ||
| Fax (775) 684-7141 | ||
| DEPUTY BAKKEDAHL | North Las Vegas City Hall | |
| Deputy Secretary for | 2250 Las Vegas Blvd North, Suite 400 | |
| Commercial Recordings | OFFICE OF THE | North Las Vegas, NV 89030 |
| SECRETARY OF STATE | Telephone (702) 486-2880 | |
| Fax (702) 486-2888 |
Business Entity - Filing Acknowledgement
| 09/23/2024 | |
| Work Order Item Number: | W2024092300631-3949165 |
| Filing Number: | 20244346393 |
| Filing Type: | Certificate of Designation |
| Filing Date/Time: | 9/23/2024 9:33:00 AM |
| Filing Page(s): | 6 |
| Indexed Entity Information: | |
| Entity ID: C10156-1998 | Entity Name: Quality Industrial Corp. |
| Entity Status: Active | Expiration Date: None |
Commercial Registered Agent
Registered Agents Inc. * (N)
401 Ryland st, ste 200a, Reno, NV 89502, USA
The attached document(s) were filed with the Nevada Secretary of State, Commercial Recording Division. The filing date and time have been affixed to each document, indicating the date and time of filing. A filing number is also affixed and can be used to reference this document in the future.
| Respectfully, | |
| /s/ Francisco V. Aguilar | |
| FRANCISCO V. AGUILAR | |
| Secretary of State |
Commercial Recording Division
401 N. Carson Street
CERTIFICATE OF DESIGNATION OF SERIES B CONVERTIBLE PREFERRED STOCK OF
QUALITY INDUSTRIAL CORP.
Quality Industrial Corp., a Nevada corporation (the “Corporation” or the “Company”), certifies that pursuant to the authority contained in its Articles of Incorporation, as currently in effect, and in accordance with the provisions of Nevada Statutes, the Board of Directors (the “Board”) has adopted the following resolution creating a series of Preferred Stock, as designated below.
It is hereby certified that: The name of the corporation is Quality Industrial Corp.,
The certificate of incorporation of the Corporation authorizes amendment of 200,000 (Two Hundred Thousand) shares of Preferred Stock with a par value of $0.001 and expressly vests in the Board of Directors of the Corporation the authority provided therein to issue any or all of said shares in one or more series and by resolution or resolutions, the designation, number, full or limited voting powers, or the denial of voting powers, preferences and relative participating, optional, and other special rights and the qualifications, limitations, restrictions, and other distinguishing characteristics of each series to be issued.
The Board of Directors of the Corporation, pursuant to the authority expressly vested in it as aforesaid, has adopted the following resolutions creating a Series B issue of Convertible Preferred Stock:
RESOLVED, that 200,000 (Two Hundred Thousand) shares of preferred stock (par value $0.001 per share) are authorized to be issued by this Corporation pursuant to its certificate of incorporation, and that there be and hereby is authorized and created a series of preferred stock, hereby designed as the Series B Convertible Preferred Stock, which shall have the voting powers, designations, preferences and relative participating, optional or other rights, if any, or the qualifications, limitations, or restrictions, set forth in such certificate of incorporation and in addition thereto, those following:
DESIGNATION. 200,000 (Two Hundred Thousand) shares of the Preferred Stock subject hereof shall be designated Series B Convertible Preferred Stock (“Series B Convertible Preferred Stock”). No other shares of Preferred Stock shall be designated as Series B Convertible Preferred Stock.
STATED VALUE. The shares of Series B Convertible Preferred Stock shall have a stated value of $0.001 per share.
DIVIDENDS. The holders of the shares of Series B Convertible Preferred Stock shall be entitled to receive dividends according to the company’s dividend policy.
CONVERSION TERMS. Each share of Series B Convertible Preferred Stock shall, at the option of the holder thereof, at any time and from time to time, be convertible into One Thousand (1,000) shares of fully paid and non-assessable shares of the Common Stock of the Corporation. The conversion right of the holders of Series B Convertible Preferred Stock shall be exercised by the surrender of the certificates representing shares to be converted to the Corporation or its transfer agent for the Series B Convertible Preferred Stock, accompanied by written notice electing conversion. No additional consideration or any other action need to be taken in order to effectively convert the Series B Convertible Preferred Stock to the Common Stock of the Corporation. Immediately prior to the close of business on the date the Corporation receives written notice of conversion, each converting holder of Series B Convertible Preferred Stock shall be deemed to be the holder of record of Common Stock issuable upon conversion of such holder’s Series B Convertible Preferred Stock notwithstanding that the share register of the Corporation shall then be closed or that certificates representing such Common Stock shall not then be actually delivered to such person.
In no event shall a Series B Preferred Shareholder be entitled to convert any portion of the Series B Preferred Stock (in excess of the number of shares of Series B Preferred Stock upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the Shareholder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Series B Preferred Stock or the unexercised or unconverted portion of any other security of the Company subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (2) the number of shares of Common Stock issuable upon the conversion of these Series B Preferred Shares with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Shareholder and its affiliates of more than Nine Point Nine Nine Percent (9.99%) of the outstanding shares of Common Stock. For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Regulations 13D-G thereunder, except as otherwise provided in clause (1) of such proviso.
NO IMPAIRMENT. The Corporation will not, by amendment of 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 to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out all the provisions of this Certificate and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the holders of the Series B Convertible Preferred Stock against impairment.
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REVERSE SPLIT ADJUSTMENT. If the Company shall declare or make any reverse split of its Common Stock, then the Holders of the Series B Convertible Preferred Stock shall be entitled, upon any conversion of the Series B Convertible Preferred Stock after the date of record for determining shareholders entitled to such reverse split, to receive the amount of such Common Stock as is necessary to maintain the Series B Convertible Preferred Stock proportionate equity in the shares of Common Stock as the Series B Convertible Preferred Stock would have had on conversion before such reverse split.
ADJUSTMENT DUE TO DISTRIBUTION. If the Company shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distribution to the Company’s shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-oft)) (a “Distribution”), then the Holder of the Series B Convertible Preferred Stock shall be entitled, upon any conversion of the Series B Convertible Preferred Stock after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payable to the Holder with respect to the shares of Common Stock issuable upon such conversion had such Holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution.
PURCHASE RIGHTS. If, at any time when any Series B Convertible Preferred Stock are issued and outstanding, the Company issues any convertible securities or rights to purchase stock, warrants, securities or other property (the “Purchase Rights”) pro rata to the record holders of Common Stock, then the Holder of Series B Convertible Preferred Stock will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Common Stock acquirable upon complete conversion of the Series B Convertible Preferred Stock (without regard to any limitations on conversion contained herein) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.
NOTICE OF ADJUSTMENTS. Upon the occurrence of each adjustment or readjustment of the Conversion terms as a result of the events described in this Section, the Company, at its expense, shall promptly compute such adjustment or readjustment and prepare and furnish to the Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Company shall, upon the written request at any time of the Holder, furnish to such Holder a like certificate setting forth (i) such adjustment or readjustment, (ii) the Conversion terms at the time in effect and (iii) the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon conversion of the Series B Convertible Preferred Stock.
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OTHER PREFERENCES. The shares of the Series B Convertible Preferred Stock shall no other preferences, rights, restrictions, or qualifications, except as otherwise· provided herein or by law or the certificate of incorporation of the Corporation.
AMENDMENTS. The terms and conditions and the rights of the Series B Convertible Preferred Stock shall not be amended except solely by unanimous written vote of all of the then outstanding Series B Convertible Preferred Stock.
CONVERSION, DELIVERY BY ELECTRONIC TRANSFER. In lieu of delivering physical certificates representing the Common Stock issuable upon conversion, provided the Company is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer (“FAST’) program, upon request of the Holder, the Company shall use its best efforts to cause its transfer agent to electronically transmit the Common Stock issuable upon conversion to the Holder by crediting the account of Holder’s Prime Broker with OTC through its Deposit Withdrawal Agent Commission (“DWAC”) system.
FURTHER RESOLVED, that the statements contained in the foregoing resolution creating and designating the said Serf es B Convertible Preferred Stock and fixing the number, powers, preferences and relative, optional, participating, and other special rights and the qualifications, limitations, restrictions, and other distinguishing characteristics thereof shall, upon the effective date of said series, be deemed to be included in and be a part of the certificate of incorporation of the Corporation.
Signed on September 20, 2024
By Written Consent of the Board of Directors:
| /s/ Nicolas Link | |
| Nicolas Link | |
| Chairman of the Board |
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RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series B Convertible Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series B Convertible Preferred Stock and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series B Convertible Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to this Certificate.
LIQUIDATION RIGHTS. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the holders of the Series B Convertible Preferred Stock shall not be entitled to receive liquidation in preference to the holders of common shares or any other class or series of preferred stock. Rather, the Series B Convertible Preferred Stock shall automatically be converted into Common Stock at the conversion rate hereinabove stated.
INVOLUNTARY LIQUIDATION. In the event of involuntary liquidation, the shares of this series shall be entitled to the same amounts as in the event of voluntary liquidation. The Series B Convertible Preferred Stock shall automatically be converted into Common Stock at the conversion rate hereinabove stated.
OTHER RESTRICTIONS. There shall be no conditions or restrictions upon the creation of indebtedness of the Corporation, or any subsidiary or upon the creation of any other series of preferred stock with any other preferences.
VOTING. Except as otherwise expressly provided herein or as required by law, the Holders of shares of Series B Convertible Preferred Stock shall have voting rights.
EFFECT OF CERTAIN EVENTS
EFFECT OF MERGER, CONSOLIDATION, ETC. At the option of the Holders of the Series B Convertible Preferred Stock, the sale, conveyance or disposition of all or substantially all of the assets of the Company, the effectuation by the Company of a transaction or series of related transactions in which more than 50% of the voting power of the Company is disposed of, or the consolidation, merger or other business combination of the Company with or into any other Person (as defined below) or Persons when the Company is not the survivor shall require such adjustment in the conversion terms of the Series B Convertible Preferred Stock as to maintain the same equity interest in the Common Stock as it would have on conversion prior to such event. “Person” shall mean any individual, corporation, limited liability company, partnership, association, trust or other entity or organization.
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Exhibit 4.6
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT.
THE ISSUE PRICE OF THIS NOTE
IS $115,000.00
THE ORIGINAL ISSUE DISCOUNT IS $15,000.00
| Principal Amount: $115,000.00 | Issue Date: September 25, 2024 |
| Purchase Price: $100,000.00 |
PROMISSORY NOTE
FOR VALUE RECEIVED, Quality Industrial Corp., a Nevada corporation (hereinafter called the “Borrower”), hereby promises to pay to the order of 1800 DIAGONAL LENDING LLC, a Virginia limited liability company, or registered assigns (the “Holder”) the sum of $115,000.00 together with any interest as set forth herein, on June 30, 2025 (the “Maturity Date”), and to pay interest on the unpaid principal balance hereof from the date hereof (the “Issue Date”) as set forth herein. This Note may not be prepaid in whole or in part except as otherwise explicitly set forth herein. Any amount of principal or interest on this Note which is not paid when due shall bear interest at the rate of twenty two percent (22%) per annum from the due date thereof until the same is paid (“Default Interest”). All payments due hereunder (to the extent not converted into common stock, $0.001 par value per share (the “Common Stock”) in accordance with the terms hereof) shall be made in lawful money of the United States of America. All payments shall be made at such address as the Holder shall hereafter give to the Borrower by written notice made in accordance with the provisions of this Note. Each capitalized term used herein, and not otherwise defined, shall have the meaning ascribed thereto in that certain Securities Purchase Agreement dated the date hereof, pursuant to which this Note was originally issued (the “Purchase Agreement”).
This Note is free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Borrower and will not impose personal liability upon the holder thereof.
The following terms shall apply to this Note:
ARTICLE I. GENERAL TERMS
1.1 Interest. A one-time interest charge of thirteen percent (13%) (the “Interest Rate”) shall be applied on the Issuance Date to the Principal ($115,000.00 * thirteen percent (13%) = $14,950.00). Interest hereunder shall be paid as set forth herein to the Holder or its assignee in whose name this Note is registered on the records of the Company regarding registration and transfers of Notes in cash or, in the Event of Default, at the Option of the Holder, converted into share of Common Stock as set forth herein.
1.2 Mandatory Monthly Payments. Accrued, unpaid Interest and outstanding principal, subject to adjustment, shall be paid in nine (9) payments each in the amount of $14,438.89 (a total payback to the Holder of $129,950.00). The first payment shall be due October 30, 2024 with eight (8) subsequent payments due on the 30th day of each month thereafter (on the 28th of February with respect to the February 2025 payment). The Company shall have a five (5) day grace period with respect to each payment. The Company has right to accelerate payments or prepay in full at any time with no prepayment penalty. All payments shall be made by bank wire transfer to the Holder’s wire instructions, attached hereto as Exhibit A. For the avoidance of doubt, a missed payment shall be considered an Event of Default.
1.3 Security. This Note shall not be secured by any collateral or any assets pledged to the Holder
ARTICLE II. CERTAIN COVENANTS
2.1 Sale of Assets. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, sell, lease or otherwise dispose of any significant portion of its assets outside the ordinary course of business. Any consent to the disposition of any assets may be conditioned on a specified use of the proceeds of disposition.
ARTICLE III. EVENTS OF DEFAULT
If any of the following events of default (each, an “Event of Default”) shall occur:
3.1 Failure to Pay Principal and Interest. The Borrower fails to pay the principal hereof or interest thereon when due on this Note, whether at maturity, upon acceleration or otherwise and such breach continues for a period of five (5) days after written notice from the Holder.
3.2 Breach of Covenants. The Borrower breaches any material covenant or other material term or condition contained in this Note and any collateral documents including but not limited to the Purchase Agreement and such breach continues for a period of twenty (20) days after written notice thereof to the Borrower from the Holder.
3.3 Breach of Representations and Warranties. Any representation or warranty of the Borrower made herein or in any agreement, statement or certificate given in writing pursuant hereto or in connection herewith (including, without limitation, the Purchase Agreement), shall be false or misleading in any material respect when made and the breach of which has (or with the passage of time will have) a material adverse effect on the rights of the Holder with respect to this Note or the Purchase Agreement.
3.4 Receiver or Trustee. The Borrower or any subsidiary of the Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business, or such a receiver or trustee shall otherwise be appointed.
3.5 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings, voluntary or involuntary, for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower or any subsidiary of the Borrower.
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3.6 Delisting of Common Stock. The Borrower shall fail to maintain the listing of the Common Stock on at least one of the OTC (which specifically includes the quotation platforms maintained by the OTC Markets Group) or an equivalent replacement exchange, the Nasdaq National Market, the Nasdaq SmallCap Market, the New York Stock Exchange, or the American Stock Exchange.
3.7 Failure to Comply with the Exchange Act. The Borrower shall fail to comply with the reporting requirements of the Exchange Act; and/or the Borrower shall cease to be subject to the reporting requirements of the Exchange Act.
3.8 Liquidation. Any dissolution, liquidation, or winding up of Borrower or any substantial portion of its business.
3.9 Cessation of Operations. Any cessation of operations by Borrower or Borrower admits it is otherwise generally unable to pay its debts as such debts become due, provided, however, that any disclosure of the Borrower’s ability to continue as a “going concern” shall not be an admission that the Borrower cannot pay its debts as they become due.
3.10 Financial Statement Restatement. The restatement of any financial statements filed by the Borrower with the SEC at any time after 180 days after the Issuance Date for any date or period until this Note is no longer outstanding, if the result of such restatement would, by comparison to the un-restated financial statement, have constituted a material adverse effect on the rights of the Holder with respect to this Note or the Purchase Agreement.
3.11 Replacement of Transfer Agent. In the event that the Borrower proposes to replace its transfer agent, the Borrower fails to provide, prior to the effective date of such replacement, a fully executed Irrevocable Transfer Agent Instructions in a form as initially delivered pursuant to the Purchase Agreement (including but not limited to the provision to irrevocably reserve shares of Common Stock in the Reserved Amount) signed by the successor transfer agent to Borrower and the Borrower.
3.12 Cross-Default. Notwithstanding anything to the contrary contained in this Note or the other related or companion documents, a breach or default by the Borrower of any covenant or other term or condition contained in any of the Other Agreements, after the passage of all applicable notice and cure or grace periods, shall, at the option of the Holder, be considered a default under this Note and the Other Agreements, in which event the Holder shall be entitled (but in no event required) to apply all rights and remedies of the Holder under the terms of this Note and the Other Agreements by reason of a default under said Other Agreement or hereunder. “Other Agreements” means, collectively, all agreements and instruments between, among or by: (1) the Borrower, and, or for the benefit of, (2) the Holder and any affiliate of the Holder, including, without limitation, promissory notes; provided, however, the term “Other Agreements” shall not include the related or companion documents to this Note. Each of the loan transactions will be cross-defaulted with each other loan transaction and with all other existing and future debt of Borrower to the Holder.
Upon the occurrence and during the continuation of any Event of Default, the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to 150% times the sum of (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the date of payment (the “Mandatory Prepayment Date”) plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus (z) any amounts owed to the Holder pursuant to Article IV hereof (the then outstanding principal amount of this Note to the date of payment plus the amounts referred to in clauses (x), (y) and (z) shall collectively be known as the “Default Amount”) and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise all other rights and remedies available at law or in equity.
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If the Borrower fails to pay the Default Amount within five (5) business days of written notice that such amount is due and payable, then the Holder shall have the right at any time, to convert the balance owed pursuant to the note including the Default Amount into shares of common stock of the Company as set forth herein.
ARTICLE IV. CONVERSION RIGHTS
4.1 Conversion Right. At any time following an Event of Default, the Holder shall have the right, to convert all or any part of the outstanding and unpaid amount of this Note into fully paid and non-assessable shares of Common Stock, as such Common Stock exists on the Issue Date, or any shares of capital stock or other securities of the Borrower into which such Common Stock shall hereafter be changed or reclassified at the conversion price determined as provided herein (a “Conversion”); provided, however, that in no event shall the Holder be entitled to convert any portion of this Note in excess of that portion of this Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Notes or the unexercised or unconverted portion of any other security of the Borrower subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (2) the number of shares of Common Stock issuable upon the conversion of the portion of this Note with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock. For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Regulations 13D-G thereunder, except as otherwise provided in clause (1) of such proviso. The beneficial ownership limitations on conversion as set forth in the section may NOT be waived by the Holder. The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined by dividing the Conversion Amount (as defined below) by the applicable Conversion Price then in effect on the date specified in the notice of conversion, in the form attached hereto as Exhibit B(the “Notice of Conversion”), delivered to the Borrower by the Holder in accordance with Section 4.4 below; provided that the Notice of Conversion is submitted by facsimile or e-mail (or by other means resulting in, or reasonably expected to result in, notice) to the Borrower before 6:00 p.m., New York, New York time on such conversion date (the “Conversion Date”); however, if the Notice of Conversion is sent after 6:00pm, New York, New York time the Conversion Date shall be the next business day. The term “Conversion Amount” means, with respect to any conversion of this Note, the sum of (1) the principal amount of this Note to be converted in such conversion plus (2) at the Holder’s option, accrued and unpaid interest, if any, on such principal amount at the interest rates provided in this Note to the Conversion Date, plus (3) at the Holder’s option, Default Interest, if any, on the amounts referred to in the immediately preceding clauses (1) and/or (2) plus (4) at the Holder’s option, any amounts owed to the Holder pursuant to Sections 4.4 hereof.
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The Holder shall be entitled to deduct $1,500.00 from the conversion amount in each Notice of Conversion to cover Holder’s deposit fees associated with each Notice of Conversion. Any additional expenses incurred by Holder with respect to the Borrower’s transfer agent, for the issuance of the Common Stock into which this Note is convertible into, shall immediately and automatically be added to the balance of the Note at such time as the expenses are incurred by Holder.
4.2 Conversion Price. The conversion price (the “Conversion Price”) shall mean 65% multiplied by the lowest Trading Price for the Common Stock during the ten (10) Trading Days prior to the Conversion Date (representing a discount rate of 35%) (subject to equitable adjustments by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). “Trading Price” means, for any security as of any date, the closing bid price on the OTCQB, OTCQX, Pink Sheets electronic quotation system or applicable trading market (the “OTC”) as reported by a reliable reporting service (“Reporting Service”) designated by the Holder (i.e. Bloomberg) or, if the OTC is not the principal trading market for such security, the closing bid price of such security on the principal securities exchange or trading market where such security is listed or traded or, if no closing bid price of such security is available in any of the foregoing manners, the average of the closing bid prices of any market makers for such security that are listed in the “pink sheets”. If the Trading Price cannot be calculated for such security on such date in the manner provided above, the Trading Price shall be the fair market value as mutually determined by the Borrower and the holders of a majority in interest of the Notes being converted for which the calculation of the Trading Price is required in order to determine the Conversion Price of such Notes. “Trading Day” shall mean any day on which the Common Stock is tradable for any period on the OTC, or on the principal securities exchange or other securities market on which the Common Stock is then being traded.
4.3 Authorized Shares. The Borrower covenants that during the period that the Note is outstanding, the Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of this Note issued pursuant to the Purchase Agreement. The Borrower is required at all times to have authorized and reserved four times the number of shares that is actually issuable upon full conversion of the Note (based on the Conversion Price of the Note in effect from time to time initially 12,614,836 shares) (the “Reserved Amount”). The Reserved Amount shall be increased from time to time in accordance with the Borrower’s obligations hereunder. The Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable. In addition, if the Borrower shall issue any securities or make any change to its capital structure which would change the number of shares of Common Stock into which the Notes shall be convertible at the then current Conversion Price, the Borrower shall at the same time make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of the outstanding Note. The Borrower (i) acknowledges that it has irrevocably instructed its transfer agent to issue certificates for the Common Stock issuable upon conversion of this Note, and (ii) agrees that its issuance of this Note shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock in accordance with the terms and conditions of this Note.
If, at any time the Borrower does not maintain the Reserved Amount it will be considered an Event of Default under this Note.
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4.4 Method of Conversion.
(a) Mechanics of Conversion. As set forth in Section 4.1 hereof, at any time following an Event of Default, the balance due pursuant to this Note may be converted by the Holder in whole or in part at any time from time to time after the Issue Date, by (A) submitting to the Borrower a Notice of Conversion (by facsimile, e-mail or other reasonable means of communication dispatched on the Conversion Date prior to 6:00 p.m., New York, New York time) and (B) subject to Section 4.4(b), surrendering this Note at the principal office of the Borrower (upon payment in full of any amounts owed hereunder).
(b) Surrender of Note Upon Conversion. Notwithstanding anything to the contrary set forth herein, upon conversion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Borrower unless the entire unpaid principal amount of this Note is so converted. The Holder and the Borrower shall maintain records showing the principal amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Borrower, so as not to require physical surrender of this Note upon each such conversion.
(c) Delivery of Common Stock Upon Conversion. Upon receipt by the Borrower from the Holder of a facsimile transmission or e-mail (or other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as provided in this Section 4.4, the Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates for the Common Stock issuable upon such conversion within three (3) business days after such receipt (the “Deadline”) (and, solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Note) in accordance with the terms hereof and the Purchase Agreement. Upon receipt by the Borrower of a Notice of Conversion, the Holder shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, the outstanding principal amount and the amount of accrued and unpaid interest on this Note shall be reduced to reflect such conversion, and, unless the Borrower defaults on its obligations hereunder, all rights with respect to the portion of this Note being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion. If the Holder shall have given a Notice of Conversion as provided herein, the Borrower’s obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Borrower to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Borrower, and irrespective of any other circumstance which might otherwise limit such obligation of the Borrower to the Holder in connection with such conversion.
(d) Delivery of Common Stock by Electronic Transfer. In lieu of delivering physical certificates representing the Common Stock issuable upon conversion, provided the Borrower is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer (“FAST”) program, upon request of the Holder and its compliance with the provisions set forth herein, the Borrower shall use its best efforts to cause its transfer agent to electronically transmit the Common Stock issuable upon conversion to the Holder by crediting the account of Holder’s Prime Broker with DTC through its Deposit and Withdrawal at Custodian (“DWAC”) system.
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(e) Failure to Deliver Common Stock Prior to Deadline. Without in any way limiting the Holder’s right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion of this Note is not delivered by the Deadline due to action and/or inaction of the Borrower, the Borrower shall pay to the Holder $2,000 per day in cash, for each day beyond the Deadline that the Borrower fails to deliver such Common Stock (the “Fail to Deliver Fee”); provided; however that the Fail to Deliver Fee shall not be due if the failure is a result of a third party (i.e., transfer agent; and not the result of any failure to pay such transfer agent) despite the best efforts of the Borrower to effect delivery of such Common Stock. Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of the Holder (by written notice to the Borrower by the first day of the month following the month in which it has accrued), shall be added to the principal amount of this Note, in which event interest shall accrue thereon in accordance with the terms of this Note and such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Note. The Borrower agrees that the right to convert is a valuable right to the Holder. The damages resulting from a failure, attempt to frustrate, interference with such conversion right are difficult if not impossible to qualify. Accordingly, the parties acknowledge that the liquidated damages provision contained in this Section 4.4(e) are justified.
4.5 Concerning the Shares. The shares of Common Stock issuable upon conversion of this Note may not be sold or transferred unless: (i) such shares are sold pursuant to an effective registration statement under the Act or (ii) the Borrower or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration (such as Rule 144 or a successor rule) (“Rule 144”); or (iii) such shares are transferred to an “affiliate” (as defined in Rule 144) of the Borrower who agrees to sell or otherwise transfer the shares only in accordance with this Section 4.5 and who is an Accredited Investor (as defined in the Purchase Agreement).
Any restrictive legend on certificates representing shares of Common Stock issuable upon conversion of this Note shall be removed and the Borrower shall issue to the Holder a new certificate therefore free of any transfer legend if the Borrower or its transfer agent shall have received an opinion of counsel from Holder’s counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that (i) a public sale or transfer of such Common Stock may be made without registration under the Act, which opinion shall be accepted by the Company so that the sale or transfer is effected; or (ii) in the case of the Common Stock issuable upon conversion of this Note, such security is registered for sale by the Holder under an effective registration statement filed under the Act; or otherwise may be sold pursuant to an exemption from registration. In the event that the Company does not reasonably accept the opinion of counsel provided by the Holder with respect to the transfer of Securities pursuant to an exemption from registration (such as Rule 144), it will be considered an Event of Default pursuant to this Note.
4.6 Effect of Certain Events.
(a) Effect of Merger, Consolidation, Etc. At the option of the Holder, the sale, conveyance or disposition of all or substantially all of the assets of the Borrower, the effectuation by the Borrower of a transaction or series of related transactions in which more than 50% of the voting power of the Borrower is disposed of, or the consolidation, merger or other business combination of the Borrower with or into any other Person (as defined below) or Persons when the Borrower is not the survivor shall be deemed to be an Event of Default (as defined in Article III) pursuant to which the Borrower shall be required to pay to the Holder upon the consummation of and as a condition to such transaction an amount equal to the Default Amount (as defined in Article III). “Person” shall mean any individual, corporation, limited liability company, partnership, association, trust or other entity or organization.
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(b) Adjustment Due to Merger, Consolidation, Etc. If, at any time when this Note is issued and outstanding and prior to conversion of all of the Note, there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a result of which shares of Common Stock of the Borrower shall be changed into the same or a different number of shares of another class or classes of stock or securities of the Borrower or another entity, or in case of any sale or conveyance of all or substantially all of the assets of the Borrower other than in connection with a plan of complete liquidation of the Borrower, then the Holder of this Note shall thereafter have the right to receive upon conversion of this Note, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore issuable upon conversion, such stock, securities or assets which the Holder would have been entitled to receive in such transaction had this Note been converted in full immediately prior to such transaction (without regard to any limitations on conversion set forth herein), and in any such case appropriate provisions shall be made with respect to the rights and interests of the Holder of this Note to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number of shares issuable upon conversion of the Note) shall thereafter be applicable, as nearly as may be practicable in relation to any securities or assets thereafter deliverable upon the conversion hereof. The Borrower shall not affect any transaction described in this Section 4.6(b) unless (a) it first gives, to the extent practicable, ten (10) days prior written notice (but in any event at least five (5) days prior written notice) of the record date of the special meeting of shareholders to approve, or if there is no such record date, the consummation of, such merger, consolidation, exchange of shares, recapitalization, reorganization or other similar event or sale of assets (during which time the Holder shall be entitled to convert this Note) and (b) the resulting successor or acquiring entity (if not the Borrower) assumes by written instrument the obligations of this Note. The above provisions shall similarly apply to successive consolidations, mergers, sales, transfers or share exchanges.
(c) Adjustment Due to Distribution. If the Borrower shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distribution to the Borrower’s shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a “Distribution”), then the Holder of this Note shall be entitled, upon any conversion of this Note after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payable to the Holder with respect to the shares of Common Stock issuable upon such conversion had such Holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution.
ARTICLE V. MISCELLANEOUS
5.1 Failure or Indulgence Not Waiver. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.
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5.2 Notices. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or electronic mail, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by electronic mail, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be:
If to the Borrower, to:
Quality Industrial Corp.
315 Montgomery Street
San
Francisco, CA 94104
Attn: John Paul Backwell, Chief Executive Officer
Email:
jp.backwell@ilus-group.com
If to the Holder:
1800 DIAGONAL LENDING LLC
1800 Diagonal Road, Suite 623
Alexandria VA 22314
Attn: Curt Kramer, President
Email: ckramer@sixthstreetlending.com
5.3 Amendments. This Note and any provision hereof may only be amended by an instrument in writing signed by the Borrower and the Holder. The term “Note” and all reference thereto, as used throughout this instrument, shall mean this instrument (and the other Notes issued pursuant to the Purchase Agreement) as originally executed, or if later amended or supplemented, then as so amended or supplemented.
5.4 Assignability. This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to be the benefit of the Holder and its successors and assigns. Each transferee of this Note must be an “accredited investor” (as defined in Rule 501(a) of the Securities and Exchange Commission). Notwithstanding anything in this Note to the contrary, this Note may be pledged as collateral in connection with a bona fide margin account or other lending arrangement; and may be assigned by the Holder without the consent of the Borrower.
5.5 Cost of Collection. If default is made in the payment of this Note, the Borrower shall pay the Holder hereof costs of collection, including reasonable attorneys’ fees.
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5.6 Governing Law. This Note shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Note shall be brought only in the Circuit Court of Fairfax County, Virginia or in the Alexandria Division of the United States District Court for the Eastern District of Virginia. The parties to this Note hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. The Borrower and Holder waive trial by jury. The Holder shall be entitled to recover from the Borrower its reasonable attorney’s fees and costs. In the event that any provision of this Note or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Note, any agreement or any other document delivered in connection with this Note 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 Note 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.
5.7 Purchase Agreement. By its acceptance of this Note, each party agrees to be bound by the applicable terms of the Purchase Agreement.
5.8 Remedies. The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Borrower acknowledges that the remedy at law for a breach of its obligations under this Note will be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of the provisions of this Note, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required.
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly authorized officer this on September 25, 2024
| Quality Industrial Corp. | ||
| By: | /s/ John Paul Backwell | |
| John Paul Backwell | ||
| Chief Executive Officer | ||
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EXHIBIT A – WIRE INSTRUCTIONS
[to be provided via email]
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EXHIBIT B -- NOTICE OF CONVERSION
The undersigned hereby elects to convert $________________ principal amount of the Note (defined below) into that number of shares of Common Stock to be issued pursuant to the conversion of the Note (“Common Stock”) as set forth below, of Quality Industrial Corp., a Nevada corporation (the “Borrower”) according to the conditions of the convertible note of the Borrower dated as of September 25, 2024 (the “Note”), as of the date written below. No fee will be charged to the Holder for any conversion, except for transfer taxes, if any.
Box Checked as to applicable instructions:
| ☐ | The Borrower shall electronically transmit the Common Stock issuable pursuant to this Notice of Conversion to the account of the undersigned or its nominee with DTC through its Deposit Withdrawal Agent Commission system (“DWAC Transfer”). |
Name of DTC Prime Broker:
Account Number:
| ☐ | The undersigned hereby requests that the Borrower issue a certificate or certificates for the number of shares of Common Stock set forth below (which numbers are based on the Holder’s calculation attached hereto) in the name(s) specified immediately below or, if additional space is necessary, on an attachment hereto: |
| Date of conversion: | ||||
| Applicable Conversion Price: | $ | |||
| Number of shares of common stock to be issued | ||||
| pursuant to conversion of the Notes: | ||||
| Amount of Principal Balance due remaining | ||||
| under the Note after this conversion: | ||||
| 1800 DIAGONAL LENDING LLC | |||
| By: | |||
| Name: | Curt Kramer | ||
| Title: | President | ||
| Date: ______________________ | |||
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Exhibit 10.5
LOAN AGREEMENT
This Loan Agreement (this “Agreement”) is dated as of September 20, 2024 and is made and entered into between Quality Industrial Corp., a Nevada corporation (the “Company”), and J.J. Astor & Co., a Utah corporation (including its successors and assigns, the “Lender”).
WHEREAS, the Company wishes to borrow the sum of $300,000 for working capital, and the Company wishes to enter into this Agreement and the Exhibits hereto and issue to the Lender, the promissory note in the form of Exhibit A hereto (the “Note”); and
WHEREAS, the Company and its Subsidiaries have agreed to further perfect and secure the Lender’s first priority Lien on all of the assets and properties of the Company pursuant to the Security Agreement and Subsidiary Guarantees to be entered into on the Closing Date;
WHEREAS, in consideration for the Loan and as an inducement to the Lender entering into this Agreement and the other Transaction Documents, the Company has agreed to issue the Bonus Shares to the Lender on the Closing Date; and
WHEREAS, the Company and the Lender are executing and delivering this Agreement in reliance upon an exemption from securities registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), afforded by the provisions of Section 4(a)(2) and/or Rule 506(b) of Regulation D promulgated thereunder by the U.S. Securities and Exchange Commission.
NOW, THEREFORE, in consideration of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and the Lender agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Definitions. In addition to the terms defined elsewhere in this Agreement:
(a) capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Note (as defined herein), and (b) the following terms have the meanings set forth in this Agreement.
“$” means United States Dollars.
“Action” shall have the meaning ascribed to such term in Section 3.01(k).
“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 or Subsidiary of the Company, as the context may require or permit.
“Bonus Shares” The Company shall issue to the Lender at Closing Two Million Five Hundred Thousand (2,500,000) restricted common shares of the Company (including any securities issued or then issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the foregoing).
“Business Day” means any day except Saturday, Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of Utah are authorized or required by law or other governmental action to close. 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.
“Closing” means the closing of the transactions contemplated by this Agreement pursuant to Section 2.01.
“Closing Date” means the Business Day when all of the Transaction Documents have been executed and delivered by the applicable parties thereto, and conditions precedent to: (i) the Lender’s obligations to pay professional fees and Closing costs and provide working capital to the Company, and (ii) the Company’s obligations to deliver the Note and the other Transaction Documents have been satisfied or waived.
“Commission” means the United States Securities and Exchange Commission.
“Common Stock” means the common stock, par value $0.001 per share, of the Company and any other class of securities into which such securities may hereafter be reclassified or changed.
“Common Stock Equivalent” means any convertible note, convertible preferred stock, warrant, option or other right to receive or subscribe for or purchase any additional shares of Common Stock or any Common Stock Equivalent.
“Company Disclosure Schedule” means the disclosure schedule submitted by the Company to the Lender as exceptions to or disclosures in respect of the representations and warranties of the Company set forth in this Agreement.
“Covenant Compliance Guarantee” means the “limited guarantee agreement executed by John-Paul Backwell, the Chief Executive Officer of the Company, the form of Exhibit D attached hereto.
“Conversion Price” means 80% of the average of the four lowest volume weighted average closing prices of Company Common Stock over the twenty (20) trading days immediately prior to each permitted conversion of the Note (the “Conversion Price Formula”); provided, however, in the event that the Company issues any securities, including convertible notes or debentures, Common Stock or Common Stock Equivalents at a conversion price, exercise price or per share price that is less such Conversion Price Formula, the Conversion Price shall be reduced to the lowest conversion price, exercise price or per share price issued by the Company and the Maximum Conversion Shares shall subject to appropriate increase as a result thereof.
“Conversion Shares” shall mean the shares of Common Stock of the Company issuable upon any full or partial permitted conversion of the Note.
“Exempt Issuance” means: (i) the issuance by the Company of the Note, Conversion Shares and the Bonus Shares, (ii) the issuance by the Company of Common Stock upon the exercise of any outstanding stock option or warrant or the conversion of a security outstanding on the date hereof as disclosed in the Company Disclosure Schedule, or (iii) the issuance by the Company of any Common Stock or standard options to purchase Common Stock to directors, officers, employees or consultants of the Company or its Subsidiaries in their capacity as such pursuant to an employee benefit plan which has been approved by the Board of Directors of the Company prior to the date hereof pursuant to which Common Stock and standard options to purchase Common Stock may be issued to any employee, officer, director or consultant for services provided to the Company or its subsidiaries in their capacity as such. For the avoidance of doubt, the term “Exempt Issuance” does not mean or include the issuance of any other Indebtedness or debt securities (other than the Note and related Conversion Shares) or any other Common Stock or Common Stock Equivalents by the Company or any Subsidiary, unless otherwise approved and consented to in writing in advance by the Lender.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
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“FINRA” means the Financial Industry Regulatory Authority.
“Funding Amount” means, with respect to the Note, ninety-six percent (96%) of the Subscription Amount. The Funding Amount takes into account the Origination Fee due from the Company to the Lender in an amount equal to four percent (4%) of Offering Amount, which shall be retained by the Lender at Closing for its own account.
“Indebtedness” has the meaning as that term is defined in the Note constituting Exhibit A hereto.
“Intellectual Property Rights” shall have the meaning ascribed to such term in Section 3.01(p).
“Liens” shall mean a lien, charge, security interest, mortgage, encumbrance, right of first refusal, preemptive right or other restriction or adverse claim of a third party.
“Loan” shall have the meaning ascribed to such term in Section 2.01(a).
“Loan Parties” shall have the meaning ascribed to such term in Section 3.01.
“Material Adverse Effect” shall have the meaning ascribed to such term in Section 3.01(b).
“Maximum Conversion Shares” means, upon the occurrence of any Event of Default (as defined in the Note) which shall not be timely cured by the Loan Parties the outstanding principal amount of the Note shall automatically increase to 110%, and upon the request of the Lender, all or any portion of such increased outstanding principal amount of the Note may be converted by the Lender into that number of shares of Company Common Stock as shall be determined by (a) dividing 200% of the then increased outstanding principal amount of the Note by (b) the Conversion Price then in effect.
“Note” means the senior secured $405,000 Original Principal Amount note issued by the Company to the Lender hereunder, which shall be payable in forty weekly installments of $10,125 and shall contain the other terms and conditions set forth the form of Note attached hereto as Exhibit A.
“Offering Amount” means the Three Hundred Thousand Dollars ($300,000) of funding to be evidenced by the Four Hundred and Five Thousand Dollars ($405,000) in Original Principal Amount of the Note.
“Original Principal Amount” means, with respect to the Note, the amount obtained by multiplying: (i) the Subscription Amount for such Note under this Agreement by (ii) 1.35.
“Origination Fee” shall mean the sum of $12,000 which shall be deducted from the Subscription Amount of the Loan at Closing and retained by the Lender.
“Person” means an individual or corporation, partnership, trust, incorporated or un-incorporated association, joint-venture, limited liability company, joint-stock company, government (or an agency or subdivision thereof) or other entity of any kind.
“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.
“Required Approvals” shall have the meaning ascribed to such term in Section 3.01(e).
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“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.
“SEC Reports” has the meaning ascribed to such term in Section 3.01(h).
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Security Agreement” means the Security Agreement, dated as of the date hereof, in the form of Exhibit C attached hereto.
“State Securities Laws” means the securities (or “blue sky”) rules, regulations, or other similar laws of a particular state.
“Subscription Amount” means, with respect to the Note, the aggregate amount not to exceed $300,000 to be paid for such Note hereunder, being the Offering Amount.
“Subsidiary” means any subsidiary of the Company as set forth on Section 3.01(a) and listed in the Company Disclosure Schedule and shall, where applicable, include any direct or indirect subsidiary of the Company formed or acquired after the date hereof.
“Subsidiary Guarantee” the Subsidiary Guarantee executed by each Subsidiary of the Company in the form of Exhibit B, attached hereto.
“Transaction Documents” means the collective reference to this Agreement, the Note, the Subsidiary Guarantee, the Security Agreement, Covenant Compliance Guarantee. All other appendices, exhibits and schedules hereto and thereto and any other documents or agreements executed in connection with the transactions contemplated hereunder.
ARTICLE
II
PURCHASE AND SALE
Section 2.01 Closing.
(a) On the Closing Date, upon the terms and subject to the conditions set forth herein and in the other Transaction Documents to be executed and delivered by the parties hereto and thereto, the Lender hereby agrees to make a loan of $300,000, less that Origination Fee (the “Loan”), the Company hereby agrees to issue to the Lender the Note in Four Hundred and Five Thousand Dollars ($405,000) Original Principal Amount and the Bonus Shares and the Lender hereby agrees to accept from the Company the Note and the Bonus Shares.
(b) At the Closing, the Lender shall deliver to the Company, via wire transfer, of immediately available funds, an amount equal to approximately $288,000, representing the Funding Amount.
(c) The Company and its Subsidiaries shall deliver to the Lender such Note and other Transaction Documents to be delivered as of the Closing Date and the Lender shall deliver the other items set forth in Section 2.02 deliverable at the Closing.
(d) Upon satisfaction of the conditions set forth in Sections 2.02 and 2.03, the Closing shall occur at the offices of the Lender’s counsel, or such other location as the parties shall mutually agree or may be closed remotely by electronic delivery of documents.
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Section 2.02 Closing Deliverables.
(a) By Lender. On or prior to the Closing Date, the Lender shall deliver or cause to be delivered to the Company the following:
| (i) | this Agreement duly executed by the Lender; |
| (ii) | the Security Agreement, the form of which is attached hereto as Exhibit C, duly executed by the Lender; |
| (iii) | the Funding Amount, by wire transfer to the Lender’s counsel pursuant to the wiring instructions set forth in Section 2.03(c); and |
| (iv) | the Flow of Funds Agreement duly executed by the Lender and in the form of Exhibit E attached hereto; and |
| (v) | the Registration Rights Agreement duly executed by the Lender and in the form of Exhibit F attached hereto. |
(b) By the Company. On or prior to the Closing Date, the Company shall deliver or cause to be delivered to the Lender:
| (i) | this Agreement, duly executed by an authorized officer of behalf of the Company; |
| (ii) | a Note, the form of which is attached hereto as Exhibit A, registered in the name of the Lender, in the Original Principal Amount calculated in accordance herewith, duly executed by an authorized officer on behalf of the Company; |
| (iii) | the Subsidiary Guarantee, the form of which is attached hereto as Exhibit B, executed by an authorized officer on behalf of each Subsidiary of the Company; |
| (iv) | the Security Agreement, the form of which is attached hereto as Exhibit C, executed by an authorized officer on behalf of each Subsidiary of the Company; |
| (v) | the Covenant Compliance Guarantee, executed by John-Paul Backwell, as Chief Executive Officer of the Company the form of which is attached hereto as Exhibit D; |
| (vi) | the Flow of Funds Agreement duly executed by the Company and in the form of Exhibit E attached hereto; |
| (vii) | the Registration Rights Agreement duly executed by the Company and in the form of Exhibit F attached hereto; |
| (viii) | An Irrevocable Instruction letter addressed to the Company’s transfer agent with respect to the shares of Common Stock issuable upon any full or partial conversion of the Note, executed by an authorized officer of the Company and acknowledged and accepted by transfer agent, to be in such form and substance as is acceptable to the Investor in its sole discretion; and |
| (ix) | an officer’s certificate of the Company and each Subsidiary certifying its: (A) charter (or similar formation document); (B) good standing certificate in its state of incorporation (or formation); (C) bylaws (or similar governing document); and (D) resolutions of its Board of Directors (or similar governing body) approving and authorizing the execution, delivery and performance of the Transaction Documents to which it is (or is to be) a party. |
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Section 2.03 Closing Conditions.
(a) The obligations of the Company hereunder in connection with the Closing are subject to the following conditions being met:
| (i) | the accuracy in all material respects on the Closing Date of the Lender’s representations and warranties contained herein; |
| (ii) | all obligations, covenants and agreements of the Lender required to be performed at or prior to the Closing Date shall have been performed; and |
| (iii) | the delivery by the Lender of the items set forth in Section 2.02(a) of this Agreement. |
(b) The obligations of the Lender hereunder in connection with the Closing are subject to the following conditions being met (it being understood that the Company may waive any of the conditions for any Closing hereafter):
| (i) | the accuracy in all material respects (or, to the extent representations or warranties are qualified by materiality or Material Adverse Effect, in all respects) when made and on the Closing Date of the representations and warranties of the Company 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 Company and its Subsidiaries required to be performed at or prior to the Closing Date shall have been performed; |
| (iii) | the delivery by the Company and its Subsidiaries of the items set forth in Section 2.02(b) of this Agreement; |
| (iv) | there shall have been no Material Adverse Effect with respect to the Company or any Subsidiary of the Company since the date hereof; and |
(c) The wiring instructions for the Company are as follows:
| Bank Name: | Evolve Bank & Trust | |
| ABA No. | 084106768 | |
| Acct. Name: | Quality Industrial Corp. | |
| Acct. No.: | 9800589864 |
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ARTICLE
III
REPRESENTATIONS AND WARRANTIES
Section 3.01 Representations and Warranties of the Company. The Company hereby represents and warrants to the Lender on behalf of the Company and each of its Subsidiaries (together with the Company, the “Loan Parties”) that, except as set forth in the applicable Section of the Company Disclosure Schedule the Company Disclosure Schedule, the following representations are true and complete as of the date of the date hereof.
(a) Subsidiaries. The names of all Subsidiaries of the Company, their jurisdictions of formation, and the executive officers of each Subsidiary are set forth in Section 3.01(a) of the Company Disclosure Schedule. Each such Subsidiary has executed and delivered the Subsidiary Guarantee and the Security Agreement.
(b) Organization and Qualification. The Company is duly incorporated or otherwise organized, validly existing and in good standing under the laws of the Nevada and each of its Subsidiaries is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the state of incorporation (or other formation), 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 of its Subsidiaries is in violation or default of any of the provisions of its articles of incorporation or bylaws, each, as amended and in effect. A complete and correct copy of the Company’s certificate or articles of incorporation and bylaws, each as amended and in effect on the date of this Agreement and as they will be in effect on the Closing Date, is attached to the officer’s certificate referenced in Section 2.02(b)(v). There are no other organizational or charter documents of the Company or any of its Subsidiaries. The Company and each of its 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 each of its Subsidiaries or any of their respective material assets or lines of business, individually; or (iii) a material adverse effect on the Company’s or any of its Subsidiaries’ 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; provided, however, that “Material Adverse Effect” shall not include any event, occurrence, fact, condition or change, directly or indirectly, arising out of or attributable to: (i) general economic or political conditions, (ii) conditions generally affecting the industry in which the Company or any Subsidiary operates, (iii) any changes in financial or securities markets in general, (iv) acts of war (whether or not declared), armed hostilities or terrorism, or the escalation or worsening thereof, (v) any pandemic, epidemics or human health crises (including COVID-19), (vi) any changes in applicable laws or accounting rules, (vii) the announcement, pendency or completion of the transactions contemplated by the Transaction Documents, or (viii) any action required or permitted by the Transaction Documents or any action taken (or omitted to be taken) with the written consent of or at the written request of the Lender.
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(c) Authorization; Enforcement. The Company and each of its Subsidiaries has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of each of the 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 each of its Subsidiaries and no further action is required by the Company, any of its Subsidiaries or the Board of Directors or stockholders thereof in connection therewith (other the Required Approvals). Each Transaction Document to which the Company or any of its Subsidiaries is a party has been (or upon delivery will have been) duly executed by the Company and such Subsidiaries and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company and such Subsidiaries enforceable against the Company and such Subsidiaries in accordance with their respective 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 and each of its Subsidiaries of the Transaction Documents to which it is (or is to be) a party and the consummation by the Company and of its Subsidiaries of the other transactions contemplated hereby and thereby do not and will not: (i) conflict with or violate any provision of the Company’s or any of its Subsidiaries’ certificate 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 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, agreement or other instrument (evidencing Indebtedness of the Company or any Subsidiary, or otherwise) or other understanding to which the Company or any of its Subsidiaries is a party or by which any property or asset of the Company or any of its Subsidiaries 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 any of its Subsidiaries is subject (including federal and State Securities Laws and regulations), or by which any property or asset of the Company or any of its Subsidiaries 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. The Company and its Subsidiaries are 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 their execution, delivery and performance of the Transaction Documents, other than: (i) such consents, waivers, or authorizations as have been obtained before the Closing; and (ii) the filing of Form D with the Commission and such filings as are required to be made under applicable State Securities Laws (collectively, the “Required Approvals”).
(f) Maximum Conversion Shares. The Company has reserved from its duly authorized Common Stock a number of shares of Common Stock, up to the sum of the Bonus Shares to be issued at Closing plus the Maximum Conversion Shares for issuance to the Lender or its Affiliates in the event of the full permitted conversion of the Note.
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(g) Capitalization. The capitalization of the Company is as set forth in the most recent SEC Reports and as further modified in Section 3.01(g) of the Company Disclosure Schedule. The Company has no Indebtedness, except as disclosed in the most recent SEC Reports and in Section 3.01(g) of the Company Disclosure Schedule. Since the date of the most recently filed SEC Report, the Company has not issued any Common Stock, Common Stock Equivalents or other equity interests (other than Exempt Issuances) or (without duplication) pursuant to the conversion and/or exercise of Common Stock Equivalents outstanding as of the date hereof. Except in instances where valid waivers have been obtained, 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 in the SEC Reports and further modified in Section 3.01(g) of the Company Disclosure Schedule, 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 Common Stock or the capital stock of any Subsidiary, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional Common Stock or Common Stock Equivalents or capital stock of any Subsidiary. The issuance and sale of the Note will not obligate the Company or any Subsidiary to issue any securities to any Person (other than the Lender) 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. Except for the Required Approvals and waivers that have heretofore been obtained, no further approval or authorization of any stockholder, Board of Directors or other Person(s) is required for the issuance and sale of the Note hereunder.
(h) SEC Reports; Financial Statements. The Company has filed all reports, schedules, forms, statements and other documents required to be filed by the Company under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or such shorter period as the Company was required by law or regulation to file such material) (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectively referred to herein as the “SEC Reports”). As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act, as applicable, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the SEC with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the periods involved (“GAAP”), except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal year-end audit adjustments.
(i) Undisclosed Liabilities. The Company has no liability, indebtedness, obligation, expense, claim, deficiency or guaranty of any type, whether accrued, absolute, contingent, matured, unmatured or otherwise, required to be reflected in financial statements in accordance with GAAP, which individually or in the aggregate: (A) has not been reflected in the latest balance sheet included in the financial statements referenced hereinabove; or (B) has not arisen: (i) in the ordinary course of business, consistent with past practices, since the date of the latest balance sheet included in such financial statements in an amount that does not exceed $25,000 in any one case or $50,000 in the aggregate, (ii) pursuant to or in connection with this Agreement or other Transaction Document, or (c) are executory performance obligations to be performed after the date hereof in the ordinary course of business pursuant to agreement(s) entered into in the ordinary course of business, consistent with past practices. The Company is not in default with respect to any Indebtedness.
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(j) Material Changes. Since the date of the latest financial statements made available to Lender prior to the date hereof: (A) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect; (B) the Company has not incurred any liabilities (contingent or otherwise) other than (i) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice, and (ii) liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP; (C) the Company has not altered their method of accounting; (D) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock except; and (E) the Company has not issued any equity securities except in favor of an officer, director or consultant pursuant to an existing Company equity incentive plans.
(k) Litigation. 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 of its Subsidiaries or any of their respective properties or assets before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”) which: (A) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents; or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect. None of the Company or any director or officer thereof, is or has been the subject of anyAction involving: (x) a claim of violation of or liability under the Securities Act, the Exchange Act, FINRA rules or any State Securities Laws; (y) breach of fiduciary duty; or (z) fraud (statutory or common law), embezzlement, misappropriation or conversion of property or rights, or any other crime involving deceit.
(l) Labor Relations. No labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company or any of its Subsidiaries which could reasonably be expected to result in a Material Adverse Effect. None of the Company’s or any of its Subsidiaries’ employees is a member of a union that relates to such employee’s relationship with the Company or its Subsidiary, and the Company and each of its Subsidiaries is not a party to any collective bargaining agreement. The Company believes that its relationships with its employees are good. No executive officer, to the knowledge of the Company, 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 to any liability with respect to any of the foregoing matters. To the best of the Company’s knowledge, it is 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 a and each of its Subsidiaries aggregate, reasonably be expected to have a Material Adverse Effect.
(m) Compliance. Except as disclosed set forth in Section 3.01(m) of the Company Disclosure Schedule, the Company and each of its Subsidiaries: (i) is neither in default under nor 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 its Subsidiary under), nor has the Company or any of its Subsidiaries 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); (ii) is not in violation of any order of any court, arbitrator or governmental body; and (iii) is not and has not been in material violation of any statute, law, rule or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws applicable to its business and all such laws that affect the environment.
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(n) Regulatory Permits. The Company and each of its Subsidiaries possesses all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct its business, except where the failure to possess such permits could not reasonably be expected to result in a Material Adverse Effect (“Material Permits”), and the Company has not received any notice of proceedings relating to the revocation or modification of any Material Permit.
(o) Title to Assets. The Company and its Subsidiaries have good and marketable title in fee simple to all real property and good and marketable title in all personal property owned by it that, in each case, is material to the business of the Company and its Subsidiaries, in each case free and clear of all Liens, except for Liens disclosed in Section 3.01(o) of the Company Disclosure Schedule that do not materially and adversely (x) affect the value of such property or (y) interfere with the use made and proposed to be made of such property by the Company and its Subsidiaries. Any real property and facilities held under lease by the Company or a Subsidiary is held by it under valid, subsisting and enforceable leases with which the Company or such Subsidiary (as applicable) are in compliance.
(p) Patents and Trademarks. (i) The Company or a Subsidiary thereof has, or has rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, trade secrets, inventions, copyrights, software, websites, licenses and other intellectual property rights and similar rights as necessary or material for use in connection with its business (collectively, the “Intellectual Property Rights”); (ii) the Company has not received a notice (written or otherwise) that any of the Intellectual Property Rights violates or infringes upon the intellectual property rights of any other Person; (iii) all Intellectual Property Rights are enforceable by the Company or its Subsidiary, and there is no existing infringement by any other Person of any of the Intellectual Property Rights, except where the failure to be so enforceable or for such infringements as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; and (iv) the Company has taken reasonable security measures to protect the secrecy, confidentiality and value of all of its Intellectual Property Rights, except where failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(q) Transactions with Officers, Directors and Employees. None of the officers or directors of the Company or any of its Subsidiaries and, to the knowledge of the Company, none of the employees of the Company or any of its Subsidiaries, is presently a party to any transaction with the Company (other than for services as employees, officers and directors and related party notes as identified in the SEC Reports), 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, or otherwise requiring payments to or from, any such officer, director or employee or, to the knowledge of the Company, any entity in which any such officer, director or employee has a substantial interest or is an officer, director, trustee, member or partner, in each case other than for: (x) payment of salary or fees for services rendered; (y) reimbursement for expenses incurred on behalf of the Company; and (z) other employee benefits, including stock option agreements under any stock option plan of the Company.
(r) Indebtedness. All Indebtedness owed by the Loan Parties to all other Persons disclosed in the most recent SEC Reports and in Section 3.01(g) and Section 3.01(r) of the Company Disclosure Schedule is unsecured and is not currently due and payable.
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(q) Private Placement. Assuming the accuracy of the Lender’s representations and warranties set forth in Section 3.02, no registration under the Securities Act is required for the offer and sale of the Note by the Company to the Lender as contemplated hereby.
(r) Investment Company. The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the Note 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 be an “investment company” subject to registration under the Investment Company Act of 1940, as amended.
(s) Registration Rights. Other than as described in the SEC Reports, as set forth in the Registration Rights Agreement and further modified by Section 3.01(s) of the Company Disclosure Schedule, no Person has any right to demand the Company to file a registration statement under the Securities Act covering the sale of any securities of the Company.
(t) Disclosure. Except with respect to: (i) the material terms and conditions of the transactions contemplated by the Transaction Documents; and (ii) information given to the Lender, if any, which the Company hereby confirms will not constitute material non-public information, the Company confirms that neither it nor any other Person acting on its behalf has provided any of the Lender or their agents or counsel withany information that it believes constitutes or might constitute material, nonpublic information. The Company understands and confirms that the Lender will rely on the foregoing representation in effecting transactions in securities of the Company. All disclosure furnished by or on behalf of the Company to the Lender regarding the Company, its business and the transactions contemplated hereby, 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.
(u) No Integrated Offering. Assuming the accuracy of the Lender’s representations and warranties set forth in Section 3.02, 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 Note to be integrated with prior offerings by the Company for purposes of the Securities Act which would require the registration of any such securities under the Securities Act.
(v) Solvency. Based on the consolidated financial condition of the Company as of the Closing Date after giving effect to the receipt by the Company of the proceeds from the sale of the Note hereunder: (i) the fair saleable value of the Company’s assets exceeds the amount that will be required to be paid on or in respect of the Company’s existing debts and other liabilities (including known contingent liabilities) as they mature; (ii) the Company’s assets do not constitute unreasonably small capital to carry on its business as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Company, and projected capital requirements and capital availability thereof; and (iii) the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its liabilities when such amounts are required to be paid. The Company will not, after the Closing Date, incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt). Except as disclosed in Section 3.01(v) of the Company Disclosure Schedule, the Company has no knowledge of any facts or circumstances which lead it to believe that it will file for reorganization or liquidation under the bankruptcy or reorganization laws of any jurisdiction within one year from the Closing Date.
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(w) Tax Status. Except as set forth in Section 3.01(w) of the Company Disclosure Schedule. The Company has filed all federal, state and foreign income and franchise tax returns and have paid or accrued all taxes shown as due thereon, and the Company has no knowledge of a tax deficiency which has been asserted or threatened against the Company.
(x) No General Solicitation. Neither the Company nor any Person acting on behalf of the Company has offered or sold any of the Note by any form of general solicitation or general advertising. The Company has offered the Note for sale only to the Lender and certain other “accredited investors” within the meaning of Rule 501 under the Securities Act.
(y) Insurance. As set forth in Section 3.01(y) of the Company Disclosure Schedule, the Company and each of its Subsidiaries is insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company reasonably believes to be prudent and customary in the businesses in which the Company is engaged. The Company has never been refused any insurance coverage sought or applied for, and the Company has no reason to believe that it will not be able to renew all existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers.
(z) Acknowledgment Regarding Lender’s Purchase of the Note. The Company acknowledges and agrees that each of the Lender 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 Lender 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 Lender or any of their respective representatives or agents in connection with the Transaction Documents and the transactions contemplated thereby is merely incidental to the Lender’s purchase of the Note. The Company further represents to the Lender 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.
(aa) No Disqualification Events. With respect to the Note to be offered and sold hereunder in reliance on Rule 506(b) under the Securities Act (“Regulation D Securities”), none of the Company, any of its predecessors, any affiliated issuer, any director, executive officer, other officer of the Company participating in the offering hereunder, any beneficial owner of twenty percent (20%) or more of the Company’s outstanding voting equity securities, calculated on the basis of voting power, nor any promoter (as that term is defined in Rule 405 under the Securities Act) connected with the Company in any capacity at the time of sale (each, an “Issuer Covered Person” and, together, “Issuer Covered Persons”) is subject to any of the ‘Bad Actor’ disqualifications described in Rule 506(d)(1)(i) to (viii) under the Securities Act (a “Disqualification Event”), except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3). The Company has exercised reasonable care to determine whether any Issuer Covered Person is subject to a Disqualification Event. The Company has complied, to the extent applicable, with its disclosure obligations under Rule 506(e), and has furnished to the Lender a copy of any disclosures provided thereunder.
(bb) Other Covered Persons. The Company is not aware of any person (other than any Issuer Covered Person) that has been or will be paid (directly or indirectly) remuneration for solicitation of purchasers in connection with the sale of any Regulation D Securities.
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(cc) Notice of Disqualification Events. The Company will notify the Lender in writing, prior to the Closing Date of: (i) any Disqualification Event relating to any Issuer Covered Person; and (ii) any event that would, with the passage of time, become a Disqualification Event relating to any Issuer Covered Person.
(dd) Foreign Corrupt Practices. Neither the Company nor, to the knowledge of the Company, no agent or other person acting on behalf of the Company, 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 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 the Foreign Corrupt Practices Act.
(ee) Office of Foreign Assets Control. Neither the Company nor, to the Company’s knowledge, any director, officer, agent, employee or Affiliate of the Company, is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”).
(ff) 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 Lender’s request.
(gg) Bank Holding Company Act. Neither the Company nor any of its Affiliates is subject to the Bank Holding Company Act of 1956, as amended (“BHCA”) and to regulation by the Board of Governors of the Federal Reserve System (“Federal Reserve”). Neither the Company nor any of its 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 (25%) 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 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.
(hh) Money Laundering. The operations of the Company 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 or Proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company with respect to the Money Laundering Laws is pending or, to the knowledge of the Company, threatened.
(ii) Representations. The representations and warranties of the Company contained in this Agreement, and the certificate(s) furnished or to be furnished to the Lender at the Closing, when taken as a whole, do not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained herein or therein not misleading in light of the circumstances under which they were made. The Company acknowledges and agrees that the representations contained in section 3.02 shall not modify, amend or affect Lender’s right to rely on the Company’s representations and warranties contained in this section 3.01 or elsewhere 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 transactions contemplated hereby.
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Section 3.02 Representations and Warranties of the Lender.
The Lender, for itself and for no other Person, hereby represents and warrants as of the date hereof and as of the Closing Date to the Company as follows (unless as of a specific date therein, in which case they shall be accurate as of such date):
(a) Authority; Organization. The Lender has full power and authority to enter into this Agreement and to perform all obligations required to be performed by it hereunder. If an entity, the Lender is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with full right, corporate or partnership power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carryout its obligations hereunder and thereunder. The execution and delivery of the Transaction Documents and performance by the Lender of the transactions contemplated by the Transaction Documents have been duly authorized by all necessary corporate or similar action on the part of the Lender. Each Transaction Document to which it is a party has been duly executed by the Lender, and when delivered by the Lender in accordance with the terms hereof, will constitute the valid and legally binding obligation of the Lender, 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 Lender understands that the Note, the Bonus Shares and the Conversion Shares are “restricted securities” and have not been registered under the Securities Act or any applicable State Securities Law and is acquiring the Note, the Bonus Shares and Conversion Shares as principal for its own account and not with a view to or for distributing or reselling such the Note, the Bonus Shares or Conversion Shares or any part thereof in violation of the Securities Act or any applicable State Securities Law, has no present intention of distributing anyof such the Note, the Bonus Shares or Conversion Shares 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 the Note (this representation and warranty not limiting the Lender’s right to sell the Note, the Bonus Shares or Conversion Shares in compliance with applicable federal and State Securities Laws) in violation of the Securities Act or any applicable State Securities Law. The Lender is acquiring the Note hereunder in the ordinary course of its business.
(c) Non-Transferrable. The Lender agrees: (i) that the Lender will not sell, assign, pledge, give, transfer or otherwise dispose of the Note, the Bonus Shares or Conversion Shares or any interest therein, or make any offer or attempt to do any of the foregoing, except pursuant to a registration of the Note, the Bonus Shares and Conversion Shares under the Securities Act and all applicable State Securities Laws, or in a transaction which is exempt from the registration provisions of the Securities Act and all applicable State Securities Laws, (ii) that the certificates representing the Note will bear a legend making reference to the foregoing restrictions, and (iii) that the Company and its Affiliates shall not be required to give effect to any purported transfer of such the Note, the Bonus Shares and Conversion Shares except upon compliance with the foregoing restrictions.
(d) Lender Status. The Lender is an “accredited investor” as defined in Rule 501(a) under Regulation D of the Securities Act. The undersigned agrees to furnish any additional information requested by the Company or any of its Affiliates to assure compliance with applicable U.S. federal and state securities laws in connection with the purchase and sale of the Note. Any information that has been furnished or that will be furnished by the undersigned to evidence its status as an accredited investor is accurate and complete, and does not contain any misrepresentation or material omission.
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(e) Experience of The Lender. The Lender, 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 Note, and has so evaluated the merits and risks of such investment. The Lender is able to bear the economic risk of an investment in the Note and, at the present time, is able to afford a complete loss of such investment.
(f) No Trading Market. The Lender acknowledges that there is currently no trading market for the Note and that none is expected to develop for the Note.
(g) General Solicitation. The Lender acknowledges that neither the Company nor any other person offered to sell the Note to it by means of any form of general solicitation or advertising, including, but not limited to: (i) any advertisement, article, notice, or other communication published in any newspaper, magazine or similar media or broadcast over television or radio, or (ii) any seminar or meeting whose attendees were invited by any general solicitation or general advertising.
(h) Confidentiality. Other than to other Persons party to this Agreement and its advisors who have agreed to keep information confidential or have a fiduciary obligation to keep such information confidential, the Lender has maintained the confidentiality of all disclosures made to it in connection with the transaction (including the existence and terms of this transaction).
(i) Foreign Lender. If the Lender is not a United States person, the Lender represents that it has satisfied itself as to the full observance of the laws of its jurisdiction in connection with any invitation to subscribe for the Note or any use of this Agreement, including: (i) the legal requirements within its jurisdiction for the purchase of the Note, (ii) any foreign exchange restrictions applicable to such purchase, (iii) any governmental or other consents that may need to be obtained, and (iv) the income tax and other tax consequences, if any, that may be relevant to the purchase, holding, redemption, sale or transfer of the Note. The Lender further represents that its payment for, and its continued beneficial ownership of the Note, will not violate any applicable securities or other laws ofits jurisdiction.
(j) Information from Company. The Lender and its investment managers, if any, have been afforded the opportunity to obtain any information necessary to verify the accuracy of any representations or information presented by the Company in this Agreement and have had all inquiries to the Company answered, and have been furnished all requested materials, relating to the Company and the Offering and sale of the Note and anything set forth in the Transaction Documents. Neither the Lender nor the Lender’s investment managers, if any, have been furnished any offering literature by the Company or any of its Affiliates, associates, or agents other than the Transaction Documents, and the agreements referenced therein.
(k) [Intentionally Omitted]
(l) Speculative Nature of Investment; Risk Factors. THE LENDER UNDERSTANDS THAT AN INVESTMENT IN THE NOTES INVOLVES A HIGH DEGREE OF RISK. The Lender acknowledges that: (i) any projections, forecasts or estimates as may have been provided to the Lender are purely speculative and cannot be relied upon to indicate actual results that may be obtained through this investment; any such projections, forecasts and estimates are based upon assumptions which are subject to change and which are beyond the control of the Company or its management, (ii) the tax effects which may be expected by this investment are not susceptible to absolute prediction, and new developments and rules of the Internal Revenue Service, audit adjustment, court decisions or legislative changes may have an adverse effect on one or more of the tax consequences of this investment, and (iii) the Lender has been advised to consult with his own advisor regarding legal matters andtax consequences involving this investment. The Lender represents that the Lender’s investment objective is speculative in that the Lender seeks the maximum total return through an investment in a broad spectrum of securities, which involves a higher degree of risk than other investment styles and therefore the Lender’s risk exposure is also speculative. The Note offered hereby are highly speculative and involve a high degree of risk and Lender should only purchase these securities if Lender can afford to lose their entire investment.
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(m) Money Laundering. If an entity, the operations of the Lender are and have been conducted at all times in compliance with applicable financial record-keeping and reportingrequirements 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 or Proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company with respect to the Money Laundering Laws is pending or, to the knowledge of the Company or any Subsidiary, threatened.
The Company acknowledges and agrees that the representations contained in Section 3.02 shall not modify, amend or affect the Lender’s right to rely on the Company’s representations and warranties contained in this Agreement or any representations and warrantiescontained 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
Section 4.01 Affirmative and Negative Covenants. Each of the Loan Parties hereby covenants and agrees that until all obligations owed to the Lender shall have been paid in full, without the prior written approval of the Lender:
| (a) | the Loan Parties shall not incur any Indebtedness, other than as expressly permitted by this Agreement; |
| (b) | the Loan Parties shall not engage in the public or private sale of any securities, including convertible and non-convertible notes or debentures, Common Stock or Common Stock Equivalents, except as expressly permitted in the Note or other Transaction Documents; |
| (c) | no payments of Indebtedness shall be paid to any related party; |
| (d) | the Loan Parties shall not permit any Person, including any Remaining Lender to have a Lien of any of the assets of any of the Loan Parties; |
| (e) | the Loan Parties shall comply with all of the additional affirmative and negative covenants set forth in the Note and the Security Agreement. |
Section 4.02 Transfer Restrictions.
(a) The Note, Bonus Shares and Conversion Shares may only be disposed of in compliance with state and federal securities laws. In connection with any transfer of the Note, Bonus Shares or Conversion Shares other than pursuant to an effective registration statement or Rule 144, the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred the Note, Bonus Shares and Conversion Shares under the Securities Act. As a condition of such sale or transfer, any such transferee shall agree in writing to be bound by the terms of this Agreement and shall have the rights of Lender under this Agreement.
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(b) The Lender agrees to the imprinting, so long as is required by this Section 4.01, of a legend on any of the Note, the Bonus Shares and Conversion Shares 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. THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY THIS SECURITY.
Section 4.03 Use of Proceeds; Restrictions on Certain Payments. The Company shall use the net proceeds hereunder for general working capital purposes.
Section 4.04 Future Subsidiaries. Each Subsidiary of the Company (or any of its Subsidiaries) formed or acquired after the Closing Date shall promptly thereafter execute and deliver (or otherwise join and agreed to be bound as a Subsidiary of the Company under) the Subsidiary Guaranty and the Security Agreement.
Section 4.05 Sale of Securities. Without the prior written consent of Lender, neither the Company nor any of its Subsidiaries shall sell, offer for sale or solicit offers to buy or otherwise negotiate in any private placement or public offering the sale of any security (as defined in Section 2 of the Securities Act) including any notes, debentures or other evidence of Indebtedness, or any Common Stock or Common Stock Equivalents. Notwithstanding the foregoing in the event and to the extent that the Lender permits the Company to sell any Common Stock or Common Stock Equivalents, all net proceeds received or receivable by the Company from such sale(s) shall be used to prepay the then entire Outstanding Principal Amount of the Note.
Section 4.06 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 Note to the Lender in a manner that would require the registration under the Securities Act of the issuance and sale of the Note to the Lender.
Section 4.07 Publicity. The Company and the Lender shall consult with each other in issuing any other press releases and SEC Reports with respect to the transactions contemplated hereby, and neither the Company nor the Lender shall issue any such press release or SEC Report nor otherwise make any such public statement without the prior consent of the Company with respect to any press release of the Lender, or without the prior consent of the Lender with respect to any press release or SEC Report of the Company mentioning the Lender, which consent shall not unreasonably be withheld or delayed, except if such disclosure is required by law, in which case the disclosing party shall promptly provide the other party with prior notice of such public statement, SEC Report or communication.
Section 4.08 Indemnification of Lender. The Company shall indemnify, reimburse and hold harmless the Lender and its partners, members, shareholders, officers, directors, employees and agents (and any other persons with other titles that have similar functions) (collectively, “Indemnitees”) from and against any and all losses, claims, liabilities, damages, penalties, suits, costs and expenses, of any kind or nature, (including fees relating to the cost of investigating and defending any of the foregoing) imposed on, incurred by or asserted against such Indemnitee in any way related to or arising from or alleged to arise from: (i) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents and (ii) any action instituted against such Indemnitee in any capacity, or any of them or their respective Affiliates, by any stockholder of the Company who is not an Affiliate of such Indemnitee, with respect to any of the transactions contemplated by the Transaction Documents (unless such action is based upon a breach of such Indemnitee’s representations, warranties or covenants under the Transaction Documents or any agreements or understandings such Indemnitee may have with any such stockholder or any violations by such Indemnitee of state or federal securities laws or any conduct by such Indemnitee which results from the gross negligence or willful misconduct of the Indemnitee as determined by a final, non-appealable decision of a court of competent jurisdiction).
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Section 4.09 Reservation of Conversion Shares. The Company shall maintain a reserve from its duly authorized shares of Common Stock for issuance pursuant to the Note in such amount, as the Maximum Conversion Shares, as may then be required to fulfill its obligations in full under the Note. If, on any date, the number of authorized but unissued (and otherwise unreserved) shares of Common Stock is less than the Maximum Conversion Shares on such date, then the Board of Directors of the Company shall use commercially reasonable efforts to amend the Company’s certificate or articles of incorporation to increase the number of authorized but unissued shares of Common Stock to at least the Maximum Conversion Shares at such time, as soon as possible and in any event not later than the 60th day after such date.
Section 4.10 Board Observation Rights. The Lender shall have the right, so long the Note is outstanding, to appoint one individual as a non-voting observer (the “Observer”) to the Board of Directors of the Company (the “Board”), who shall initially be Jarom Heaps. The Observer may be replaced at any time by the Lender and shall be entitled to attend all meetings of the Board and any committees of the Board and to receive all information provided to the members of the Board or its committees (including minutes of previous meetings of the Board or such committees). The Company shall provide the Observer copies of all notices, minutes, consents and other materials that it provides to the members of the Board (or committee, as applicable), at the same time and in the same manner as such information is delivered to the Board members (or committee members, as applicable).
ARTICLE V
MISCELLANEOUS
Section 5.01 Termination. This Agreement may be terminated by the Lender by written notice to the Company if the Closing has not been consummated on or before 3rd Business Day after the date of the execution and delivery of this Agreement by both parties; provided that such termination will not affect the right of any party to sue for any breach by the other party.
Section 5.02 Fees and Expenses. The Company shall bear its own expenses incurred in connection with its negotiation, preparation, execution, delivery and performance of the Transaction Documents, including, without limitation, reasonable attorneys’ and consultants’ fees and expenses, transfer agent fees, fees for stock quotation services, fees relating to any amendments or modifications of the Transaction Documents or any consents or waivers of provisions in the Transaction Documents, fees for the preparation of opinions of counsel, escrow fees, and costs of restructuring the transactions contemplated by the Transaction Documents. When possible, the Company must pay these fees directly, including, but not limited to, any and all wire fees, otherwise the Company must make immediate payment for reimbursement to the Lender for all fees and expenses immediately upon written notice by the Lender or the submission of an invoice by the Lender. In addition, the Company shall pay the origination fee of $120,000 to the Lender as specified hereinabove.
Section 5.03 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 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.
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Section 5.04 Notices. Any notice, request, instruction or other document to be given hereunder by any party to the others shall be in writing and delivered personally or sent by registered or certified mail, postage prepaid, or by or email:
if to Lender:
J.J. Astor & Co.
26 S Rio Grande Street, #2072
Salt Lake City, Utah 84101
Attn: Michael Pope
Email: Michael.p@jjastor.com
with a copy to:
Barton, LLP
711 Third Avenue, 14th Floor
New York, New York 10017
if to the Company:
Quality Industrial Corp
315 Montgomery St
San Francisco, CA 94104
Attn: John-Paul Backwell
Email: jp.backwell@qualityindustrialcorp.com
with a copy to:
Lucosky Brookman
111 Broadway, Suite 807
New York, NY, 10006
Att: Chris Haunschild
Email: chaunschild@lucbro.com
or to such other persons or addresses as may be designated in writing by the party to receive such notice as provided above.
Section 5.05 Amendments; Waivers. No provision of this Agreement may be waived, modified, supplemented, or amended except in a written instrument signed, in thecase of an amendment, by the Company and the Lender 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 bedeemed to be a continuing waiver in the future or a waiver of any subsequent default or awaiver 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.
Section 5.06 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 Lender (other than by merger). The Lender may assign any or all of its rights under this Agreement to any Person to whom the Lender assigns or transfers the Note, and/or participate any of such rights in connection with granting of any participation of the Note, provided that such transfer or participation complies with all applicable federal and State Securities Laws and that any such transferee or participant agrees in writing by the provisions of the Transaction Documents that apply to the Lender.
Section 5.07 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.
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Section 5.08 Arbitration and Governing Law.
(a) Arbitration of Disputes. In the event and to the extent that a claim or dispute arises out of, or in relation to this Agreement or any other Transaction Document, including without limitation, the terms, construction, interpretation, performance, termination, breach, or enforceability of this Agreement or such Transaction Document(s), the Parties hereby each agree that the claim or dispute shall be, at the election of any Party within thirty (30) days after the claim or dispute arises, resolved by mandatory binding arbitration in Utah, except that Lender may, at its election, maintain any action for equitable relief in the Third Judicial District, Salt Lake County, Utah, including seeking the appointment of a receiver, judicial foreclosure, an accounting of Collateral, restraining orders or injunctions or other equitable relief without a right to compel arbitration by the Company or any Subsidiary Guarantor. To the extent that an arbitration occurs, the Parties agree that the arbitration shall be administered by JAMS and the arbitration shall be conducted in accordance with the Expedited Procedures of the JAMS Comprehensive Arbitration Rules and Procedures except as otherwise agreed in this Agreement. The arbitrator shall be chosen in accordance with the procedures of JAMS, and shall base the award on applicable Utah law, and in connection therewith each of the Loan Parties hereby expressly waive any right to seek an exemption from Utah law based on any public policies or principles of any other State. The Parties agree that the arbitration shall be conducted before a single arbitrator. Judgment on the award may be entered in any federal or state court in the State of Utah and in the federal courts of any other State. The Parties further agree that the costs of the arbitration shall be divided equally between the Company and the Lender until a prevailing Party is determined, at which time the non-prevailing Party shall be charged the prevailing Party’s share of the arbitration fees. Each Party may pursue arbitration solely in an individual capacity, and not as a representative or class member in any purported class or representative proceeding. The arbitrator may not consolidate more than one Person’s claims, and may not otherwise preside over any form of a representative or class proceeding. This arbitration section is governed by the Federal Arbitration Act, 9 U.S.C. §§ 1-16.
(b) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents, including, without limitation, the enforcement of any award by the arbitrator, shall be governed by and construed and enforced in accordance with the internal laws of the State of Utah, 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, shareholders, employees or agents) that is not initially submitted to arbitration in accordance with Section 5.08(a) above, shall be commenced exclusively in the federal and state courts sitting in Salt Lake County, Salt Lake City, Utah (the “Utah Courts”). Each Party hereto hereby irrevocably submits to the exclusive jurisdiction of the Utah Courts for the enforcement of any arbitration award or 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 Utah Courts, or that such Utah Courts are improper or inconvenient venue for such proceeding or that such Party may obtain an exemption from Utah law based on any public policies or principles of any other State or jurisdiction. 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 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 the Transaction Documents or the transactions contemplated hereby. If any Party shall commence an Action or Proceeding to enforce any provisions of the Transaction Documents, then the prevailing Party in such Action or Proceeding shall be reimbursed by the other Party for its attorney’s fees and other costs and expenses incurred in the investigation, preparation and prosecution of such Action or Proceeding.
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Section 5.09 Survival. The representations and warranties contained herein shall survive the Closing and the delivery of the Note.
Section 5.10 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 the other party, it being understood that both 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 datafile, 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 was an original thereof.
Section 5.11 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 hereinshall 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.
Section 5.12 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 the Lender 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 Lender 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.
Section 5.13 Replacement of the Note. If any certificate or instrument evidencing the Note 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 the Note.
Section 5.14 Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, the Lender and the Company will be entitled to seek 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.
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Section 5.15 Payment Set Aside. To the extent that the Company makes a payment or payments to the Lender pursuant to any Transaction Document or the Lender 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 enforcementor setoff had not occurred.
Section 5.16 Construction. The parties agree that each of them and/or their respective counsel has 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 hereto. 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.
Section 5.17 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.
Section 5.18 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 PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement to be duly executed by their respective authorized signatories as of the date below.
| Company: | ||
| QUALITY INDUSTRIAL CORP. | ||
| By: | /s/ John-Paul Backwell | |
| Name: | John-Paul Backwell | |
| Title: | Chief Executive Officer | |
| Lender: | ||
| J.J. ASTOR & CO. | ||
| By: | /s/ Michael Pope | |
| Name: | Michael Pope | |
| Title: | Chief Executive Officer | |
DISCLOSURE SCHEDULES
Schedule 3.01(a)
Subsidiaries
Company Subsidiaries
| Legal Name | Formation Jurisdiction |
| Al Shola Al Modea Gas Distribution LLE | United Arab Emirates |
Executive Officers of all Subsidiaries
Schedule 3.01(g)
Capitalization
Schedule 3.01(m)
Compliance
Schedule 3.01(o)
Title to Assets
Schedule 3.01(s)
Registration Rights
Schedule 3.01(v)
Solvency
Exhibit 10.6
QUALITY INDUSTRIAL CORP.
COMMON STOCK PURCHASE AGREEMENT
This Common Stock Purchase Agreement (the “Agreement”) is made as of October 16, 2024, among Quality Industrial Corp., a Nevada corporation (the “Company”) and Safeguard Investments LLC. (the “Investor”).
The Investor understands that the Company proposes to offer and sell to the Investor 1,000,000 shares of its Common Stock for a purchase price of $30,000.
1. Purchase and Sale of Common Stock.
a. Common Stock Subject to the terms and conditions of this Agreement, the Investor agrees to purchase from the Company 1,000,000 shares of Company Common Stock for an aggregate purchase price of $30,000, payable by delivery to the Company of a check or wire in the amount of $30,000.
b. Initial Closing.
The purchase and sale of the Units shall take place at the offices of the Company at 315 Montgomery street San Francisco, CA, 94104 (“Closing”). At the Closing, the Company shall deliver to the Investor the Common Stock, which such Investor is purchasing against delivery to the Company by such Investor of a check, wire transfer, or cancellation of indebtedness in the aggregate amount of the purchase price therefor payable to the Company’s order.
2. The Company’s Representations and Warranties. The Company represents and warrants to the Investor as follows:
a. Organization and Standing. The Company is a corporation duly organized and validly existing under the laws of the State of Nevada.
b. Authorization. The execution, delivery and performance of this Agreement by the Company has been duly authorized by all requisite corporate action, and this Agreement constitutes the legal, valid and binding obligation of the Company enforceable in accordance with its terms, subject as to enforcement of remedies to applicable bankruptcy, insolvency, reorganization or similar laws relating to or affecting the enforcement of creditors’ rights. The execution, delivery and performance of this Agreement and compliance with the provisions hereof by the Company does not conflict with, or result in a breach or violation of the terms, conditions or provisions of, or constitute a default (or an event with which the giving of notice or passage of time, or both could result in a default) under, or result in the creation or imposition of any lien pursuant to the terms of, the Articles of Incorporation or the Bylaws of the Company.
c. Securities. When issued pursuant to the terms of this Agreement, the Common Stock will be validly issued, fully paid and nonassessable, and will be free of any liens or encumbrances caused or created by the Company; provided, however, that the Common Stock shall be subject to restrictions on transfer under state or federal securities laws as set forth in this Agreement or otherwise required at the time a transfer is proposed.
3. Representations, Warranties of Investor and Restrictions on Transfer
a. Representations and Warranties of Investor. The Investor represents and warrants to the Company with respect to the purchase of Securities under this Agreement as follows:
i. This Agreement constitutes the Investor’s valid and legally binding obligation, enforceable in accordance with its terms.
ii. The Investor is acquiring the Common Stock for its own account for investment purposes only and not with a view to, or for the resale in connection with, any “distribution” thereof for purposes of the Securities Act of 1933, as amended (the “Act”). The Investor understands that the shares of Common Stock have not been registered under the Act or any applicable state securities laws by reason of a specific exemption therefrom that depends upon, among other things, the bona fide nature of the investment intent as expressed herein.
iii. The Investor has discussed the Company and its plans, operations and financial condition with its officers and has received all such information as the Investor deems necessary and appropriate to enable the Investor to evaluate the financial risk inherent in making an investment in the Common Stock. The Investor has received satisfactory and complete information concerning the business and financial condition of the Company in response to the Investor’s inquiries.
iv. The Investor realizes that the acquisition of the Common Stock will be a highly speculative investment. The Investor is able, without impairing the Investor’s financial condition, to hold the Common Stock for an indefinite period of time and to suffer a complete loss of the Investor’s investment. The Investor recognizes that the Company has only recently been organized and that it has a limited financial and operating history and the investment in the Company involves substantial risks. The Investor understands all of the risks related to the acquisition of the Common Stock. By virtue of the Investor’s experience in evaluating and investing in private placement transactions of securities in companies similar to the Company, the Investor is capable of evaluating the merits and risks of the Investor’s investment in the Company and has the capacity to protect the Investor’s own interests.
v. The Investor understands that the Common Stock must be held indefinitely unless subsequently registered under the Act or unless an exemption from registration is otherwise available. Moreover, the Investor understands that the Company is under no obligation to register the Common Stock. The Investor is aware of Rule 144 promulgated under the Act that permits limited resale of securities purchased in a private placement subject to the satisfaction of certain conditions. The Investor understands that the Common Stock will be imprinted with a legend which prohibits the transfer of the Common Stock unless they are registered or such registration is not required in the opinion of counsel for the Company.
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b. Legends. In addition to any legend imposed by state securities laws, each certificate representing the Common Stock shall be endorsed with the following legends:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
The Company need not register a transfer of Common Stock unless the conditions specified in the foregoing legends are satisfied. The Company may also instruct its transfer agent not to register the transfer of any of the Common Stock unless the conditions specified in the foregoing legends are satisfied.
c. Removal of Legends and Transfer Restrictions. The legend relating to the Act endorsed on a stock certificate pursuant to paragraph 4(b) of this Agreement and the stop transfer instructions with respect to such Common Stock shall be removed and the Company shall issue a stock certificate without such legend to the holder of such Common Stock if such Shares are registered under the Act and a prospectus meeting the requirements of Section 10 of the Act is available, or if such holder provides to the Company an opinion of counsel for such holder of the Shares or Note reasonably satisfactory to the Company or a no-action letter or interpretive opinion of the staff of the Commission to the effect that a public sale, transfer or assignment of such Shares or Note may be made without registration and without compliance with any restriction such as Rule 144. Any legend imposed by state securities laws will be removed if the state agency imposing such legend has consented to its removal.
4. Miscellaneous.
a. Governing Law. This Agreement shall be governed in all respects by the laws of the State of New York without regard to the conflict of law provisions thereof.
b. Survival. The representations and warranties contained herein shall survive the execution and delivery of this Agreement and the sale of the Common Stock.
c. Successors and Assigns. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto.
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d. Entire Agreement. This Agreement embodies the entire understanding and agreement between each Investor and the Company and supersedes all prior agreements and understandings relating to the subject matter hereof.
e. Notices, etc. All notices and other communications required or permitted hereunder shall be effective upon receipt and shall be in writing and may be delivered in person, by telecopy, electronic mail, overnight delivery service or U.S. mail, addressed (a) if to an Investor, at his or her address set forth opposite such Investors name on the last page of this Agreement, or at such other address as such Investor shall have furnished the Company in writing, or (b) if to the Company, at the address of its principal office, or at such other address as the Company shall have furnished to the Investor in writing.
f. Titles and Subtitles. The titles of the paragraphs and subparagraphs of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement.
g. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
h. Amendments and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the holders of the Common Stock. Any amendment or waiver effected in accordance with this Section shall be binding upon each holder of any securities purchased under this Agreement at the time outstanding (including securities into which such securities are convertible), each future holder of all such securities, and the Company.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered as of the day and year first written above.
| COMPANY: | QUALITY INDUSTRIAL CORP. | ||
| a Nevada corporation | |||
| By: | /s/ Nicolas Link | ||
| Nicolas Link, CEO | |||
INVESTOR:
$30,000
Amount of Investment
| Jason Brown | ||
| By: | ||
| Title: | ||
[Signature page to Quality Industrial Corp. Common Stock]
Exhibit 31.1
CERTIFICATIONS
I, John-Paul Backwell, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2024, of Quality Industrial Corp.; | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have: | |
| a. | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b. | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c. | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d. | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and; | |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions); | |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls. | |
| Quality Industrial Corp. | ||
| Dated: November 19th, 2024 | By: | /s/ John-Paul Backwell |
| John-Paul Backwell | ||
| Chief Executive Officer (principal executive) | ||
Exhibit 31.2
CERTIFICATIONS
I, Krishnan Krishnamoorthy, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2024, of Quality Industrial Corp.; | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have: | |
| a. | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b. | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c. | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d. | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and; | |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions); | |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls. | |
| Quality Industrial Corp. | ||
| Dated: November 19th, 2024 | By: | /s/ Krishnan Krishnamoorthy |
| Krishnan Krishnamoorthy | ||
| Chief Financial Officer (principal accounting, and financial officer) | ||
Exhibit 32.1
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Quality Industrial Corp. (the “Company”) for the quarter ended September 30, 2024, as filed with the Securities and Exchange Commission (the “Report”), I, John-Paul Backwell and I Krishnan Krishnamoorthy, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Quality Industrial Corp. | ||
| Dated: November 19th, 2024 | By: | /s/ John-Paul Backwell |
| John-Paul Backwell | ||
| Chief Executive Officer (principal executive) | ||
| Quality Industrial Corp. | ||
| Dated: November 19th, 2024 | By: | /s/ Krishnan Krishnamoorthy |
| Krishnan Krishnamoorthy | ||
| Chief Financial Officer (principal accounting, and financial officer) | ||
This certification accompanies this Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.