UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM
For
Fiscal Year Ended
Commission
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Securities Registered under Section 12(b) of the Exchange Act:
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Securities Registered under Section 12(g) of the Exchange Act:
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by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
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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
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or, an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company”, in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☑ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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As
of June 30, 2021, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market
value of common stock held by non-affiliates of the registrant was $
At
April 12, 2022, the registrant had
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K, the other reports, statements, and information that the Company has previously filed with or furnished to, or that we may subsequently file with or furnish to, the SEC and public announcements that we have previously made or may subsequently make include, may include, or may incorporate by reference certain statements that may be deemed to be “forward- looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, as amended, and that are intended to enjoy the protection of the safe harbor for forward-looking statements provided by that Act. To the extent that any statements made in this report contain information that is not historical, these statements are essentially forward-looking. Forward-looking statements can be identified by the use of words such as “anticipate”, “estimate”, “plan”, “project”, “continuing”, “ongoing”, “expect”, “believe”, “intend”, “may”, “will”, “should”, “could”, or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. Forward looking statements contained in this Annual Report on Form 10-K include, but are not limited to statements about:
| ● | the risk that our results could be adversely affected by natural disaster, public health crises (including, without limitation, the recent Coronavirus Disease 2019, or COVID-19, outbreak), political crises, negative global climate patterns, or other catastrophic events; |
| ● | the marketability of our products; |
| ● | financial condition and liquidity of our customers; |
| ● | competition in the hemp markets; |
| ● | industry and market conditions; |
| ● | purchases by major customers and our ability to renew sales contracts; |
| ● | credit and performance risks associated with customers, suppliers, banks and other financial counterparties; |
| ● | availability, timing of delivery and costs of key supplies, capital equipment or commodities; |
| ● | our future capital requirements and our ability to raise additional capital to finance our activities; |
| ● | the future trading of our common stock; |
| ● | legal and regulatory risks associated with OTC Markets; |
| ● | our ability to operate as a public company; |
| ● | our ability to protect our proprietary information; |
| ● | general economic and business conditions; the volatility of our operating results and financial condition; |
| ● | our ability to attract or retain qualified senior management personnel and research and development staff; |
| ● | timing for completion of major acquisitions or capital projects; |
| ● | our ability to obtain additional financing on favorable terms, if required, to complete acquisitions as currently contemplated or to fund the operations and growth of our business; |
| ● | operating or other expenses or changes in the timing thereof; |
| ● | compliance with stringent laws and regulations, as well as changes in the regulatory environment, the adoption of new or revised laws, regulations and permitting requirements; |
| ● | potential legal proceedings and regulatory inquiries against us; and |
| ● | other risks identified in this Quarterly Report that are not historical. |
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Annual Report on Form 10-K primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled “Risk Factors” and elsewhere in this Annual Report on Form 10-K. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Annual Report on Form 10-K. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.
The forward-looking statements made in this Annual Report on Form 10-K relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements to reflect events or circumstances or to reflect new information or the occurrence of unanticipated events, except as required by law.
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SUMMARY RISK FACTORS
The risk factors described below are a summary of the principal risk factors associated with an investment in us. These are not the only risks we face. The below summary is qualified in its entirety by that more complete discussion of such risks and uncertainties. You should carefully consider these risk factors, together with the risk factors set forth in “Item 1A. Risk Factors” of this Report and the other reports and documents filed by us with the U.S. Securities and Exchange Commission (“SEC”).
Risks Related to Our Business
| ● | There is substantial doubt that we will be able to continue as a going concern. | |
| ● | We have a history of significant losses, which could continue in the future, and we may never achieve nor maintain profitability. | |
| ● | The impact of the spread of COVID-19 and the measures taken to mitigate it are adversely affecting our business, operations and financial condition. | |
| ● | Unfavorable global economic or political conditions could adversely affect our business, financial condition or results of operations. | |
| ● | We have a limited operating history and operate under the professional guidance of our Chairman and CEO. | |
| ● | We may be unable to manage our growth or implement our expansion strategy. | |
| ● | The issuance of additional shares of our common stock may be necessary for the implementation of our growth strategy. | |
| ● | The loss of our current chief executive officer or key management personnel or inability to attract and retain the necessary personnel could have a material adverse effect upon our business, financial condition or results of operations. | |
| ● | Our Chief Executive Officer has significant influence over our operations. | |
| ● | It is likely that conflicts of interest may arise in the day-to- day operations of our business. Such conflicts, if not properly resolved, could have a material negative impact on our business. | |
| ● | Adverse outcomes in future legal proceedings could subject us to substantial damages and adversely affect our results of operations and profitability. | |
| ● | We will seek to expand through acquisitions of and investments in various brands, businesses, and assets in the Hemp sector. These acquisition activities may be unsuccessful or divert management’s attention. | |
| ● | We risk insolvency if revenues decline sharply and we are unable pay our bills and unable to timely locate and negotiate a suitable business combination or capital injection. | |
| ● | We are subject to certain corporate governance and internal control reporting requirements, and our costs related to compliance with, or our failure to comply with existing and future requirements, could adversely affect our business. | |
| ● | Natural and other disasters, information technology system failures and network disruptions and cybersecurity breaches and attacks could adversely affect our business. | |
| ● | Failure to comply with U.S. federal, state and international laws and regulations relating to privacy or data protection, or the expansion of current or the enactment of new laws or regulations relating to privacy or data protection, could adversely affect our business and our financial condition. | |
| ● | Hemp prices have historically been very volatile and can directly affect the desire or willingness of farmers to grow new hemp crops each year, which is necessary for us to maintain our drying operations. |
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Risks Related to our Activities in the Legal Hemp Industry
| ● | We will be subject to a myriad of different laws and regulations governing hemp and our inability to comply with such laws in a cost-effective manner may have an adverse effect on our business and result of operations. | |
| ● | We have limited operating history in the legal hemp or cannabis industry, which makes it difficult to accurately assess our future growth prospects. | |
| ● | Because we only began our legal hemp operations in early 2021, we anticipate our operating expenses will increase prior to earning revenue from these operations. | |
| ● | Negative press from being in the hemp space could have a material adverse effect on our business, financial condition, and results of operations. |
Risks Related to Ownership of Our Common Stock
| ● | Our stock price has been and may continue to be volatile, and you could lose all or part of your investment. | |
| ● | Our operating results will be subject to fluctuations and our stock price may decline significantly. | |
| ● | There are restrictions on the transferability of certain of our securities. | |
| ● | If the Company uses its stock in acquisitions of other entities, there may be substantial dilution at the time of a transaction. | |
| ● | Trading on the OTC Markets may be volatile and sporadic, which could depress the market price of our common stock and make it difficult for our stockholders to resell their shares. | |
| ● | The Company currently plans move to a more advantageous trading market and then potentially uplist, to a national exchange, however, there is no assurance that we will be able to successfully move trading markets or uplist to a national exchange. | |
| ● | Because we do not expect to pay any dividends for the foreseeable future, investors may be forced to sell their stock to realize a return on their investment. | |
| ● | Our common stock is presently subject to the “Penny Stock” rules of the SEC. | |
| ● | If we fail to remain current on our reporting requirements, we could be removed from the OTCQB which would limit the ability of broker-dealers to sell our securities in the secondary market. | |
| ● | If we ultimately decide to implement a reverse stock split in order to meet certain minimum stock prices on a national exchange, the liquidity of the shares of our common stock will likely decrease. |
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other information required by the Securities Exchange Act of 1934, as amended (the “Exchange Act”), with the Securities and Exchange Commission (the “SEC”). You may read and copy any document we file with the SEC at the SEC’s public reference room located at 100 F Street, N.E., Washington, D.C. 20549, U.S.A. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Our SEC filings are also available to the public from the SEC’s internet site at http://www.sec.gov.
On our Internet website, http://www.genhempinc.com, we post the following recent filings as soon as reasonably practicable after they are electronically filed with or furnished to the SEC: our annual reports on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act.
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GENERATION HEMP, INC.
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2021
TABLE OF CONTENTS
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PART I
Item 1. Business
Generation Hemp, Inc. (the “Company”), was incorporated on August 21, 2021 in the State of Delaware. The Company was originally incorporated on July 28, 2008 in the State of Colorado. On November 27, 2019, Home Treasure Finders, Inc. (“HTF”) acquired approximately 94% of the common stock of Energy Hunter Resources, Inc. (“EHR”) in a series of transactions accounted for as a reverse merger (the “Transaction”). Upon closing of the Transaction, HTF changed its name to Generation Hemp, Inc.
On January 11, 2021, we completed the acquisition of certain assets of Halcyon Thruput, LLC (“Halcyon”). With this acquisition, we commenced providing post-harvest and midstream services to growers by drying, processing, cleaning and stripping harvested hemp directly from the field and wetbaled at our 48,000 square foot leased facility located in Hopkinsville, Kentucky. Additionally, the Company offers safe storage services for processed hemp, which enables farmers to maximize strategic market timing. In August 2021, the Company launched its small animal bedding consumer goods product line (“Rowdy Rooster”) made from the hemp hurd byproduct that is produced from its hemp processing operations.
We also generate revenue from rental of our “Cannabis Zoned” (Hemp) warehouse property located in Denver, Colorado currently leased to an unaffiliated hemp seed company.
As of December 31, 2021, EHR held an approximate 8% working interest in an oil & gas property located in Cochran County, Texas within the Slaughter-Levelland Field of the San Andres formation in the Northwest Shelf of West Texas. EHR’s oil & gas activities are currently held for sale and are presented in these consolidated financial statements as discontinued operations for each of the periods presented.
Our management team has been and continues to actively review acquisition candidates involved in the hemp industry that operate within a number of vertical businesses, predominantly within the midstream sector that are attractive to us and are within the hemp supply chain.
To fund our business activities, we have historically completed a number of private placements of equity and debt. We continue to seek additional public or private placements of our stock and debt. Our common shares are quoted on the OTCQB Markets under the symbol “GENH.”
Principal Services and their Markets
Generation Hemp is positioning itself to be a pure-play, fully integrated hemp company through its acquisitions of existing established companies operating in the rapidly growing hemp sector with success as profitable first movers.
We provide post-harvest and midstream services to growers by drying, processing, cleaning, stripping harvested hemp directly from the field and wetbaled at our leased 48,000 square foot facility located in Hopkinsville, Kentucky. The drying services technology greatly increases efficiency and capacity during harvest for farmers who need to quickly move harvested hemp while preserving the cannabinoid potency by providing scalable infrastructure essential to receive and process hemp with high moisture content (“wet”) quickly. Additionally, the Company offers safe storage services for processed hemp, which enables farmers to maximize strategic market timing. The midstream business is fee income oriented, based upon a price per pound of material handled, and therefore is more protected from significant commodity price variations. The facility is able to process approximately 10,000 wet pounds per hour and the potential to scale up to 20,000 wet pounds per hour in order to meet market demands as licensed and harvested hemp acreage continues to increase across Kentucky, Tennessee, Ohio, and other states.
We also own one industrial warehouse located in Denver, Colorado and lease 100% of this space within that project to aid a licensed hemp seed grower. We exercise appropriate and reasonable care to screen our tenants, require and verify that our tenants maintain proper licenses and operate in compliance with all applicable rules and regulations at the federal, state, and local level.
We may own properties for our own investment account and as such are solely at financial risk in connection with our investments. In the event we utilize funds loaned to us by third party groups, they may in some circumstances share certain risks.
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We do not grow, distribute or sell any form of cannabis. We have no present plan to engage in such activities or obtain a license to do so, now, or in the future. We currently plan to only operate in the hemp space. We are in the process of expanding our operations into other states, predominantly Kentucky and North Carolina.
Marketing of our Services
The market, clients, customers and distribution methods for hemp services and hemp-based products are large and diverse. These markets range from hemp mid-stream services for hemp growers/farmers, to hemp derived products like bioplastics, textiles, building materials, food additives, and dietary supplements. Awareness and demand continue to grow for “green,” environmentally-friendly products derived from hemp, and the consumer market has already begun to integrate hemp products and products that contain hemp derivatives to existing product lines. The distribution system is constantly evolving as small retailers, retail chains, and big box stores become increasingly educated on and familiar/comfortable with hemp and its derivatives. The current market is focused on one of the cannabinoids derived from hemp called cannabidiol (“CBD”) and consumer goods that contain CBD. Additionally, consumer awareness followed by increased demand continues to drive and even force companies to make room on their shelves for hemp and products with hemp derivatives. For products with hemp derivatives like CBD, direct to consumer Ecommerce through online store sales remains the main source of revenue for consumer goods companies, accounting for reported percentages of approximately 70-80% of sales.
The Company continues to implement a plan to become more diversified within the midstream market. Our marketing efforts began with a grass roots approach in order to meet with farmers, growers, and seed operations that would benefit from midstream services. To supplement the grass roots outreach, we built our online web presence to reflect our desire to educate, to become a contributor and part of the hemp community, and also to act as a pioneer company to connect investors in the U.S. public markets to a hemp education and platform that is dually informed.
We maintain and update our website and engage on social media platforms to market our ongoing hemp sector efforts. We use globally distributed YouTube video ad campaigns to increase our brand awareness and encourage markets and the investment community to learn more about the hemp space. These videos have been played on several business sites such as CNBC, MSNBC, Fox News, Fox Business, Yahoo Finance, among others. We have also begun to market a version of “Fireside Chats” from our Chairman and CEO to talk about various topics of interest in the hemp space. These video segments will post on our social media platforms and they will also be used to create awareness campaigns that should have a global outreach. In order to reach region specific growers/farmers in hemp, we have teed up direct mail marketing materials which prove effective for service markets within a specified radius. These materials will serve as invitations to the farmers and growers in areas that the midstream services which we are acquiring will reach. These are designed to add an identity to the midstream facility and provide an offer of help and partnership. As we continue to become involved with additional verticals in the hemp supply chain, we will expand and tailor these marketing and advertising efforts to the specific needs of each segment. To-date all marketing, ad creation, ad campaigns, and creative work has been done internally and with a minimal budget. Upon the ease of COVID-19 restrictions, we began to increasingly pursue, attend, and present at, and/or exhibit in a number of industry tradeshows, and conferences and small cap investor conferences.
In 2021, we increased our marketing efforts by engaging several industry and investor media platforms by providing or collaborating on sponsored content in the form of articles, interviews, and podcasts in order to continue to educate the public and investors on the hemp industry and our company’s various products, services, and business plan. We have been featured on USA Today, Small Caps Daily, Benzinga, Reddit, and Cannabis Wealth Magazine. Gary C. Evans has also been a guest on KRLD News Radio Dallas to discuss the Company, along with several podcasts and webinars. We have also continued to build out our social media presence on Instagram, TikTok, Facebook (Meta), Twitter, LinkedIn, and YouTube. We are attempting to post video and/or static posts at least twice per week and designing content based on statistical data of engagement metrics – what content is trending, what users are most responsive to, and what times receive the most user reach and engagement. For reference, when comparing social media engagement from October 18, 2021 – December 28, 2021 to the same period for 2020, reach increased by 4,912% and engagement increased by 420% due to these efforts by management and the social media team.
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Subsequent Events
Execution of “Gas Monkey” Merchandise Licensing Agreement - On February 17, 2022, Generation Hemp, Inc. executed a merchandise licensing agreement with world-renowned brand, Gas Monkey Garage. Generation Hemp will manufacture a USA grown hemp hurd spill absorbent and market this new product under the Gas Monkey brand name to consumers, retailers, and distributors as an environmentally sustainable, USA made, ultra-absorbent spill clean-up material. This will be Generation Hemp’s second environmentally sustainable consumer goods product line made from U.S. grown hemp hurd. Spill absorbents are typically used in garages, factories, or industrial settings to quickly contain spills of oil and other liquids. Spill absorbents are also used at the site of auto accidents to quickly contain leaks of oil and other fluids due to collisions.
Richard Rawlings, owner and founder of Gas Monkey Garage, is the star of the international hit series’ “Fast N’ Loud” & “Garage Rehab” spanning 17+ seasons and 200+ episodes. Mr. Rawlings and Gas Monkey have migrated the show to an online platform and consistently produce new episodes that premiere every week on YouTube and Facebook. With his experience of owning and running a garage for over 18 years, Richard Rawlings found the sustainable spill absorbent to be of great significance.
There are several types of spill absorbents with varying characteristics. These are in three general categories – mineral based, animal or vegetable based, and synthetic or organic polymers. The challenge in choosing an absorbent is finding an effective absorbent that does not pose a threat to health or the environment, whether that threat is posed when that material is procured or used. For example, a widely used spill absorbent material in products is Bentonite Clay. This is often a very dusty material and has warnings of containing unsafe levels of lead (FDA) and is associated with a number of health complaints in humans.
Generation Hemp, Inc. tested its U.S. grown and milled hemp hurd against currently used absorbents on the market and the findings showed it to have as effective or more effective absorbency and ability to contain spills.
Joint-Venture With Crypt Solutions, Inc. to Utilize Hemp Hurd Biomass as Biofuel to Power Bitcoin Mining – On January 16, 2022, Generation Hemp, Inc. and Crypt Solutions, Inc., DBA Cryptech Solutions (“Crypt”) a leading player in the cryptocurrency space, executed a Memorandum of Understanding and Letter of Intent to build “Green Energy” plants and Bitcoin mining complexes that will utilize hemp feedstock as a fuel source to power Bitcoin mining equipment and offset the draw on power from the local utility. Plans for this complex also include Generation Hemp’s additional hemp drying and processing facilities.
With theincreasing adoption and integration of cryptocurrency in mainstream channels and throughout the global economy, there has been an enormous draw on the energy grid for powering the necessary data processing equipment required to maintain these cryptocurrency mining systems 24/7. Generation Hemp, Inc. and Crypt Solutions, Inc. have begun to assemble the necessary pieces of a diversified “Green Energy” plant to create an independent power source for the primary purpose of powering Bitcoin mining in an effort to resolve any added pressure on the electrical grid. Environmentally sustainable hemp, a green feedstock, will be used for Btu generation to offset the draw of electricity from local utility companies. The Btu generation of hemp is comparable to wood biomass Btu generation. The utilization of solar power to complement the system will also be explored. Generation Hemp currently plans to explore harnessing the high levels of heat generated from the data processing operations produced from Bitcoin mining equipment to redistribute that heat as supplemental Btus to dry hemp.
As a renewable energy source with the utilization of hemp feedstock for fuel, all steps will be taken to register these facilities for Renewable Energy Credits (RECs) once completed and operational. Contributing renewable, “Green Energy” to the overall electrical grid will help electric power suppliers stay in compliance with state initiatives that require a certain percentage of their electricity to come from renewable energy, which helps foster and develop the infrastructure and implementation of renewable energy.
On February 23, 2022, Generation Hemp, Inc. and Crypt executed their first Letter of Intent that specifically applies to their joint Green Energy project, to be located adjacent to Generation Hemp’s wholly-owned subsidiary, GENH Halcyon Acquisition’s current hemp processing facility in Hopkinsville, Kentucky. This first project is being designed for two (2) megawatts of Bitcoin mining, which will include approximately 576 mining machines. The Bitcoin mining installation is expected to be running prior to the end of the second quarter 2022. Initial electricity needs for the project will come from the grid or the existing electricity provider until such time as biomass or other renewable methods are installed.
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Competition
The hemp industry and hemp-based consumer product industry is highly competitive and fragmented in its nascency with numerous companies, consisting of publicly (mostly Canadian) and privately-owned companies. There are also large, well-funded companies beginning to emerge in the U.S. with a similar intention as Generation Hemp; to consolidate and vertically integrate along the hemp supply chain through acquisitions. These companies have indicated their intention to compete in the hemp industry and hemp-based product category. However, certain holding companies such as Acreage Holdings (domiciled in British Columbia) also include cannabis companies in their portfolio, whereas Generation Hemp is currently hemp only. We routinely evaluate internal and external opportunities to optimize value for shareholders through market research, strategic relationships and/or partnerships, and by asset acquisitions. Based upon our management team experience, we believe we are well-positioned to capitalize in the growing hemp industry and hemp-based product industry.
There are several companies developing hemp-based products and materials that will potentially displace existing products and materials sourced from less sustainable or less environmentally friendly sources. These hemp-based products are developing in the markets of textiles, building materials, biofuels, as food additives, skin care topicals and other therapeutics, and dietary supplements. Also, it is thought that cannabinoids derived from hemp can be used as therapeutics for a range of medical indications. The hemp-derived cannabinoid therapeutic market currently includes extracts of the hemp plant in several formulations, including proprietary formulations from several companies. These formulations include CBD and other cannabinoid such as,” CBG”, “CBC”, and “CBN” or a combination of several cannabinoids as the active ingredients. There are over one hundred different cannabinoids, therefore the market potential is only beginning to be realized. The therapeutics and supplement market are flooded with competition for hemp-based cannabinoid therapeutics. There are also companies that are using hemp-based cannabinoids as active ingredients in pharmaceutical formulations. Certain companies such as GW Pharmaceuticals plc have focused on plant-based CBD formulations; while other companies, such as Zynerba Pharmaceuticals Inc. and Insys Therapeutics Inc., have focused on synthetic CBD formulations.
Our Competitive Strengths
We believe that we have the following competitive strengths:
| ● | Experienced and Committed Management Team. Gary C. Evans, our CEO, and other anticipated members of our senior management team have substantial experience in all aspects of growing a public company in a highly competitive sector, including acquisitions, dispositions, construction, development, management, finance and capital markets. Mr. Evans has previously been the Chairman and CEO of three different public companies that obtained financial success on the New York Stock Exchange. Additionally, he previously served as Chairman, CEO, and Lead Director of a NASDAQ listed company in the biopharmaceutical space for 24 years, having just resigned in 2021. | |
| ● | Focus on Consolidating Atomized Industry. Our focus on revenue generating and positive cash flow businesses is a key part of our growth strategy. Moreover, we believe the beginning of an entire new industry creates numerous opportunities to evaluate and consolidate very fragmented businesses. Our ultimate goal of being a more fully integrated enterprise within the midstream sector will eventually give us control of very profitable values chain and separate us from most of our competition. | |
| ● | Demonstrated Investment and Capital Raising Acumen. We will continue to utilize rigorous underwriting standards for evaluating acquisitions and potential tenants to ensure that they meet our strategic and financial criteria. Our management team’s extensive experience and relationships established in mergers and acquisitions over the past 40 years and over 100 separate transactions should enable us to identify, negotiate and close on acquisitions cost effectively, efficiently, and with shareholder interest first in mind. |
Our Growth Strategy
Since the first harvests following the signing of the 2018 Farm Bill, the rush to capitalize on the hemp sector led to several pioneers launching a number of businesses within each vertical – many with very little capital resources available to them. Today:
| ● | The strong have survived | |
| ● | Hemp/CBD space is ripe for consolidation | |
| ● | Time for expansion and more vertical integration | |
| ● | Seasoned business professionals have now begun to enter the space |
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Generation Hemp has taken a boots-on-the-ground approach to its analysis of the overall industry and due diligence on specific businesses. We believe there are currently significant opportunities to grow a vertically integrated hemp business by executing the following elements of our strategy:
| ● | rigorous, hands-on vetting process to enable our management to meet with target companies’ teams all across the country |
| ● | site tours |
| ● | verification of operations |
| ● | in person discussions on operating activities |
| ● | validation of historical financial results |
| ● | stress testing of projections |
Intellectual Property
As a company within the hemp industry, one of the fastest growing new industries in the United States, our current initial effort is to protect and distinguish our company and brand identity amidst other entities currently operating within and entering the space.
Governmental Regulation
We are subject to local and federal laws in our operating jurisdictions. We will hold required licenses for product production and distribution to the extent that our business requires and will monitor changes in laws, regulations, treaties and agreements.
The Agriculture Improvement Act of 2018 known as the “2018 Farm Bill,” is United States federal legislation signed into law on December 20, 2018, which provides much of the legal framework for the hemp-based CBD product category. The 2018 Farm Bill permanently removed “hemp” from the purview of the Controlled Substances Act, and accordingly, the Drug Enforcement Administration (“DEA”) no longer has any claim to interfere with the interstate commerce of hemp products. Some of the immediate impact from this legislation includes the ability for farmers to access crop insurance and U.S. Department of Agriculture programs for certification and competitive grants. While the DEA is now officially not involved in hemp regulation, the FDA retains its authority to regulate ingestible and topical products, including those that contain hemp and hemp extracts such as CBD.
A range of federal regulations govern any potential product development, manufacturing, distribution, sales and marketing, including the Dietary Supplement Health and Education Act of 1994 (the “DSHEA”). Under DSHEA, supplements are effectively regulated by the FDA for Good Manufacturing Practices under 21 CFR Part 111. DSHEA defines a “dietary supplement” as a product intended to supplement the diet that contains one or more of the following: (a) a vitamin; (b) a mineral; (c) an herb or other botanical; (d) an amino acid; (e) a dietary substance for use by man to supplement the diet by increasing the total dietary intake; or (f) a concentrate, metabolite, constituent, extract, or combination of any ingredient described in clause (a) through (e). Thus, the law permits a wide range of dietary ingredients in dietary supplements, including CBD which is an extract of a botanical (Cannabis sativa L. plant). CBD also falls under clause (e) as it is a dietary substance for use by man to supplement the diet by increasing the total dietary intake.
Markets and Distribution Methods
The market, customers and distribution methods for hemp-based products are large and diverse. These markets range from hemp-based bio plastics to textiles. This is an ever-evolving distribution system that today includes early adopter retailers and ecommerce entities, and product development companies. We believe that as awareness grows for the “green”, environmentally-friendly products derived from hemp/cannabis, the consumer market will continue to adapt its current product lines to integrate them with hemp-based additives or replace harmful components in their existing products with certain components of hemp.
Environmental Matters
Compliance with federal, state and local requirements regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, have not had, nor are they expected to have, any material effect on the capital expenditures, earnings or competitive position of the Company.
Employees
We had 11 employees as of December 31, 2021, including our named executive officers. None of our employees are covered by collective bargaining agreements, and we have not experienced any strikes or work stoppages related to labor relation issues. We believe we have good relations with our employees. We also utilize seasonal part-time employees during peak processing season and contractors to provide certain specialized skills and expertise that may be required from time to time.
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Item 1A. Risk Factors
Our business involves certain risks and uncertainties. The following is a description of significant risks that might cause our future financial condition or results of operations to differ materially from those expected. In addition to the risks and uncertainties described below, we may face other risks and uncertainties, some of which may be unknown to us and some of which we may deem immaterial. If one or more of these risks or uncertainties occur, our business, financial condition or results of operations may be materially and adversely affected.
Risks Related to Our Business
There is substantial doubt that we will be able to continue as a going concern.
Our independent registered public accounting firm’s auditors’ report includes an explanatory paragraph stating that there is substantial doubt about our ability to continue as a going concern. We have had substantial losses since inception and as of December 31, 2021, and the date of this report we have minimal cash reserves. While we are beginning to generate increasing revenue and a positive cash flow, our ability to build significant cash reserves and continue as a going concern over the long term remains unproven. In the event that we are forced to reduce operations or seriously curtail our business, an investor will lose all money invested.
We have a history of significant losses, which we expect to continue, and we may never achieve nor maintain profitability.
We have incurred significant net losses since our formation and may continue to incur net losses for the foreseeable future as we complete our acquisition efforts. We incurred net losses of $9.8 million and $1.6 million for the years ended December 31, 2021 and 2020, respectively. To date, we have not generated any significant revenues from the hemp business. If we are unsuccessful in implementing our strategic plan we may never become profitable.
Business interruptions resulting from the coronavirus disease (COVID-19) outbreak or similar public health crises could cause a disruption of the development of our product candidates and adversely impact our business.
In March 2020, the World Health Organization declared the novel coronavirus disease (COVID-19) outbreak a global pandemic. To limit the spread of COVID-19, governments have taken various actions including the issuance of stay-at-home orders and physical distancing guidelines. Accordingly, businesses have adjusted, reduced or suspended operating activities. We may experience disruptions as a result of COVID-19 that could severely impact our business and planned acquisition strategy, including:
| ● | challenges related to ongoing and increased operational expenses related to the COVID-19 pandemic; | |
| ● | delays, difficulties or increased costs to comply with COVID-19 protocols; | |
| ● | limitations in resources that would otherwise be focused on the conduct of our business, including because of sickness or the desire to avoid contact with large groups of people or as a result of government-imposed “Stay-at-Home” orders or similar working restrictions; | |
| ● | delays in receiving the supplies and materials needed to operate our business; | |
| ● | interruption in global shipping that may affect the transport of materials or our supply chain; | |
| ● | changes in regulations as part of a response to the COVID-19 pandemic which may require us to change the ways in which our business may be conducted, or which may result in unexpected costs; | |
| ● | delays in necessary interactions with regulators and other important governmental agencies and contractors due to limitations in employee resources or forced furlough of personnel; and | |
| ● | increased competition for suppliers and vendors. |
We will continue to assess the impact that COVID-19 may have on our ability to effectively conduct our business operations as planned and there can be no assurance that we will be able to avoid a material impact on our business from the spread of COVID-19 or its consequences, including disruption to our business and downturns in business sentiment generally or in our industry. Should COVID-19 cases in USA increase, the country or states may institute stricter social distancing protocols.
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The global outbreak of COVID-19 continues to rapidly evolve. The extent to which the COVID-19 pandemic impacts our business will depend on future developments such as the rate of the spread of the disease, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease and to address its impact, including on financial markets or otherwise. Further, a lack of coordinated response on risk mitigation and vaccination deployment with respect to the COVID-19 pandemic on a local or federal level could result in significant increases to the duration and severity of the pandemic in the United States as compared to the rest of the world and could have a corresponding negative impact on our business. While the extent of the impact of the current COVID-19 pandemic on our business and financial results is uncertain, a continued and prolonged public health crisis such as the COVID-19 pandemic could have a material negative impact on our business, financial condition and operating results.
To the extent the COVID-19 pandemic adversely affects our business, financial condition and operating results, it may also have the effect of heightening many of the risks described in this “Risk Factors” section.
Unfavorable global economic or political conditions could adversely affect our business, financial condition or results of operations.
Our results of operations could be adversely affected by general conditions in the global economy and in the global financial markets. A global financial crisis or a global or regional political disruption could cause extreme volatility in the capital and credit markets. For example, outbreaks of epidemic, pandemic, or contagious diseases, such as the recent COVID-19 outbreak, could disrupt our business. Business disruptions could include disruptions to the productivity of our employees working remotely and restrictions on their travel may hinder their ability to meet with potential customers and close transactions, as well as temporary closures of the facilities of suppliers or contract growers as we try to develop our supply chain. In addition, the COVID-19 outbreak may result in a severe economic downturn and has already significantly affected the financial markets of many countries. A severe or prolonged economic downturn or political disruption could result in a variety of risks to our business, including our ability to raise capital when needed on acceptable terms, if at all. A weak or declining economy or political disruption could also strain our operations, possibly resulting in a future supply disruption, or cause our future customers to delay making payments for our services. Any of the foregoing could harm our business and we cannot anticipate all of the ways in which the political or economic climate and financial market conditions could adversely impact our business.
We have a limited operating history and operate under the professional guidance of our Chairman and CEO.
Our ability to achieve consistent cash flow and profitability depends upon the continued service of Gary C. Evans. Mr. Evans is our Chairman and CEO, largest shareholder, and the primary management level executive.
Our business plan provides that we will grow the Company’s asset base and revenues rapidly and ultimately deliver a positive cash flow generating company.
We may not be able to generate predictable and continuous revenue in the future. Further, there is no assurance that we will ever grow operations in the manner contemplated.
We may incur significant operating losses in the future, due to the expansion of our operations or other factors. There is no assurance that we can expand under terms that permit profitable operations over the long term. Failure to generate sufficient revenue to pay expenses as they come due may make us unable to continue as a going concern and result in the failure of our company and the complete loss of any money invested to purchase our shares.
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We may be unable to manage our growth or implement our expansion strategy.
As a public company, our expenses include, but are not limited to, annual audits, legal costs, SEC reporting costs, costs of a transfer agent and the costs associated with fees and compliance. Further, our management will need to invest significant time and energy to stay current with the public company responsibilities of our business and may from time to time have diminished time available to apply to other tasks necessary to our survival and growth.
It is therefore possible that the financial and time burdens of operating as a public company will cause us to fail to achieve profitability. If we exhaust our funds, our business will fail and our investors will lose all money invested in our stock.
If we fail to pay public company costs, as such costs are incurred; we could become delinquent in our reporting obligations and face the delisting of our shares.
It is essential that we grow our overall business, achieve significant profits and maintain adequate cash flow in order to pay the cost of remaining a public entity which includes but is not limited the costs of remaining current with SEC reporting obligations.
The issuance of additional shares of our common stock may be necessary for the implementation of our growth strategy.
Limited private placement of restricted shares of our common stock has been completed from time to time when deemed necessary. Cash generated in prior years was used to acquire cannabis zoned real property, finance our office space and provide working capital. Issuance of any additional securities pursuant to future fundraising activities undertaken may significantly dilute the ownership of existing shareholders and may reduce the price of our common stock.
We acquired, improved and leased our Denver warehouse to a licensed third party hemp seed grower. Rental payments are current and the warehouse is presently reflecting positive cash flow.
While we have been able to acquire a warehouse in Denver, Colorado with owner financing, future acquisitions may require financial resources well in excess of our present balance sheet. Failure to successfully obtain additional funding would likely jeopardize our ability to expand our hemp business and related operations.
The loss of our chief executive officer or key management personnel or inability to attract and retain the necessary personnel could have a material adverse effect upon our business, financial condition or results of operations.
Our success is heavily dependent on the continued active participation of our chief executive officer, largest shareholder, and sole director listed under “Management.” Loss of the services of Mr. Evans, would have a material adverse effect upon our business, financial condition or results of operations. Further, our success and achievement of our growth plans depend on our ability to recruit, hire, train and retain other highly qualified technical, professional, clerical, administrative and managerial personnel. Inability to attract and retain the necessary personnel, consultants and advisors could have a material adverse effect on our business, financial condition or results of operations.
Our Chief Executive Officer has significant influence over us.
Our Chief Executive Officer has the ability to influence all of our business affairs.
It is likely that conflicts of interest may arise in the day-to- day operations of our business. Such conflicts, if not properly resolved, could have a material negative impact on our business.
In the past, the Company has issued shares for cash and services at prices which were solely determined by prior management. At that time, management made a determination of both the value of the exchange for our shares, and, as well, the price per share used in the capital raising effort. Transactions of this nature were not made at arm’s length and were made without input from a knowledgeable and non-interested third party. Future transactions of a like nature could dilute the percentage ownership of the company owned by a given investor. While the company believes its past transactions were appropriate, and plans to act in good faith in the future, an investor in our shares will have no ability to alter such transactions as they may occur in the future and, further, will not be consulted by the company in advance of any such transactions. An investor who is unwilling to endure such potential dilution should not purchase our shares.
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Adverse outcomes in future legal proceedings could subject us to substantial damages and adversely affect our results of operations and profitability.
We may become party to legal proceedings, including matters involving personnel and employment issues, personal injury, environmental matters, and other proceedings. Some of these potential proceedings could result in substantial damages or payment awards that exceed our insurance coverage. We will estimate our exposure to any future legal proceedings and establish provisions for the estimated liabilities where it is reasonably possible to estimate and where an adverse outcome is probable. Assessing and predicting the outcome of these matters will involve substantial uncertainties. Furthermore, even if the outcome is ultimately in our favor, our costs associated with such litigation may be material. Adverse outcomes in future legal proceedings or the costs and expenses associated therewith could have an adverse effect on our results of operations.
We will seek to expand through acquisitions of and investments in various brands, businesses, and assets in the Hemp sector. These acquisition activities may be unsuccessful or divert management’s attention.
We will consider strategic and complementary acquisitions of and investments in other brands, businesses or other assets in the hemp sector, and such acquisitions or investments are subject to risks that could affect our business, including risks related to:
| ● | the necessity of coordinating geographically disparate organizations; | |
| ● | implementing common systems and controls; | |
| ● | integrating personnel with diverse business and cultural backgrounds; | |
| ● | integrating acquired manufacturing and production facilities, technology and products; | |
| ● | unanticipated expenses related to integration, including technical and operational integration; | |
| ● | increased costs and unanticipated liabilities, including with respect to registration, environmental, health and safety matters, that may affect sales and operating results; | |
| ● | retaining key employees; | |
| ● | obtaining required government and third-party approvals; | |
| ● | legal limitations in new jurisdictions; | |
| ● | installing effective internal controls and audit procedures; | |
| ● | issuing common stock that could dilute the interests of our existing stockholders; | |
| ● | spending cash and incurring debt; | |
| ● | assuming contingent liabilities; and | |
| ● | creating additional expenses. |
We may not be able to identify opportunities or complete transactions on commercially reasonable terms, or at all, or actually realize any anticipated benefits from such acquisitions or investments. Similarly, we may not be able to obtain financing for acquisitions or investments on attractive terms. In addition, the success of any acquisitions or investments also will depend, in part, on our ability to integrate the acquisition or investment with our then existing operations.
We risk insolvency if revenues decline sharply and we are unable pay our bills and unable to timely locate and negotiate a suitable business combination or capital injection.
Management is always concerned over potentially unfavorable events and related sharp reductions in revenues. If such problems occur, we will first reduce expenses, conserve cash and endeavor to replace lost revenue. In anticipation of possible problems of this nature, and alternatively to grow our business when opportunity presents, management has continued its negotiations in connection with potential business combinations and continues to explore other means of raising cash. Our goal is to develop cash reserves, either for expansion, or to cover shortfalls in revenue. Management believes that ultimately, consummation of one or more such transactions would serve the best interests of shareholders; however, there is no assurance that we can locate or consummate a suitable business combination or otherwise provide for liquidity, expanded working capital and a stronger balance sheet.
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We are subject to corporate governance and internal control reporting requirements, and our costs related to compliance with, or our failure to comply with existing and future requirements, could adversely affect our business.
We face corporate governance requirements under the Sarbanes-Oxley Act of 2002, as well as new rules and regulations subsequently adopted by the SEC and the Public Company Accounting Oversight Board. These laws, rules and regulations continue to evolve and may become increasingly stringent in the future. In particular, under new SEC rules we will be required to include management’s report on internal controls as part of our annual report pursuant to Section 404 of the Sarbanes-Oxley Act. Furthermore, under the proposed rules, an attestation report on our internal controls from our independent registered public accounting firm will be required as part of our annual report. We are in the process of evaluating our control structure to help ensure that we will be able to comply with Section 404 of the Sarbanes-Oxley Act. The financial cost of compliance with these laws, rules and regulations is expected to be substantial. We cannot assure you that we will be able to fully comply with these laws, rules and regulations that address corporate governance, internal control reporting and similar matters. Failure to comply with these laws, rules and regulations could materially adversely affect our reputation, financial condition and the value of our securities.
In 2022, management identified a material weakness in our internal control over financial reporting related to the accounting for complex transactions. The Company has begun the process of designing and implementing measures to improve its internal controls over financial reporting and remediate this material weakness. The Company’s efforts include implementing additional reviews of business combination transactions and modifying the Company’s instructions to valuation specialists and reviews of their workproduct. This will include staffing additions as appropriate. We will consider the material weakness remediated after the applicable controls operate for a sufficient period of time, and management has concluded, through testing, that the controls are operating effectively. However, our remedial actions may not prevent this or similar weaknesses from occurring in the future.
Natural and other disasters, information technology system failures and network disruptions and cybersecurity breaches and attacks could adversely affect our business.
Our business and results of operations could be negatively affected by certain factors beyond our control, such as natural disasters and/or climate change-related events (such as hurricanes, earthquakes, fires, and floods); civil unrest; negative geopolitical conditions and developments; war, terrorism, or other man-made disasters; and information technology system failures, network disruptions and cybersecurity breaches and attacks. Any of these events could result in, among other things, damage to or the temporary closure of our facilities; a temporary lack of an adequate work force in one or more markets; an interruption in power supply; a temporary or long-term disruption in our supply chain; and short- or long-term damage to our prospective customers’ businesses (which would adversely impact demand for our products and services). ∙ We rely on our own information systems, as well as those of our third-party business partners and suppliers. Despite the introduction of system backup measures and engage in information system redundancy planning and processes, such measures, planning and processes may be ineffective or inadequate to address all eventualities.
Further, our information systems and our business partners’ and suppliers’ information systems may be vulnerable to attacks by hackers and other security breaches, including computer viruses and malware, through the internet (including via devices and applications connected to the internet), email attachments and persons with access to these information systems, such as our employees or third parties with whom we do business. As information systems and the use of software and related applications by us, our business partners, suppliers, and customers become more cloud-based and connected to the internet, there has been an increase in global cybersecurity vulnerabilities and threats, including more sophisticated and targeted cyber-related attacks that pose a risk to the security of our information systems and networks and the confidentiality, availability and integrity of data and information. Any such attack or breach could compromise our networks and the information stored thereon could be accessed, publicly disclosed, lost, or stolen.
If we or our business partners or suppliers were to experience a system disruption, attack or security breach that impacts any of our critical functions, or our customers were to experience a system disruption, attack or security breach via any of our connected products and services, it could result in a period of shutdown of information systems during which we may not be able to operate, the loss of sales and customers, financial misstatement, potential liability for damages to our customers, reputational damage and significant incremental costs, which could adversely affect our business, results of operations and profitability. Furthermore, any access to, public disclosure of, or other loss of data or information (including any of our confidential or proprietary information or personal data or information) as a result of an attack or security breach could result in governmental actions or private claims or proceedings, which could damage our reputation, cause a loss of confidence in our products and services, damage our ability to develop (and protect our rights to) our proprietary technologies and adversely affect our business.
Failure to comply with U.S. federal, state and international laws and regulations relating to privacy or data protection, or the expansion of current or the enactment of new laws or regulations relating to privacy or data protection, could adversely affect our business and our financial condition.
Failure to comply with U.S. federal, state and international laws and regulations relating to privacy or data protection, or the expansion of current or the enactment of new laws or regulations relating to privacy or data protection, could adversely affect our business and our financial condition. A variety of U.S. federal, state and international laws and regulations govern the collection, use, retention, sharing and security of data. Laws and regulations relating to privacy and data protection are evolving and subject to potentially differing interpretations. These requirements may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another or may conflict with other rules or our practices. As a result, our practices may not have complied or may not comply in the future with all such laws, regulations, requirements and obligations. Any failure, or perceived failure, by us to comply with our posted privacy policies or with any federal, state or international privacy or data protection related laws, regulations, industry self-regulatory principles, industry standards or codes of conduct, regulatory guidance, orders to which we may be subject or other legal obligations relating to privacy or data protection could adversely affect our reputation and business, and may result in claims, proceedings or actions against us by governmental entities or others or other liabilities or require us to change our operations and/or cease using certain data sets. Any such claim, proceeding or action could hurt our reputation and business, force us to incur significant expenses in defense of such proceedings, distract our management, increase our costs of doing business, result in a loss of customers.
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Uncertain Economic, Social and Political Environment.
Consumer, corporate and financial confidence may be adversely affected by current or future tensions around the world, fear of terrorist activity and/or military conflicts, localized or global financial crises or other sources of political, social or economic unrest. Such erosion of confidence may lead to or extend a localized or global economic downturn. A climate of uncertainty may reduce the availability of potential investment opportunities, and increases the difficulty of modeling market conditions, potentially reducing the accuracy of financial projections. In addition, limited availability of credit for consumers, homeowners and businesses, including credit used to acquire businesses, in an uncertain environment or economic downturn may have an adverse effect on the economy generally and on our ability to make acquisitions. This may slow or halt our rate of growth and materially and adversely affect our business and/or stock price.
The Company will incur expenses in connection with its SEC filing requirements and may not be able to meet such costs, which could jeopardize its filing status with the SEC.
As a public reporting company, the Company is required to meet the filing requirements of the SEC. The Company may see an increase in its legal, accounting, auditing and fees and expenses as a result of such requirements. Our costs will increase significantly as the Company expands operations. Our filings are subject to comment from the SEC on its filings and/or it is required to file supplemental filings for transactions and activities. If the Company is not compliant in meeting the filing requirements of the SEC, it could lose its status as a 1934 Act Company, which could compromise its ability to raise funds.
Risks Related to our Activities in the Legal Hemp Industry
We will be subject to a myriad of different laws and regulations governing hemp and our inability to comply with such laws in a cost-effective manner may have an adverse effect on our business and result of operations.
Laws and regulations governing the use of hemp in the United States are broad in scope; subject to evolving interpretations; and subject to enforcement by a myriad of regulatory agencies and law enforcement entities. Under the Agriculture Improvement Act of 2018, also known as the 2018 Farm Bill, a state or Indian tribe that desires to have primary regulatory authority over the production of hemp in the state or territory of the Indian tribe must submit a plan to monitor and regulate hemp production to the Secretary of the USDA. The Secretary must then approve the state or tribal plan after determining if the plan complies with the requirements set forth in the Agriculture Improvement Act of 2018. The Secretary may also audit the state or Indian tribe’s compliance with the federally-approved plan. If the Secretary does not approve the state or Indian tribe’s plan, then the production of hemp in that state or territory of that Indian tribe will be subject to a plan established by USDA. USDA has not yet established such a plan. We anticipate that many states will seek to have primary regulatory authority over the production of hemp. States that seek such authority may create new laws and regulations that limit or restrict the use of hemp.
Federal and state laws and regulations on hemp may address production, monitoring, manufacturing, distribution, and laboratory testing to ensure that that the hemp has a delta-9 tetrahydrocannabinol concentration of not more than 0.3% on a dry weight basis. Federal laws and regulations may also address the transportation or shipment of hemp or hemp products, as the Agriculture Improvement Act of 2018 prohibits states and Indian tribes from prohibiting the transportation or shipment of hemp or hemp products produced in accordance with that law through the state or territory of the Indian tribe, as applicable. We may be subject to many different state-based regulatory regimens for hemp, all of which could require us to incur substantial costs associated with compliance requirements. Our operations will be restricted to only where such operations are legal on the local, state and federal levels.
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In addition, it is possible that additional regulations may be enacted in the future in the United States and globally that will be directly applicable to research and development operations.
We cannot predict the nature of any future laws, regulations, interpretations, or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on our business.
We have a limited operating history in the legal hemp industry, which makes it difficult to accurately assess our future growth prospects.
The legal hemp and cannabis industry is an evolving industry that may not develop as expected. Furthermore, our operations will continue to evolve as we continually assess new strategic opportunities for our business within this industry. Assessing the future prospects of this industry is challenging in light of both known and unknown risks and difficulties we may encounter.
Growth prospects in the legal hemp and cannabis industry can be affected by a wide variety of factors including:
| ● | Competition from other similar companies; | |
| ● | Fluctuations in the market price of CBD oil; | |
| ● | Regulatory limitations on the types of research and development with respect to cannabis; | |
| ● | Other changes in the regulation of cannabis and legal hemp use; and | |
| ● | Changes in underlying consumer behavior, which may affect the demand of our legal hemp and cannabis traits. |
We may not be able to successfully address the above factors, which could negatively impact our intended business plans.
Because we have only recently begun our legal hemp operations, we anticipate our operating expenses will increase prior to earning revenue from these operations.
As we identify and develop strategic opportunities, conduct any necessary research and development with respect to legal hemp, and expand our operations, we anticipate significant increases in our operating expenses, and we may not realize significant revenues from such operations. As a result, the Company may incur significant financial losses with respect to such operations in the foreseeable future. There is no history upon which to base any assumption as to the likelihood that these operations will prove successful.
Negative press from being in the hemp/cannabis space could have a material adverse effect on our business, financial condition, and results of operations.
The hemp plant and the cannabis/marijuana plant are both part of the same cannabis sativa genus/species of plant, except that hemp, by definition, has less than 0.3% THC content, but the same plant with a higher THC content is cannabis/marijuana, which is legal under certain state laws, but which is not legal under federal law. The similarities between these plants can cause confusion, and our activities with legal hemp may be incorrectly perceived as us being involved in federally illegal cannabis. Also, despite growing support for the cannabis industry and legalization of cannabis in certain U.S. states, many individuals and businesses remain opposed to the cannabis industry. Any negative press resulting from any incorrect perception that we have entered into the cannabis space could result in a loss of current or future business. It could also adversely affect the public’s perception of us and lead to reluctance by new parties to do business with us or to own our common stock. We cannot assure you that additional business partners, including but not limited to financial institutions and customers, will not attempt to end or curtail their relationships with us. Any such negative press or cessation of business could have a material adverse effect on our business, financial condition, and results of operations.
Risks Related to Ownership of Our Common Stock
Our stock price has been and may continue to be volatile, and you could lose all or part of your investment.
The market price of our common stock is subject to wide fluctuations in response to various risk factors, some of which are beyond our control and may not be related to our operating performance, including:
| ● | addition or loss of significant customers, suppliers, or distributors; | |
| ● | changes in laws or regulations applicable to our industry ; |
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| ● | additions or departures of key personnel; | |
| ● | the failure of securities analysts to cover our common stock after an offering; | |
| ● | actual or anticipated changes in expectations regarding our performance by investors or securities analysts; | |
| ● | price and volume fluctuations in the overall stock market; | |
| ● | volatility in the market price and trading volume of companies in our industry or companies that investors consider comparable; | |
| ● | share price and volume fluctuations attributable to inconsistent trading volume levels of our shares; | |
| ● | our ability to protect our intellectual property and other proprietary rights; | |
| ● | sales of our common stock by us or our stockholders; | |
| ● | the expiration of contractual lock-up agreements; | |
| ● | litigation involving us, our industry, or both; | |
| ● | major catastrophic events; and | |
| ● | general economic and market conditions and trends. |
Further, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. In addition, the stock prices of many cannabis-related companies have experienced wide fluctuations that have often been unrelated to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political, and market conditions such as recessions, interest rate changes, or international currency fluctuations, may cause the market price of our common stock to decline. If the market price of our common stock fluctuates or declines, you may not realize any return on your investment and may lose some or all of your investment.
Our operating results are subject to fluctuations and our stock price may decline significantly.
Our quarterly revenue and operating results are difficult to predict from quarter to quarter. We derive revenue from our hemp processing business which is dependent upon volumes produced by farmers and is seasonal. Prices for products derived from hemp have declined significantly over the past few years resulting in many farmers exiting the industry. We derive relatively stable revenue from our property leased industrial warehouse. Nonetheless, it is possible that our net operating results in some quarters will fall below our expectations. Our quarterly operating results will be affected by a number of factors, including:
| ● | Timing, availability and changes in government incentive programs; | |
| ● | Unplanned additional expenses and/or shortfalls in anticipated rental income at our warehouse property; | |
| ● | Logistical costs; | |
| ● | The timing of new technology announcements or introductions by our competitors and other developments in the competitive environment; | |
| ● | Increases or decreases in real estate appreciation rates due to changes in economic growth; | |
| ● | Travel costs and other factors; and | |
| ● | State and federal government regulations |
If revenue for a particular quarter is lower than we expect, we may not be unable to proportionately reduce our operating expenses for that quarter, which would harm our operating results for that quarter. If we fail to meet investor expectations or our own future guidance, even by a small amount, our stock price could decline, perhaps substantially.
There are restrictions on the transferability of certain of our securities.
Until registered for resale, investors must bear the economic risk of an investment in the Shares for an indefinite period of time. Rule 144 promulgated under the Securities Act (“Rule 144”), which provides for an exemption from the registration requirements under the Securities Act under certain conditions, requires, among other conditions, a six-month holding period prior to the resale (in limited amounts) of securities acquired in a non-public offering without having to satisfy the registration requirements under the Securities Act. There can be no assurance that we will fulfill any reporting requirements in the future under the Exchange Act or disseminate to the public any current financial or other information concerning us.
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If the Company uses its stock in acquisitions of other entities, there may be substantial dilution at the time of a transaction.
The offering price of the common stock we sold as a private placement of restricted shares of our common stock to raise working capital, was arbitrarily set. The price did not bear any relationship to our assets, book value, earnings or net worth and it is not an indication of actual value. You may also suffer additional dilution in the future from the sale of additional shares of common stock or other securities or if the Company’s shares are issued to purchase other assets or to raise additional working capital.
Trading on the OTC Markets may be volatile and sporadic, which could depress the market price of our common stock and make it difficult for our stockholders to resell their shares.
Our common shares are quoted on OTCQB. There is no cost of such quotation and related services from OTC Markets, Inc. Trading in stock quoted on the OTCQB Markets is often thin and characterized by wide fluctuations in trading prices due to many factors that may have little to do with our operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to operating performance. Moreover, the OTC Markets is not a stock exchange, and trading of securities on the OTCQB Markets is often more sporadic than the trading of securities listed on a quotation system like Nasdaq or a stock exchange like the New York Stock Exchange. Accordingly, our stockholders may have difficulty reselling any of their shares. A number of brokerage houses will not trade our securities for customers because we are in the hemp business and/or because we trade on the OTC.
The Company currently plans to move to a more advantageous trading market via a potential uplisting, to a national exchange, and a formal application has been made. However, there is no assurance that we will be able to successfully move trading markets or uplist to a national exchange.
Because we do not expect to pay any dividends for the foreseeable future, investors may be forced to sell their stock to realize a return on their investment.
We do not anticipate that we will pay any dividends to holders of our common stock for the foreseeable future. Any payment of cash dividends will be at the discretion of our board of directors and will depend on, among other things, our results of operations, cash requirements, financial condition, contractual restrictions including compliance with covenants under our debt agreements, and other factors that our board of directors may deem relevant. Our ability to pay dividends might be restricted by the terms of any indebtedness that we incur in the future. In addition, certain of our current outstanding debt agreements prohibit us from paying cash dividends on our common stock. Consequently, you should not rely on dividends to receive a return on your investment.
Our common stock is presently subject to the “Penny Stock” rules of the SEC.
We are subject now to the “Penny Stock” rules since our shares of common stock sell below $5.00 per share. Penny stocks generally are equity securities with a price of less than $5.00. The penny stock rules require broker-dealers to deliver a standardized risk disclosure document prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson, and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information must be given to the customer orally or in writing prior to completing the transaction and must be given to the customer in writing before or with the customer’s confirmation. ∙ In addition, the penny stock rules require that prior to a transaction, the broker dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. The penny stock rules are burdensome and may reduce the trading activity for shares of our common stock. As long as our shares of common stock are subject to the penny stock rules, the holders of such shares of common stock may find it more difficult to sell their securities.
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If we fail to remain current on our reporting requirements, we could be removed from the OTCQB which would limit the ability of broker-dealers to sell our securities in the secondary market.
Companies trading on the OTCQB must be reporting issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and must be current in their reports under Section 13, in order to maintain price quotation privileges on the OTCQB. As a result, the market liquidity for our securities could be severely adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market. In addition, we may be unable to get relisted on the OTCQB, which may have an adverse material effect on the Company.
If we decide to implement a reverse stock split, a reverse stock split may decrease the liquidity of the shares of our common stock.
The liquidity of the shares of our common stock may be affected adversely by a reverse stock split given the reduced number of shares that will be outstanding following a reverse stock split, especially if the market price of our common stock does not increase as a result of the reverse stock split.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We provide post-harvest and midstream services to growers by drying, processing, cleaning, stripping harvested hemp directly from the field and wetbaled at our leased 48,000 square foot facility located in Hopkinsville, Kentucky.
Our industrial warehouse is located at 4430 Garfield Street, Denver, Colorado 80216 in an industrial neighborhood zoned for cannabis cultivation. Properties located in the 80216 zip code have recently had some of the highest appreciation rates in the Denver region due to significant infrastructure expenditures by governmental agencies. Numerous warehouses utilized for cannabis cultivation are located in this industrial district of Denver.
We also lease office space in Fort Worth, Texas for managerial offices.
Item 3. Legal Proceedings
As a normal incident of the businesses in which the Company is engaged, various claims, charges and litigation may be asserted or commenced from time to time against the Company. With respect to claims and litigation currently asserted or commenced against the Company, it is the opinion of management that final judgments, if any, which might be rendered against the Company are adequately reserved for, are covered by insurance, or are not likely to have a material adverse effect on the Company’s financial condition or results of operations. Nevertheless, given the uncertainties of litigation, it is possible that certain types of claims, charges and litigation could have a material adverse impact on the Company; see Item 1A, “Risk Factors.” See Note 7 to the consolidated financial statements included in this annual report for additional information relating to legal matters.
Item 4. Mine Safety Disclosures
Not applicable.
15
PART II
Item 5. Market for Registrant’s Common Equity and Related Shareholder Matters.
Our common stock is quoted on OTCQB under the symbol “GENH.” In the future, should we meet stringent qualifications and pay the required fee, we plan to have our shares quoted on Capital Markets tier of NASDAQ, however here is no assurance that our shares will continue to be quoted on any market.
Shareholders
As of the date of this report, there were 76 direct holders of our common shares as shown on the list maintained by our transfer agent. We may have a substantial number of additional shareholders who hold shares in street name.
Dividends
We have not declared or paid any cash dividends on our common stock. To date we have utilized all available cash to finance our operations. Payment of cash dividends in the future will be at the discretion of our Board of Directors and will depend upon our earnings levels, capital requirements, any restrictive loan covenants and other factors the Board considers relevant.
Warrants
At December 31, 2021, there were 8,808,333 warrants outstanding for the purchase of Company common stock. Refer to Note 9 to the consolidated financial statements included in this annual report for additional information relating to outstanding warrants.
Equity Compensation Plans
The 2021 Omnibus Incentive Plan (“2021 Plan”) was adopted by our Board on July 1, 2021. The 2021 Plan provides for the initial reservation of 15 million shares of common stock for issuance, and provides that the maximum number of shares that may be issued pursuant to the exercise of ISOs is 15 million. The number of shares of common stock available for issuance under the 2021 Plan constituted approximately 13.1% of the Company’s fully diluted common shares outstanding as of the date of Board approval, including shares issuable upon the conversion of preferred shares, as calculated on an as-converted basis. On the one-year anniversary date of the 2021 Plan, the number of shares of common stock reserved for issuance thereunder shall automatically increase to 20% of the fully diluted common shares outstanding, including shares issuable upon the conversion of preferred shares, as calculated on an as-converted basis.
At December 31, 2021, there were 13,850,000 options outstanding for the purchase of Company common stock. Refer to Note 10 to the consolidated financial statements included in this annual report for additional information relating to outstanding options.
Recent Sales of Unregistered Securities
Since January 1, 2021, we have sold securities in private transactions without registering the securities under the Securities Act as shown below:
| ● | Acquisition of Certain Assets of Halcyon – In January 2021, the Company issued 6,250,000 shares of common stock valued at $2.5 million ($0.40 per share; restricted from trading for a period of up to one year) in the acquisition. |
| ● | 2021 First Quarter Issuances of Common Stock Units – In the first quarter of 2021, the Company issued 800,000 common stock units for total proceeds of $400,000. Each common stock unit consists of one share of common stock and a warrant for the purchase of two shares of common stock for $0.50 each. Each warrant is exercisable any time before its expiration on the second anniversary of its issuance. The Company allocated the total proceeds based on the relative fair values of the common stock and warrants. The fair value of the warrants was determined using an options valuation model with key assumptions including a risk-free interest rate of 0.11% and historical volatility of 272%. A total of $263,293 was allocated to the warrants and reported in additional paid-in capital. |
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| ● | Warrant Exercises – In the first quarter of 2021, the Company received $2,967,000 for the exercise of 8,428,976 outstanding warrants. In the fourth quarter of 2021, the Company received $375,000 for the exercise of 1,065,340 outstanding warrants. |
| ● | Issuances for Exchange or Conversion of Debt – The Company issued a total of 1,618,660 common shares for the exchange or conversion of outstanding debt. |
| ● | Issuance to Vendor for Services – In the third quarter of 2021, the Company issued 125,000 common shares to a vendor for services performed. |
| ● | Issuance for Extension of Secured Note – The Company issued 20,000 common shares as consideration to extend the maturity of a senior note in the third quarter of 2021. |
| ● | Issuance for Conversion of Series A Preferred Stock – As noted above, in the third quarter of 2021, the Company issued 75,947,376 common shares for the conversion of all outstanding shares of its Series A Preferred Stock. |
| ● | 2021 Fourth Quarter Issuances of Common Stock Units – In the fourth quarter of 2021, the Company issued 958,333 common stock units to accredited investors for total proceeds of $575,000. Each common stock unit consists of one share of common stock and a warrant for the purchase of one share of common stock for $0.60 each. Each warrant is exercisable any time before its expiration on the second anniversary of its issuance. The Company allocated the total proceeds based on the relative fair values of the common stock and warrants. The fair value of the warrants was determined using an options valuation model with key assumptions including risk-free interest rates ranging from 0.48% to 0.70% and historical volatility ranging from 237% to 258%. A total of $276,947 was allocated to the warrants and reported in additional paid-in capital | |
| ● | Stock-based Compensation – The Company issued 500,000 restricted common shares as incentive compensation to two executives who joined the Company in the first quarter of 2021. |
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
We made no purchases of our equity securities.
Our Transfer Agent
We have retained Securities Transfer Corporation (“STC”), Plano, Texas, as transfer agent for our Common shares. Shareholders are responsible to contact STC to update their address. This may be done by contacting:
Securities Transfer Corporation
2901 N. Dallas Parkway, Suite 380
Plano, Texas 75093
Phone: (469) 633-0101
Fax: (469) 633-0088
www.stctransfer.com
STC is responsible for all record-keeping and administrative functions in connection with our common shares.
Item 6. Reserved
Not applicable.
17
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion is intended to assist you in understanding our results of operations and our present financial condition and contains forward-looking statements that reflect our future plans, estimates, beliefs and expected performance. The forward-looking statements are dependent upon events, risks and uncertainties that may be outside our control. We caution you that our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences are discussed elsewhere in this Annual Report, particularly in the “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors,” all of which are difficult to predict. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur. We do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law.
There is limited historical financial information about our Company upon which to base an evaluation of our future performance. We cannot guarantee that we will be successful in our hemp businesses. We are subject to risks inherent in a small company, including limited capital resources, delays and cost overruns due to price and cost increases. There is no assurance that future financing will be available to our company on acceptable terms. Additional equity financing could result in dilution to existing shareholders.
Overview
We are a holding company active within the “hemp” space. We were incorporated on August 21, 2021 in the State of Delaware. The Company was originally incorporated on July 28, 2008 in the State of Colorado. On November 27, 2019, HTF purchased approximately 94% of the common stock of EHR in a series of transactions accounted for as a reverse merger.
On January 11, 2021, we completed the acquisition of certain assets of Halcyon Thruput, LLC (“Halcyon”). With this acquisition, we commenced providing post-harvest and midstream services to growers by drying, processing, cleaning and stripping harvested hemp directly from the field and wetbaled at our 48,000 square foot leased facility located in Hopkinsville, Kentucky. Additionally, the Company offers safe storage services for processed hemp, which enables farmers to maximize strategic market timing. In August 2021, the Company launched its small animal bedding consumer goods product line (“Rowdy Rooster”) made from the hemp hurd byproduct that is produced from its hemp processing operations.
We also generate revenue from rental of our “Cannabis Zoned” (Hemp) warehouse property located in Denver, Colorado currently leased to an unaffiliated hemp seed company.
Liquidity – The Company is dependent upon obtaining additional funding to continue ongoing operations and to pursue its strategy and execute its acquisition plans.
In 2021, the Company used $3.5 million of cash for its operating activities. At December 31, 2021, the Company’s current liabilities, including financing obligations due within one year, totaled $4.4 million as compared with its current assets of $238 thousand.
The Company will continue to pursue additional capital raising opportunities in order to fund future acquisitions and meet its obligations as they become due. In the event financing cannot be obtained, the Company may not be able to satisfy these plans and obligations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Impact of COVID-19 Pandemic on Our Business – Our business, results of operations and financial condition have been adversely affected by the COVID-19 pandemic, beginning in mid-March 2020. The COVID-19 pandemic and measures taken to contain it have subjected our business, results of operations, financial condition, stock price and liquidity to a number of material risks and uncertainties, all of which may continue or may worsen.
How the Company Generates Revenue
We provide post-harvest and midstream services to growers by drying, processing, cleaning and stripping harvested hemp directly from the field and wetbaled at our leased 48,000 square foot facility located in Hopkinsville, Kentucky. Additionally, the Company offers safe storage services for processed hemp, which enables farmers to maximize strategic market timing. In August 2021, the Company launched its animal bedding consumer goods product line made from the hemp hurd byproduct that is produced from its hemp processing operations.
18
We also generate revenue from rental of our “Cannabis Zoned” (Hemp) warehouse property located in Denver, Colorado currently leased to a hemp seed company.
Our Costs and Expenses of Conducting Business
The principal costs and expenses involved in conducting our business are labor, materials and overhead costs for processing services, real estate holding costs (interest, taxes, depreciation and maintenance costs) and general and administrative expenses for our management, contract labor, professional fees and other costs of being a public company. We also incur costs in seeking acquisitions and financings of our business.
Discontinued Oil & Gas Activities
As of December 31, 2021, EHR held an approximate 8% working interest in an oil & gas property located in Cochran County, Texas within the Slaughter-Levelland Field of the San Andres formation in the Northwest Shelf of West Texas. EHR’s oil & gas activities are currently held for sale and are presented in these consolidated financial statements as discontinued operations for each of the periods presented.
Results of Operations
Years Ended December 31, 2021 and 2020
The net loss for the year ended December 31, 2021 was $9.8 million as compared with a net loss of $1.6 million for 2020. The larger loss in 2021 was principally due to higher costs for staffing additions and other business operating costs as we commenced post-harvest midstream services after the acquisition of certain assets of Halcyon. The 2021 loss also include non-cash expense totaling $5.9 million for stock-based compensation and depreciation and amortization.
The Company reports its oil & gas activities as discontinued operations. Loss from discontinued operations was $32 thousand for the year ended December 31, 2021 as compared with a loss of $34 thousand in 2020.
Revenue. We commenced post-harvest and midstream services for new and renewed customer contracts in the third quarter of 2021. These revenues are typically limited due during the first half of each year until harvest. In 2020 (prior to our acquisition), Halcyon had revenues of $3.0 million for the processing of approximately 8.5 million pounds of hemp biomass. In 2021, we had revenues of $592 thousand for the processing of approximately 2.1 million pounds of hemp biomass. The decrease is partially due to taking inventory in-kind and holding such inventory for a sale at a later date. We have executed contracts for processing of 6.7 million pounds during the 2022.
Rental revenue was $82 thousand in 2021 as compared with $90 thousand in 2020. The Company’s Denver warehouse is presently leased through August 1, 2023 for $7.5 thousand per month plus certain other expenses.
Cost of Revenue. Cost of revenue for 2021 was $653 thousand and consisted of direct labor, supplies and overhead for the Company’s post-harvest and midstream services operations. The negative margin on this business was caused by holding costs and limited staffing needed until the annual harvest and processing began in the third quarter of 2021.
Depreciation and Amortization. Depreciation and amortization expense totaled $1.3 million in 2021 as compared with $71 thousand for 2020. The increase in the 2021 period is due to completion of the Halcyon acquisition including $818 thousand for amortization of acquired intangible assets. Intangible assets consist of customer relationships and non-compete agreements acquired in the acquisition of certain assets of Halcyon. Future amortization expense in each of the next five years amounts to $587 thousand for 2022, $419 thousand for 2023, $278 thousand for 2024, $194 thousand for 2025, $130 thousand for 2026 and $250 thousand thereafter.
Merger and Acquisition Costs. We incurred $16 thousand and $100 thousand of costs for evaluating acquisition opportunities during 2021 and 2020, respectively. These costs principally related to the Halcyon acquisition. The amount of future expenses of this type that we incur will depend upon our future acquisition activities.
19
General and Administrative Expense. General and administrative expenses totaled $7.8 million for the year ended December 31, 2021 as compared with $1.1 million in 2020. The increase in general and administrative expense in the 2021 period is principally due the Halcyon acquisition, other corporate staffing additions made this year, and the payment of bonus compensation as well as stock-based compensation expense. Bonus compensation totaling $610 thousand was paid to our CEO for successful completion of the Halcyon acquisition. In the third quarter of 2021, the Company paid $189 thousand for legal fees and $33 thousand of interest in settlement of an arbitration. General and administrative expense for 2021 also includes $4.5 million of non-cash stock-based compensation expense.
Other Income/Expense. Total other expense was $671 thousand for 2021 as compared with $296 thousand for 2020. The largest item of total other expense is interest expense which has increased due to having higher levels of indebtedness. Interest expense for 2021 includes $380 thousand of amortization of debt discounts and $33 thousand of interest for the arbitration settlement discussed above.
In 2021, we sold our investment in the marketable common stock we held for total proceeds of $35 thousand. We recognized a loss of $12 thousand on this disposal. This publicly traded security was marked to market each fiscal quarter until its eventual sale. In 2020, we recognized a gain of $10 thousand for the increase in this security’s value.
We received notice that the Company’s PPP Loan principal and interest thereon was fully forgiven on April 20, 2021. As such, we recognized forgiveness income of $25,424 in 2021.
Loss from Discontinued Operations. In 2021, we recognized a loss from discontinued operations of $32 thousand as compared with a loss of $34 thousand in 2020. The major classes of line items constituting the loss on discontinued operations is presented in Item 8 of Part II, “Financial Statements and Supplementary Data—Note 11—Discontinued Operations.” Until we fully dispose of our remaining oil & gas property interests, we expect lower future revenues and costs as production activities have declined substantially. We do not anticipate making future investment of growth capital into these properties.
In 2019, the Company’s oil and gas properties became impaired and the carrying amount of the properties was expensed to the market decline and the Company’s determination to exit the oil and gas business.
Liquidity and Capital Resources
Our primary source of cash from continuing operations includes post-harvest and midstream services and rental revenue. Our primary uses of cash include our operating costs, general and administrative expenses and merger and acquisition expenses.
Cash flow information from continuing operations for the first nine months of 2021 was as follows:
| ● | Cash used in operating activities was $3.5 million principally due to the net loss adjusted for non-cash items. |
| ● | Net cash used in investing activities totaled $1.6 million including an expenditure of $1.5 million for the cash portion of the total consideration for the Halcyon acquisition and proceeds from the sale of our investment in common stock of $35 thousand. We made capital expenditures totaling $78 thousand for new processing equipment to expand our business lines to include post-processing of biomass. |
| ● | Net cash from financing activities totaled $2.3 million. This amount included $4.3 million of cash inflows from the issuance of common stock units and proceeds from warrant exercises. As well, we received $410 thousand in advances from our CEO under promissory notes. We used $2.2 million of cash for repayment of outstanding indebtedness and $154 thousand for payment of scheduled redemptions and dividends on the Series B preferred stock. |
We had no cash flows from discontinued operations in 2021.
20
Funding Requirements
We expect to continue to incur significant expenses and operating losses for the foreseeable future. We anticipate that our overall expenses may increase significantly as we grow our hemp business.
We anticipate that we will require additional capital to fund operations, including hiring additional employees, completing acquisitions and funding capital expenditures during the next twelve-month period.
Because of the numerous risks and uncertainties associated with the development and commercialization of our business, we are unable to estimate the amounts of increased capital outlays and operating expenses. Our future capital requirements will depend on many factors, including:
| ● | our success in identifying and making acquisitions of profitable operations; |
| ● | our ability to negotiate operating contracts with growers and others within the hemp industry on favorable terms, if at all; |
| ● | deriving revenue from our assets and operations; and |
| ● | the cost of such operations and costs of being a public company. |
Until such time as we can generate substantial revenues, we expect to finance our cash needs through a combination of equity offerings and debt financings. We do not have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our shareholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of common shareholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our growth plans and future commercialization efforts.
Off-Balance Sheet Arrangements
As of December 31, 2021, we had no off-balance sheet arrangements.
Indebtedness
The Company’s indebtedness at December 31, 2021 is presented in Item I, “Financial Statements – Note 5 – Notes Payable – Related Parties” and in Item I, “Financial Statements—Note 6—Other Indebtedness.”
In the first quarter of 2022, Investment Hunter, LLC, a Texas LLC controlled by our CEO, made advances totaling $449,000 to the Company under a promissory note due June 30, 2022. If the Company raises new equity capital of $3 million or more, then the full amount outstanding under the note is due within five days. The note bears interest at 10% per annum.
Critical Accounting Policies and Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the amounts of revenue and expenses reported for the period then ended.
Impairment of Long-lived Assets. We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. These events and circumstances include, but are not limited to, a current expectation that a long-lived asset will be disposed of significantly before the end of its previously estimated useful life, a significant adverse change in the extent or manner in which we use a long-lived asset or a change in its physical condition.
21
When such events or changes in circumstances occur, a recoverability test is performed comparing projected undiscounted cash flows from the use and eventual disposition of an asset or asset group to its carrying amount. If the projected undiscounted cash flows are less than the carrying amount, an impairment is recorded for the excess of the carrying amount over the estimated fair value.
We make various assumptions, including assumptions regarding future cash flows in our assessments of long-lived assets for impairment. The assumptions about future cash flows and growth rates are based on the current and long-term business plans related to the long-lived assets.
Stock-based Compensation – We account for employee stock-based compensation using the fair value method. Compensation cost for equity incentive awards is based on the fair value of the equity instrument generally on the date of grant and is recognized over the requisite service period. Forfeitures are recognized as they occur.
Recent Accounting Pronouncements. See Item 8 of Part II, “Financial Statements and Supplementary Data—Note 2—Summary of Significant Accounting Policies—Recent Accounting Pronouncements.”
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
Not required for smaller reporting companies.
22
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
Generation Hemp, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Generation Hemp, Inc. (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, changes in stockholders’ equity (deficit) and cash flows for each of the years ended December 31, 2021 and 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Explanatory Paragraph – Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 1, the Company has a significant working capital deficiency, has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1 to the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
F-2
Valuation and accounting for share-based instruments
As described in Note 9, for the year ended December 31, 2021, the Company issued 2,558,333 warrants to investors with exercise prices of $0.500 to $0.600 per share, vesting over a period of two years. The warrants issued were attached to units of common stock sold to various investors including a related party, which are only redeemable by the warrants holders. Total outstanding warrants as of December 31, 2021 were 8,808,333. As described in Note 10, the Company issued 13,850,000 options during the year ended December 31, 2021 with a grant date fair value of $10,525,284. Share-based compensation expense of $4,385,118 was recognized in 2021 related to these options based on the vesting terms.
How we Addressed the Matter in Our Audit
Our audit procedures included, amongst others:
| ● | We tested the agreements to determine whether management appropriately evaluated such agreements on issuance date. |
| ● | We tested the information that served as the basis for valuation of the shares issued to determine whether stock compensation should be recorded. |
| ● | We evaluated the reasonableness of the valuation method and assumptions used by management to calculate the values on issuance date by developing an independent estimate of the volatility by utilizing third party historical data of closing prices. |
Valuation and accounting for acquisition of Halcyon assets
As described in Note 3, for the year ended December 31, 2021, the Company completed the acquisition of certain assets of Halcyon for a total purchase consideration of $6,100,000 consisting of 6,250,000 shares of Company common stock valued at $2.5 million, $1.75 million in cash, a promissory note for $850,000 and the assumption of approximately $1,000,000 of new indebtedness of Halcyon.
How we Addressed the Matter in Our Audit
Our audit procedures included, amongst others:
| ● | We tested the asset purchase agreements to determine whether appropriately evaluated such agreements on the acquisition date. |
| ● | We tested the information that served as the basis for valuation for the asset acquired whether any valuation adjustments should be recorded. |
| ● | We evaluated the reasonableness of the valuation method and assumptions used by management to calculate the values on the acquisition date by developing an independent estimate of the fair values by utilizing the multi-period excess earnings method for intangible assets and published cost databases for tangible assets. |
/s/
Marcum llp
We have served as the Company’s auditor since 2019.
April 12, 2022
F-3
Generation Hemp, Inc.
Consolidated Balance Sheets
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Inventories | ||||||||
| Prepaid expenses | ||||||||
| Total Current Assets | ||||||||
| Property and Equipment | ||||||||
| Property and equipment | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Total Property and Equipment, Net | ||||||||
| Operating lease right-of-use asset | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | - | |||||||
| Other assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Equity (Deficit) | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Payables to related parties | ||||||||
| Operating lease liability - related party | ||||||||
| Notes payable – related parties | ||||||||
| Other indebtedness - current | ||||||||
| Common stock issuable | ||||||||
| Current liabilities of discontinued operations held for sale | ||||||||
| Total Current Liabilities | ||||||||
| Operating lease liability - related party, net of current portion | ||||||||
| Other indebtedness - long-term | ||||||||
| Long-term liabilities of discontinued operations held for sale | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Series B redeemable preferred stock, par value, $ | ||||||||
| Equity (Deficit) | ||||||||
| Series A preferred stock, $ | ||||||||
| Common stock, $ | ||||||||
| Common stock, no par value; | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Generation Hemp equity | ( | ) | ||||||
| Noncontrolling interest | ( | ) | ( | ) | ||||
| Total Equity (Deficit) | ( | ) | ||||||
| Total Liabilities and Equity (Deficit) | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Generation Hemp, Inc.
Consolidated Statements of Operations
| For the year ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Revenue | ||||||||
| Post-harvest and midstream services | $ | $ | ||||||
| Rental | ||||||||
| Total revenue | ||||||||
| Costs and Expenses | ||||||||
| Cost of revenue (exclusive of items shown separately below) | ||||||||
| Depreciation and amortization | ||||||||
| Merger and acquisition costs | ||||||||
| General and administrative | ||||||||
| Total costs and expenses | ||||||||
| Operating loss | ( | ) | ( | ) | ||||
| Other expense (income) | ||||||||
| Interest and other income | ( | ) | ( | ) | ||||
| Change in fair value of marketable security | ( | ) | ||||||
| Interest expense | ||||||||
| Total other expense | ||||||||
| Loss from continuing operations | ( | ) | ( | ) | ||||
| Loss from discontinued operations | ( | ) | ( | ) | ||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Less: net loss attributable to noncontrolling interests | ( | ) | ( | ) | ||||
| Net loss attributable to Generation Hemp | $ | ( | ) | $ | ( | ) | ||
| Earnings (loss) per common share: | ||||||||
| Loss from continuing operations | ||||||||
| Basic | $ | ( | ) | $ | ( | ) | ||
| Diluted | $ | ( | ) | $ | ( | ) | ||
| Loss from discontinued operations | ||||||||
| Basic | $ | $ | ||||||
| Diluted | $ | $ | ||||||
| Earnings (loss) per share | ||||||||
| Basic | $ | ( | ) | $ | ( | ) | ||
| Diluted | $ | ( | ) | $ | ( | ) | ||
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Generation Hemp, Inc.
Statements of Changes in Stockholders’ Equity (Deficit)
| Series
B Redeemable Preferred Stock | Series A Preferred Stock | Common Stock | Additional Paid-In | Accumulated | Noncontrolling | Total Equity | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Interest | (Deficit) | |||||||||||||||||||||||||||||||
| Balance at January 1, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||
| Issuance of common stock units | ||||||||||||||||||||||||||||||||||||||||
| Issuance of Series B preferred units | ||||||||||||||||||||||||||||||||||||||||
| Issuance of warrants with subordinated note | - | - | - | |||||||||||||||||||||||||||||||||||||
| Issuance of warrants with secured note | - | - | - | |||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||
| Acquisition of Certain Assets of Halcyon Thruput, LLC | ||||||||||||||||||||||||||||||||||||||||
| Issuances of common stock units | ||||||||||||||||||||||||||||||||||||||||
| Warrant exercises | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Issuance of common shares for Convertible Promissory Note | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares for Senior Secured Promissory Note | ||||||||||||||||||||||||||||||||||||||||
| Common shares issued to vendor for services | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares for extension of secured note | ||||||||||||||||||||||||||||||||||||||||
| Change in common stock par value due to change in corporate domicile | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||
| Conversion of Series A preferred stock | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Series B preferred stock redemptions | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Series B preferred stock dividend | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | - | $ | - | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-6
Generation Hemp, Inc.
Consolidated Statements of Cash Flows
| For the year ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Cash Flows From Operating Activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Loss from discontinued operations | ( | ) | ( | ) | ||||
| Net loss from continuing operations | ( | ) | ( | ) | ||||
| Adjustments to reconcile net loss from continuing operations to net cash from operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of debt discount | ||||||||
| Stock-based compensation | ||||||||
| Common shares issued to vendor for services | ||||||||
| Other income - PPP Loan forgiveness | ( | ) | ||||||
| Loss on disposal of property and equipment | ||||||||
| Change in fair value of marketable securities | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Inventories | ( | ) | ||||||
| Prepaid expenses | ( | ) | ||||||
| Accounts payable and accrued liabilities | ||||||||
| Net cash from operating activities – continuing operations | ( | ) | ( | ) | ||||
| Net cash from operating activities – discontinued operations | ||||||||
| Net cash from operating activities | ( | ) | ( | ) | ||||
| Cash Flows From Investing Activities | ||||||||
| Capital expenditures | ( | ) | ||||||
| Acquisition of certain assets of Halcyon Thruput, LLC, net of acquired cash of $224,530 | ( | ) | ||||||
| Proceeds from sale of investment in common stock | ||||||||
| Net cash from investing activities – continuing operations | ( | ) | ||||||
| Net cash from investing activities – discontinued operations | ||||||||
| Net cash from investing activities | ( | ) | ||||||
| Cash Flows From Financing Activities | ||||||||
| Proceeds for common stock issuable | ||||||||
| Issuance of common stock units | ||||||||
| Proceeds from Series B redeemable preferred stock | ||||||||
| Redemptions of Series B preferred stock | ( | ) | ||||||
| Series B preferred stock dividends paid | ( | ) | ||||||
| Proceeds from warrant exercises | ||||||||
| Repayment of Halcyon bank note | ( | ) | ||||||
| Proceeds from SBA PPP Loan | ||||||||
| Proceeds from secured note | ||||||||
| Proceeds from subordinated notes | ||||||||
| Repayment of subordinated notes | ( | ) | ||||||
| Payment of mortgage payable | ( | ) | ( | ) | ||||
| Net cash from financing activities – continuing operations | ||||||||
| Net cash from financing activities – discontinued operations | ||||||||
| Net cash from financing activities | ||||||||
| Net change in cash | ( | ) | ||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-7
Generation Hemp, Inc.
Notes to Consolidated Financial Statements
1. Description of the Business
Generation Hemp, Inc.
(the “Company”), formerly known as Home Treasure Finders, Inc. (“HTF”), was incorporated on August 21, 2021 in
the State of Delaware. The Company was originally incorporated on July 28, 2008 in the State of Colorado. On November 27, 2019, HTF purchased
approximately
On January 11, 2021, we completed the acquisition
of certain assets of Halcyon Thruput, LLC (“Halcyon”). With this acquisition, we commenced providing post-harvest and midstream
services to growers by drying, processing, cleaning and stripping harvested hemp directly from the field and wetbaled at our
We also generate revenue from rental of our “Cannabis Zoned” (Hemp) warehouse property located in Denver, Colorado currently leased to an unaffiliated hemp seed company.
As of December 31, 2021,
Our management team has been and continues to actively review acquisition candidates involved in the hemp industry that operate within a number of vertical businesses, predominantly within the midstream sector that are attractive to us and are within the hemp supply chain.
Going Concern and Management’s Plans – The Company is dependent upon obtaining additional funding to continue ongoing operations and to pursue its strategy and execute its acquisition plans.
In 2021, the Company used $
The Company will continue to pursue additional capital raising opportunities in order to fund future acquisitions and meet its obligations as they become due. We may not be successful in obtaining additional financing needed. In the event financing cannot be obtained, the Company may not be able to satisfy these plans and obligations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Impact of COVID-19 Pandemic on Our Business – Our business, results of operations and financial condition were adversely affected by the COVID-19 pandemic in 2020. The COVID-19 pandemic and measures taken to contain it subjected our business, results of operations, financial condition, stock price and liquidity to a number of material risks and uncertainties, all of which may continue or may worsen.
2. Summary of Significant Accounting Policies
Basis of Presentation – The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and U.S. Securities and Exchange Commission regulations. The consolidated financial statements comprise the financial statements of the Company, its wholly-owned subsidiaries, and subsidiaries that it controls due to ownership of a majority voting interest. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Company obtains control, and continue to be consolidated until the date when such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the Company. All significant intercompany balances and transactions are eliminated upon consolidation.
F-8
Business Combinations – The Company accounts for business combinations under the acquisition method of accounting. Under this method, acquired assets, including separately identifiable intangible assets, and any assumed liabilities are recorded at their acquisition date estimated fair value. Determining the fair value of assets acquired and liabilities assumed involves the use of significant estimates and assumptions. The excess of purchase price over the fair value amounts assigned to the assets acquired and liabilities assumed represents the goodwill amount resulting from the acquisition.
Use of Estimates – The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Significant items subject to such estimates and assumptions include the (i) impairment of long-lived assets and goodwill, (ii) valuation allowances for deferred income tax assets and (iii) estimates of accrued liabilities. Actual results could differ from those estimates.
Revenue Recognition – Post-harvest and midstream services revenue is typically determined based on volumes processed at agreed-upon contractual prices and is recognized when performance obligations under the terms of a contract with our customers are satisfied. This occurs when control of the product is transferred to our customers upon completion of our processing.
Rental revenue is recognized based on the contractual cash rental payments for the period.
Cash – The Company maintains its deposits of cash in financial institutions, which may at times exceed amounts covered by insurance provided by the U.S. Federal Deposit Insurance Corporation (“FDIC”). The Company has not experienced any losses related to amounts in excess of FDIC limits.
Inventories – Inventories are stated at the lower of cost or net realizable value. Cost, which includes the cost of raw materials, labor and overhead, is determined using the first-in, first-out method. Net realizable value is the estimated selling price in the ordinary business, less reasonably predictable cost of completion, disposal and transportation.
Property and Equipment – property and equipment is stated at cost and depreciated using the straight-line method over the estimated useful lives of assets. Upon disposition, the cost and accumulated depreciation are removed and any gain or loss on the disposal is reflected in the statements of operations. The cost of maintenance and repairs is charged to income as incurred; significant renewals and improvements are capitalized.
Leases – The Company’s lease arrangements are operating leases which are capitalized on the balance sheet as right-of-use (“ROU”) assets and obligations. Right of use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. These are recognized at the lease commencement date based on the present value of payments over the lease term. If leases do not provide for an implicit rate, we use our incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term as the lease payments. Lease expense is recognized on a straight-line basis over the lease term.
Intangible Assets – Definite-lived
intangible assets are amortized and are tested for impairment when an event occurs or circumstances change that indicate it is more likely
than not that an impairment exists. Intangible assets consist of customer relationships and non-compete agreements acquired in the
acquisition of certain assets of Halcyon. These intangibles have a gross carrying amount of $
Impairment of Long-Lived Assets – We review long-lived assets for potential impairment when events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. In this assessment, future pre-tax cash flows (undiscounted) resulting from the use of the asset and its eventual disposal are estimated. If the undiscounted future cash flows are less than the carrying amount of the asset, an impairment loss is recognized for the difference between its carrying value and estimated fair value.
Common Stock Units Issuable – From time to time, the Company accepts payment from investors for common stock unit subscriptions pursuant to approved offerings of securities. Amounts received before completion and closing of the offerings are reported as liabilities.
F-9
Noncontrolling Interest – Noncontrolling
interests represent the portion of net assets in consolidated entities that are not owned by the Company. As of December 31, 2021 and
2020, minority investors owned approximately
Stock-based Compensation – We account for employee stock-based compensation using the fair value method. Compensation cost for equity incentive awards is based on the fair value of the equity instrument generally on the date of grant and is recognized over the requisite service period. Forfeitures are recognized as they occur.
Income Taxes – Income taxes are accounted for using a balance sheet approach. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. In assessing the realizability of deferred tax assets, management considers whether it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax asset (including the impact of available carryback and carryforward periods), projected future taxable income, and tax-planning strategies in making this assessment. A valuation allowance for deferred tax assets is recorded when it is more likely than not that the benefit from the deferred tax asset will not be realized.
The Company recognizes the effect of income tax
positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest
amount that is greater than
The Company is subject to the Texas margin tax; however, tax expense was zero for the years ended December 31, 2021 and 2020.
Discontinued Operations – In connection with the Transaction, management determined to fully divest of EHR’s oil and gas activities. As such, these activities are presented as discontinued operations for each of the periods presented.
The Company follows the successful efforts method of accounting for its oil and gas properties. Costs to acquire mineral interests in oil and gas properties and to drill and equip new development wells and related asset retirement costs are capitalized. In 2019, the Company’s oil and gas properties became fully impaired and the carrying amount of the properties was expensed to the market decline and the Company’s determination to exit the oil and gas business. The oil & gas properties have limited production and operations for which the Company recognizes its share as a non-operating working interest owner. Oil & gas revenue is recognized for discontinued operations based on delivered quantities in the amount of the consideration to which the Company is entitled.
The Company records a liability for the plugging, abandonment and remediation of its properties at the end of their productive lives. The Company computes the liability for asset retirement obligations by calculating the present value of estimated future cash flows related to each property. This requires the Company to use significant assumptions, including current estimates of plugging and abandonment costs, annual inflation of these costs, the productive lives of wells and its risk-adjusted interest rate. Changes in any of these assumptions can result in significant revisions to the estimated asset retirement obligations.
Asset retirement obligations are recorded as a liability at their estimated present value at the asset’s inception, with an offsetting increase to producing properties in the accompanying balance sheet which is amortized to expense on a unit-of-production basis. Periodic accretion of the discount on asset retirement obligations is recorded as expense.
F-10
Fair Value Measurements – Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three levels related to fair value measurements are as follows:
| Level 1 — | Observable inputs such as quoted prices in active markets for identical assets or liabilities. |
| Level 2 — | Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active or other inputs that are observable or can be corroborated by observable market data. |
| Level 3 — | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. |
The estimated fair values of cash, accounts receivable, accounts payable and indebtedness approximate their carrying amounts due to the relatively short maturity of these instruments.
Earnings (loss) per Share – Basic earnings (loss) per share amounts are calculated by dividing income available to common shareholders, after deducting preferred stock dividends, by the weighted average number of shares of common stock outstanding. Diluted earnings per share amounts are calculated by dividing net income by the weighted average number of shares of common stock and common stock equivalents outstanding. Common stock equivalents represent shares issuable upon the assumed conversion of preferred stock, outstanding convertible notes and the assumed exercise of common stock options and warrants outstanding.
Major Customer and Concentration of Credit Risk – We estimate an allowance for doubtful accounts based on an analysis of specific customers, taking into consideration the age of past due accounts and an assessment of the customer’s ability to pay. An allowance for doubtful accounts was not needed as of December 31, 2021 or 2020.
During 2021, one customer accounted for approximately
Our rental revenue is derived from a single lessee on a commercial warehouse owned by the Company. There were no amounts due from this customer at December 31, 2021 or 2020.
Reclassifications – Financial statements presented for prior periods include reclassifications that were made to conform to the current-year presentation.
Recent Accounting Pronouncements – In December 2019, the FASB issued ASU 2019-12, Income Taxes, which enhances and simplifies various aspects of the income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law. We adopted this standard in the first quarter of 2021. Adoption of this ASU did not have a significant impact on our consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40). The new standard reduces the number of accounting models for convertible debt instruments and convertible preferred stock, and amends the guidance for the derivatives scope exception for contracts in an entity’s own equity. The standard also amends and makes targeted improvements to the related earnings per share guidance. The ASU is effective for fiscal years beginning after December 15, 2021. The standard allows for either modified or full retrospective transition methods. The Company will adopt this standard on January 1, 2022. We do not expect that the adoption of this ASU will have a significant impact on our consolidated financial statements.
F-11
3. Acquisition
On
January 11, 2021, the Company completed the acquisition of certain assets of Halcyon pursuant to the Asset Purchase Agreement dated
March 7, 2020, as amended on January 11, 2021 and October 8, 2021. The purchase consideration totaled approximately $
The acquisition was accounted for as a business combination where the Company is the acquirer and the acquisition method of accounting was applied in accordance with GAAP. Accordingly, the aggregate value of the consideration we paid to complete the acquisition was allocated to the assets acquired based upon their estimated fair values on the acquisition date.
The following table summarizes the purchase price allocation for the assets acquired:
| Accounts receivable | $ | |||
| Other working capital | ||||
| Property and equipment, other | ||||
| Intangibles: | ||||
| Non-competition agreements | ||||
| Customer relationships | ||||
| Other assets - Purchase option on real estate | ||||
| Goodwill | ||||
| Assets acquired | $ |
Intangible assets consist of customer relationships and non-compete agreements, each having definite-lives. These intangible assets are being amortized over the estimated useful life on an accelerated basis reflecting the anticipated future cash flows of the Company post acquisition of Halcyon. The weighted-average useful life assigned to the intangible assets is years.
The results of operations for the acquired Halcyon assets have been included in the Company’s consolidated financial statements since the January 11, 2021 acquisition date.
Concurrent with the closing of the asset acquisition, the Company entered into term employment agreements with two executives to serve as vice presidents of the Company for a term of at least two years and the issuance of 250,000 shares of restricted common stock of the Company as a signing bonus. Such shares are subject to restrictions on the trading or transfer of such common stock.
Further, the term employment
agreements each provide for the payment by the executives of liquidated damages if
On March 3, 2021, the Company
repaid the outstanding principal and interest balance on the $
Supplemental Pro Forma Information – The supplemental pro forma financial information presented below is for illustrative purposes only and is not necessarily indicative of the financial position or results of operations that would have been realized if the acquisition of certain assets of Halcyon had been completed on the date indicated, nor is it indicative of future operating results or financial position. The pro forma adjustments are based upon currently available information and certain assumptions that management believes are reasonable under the circumstances.
The supplemental pro forma financial information reflects pro forma adjustments to present the combined pro forma results of operations as if the acquisition had occurred on January 1, 2020, to give effect to certain events that management believes to be directly attributable to the acquisition. These pro forma adjustments primarily include:
| ● | an increase to depreciation and amortization expense that would have been recognized due to acquired tangible and intangible assets; and |
| ● | an adjustment to interest expense to reflect the reduced borrowings due to the repayment of Halcyon’s historical debt in conjunction with the acquisition; |
F-12
The supplemental pro forma financial information for the periods presented is as follows:
| For the year ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Revenue, continuing operations | $ | $ | ||||||
| Income (loss) from continuing operations | ( | ) | ( | ) | ||||
| Earnings (loss) per common share: | ||||||||
| Basic and diluted | $ | ( | ) | $ | ( | ) | ||
4. Property and Equipment
Property and equipment consisted of the following:
| Useful | December 31, | ||||||||||
| Life (yrs) | 2021 | 2020 | |||||||||
| Land | $ | $ | |||||||||
| Warehouse | |||||||||||
| Leasehold Improvements | - | ||||||||||
| Machinery and equipment | - | ||||||||||
| Vehicles | |||||||||||
| Computer equipment and software | |||||||||||
| Office furniture and equipment | |||||||||||
| Subtotal | |||||||||||
| Less accumulated depreciation and amortization | ( | ) | ( | ) | |||||||
| Total property and equipment, net | $ | $ | |||||||||
5. Notes Payable – Related Parties
Notes payable – related parties consisted of the following:
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Senior Secured Promissory Note | $ | $ | ||||||
| Convertible Promissory Note | ||||||||
| Subordinated Promissory Note to CEO | ||||||||
| Convertible Promissory Note to CEO | - | |||||||
| Secured Promissory Note to Coventry Asset Management, LTD. | ||||||||
| Subordinated Promissory Note to Investor | ||||||||
| Total | ||||||||
| Less debt discounts | - | ( | ) | |||||
| Total notes payable – related parties | $ | $ | ||||||
Senior Secured Promissory Note – On
March 31, 2017,
F-13
Convertible Promissory Note – In October
2019, HTF issued a convertible promissory note to EHR in exchange for EHR’s payment of HTF’s accounts payable and Transaction
expenses. The convertible promissory note bore interest at
Subordinated Promissory Note to CEO – Our
CEO made advances to the Company during 2020 under a subordinated promissory initially note due
Convertible Promissory Note to CEO –
In 2021, our CEO made advances totaling $
Secured Promissory Note
and Warrants to Coventry Asset Management, LTD. – On December 30, 2020, the Company received proceeds from issuance of a secured
promissory note in principal amount of $
The holder of the secured
promissory note received a warrant to purchase
Subordinated
Promissory Note and Warrants to Investor – On December 30, 2020, the Company issued a subordinated promissory note in
principal amount of $
F-14
The holder of the subordinated note received a
warrant to purchase
6. Other Indebtedness
Other indebtedness consisted of the following:
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Mortgage Payable | $ | $ | ||||||
| Paycheck Protection Program Loan | ||||||||
| Total | ||||||||
| Less current portion | ( | ) | ( | ) | ||||
| Total other indebtedness - long-term | $ | $ | ||||||
Mortgage Payable and
Operating Lease – The Company is obligated under a mortgage payable dated September 15, 2014 secured by its warehouse property
located in Denver, Colorado.
The Company leases the
Denver warehouse property to a tenant under an operating lease which was renewed with a new tenant and extended to August 1, 2023 for
a monthly rent of $
Paycheck Protection Program Loan – Congress created the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) to provide forgivable loans to eligible small businesses facing economic hardship to retain U.S. employees on their payroll during the Coronavirus Disease 2019 (“COVID-19”) pandemic.
PPP loan recipients may be eligible to have their
loans forgiven if the funds were used for eligible expenses over the eight-week coverage period commencing when the loan was originally
disbursed. The amount of forgiveness may be reduced if the percentage of eligible expenses attributed to nonpayroll expenses exceeds
On April 29, 2020, we received disbursement of an
approved PPP loan in the amount of $
F-15
7. Commitments and Contingencies
Leases – The Company assumed Halcyon’s
lease of office space in Fort Worth, Texas for managerial offices. This lease requires monthly payments of $
The Company leases its operating facility in Kentucky
from Oz Capital, LLC, a related party, under a lease expiring May 31, 2024. The lease provides for monthly payments of $
Pending Insurance Claim
– In 2019, drying equipment that Halcyon purchased from a third party was being placed into service when a fire loss subsequently
occurred and destroyed the equipment causing significant business interruption. The cost of this drying equipment totaled $
Litigation – From time to time, we are subject to various litigation and other claims in the normal course of business. Below is a discussion of specific matters. We cannot estimate the ultimate outcome of these matters.
Generation Hemp, Inc. v. Colorado Mills Equipment, LLC, Dallas, Texas Small Claims Court Case No. JS 22.00018A
The Defendant sold to the Company a faulty piece of equipment
for $
Halcyon Thruput, LLC, Plaintiff v. United National Insurance Company, Defendant, United States District Court for the Northern District of Texas, Dallas Division, Case No. 3:21-CV-3136-K.
Halcyon Thruput, LLC (Halcyon) obtained an all-risks commercial
insurance policy, including an Equipment Breakdown Endorsement (Policy) from United National Insurance Company (UNIC) to provide substantial
coverages for Halcyon Thruput LLC’s (Halcyon) $
While UNIC paid a number of Halcyon’s claims, Halcyon’s
claim for the cost of the replacement Dryer of $
F-16
Buyer, a wholly owned subsidiary of the Company, pursuant to an Asset Purchase Agreement as twice amended, then acquired all the assets of Halcyon, except for the right to the proceeds of UNIC’s insurance policy since the Policy prohibited assignment. Halcyon and Buyer agreed that Buyer’s principal, Gary C. Evans, had the right to control the litigation, engage counsel for Halcyon and make all decisions relating to any proceeds received in the litigation by settlement or otherwise.
Halcyon’s suit against UNIC,
JDONE, LLC v. Grand Traverse Holdings, LLC and John Gallegos, Denver District Court Case No. 2019CV33723
JDONE, LLC (“JDONE”)
is a wholly owned subsidiary of the Company and landlord of a commercial warehouse building that was previously leased to Grand Traverse
Holdings, LLC on December 31, 2018 for a term of
KBSIII Tower at Lake Carolyn, LLC and Prime US-Tower at Lake Carolyn, LLC (collectively – “KBSIII” v. Energy Hunter Resources, Inc.)
Plaintiff/Counterdefendant KBSIII
was seeking lost rent on office space for periods after EHR vacated office premises located in Las Colinas, Texas. EHR filed a counter
suit alleging specific damages due to uninhabitable premises of the office space due to the intolerable conduct of other tenants located
on the same floor. On December 23, 2020, the trial court entered a summary judgment against EHR for $
8. Income Taxes
No amounts were recorded for income tax expense during the years ended December 31, 2021 or 2020. A reconciliation of the expected statutory federal tax and the total income tax expense from continuing operations was as follows:
| Year Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Federal statutory rate | $ | ( | ) | $ | ( | ) | ||
| State income taxes, net | ( | ) | ( | ) | ||||
| Change in valuation allowance | ||||||||
| Change in state tax rates | ( | ) | ||||||
| True-up of prior year deferred items | ( | ) | ||||||
| Other, net | ( | ) | ||||||
| Total income tax expense | $ | $ | ||||||
F-17
The tax effect of temporary differences that gave rise to significant components of deferred tax assets and liabilities consisted of the following:
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Assets: | ||||||||
| Net operating loss carryforwards | $ | $ | ||||||
| Stock-based compensation | ||||||||
| Property and equipment | ||||||||
| Intangible assets | ||||||||
| Other | ||||||||
| Subtotal | ||||||||
| Valuation allowance | ( | ) | ( | ) | ||||
| Net deferred tax asset | $ | $ | ||||||
The Company has federal net operating loss (“NOL”)
carryforwards of approximately $
The Company estimates that a majority of its NOL carryforwards are subject to annual limitations under Internal Revenue Code Section 382 as a result of ownership changes at various times including in the Transaction. These NOL carryforwards may never be utilized by the Company.
9. Equity
Change of Corporate
Domicile – On August 21, 2021, the Company changed its domicile from the State of Colorado to the State of Delaware. The change
of domicile had no effect on the number of outstanding securities of the Company. The Company is authorized for
Series A Preferred Stock – Our
Series A Preferred Stock was originally issued in connection with the Transaction completed in December 2019. On September 8, 2021, holders
of the Company’s Series A Preferred Stock elected to convert such shares into shares of the Company’s common stock. As a result,
Series B Preferred Stock
Units – On December 30, 2020,
The sale of the preferred
stock units for $
F-18
Each share of Series B
Preferred Stock is initially convertible into
Any or all of the Series
B Preferred Stock may be converted, at their holder’s option, into
At any time after the occurrence
of a “Qualifying Event,” the Company, upon 5-day written notice, shall have the right to cause each share of Series B Preferred
Stock (and all accrued in-kind dividends with respect thereto) to be converted into common stock.
The Series B Preferred
Stock may be redeemed by the Company for its stated value, plus accrued and unpaid dividends, at any time. Initially, redemption payments
of
Common Stock –
At December 31, 2021,
| ● | February 2020 Issuance of Common Stock Units – In February 2020, the Company issued 250,000 common units for $100,000. Each unit consisted of one share of common stock and a warrant for purchase of one common share for $0.40 per share. The warrant expired March 1, 2022. Proceeds of this issuance were used for general corporate purposes. |
The common stock issued in the exchange was valued using the trading price of the common stock on February 20, 2020. The warrants were valued at $45,848 using a binomial lattice valuation model using inputs as of the exchange date. Our expected volatility assumption was based on the historical volatility of the Company’s common stock (252%). The expected life assumption was based on the expiration date of the warrant (two years). The risk-free interest rate for the expected term of the warrant was based on the U.S. Treasury yield curve in effect at the time of measurement (1.39%). The warrants are classified within equity in the consolidated balance sheets. Under GAAP, the anti-dilution provisions will be accounted for if and when these provisions are triggered.
F-19
| ● | Acquisition of Certain Assets of Halcyon – In January 2021, the Company issued 6,250,000 shares of common stock valued at $2.5 million ($0.40 per share; restricted from trading for a period of up to one year) in the acquisition. Refer to Note 3. |
| ● | 2021 First Quarter Issuances of Common Stock Units – In the first quarter of 2021, the Company issued 800,000 common stock units for total proceeds of $400,000. Each common stock unit consists of one share of common stock and a warrant for the purchase of two shares of common stock for $0.50 each. Each warrant is exercisable any time before its expiration on the second anniversary of its issuance. The Company allocated the total proceeds based on the relative fair values of the common stock and warrants. The fair value of the warrants was determined using an options valuation model with key assumptions including a risk-free interest rate of 0.11% and historical volatility of 272%. A total of $263,293 was allocated to the warrants and reported in additional paid-in capital. |
| ● | Warrant Exercises – In the first quarter of 2021, the Company received $2,967,000 for the exercise of 8,428,976 outstanding warrants. In the fourth quarter of 2021, the Company received $375,000 for the exercise of 1,065,340 outstanding warrants. |
| ● | Issuances for Exchange or Conversion of Debt – The Company issued a total of 1,618,660 common shares for the exchange or conversion of outstanding debt. Refer to Note 5. |
| ● | Issuance to Vendor for Services – In the third quarter of 2021, the Company issued 125,000 common shares to a vendor for services performed. |
| ● | Issuance for Extension of Secured Note – The Company issued 20,000 common shares as consideration to extend the maturity of a senior note in the third quarter of 2021. Refer to Note 5. |
| ● | Issuance for Conversion of Series A Preferred Stock – As noted above, in the third quarter of 2021, the Company issued 75,947,376 common shares for the conversion of all outstanding shares of its Series A Preferred Stock. |
2021 Fourth Quarter Issuances of Common Stock Units – In the fourth quarter of 2021, the Company issued 958,333 common stock units to accredited investors for total proceeds of $575,000. Each common stock unit consists of one share of common stock and a warrant for the purchase of one share of common stock for $0.60 each. Each warrant is exercisable any time before its expiration on the second anniversary of its issuance. The Company allocated the total proceeds based on the relative fair values of the common stock and warrants. The fair value of the warrants was determined using an options valuation model with key assumptions including risk-free interest rates ranging from 0.48% to 0.70% and historical volatility ranging from 237% to 258%. A total of $276,947 was allocated to the warrants and reported in additional paid-in capital.
| ||
F-20
Common Stock Warrants Outstanding – Following is a summary of warrants outstanding as of December 31, 2021:
| # of Warrants | Exercise Price (each) | Expiration Date | Method of Exercise | |||||||||||
| Issued in February 2020 with common stock units (2) | $ | |||||||||||||
| Issued in December 2020 with Series B preferred units (1) | $ | |||||||||||||
| Issued in December 2020 with subordinated note to investor (1) | $ | |||||||||||||
| Issued in Q1 2021 with common stock units (1) | $ | |||||||||||||
| Issued in Q4 2021 with common stock units (1) | $ | |||||||||||||
| Total warrants outstanding at December 31, 2021 | ||||||||||||||
| (1) |
| (2) |
Following is a summary of outstanding stock warrants activity for the periods presented:
| Weighted | ||||||||
| Average | ||||||||
| # of Warrants | Exercise Price | |||||||
| Warrants as of January 1, 2020 | $ | |||||||
| Issued | $ | |||||||
| Warrants as of December 31, 2020 | $ | |||||||
| Issued | $ | |||||||
| Cancelled | ( | ) | $ | |||||
| Exercised | ( | ) | $ | |||||
| Warrants as of December 31, 2021 | $ | |||||||
F-21
10. Stock-Based Compensation
We award restricted stock or stock options as incentive compensation to employees. Generally, these awards include vesting periods of up to three years from the date of grant.
The 2021 Omnibus Incentive
Plan (“2021 Plan”) was adopted by our Board on July 1, 2021. The 2021 Plan provides for the initial reservation of
In the first quarter of
2021, the Company issued
In the fourth quarter of
2021, the Company awarded options for
Compensation expense for
stock option grants was recognized based on the fair value at the date of grant using the Black-Scholes option pricing model. Key assumptions
included a risk-free interest rate ranging from
The following table summarizes options outstanding, as well as activity for the periods presented:
| Number of Options | Weighted Average Grant Date Fair Value | Weighted Average Exercise Price | Aggregate Intrinsic Value | |||||||||||||
| Outstanding at January 1, 2021 | $ | $ | ||||||||||||||
| Granted | $ | $ | ||||||||||||||
| Outstanding at December 31, 2021 | $ | $ | ||||||||||||||
The remaining weighted average contractual life
of exercisable options at December 31, 2021 was
F-22
11. Discontinued Operations
The following is a summary of the carrying amounts of major classes of assets and liabilities of the discontinued operations to assets and liabilities held for sale:
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Assets - | ||||||||
| Oil and natural gas properties held for sale, at cost | $ | $ | ||||||
| Accumulated DD&A | ( | ) | ( | ) | ||||
| Total assets of discontinued operations held for sale | $ | $ | ||||||
| Liabilities | ||||||||
| Accrued liabilities | $ | $ | ||||||
| Asset retirement obligations | ||||||||
| Revenue payable | ||||||||
| Current liabilities of discontinued operations held for sale | ||||||||
| Asset retirement obligations - | ||||||||
| Long-term liabilities of discontinued operations held for sale | ||||||||
| Total liabilities of discontinued operations held for sale | $ | $ | ||||||
The following is a summary of the major classes of line items constituting loss on discontinued operations shown in the consolidated statements of operations:
| For the year ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Revenue - | ||||||||
| Oil and gas sales | $ | $ | ||||||
| Costs and Expenses | ||||||||
| Lease operating expense | ||||||||
| Depreciation, depletion & amortization | ||||||||
| Accretion | ||||||||
| Gain on disposal of oil & gas property interests | ( | ) | ||||||
| Total costs and expenses | ||||||||
| Interest expense | ||||||||
| Loss from discontinued operations | $ | ( | ) | $ | ( | ) | ||
F-23
12. Supplemental Cash Flow Information
| For the year ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for taxes | ||||||||
| Noncash investing and financing activities: | ||||||||
| Acquisition of certain assets of Halcyon Thruput, LLC | ||||||||
| - issuance of common shares | ||||||||
| - issuance of subordinated note | ||||||||
| - assumption of Halcyon bank note | ||||||||
| Series B preferred stock dividend payable | ||||||||
| Issuance of common stock units previously subscribed | ||||||||
| Issuances of common shares for exchange or conversion of debt | ||||||||
| Conversion of Series A preferred stock into common stock | ||||||||
13. Earnings (Loss) per Share
The following table is a calculation of the earnings (loss) per basic and diluted share:
| For the year ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Amounts attributable to Generation Hemp: | ||||||||
| Numerator | ||||||||
| Loss from continuing operations attributable to common stockholders | $ | ( | ) | $ | ( | ) | ||
| Loss from discontinued operations | ( | ) | ( | ) | ||||
| Less: preferred stock dividends | ( | ) | ||||||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | ||
| Denominator | ||||||||
| Weighted average shares used to compute basic EPS | ||||||||
| Dilutive effect of convertible note | ||||||||
| Dilutive effect of preferred stock | ||||||||
| Dilutive effect of common stock options | ||||||||
| Dilutive effect of common stock warrants | ||||||||
| Weighted average shares used to compute diluted EPS | ||||||||
| Earnings (loss) per share: | ||||||||
| Loss from continuing operations | ||||||||
| Basic | $ | ( | ) | $ | ( | ) | ||
| Diluted | $ | ( | ) | $ | ( | ) | ||
| (Loss) income from discontinued operations | ||||||||
| Basic | $ | $ | ||||||
| Diluted | $ | $ | ||||||
| Earnings (loss) per share | ||||||||
| Basic | $ | ( | ) | $ | ( | ) | ||
| Diluted | $ | ( | ) | $ | ( | ) | ||
F-24
The computation of diluted earnings per common share excludes the assumed conversion of the Series B Preferred Stock and outstanding convertible notes and exercise of common stock options and warrants in periods when we report a loss. The dilutive effect of the assumed exercise of outstanding options and warrants was calculated using the treasury stock method.
14. Subsequent Events
Advances under Promissory
Note – In the first quarter of 2022, Investment Hunter, LLC, a Texas LLC controlled by our CEO, made advances totaling $
Joint-Venture With Crypt Solutions, Inc. – On January 16, 2022, the Company and Crypt Solutions, Inc., DBA Cryptech Solutions (“Crypt”) a leading player in the cryptocurrency space, executed a Memorandum of Understanding and Letter of Intent to build “Green Energy” plants and Bitcoin mining complexes that will utilize hemp feedstock as a fuel source to power Bitcoin mining equipment and offset the draw on power from the local utility.
On February 23, 2022, the Company and Crypt executed the first Letter of Intent that specifically applies to their joint Green Energy project, to be located adjacent to the Company’s current hemp processing facility in Hopkinsville, Kentucky. This first project is being designed for two (2) megawatts of Bitcoin mining, which will include approximately 576 mining machines. The Bitcoin mining installation is expected to be running prior to the end of the second quarter 2022. Initial electricity needs for the project will come from the grid or the existing electricity provider until such time as biomass or other renewable methods are installed.
Amendment of Real Estate
Purchase Option - On March 25, 2022, the Company’s option that expired January 11, 2022 to purchase the operating facility in Kentucky
it leases from Oz Capital, LLC for $
* * * * *
F-25
Supplemental Oil and Gas Information
(Unaudited)
Oil and Gas Reserve Information. Proved oil and gas reserves are those quantities of crude oil, natural gas, condensate, and NGLs, which by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations. Estimated proved developed oil and gas reserves can be expected to be recovered through existing wells with existing equipment and operating methods. The Company reports all estimated proved reserves held under production-sharing arrangements utilizing the “economic interest” method.
Proved oil and gas reserves have been estimated by independent, third-party petroleum engineers, Mire & Associates, Inc. These reserve estimates have been prepared in compliance with the Securities and Exchange Commission rules and accounting standards based on the 12-month unweighted first-day-of-the-month average price for the year.
There are numerous uncertainties inherent in estimating quantities of proved reserves and projecting future rates of production and timing of development expenditures. The reserve data in the following tables only represent estimates and should not be construed as being exact.
The following reserves schedule sets forth the changes in estimated quantities of proved crude oil reserves:
| Crude Oil (Bbls) | Natural Gas (mcf) | Total (Boe) | ||||||||||
| Total proved reserves: | ||||||||||||
| Balance at December 31, 2019 | 178,440 | 604,590 | 279,205 | |||||||||
| Revisions of previous estimates | (12,900 | ) | (8,520 | ) | (14,320 | ) | ||||||
| Divestiture of Reserves | (140,541 | ) | (576,051 | ) | (236,549 | ) | ||||||
| Production | (5,439 | ) | (6,169 | ) | (6,468 | ) | ||||||
| Balance at December 31, 2020 | 19,560 | 13,850 | 21,868 | |||||||||
| Revisions of previous estimates | (10,895 | ) | (13,247 | ) | (13,102 | ) | ||||||
| Production | (1,675 | ) | (603 | ) | (1,776 | ) | ||||||
| Balance at December 31, 2021 | 6,990 | - | 6,990 | |||||||||
| Proved developed reserves as of: | ||||||||||||
| December 31, 2019 | 30,420 | 132,800 | 52,553 | |||||||||
| December 31, 2020 | 2,660 | - | 2,660 | |||||||||
| December 31, 2021 | 6,990 | - | 6,990 | |||||||||
| Proved undeveloped reserves as of: | ||||||||||||
| December 31, 2019 | 148,020 | 471,790 | 226,652 | |||||||||
| December 31, 2020 | 16,900 | 13,850 | 19,208 | |||||||||
| December 31, 2021 | - | - | - | |||||||||
F-26
In May 2020, Lubbock Energy Partners LLC completed the foreclosure of the Company’s remaining ownership interest in the Gap Band property due to the Company’s default on its $1.1 million non-recourse promissory note and accrued interest thereon. The decrease in proved quantities for 2020 was due principally to this disposal and revisions of previous reserve estimates caused by a decrease in average NYMEX-WTI oil and Henry Hub natural gas prices.
The decrease in proved quantities for 2021 was due principally to revisions of previous reserve estimates after undeveloped reserves were determined to be non-economic.
Costs Incurred in Oil and Natural Gas Property Acquisitions and Development Activities. Costs incurred by the Company in oil and natural gas acquisitions and development are presented below:
| For the year ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Acquisitions: | ||||||||
| Proved | $ | - | $ | - | ||||
| Unproved | - | - | ||||||
| Exploration | - | - | ||||||
| Development | - | - | ||||||
| Costs incurred | $ | - | $ | - | ||||
Capitalized Costs. The following table sets forth the capitalized costs and associated accumulated depreciation, depletion, and amortization relating to the Company’s oil and gas acquisition, exploration, and development activities:
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Proved properties | $ | 621,198 | $ | 621,198 | ||||
| Unproved properties | 1,253,651 | 1,253,651 | ||||||
| 1,874,849 | 1,874,849 | |||||||
| Accumulated DD&A and impairment | (1,874,849 | ) | (1,874,849 | ) | ||||
| Total | $ | - | $ | - | ||||
Future Net Cash Flows. Future cash inflows as of December 31, 2021 and 2020 were calculated using an unweighted arithmetic average of oil and gas prices in effect on the first day of each month in the respective year, except where prices are defined by contractual arrangements. Operating costs, production and ad valorem taxes and future development costs are based on current costs with no escalation. Future development costs include abandonment and dismantlement costs.
The following table sets forth unaudited information concerning future net cash flows for proved oil and gas reserves, net of income tax expense. Income tax expense has been computed using expected future tax rates and giving effect to tax deductions and credits available, under current laws, and which relate to oil and gas producing activities. This information does not purport to present the fair market value of the Company’s oil and gas assets, but does present a standardized disclosure concerning possible future net cash flows that would result under the assumptions used.
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Future cash inflows | $ | 454,030 | $ | 775,230 | ||||
| Future production costs | (278,870 | ) | (281,420 | ) | ||||
| Future development costs | (34,280 | ) | (284,450 | ) | ||||
| Future income tax expense | - | - | ||||||
| Future net cash flows | 140,880 | 209,360 | ||||||
| 10% annual discount for estimated timing of cash flows | (72,250 | ) | (145,600 | ) | ||||
| Discounted future net cash flows | $ | 68,630 | $ | 63,760 | ||||
F-27
The following table sets forth the principal sources of change in the discounted future net cash flows:
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Balance, beginning of period | $ | 63,760 | $ | 3,445,660 | ||||
| Sales, net of production costs | (17,880 | ) | 9,388 | |||||
| Net change in prices and production costs | 281,375 | (314,633 | ) | |||||
| Changes in future development costs | (226,800 | ) | (204,332 | ) | ||||
| Previously estimated development costs incurred during the period | - | - | ||||||
| Revision of quantities | (38,201 | ) | (176,729 | ) | ||||
| Accretion of discount | 6,376 | 344,566 | ||||||
| Sales of minerals in-place | - | (3,040,160 | ) | |||||
| Balance, end of period | $ | 68,630 | $ | 63,760 | ||||
* * * * *
F-28
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. The Company carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Exchange Act Rules. This evaluation was done as of the end of the fiscal year by and under the supervision of the Company’s principal executive officer (who is also the principal financial officer). Based upon that evaluation, the principal executive officer concluded that our disclosure controls and procedures were effective as of December 31, 2021. There have been no significant changes in our internal controls or in other factors that could significantly affect the internal controls subsequent to the date we completed the evaluation.
Management’s Report on Internal Control Over Financial Reporting. Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) of the 1934 Act. Management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2021 based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
As a result of this assessment, management identified a material weakness in internal control over financial reporting related to the accounting for business combination transactions. Management has concluded that this deficiency constitutes a material weakness. Notwithstanding the material weakness, the Company’s management has concluded that the consolidated financial statements, included in the 2021 Annual Report on Form 10-K, fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented in conformity with generally accepted accounting standards.
Management Plans to Remediate Material Weakness. The Company has begun the process of designing and implementing effective internal control measures to improve its internal controls over financial reporting and remediate the reported material weakness. The Company’s efforts include implementing additional reviews of business combination transactions and modifying the Company’s instructions to valuation specialists and reviews of their workproduct. We will consider the material weakness remediated after the applicable controls operate for a sufficient period of time, and management has concluded, through testing, that the controls are operating effectively.
Changes in Internal Control Over Financial Reporting. We regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities and migrating processes.
There were no changes in our internal control over financial reporting during the quarter ended December 31, 2021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Controls. Our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives as specified above. Management does not expect, however, that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.
Item 9B. Other Information
None.
Item 9C. Disclosures Regarding Foreign Jurisdiction that Prevent Inspections
None.
23
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The following persons are our executive officers and directors and hold the offices set forth opposite their names.
| Name | Age | Position | ||
| Gary C. Evans | 64 | Chairman of the Board and Chief Executive Officer | ||
| Melissa Pagen | 46 | Senior Vice President, Corporate Development of the Company | ||
| Jack Sibley | 37 | Vice President, Operations of the Company, and Co-CEO of GENH Halcyon | ||
| Watt Stephens | 37 | Vice President, Corporate Development of the Company and Secretary of GENH Halcyon | ||
| Joe McClaugherty | 70 | Lead Director | ||
| Gary D. Elliston | 68 | Director | ||
| John Harris | 73 | Director |
The following is a brief account of the business experience of each of our directors and executive officers:
Gary C. Evans, Chairman of the Board and Chief Executive Officer. Gary C. Evans is a serial entrepreneur. Mr. Evans previously led Magnum Hunter Resources Corporation for seven years, a NYSE listed public energy company specializing in unconventional resource plays predominately in the Appalachian Basin. Mr. Evans was also founder and CEO of Eureka Hunter Holdings, LLC, a mid-stream gas gathering company transporting and managing up to 1 BCF of daily natural gas volumes from wells producing in West Virginia and Ohio on approximately 200 miles of newly constructed pipeline during the similar seven-year period. Additionally, Mr. Evans previously founded and served as the Chairman and Chief Executive Officer of Magnum Hunter Resources Inc. (MHRI), a NYSE listed company, for twenty years before selling MHRI to Cimarex Energy for approximately $2.2 billion in June 2005. Later that year, Mr. Evans formed Wind Hunter Energy, LLC, a renewable energy company which was subsequently acquired in December 2006 by GreenHunter Energy, Inc., an emerging water resource company focusing on oil field water management and clean water technologies active in the Marcellus and Utica resource plays in Appalachia. As founder, Mr. Evans has served as Chairman and Chief Executive Officer of GreenHunter Energy, Inc. since December 2006 until May 2016 upon the sale of its assets to a private equity fund.
Throughout his career, Mr. Evans has raised various forms of capital on Wall Street that has exceeded $6 Billion. Mr. Evans serves as a Director of Novavax Inc., a NASDAQ listed clinical-stage vaccine biotechnology company (Covid-19 Vaccine) with a market capitalization of approximately $20 Billion, where he has previously served as Chairman, CEO and Lead Director. Mr. Evans was recognized by Ernst and Young as the Southwest Area 2004 Entrepreneur of the Year for the Energy Sector and was subsequently inducted into the World Hall of Fame for Ernst & Young Entrepreneurs. Mr. Evans was also recognized as the Energy Industry Leader of the year in 2013 and chosen by Finance Monthly in 2013 as one of the most respected CEO’s. Mr. Evans was chosen as the Best CEO in the “Large Company” category by Texas Top Producers in 2013. He additionally won the Deal Maker of the Year Award in 2013 by Finance Monthly. Mr. Evans serves on the Board of the Maguire Energy Institute at Southern Methodist University and speaks regularly at energy industry conferences and on national television networks around the world on the current affairs of the energy industry.
Melissa Pagen, Senior Vice-President, Corporate Development of the Company. Prior to joining Generation Hemp, Inc., Melissa Pagen built over twenty years of professional and executive experience in managerial and officer positions in several industries - both in the private and public sectors. With a demonstrated history in consumer goods, business development, investor relations, and industrial technologies, Melissa brings a unique combination of talents to the company. She developed and launched start-up companies in ecommerce, nutraceuticals, and the energy sector. In June 2019, Melissa was brought on by Gary C. Evans to help launch Generation Hemp, Inc., although her working tenure with Mr. Evans first began in 2013. In October 2019, she was brought on full-time as an officer of Generation Hemp, Inc.
24
From 2016 - 2019 in Los Angeles, Melissa helped develop, launch, and reorganize companies in ecommerce, nutraceuticals, and medical practices through her advising company Root LLC/Root Endeavor LLC. This included working with founders and teams on branding, marketing, product development, packaging, operations, staff reorganization, and optimizing efficiencies. In mid 2013 through 2015, Melissa began working under Gary C. Evans at Green Hunter Resources, Inc., a publicly traded company, where she started as Water Treatment Specialist/Account Executive, then moved into the position of Assistant Vice President, Investor Relations, and ultimately Vice President, Business Development, where she negotiated and secured multi-million-dollar contracts with large E&P companies for water treatment and handling, then oversaw those relationships. During her time in the energy sector, Melissa did several public speaking engagements for industry organizations, which helped earn her the honor of a WING Award (Women In Natural Gas) by Shale Media Group in 2014. Before beginning work with Mr. Evans, Melissa founded her own environmental remediation business in the Bakken Shale of North Dakota from 2012 - 2013. From 2010 - 2012, Melissa worked as Vice President, Marketing and Sales for Sionix Corporation, a publicly traded company in water treatment technology. Following the Tsunami in 2011, Melissa traveled to Japan to participate in discussions to address urgent water treatment issues and potential solutions in the wake of the Fukushima disaster. In 2001, Melissa began her career in the film industry, in development for Radar Pictures, Inc. (f/k/a Interscope Communications [Pictures]). She then worked with a female television Producer from 2004 - 2009. Working alongside creative executives and teams in the Film industry, she developed skills in writing, project management, and visual storytelling that would ultimately contribute to a number of future roles in helping companies develop branding, messaging, marketing, and investor relations. Melissa earned a Bachelor of Arts degree from University of California, Los Angeles where she graduated summa cum laude.
Jack Sibley, Vice President, Corporate Development of the Company, and Co-CEO of GENH Halcyon. Prior to joining Generation Hemp, Jack Sibley was a founding partner of OZ Capital, LLC, an Opportunity Zone Investment fund focused on operating businesses within Opportunity Zone designations. In his roll at OZ Capital, Jack oversaw the operations of its portfolio investments, including Halcyon Thruput, an industrial hemp processing company located in Hopkinsville, Kentucky. As an executive, Jack has worked alongside management teams to implement creative, innovative solutions to complex business issues, identify growth verticals and maximize stakeholder value. Prior to OZ Capital, Jack served as Vice President at Sovrano LLC, a Private Equity company focused in Food & Beverage. Jack also co-founded and served as President of Bamboo Juices, LLC in Atlanta, GA from 2014 - 2016. He received an MBA from The University of Georgia’s Terry College of Business in 2014 with concentrations in Finance and Marketing. Jack graduated with a BA in International Affairs from The University of Georgia in 2007.
Watt Stephens, Secretary of GENH Halcyon. Watt began his career as a credit analyst with Frost Bank in 2007, in this role he underwrote countless credit requests in various industries including commercial & industrial, energy and real estate. He then moved into a leadership position being tapped to run business development for a newly formed group focused on complex credit relationships. After almost 10 years at Frost Bank, Watt went back to school to earn his MBA and focus on his goal of launching his own business. In 2018, Watt teamed up with Jack Sibley to form OZ Capital LLC, an opportunity zone focused venture capital fund based in Fort Worth. OZ Capital founded and funded Halcyon Thruput in 2019. Watt and Jack stepped in as Co-CEO’s mid-way through 2020 and subsequently sold the business to Generation Hemp at the beginning of 2021. Watt earned his BS ’07 from SMU and MBA ’17 from SMU’s Cox School of Business.
Joe L. McClaugherty, Director. Mr. McClaugherty previously served as a director of Magnum Hunter Resources Corporation from 2006 through 2016 where he served as Lead Director during the last three years of his tenure. Mr. McClaugherty is a senior partner of McClaugherty & Silver, P.C., a full-service firm engaged in the practice of civil law, located in Santa Fe, New Mexico. He has practiced law for 40 years and has had a Martindale-Hubbell rating of AV Preeminent for over 20 years and is a Fellow of the International Academy of Trial Lawyers. Prior to founding McClaugherty & Silver, P.C. in 1992, he was the Managing Partner of the Santa Fe office of Kemp, Smith, Duncan & Hammond, and, earlier, of Rodey, Dickason, Sloan, Akin & Robb. Mr. McClaugherty has served on numerous boards of both international and domestic companies. He received a BBA with Honors from the University of Texas in 1973 and a JD with Honors from the University of Texas School of Law in 1976. He is admitted to the Bars of the State of New Mexico, Texas and Colorado, as well as the Federal Bars of the Districts of New Mexico and Colorado, the Tenth Circuit Court of Appeals and the United States Supreme Court. The Company believes that it benefits from Mr. McClaugherty’s business and law degrees from the University of Texas at Austin, his approximately 40 years of legal experience in a broad-based civil practice and his extensive business experience on boards of both international and domestic companies.
Gary D. Elliston, Director. Mr. Elliston is the senior founding partner of DeHay & Elliston, L.L.P. where he specializes in the areas of toxic tort, commercial litigation, and professional and product liability litigation. He graduated cum laude from Howard Payne University in 1975, and as a Hatton W. Sumners Foundation Scholar, cum laude, from Southern Methodist University Law School in 1978. In 2007, he received an Honorary Doctorate of Humanities from Howard Payne University. He has served as a member of numerous professional, community and charitable organizations He is licensed to practice law in five states and actively tries cases around the US. He has been recognized multiple years as a Texas Super Lawyer and Best Lawyers in America.
25
John Harris, Director. Mr. Harris is currently a private investor in a cannabis growing operation based in southern California. Mr. Harris previously served as a member of the senior leadership team at EDS for approximately 25 years. He is also the former President and CEO of eTelecare Global Solutions; a $300M private equity backed business process outsourcing (“BPO”) company. Prior to eTelecare, Mr. Harris was President and CEO of Seven World Wide, a $400 million private equity backed Marketing Services BPO Company with operations in North America and the United Kingdom. Mr. Harris is a graduate of the University of West Georgia where he earned both a BBA and MBA. He currently serves on the Board of Advisors to the Richardson School of Business at the University of West Georgia. Mr. Harris has held board positions with a number of public and private telecommunications and technology services companies, and currently sits on the board of The Hackett Group. Mr. Harris’s experience as a senior executive and board member at a variety of global companies coupled with his recent experience as an investor in the cannabis space makes him an important asset as we grow and expand the Company’s business.
Involvement in Certain Legal Proceedings
In March 2016, during Mr. Evans’ tenure as interim CEO of GreenHunter Resources, Inc. that company and certain of its subsidiaries (namely, GreenHunter Water, LLC; Hunter Disposal, LLC; Ritchie Hunter Water Disposal, LLC; Hunter Hauling, LLC; White Top Oilfield Construction, LLC; Blackwater Services, LLC; Virco Realty, LLC; Little Muskingum Drilling, LLC; Blue Water Energy Solutions, LLC; GreenHunter Wheeling Barge, LLC; GreenHunter Environmental Solutions, LLC; and MAG Tank Hunter, LLC) filed for bankruptcy protection under Chapter 11 of the Bankruptcy Code. GreenHunter Resources, Inc. sought protection in large part because of the cyclical downturn in the commodity prices of both oil and natural gas which had a direct effect on all oil field service companies. GreenHunter Resources, Inc.’s assets were subsequently sold to a private equity group, which allowed predominately all secured indebtedness to be fully repaid.
In December 2015, during Mr. Evans’ tenure as CEO of Magnum Hunter Resources Corporation, that company filed for bankruptcy protection under Chapter 11 of the Bankruptcy Code in Delaware (In re Magnum Hunter Resources Corporation, et al., included the following debtors in addition to Magnum Hunter Resources Corporation, each of which was a directly or indirectly owned subsidiary of Magnum Hunter Resources Corporation: Alpha Hunter Drilling, LLC; Bakken Hunter Canada, Inc.; Bakken Hunter, LLC; Energy Hunter Securities, Inc.; Hunter Aviation, LLC; Hunter Real Estate, LLC; Magnum Hunter Marketing, LLC; Magnum Hunter Production, Inc.; Magnum Hunter Resources GP, LLC; Magnum Hunter Resources, LP; Magnum Hunter Services, LLC; NGAS Gathering, LLC; NGAS Hunter, LLC; PRC Williston LLC; Shale Hunter, LLC; Triad Holdings, LLC; Triad Hunter, LLC; Viking International Resources Co., Inc.; and Williston Hunter ND, LLC). This filing was due in large part to the precipitous commodity cycle downturn which saw the price of natural gas and crude oil reach lows not seen for over a decade. Magnum Hunter Resources Corporation subsequently emerged from bankruptcy with no indebtedness in May 2016 under Mr. Evans’ leadership. The company has since merged with Southwestern Energy Company (NYSE: SWN).
Board of Directors
Our board of directors currently consists of four members, including our Chairman and Chief Executive Officer. In evaluating director candidates, we will assess whether a candidate possesses the integrity, judgment, knowledge, experience, skills and expertise that are likely to enhance the board of directors’ ability to manage and direct our affairs and business, including, when applicable, to enhance the ability of the committees of the board of directors to fulfill their duties. Our directors hold office until the earlier of their death, resignation, retirement, disqualification or removal or until their successors have been duly elected and qualified.
Independent Directors
Under NASDAQ Marketplace Rule 5605(a)(2), a director will not be considered an “independent director” if, such director at any time during the past three years was an employee of the Company, or if a director (or a director’s family member) accepted compensation from the Company (other than compensation for board or board committee service) in excess of $120,000 during any twelve-month period within the three years preceding the determination of independence. In addition, a director will not qualify as an “independent director” if, in the opinion of our Board of Directors, that person has a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. As of the Effective Date, each of Messrs. McClaugherty, Harris, and Elliston will be an “independent director” within the meaning of Nasdaq Marketplace Rule 5605(a)(2). In addition, there will be no family relationships among any of the directors or executive officers of the Company.
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Committees of the Board of Directors
We have an audit committee, compensation committee and nominating and corporate governance committee of our board of directors, and may have such other committees as the board of directors shall determine from time to time. Each of the standing committees of the board of directors has the composition and responsibilities described below.
Audit Committee
A minimum of two individuals serves as the members of our audit committee. As required by the rules of the Commission and listing standards of the NASDAQ, where we currently anticipate applying to have our Common Stock listed, the audit committee will consist solely of independent directors within one year of the listing date. Commission rules also require that a public company disclose whether or not its audit committee has an “audit committee financial expert” as a member. An “audit committee financial expert” is defined as a person who, based on his or her experience, possesses the attributes outlined in such rules. John Harris satisfies the definition of “audit committee financial expert”.
The audit committee oversees, reviews, acts on and reports on various auditing and accounting matters to our Board, including: the selection of our independent registered public accounting firm, the scope of our annual audits, fees to be paid to the independent registered public accounting firm, the performance of our independent registered public accounting firm and our accounting practices. In addition, the audit committee oversees our compliance programs relating to legal and regulatory requirements. We have adopted an audit committee charter defining the committee’s primary duties in a manner consistent with the rules of the Commission and the NASDAQ.
Compensation Committee
A minimum of three individuals serves as members of our compensation committee. Our compensation committee reviews and recommends policies relating to compensation and benefits of our directors and employees and is responsible for approving the compensation of our Chief Executive Officer and other executive officers. We have adopted a compensation committee charter defining the committee’s primary duties in a manner consistent with the rules of the Commission and NASDAQ.
Nominating and Corporate Governance
A minimum of three individuals serves as members of our nominating and corporate governance committee. Our nominating and corporate governance committee selects or recommends that the Board select candidates for election to our Board, develops and recommends to the Board corporate governance guidelines that will be applicable to us and oversee board of director and management evaluations. We have adopted a nominating and corporate governance committee charter defining the committee’s primary duties in a manner consistent with the rules of the Commission and NASDAQ.
Code of Business Conduct and Ethics
Our Board adopted a code of business conduct and ethics applicable to our employees, directors and officers, in accordance with applicable U.S. federal securities laws and the corporate governance rules of the NASDAQ. Any waiver of this code may be made only by our Board and will be promptly disclosed as required by applicable U.S. federal securities laws and the corporate governance rules of the NASDAQ. Copies of the Code of Conduct and Financial Code of Ethics are available on our website at https://www.genhempinc.com/ under “Investors.” Information on our website is not incorporated by reference into this annual report or any other filing we file with or furnish to the SEC. Shareholders may also obtain electronic or printed copies by sending a written request to 8533 Midway Road, Dallas, Texas 75209 or by emailing gevans@genhempinc.com,
Lead Independent Director
If at any time, the offices of Chairman of the Board and Chief Executive Officer are held by the same person, we intend that the independent members of the Board will elect on an annual basis with a majority vote an independent director to serve in a lead capacity (the “Lead Independent Director”). The Lead Independent Director coordinates the activities of the other independent directors and perform such other duties and responsibilities as the Board may determine. The Board has adopted a Lead Independent Director Charter defining the Lead Independent Director’s primary duties in a manner consistent with the rules of the Commission and NASDAQ. The Board has selected Mr. McClaugherty to serve as Lead Independent Director.
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Corporate Governance Guidelines
After the Effective Date, we anticipate that the Board will adopt corporate governance guidelines in accordance with the corporate governance rules of the NASDAQ.
Item 11. Executive Compensation
Narrative Disclosures
Employment, Severance or Change in Control Agreements. We currently do not maintain any employment, severance or change in control agreements with our named executive officers. In addition, our named executive officers are not entitled to any payments or other benefits in connection with a termination of employment or a change in control.
Retirement Benefits. We have not maintained, and do not currently intend to maintain, a defined benefit pension plan or nonqualified deferred compensation plan.
Compensation of Named Executive Officers
The following table contains compensation data for our named executive officers for the fiscal years ending December 31, 2021 and 2020.
| Name and Principal Position | Fiscal Year | Salary | Bonus | Stock Awards | Option Awards | Total Received(2) | |||||||||||||||||
| Gary C. Evans(1) | 2020 | $ | 41,538 | $ | — | $ | — | $ | — | $ | 41,538 | ||||||||||||
| Chief Executive Officer | 2021 | $ | 401,294 | 610,000 | $ | 6,079,586 | $ | 7,090,880 | |||||||||||||||
| Melissa M. Pagen | 2020 | $ | 115,383 | $ | — | $ | — | $ | — | $ | 115,383 | ||||||||||||
| Managing Director, Chief Branding Officer, Corporate Secretary (3) | 2021 | $ | 117,000 | — | $ | 759,948 | $ | 876,948 | |||||||||||||||
| Jack Sibley(3) | 2020 | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
| Vice President, Corporate Development of the Company, and Co-CEO of GENH Halcyon | 2021 | $ | 164,904 | — | 77,500 | $ | 569,961 | $ | 812,365 | ||||||||||||||
| Watt Stephens(3) | 2020 | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
| Managing Director, Vice President, Corporate Development of the Company and Secretary of GENH Halcyon | 2021 | $ | 164,904 | — | 77,500 | $ | 569,961 | $ | 812,365 | ||||||||||||||
| (1) | Mr. Evans elected to reduce his annual salary from $360,000 for 2020. His base salary was restored in 2021. |
| (2) | Amount reflects total compensation received for calendar year. |
| (3) | Mr. Sibley and Mr. Watt joined the Company on January 11, 2021. Each receive a base annual salary of $175,000. |
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Outstanding Equity Awards at Fiscal Year-End
The following table provides information relating to the unexercised stock options and the unvested stock awards for the Named Executive Officers as of December 31, 2021. Each award to each Named Executive Officer is shown separately, with a footnote describing the award’s vesting schedule.
| Stock Option Awards | Restricted Stock Awards | |||||||||||||||||||||
| Number of Securities Underlying | Shares of Restricted Stock | |||||||||||||||||||||
| Unexercised Options | Option | Option | That Have Not Vested | |||||||||||||||||||
| Name | Exercisable | Unvested | Exercise Price | Expiration Date | Number | Market Value | ||||||||||||||||
| Gary C. Evans | 2,666,667 | 5,333,333 | $ | 0.76 | 10/29/2031 | — | $ | — | ||||||||||||||
| Melissa M. Pagen | 333,333 | 666,667 | $ | 0.76 | 10/29/2031 | — | $ | — | ||||||||||||||
| Jack Sibley | 250,000 | 500,000 | $ | 0.76 | 10/29/2031 | 250,000 | $ | 77,500 | ||||||||||||||
| Watt Stephens | 250,000 | 500,000 | $ | 0.76 | 10/29/2031 | 250,000 | $ | 77,500 | ||||||||||||||
Compensation of Directors
Attracting and retaining qualified non-employee directors is critical to the future value growth and governance of our Company. A significant portion of the total compensation package for our non-employee directors is equity-based to align the interest of these directors with our stockholders.
Directors who are also our employees will not receive any additional compensation for their service on our Board.
Directors are reimbursed for (i) travel and miscellaneous expenses to attend meetings and activities of our Board or its committees; and (ii) travel and miscellaneous expenses related to such director’s participation in general education and orientation programs for directors.
The following table summarizes the compensation awarded or paid to the members of the board of directors, who were compensated for board service beginning with their election to the board of directors in the fiscal year ended December 31, 2021. During the fiscal year ended December 31, 2020, we had no non-employee directors.
| Nature of Director Fees | ||||||||||||||||
| Director Name | Director | Committee | Option Awards (1) | Total | ||||||||||||
| Joe McClaugherty | $ | — | $ | — | $ | 379,974 | $ | 379,974 | ||||||||
| Gary D. Elliston | — | — | 379,974 | 379,974 | ||||||||||||
| John Harris | — | — | 379,974 | 379,974 | ||||||||||||
| Gary C. Evans | — | — | — | — | ||||||||||||
| All directors as a group | $ | — | $ | — | $ | 1,139,922 | $ | 1,139,922 | ||||||||
| (1) | Each of the directors were granted options for the purchase of 500,000 shares of the Company’s common stock. One-third of the awarded options vested immediately with the remaining options vesting in two equal annual tranches over the next two years. Vested options may be exercised at any time until their expiration after 10 years at an exercise price of $0.76 per share. |
The table above does not include the amount of any expense reimbursements paid to the above directors. Mr. Evans does not receive any additional compensation for serving on the Board of Directors other than the compensation described in the Summary Executive Compensation Table, above.
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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth information regarding beneficial ownership of our Common Stock, as of February 28, 2022. We have determined beneficial ownership in accordance with Commission rules. The information does not necessarily indicate beneficial ownership for any other purpose.
Except as indicated in the footnotes to the following table, the persons named in the table has sole voting and investment power with respect to all shares of common stock and preferred stock beneficially owned. Except as otherwise indicated, the address of each of the stockholders listed below is: C/O Generation Hemp, Inc., 8533 Midway Road, Dallas, Texas 75209.
| Name of Beneficial Owner | Amount and Nature of Ownership (1) | Percent of Voting Securities (2) | ||||||
| 5% Stockholders: | ||||||||
| Satellite Overseas (Holdings) Limited(3) | 26,263,144 | 23.2 | % | |||||
| Corey Wiegard | 6,254,843 | 5.5 | % | |||||
| OZG Agriculture KY, LP | 6,250,000 | 5.5 | % | |||||
| Directors and Named Executive Officers: | ||||||||
| Gary C. Evans | 37,161,970 | 32.9 | % | |||||
| Melissa Pagen | - | - | % | |||||
| Jack Sibley(4) | 6,500,000 | 5.7 | % | |||||
| Watt Stephens(4) | 6,500,000 | 5.7 | % | |||||
| Gary Elliston | 4,090,909 | 3.6 | % | |||||
| John Harris | 284,090 | 0.3 | % | |||||
| Joe McClaugherty | 1,814,142 | 1.6 | % | |||||
| All officers and directors as a group | 50,101,111 | 44.3 | % | |||||
| (1) | Beneficial Ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Each of the beneficial owners listed above has direct ownership of and sole voting power and investment power to the shares of the common stock. For each Beneficial Owner listed, any options or convertible securities exercisable or convertible within 60 days have been also included for purposes of calculating their beneficial ownership of outstanding common stock. |
| (2) | Ownership percentage based on 113,094,022 fully diluted shares of common stock outstanding as calculated on an as-converted basis. |
| (3) | Satellite Overseas (Holdings) Limited (“SOHL”) is the record holder of these shares of Common Stock. SOHL is a wholly-owned subsidiary of Cadila Pharmaceuticals Ltd. (“Cadila”). Cadila is owned by the IRM Trust. Rajiv I. Modi, Ph. D. and Mrs. Shilaben I. Modi are the trustees of the IRM Trust. As trustees of the IRM Trust, Dr. Modi and Mrs. Modi have shared voting and dispositive power with respect to these shares and, therefore, under rules issued by the Commission may be deemed to be beneficial owners of the shares. |
| (4) | Because of the relationship of Messrs. Sibley and Stephens to OZG Agriculture KY, LP, Messrs. Sibley and Stephens may be deemed indirect beneficial owners of the 6,250,000 shares of common stock owned by OZG Agriculture KY, LP. |
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Item 13. Certain Relationships and Related Persons Transactions
Board Role in Risk Oversight
Our Board of Directors is responsible for the oversight of the Company’s risk management efforts. Members of management are responsible for particular areas of risk for the company and provide presentations, information and updates on risk management efforts as requested by our Board.
Family Relationships
There are no family relationships among our executive officers and directors.
Related Transactions
Home Treasure Finders Merger – On November 27, 2019, Generation Hemp, Inc. (f/k/a Home Treasure Finders, Inc.) (“HTF”) completed the purchase of approximately 68% of the common stock of Energy Hunter Resources, Inc. (“EHR”) through the issuance of 6,328,948 shares of the Company’s Series A Preferred Stock (“Series A Preferred”). Each share of the Series A Preferred; (a) converts into 12 shares of Common Stock, (b) possesses full voting rights, on an as-converted basis, with the Common Stock, and (c) has no dividend rate. The acquisition, together with the other transactions contemplated by the Stock Purchase Agreement, dated August 15, 2019 are referred to herein as the “Transaction”. In connection with the closing of the Transaction, HTF changed its name to Generation Hemp, Inc. The Transaction was accounted for as a reverse merger, whereby EHR is considered to be the accounting acquirer and became a majority-owned subsidiary of the Company. Accordingly, the Company’s historical financial statements prior to the reverse merger were replaced with the historical financial statements of EHR prior to the reverse merger and in this and all future filings with the U.S. Securities and Exchange Commission.
Upon completion of the Transaction, Gary C. Evans, previous Chairman and Chief Executive Officer of Energy Hunter Resources, Inc., became Chairman of the Board of Directors and Chief Executive Officer. In addition, through this Transaction, Mr. Evans and Mr. McClaugherty, acquired their ownership of the Series A Preferred. In the third quarter of 2021, the Company issued 75,947,376 common shares for the conversion of all outstanding shares of its Series A Preferred. Mr. Evans and Mr. McClaugherty received 36,000,000 and 1,743,120 shares of the Company’s common stock, respectively, in exchange for their Series A Preferred.
2021 Issuances of Common Stock Units – In the first quarter of 2021, the Company issued 800,000 common stock units for total proceeds of $400,000. Each common stock unit consists of one share of common stock and a warrant for the purchase of two shares of common stock for $0.50 each. Each warrant is exercisable any time before its expiration on the second anniversary of its issuance. Mr. Evans purchased 100,000 commons stock units in this issuance.
Subordinated Promissory Note to Gary C. Evans – Gary C. Evans made advances of $490,000 to the Company during 2020 under a subordinated promissory note initially due September 30, 2021. This note was amended to a new maturity date of June 30, 2022. If the Company raises new equity capital of $3 million or more, then the full amount outstanding under the note is due within five days. The note bears interest at 10% per annum. The outstanding amount of this this subordinated promissory note was $523,551 and accrued interest totaled $7,602 at December 31, 2021.
Convertible Promissory Note to Gary C. Evans – In 2021, Gary C. Evans made advances totaling $410,000 to the Company under a convertible promissory note. The convertible note matured on January 1, 2022 but was subsequently amended to extend the maturity date to June 30, 2022. If the Company raises new equity capital of $3 million or more, then the full amount outstanding under the note is due within five days. The note bears interest at 10%. The principal and interest due on the convertible note may be converted, at the option of the holder, into restricted shares of the Company’s common stock at a conversion price equal to $0.50 per share. Accrued interest on this convertible promissory note totaled $19,118 at December 31, 2021.
Advances under Promissory Note – In the first quarter of 2022, Investment Hunter, LLC, a Texas LLC controlled by our Gary C. Evans, made advances totaling $439,000 to the Company under a promissory note due June 30, 2022. If the Company raises new equity capital of $3 million or more, then the full amount outstanding under the note is due within five days. The note bears interest at 10% per annum.
December 2020 Issuance of Series B Preferred Stock Units – On December 30, 2020, the Company sold to certain accredited investors, including Gary C. Evans (50 shares), CEO and chairman, and Gary Elliston (25 shares), one of our incoming directors, an aggregate of 135 preferred stock units comprised of (i) one share of Series B Redeemable Convertible Preferred Stock, no par value, and (ii) one warrant exercisable for 50,000 shares of common stock of the Company. On March 9, 2021, Mr. Elliston exercised cash warrants received by him in the Series B Preferred Stock Unit issuance for 1,250,000 shares of common stock.
Gary C. Evans Convertible Note with EHR. In October and December of 2019, Mr. Evans advanced EHR $370,770 under a convertible note bearing interest at 10% per annum. This note, including accrued interest, was converted into 1,061,970 shares of common stock on December 31, 2019.
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EHR Series C Preferred Stock – In the third quarter of 2019, EHR raised $850,000 of additional funding through the issuance of 34,000 shares of EHR Series C Preferred Stock. The EHR Series C Preferred Stock converted into 2,414,773 shares of EHR’s common stock upon completion of the Transaction. These common shares were initially accounted for as non-controlling interests in EHR. In an exchange transaction effective November 27, 2019, the Company acquired these non-controlling interests representing approximately 26% of the ownership of EHR through the issuance of 2,414,773 shares of Company common stock and 14,488,638 warrants for the purchase of Company common stock. The warrants have an exercise price of $0.352 per share and expire on November 27, 2021. The warrants may be redeemed beginning October 1, 2020 for $0.0001 per warrant at the Company’s option with 30-days advanced notice should the volume weighted average price exceed $1.00 for any five out of seven consecutive trading days with a minimum average daily trading volume for such seven-day period of at least 25,000 shares of common stock. One-half of the warrants have a cashless exercise feature.
In connection with the exchange transaction, on November 27, 2019, John Harris obtained beneficial ownership of 71,022 shares of common stock, 213,068 cash warrants, and 213,068 cashless warrants. On February 26, 2021, the cash warrants were exercised for the purchase of 213,068 shares of common stock. Also, at the time of the exchange, Gary Elliston received 710,227 shares of common stock, 2,130,682 cash warrants, and 2,130,682 cashless warrants. On March 9, 2021, Mr. Elliston exercised all of his cash warrants and received 2,130,682 shares of common stock. Lastly, at the time of the exchange, Joe McClaugherty received 71,022 shares of common stock, 213,068 cash warrants, and 213,068 cashless warrants. On November 23, 2021, Mr. McClaugherty exercised all of his cash warrants and received 213,068 shares of common stock.
Warrant Exercises – In the fourth quarter of 2021, the Company received $375,000 for the exercise of 1,065,340 outstanding warrants. Mr. Evans exercised warrants that he had acquired from an unrelated stockholder. Mr. Evans received 852,272 shares of the Company’s common stock for total proceeds of $300,000.
Option Grants – In the fourth quarter of 2021, the Company awarded options for 13,850,000 shares of the Company’s common stock as incentive compensation. One-third of the awarded options vested immediately with the remaining options vesting in two equal tranches over the next two years. Vested options may be exercised at any time until their expiration after 10 years. Unvested shares are forfeited upon termination of employment. Mr. Evans received options for 8,000,000 shares of the Company’s common stock in this issuance. Messrs. McClaugherty, Elliston and Harris each received options for 500,000 of the Company’s common stock in this issuance.
Other Related Party Transactions
Please see Note 5 to our audited consolidated financial statements contained in Item 8 of Part II of this Annual Report on Form 10-K for a description of certain other transactions with related parties, which descriptions are incorporated by reference herein.
Director Independence
See Item 10. “Directors, Executive Officers and Corporate Governance” for information regarding our directors and independence requirements applicable for the Board of Directors and its committees.
Item 14. Principal Accountant Fees and Services
Our independent public accounting firm is Marcum LLP, Houston, Texas, PCAOB Auditor ID 688.
The following table sets forth the fees paid by us for the audit and other services provided by our auditor, Marcum, LLC during the years ended December 31, 2021 and 2020:
| 2021 | 2020 | |||||||
| Audit fees (1) | $ | 283,050 | $ | 212,250 | ||||
| Audit related fees (2) | - | - | ||||||
| Tax fees (3) | - | - | ||||||
| All other fees | - | - | ||||||
| Total fees | $ | 283,050 | $ | 212,250 | ||||
| (1) | Audit Fees: This category represents the aggregate fees billed for professional services rendered by the principal independent accountant for the audit of our annual financial statements and review of financial statements included in our Form 10-K and services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for the fiscal years. |
| (2) | Audit Related Fees: This category consists of the aggregate fees billed for services by our independent consultant that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit Fees.” |
| (3) | Tax Fees: This category consists of the aggregate fees billed for professional services rendered by the principal independent consultant for tax compliance, tax advice, and tax planning. |
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Audit Committee Pre-Approval Policies and Procedures
The audit committee charter of our board of directors requires the audit committee to pre-approve all audit services and permitted non-audit services (other than de minimis non-audit services as defined by the Sarbanes-Oxley Act of 2002) to be provided by our independent registered public accounting firm. The Audit Committee may form and delegate authority to subcommittees consisting of one or more members when appropriate, including the authority to grant preapprovals of audit and permitted non-audit services, provided that decisions of such subcommittee to grant preapprovals shall be presented to the full Audit Committee at its next scheduled meeting for ratification.
Item 15. Exhibits and Financial Statement Schedules
(a) The following documents are filed as part of this Report:
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(b) Exhibits:
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| ** | Exhibit filed herewith |
| # | Constitutes a management compensatory plan or arrangement. |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
| GENERATION HEMP, INC. (Registrant) | ||
| DATE: April 12, 2022 | By: | /s/ Gary C. Evans |
| Gary C. Evans | ||
| Chairman and Chief Executive Officer | ||
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Exhibit 3.1
|
State of Delaware Delivered 05:03 PM 08/20/2021 SR 20213042209 - FileNumber 6183711 |
CERTIFICATE OF INCORPORATION
OF
GENERATION HEMP, INC.
WHEREAS, the individual named below, desiring to form a corporation under the laws of the State of Delaware hereby causes this Certificate of Incorporation to be delivered to the Delaware Secretary of State for filing, pursuant to Section 103 of the Delaware General Corporation Law, and states as follows.
ARTICLE I.
The name of this corporation (the “Corporation”) is Generation Hemp, Inc.
ARTICLE II.
The registered office of the Corporation in the State of Delaware is to be located at 1209 Orange Street, Corporation Service Company, Wilmington, Delaware 19808 in New Castle County. The registered agent of the Corporation at such address is The Corporation Trust Company,
ARTICLE III.
The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the DGCL.
ARTICLE IV.
The total number of shares of all classes of stock which the Corporation shall have authority to issue shall be (a) 200,000,000 shares of common stock, par value $.00001 per share (“Common Stock”) and (b) 20,000,000 shares of preferred stock, par value $.00001 per share (“Preferred Stock”).
The following is a statement of the designations and the powers, privileges and rights, and the qualifications, limitations or restrictions thereof in respect of each class of capital stock of the Corporation.
| A. | Common Stock |
| 1. | General. The voting, dividend and liquidation rights of the holders of the Common Stock are subject to and qualified by the rights, powers and preferences of the holders of the Preferred Stock set forth herein and as may be designated by resolution of the Board of Directors with respect to any series of Preferred Stock as authorized herein. |
| 2. | Voting. The holders of the Common Stock are entitled to one vote for each share of Common Stock held at all meetings of stockholders (and written actions in lieu of meetings); provided, however, that the holders of the Common Stock are not entitled to vote on any amendment to this Certificate of Incorporation (including any certificate of designation of Preferred Stock relating to any series of Preferred Stock) that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together as a class with the holders of one or more other such series, to vote thereon by law or pursuant to this Certificate of Incorporation (including any certificate of designation of Preferred Stock relating to any series of Preferred Stock). |
| B. | Preferred Stock |
| 1. | Issuance and Reissuance. Preferred Stock may be issued from time to time in one or more series, each of such series to consist of such number of shares and to have such terms, rights, powers and preferences, and the qualifications and limitations with respect thereto, as stated or expressed herein and in the resolution or resolutions providing for the issue of such series adopted by the Board of Directors of the Corporation as hereinafter provided (“Preferred Stock Designation”), |
| 2. | Blank Check Preferred. Authority is hereby expressly granted to the Board of Directors from time to time to issue the Preferred Stock in one or more series, and in connection with the creation of any such series, by resolution or resolutions providing for the issue of the shares thereof, to determine and fix such voting powers, full or limited, or no voting powers, and such designations, preferences and relative participating, optional or other special rights, and qualifications, limitations or restrictions thereof, including, without limitation thereof, dividend rights, special voting rights, conversion rights, redemption privileges and liquidation preferences, as shall be stated and expressed in such resolutions, all to the full extent now or hereafter permitted by the DGCL. Without limiting the generality of the foregoing, and subject to the rights of any series of Preferred Stock then outstanding, the resolutions providing for issuance of any series of Preferred Stock may provide that such series shall be superior or rank equally or be junior to the Preferred Stock of any other series to the extent permitted by law, |
ARTICLE V.
In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors of the Corporation is expressly authorized to adopt, make, alter, amend, repeal and rescind any or all of the bylaws of the Corporation, whether adopted by them or otherwise. Any adoption, amendment or repeal of the bylaws of the Corporation by the Board of Directors shall require the approval of a majority of the Board of Directors. Stockholders shall also have the power to adopt, amend or repeal the bylaws of the Corporation; provided, however, that, in addition to any vote of the holders of any class or series of stock of the Corporation required by law or by this Certificate of Incorporation, the bylaws of the Corporation shall not be adopted, altered, amended or repealed by the stockholders of the Corporation (A) prior to the first date on which the Common Stock of the Corporation is listed or quoted on a national securities exchange (the “Trigger Date’), except by the affirmative vote of holders of not less than 50% in voting power of the then outstanding shares of stock entitled to vote thereon, voting together as a single class, or (B) on and after the Trigger Date, except by the affirmative vote of holders of not less than 66 2/3 0/0 in voting power of the then-outstanding shares of stock entitled to vote thereon, voting together as a single class. No bylaws hereafter made or adopted, nor any repeal of or amendment thereto, shall invalidate any prior act of the Board of Directors that was valid at the time it was taken.
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ARTICLE VI.
The name and mailing address of the incorporator is as follows:
Mr. Gary C. Evans
P.O. Box 540308
Dallas, TX 75354
ARTICLE VII.
The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. In addition to the powers and authority expressly conferred upon them by statute or by this Certificate of Incorporation or the bylaws of the Corporation, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation.
Until the first annual meeting of stockholders to occur following the Trigger Date, the directors, other than those who may be elected by the holders of any series of Preferred Stock specified in the related Preferred Stock Designation, shall consist of a single class, with the initial term of office to expire at such first annual meeting of stockholders to occur following the Trigger Date, and each director shall hold office until his successor shall have been duly elected and qualified, subject, however, to such director’s earlier death, resignation, disqualification or removal. For purposes of this Certificate of Incorporation, beneficial ownership of shares shall be determined in accordance with Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended. At each annual meeting of stockholders, directors elected to succeed those directors whose terms then expire shall be elected for a term of office to expire at the next succeeding annual meeting of stockholders after their election, with each director to hold office until his successor shall have been duly elected and qualified, subject, however, to such director’s earlier death, resignation, disqualification or removal.
On and after the first annual meeting following the Trigger Date, the directors, other than those who may be elected by the holders of any series of Preferred Stock specified in the related Preferred Stock Designation, shall be divided, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as is reasonably possible, with the initial term of office of the first class to expire at the second annual meeting of stockholders following the Trigger Date, the initial term of office of the second class to expire at the third annual meeting of stockholders following the Trigger Date, and the initial term of office of the third class to expire at the fourth annual meeting of stockholders following the Trigger Date, with each director to hold office until his successor shall have been duly elected and qualified, subject, however, to such director’s earlier death, resignation, disqualification or removal, and the Board of Directors shall be authorized to assign members of the Board of Directors, other than those directors who may be elected by the holders of any series of Preferred Stock, to such classes at the time such classification becomes effective. Beginning at the second annual meeting of stockholders following the Trigger Date and for each annual meeting thereafter, directors elected to succeed those directors whose terms then expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election, with each director to hold office until his successor shall have been duly elected and qualified, subject, however, to such director’s earlier death, resignation, disqualification or removal.
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Subject to applicable law, the rights of the holders of any series of Preferred Stock, if any, then outstanding, any newly created directorship that results from an increase in the number of directors or any vacancy on the Board that results from the death, resignation, disqualification or removal of any director or from any other cause shall, unless otherwise required by law or by resolution of the Board of Directors, be filled (A) prior to the Trigger Date, by the affirmative vote of a majority of the total number of directors then in office, even if less than a quorum, or by a sole remaining director, or the affirmative vote of the holders of a majority of the voting power of the outstanding shares of stock of the Corporation entitled to vote generally for the election of directors, voting together as a single class and acting at a meeting of the stockholders or by written consent (if permitted) in accordance with the DGCL, this Certificate of Incorporation and the bylaws of the Corporation, and (B) on or after the Trigger Date, solely by the affirmative vote of a majority of the total number of directors then in office, even if less than a quorum, or by a sole remaining director and shall not be filled by the stockholders. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall hold office for the remaining term of his predecessor. No decrease in the number of authorized directors constituting the Board of Directors shall shorten the term of any incumbent director.
Until the Trigger Date, subject to the rights of the holders of shares of any series of Preferred Stock, if any, to elect additional directors pursuant to this Certificate of Incorporation (including any Preferred Stock Designation thereunder), any director may be removed at any time, either for or without cause, upon the affirmative vote of the holders of a majority of the voting power of the outstanding shares of stock of the Corporation entitled to vote generally for the election of directors, voting together as a single class and acting at a meeting of the stockholders or by written consent (if permitted) in accordance with the DGCL, this Certificate of Incorporation and the bylaws of the Corporation. On and after the Trigger Date, subject to the rights of the holders of shares of any series of Preferred Stock, if any, to elect additional directors pursuant to this Certificate of Incorporation (including any Preferred Stock Designation) thereunder), any director may be removed only for cause, upon the affirmative vote of the holders of at least 75% of the voting power of the outstanding shares of stock of the Corporation entitled to vote generally for the election of directors, voting together as a single class and acting at a meeting of the stockholders in accordance with the DGCL, this Certificate of Incorporation and the bylaws of the Corporation.
The number of directors of the Corporation shall be determined in the manner set forth in the bylaws of the Corporation. Unless and except to the extent that the bylaws of the Corporation shall so require, the election of directors of the Corporation need not be by written ballot,
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ARTICLE VIII.
Meetings of stockholders may be held within or without the State of Delaware, as the bylaws of the Corporation may provide. The books of the Corporation may be kept outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the bylaws of the Corporation.
Prior to the Trigger Date, any action required or permitted to be taken at any annual meeting or special meeting of the stockholders of the Corporation may be taken without a meeting, without prior notice and without a vote of stockholders, if a consent or consents in writing, setting forth the action so taken, is or are signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. On and after the Trigger Date, subject to the rights of holders of any series of Preferred Stock with respect to such series of Preferred Stock and except as otherwise expressly provided by the terms of any series of Preferred Stock (including any certificate of designation of Preferred Stock relating to any series of Preferred Stock) permitting the holders of such series of Preferred Stock to act by written consent, if any, any action required or permitted to be taken by the stockholders of the Corporation must be taken at a duly held annual or special meeting of stockholders and may not be taken by any consent in writing of such stockholders.
Special meetings of stockholders of the Corporation may be called only by the Board of Directors pursuant to a resolution adopted by the affirmative vote of a majority of the Board of Directors; provided, however, that prior to the Trigger Date, special meetings of the stockholders of the Corporation may also be called by the Secretary of the Corporation at the request of the holders of record of a majority of the outstanding shares of Common Stock. The authorized person(s) calling a special meeting may fix the date, time and place, if any, of such meeting. On and after the Trigger Date, subject to the rights of holders of any series of Preferred Stock, the stockholders of the Corporation do not have the power to call or request a special meeting of stockholders of the Corporation. The Board of Directors may postpone, reschedule or cancel any special meeting of the stockholders previously scheduled by the Board of Directors.
ARTICLE IX.
To the fullest extent permitted by law, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. If the DGCL or any other law of the State of Delaware is amended after approval by the stockholders of this Article IX to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL as so amended.
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Any repeal or modification of the foregoing provisions of this Article IX by the stockholders of the Corporation shall not adversely affect any right or protection of a director of existing at the time of, or increase the liability of any director of the Corporation with respect to any acts or omissions of such director occurring prior to, such repeal or modification.
ARTICLE X.
To the fullest extent permitted by applicable law, the Corporation is authorized to provide indemnification of (and advancement of expenses to) directors, officers and agents of the Corporation (and any other persons to which DGCL permits the Corporation to provide indemnification) through bylaw provisions, agreements with such agents or other persons, vote of stockholders or disinterested directors or otherwise, in excess of the indemnification and advancement otherwise permitted by Section 145 of the DGCL.
Any amendment, repeal or modification of the foregoing provisions of this Article X shall not adversely affect any right or protection of any director, officer or other agent of the Corporation existing at the time of, or increase the liability of any director of the Corporation with respect to any acts or omissions of such director, officer or other agent occurring prior to, such amendment, repeal or modification.
ARTICLE XI.
The Corporation reserves the right at any time, and from time to time, to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, and other provisions authorized by the laws of the State of Delaware at the time in force may be added, or inserted, in the manner now or hereafter prescribed by law. All rights, preferences and privileges of whatsoever nature conferred upon stockholders, directors or any other persons whomsoever by and pursuant to this Certificate of Incorporation in its present form or as hereafter amended are granted subject to the rights reserved in this Article,
ARTICLE XII.
The Corporation renounces any interest or expectancy of the Corporation in, or in being offered an opportunity to participate in, any Excluded Opportunity. An “Excluded Opportunity” is any matter, transaction or interest that is presented to, or acquired, created or developed by, or which otherwise comes into the possession of, (i) any director of the Corporation who is not an employee of the Corporation or any of its subsidiaries, or (ii) any holder of Preferred Stock or any partner, member, director, stockholder, employee or agent of any such holder, other than someone who is an employee of the Corporation or any of its subsidiaries (collectively, “Covered Persons”), unless such matter, transaction or interest is presented to, or acquired, created or developed by, or otherwise comes into the possession of, a Covered Person expressly and solely in such Covered Person’s capacity as a director of the Corporation.
ARTICLE XIII.
The Corporation shall not be governed by or subject to the provisions of Section 203 of the DGCL as now in effect or hereafter amended, or any successor statute thereto.
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ARTICLE XIV.
Unless consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall, to the fullest extent permitted by applicable law, be the sole and exclusive forum for any stockholder (including a beneficial owner) to bring (A) any derivative action or proceeding brought on behalf of the Corporation, (B) any action asserting a claim of breach of a fiduciary duty owed by any director, officer, employee or agent of the Corporation to the Corporation or the Corporation’s stockholders, (C) any action asserting a claim against the Corporation, its directors, officers or employees or agents arising pursuant to any provision of the DGCL, this Certificate of Incorporation or the Corporation’s bylaws, or (D) any action asserting a claim against the Corporation, its directors, officers or employees or agents governed by the internal affairs doctrine, except as to each of (A) through (D) above, for any claim as to which the Court of Chancery determines that there is an indispensable party not subject to the jurisdiction of the Court of Chancery (and the indispensable party does not consent to the personal jurisdiction of the Court of Chancery within ten days following such determination), which is vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery, or over which the Court of Chancery does not have subject matter jurisdiction. To the fullest extent permitted by law, any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this Article XIV.
If any provision or provisions of this Article XIV shall be held to be invalid, illegal or unenforceable as applied to any person or entity or circumstance for any reason whatsoever, then, to the fullest extent permitted by law, the validity, legality and enforceability of such provisions in any other circumstance and of the remaining provisions of this Article XIV (including, without limitation, each portion of any sentence of this Article XIV containing any such provision held to be invalid, illegal or unenforceable that is not itself held to be invalid, illegal or unenforceable) and the application of such provision to other persons or entities and circumstances shall not in any way be affected or impaired thereby.
ARTICLE XV.
To the fullest extent permitted by law, if any action the subject matter of which is within the scope of Article XV is filed in a court other than a court located within the State of Delaware (a “Foreign Action”) in the name of any stockholder, such stockholder shall be deemed to have consented to (A) the personal jurisdiction of the state and federal courts located within the State of Delaware in connection with any action brought in any such court to enforce Article XV (an “ESC Enforcement Action”) and (B) having service of process made upon such stockholder in any such FSC Enforcement Action by service upon such stockholder’s counsel in the Foreign Action as agent for such stockholder.
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IN WITNESS WHEREOF, on behalf of the Corporation the Sole Incorporator has executed this Certificate of Incorporation on this 20th day of August, 2021.
| By: | /s/ Gary C. Evans | |
| Name: | Gary C. Evans |
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Exhibit 3.2
BY-LAWS OF GENERATION HEMP, INC.
Incorporated under the Laws of the State of Delaware
Date of Adoption: August 20, 2021
ARTICLE I
Offices
Section 1.01 Offices. The address of the registered office of Generation Hemp, Inc. (hereinafter called the “Corporation”) in the State of Delaware shall be at 1209 Orange Street, Wilmington, New Castle, Delaware 19808. The Corporation may have other offices, both within and without the State of Delaware, as the board of directors of the Corporation (the “Board of Directors”) from time to time shall determine or the business of the Corporation may require.
Section 1.02 Books and Records. Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account and minute books, may be maintained on any information storage device or method; provided that the records so kept can be converted into clearly legible paper form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect such records pursuant to applicable law.
ARTICLE II
Meetings of the Stockholders
Section 2.01 Place of Meetings. All meetings of the stockholders shall be held at such place, if any, either within or without the State of Delaware, as shall be designated from time to time by resolution of the Board of Directors and stated in the notice of meeting.
Section 2.02 Annual Meeting. The annual meeting of the stockholders for the election of directors and for the transaction of such other business as may properly come before the meeting shall be held at such date, time and place, if any, as shall be determined by the Board of Directors and stated in the notice of the meeting.
Section 2.03 Special Meetings. Special meetings of stockholders for any purpose or purposes shall be called pursuant to a resolution approved by the affirmative vote of a majority of the Board of Directors and may not be called by any other person or persons; provided, however, that prior to the first date on which the Corporation is listed or quoted on a national securities exchange (the “Trigger Date”), special meetings of the stockholders of the Corporation may also be called by the Secretary of the Corporation at the request of the holders of record of a majority of the outstanding shares of Common Stock. For purposes of these Bylaws, beneficial ownership of shares shall be determined in accordance with Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The authorized person(s) calling a special meeting may fix the date, time and place, if any, of such meeting. On and after the Trigger Date, subject to the rights of holders of any series of preferred stock of the Corporation (“Preferred Stock”), the stockholders of the Corporation do not have the power to call or request a special meeting of stockholders of the Corporation. The Board of Directors may postpone, reschedule or cancel any special meeting of the stockholders previously scheduled by the Board of Directors. The only business which may be conducted at a special meeting shall be the matter or matters set forth in the notice of such meeting.
Section 2.04 Adjournments. Any meeting of the stockholders, annual or special, may be adjourned from time to time to reconvene at the same or some other place, if any, and notice need not be given of any such adjourned meeting if the time, place, if any, thereof and the means of remote communication, if any, are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 30 days, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. If after the adjournment a new record date is fixed for stockholders entitled to vote at the adjourned meeting, the Board of Directors shall fix a new record date for notice of the adjourned meeting and shall give notice of the adjourned meeting to each stockholder of record entitled to vote at the adjourned meeting as of the record date fixed for notice of the adjourned meeting.
Section 2.05 Notice of Meetings. Notice of the place, if any, date, hour, the record date for determining the stockholders entitled to vote at the meeting (if such date is different from the record date for stockholders entitled to notice of the meeting) and means of remote communication, if any, of every meeting of stockholders shall be given by the Corporation not less than ten days nor more than 60 days before the meeting (unless a different time is specified by law) to every stockholder entitled to vote at the meeting as of the record date for determining the stockholders entitled to notice of the meeting. Notices of special meetings shall also specify the purpose or purposes for which the meeting has been called. Except as otherwise provided herein or permitted by applicable law, notice to stockholders shall be in writing and delivered personally or mailed to the stockholders at their address appearing on the books of the Corporation. Without limiting the manner by which notice otherwise may be given effectively to stockholders, notice of meetings may be given to stockholders by means of electronic transmission in accordance with applicable law. Notice of any meeting need not be given to any stockholder who shall, either before or after the meeting, submit a waiver of notice or who shall attend such meeting, except when the stockholder attends for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Any stockholder so waiving notice of the meeting shall be bound by the proceedings of the meeting in all respects as if due notice thereof had been given.
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Section 2.06 List of Stockholders. The officer of the Corporation who has charge of the stock ledger shall prepare a complete list of the stockholders entitled to vote at any meeting of stockholders (provided, however, if the record date for determining the stockholders entitled to vote is less than ten days before the date of the meeting, the list shall reflect the stockholders entitled to vote as of the tenth day before the meeting date), arranged in alphabetical order, and showing the address of each stockholder and the number of shares of each class of capital stock of the Corporation registered in the name of each stockholder at least ten days before any meeting of the stockholders. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, on a reasonably accessible electronic network if the information required to gain access to such list was provided with the notice of the meeting or during ordinary business hours, at the principal place of business of the Corporation for a period of at least ten days before the meeting. If the meeting is to be held at a place, the list shall also be produced and kept at the time and place of the meeting the whole time thereof and may be inspected by any stockholder who is present. If the meeting is held solely by means of remote communication, the list shall also be open for inspection by any stockholder during the whole time of the meeting as provided by applicable law. Except as provided by applicable law, the stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine the stock ledger and the list of stockholders or to vote in person or by proxy at any meeting of stockholders.
Section 2.07 Quorum. Unless otherwise required by law, the Corporation’s Certificate of Incorporation (the “Certificate of Incorporation”) or these by-laws, at each meeting of the stockholders, a majority in voting power of the shares of the Corporation entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power, by the affirmative vote of a majority in voting power thereof, to adjourn the meeting from time to time, in the manner provided in Section 2.04, until a quorum shall be present or represented. A quorum, once established, shall not be broken by the subsequent withdrawal of enough votes to leave less than a quorum. At any such adjourned meeting at which there is a quorum, any business may be transacted that might have been transacted at the meeting originally called.
Section 2.08 Conduct of Meetings. The Board of Directors may adopt by resolution such rules and regulations for the conduct of the meeting of the stockholders as it shall deem appropriate. At every meeting of the stockholders, the Chief Executive Officer, or in his or her absence or inability to act, the person whom the Chief Executive Officer shall appoint, shall act as chairman of, and preside at, the meeting. The secretary or, in his or her absence or inability to act, the person whom the chairman of the meeting shall appoint secretary of the meeting, shall act as secretary of the meeting and keep the minutes thereof. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the chairman of any meeting of the stockholders shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the chairman of the meeting, may include, without limitation, the following: (a) the establishment of an agenda or order of business for the meeting; (b) the determination of when the polls shall open and close for any given matter to be voted on at the meeting; (c) rules and procedures for maintaining order at the meeting and the safety of those present; (d) limitations on attendance at or participation in the meeting to stockholders of record of the corporation, their duly authorized and constituted proxies or such other persons as the chairman of the meeting shall determine; (e) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (f) limitations on the time allotted to questions or comments by participants.
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Section 2.09 Voting; Proxies. Unless otherwise required by law or the Certificate of Incorporation the election of directors shall be by written ballot and shall be decided by a plurality of the votes cast at a meeting of the stockholders by the holders of stock entitled to vote in the election. Unless otherwise required by law, the Certificate of Incorporation or these by-laws, any matter, other than the election of directors, brought before any meeting of stockholders shall be decided by the affirmative vote of the majority of shares present in person or represented by proxy at the meeting and entitled to vote on the matter. Each stockholder entitled to vote at a meeting of stockholders or to express consent to corporate action in writing without a meeting may authorize another person or persons to act for such stockholder by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by delivering to the secretary of the Corporation a revocation of the proxy or a new proxy bearing a later date. Voting at meetings of stockholders need not be by written ballot.
Section 2.10 Inspectors at Meetings of Stockholders. The Board of Directors, in advance of any meeting of stockholders, may, and shall if required by law, appoint one or more inspectors, who may be employees of the Corporation, to act at the meeting or any adjournment thereof and make a written report thereof. The Board of Directors may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspectors shall (a) ascertain the number of shares outstanding and the voting power of each, (b) determine the shares represented at the meeting, the existence of a quorum and the validity of proxies and ballots, (c) count all votes and ballots, (d) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors and (e) certify their determination of the number of shares represented at the meeting and their count of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of their duties. Unless otherwise provided by the Board of Directors, the date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting. No ballot, proxies, votes or any revocation thereof or change thereto, shall be accepted by the inspectors after the closing of the polls unless the Court of Chancery of the State of Delaware upon application by a stockholder shall determine otherwise. In determining the validity and counting of proxies and ballots cast at any meeting of stockholders, the inspectors may consider such information as is permitted by applicable law. No person who is a candidate for office at an election may serve as an inspector at such election.
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Section 2.11 Written Consent of Stockholders Without a Meeting. Prior to the Trigger Date, any action to be taken at any annual or special meeting of stockholders may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action to be so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered (by hand or by certified or registered mail, return receipt requested) to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Every written consent shall bear the date of signature of each stockholder who signs the consent, and no written consent shall be effective to take the corporate action referred to therein unless, within 60 days of the earliest dated consent delivered in the manner required by this Section 2.11, written consents signed by a sufficient number of holders to take action are delivered to the Corporation as aforesaid. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall, to the extent required by applicable law, be given to those stockholders who have not consented in writing, and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for notice of such meeting had been the date that written consents signed by a sufficient number of holders to take the action were delivered to the Corporation. On and after the Trigger Date, subject to the rights of holders of any series of Preferred Stock with respect to such series of Preferred Stock, any action required or permitted to be taken by the stockholders of the Corporation must be taken at a duly held annual or special meeting of stockholders and may not be taken by any consent in writing of such stockholders.
Section 2.12 Fixing the Record Date.
(a) In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than 60 nor less than ten days before the date of such meeting. If the Board of Directors so fixes a date, such date shall also be the record date for determining the stockholders entitled to vote at such meeting unless the Board of Directors determines, at the time it fixes such record date, that a later date on or before the date of the meeting shall be the date for making such determination. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the determination of stockholders entitled to vote at the adjourned meeting and in such case shall also fix as the record date for stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for the determination of stockholders entitled to vote therewith at the adjourned meeting.
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(b) In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no record date has been fixed by the Board of Directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting: (i) when no prior action by the Board of Directors is required by law, the record date for such purpose shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery (by hand, or by certified or registered mail, return receipt requested) to its registered office in the State of Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded and (ii) if prior action by the Board of Directors is required by law, the record date for such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action.
(c) In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than 60 days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
ARTICLE III
Board of Directors
Section 3.01 General Powers. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. The Board of Directors may adopt such rules and procedures, not inconsistent with the Certificate of Incorporation, these by-laws or applicable law, as it may deem proper for the conduct of its meetings and the management of the Corporation.
Section 3.02 Number; Term of Office. Subject to the rights of the holders of any series of Preferred Stock to elect directors under specified circumstances, if any, the number of directors shall be fixed from time to time exclusively pursuant to a resolution adopted by the affirmative vote of a majority of the Board of Directors. Each director shall hold office until a successor is duly elected and qualified or until the director’s earlier death, resignation, disqualification or removal. The election and term of directors shall be as set forth in the Certificate of Incorporation.
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Section 3.03 Newly Created Directorships and Vacancies. Any newly created directorships resulting from an increase in the authorized number of directors and any vacancies occurring in the Board of Directors, shall be filled solely by the affirmative votes of a majority of the remaining members of the Board of Directors, although less than a quorum, or by a sole remaining director. A director so elected shall be elected to hold office until the earlier of the expiration of the term of office of the director whom he or she has replaced, a successor is duly elected and qualified or the earlier of such director’s death, resignation or removal.
Section 3.04 Resignation. Any director may resign at any time by notice given in writing or by electronic transmission to the Corporation. Such resignation shall take effect at the date of receipt of such notice by the Corporation or at such later time as is therein specified.
Section 3.05 Removal. Until the Trigger Date, subject to the rights of the holders of shares of any series of Preferred Stock, if any, to elect additional directors pursuant to the Certificate of Incorporation (including any certificate of designation thereunder), any director may be removed at any time, either for or without cause, upon the affirmative vote of the holders of a majority of the voting power of the outstanding shares of stock of the Corporation entitled to vote generally for the election of directors, voting together as a single class and acting at a meeting of the stockholders or by written consent (if permitted) in accordance with the DGCL, the Certificate of Incorporation and these Bylaws. On and after the Trigger Date, subject to the rights of the holders of shares of any series of Preferred Stock, if any, to elect additional directors pursuant to the Certificate of Incorporation (including any certificate of designation thereunder), any director may be removed only for cause, upon the affirmative vote of the holders of at least 75% of the voting power of the outstanding shares of stock of the Corporation entitled to vote generally for the election of directors, voting together as a single class and acting at a meeting of the stockholders in accordance with the DGCL, the Certificate of Incorporation and these Bylaws.
Section 3.06 Fees and Expenses. Directors shall receive such fees and expenses as the Board of Directors shall from time to time prescribe.
Section 3.07 Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such times and at such places as may be determined from time to time by the Board of Directors or its chairman.
Section 3.08 Special Meetings. Special meetings of the Board of Directors may be held at such times and at such places as may be determined by the chairman or the Chief Executive Officer on at least 24 hours’ notice to each director given by one of the means specified in Section 3.11 hereof other than by mail or on at least three days’ notice if given by mail. Special meetings shall be called by the chairman or the Chief Executive Officer in like manner and on like notice on the written request of any two or more directors.
Section 3.09 Telephone Meetings. Board of Directors or Board of Directors committee meetings may be held by means of telephone conference or other communications equipment by means of which all persons participating in the meeting can hear each other and be heard. Participation by a director in a meeting pursuant to this Section 3.09 shall constitute presence in person at such meeting.
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Section 3.10 Adjourned Meetings. A majority of the directors present at any meeting of the Board of Directors, including an adjourned meeting, whether or not a quorum is present, may adjourn and reconvene such meeting to another time and place. At least 24 hours’ notice of any adjourned meeting of the Board of Directors shall be given to each director whether or not present at the time of the adjournment, if such notice shall be given by one of the means specified in Section 3.11 hereof other than by mail, or at least three days’ notice if by mail. Any business may be transacted at an adjourned meeting that might have been transacted at the meeting as originally called.
Section 3.11 Notices. Subject to Section 3.08, Section 3.10 and Section 3.12 hereof, whenever notice is required to be given to any director by applicable law, the Certificate of Incorporation or these by-laws, such notice shall be deemed given effectively if given in person or by telephone, mail addressed to such director at such director’s address as it appears on the records of the Corporation, facsimile, e-mail or by other means of electronic transmission.
Section 3.12 Waiver of Notice. Whenever notice to directors is required by applicable law, the Certificate of Incorporation or these by-laws, a waiver thereof, in writing signed by, or by electronic transmission by, the director entitled to the notice, whether before or after such notice is required, shall be deemed equivalent to notice. Attendance by a director at a meeting shall constitute a waiver of notice of such meeting except when the director attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the ground that the meeting was not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special Board of Directors or committee meeting need be specified in any waiver of notice.
Section 3.13 Organization. At each meeting of the Board of Directors, the chairman or, in his or her absence, another director selected by the Board of Directors shall preside. The secretary shall act as secretary at each meeting of the Board of Directors. If the secretary is absent from any meeting of the Board of Directors, an assistant secretary shall perform the duties of secretary at such meeting; and in the absence from any such meeting of the secretary and all assistant secretaries, the person presiding at the meeting may appoint any person to act as secretary of the meeting.
Section 3.14 Quorum of Directors. The presence of a majority of the Board of Directors shall be necessary and sufficient to constitute a quorum for the transaction of business at any meeting of the Board of Directors.
Section 3.15 Action by Majority Vote. Except as otherwise expressly required by these by-laws, the Certificate of Incorporation or by applicable law, the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors.
Section 3.16 Action Without Meeting. Unless otherwise restricted by the Certificate of Incorporation or these by-laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all directors or members of such committee, as the case may be, consent thereto in writing or by electronic transmission, and the writings or electronic transmissions are filed with the minutes of proceedings of the Board of Directors or committee in accordance with applicable law.
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Section 3.17 Committees of the Board of Directors. The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. If a member of a committee shall be absent from any meeting, or disqualified from voting thereat, the remaining member or members present at the meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent permitted by applicable law, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation and may authorize the seal of the Corporation to be affixed to all papers that may require it to the extent so authorized by the Board of Directors. Unless the Board of Directors provides otherwise, at all meetings of such committee, a majority of the then authorized members of the committee shall constitute a quorum for the transaction of business, and the vote of a majority of the members of the committee present at any meeting at which there is a quorum shall be the act of the committee. Each committee shall keep regular minutes of its meetings. Unless the Board of Directors provides otherwise, each committee designated by the Board of Directors may make, alter and repeal rules and procedures for the conduct of its business. In the absence of such rules and procedures each committee shall conduct its business in the same manner as the Board of Directors conducts its business pursuant to this Article III.
ARTICLE IV
Officers
Section 4.01 Positions and Election. The officers of the Corporation shall be elected annually by the Board of Directors and shall include a president, a treasurer and a secretary. The Board of Directors, in its discretion, may also elect a chairman (who must be a director), one or more vice chairmen (who must be directors) and one or more vice presidents, assistant treasurers, assistant secretaries and other officers. Any two or more offices may be held by the same person.
Section 4.02 Term. Each officer of the Corporation shall hold office until such officer’s successor is elected and qualified or until such officer’s earlier death, resignation or removal. Any officer elected or appointed by the Board of Directors may be removed by the Board of Directors at any time with or without cause by the majority vote of the members of the Board of Directors then in office. The removal of an officer shall be without prejudice to his or her contract rights, if any. The election or appointment of an officer shall not of itself create contract rights. Any officer of the Corporation may resign at any time by giving written notice of his or her resignation to the president or the secretary. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt. Unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Should any vacancy occur among the officers, the position shall be filled for the unexpired portion of the term by appointment made by the Board of Directors.
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Section 4.03 The President. The president shall have general supervision over the business of the Corporation and other duties incident to the office of president, and any other duties as may be from time to time assigned to the president by the Board of Directors and subject to the control of the Board of Directors in each case.
Section 4.04 Vice Presidents. Each vice president shall have such powers and perform such duties as may be assigned to him or her from time to time by the chairman of the Board of Directors or the president.
Section 4.05 The Secretary. The secretary shall attend all sessions of the Board of Directors and all meetings of the stockholders and record all votes and the minutes of all proceedings in a book to be kept for that purpose, and shall perform like duties for committees when required. He or she shall give, or cause to be given, notice of all meetings of the stockholders and meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or the president. The secretary shall keep in safe custody the seal of the Corporation and have authority to affix the seal to all documents requiring it and attest to the same.
Section 4.06 The Treasurer. The treasurer shall have the custody of the corporate funds and securities, except as otherwise provided by the Board of Directors, and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. The treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the president and the directors, at the regular meetings of the Board of Directors, or whenever they may require it, an account of all his or her transactions as treasurer and of the financial condition of the Corporation.
Section 4.07 Duties of Officers May Be Delegated. In case any officer is absent, or for any other reason that the Board of Directors may deem sufficient, the president or the Board of Directors may delegate for the time being the powers or duties of such officer to any other officer or to any director.
ARTICLE V
Stock Certificates and Their Transfer
Section 5.01 Certificates Representing Shares. The shares of stock of the Corporation shall be represented by certificates; provided that the Board of Directors may provide by resolution or resolutions that some or all of any class or series shall be uncertificated shares that may be evidenced by a book-entry system maintained by the registrar of such stock. If shares are represented by certificates, such certificates shall be in the form, other than bearer form, approved by the Board of Directors. The certificates representing shares of stock of each class shall be signed by, or in the name of, the Corporation by the chairman, any vice chairman, the president or any vice president, and by the secretary, any assistant secretary, the treasurer or any assistant treasurer. Any or all such signatures may be facsimiles. Although any officer, transfer agent or registrar whose manual or facsimile signature is affixed to such a certificate ceases to be such officer, transfer agent or registrar before such certificate has been issued, it may nevertheless be issued by the Corporation with the same effect as if such officer, transfer agent or registrar were still such at the date of its issue.
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Section 5.02 Transfers of Stock. Stock of the Corporation shall be transferable in the manner prescribed by law and in these by-laws. Transfers of stock shall be made on the books of the Corporation only by the holder of record thereof, by such person’s attorney lawfully constituted in writing and, in the case of certificated shares, upon the surrender of the certificate thereof, which shall be cancelled before a new certificate or uncertificated shares shall be issued. No transfer of stock shall be valid as against the Corporation for any purpose until it shall have been entered in the stock records of the Corporation by an entry showing from and to whom transferred. To the extent designated by the president or any vice president or the treasurer of the Corporation, the Corporation may recognize the transfer of fractional uncertificated shares, but shall not otherwise be required to recognize the transfer of fractional shares.
Section 5.03 Transfer Agents and Registrars. The Board of Directors may appoint, or authorize any officer or officers to appoint, one or more transfer agents and one or more registrars.
Section 5.04 Lost, Stolen or Destroyed Certificates. The Board of Directors may direct a new certificate or uncertificated shares to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed upon the making of an affidavit of that fact by the owner of the allegedly lost, stolen or destroyed certificate. When authorizing such issue of a new certificate or uncertificated shares, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of the lost, stolen or destroyed certificate, or the owner’s legal representative to give the Corporation a bond sufficient to indemnify it against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed or the issuance of such new certificate or uncertificated shares.
ARTICLE VI
General Provisions
Section 6.01 Seal. The seal of the Corporation shall be in such form as shall be approved by the Board of Directors. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise, as may be prescribed by law or custom or by the Board of Directors.
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Section 6.02 Fiscal Year. The fiscal year of the Corporation shall be determined by the Board of Directors.
Section 6.03 Checks, Notes, Drafts, Etc. All checks, notes, drafts or other orders for the payment of money of the Corporation shall be signed, endorsed or accepted in the name of the Corporation by such officer, officers, person or persons as from time to time may be designated by the Board of Directors or by an officer or officers authorized by the Board of Directors to make such designation.
Section 6.04 Dividends. Subject to applicable law and the Certificate of Incorporation, dividends upon the shares of capital stock of the Corporation may be declared by the Board of Directors at any regular or special meeting of the Board of Directors. Dividends may be paid in cash, in property or in shares of the Corporation’s capital stock, unless otherwise provided by applicable law or the Certificate of Incorporation.
Section 6.05 Conflict with Applicable Law or Certificate of Incorporation. These by-laws are adopted subject to any applicable law and the Certificate of Incorporation. Whenever these by-laws may conflict with any applicable law or the Certificate of Incorporation, such conflict shall be resolved in favor of such law or the Certificate of Incorporation.
ARTICLE VII
Amendments
Section 7.01 Amendments to Bylaws. In furtherance of, and not in limitation of, the powers conferred by the laws of the State of Delaware, the Board of Directors is expressly authorized to adopt, amend or repeal the Bylaws of the Corporation. Any adoption, amendment or repeal of the Bylaws of the Corporation by the Board of Directors shall require the approval of a majority of the Board of Directors. Stockholders shall also have the power to adopt, amend or repeal the Bylaws of the Corporation; provided, however, that, in addition to any vote of the holders of any class or series of stock of the Corporation required by law or by the Certificate of Incorporation, the Bylaws of the Corporation shall not be adopted, altered, amended or repealed by the stockholders of the Corporation (A) prior to the Trigger Date, except by the affirmative vote of holders of not less than 50% in voting power of the then-outstanding shares of stock entitled to vote thereon, voting together as a single class, or (B) on and after the Trigger Date, except by the affirmative vote of holders of not less than 66 2∕3% in voting power of the then-outstanding shares of stock entitled to vote thereon, voting together as a single class. No Bylaws hereafter made or adopted, nor any repeal of or amendment thereto, shall invalidate any prior act of the Board of Directors that was valid at the time it was taken.
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ARTICLE VIII
forum selection
Section 8.01 Forum for Adjudication of Disputes. (A) Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall, to the fullest extent permitted by applicable law, be the sole and exclusive forum for any stockholder (including a beneficial owner) to bring (1) any derivative action or proceeding brought on behalf of the Corporation, (2) any action asserting a claim of breach of a fiduciary duty owed by any director, officer, employee or agent of the Corporation to the Corporation or the Corporation’s stockholders, (3) any action asserting a claim against the Corporation, its directors, officers or employees or agents arising pursuant to any provision of the DGCL, the Certificate of Incorporation or these Bylaws, or (4) any action asserting a claim against the Corporation, its directors, officers or employees or agents governed by the internal affairs doctrine, except as to each of (1) through (4) above, for any claim as to which the Court of Chancery determines that there is an indispensable party not subject to the jurisdiction of the Court of Chancery (and the indispensable party does not consent to the personal jurisdiction of the Court of Chancery within ten days following such determination), which is vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery, or over which the Court of Chancery does not have subject matter jurisdiction. To the fullest extent permitted by law, any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this Article VIII.
If any provision or provisions of this Article XIII shall be held to be invalid, illegal or unenforceable as applied to any person or entity or circumstance for any reason whatsoever, then, to the fullest extent permitted by law, the validity, legality and enforceability of such provisions in any other circumstance and of the remaining provisions of this Article XIII (including, without limitation, each portion of any sentence of this Article XIII containing any such provision held to be invalid, illegal or unenforceable that is not itself held to be invalid, illegal or unenforceable) and the application of such provision to other persons or entities and circumstances shall not in any way be affected or impaired thereby.
(B) To the fullest extent permitted by law, if any action the subject matter of which is within the scope of Section 8.01(A) above is filed in a court other than a court located within the State of Delaware (a “Foreign Action”) in the name of any stockholder, such stockholder shall be deemed to have consented to (1) the personal jurisdiction of the state and federal courts located within the State of Delaware in connection with any action brought in any such court to enforce Section 8.01(A) above (an “FSC Enforcement Action”) and (2) having service of process made upon such stockholder in any such FSC Enforcement Action by service upon such stockholder’s counsel in the Foreign Action as agent for such stockholder.
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Exhibit 4.4
DESCRIPTION OF SECURITIES
pursuant to section 12 of the securities exchange act of 1934
The following description is intended as a summary of our amended and restated certificate of incorporation (which we refer to as our “Certificate”) and our bylaws, and to the applicable provisions of the Delaware General Corporation Law (“DGCL”). Because the following is only a summary, it does not contain all of the information that may be important to you. For a complete description, you should refer to our Certificate and bylaws.
Our current certificate of incorporation authorizes us to issue:
| ● | 200,000,000 shares of common stock, par value $0.00001 per share; and |
| ● | 20,000,000 shares of preferred stock, par value $0.00001 per share, of which 6,500,000 shares have been designated as Series A Preferred Stock, 300 shares have been designated as Series B Preferred Stock, and the remainder of which have not been designated. |
As of March 31, 2022, there were 113,114,002 shares of common stock outstanding , no shares of Series A Preferred Stock, and 118 shares of Series B Preferred Stock outstanding.
Common Stock
Voting. The holders of our common stock are entitled to one vote for each share held of record on all matters on which the holders are entitled to vote (or consent pursuant to written consent).
Dividends. The holders of our common stock are entitled to receive, ratably, dividends only if, when and as declared by our board of directors out of funds legally available therefor and after provision is made for each class of capital stock having preference over the common stock.
Liquidation Rights. In the event of our liquidation, dissolution or winding-up, the holders of our common stock are entitled to share, ratably, in all assets remaining available for distribution after payment of all liabilities and after provision is made for each class of capital stock having preference over the common stock.
Conversion Rights. The holders of our common stock have no conversion rights.
Preemptive and Similar Rights. The holders of our common stock have no preemptive or similar rights.
Redemption/Put Rights. There are no redemption or sinking fund provisions applicable to the common stock. All of the outstanding shares of our common stock are fully-paid and non-assessable.
Preferred Stock
We are authorized to issue up to 20,000,000 shares of “blank check” preferred, which may be issued from time to time in one or more series upon authorization by our board of directors. Our board of directors, without further approval of the stockholders, is authorized to fix the dividend rights and terms, conversion rights, voting rights, redemption rights and terms, liquidation preferences, and any other rights, preferences, privileges and restrictions applicable to each series of preferred stock. Accordingly, our board of directors is empowered, without stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting, or other rights that could adversely affect the voting power or other rights of the holders of our common stock. The issuance of preferred stock could have the effect of restricting dividends on our common stock, diluting the voting power of our common stock, impairing the liquidation rights of our common stock, or delaying or preventing a change in control of our company, all without further action by our stockholders. Our board of directors has designated 6,500,000 of our preferred stock as Series A Preferred Stock, and 300 of our preferred stock as Series B Preferred Stock.
Series A Preferred Stock
Stated Value. $1 per share.
Voting. The holders of our Series A Preferred Stock are entitled to vote together with our common stock as a single class, on all matters on which the holders of the common stock are entitled to vote (or consent pursuant to written consent). Each share of Series A Preferred Stock has twelve votes per share as compared with one vote per share of common stock.
Dividends. There are no dividends payable on the Series A Preferred Stock.
Liquidation. In the event of any liquidation, dissolution or winding up of our company, the assets available for distribution to our stockholders will be distributed among the holders of our Series A Preferred Stock and the holders of our common stock, pro rata, on an as-converted-to-common stock basis.
Conversion Rights. Under the terms of the Series A Preferred Stock, each share of Series Preferred A Stock was to convert into twelve shares of our common stock. .
Preemptive and Similar Rights. The holders of our Series A Preferred Stock have no preemptive or similar rights.
Redemption/Put Rights. There are no redemption or sinking fund provisions applicable to our Series A Preferred Stock. All of the outstanding shares of our Series A Preferred Stock are fully-paid and non-assessable.
Series B Preferred Stock
Stated Value. $10,000 per share.
Voting. Except as otherwise required by law, the Series B Preferred Stock does not have voting rights. However, as long as any shares of Series B Preferred Stock are outstanding, the Company will not, without the affirmative vote of the holders of a majority of the then outstanding shares of the Series B Preferred Stock, (a) alter or change adversely the powers, preferences or rights given to the Series B Preferred Stock, (b) alter or amend the related certificate of designation, (c) amend its certificate of incorporation or other charter documents in any manner that adversely affects any rights of the holders of Series B Preferred Stock, (d) repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of its common stock, (e) enter into any agreement with respect to any of the foregoing, or (f) pay cash dividends or distributions on any equity securities of the Company other than pursuant to the terms of the its outstanding Series B Preferred Stock.
Dividends. Holders of Series B Preferred Stock are entitled to receive dividends of 6.00% per annum based on the stated value equal to $10,000 per share.
Liquidation. In the event of any liquidation, dissolution or winding up of our company, the assets available for distribution to our stockholders will be distributed among the holders of our Series B Preferred Stock and the holders of our common stock, pro rata, on an as-converted-to-common stock basis.
Conversion Rights. Beginning the later of June 30, 2021 or the effectiveness of any registration statement registering the underlying common shares, all or any portion of the Series B Preferred Stock may be converted, at their holder’s option, into 25,000 shares of common stock, as adjusted for any stock dividends, splits, combinations or similar events.
At any time after the occurrence of a “Qualifying Event,” the Company, upon 5-day written notice, shall have the right to cause each share of Series B Preferred Stock (and all accrued in-kind dividends with respect thereto) to be converted into common stock. For purposes this automatic conversion of the Series B Preferred Stock, a “Qualifying Event” shall have occurred if (A) (1) the rolling five (5)-trading day volume-weighted average trading price of shares of the common stock exceeds $1.00, and (2) there shall be an effective registration statement under the Securities Act of 1933, as amended covering all of the shares of common stock which would be issuable upon conversion of all of the outstanding shares of Series B Preferred Stock or (B) the Company closes a firm commitment underwriting of the common stock on a Form S-1 Registration Statement with aggregate gross proceeds of at least $5,000,000 at a price per share equal to or greater than $1.00. In each instance, a conversion may not be made unless the Company has filed an amendment to its Articles of Incorporation effecting an increase in its authorized common stock so that the Company has a sufficient number of authorized and unissued shares of common stock so as to permit the conversion of all outstanding shares.
Preemptive and Similar Rights. The holders of our Series B Preferred Stock have no preemptive or similar rights.
Redemption/Put Rights. The Series B Preferred Stock may be redeemed by the Company for its stated value, plus accrued and unpaid dividends, at any time. Initially, redemption payments of 12.5% each of the total amount of Series B Preferred Stock then outstanding plus accrued dividends were due from the Company to each Holder of Series B Preferred Stock at the end of each calendar quarter of 2021. The redemption requirements for June 30, 2021, September 30, 2021 and December 31, 2021 were waived by unanimous agreement of the holders of our Series B Preferred Stock.
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Transfer Agent and Registrar
Stock Transfer Corporation is our transfer agent and registrar.
Dividends
We have never paid or declared any cash dividends on our common stock, and we do not anticipate paying any cash dividends on our common stock in the foreseeable future. We intend to retain all available funds and any future earnings to fund the development and expansion of our business. Any future determination to pay dividends will be at the discretion of our board of directors and will depend upon a number of factors, including our results of operations, financial condition, future prospects, contractual restrictions, restrictions imposed by applicable law and other factors our board of directors deems relevant.
Anti-Takeover Effect of Delaware Law, Certain Charter and Bylaw Provisions
In addition to the certain anti-takeover provisions included in our Certificate and bylaws, we are also subject to certain “Choice of Forum” restrictions:
Our Certificate provides that the Court of Chancery of the State of Delaware be the exclusive forum for actions or proceedings brought under Delaware statutory or common law: (A) any derivative action or proceeding brought on behalf of the Company, (B) any action asserting a claim of breach of a fiduciary duty owed by any director, officer, employee or agent of the Company to the Company or the Company’s stockholders, (C) any action asserting a claim against the Company, its directors, officers or employees or agents arising pursuant to any provision of the DGCL, the Certificate or the bylaws, or (D) any action asserting a claim against the Company, its directors, officers or employees or agents governed by the internal affairs doctrine, except as to each of (A) through (D) above, for any claim as to which the Court of Chancery determines that there is an indispensable party not subject to the jurisdiction of the Court of Chancery (and the indispensable party does not consent to the personal jurisdiction of the Court of Chancery within ten days following such determination), which is vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery, or over which the Court of Chancery does not have subject matter jurisdiction.
Warrants
General. The company has issued a number of series of warrants. Each warrant is exercisable to purchase one share of common stock at a specified exercise price. The following table sets forth the exercise price and expiration date, and number outstanding of each series of warrants which are outstanding as of the date of filing:
| # of Warrants | Exercise Price (each) | Expiration Date | Method of Exercise | |||||||||||
| Issued in December 2020 with Series B preferred units (1) | 5,500,000 | $ | 0.352 | December 30, 2022 | Cash | |||||||||
| Issued in December 2020 with subordinated note to investor (1) | 500,000 | $ | 0.352 | December 30, 2022 | Cash | |||||||||
| Issued in Q1 2021 with common stock units (1) | 1,600,000 | $ | 0.500 | January-February, 2023 | Cash | |||||||||
| Issued in Q4 2021 with common stock units (1) | 958,333 | $ | 0.600 | Oct-Dec, 2023 | Cash | |||||||||
| Total warrants outstanding | 8,558,333 | |||||||||||||
(1) May be redeemed for $0.0001 per warrant at the Company’s option with 30 days advanced notice should the weighted average market price of common stock exceed $1.00 for any five out of seven consecutive trading days with a minimum average daily trading volume for such seven-day period of at least 25,000 shares of common stock.
Exercisability. The warrants are exercisable at any time after their original issuance and at any time up to the expiration date. The warrants will be exercisable, at the option of each holder, in whole or in part by delivering to us a duly executed exercise notice and payment in full in immediately available funds for the number of shares of Common Stock purchased upon such exercise.
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Exercise Price. The exercise price per share of common stock purchasable upon exercise of the warrants for each series of warrants issued and outstanding as of the date of filing is set forth in the table above. The exercise price is subject to appropriate adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting our Common Stock and also upon any distributions of assets, including cash, stock or other property to our stockholders.
Transferability. Subject to applicable laws, the warrants may be offered for sale, sold, transferred or assigned without our consent.
Redemption. Each series of warrants become redeemable at our option, in whole or in part, at a redemption price equal to $0.0001per warrant upon 30 days’ prior notice (which may be made via publication of a press release), at any time after the date that the reported volume weighted average price for any five (5) out of seven (7) consecutive trading days immediately prior to such date, exceeds $1.00 with a minimum average daily trading volume for such seven (7) day period of at least 25,000 shares of Common Stock as reported by the principal market for such period (with such price and volume criteria being appropriately adjusted for any share dividend, share split or other similar transaction that may occur on or after the issuance date for such series of warrants). If we call the warrants for redemption, the holders of the warrants will then have to decide whether to sell warrants, exercise them before the close of business on the business day preceding the specified redemption date or hold them for redemption.
Adjustments in Certain Events. We will make adjustments to the terms of the warrants if certain events occur as described below. If prior to the exercise of any warrants, we effect one or more stock splits, stock dividends or other increases or reductions of the number of shares of our common stock outstanding without receiving compensation therefor in money, services or property, the number of shares of common stock subject to the warrants shall (i) if a net increase shall have been effected in the number of outstanding shares of common stock, be proportionately increased, and the exercise price payable per share of common stock subject to the warrant shall be proportionately reduced, and, (ii) if a net reduction shall have been effected in the number of outstanding shares of the common stock, be proportionately reduced and the exercise price payable per share of common stock subject to the warrant shall be proportionately increased.
In the event of a capital reorganization or reclassification of our common stock, the warrants will be adjusted so that thereafter each warrant holder will be entitled to receive upon exercise the same number and kind of securities that such holder would have received if the warrant had been exercised before the capital reorganization or reclassification of our common stock.
If we merge or consolidate with another corporation, or if we sell our assets as an entirety or substantially as an entirety to another corporation, we will make provisions so that warrantholders will be entitled to receive upon exercise of a warrant the kind and number of securities, cash or other property that would have been received as a result of the transaction by a person who was our stockholder immediately before the transaction and who owned the same number of shares of common stock for which the warrant was exercisable immediately before the transaction. No adjustment to the warrants will be made, however, if a merger or consolidation does not result in any reclassification or change in our outstanding common stock.
Rights as a Stockholder. Except as otherwise provided in the warrants or by virtue of such holder’s ownership of shares of our common stock, the holder of a warrant does not have the rights or privileges of a holder of our common stock, including any voting rights, until the holder exercises the warrant.
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Exhibit 10.4
SECURED PROMISSORY NOTE AMENDMENT AND EXTENSION AGREEMENT
This Secured Promissory Note Amendment and Extension Agreement (the “Agreement”) is entered into by JDone LLC, a Colorado limited liability company (the “Borrower”) and Thomas S. Yang (the “Holder”), as of January 25, 2022 and effective as of January 15, 2022.
Reference is made to that certain original Secured Promissory Note between the Borrower and the Holder, dated as of September 15, 2014 and amended on October 1, 2019, together with all amendments thereto (the “Note”), together with all associated notes, pledge agreements, guaranties, deeds of trust, security agreements, affidavits and other instruments and documents executed and delivered by the Borrower, the Holder and any Guarantors (the “Loan Documents”). Each of the Loan Documents shall be deemed to be amended in connection with the terms of this Agreement and the terms of this Agreement and the Note, as amended and extended hereby, shall be the controlling document with respect to the Note and the Loan Documents.
All capitalized terms used herein, but not otherwise defined, shall have the meaning ascribed to such terms in the Note and the Loan Documents.
At the execution of this Agreement, the Borrower shall undertake the following, and the Note shall be amended as follows:
| (i) | The Holder and Borrower agree that the outstanding principal balance under the Note is currently $501,184.92; | |
| (ii) | the Borrower shall pay an extension fee of $1,000 each month on February 15, 2022, March 15, 2022 and April 15, 2022 thereby amending the term of the Note (as described in (iii) below); | |
| (iii) | the Note shall be amended to change the Maturity Date to April 15, 2022; | |
| (iv) | the Borrower will pay principal and interest payments of $5,500.00 on or about | |
February 15, 2022, March 15, 2022 and April 15, 2022;
| (v) | after such principal and interest payments, the outstanding principal balance under the note as of April 15, 2022 will be $499,700.52; and | |
| (vi) | Borrower may pay off the loan at any time prior to the Maturity Date without penalty which will also eliminate any future extension fees. | |
All other terms contained in the Note and the Loan Documents shall remain unchanged and in full force and effect.
IN WITNESS WHEREOF, the Borrower and the Holder have executed this Agreement as of the date first written above and effective as the date stated above.
| BORROWER: | ||
| JDone LLC | ||
| By: | Generation Hemp, Inc. | |
| By: | /s/ Gary C. Evans | |
| Gary C. Evans | ||
| Chairman and Chief Executive Officer | ||
| ACKNOWLEDGED AND AGREED: | ||
| HOLDER: | ||
| By: | /s/ Thomas S. Yang | |
| Thomas S. Yang | ||
Exhibit 10.8
MERCHANDISE LICENSE AGREEMENT
This Merchandise License Agreement “Agreement” is entered into by Gas Monkey Holdings, LLC, a Texas limited liability company (“GMH” or “Licensor”), and Generation Hemp, Inc., a Delaware corporation (“Generation Hemp” or “Licensee”) (collectively, the “Parties”) as of the date it is fully executed by the Parties (the “Effective Date”).
ESSENTIAL TERMS
| LICENSED RIGHTS: | See Exhibit A (“Trademarks”) |
| LICENSED PRODUCTS: | Absorbent spill clean-up materials for use in connection with residential, commercial, and industrial applications (“Products”) bearing one or more of the Trademarks |
| LICENSED TERRITORY: | North America |
| LICENSE TERM: | Three years, commencing 30 days after Licensee approves the Trademarks |
| RENEWAL TERMS: | One additional three-year term |
| EXCLUSIVITY: | GMH will not authorize the use of the Licensed Rights on any third-party absorbent spill clean-up materials during the Term |
| SUBLICENSABLE: | No |
| ROYALTY RATE: | 6% of Net Sales of Licensed Products |
| MINIMUM ROYALTY: | Fifty-Thousand Dollars ($50,000) annually during the License Term, with the first year waived |
This Agreement includes the attached Standard Terms and Conditions and any Exhibits thereto. All capitalized terms in the Standard Terms and Conditions shall have the meanings set forth above in the Essential Terms.
Agreed:
| Gas Monkey Holdings, LLC | Generation Hemp, Inc. | |||
| By: | /s/ Richard Rawlings | By: | /s/ Gary C. Evans | |
| Richard Rawlings | Gary C. Evans | |||
| Its: | Managing Member | Its: | Chairman and CEO | |
| Dated: | 2/17/2022 | Dated: | 2/17/2022 | |
STANDARD TERMS AND CONDITIONS
1. LICENSE:
1.1. GMH grants to Licensee the exclusive right to use the Licensed Rights solely in connection with the design, manufacture, advertising, sale, and distribution of Licensed Products within the Licensed Territory during the License Term or any Renewal Terms (the “License”).
1.2. Notwithstanding the foregoing, Licensee shall provide at least 60-days’ notice of its intent to design, manufacture, advertise, sell, or distribute the Licensed Products outside of the continental United States.
1.3. Notwithstanding the foregoing, Licensee shall have the right to sub-contract with and authorize third parties in connection with the design, manufacture, advertising, sale, and distribution of the Licensed Products so long as Licensee requires any third party to comply with the terms and conditions of this Agreement.
1.4. Licensee may extend the term of this License for the duration of any Renewal Term only upon the condition that it provides written notice of its intent to do so within 30 days of the expiration of the License Term (or any applicable Renewal Term). Licensee cannot provide notice of its intent to extend the term of this License more than 180 days before the expiration of the License Term (or any applicable Renewal Term). If Licensee fails to timely provide written notice of its intent to extend the License, the License shall terminate pursuant to the terms contained herein. The License Term and any Renewal Terms are collectively referred to as the “Term.”
1.5. Exclusivity: The “exclusive right” granted under the License shall mean that, during the period of exclusivity, GMH shall not authorize the use of the Licensed Rights on or in connection with any third-party Products. The period of exclusivity shall commence on the Effective Date and continue for the Term of this Agreement. Subject to the foregoing, Licensee acknowledges that GMH retains the right to exercise all other rights in and to the Licensed Rights, including licensing the Licensed Rights to third parties to sell, market, and distribute any products other than the Products.
2. ROYALTIES:
2.1. Computation: Royalties shall be payable at the Royalty Rate set forth in the Essential Terms on Net Sales of all Licensed Products. Net Sales shall mean all revenues received by Licensee from the sale of Licensed Products less any Allowed Deductions (as defined below). No other deductions shall be permitted for any other costs and expenses incurred by Licensee in the design, manufacture, advertising, sale, and fulfillment of Licensed Products. Net Sales include any amounts or the value of other consideration received by Licensee in connection with the exploitation of the Licensed Products.
2.2. Allowed Deductions: Licensee may deduct from its calculation of Net Sales: (1) sales tax, use tax, VAT or other excise taxes imposed upon Licensee with respect to the sale of Licensed Products; (2) returns or rejections of Licensed Products, write-offs, bad debt, or billing errors; and (3) customary commissions, discounts, rebates and reductions, or any other consideration accrued to customers (including group purchasing organizations) based on volumes and/or revenues commercialized, or any other deductions or the like allowed (whether in cash or trade) to wholesalers or distributors or to other customers for quantity purchases, prompt payments, or other special conditions.
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3. ACCOUNTING, REPORTS, AND PAYMENTS:
3.1. Licensee shall, within forty-five (45) days following the end of each calendar quarter, starting March 31, 2022, whether or not sales are made during that quarter, submit to GMH a full, complete and accurate report of sales activity related to the Licensed Products, Net Sales, and Royalties owed. Each report must show gross sales for the preceding quarter, Licensee’s calculation of Allowed Deductions by category for the preceding quarter, Net Sales for the preceding quarter, and Licensee’s calculation of Royalties owed for the preceding quarter. Each report shall be signed by an executive of Licensee.
3.2. Licensee shall transmit to GMH all Royalty amounts due within forty-five (45) days following the end of each calendar quarter. Royalties on foreign sales shall be remitted in United States currency, less any withholding taxes imposed by said country, using the prevailing exchange rate on the business day immediately preceding the day that payment is made.
3.3. Licensee may deduct from future Royalty payments any over-payment of Royalty payments occurring by result of miscalculation or subsequent discovery of additional Allowed Deductions (e.g., returns made after calculation of a Royalty Payment). If Licensee discovers that it under paid any past Royalty payment, it shall immediately tender such amount to GMH, with the appropriate late charge (defined below), along with a report showing how it calculated such underpayment and the bases for such underpayment.
3.4. Any Royalty payments made after forty-five (45) days following the end of each calendar quarter shall be subject to a late charge of one percent (1%) per month (or the highest rate allowed by law if lower), from the date such payments were due.
4. AUDITS
4.1. Licensee shall keep accurate books of account and records at its principal place of business of all transactions relating to or affecting this License, during the Term and for a period of three years thereafter. GMH or its representative shall have the right, not more than once during any calendar year, during reasonable business hours to examine and verify Licensee’s physical inventory of the Licensed Products as well as request information from Licensee sufficient to determine the accuracy of the royalty reports submitted pursuant to Section 3.2.
4.2. In the event that an audit by GMH discloses an underpayment in royalties due GMH of more than $1,000, Licensee shall have 14 business days to either: (i) pay GMH such discrepancy plus a late charge of one percent (1%) per month (or the highest rate allowed by law if lower), from the day such payments were due; or (ii) dispute the claimed amount of underpayment. If such audit discloses a discrepancy of ten percent (10%) or more for any quarter, Licensee shall also reimburse GMH for all costs incurred by GMH in connection with the audit up to $20,000.
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5. QUALITY AND APPROVALS
5.1. GMH shall have the right to approve the quality and style of all Licensed Products and the manner in which the Licensed Rights appear on the Licensed Products and on any packaging, promotional materials, labels, advertising, publicity, and display materials of any kind used in connection with the Licensed Products.
5.2. For any new Licensed Products that have not been approved by GMH, Licensee agrees to submit samples of such products and any associated materials bearing the Licensed Rights to GMH. GMH shall approve or reject such products and materials within thirty (30) days of receipt. If GMH does not timely reject the products and/or materials within thirty (30) days of receipt, GMH shall be deemed to have approved the products and materials.
6. MARKINGS
6.1. Licensee shall affix Copyright and Trademark Notices to all Licensed Products and to all packaging, labels, promotional, advertising, publicity and display materials used in connection therewith, in accordance with instructions from GMH. The Licensed Products and related materials may contain Licensee’s trademarks and trade name, but shall not contain any other copyright, trademark, or trade name unless GMH has given Licensee prior written consent thereto. GMH may at any time reasonably request an addition to or change of the Copyright and Trademark Notices, effective not less than thirty (30) days after receipt by Licensee of notice thereof, provided that Licensee shall have the right to continue to distribute any inventory already manufactured at the time it receives such notice. Licensee shall reasonably cooperate with GMH in connection with GMH’s obtaining or maintaining copyright and/or trademark protection for the Licensed Rights in GMH’s name.
6.2. Licensee shall affix to the Licensed Products and all packaging, labels, promotional materials, advertising, publicity and display materials used in connection therewith, any other legends, markings and notices required by any law or regulation in the Licensed Territory or which GMH reasonably may request.
7. OWNERSHIP
7.1. As between GMH and Licensee, all right, title and interest in and to the Licensed Rights shall be and remain the sole and complete property of GMH. Licensee recognizes the value of the goodwill associated with the Licensed Rights, that the Licensed Rights have secondary meaning in the mind of the public, and that the trademarks and copyrights in the Licensed Rights, and any registrations therefore, are good and valid. All use by Licensee of the Licensed Rights shall inure to the benefit of GMH. Licensee shall not, during the Term or thereafter, contest or assist others to contest, GMH’s rights or interests in the Licensed Rights or the validity of this License. Licensee shall not seek any copyright or trademark registration for the Licensed Rights.
7.2. Any copyright, trademark, or other proprietary rights owned by Licensee and heretofore used by it or created independently by Licensee for use in connection with the Licensed Products and do not incorporate the Licensed Rights or any modification or derivative of the Licensed Rights (the “Licensee Marks”) shall continue to be owned by Licensee and shall not become the property of GMH. All use by Licensee of the Licensee Marks shall inure to the benefit of Licensee.
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7.3. Licensee agrees to execute and deliver to GMH any documents which GMH may reasonably request to confirm and/or perfect GMH’s ownership of its rights hereunder.
8. INFRINGEMENT
8.1. Licensee shall promptly notify GMH of any apparently unauthorized use or infringement by third parties of any rights granted to Licensee herein and will cooperate fully in any action at law or in equity undertaken by GMH with respect to such unauthorized use or infringement. Licensee shall not institute any suit in connection with any apparently unauthorized use or infringement without first obtaining the written consent of GMH to do so, and GMH shall have the sole right to determine whether or not any action shall be taken on account of any such unauthorized uses or infringements.
9. REPRESENTATIONS, WARRANTIES, AND UNDERTAKINGS
9.1. Licensee represents, warrants, and undertakes as follows:
9.1.1. It is free to enter into and fully perform this Agreement;
9.1.2. All ideas, creations, designs, materials, and intellectual property furnished by Licensee in connection with the Licensed Products will be Licensee’s own and original creation or fully licensed by Licensee for any and all conceivable uses;
9.1.3. Licensee shall manufacture, distribute, and sell the Licensed Products in an ethical manner and in in accordance with the provisions and the intent of this Agreement, and shall not engage in unfair or anti-competitive business practices. It shall comply with the United States Federal Food, Drug and Cosmetic Act, the Federal Hazardous Substance Act (FHSA), the Flammable Fabrics Act, the Consumers Products Safety Act, the Foreign Corrupt Practices Act, all laws and regulations set forth by the Federal Trade Commission (FTC), the Federal Communications Commission (FCC), the United States Department of Commerce (USDC) and state certifications, and with all similar and/or other laws and regulations in force in the Licensed Territory that are applicable to the manufacture, promotion, marketing, packaging, labeling, warehousing, distribution and sale of the Licensed Products and the operation of Licensee’s business.
9.1.4. The Licensed Products will be manufactured, distributed, sold, and advertised in accordance with all applicable federal, state, and local laws and regulations in force in the Licensed Territory, including but not limited to all applicable labor laws and regulations and in a manner that will not reflect adversely upon GMH, and will not infringe upon or violate any rights of any third parties.
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9.1.5. Licensee will not use the Licensed Rights in any manner which would disparage or tarnish or dilute the distinctive quality of the Licensed Rights or the reputation and goodwill embodied in the Licensed Rights or which would reflect adversely on the Licensed Rights or GMH, or any of GMH’s products or services. Licensee will not use the Licensed Rights in any way that is not authorized and approved in advance by GMH as set forth in this Agreement. The Licensed Rights will not feature content that is obscene, pornographic and/or unlawful; content that includes, promotes, encourages, and/or incites any unlawful activity; content which is defamatory to any group or individual; content that includes, promotes, encourages, and/or incites illegal substances, products, services, or activities, violence, hate speech, or discrimination.
9.2. GMH represents, warrants, and undertakes as follows:
9.2.1. It is free to enter into and fully perform this Agreement;
9.2.2. The Licensed Rights may be eligible for trademark protection in the United States of America and likewise may be protected elsewhere so far as the laws of the other places and countries provide for such protection; provided, however, GMH makes no representation or warranty that the trademarks related to the Licensed Rights will not infringe a third party trademark resulting from Licensee’s use of said trademark outside of the United States and GMH further provides no indemnity and makes no representation or warranties respecting the protection, enforcement and exploitation of the Licensed Rights or any derivatives thereof for the specific Licensed Products within the Licensed Territory;
9.2.3. Marketing Efforts. GMH will make good-faith efforts to introduce Licensee to existing merchant contacts.
9.3. GMH further specifically disclaims any warranty that the Licensee will be free from claims of third parties with respect to the Licensed Rights.
9.4. Licensee acknowledges and agrees that GMH may, at its sole discretion, apply for one or more registrations of the Licensed Rights and/or derivatives thereof with the United States Patent and Trademark Office and/or any other pertinent governmental agency, but that GMH is under no obligation to obtain and secure such registrations.
9.5. Licensee further acknowledges and agrees that GMH has not made any promises, representations, guarantees or warranties of any nature, other than those which have been expressly made in this Agreement.
9.6. GMH gives no warranty and disclaims any implied warranty that the development, manufacture, promotion, and/or distribution of the Licensed Product will not infringe any rights of third parties.
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10. INDEMNITIES
10.1. Licensee shall indemnify, defend and hold harmless GMH (and its parent, subsidiary, associated and affiliated companies, including each of their shareholders, members, respective officers, directors, agents and employees) (the “Indemnified Entities”) from and against any and all claims, damages, liabilities, costs and expenses, including reasonable counsel fees, arising out of any breach or alleged breach by Licensee of any representation, warranty or undertaking made herein, out of any defect (latent or patent) in the Licensed Products or out of any statements and representations, express or implied, in any packaging, advertising or marketing for the Licensed Products, provided that GMH shall give prompt written notice, cooperation and assistance to Licensee relative to any such claim or suit, and provided further that Licensee shall have the option to undertake and conduct the defense and/or settlement of any such claim or suit so brought and no settlement of any such claim or suit shall be made without the prior written consent of GMH.
10.2. GMH will indemnify and hold Licensee, its officers, directors, and employees harmless from and against any and all claims, damages, liabilities, costs, and expenses, including reasonable counsel fees, arising out of any breach or alleged breach by GMH of any representation, warranty, or undertaking made herein, provided that Licensee shall give prompt written notice, cooperation and assistance to GMH relative to any such claim or suit, and provided further that GMH shall have the option to undertake and conduct the defense and/or settlement of any such claim or suit so brought and that no settlement of any such claim or suit is made without the prior written consent of Licensee.
10.3. Notwithstanding any other provision herein, Licensee further acknowledges and agrees it has no right to indemnification from the Indemnified Entities as a result of (i) any defects as to proprietary rights in any Licensed Rights or design licensed hereunder; (ii) any third party’s challenge to Licensee’s use of the Licensed Products; (iii) Licensee’s failure to obtain the full assignment of applicable rights; and/or (iv) any situation wherein Licensee had actual knowledge that its use of the Licensed Rights would infringe or violate a third party’s rights.
11. INSURANCE
11.1. Licensee shall obtain and maintain at its own cost and expense, from a qualified insurance company licensed to do business in Texas and having a rating of at least A- by the A.M. Best & Co. or other rating satisfactory to GMH, standard Product Liability Insurance, including product, advertising and contractual liability insurance, naming GMH as an additional named insureds, with respect to all Licensed Products manufactured hereunder, whether sold during the Term or thereafter. Such policy shall provide protection against any and all claims, demands and causes of action, including reasonable attorney’s fees, arising out of any defects or failure to perform, alleged or otherwise, of the Licensed Products or any material used in connection therewith or any use thereof, and any personal and advertising injury, bodily injury and property damage, in connection with the Licensed Products. The amount of coverage shall be Two Million Dollars ($2,000,000) combined single limit coverage for each occurrence. The policy shall provide for ten (10) days’ notice to GMH from the insurer by Registered or Certified Mail, return receipt requested, in the event of any modification, cancellation or termination thereof. Licensee agrees to furnish GMH a certificate of insurance evidencing same within thirty (30) days after execution of this Agreement and in no event shall Licensee manufacture, distribute or sell the Licensed Products prior to receipt by GMH of such evidence of insurance. GMH shall be notified by each insurance carrier a minimum of thirty (30) days before any cancellation or modification to the particular policy.
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12. DEFAULT
12.1. Upon the occurrence of any of the following events (each of which is a “Default”), then in addition and without prejudice to any rights which it may have at law, in equity or otherwise, GMH shall have the right to terminate this Agreement, to delete from this Agreement any elements of the Licensed Rights, and/or to require the immediate payment of any Minimum Royalty and royalties due to or to become due hereunder:
12.1.1. Licensee fails to actively manufacture, advertise, distribute or sell the Licensed Products;
12.1.2. Licensee fails to make a payment or furnish a statement in accordance wherewith;
12.1.3. Licensee fails to comply with the approval, quality, and/or safety requirements hereunder and/or the Licensed Products do not comply with such requirements and/or the Licensed Products are the subject matter of adverse or negative publicity due to such failure;
12.1.4. Licensee fails to comply with any other of Licensee’s material obligations hereunder or breaches any warranty or representation made by it hereunder;
12.1.5. Licensee sells or otherwise disposes of all or substantially all of its business or assets to a third party, or control of Licensee is transferred and the management thereby changed;
12.1.6. Licensee fails to obtain or maintain product liability insurance in the amount of or the type provided for herein; or
12.1.7. Licensee uses the Licensed Rights outside of the Licensed Products as permitted herein, sublicenses the Licensed Rights without GMH’s express written permission, impliedly or expressly grants any permissions, rights or interests related to use of the Licensed Rights to any third party, or otherwise infringes GMH’s rights in the Licensed Rights.
12.2. In the event any of these Defaults occur, GMH shall give a Notice of Default in writing to Licensee by certified mail return receipt requested and shall be effective immediately upon receipt thereof. Licensee shall have thirty (30) days from the date it receives notice of default to cure any default. Thereafter, any Default of the same kind which already has been identified in any Notice is not subject to these cure provisions. In the event of any Default of the same kind which has already been identified in a Notice, GMH may, at its discretion, terminate this Agreement immediately upon written notice.
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12.3. In the event the parties mutually agree that Licensed Products pose a safety threat to consumers or are the subject of negative publicity due to poor quality and/or safety of the Licensed Products, Licensee shall, upon GMH’s reasonable request, recall such Licensed Products from the marketplace at Licensee’s sole cost and expense and take any other measures GMH may reasonably demand.
12.4. If a petition for bankruptcy is filed by or against Licensee, or Licensee is adjudicated bankrupt, which is not dismissed within thirty (30) days, of Licensee makes any assignment for the benefit of creditors or becomes insolvent, is placed in the hands of a trustee or receiver, fails to satisfy any judgment against it or is unable to pay its debts as they become due, whichever is sooner, this License shall automatically terminate forthwith without any notice whatsoever. Upon such termination for any reason under this subparagraph, Licensee, its receiver, representatives, trustees, agents, administrators, successors, and assigns shall have no further rights hereunder, and neither this License nor any right or interest herein shall be deemed an asset in any insolvency, receivership, and/or bankruptcy.
12.5. The grant of the License hereunder is unique and personal to Licensee, and except as provided herein, may not be assigned or transferred in whole or part without GMH’s express written approval, whether by independent agreement, acquisition by another party of Licensee’s capital stock or assets, mortgage, pledge, lease or other assignment as security, merger, consolidation or reorganization, the succession by another party to Licensee’s business by operation of law, as a consequence of any transaction that results in a chance in the ownership or right of control of Licensee, or otherwise. The License granted herein shall automatically terminate upon the occurrence of the foregoing, and all obligations that survive by their nature shall remain enforceable.
12.6. In addition to the right to terminate this Agreement under this provision, GMH shall have all other rights and remedies at law and in equity, including the right to injunctive relief and specific performance, for breach by Licensee of any of the terms and conditions of this Agreement.
13. FORCE MAJEURE
13.1. In the event that Licensee is prevented from manufacturing, distributing or selling the Licensed Products because of any act of God; unavoidable accident; fire, epidemic; strike, lockout, or other labor dispute; war, riot or civil commotion; act of public enemy; enactment of any rule, law, order or act of government or governmental instrumentality (whether federal, state, local or foreign); or other cause beyond Licensee’s control, and such condition continues for a period of two (2) months or more, either party hereto shall have the right to terminate this Agreement effective at any time during the continuation of such condition by giving the other party at least thirty (30) days’ notice to such effect. In such event, all royalties on sales theretofore made shall become immediately due and payable and this Agreement shall be automatically terminated.
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14. EFFECT OF EXPIRATION OR TERMINATION
14.1. Upon expiration or termination of this Agreement, all rights granted to Licensee herein shall forthwith revert to GMH, with the following consequences:
14.1.1. No portion of any prior payments shall be repayable to Licensee, and any and all payments due or to become due, including any royalties and Minimum Royalty shall be immediately due and payable. If, at such time, the total amount of royalties paid by Licensee during the Term is less than the Minimum Royalty, Licensee shall immediately pay such difference to GMH.
14.1.2. Except as provided in subparagraph 14.1.3, after the expiration or termination of this Agreement, Licensee shall not manufacture, advertise, distribute or sell the Licensed Products containing or including the Licensed Rights, or use any name, logo or design which is substantially or confusingly similar to the Licensed Rights on any product in any place whatsoever. Licensee shall promptly deliver to GMH a statement indicating the number of Licensed Products then currently on hand or in the process of being manufactured. GMH shall have the right to conduct a physical inventory in order to ascertain or verify such inventory and/or statement.
14.1.3. Upon expiration of this Agreement, so long as Licensee is not in default hereunder, Licensee shall have the right to sell physical stock of the Licensed Product available at expiration of this Agreement within three (3) months (“Sell-Off Period”) or to fulfill any pending transactions entered into before termination of this Agreement provided always that delivery can be achieved within three (3) months after the end of this Agreement. Any sales shall be subject to Royalty payments.
14.1.4. Any royalties earned during the Sell-Off Period may not be applied to any Minimum Royalty, such amount being due at the time of termination or expiration. After the Sell-Off Period has expired, all remaining inventory shall be destroyed by Licensee or repackaged without the Licensed Rights. In the event that Licensee destroys the Licensed Products containing the Licensed Rights or materials relating thereto, GMH may require Licensee to deliver to GMH an affidavit by an officer of Licensee, attesting to such destruction.
14.1.5. All warranties, indemnification and any other applicable obligations of Licensee shall survive the expiration or termination of this License.
15. NOTICES
15.1. All notices which either party hereto is required or may desire to give to the other shall be given by addressing the same to the other at the address first set forth above, or at such other address as may be designated in writing by any such party in a notice to the other given in the manner prescribed in this paragraph. All such notices shall be made in writing by mailing the same by certified or registered mail, return receipt requested, and shall be effective immediately upon receipt thereof.
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Any and all notices to GMH shall be addressed to:
Gas Monkey Holdings, LLC
c/o Richard Rawlings
2330 Merrell Road
Dallas, Texas 75229
Any and all notices to Licensee shall be addressed to:
Generation Hemp, Inc.
c/o Gary C. Evans
P.O Box 540308
Dallas, Texas 75354
gevans@genhempinc.com
16. CONFIDENTIALITY
16.1. In connection with the services provided hereunder, each of Licensee and GMH may, from time to time, be exposed to and will be furnished with certain information, relating to the other’s plans for certain productions and services, which are confidential. Each of Licensee and GMH shall keep confidential and not reveal or disclose any of said information, material, or data to any third party or the terms of this Agreement (other than the existence of the License granted under this Agreement), or any agreement Licensee enters into pursuant to this Agreement during the Term or thereafter. Neither Licensee nor GMH will disclose or make known to anyone outside of Licensee or GMH, as applicable, directly or indirectly, the interest of the other in this Agreement or the terms of this Agreement. The provisions of this paragraph shall not apply to information, materials, and/or data which: 1) is or becomes publicly available or known; 2) is required to be disclosed pursuant to court order, regulatory filing, or any applicable law, rules, or regulations; and/or 3) is independently developed by the disclosing party.
17. GENERAL TERMS
17.1. Any attempted or purported assignment or other transfer, sublicense, mortgage or other encumbrance of this License and the rights granted herein by Licensee without the prior written approval of GMH shall be void and of no effect. This Agreement and the rights and obligations of the parties hereunder shall be binding upon and shall inure to the benefit of GMH and Licensee and their respective legal representatives, successors in interest and permitted assigns.
17.2. Nothing herein contained shall be construed to constitute a partnership or joint venture between the parties hereto, and neither Licensee nor GMH shall become bound by any representation, act, or omission of the other. Licensee is an independent contractor in the manufacture, advertisement, sale, and distribution of the Licensed Products, and Licensee will pay all sales taxes and other taxes or charges imposed on Licensee or GMH (except for GMH’s income tax) by any law, ordinance or requirement of any government or governmental instrumentality in connection with the manufacture, advertisement, sale and/or distribution of the Licensed Products
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17.3. A waiver by either party of any terms or conditions of this Agreement in any instance shall not be deemed or construed to be a waiver of such term or condition for the future, or of any subsequent breach thereof. All remedies, rights, undertakings, obligations, and agreements contained in this Agreement shall be cumulative, and none of them shall be in limitation of any other remedy, right, undertaking, obligation or agreement of either party.
17.4. This Agreement and all matters or issues collateral thereto shall be governed by the laws of the state of Texas applicable to contracts performed entirely therein. In any such action or proceeding, service of process upon Licensee may be accomplished by sending such process in the manner specified herein for the giving of notice to Licensee. Licensee hereby consents and submits to the exclusive jurisdiction of the federal and/or state courts located in Dallas County, Texas in connection with any proceedings arising out of or related to this Agreement.
17.5. The entire understanding between the parties hereto relating to the subject matter hereof is contained herein and no warranties, representations or undertakings are made by the parties hereto except as expressly provided herein. This Agreement cannot be changed except in writing signed by the parties.
17.6. The paragraph titles of this Agreement are for convenience only and shall not affect the interpretation of this Agreement or any paragraph thereof.
17.7. The parties agree to execute such other writings, documents and instruments as may be necessary or desirable to effectuate the purposes of this Agreement.
17.8. This Agreement shall be interpreted as if the parties hereto jointly prepared it.
17.9. All parties agree that this Agreement may be signed and transmitted by electronic mail including, PDF, TIF, or JPG and other electronic signatures including DocuSign and HelloSign and thereafter maintained in electronic form, and that such electronic record shall be valid and effective to bind the party so signing as a paper copy bearing such party’s hand-written signature.
[END OF DOCUMENT]
12
EXHIBIT A
[INSERT LICENSEE-SPECIFIC GAS MONKEY WORD AND DESIGN MARK]
13
Exhibit 10.14
AMENDED AND RESTATED SUBORDINATED PROMISSORY NOTE
Dated January 1, 2022
Principal Amount $523,550.92
FOR VALUE, Generation Hemp, Inc., a Delaware corporation (“Borrower”), whose mailing address is P.O. Box 540308, Dallas, Texas 75354, promises and agrees to pay to the order of Gary C. Evans, a Texas resident (“Lender”), whose address is 8533 Midway Road, Dallas, Texas 75209, or at such other location as the holder of this Amended and Restated Subordinated Promissory Note (the “Note”), originally issued on November 20, 2020 (the “Original Note”), may designate by written notice to Borrower, the sum of five hundred twenty-three thousand five hundred fifty dollars and ninety-two cents ($523,550.92) in the lawful currency of the United States with interest at a rate of 10 % per annum, but in no event higher than the Highest Lawful Rate (as hereinafter defined). This Note amends and restates the Original Note and all amendments, allonges and modifications thereto, in its collective entirety.
“Highest Lawful Rate” means the maximum nonusurious rate of interest permitted by applicable federal or Texas law from time to time.
Interest on this Note shall be computed for the actual number of days elapsed and on the basis of a year consisting of 360 days, and a month consisting of 30 days, unless the Highest Lawful Rate would thereby be exceeded, in which event, to the extent necessary to avoid exceeding the Highest Lawful Rate, interest shall be computed on the basis of the actual number of days elapsed in the applicable calendar year in which accrued. It is understood that interest will begin to accrue on the date of each principal amount advanced as outlined on Exhibit “A.”
The principal amount of this Note and all accrued, unpaid interest thereon is due and payable in full on the 30th day of June, 2022 (the “Payment Date”). This Note may be prepaid in whole or in part at any time prior to the payment date stated in the preceding sentence without penalty as to principal, and any partial payments shall be applied to the principal due on this Note in inverse order of maturity with interest being adjusted accordingly.
Any time prior to June 30, 2022, if Borrower raises new equity capital in the amount of three million dollars ($3,000,000.00) or greater, then within five (5) business days of closing, repayment of all outstanding principal and interest on this Subordinated Promissory Note will be due.
If one of the following events occurs, Maker shall be in default (“Default”) and this Note shall, at Lender’s option, become immediately due and payable without demand or notice:
(i) the failure of Borrower to pay the principal and any accrued interest in full on or before the Payment Date;
(ii) the filing of bankruptcy proceedings involving the Borrower as a debtor;
(iii) the making of a general assignment for the benefit of the Borrower’s creditors; or the uncured breach by Borrower under any of the security documents executed in conformity with this Note, which remains uncured following any applicable cure period.
If any payment date falls on a Saturday, Sunday, or a federal holiday, then payment will be due on the next business day and such extension of time shall in such case be included in the computation or payment of interest hereunder. All past due principal and interest on this Note shall bear interest at the Highest Lawful Rate.
To the extent that waiver of notice is permitted by applicable law, the Borrower and any and all co-makers, endorsers, guarantors, and sureties jointly and severally waive notice (including, but not limited to, notice of intent to accelerate and notice of acceleration), demand, presentment for payment, protest and the filing of suit for the purpose of fixing liability and consent that the time of payment hereof may be extended and re-extended from time to time without notice to them or any of them, and each agree that his, her, or its liability on or with respect to this Note shall not be affected by any release of or change in any security at any time existing or by any failure to perfect or to maintain perfection of any lien on or security interest in any such security.
This Note has been executed and delivered in Dallas, Dallas County, Texas, and shall be governed by and construed in accordance with the laws of the State of Texas and the United States of America from time to time in effect without regard to the choice of law provisions thereof, and shall be enforceable in Dallas County, Texas.
Regardless of any provision contained in this Note, the Payee shall never be deemed to have contracted for or be entitled to receive, collect or apply as interest on the Note, any amount in excess of the maximum rate of interest permitted to be charged by applicable law and, in the event Payee ever receives, collects or applies as interest any such excess, such amount which would be excessive interest shall be applied to the reduction of the unpaid principal balance of this Note; and, if the principal balance of this Note is paid in full, any remaining excess shall forthwith be paid to Maker. In determining whether or not the interest paid or payable under any specific contingency exceeds the highest lawful rate, Maker and Payee shall, to the maximum extent permitted under applicable law, (i) exclude voluntary prepayments and the effect thereof, and (ii) spread the total amount of interest throughout the entire contemplated term of this Note so that the interest rate is uniform throughout such term.
This Promissory Note is intended to be an obligation of Borrower and, by the execution of this Promissory Note, Borrower agrees that Borrower shall not be entitled to sell, transfer, assign, or convey in any manner whatsoever, this Promissory Note and Borrower shall remain obligated under this Promissory Note until the obligation set forth herein is paid in full.
If this Note is placed in the hands of any attorney for collection, or if it is collected through any legal proceedings at law or in equity or in bankruptcy, receivership or other court proceedings, Maker joint and severally agrees to pay all costs of collection, including, but not limited court costs and reasonable attorney’s fees.
IN WITNESS WHEREOF, the undersigned Borrower has duly executed this Note effective as of the date first written above.
| By: | /s/ Joe McClaugherty | |
| Name: | Joe McClaugherty | |
| Title: | Lead Director |
2
Exhibit 10.19
AMENDED AND RESTATED SUBORDINATED PROMISSORY NOTE
| $250,000.00 | Original Date of Note, December 31, 2020 |
For value received, GENERATION HEMP, INC., a Delaware corporation (the “Borrower”), promises to pay to PATRICE MCNICOLL, an individual, or his assigns (the “Holder”), the principal sum of $250,000.00 (U.S. Dollars), together with all accrued and unpaid interest thereon as set forth below. All payments of principal and interest hereunder shall be made by wire transfer pursuant to wire transfer instructions that may be provided by the Holder to the Borrower from time to time.
This Amended and Restated Subordinated Promissory Note (this “Note”) has been delivered, as of January 31, 2022, pursuant to the original Subordinated Promissory Note, dated December, 31, 2020 , between Borrower and Holder (the “Original Note”), and pursuant to that certain Asset Purchase Agreement (the “Purchase Agreement”), by and among Generation Hemp, Inc., a Texas corporation, the Borrower, OZ Capital, LLC, a Texas limited liability company, OZC Agriculture KY, LP, a Texas limited partnership, the Holder and the Owners set forth on the signature pages to the Purchase Agreement, dated March 7, 2020, as amended, and shall be governed by the terms of such Purchase Agreement. Any capitalized terms used herein and not defined herein, shall have the meanings set forth in the Purchase Agreement. This Note amends and restates the obligations contained in the Original Note and all amendments thereto in all respects.
1. Payments. The Borrower shall make a principal payment of $50,000.00 to the Holder on or before March 31, 2022. The Borrower shall make a principal payment of $200,000.00 to the Holder, together with accrued and unpaid interest hereunder, on June 30, 2022. Notwithstanding to the contrary, all outstanding principal and all accrued and unpaid interest hereunder shall be due and payable in full on June 30, 2022.
2. Alternative Payment. Any time prior to June 30, 2022, if Borrower raises new equity capital in the amount of five million dollars ($5,000,000.00) or greater, then within twenty (20) business days of closing, repayment of all outstanding principal and interest on this Subordinated Promissory Note will be due.
3. Interest Rate. Simple interest on the unpaid principal balance of this Note shall accrue at the lesser of ten percent (10%) per annum and the highest rate permitted by law. If an Event of Default (as defined below) shall occur under this Note, interest shall immediately commence accruing at a default rate of twelve percent (12%) per annum.
4. Default. The occurrence of any of the following events of default (each, an “Event of Default”) shall, at the option of the Holder hereof, make all principal and interest (to the extent accrued) then remaining unpaid hereon and all other amounts payable hereunder immediately due and payable, upon written demand, without presentment, or grace period, all of which hereby are expressly waived, except as set forth below:
(a) Failure to Pay Principal or Interest. The Borrower fails to pay any installment of principal or interest due under this Note when due and such failure continues for a period of five (5) days after written notice.
(b) Receiver or Trustee. The Borrower shall make an assignment for the benefit of creditors, or applies for or consents 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 without the consent of the Borrower, which shall constitute an automatic Event of Default and shall result in all remaining unpaid principal and interest due hereon immediately due and payable without the written demand from the Holder.
(c) Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings or relief under any bankruptcy law or any law, or the issuance of any notice in relation to such event, for the relief of debtors shall be instituted by or against the Borrower, which shall constitute an automatic Event of Default and shall result in all remaining unpaid principal and interest due hereon immediately due and payable without the written demand from the Holder.
5. Termination. Upon payment of all cash amounts due to the Holder as provided in this Note, the Borrower will forever be released from all of its payment obligations and liabilities under this Note and the Holder agrees to promptly return to the Borrower the Note marked “paid in full.” This Note may be prepaid, in whole or in part, without the prior consent of the Holder.
SUBORDINATED PROMISSORY NOTE – Page 1
6. Miscellaneous.
(a) Successors and Assigns. This Note shall be binding upon successors and assigns of the Borrower, and shall inure to the benefit of the successors and permitted assigns of the Holder.
(b) Severability. The unenforceability or invalidity of any provision or provisions of this Note shall not render any other provision or provisions herein contained unenforceable or invalid.
(c) Notice. Any notice or communication required to be given hereunder may be delivered by hand or deposited with an overnight courier (with overnight delivery instructions), if to the Borrower, to the address of the Borrower’s corporate headquarters, and if to the Holder, to the last address of the Holder set forth in the Borrower’s books and records. Notice shall be deemed given and received on the date sent if sent by personal delivery; and one (1) day after the date sent if sent by overnight courier.
(d) Entire Agreement. This Note contains the entire and complete understanding between the parties concerning its subject matter and all representations, agreements, arrangements and understandings between or among the parties, whether oral or written, have been fully merged herein and are superseded thereby, except for representations, agreements, arrangements and understandings between or among the parties made pursuant to the Purchase Agreement and any other agreements entered into in connection therewith and herewith. This Note may be modified only by a writing signed by both parties.
(e) Governing Law; Attorneys’ Fees. This Note shall be governed by and construed in accordance with the laws of the State of Texas, without giving effect to its principles regarding conflicts of law. Upon default, the breaching party agrees to pay to the non-breaching party reasonable attorneys’ fees, plus all other reasonable expenses, incurred by the non-breaching party in exercising any of the non-breaching party’s rights and remedies.
(f) Jurisdiction. The parties (a) hereby irrevocably and unconditionally submit to the jurisdiction of the state courts of the State of Texas, Dallas County, and to the jurisdiction of the United States District Court for the State of Texas , for the purpose of any suit, action or other proceeding arising out of or based upon this Note; (b) agree not to commence any suit, action or other proceeding arising out of or based upon this Note except in the state courts of the State of Texas, Dallas County, or the United States District Court for the State of Texas; and (c) hereby waive, and agree not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above named courts, that its property is exempt or immune from attachment or execution, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Note or the subject matter hereof may not be enforced in or by such court.
(g) Offset. The Holder agrees that the Borrower will have the right to offset any losses provided for in the Purchase Agreement against any sums payable hereunder to the Holder.
(h) FINAL AGREEMENT. THIS NOTE AND ALL OTHER INSTRUMENTS, DOCUMENTS AND AGREEMENTS EXECUTED AND DELIVERED BY THE BORROWER IN CONNECTION WITH THE INDEBTEDNESS EVIDENCED BY THIS NOTE EMBODY THE FINAL, ENTIRE AGREEMENT OF THE BORROWER AND THE HOLDER WITH RESPECT TO THE INDEBTEDNESS EVIDENCED BY THIS NOTE AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE INDEBTEDNESS EVIDENCED BY THIS NOTE AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE BORROWER AND THE HOLDER. THERE ARE NO ORAL AGREEMENTS BETWEEN THE BORROWER AND THE HOLDER.
(i) Subordination. By its acceptance hereof, the Holder agrees that the indebtedness evidenced by this Note, including the principal of and interest thereon, shall be subordinate to and subject in right of payment, to the extent hereinafter set forth, to the prior payment in full of all principal, interest and any other sums then due on all existing or future Senior Indebtedness of the Borrower. The term “Senior Indebtedness” shall mean secured and unsecured indebtedness of the Borrower, or with respect to which the Borrower is a guarantor, for money borrowed by the Borrower from any financial institution.
Signature Page Follows
SUBORDINATED PROMISSORY NOTE – Page 2
IN WITNESS WHEREOF, the Borrower has executed this Note as of the date set forth above.
| GENERATION HEMP, INC., | ||
| a Delaware corporation | ||
| By: | /s/ Gary C. Evans | |
| Gary C. Evans, Chairman and CEO | ||
SUBORDINATED PROMISSORY NOTE – Page 3
Exhibit 10.23
Generation Hemp, Inc.
8533 Midway Road
Dallas, Texas 75209
Coventry Asset Management, Ltd.
2048 Coventry Ct.
Keller, Texas 76262
| Re: | In reference to that certain Secured Promissory Note Issued by Halcyon Thruput, LLC, dated December 30, 2020 (the “Note”). |
Coventry Assert Management, Ltd.:
To Coventry Asset Management, Ltd. (“Coventry”), this letter agreement (the “Agreement”) is being issued by Generation Hemp, Inc. (the “Company”) to amend certain terms and conditions of the Note referenced above. All terms used herein shall have the meanings ascribed to such terms in the Note.
All principal payments shall be suspended until the Maturity Date of the Note. The Maturity Date of the Note shall be amended to reflect that it is April 30, 2022; provided however that if the Company successfully completes a public equity offering equal to or in excess of $10,000,000 (the “Offering”) prior to such date, then the Company will pay all outstanding principal and interest payments due under the Note within five business days of the closing of such offering.
In consideration of such modifications to the Note, the Company agrees to issue to Coventry 20,000 shares of the Company’s common stock. These shares will be unregistered restricted securities and shall be subject to the restrictions placed on such shares through both Blue-Sky Laws of the applicable states and the rules and regulations of the United States Securities and Exchange Commission and applicable laws and regulatory authorities.
Additionally, during a period of thirty days following the execution of this letter agreement modifying the Note, Coventry has the exclusive option to elect to convert $250,000 of the outstanding principal balance under the Note into shares of the Company’s common stock at an exercise price of $0.60 per share.
Except as modified by this Agreement, all other terms of the Note shall remain in full force and effect.
Generation Hemp, Inc.
| /s/ Gary C. Evans | ||
| Gary C. Evans, Chairman and | ||
| Chief Executive Officer |
Agreed and Accepted by Coventry Asset Management, Ltd.
| /s/ Gen Fukunaga | March 7, 2022 | |
| Gen Fukunaga, Managing Partner | DATE |
Exhibit 10.29
AMENDED AND RESTATED PROMISSORY NOTE
$410,000.26 January 1, 2022
For value received, GENERATION HEMP, INC., a Delaware corporation (the “Borrower”), promises to pay to GARY C. EVANS, an individual, or his assigns (the “Holder”), the principal sum of $410,000.26 (U.S. Dollars), together with all accrued and unpaid interest thereon as set forth below. It is expressly understood that the commitment to provide the first principal sum of $100,000 was agreed to on July 20, 2021 and all provisions of this unsecured promissory note shall be deemed effective as of such date and all financial obligations shall accrue from such date with respect to such amount. It is expressly understood that the commitment to provide the second principal sum of $100,000.00 was agreed to on August 3, 2021 and all provisions of this unsecured promissory note shall be deemed effective as of such date and all financial obligations shall accrue from such date with respect to such amount. It is expressly understood that the commitment to provide the third principal sum of $100,000.00 was agreed to on August 23, 2021 and all provisions of this unsecured promissory note shall be deemed effective as of such date and all financial obligations shall accrue from such date with respect to such amount. It is expressly understood that the commitment to provide the fourth principal sum of $50,000.00 was agreed to on September 9, 2021 and all provisions of this unsecured promissory note shall be deemed effective as of such date and all financial obligations shall accrue from such date with respect to such amount. It is expressly understood that the commitment to provide the fifth principal sum of $270,000.00 was agreed to on September 29, 2021 and all provisions of this unsecured promissory note shall be deemed effective as of such date and all financial obligations shall accrue from such date with respect to such amount. It is expressly understood that the commitment to provide the sixth principal sum of $15,000.00 was agreed to on October 19, 2021 and all provisions of this unsecured promissory note shall be deemed effective as of such date and all financial obligations shall accrue from such date with respect to such amount. It is expressly understood that the commitment to provide the seventh principal sum of $50,000.00 was agreed to on November 10, 2021 and all provisions of this unsecured promissory note shall be deemed effective as of such date and all financial obligations shall accrue from such date with respect to such amount. It is expressly understood that the commitment to provide the eighth principal sum of $25,000.00 was agreed to on December 8, 2021 and all provisions of this unsecured promissory note shall be deemed effective as of such date and all financial obligations shall accrue from such date with respect to such amount. All payments of principal and interest hereunder shall be made by check or wire transfer pursuant to wire transfer instructions that may be provided by the Holder to the Borrower from time to time.
| 1. | Payments; Conversion. The Borrower shall make the principal payment on June 30, 2022 to the Holder, together with accrued and unpaid interest hereunder. Notwithstanding to the contrary, all outstanding principal and all accrued and unpaid interest hereunder shall be due and payable in full at that time. In addition, the Holder shall have the option to convert the then outstanding balance of principal and interest under this Note into restricted shares of the Borrower’s Common Stock at a conversion price equal to $0.50 per share of Common Stock. |
| 2. | Alternative Payment. Any time prior to June 30, 2022, if Borrower raises new equity capital in the amount of three million dollars ($3,000,000.00) or greater, then within five (5) business days of closing, repayment of all outstanding principal and interest on this Convertible Promissory Note will be due. |
PROMISSORY NOTE – Page 1
| 3. | Interest Rate. Simple interest on the unpaid principal balance of this Note shall accrue at the lesser of ten percent (10%) per annum and the highest rate permitted by law. If an Event of Default (as defined below) shall occur under this Note, interest shall immediately commence accruing at a default rate of twelve percent (12%) per annum. |
| 4. | Default. The occurrence of any of the following events of default (each, an “Event of Default”) shall, at the option of the Holder thereof, make all principal and interest (to the extend accrued) then remaining unpaid hereon and all other amounts payable hereunder immediately due and payable, upon written demand, without presentment, or grace period, all of which hereby are expressly waived, except as set forth below: |
| (a) | Failure to Pay Principal or Interest. The Borrower fails to pay any installment of principal or interest due under this Note when due and such failure continues for a period of five (5) days after written notice. |
| (b) | Receiver or Trustee. The Borrower shall make an assignment for the benefit of creditors, or applies for or consents to the appointment of a receiver or trustee for it or for a substantial part of its property or business; or such a receiver of trustee shall otherwise be appointed without the consent of the Borrower, which shall constitute an automatic Event of Default and shall result in all remaining unpaid principal and interest due hereon immediately due and payable without the written demand from the Holder. |
| (c) | Bankruptcy. Bankruptcy, insolvency, reorganization, or liquidation proceedings or other proceedings or relief under any bankruptcy law or any law, or the issuance of any notice in relation to such event, for the relief of debtors shall be instituted by or against the Borrower, which shall constitute an automatic Event of Default and shall result in all remaining unpaid principal and interest due hereon immediately due and payable without the written demand from the Holder. |
| 5. | Termination. Upon payment of all cash amounts due to the Holder as provided in this Note, the Borrower will forever be released from all of its payment obligations and liabilities under this Note and the Holder agrees to promptly return to the Borrower the Note marked “paid in full”. This Note may be prepaid, in whole or in part, without the prior consent of the Holder. |
PROMISSORY NOTE – Page 2
| 6. | Miscellaneous |
| (a) | Successors and Assigns. This Note shall be binding upon successors and assigns of the Borrower, and shall inure to the benefit of the successors and permitted assigns of the Holder. |
| (b) | Severability. The unenforceability or invalidity of any provision or provisions of this Note shall not render any other provision or provisions herein contained unenforceable or invalid. |
| (c) | Notice. Any notice or communication required to be given hereunder may be delivered by hand or deposited with an overnight courier (with overnight delivery instructions), if to the Borrower, to the address of the Borrower’s corporate headquarters, and if to the Holder, to the last address of the Holder set forth in the Borrower’s books and records. Notice shall be deemed given and received on the date sent if sent by personal delivery; and one (1) day after the date sent if sent by overnight courier. |
| (d) | Entire Agreement. This Note contains the entire and complete understanding between the parties concerning its subject matter and all representations, agreements, arrangements, and understandings between or among the parties, whether oral or written, have been fully merged herein and are superseded thereby, except for representations, agreements, and understandings between or among the parties made pursuant to the Purchase Agreement and any other agreements entered into in connection therewith and herewith. The Note may be modified only by a writing signed by both parties. |
| (e) | Governing Law; Attorneys’ Fees. This Note shall be governed by and construed in accordance with the laws of the State of Texas, without giving effect to its principles regarding conflicts of law. Upon default, the breaching party agrees to pay to the non-breaching party reasonable attorneys’ fees, plus all other reasonable expenses, incurred by the non-breaching party in exercising any of the non-breaching party’s rights and remedies. |
| (f) | Jurisdiction. The parties (a) hereby irrevocably and unconditionally submit to the jurisdiction of the state courts of the State of Texas, Dallas County, and to the jurisdiction of the United States District Court for the State of Texas, for the purpose of any suit, action, or other proceeding arising out of or based upon this Note; (b) agree not to commence any suit, action, or other proceeding arising out of or based upon this Note except in the state courts of the State of Texas, Dallas County, or the United States District Court for the State of Texas; and (c) hereby waive, and agree not to assert, by way of motion, as a defense, or otherwise, in any such suit, action, or proceeding, any claim that it is not subject personally to the jurisdiction of the above named courts, that its property is exempt or immune from attachment or execution, that the suit, action, or proceeding is brought in an inconvenient forum, that the venue of the suit, action, or proceeding is improper or that this Note or the subject matter hereof may not be enforced in or by such court. |
| (g) | FINAL AGREEMENT. THIS NOTE AND ALL OTHER INSTRUMENTS, DOCUMENTS, AND AGREEMENTS EXECUTED AND DELIVERED BY THE BORROWER IN CONNECTION WITH THE INDEBTEDNESS EVIDENCED BY THIS NOTE EMBOTY THE FINAL, ENTIRE AGREEMENT OF THE BORROWER AND THE HOLDER WITH RESPECT TO THE INDEBTEDNESS EVIDENCED BY THIS NOTE AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE INDEBTEDNESS EVIDENCED BYT HIS NOTE AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE BORROWER AND THE HOLDER. THERE ARE NO ORAL AGREEMENTS BETWEEN THE BORROWER AND THE HOLDER. |
| (h) | Subordination. By its acceptance hereof, the Holder agrees that the indebtedness evidenced by this Note, including the principal of and interest thereon, shall be subordinate to and subject in right of payment, to the extent hereinafter set forth, to the prior payment in full of all principal, interest, and any other sums then due on all existing or future Senior Indebtedness of the Borrower. The term “Senior Indebtedness” shall mean secured and unsecured indebtedness of the Borrower, or with respect to which the Borrower is a guarantor, for money borrowed by the Borrower from any financial institution or other sources prior to the date of this unsecured promissory note. |
Signature Page Follows
PROMISSORY NOTE – Page 3
IN WITNESS WHEREOF, the Borrower has executed this Note as of the date set forth above.
| GENERATION HEMP, INC., | ||
| a Delaware Corporation | ||
| By: | /s/ Joe McClaugherty | |
| Joe McClaugherty | ||
| Lead Director | ||
PROMISSORY NOTE – Page 4
Exhibit 10.30
REAL PROPERTY OPTION TO PURCHASE CONTRACT
This REAL PROPERTY OPTION TO PURCHASE CONTRACT (this “Contract”) is made and entered into as of December 31, 2020 and signed on January 11, 2021, by and between
| OZ CAPITAL, LLC | ||||
| a Texas limited liability company | ||||
| 222 West Exchange Street | ||||
| Fort Worth, Texas 76164 | (“ Grantor”) | |||
| and | ||||
| GENH HALCYON ACQUISITION, LLC | ||||
| a Texas limited liability company | ||||
| PO Box 540308 | ||||
| Dallas, Texas 75354 | (“Optionee”). |
RECITALS
A. Grantor is the owner in fee simple of the Property (hereinafter defined).
B. In connection with the consummation of the transactions under the APA (hereinafter defined), Grantor desires to grant Optionee an option to purchase and acquire the Property, pursuant to the terms and conditions contained in this Contract.
NOW, THEREFORE, in consideration of the mutual representations, benefits and covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which are acknowledged and confirmed, Grantor and Optionee covenant and agree as follows:
TERMS AND CONDITIONS
1. The Property. The real property consists of one parcel located at 400 Mitsubishi Lane, Christian County, Kentucky 42240, as more particularly described on EXHIBIT “A”, together with any and all improvements now existing or hereafter located thereon (the “Property”).
2. Option Purchase Price. For $575,000.00 (the “Purchase Price”) to be allocated to the Property out of the “Purchase Price” set forth in that certain Asset Purchase Agreement, dated as of March 7, 2020, as amended by that certain First Amendment to Asset Purchase Agreement, dated as of the date hereof, by and among Generation Hemp, Inc., a Colorado corporation (“GENH”), Buyer, Seller, OZC Agriculture KY, LP, a Texas limited partnership, Halcyon Thruput, LLC, a Texas limited liability company, Jack Sibley, a resident of the State of Texas, and Watt Stephens, a resident of the State of Texas (the “APA”), Optionee shall be granted an option to acquire the Property from Grantor free and clear of all liens for a purchase price of $993,000.00 for a period of one (1) year from the date of this Option Agreement.
3. Closing; Closing Costs; Closing Documents.
(c) Closing Costs. In the event of the exercise of this option by the Optionee, Optionee shall pay the recording fee for the general warranty deed. Optionee shall pay for preparation of the deed, the transfer tax on the deed and all title examination fees and title insurance premiums, if any, necessary to provide Optionee with an owner’s policy of title insurance (the “Title Policy”). Grantor and Optionee shall be responsible for the payment of their own respective attorneys’ fees and expenses.
(d) General Warranty Deed. On the closing date specified in the exercise of this Option (the “Option Closing Date”) , Grantor shall convey to Optionee an unencumbered, marketable fee simple title to the Property by recordable deed of general warranty, free and clear of all liens and encumbrances, except liens for real property taxes and assessments for the current year not yet due and payable and thereafter, and all exceptions to title contained in the Title Policy.
REAL PROPERTY OPTION TO PURCHASE CONTRACT– Page 1
(e) Real Property Taxes. All real property ad valorem taxes and assessments against or on the Property, due and payable in the year of Closing, shall be prorated between Optionee and Grantor as of the Option Closing Date on a calendar year or fiscal year basis, whichever is appropriate.
(f) Utility Charges. Grantor shall pay all charges for utility services rendered before the Option Closing Date with respect to the Property, and Optionee shall pay all charges for utility services rendered on or after the Option Closing Date. All utility meters with respect to the Property, if any, shall be read by a representative of each utility company on the Option Closing Date.
4. Possession. Exclusive possession of the Property shall be delivered to Optionee on the Closing Date.
5. As Is Condition. Optionee acknowledges and agrees that, except as specifically set forth herein, Grantor is not making and has not at any time made any warranties or representations of any kind or character, express or implied, with respect to the Property, including, but not limited to, any warranties or representations as to the habitability, merchantability, fitness for a particular purpose, zoning, physical defects or condition, environmental condition, compliance with applicable laws, rules and regulations or any other matter whatsoever regarding the Property, except as provided herein. Subject to Grantor’s representations and warranties specifically set forth herein, Optionee acknowledges and agrees that upon Closing, Grantor shall sell and convey the Property to Optionee and Optionee shall accept the Property “AS IS AND WITH ALL FAULTS.” Optionee has not relied and will not rely on, and Grantor is not liable for or bound by, any expressed or implied warranties, guaranties, statements, representations, or information pertaining to the Property or relating thereto made or furnished by any agent representing or purporting to represent Grantor.
6. Risk of Loss. All risk of loss with respect to the Property shall remain with Grantor until the closing and delivery of the deed to Optionee on the Option Closing Date.
7. Default. If, following the full execution of this Contract, either party defaults in the performance of its duties or obligations under this Contract, then:
(a) if Optionee is the party in default and such default is not cured within seven (7) days, (i) this Contract shall become null and void; and (ii) Grantor may pursue any other remedy available at law or in equity; and
(b) if Grantor is the party in default and such default is not cured within seven (7) days after written notice, (i) Optionee may declare this Contract null and void; and (ii) Optionee may pursue any other remedy available at law or in equity.
8. Notice.
(a) Delivery. Any notice or consent authorized or required by this Contract shall be in writing and (i) delivered personally; (ii) sent postage prepaid by certified mail or registered mail, return receipt requested; or (iii) sent by a nationally recognized overnight carrier that guarantees next day delivery, directed to the other party at the address first set forth above or such other parties or addresses as may be designated by either Optionee or Grantor by notice given from time to time in accordance with this Paragraph 8.
(b) Receipt. A notice or consent given in accordance with this Paragraph 8 shall be deemed received (i) upon delivering it in person; (ii) three days after depositing it in an office of the United States Postal Service or any successor governmental agency; or (iii) one day after giving it to a nationally recognized overnight carrier.
9. Benefit and Binding Effect. This Contract shall be binding upon, and shall inure to the benefit of, the parties hereto, their respective heirs, legal representatives, successors and assigns.
10. Time of the Essence. Time is of the essence for this Contract.
REAL PROPERTY OPTION TO PURCHASE CONTRACT– Page 2
11. Governing Law. This Contract shall be governed by and construed in accordance with the laws of the Commonwealth of Kentucky.
12. Entire Agreement. This Contract contains the entire agreement between the parties hereto with respect to the matters to which it pertains, and may be amended only by written agreement signed by both Optionee and Grantor.
13. Headings. The paragraph headings used herein are for convenience purposes only and do not constitute matters to be construed in interpreting this Contract.
14. Assignment. Optionee may not assign this Contract to any party, without the consent of Grantor.
15. Further Assurances. The parties hereto shall take such further action and execute such documents and instruments as shall be reasonably necessary to consummate the transactions contemplated by this Contract.
16. Memorandum.
Optionee may file a memorandum of this Contract in the real property records of
Christian County, Kentucky
Signature Page Follows
REAL PROPERTY OPTION TO PURCHASE CONTRACT– Page 3
IN WITNESS WHEREOF, the parties acting by and through their duly authorized representatives, duly executed this Contract as of the date first set forth above, but actually on the dates set forth below.
| GRANTOR: | ||
| OZ CAPITAL, LLC, | ||
| a Texas limited liability company | ||
| By: | /s/ Watt Stephens | |
| Name: | Watt Stephens | |
| Title: | Partner | |
| Date: | 1/11/21 | |
| OPTIONEE: | ||
| GENH HALCYON ACQUISITION, LLC, | ||
| a Texas limited liability company | ||
| By: | /s/ Gary C. Evans | |
| Gary C. Evans, Chairman and CEO | ||
| Date: | January 11, 2021 | |
REAL PROPERTY OPTION TO PURCHASE CONTRACT – Signature Page
EXHIBIT A
BEING Lot 4, Hopkinsville Industrial Park, as shown by plat of record in Plat Cabinet 4, File 467, in the Office of the Clerk of Christian County, Kentucky.
THERE IS EXCEPTED FROM the foregoing Lot 4, so much thereof as was conveyed to the Commonwealth of Kentucky, for the use and benefit of the Transportation Cabinet, Department of Highways, by Deed dated December 12, 1994, and recorded in Deed Book 516 at Page 140, Christian County Clerk’s Office, as amended by a Deed of Correction dated July 14, 1995, and recorded in Deed Book 522, at Page 325, same office, which property is described as follows:
Beginning at a point 40.00 feet right of US41 Nashville Rd. Station 27+24.44; thence South 50o 12’ 02” East, 92.69 feet to a point 40.00 feet right of US41 Nashville Rd. station 28+17.13; thence South 41o 26’ 45” East, 164.26 feet to a point 65.00 feet right of US41 Nashville Rd station 29+79.48; thence South 39o 48’ 06” West, 14.32 feet to a point 79.32 feet right of US41 Nashville Rd. station 29+79.48; thence North 48o 17’ 29” West, 214.77 feet to a point 72.16 feet right of US41 Nashville Rd. station 27+64.83; North 11o 40’ 29” West, 51.63 feet to the point of beginning, containing .146 acres (6,345 sq. ft.), more or less.
Source of Title:
Being the same property acquired by MetoKote Corporation, an Ohio corporation, by General Warranty Deed of Conveyance dated June 30, 2000, of record in Deed Book 569, Page 318, in the Office of the Clerk of Christian County, Kentucky.
TOGETHER with the right to use, for ingress and egress, the 50 foot, non-exclusive access easement as set out in Easement dated February 7, 1995, of record in Misc. Book 40, Page 721, state out in Deed Book 568, Page 313, and as shown as proposed 50 foot right of way on Plat recorded in Plat Cabinet 5, Page 273, all in the office aforesaid.
REAL PROPERTY OPTION TO PURCHASE CONTRACT
Exhibit 10.31
REAL PROPERTY OPTION TO PURCHASE CONTRACT
This REAL PROPERTY OPTION TO PURCHASE CONTRACT (this “Contract”) is made and executed on March 25, 2022 as of March 23rd, 2022 and signed on March __, 2022, by and between
| OZ CAPITAL, LLC | ||||
| a Texas limited liability company | ||||
| 222 West Exchange Street | ||||
| Fort Worth, Texas 76164 | (“ Grantor”) | |||
| and | ||||
| GENH HALCYON ACQUISITION, LLC | ||||
| a Texas limited liability company | ||||
| PO Box 540308 | ||||
| Dallas, Texas 75354 | (“Optionee”). |
RECITALS
A. Grantor is the owner in fee simple of the Property (hereinafter defined).
B. Grantor issued Optionee an option to purchase and acquire the Property under the terms of the Contract dated January 11, 2021 and such option expired by its terms on January 11, 2022.
C. Grantor and Optionee desire to desires to grant Optionee an option to purchase and acquire the Property, pursuant to the terms and conditions contained in this Contract.
NOW, THEREFORE, in consideration of the mutual representations, benefits and covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which are acknowledged and confirmed, Grantor and Optionee covenant and agree as follows:
TERMS AND CONDITIONS
1. The Property. The real property consists of one parcel located at 400 Mitsubishi Lane, Christian County, Kentucky 42240, as more particularly described on EXHIBIT “A”, together with any and all improvements now existing or hereafter located thereon (the “Property”).
2. Option Purchase Price. Optionee shall be granted an option to acquire the Property from Grantor free and clear of all liens for a purchase price of $1,293,000.00 for a period commencing on the date of Optionee satisfies all of its obligations in Paragraphs 3 and 4 of this Contract and ending on June 30th 2022.The conveyance of the Property to Optionee following the exercise of the Option in accordance with this Contract must be completed no later than June 30, 2022.
3. Expenses Owed. The Optionee pays all obligations outstanding to the principals of the Grantor through the date of exercise of the Option totaling $15,254.81 owed to the principals of the Grantor in accordance with Exhibit B on or before April 1st 2022.
4. Rent Owed. The Optionee pays expenses to the Grantor and all rent obligations as tenant of the Property through the date of exercise of the Option, including but not limited to the $30,747.00 specified in Exhibit C that is outstanding as of the date of this Contract.
5. Rent Due. The Optionee pays rent expenses due to the Grantor no later than the 3rd day of each month in accordance with its lease obligation for the duration of this agreement until the date in which property is sold.
REAL PROPERTY OPTION TO PURCHASE CONTRACT– Page 1
6. Closing; Closing Costs; Closing Documents.
(c) Closing Costs. In the event of the exercise of this option by the Optionee, Optionee shall pay the recording fee for the general warranty deed. Optionee shall pay for preparation of the deed, the transfer tax on the deed and all title examination fees and title insurance premiums, if any, necessary to provide Optionee with an owner’s policy of title insurance (the “Title Policy”). Grantor and Optionee shall be responsible for the payment of their own respective attorneys’ fees and expenses.
(d) General Warranty Deed. On the closing date specified in the exercise of this Option that is not later June 30, 2022 (the “Option Closing Date”) , Grantor shall convey to Optionee an unencumbered, marketable fee simple title to the Property by recordable deed of general warranty, free and clear of all liens and encumbrances, except liens for real property taxes and assessments for the current year not yet due and payable and thereafter, and all exceptions to title contained in the Title Policy.
(e) Real Property Taxes. All real property ad valorem taxes and assessments against or on the Property, due and payable in the year of Closing, shall be prorated between Optionee and Grantor as of the Option Closing Date on a calendar year or fiscal year basis, whichever is appropriate.
(f) Utility Charges. Grantor shall pay all charges for utility services rendered before the Option Closing Date with respect to the Property, and Optionee shall pay all charges for utility services rendered on or after the Option Closing Date. All utility meters with respect to the Property, if any, shall be read by a representative of each utility company on the Option Closing Date.
7. Possession. Exclusive possession of the Property shall be delivered to Optionee on the Closing Date.
8. As Is Condition. Optionee acknowledges and agrees that, except as specifically set forth herein, Grantor is not making and has not at any time made any warranties or representations of any kind or character, express or implied, with respect to the Property, including, but not limited to, any warranties or representations as to the habitability, merchantability, fitness for a particular purpose, zoning, physical defects or condition, environmental condition, compliance with applicable laws, rules and regulations or any other matter whatsoever regarding the Property, except as provided herein. Subject to Grantor’s representations and warranties specifically set forth herein, Optionee acknowledges and agrees that upon Closing, Grantor shall sell and convey the Property to Optionee and Optionee shall accept the Property “AS IS AND WITH ALL FAULTS.” Optionee has not relied and will not rely on, and Grantor is not liable for or bound by, any expressed or implied warranties, guaranties, statements, representations, or information pertaining to the Property or relating thereto made or furnished by any agent representing or purporting to represent Grantor.
9. Risk of Loss. All risk of loss with respect to the Property shall remain with Grantor until the closing and delivery of the deed to Optionee on the Option Closing Date .
10. Default. If, following the full execution of this Contract, either party defaults in the performance of its duties or obligations under this Contract, then:
(a) if Optionee is the party in default and such default is not cured within seven (7) days, (i) this Contract shall become null and void; and (ii) Grantor may pursue any other remedy available at law or in equity; and
(b) if Grantor is the party in default and such default is not cured within seven (7) days after written notice, (i) Optionee may declare this Contract null and void; and (ii) Optionee may pursue any other remedy available at law or in equity.
11. Notice.
(a) Delivery. Any notice or consent authorized or required by this Contract shall be in writing and (i) delivered personally; (ii) sent postage prepaid by certified mail or registered mail, return receipt requested; or (iii) sent by a nationally recognized overnight carrier that guarantees next day delivery, directed to the other party at the address first set forth above or such other parties or addresses as may be designated by either Optionee or Grantor by notice given from time to time in accordance with this Paragraph 11.
REAL PROPERTY OPTION TO PURCHASE CONTRACT– Page 2
(b) Receipt. A notice or consent given in accordance with this Paragraph 11 shall be deemed received (i) upon delivering it in person; (ii) three days after depositing it in an office of the United States Postal Service or any successor governmental agency; or (iii) one day after giving it to a nationally recognized overnight carrier.
12. Benefit and Binding Effect. This Contract shall be binding upon, and shall inure to the benefit of, the parties hereto, their respective heirs, legal representatives, successors and assigns.
13. Time of the Essence. Time is of the essence for this Contract.
14. Governing Law. This Contract shall be governed by and construed in accordance with the laws of the Commonwealth of Kentucky.
15. Entire Agreement. This Contract contains the entire agreement between the parties hereto with respect to the matters to which it pertains, and may be amended only by written agreement signed by both Optionee and Grantor.
16. Headings. The paragraph headings used herein are for convenience purposes only and do not constitute matters to be construed in interpreting this Contract.
17. Assignment. Optionee may not assign this Contract to any party, without the consent of Grantor.
18. Further Assurances. The parties hereto shall take such further action and execute such documents and instruments as shall be reasonably necessary to consummate the transactions contemplated by this Contract.
Signature Page Follows
REAL PROPERTY OPTION TO PURCHASE CONTRACT– Page 3
IN WITNESS WHEREOF, the parties acting by and through their duly authorized representatives, duly executed this Contract as of the date first set forth above, but actually on the dates set forth below.
| GRANTOR: | ||
| OZ CAPITAL, LLC, | ||
| a Texas limited liability company | ||
| By: | ||
| Name: | Jack Sibley | |
| Title: | Partner | |
| Date: | 3/30/22 | |
| OPTIONEE: | ||
| GENH HALCYON ACQUISITION, LLC, | ||
| a Texas limited liability company | ||
| By: | ||
| Gary C. Evans, Chairman and CEO | ||
| Date: | ||
REAL PROPERTY OPTION TO PURCHASE CONTRACT – Signature Page
EXHIBIT A
BEING Lot 4, Hopkinsville Industrial Park, as shown by plat of record in Plat Cabinet 4, File 467, in the Office of the Clerk of Christian County, Kentucky.
THERE IS EXCEPTED FROM the foregoing Lot 4, so much thereof as was conveyed to the Commonwealth of Kentucky, for the use and benefit of the Transportation Cabinet, Department of Highways, by Deed dated December 12, 1994, and recorded in Deed Book 516 at Page 140, Christian County Clerk’s Office, as amended by a Deed of Correction dated July 14, 1995, and recorded in Deed Book 522, at Page 325, same office, which property is described as follows:
Beginning at a point 40.00 feet right of US41 Nashville Rd. Station 27+24.44; thence South 50o 12’ 02” East, 92.69 feet to a point 40.00 feet right of US41 Nashville Rd. station 28+17.13; thence South 41o 26’ 45” East, 164.26 feet to a point 65.00 feet right of US41 Nashville Rd station 29+79.48; thence South 39o 48’ 06” West, 14.32 feet to a point 79.32 feet right of US41 Nashville Rd. station 29+79.48; thence North 48o 17’ 29” West, 214.77 feet to a point 72.16 feet right of US41 Nashville Rd. station 27+64.83; North 11o 40’ 29” West, 51.63 feet to the point of beginning, containing .146 acres (6,345 sq. ft.), more or less.
Source of Title:
Being the same property acquired by MetoKote Corporation, an Ohio corporation, by General Warranty Deed of Conveyance dated June 30, 2000, of record in Deed Book 569, Page 318, in the Office of the Clerk of Christian County, Kentucky.
TOGETHER with the right to use, for ingress and egress, the 50 foot, non-exclusive access easement as set out in Easement dated February 7, 1995, of record in Misc. Book 40, Page 721, state out in Deed Book 568, Page 313, and as shown as proposed 50 foot right of way on Plat recorded in Plat Cabinet 5, Page 273, all in the office aforesaid.
REAL PROPERTY OPTION TO PURCHASE CONTRACT
EXHIBIT B
| August 2021 Reimbursement | $ | 12,722.37 | ||
| September 2021 Reimbursement | $ | 2542.44 |
REAL PROPERTY OPTION TO PURCHASE CONTRACT
EXHIBIT C
| January 2022 | Inv. 82027 | $ | 10,249 | |||||
| February 2022 | Inv.82029 | $ | 10,249 | |||||
| March 2022 | Inv. 82030 | $ | 10,249 |
REAL PROPERTY OPTION TO PURCHASE CONTRACT
Exhibit 10.32
UNSECURED PROMISSORY NOTE
| $439,000.00 | March 18, 2022 |
For value received, GENERATION HEMP, INC., a Delaware corporation (the “Borrower”), promises to pay to Investment Hunter, LLC, a Texas LLC, or its assigns (the “Holder”), the principal sum of $439,000.00 (U.S. Dollars), together with all accrued and unpaid interest thereon as set forth below. It is expressly understood that the commitment to provide the individual principal sums which total $439,000.00 was agreed to on the date of each individual loan advance, as presented in Exhibit A, attached hereto, and all provisions of this unsecured promissory note shall be deemed effective as of such date and all financial obligations shall accrue from such date with respect to each amount.
All payments of principal and interest hereunder shall be made by check or wire transfer pursuant to wire transfer instructions that may be provided by the Holder to the Borrower from time to time.
| 1. | Payments. The Borrower shall make the principal payment on June 30, 2022 to the Holder, together with accrued and unpaid interest hereunder. Notwithstanding to the contrary, all outstanding principal and all accrued and unpaid interest hereunder shall be due and payable in full at that time. |
| 2. | Alternative Payment. Any time prior to June 30, 2022, if Borrower raises new equity capital in the amount of three million dollars ($3,000,000.00) or greater, then within five (5) business days of closing, repayment of all outstanding principal and interest on this Convertible Promissory Note will be due. |
| 3. | Interest Rate. Simple interest on the unpaid principal balance of this Note shall accrue at the lesser of ten percent (10%) per annum and the highest rate permitted by law. If an Event of Default (as defined below) shall occur under this Note, interest shall immediately commence accruing at a default rate of twelve percent (12%) per annum. |
| 4. | Default. The occurrence of any of the following events of default (each, an “Event of Default”) shall, at the option of the Holder thereof, make all principal and interest (to the extend accrued) then remaining unpaid hereon and all other amounts payable hereunder immediately due and payable, upon written demand, without presentment, or grace period, all of which hereby are expressly waived, except as set forth below: |
| (a) | Failure to Pay Principal or Interest. The Borrower fails to pay any installment of principal or interest due under this Note when due and such failure continues for a period of five (5) days after written notice. |
| (b) | Receiver or Trustee. The Borrower shall make an assignment for the benefit of creditors, or applies for or consents to the appointment of a receiver or trustee for it or for a substantial part of its property or business; or such a receiver of trustee shall otherwise be appointed without the consent of the Borrower, which shall constitute an automatic Event of Default and shall result in all remaining unpaid principal and interest due hereon immediately due and payable without the written demand from the Holder. |
| (c) | Bankruptcy. Bankruptcy, insolvency, reorganization, or liquidation proceedings or other proceedings or relief under any bankruptcy law or any law, or the issuance of any notice in relation to such event, for the relief of debtors shall be instituted by or against the Borrower, which shall constitute an automatic Event of Default and shall result in all remaining unpaid principal and interest due hereon immediately due and payable without the written demand from the Holder. |
| 5. | Termination. Upon payment of all cash amounts due to the Holder as provided in this Note, the Borrower will forever be released from all of its payment obligations and liabilities under this Note and the Holder agrees to promptly return to the Borrower the Note marked “paid in full”. This Note may be prepaid, in whole or in part, without the prior consent of the Holder. |
| 6. | Miscellaneous |
| (a) | Successors and Assigns. This Note shall be binding upon successors and assigns of the Borrower, and shall inure to the benefit of the successors and permitted assigns of the Holder. |
| (b) | Severability. The unenforceability or invalidity of any provision or provisions of this Note shall not render any other provision or provisions herein contained unenforceable or invalid. |
| (c) | Notice. Any notice or communication required to be given hereunder may be delivered by hand or deposited with an overnight courier (with overnight delivery instructions), if to the Borrower, to the address of the Borrower’s corporate headquarters, and if to the Holder, to the last address of the Holder set forth in the Borrower’s books and records. Notice shall be deemed given and received on the date sent if sent by personal delivery; and one (1) day after the date sent if sent by overnight courier. |
| (d) | Entire Agreement. This Note contains the entire and complete understanding between the parties concerning its subject matter and all representations, agreements, arrangements, and understandings between or among the parties, whether oral or written, have been fully merged herein and are superseded thereby, except for representations, agreements, and understandings between or among the parties made pursuant to the Purchase Agreement and any other agreements entered into in connection therewith and herewith. The Note may be modified only by a writing signed by both parties. |
INVESTMENT HUNTER, LLC
PROMISSORY NOTE – Page 2
| (e) | Governing Law; Attorneys’ Fees. This Note shall be governed by and construed in accordance with the laws of the State of Texas, without giving effect to its principles regarding conflicts of law. Upon default, the breaching party agrees to pay to the non-breaching party reasonable attorneys’ fees, plus all other reasonable expenses, incurred by the non-breaching party in exercising any of the non-breaching party’s rights and remedies. |
| (f) | Jurisdiction. The parties (a) hereby irrevocably and unconditionally submit to the jurisdiction of the state courts of the State of Texas, Dallas County, and to the jurisdiction of the United States District Court for the State of Texas, for the purpose of any suit, action, or other proceeding arising out of or based upon this Note; (b) agree not to commence any suit, action, or other proceeding arising out of or based upon this Note except in the state courts of the State of Texas, Dallas County, or the United States District Court for the State of Texas; and (c) hereby waive, and agree not to assert, by way of motion, as a defense, or otherwise, in any such suit, action, or proceeding, any claim that it is not subject personally to the jurisdiction of the above named courts, that its property is exempt or immune from attachment or execution, that the suit, action, or proceeding is brought in an inconvenient forum, that the venue of the suit, action, or proceeding is improper or that this Note or the subject matter hereof may not be enforced in or by such court. |
| (g) | FINAL AGREEMENT. THIS NOTE AND ALL OTHER INSTRUMENTS, DOCUMENTS, AND AGREEMENTS EXECUTED AND DELIVERED BY THE BORROWER IN CONNECTION WITH THE INDEBTEDNESS EVIDENCED BY THIS NOTE EMBOTY THE FINAL, ENTIRE AGREEMENT OF THE BORROWER AND THE HOLDER WITH RESPECT TO THE INDEBTEDNESS EVIDENCED BY THIS NOTE AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE INDEBTEDNESS EVIDENCED BYT HIS NOTE AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE BORROWER AND THE HOLDER. THERE ARE NO ORAL AGREEMENTS BETWEEN THE BORROWER AND THE HOLDER. |
| (h) | Subordination. By its acceptance hereof, the Holder agrees that the indebtedness evidenced by this Note, including the principal of and interest thereon, shall be subordinate to and subject in right of payment, to the extent hereinafter set forth, to the prior payment in full of all principal, interest, and any other sums then due on all existing or future Senior Indebtedness of the Borrower. The term “Senior Indebtedness” shall mean secured and unsecured indebtedness of the Borrower, or with respect to which the Borrower is a guarantor, for money borrowed by the Borrower from any financial institution or other sources prior to the date of this unsecured promissory note. |
Signature Page Follows
INVESTMENT HUNTER, LLC
PROMISSORY NOTE – Page 3
IN WITNESS WHEREOF, the Borrower has executed this Note as of the date set forth above.
| GENERATION HEMP, INC., | |
| a Delaware Corporation |
| By: | /s/Gary C. Evans | |
| Gary C. Evans, CEO |
INVESTMENT HUNTER, LLC
PROMISSORY NOTE – Page 4
PROMISSORY NOTE
Exhibit A
Schedule of Principal Sums Drawn under Promissory Note
| Principal Sum Draw Date | Principal Sum Drawn | |||
| 1/4/22 | $ | 60,000.00 | ||
| 1/11/22 | 25,000.00 | |||
| 1/20/22 | 60,000.00 | |||
| 1/28/22 | 75,000.00 | |||
| 2/10/22 | 25,000.00 | |||
| 2/14/22 | 25,000.00 | |||
| 2/17/22 | 65,000.00 | |||
| 3/1/22 | 40,000.00 | |||
| 3/3/22 | 20,000.00 | |||
| 3/17/22 | 44,000.00 | |||
| Total | $ | 439,000.00 | ||
INVESTMENT HUNTER, LLC
PROMISSORY NOTE – Page 5
Exhibit 10.37
GENERATION HEMP INC.
2021 OMNIBUS INCENTIVE PLAN
NOTICE OF INCENTIVE STOCK OPTION
Generation Hemp Inc., a Delaware corporation (the “Company”) grants to you the following Incentive Stock Option to purchase Shares of the common stock of the Company, no par value per share, pursuant to the Company’s 2021 Omnibus Incentive Plan (the “Plan”) and the attached Incentive Stock Option Award Agreement (the “Award Agreement”):
| Participant: | [insert name] | |
| Total Number of Shares: | [insert number of shares] | |
| Date of Grant: | [insert date] | |
| Option Price per Share: | [insert Fair Market Value as of Date of Grant] | |
| Vesting Commencement Date: | [insert Vesting Commencement Date] | |
| Vesting Schedule: | [insert Vesting Schedule] | |
| Final Exercise Date: | [insert Final Exercise Date]. The Option may expire earlier pursuant to Section 2 of the Award Agreement if the Participant’s relationship with the Company is terminated, or pursuant to Section V of the Plan. |
GENERATION HEMP INC.
2021 OMNIBUS INCENTIVE PLAN
Incentive Stock Option Award Agreement
Dear [insert name],
On [insert date], the Committee approved a grant of an Incentive Stock Option (the “Option”) to you to purchase Shares of common stock of Generation Hemp Inc., (the “Company”) pursuant to the Generation Hemp Inc. 2021 Ominbus Incentive Plan (the “Plan”). The Option shall constitute and be treated at all times by you and the Company as an “incentive stock option,” as defined under Section 422(b) of the Internal Revenue Code of 1986, as amended (the “Code”). Capitalized terms not defined in this Award Agreement shall have the meaning set forth in the Plan and the attached Notice of Incentive Stock Option (the “Notice”).
You are hereby granted an Option to purchase [insert number] Shares of common stock of the Company at the Option Price which represents the Fair Market Value of the Shares of common stock of the Company on the Date of Grant.
1. Vesting. This Option may be exercised only to the extent it is vested. Subject to your not having incurred a Separation from Service from the Company prior to the applicable vesting dates, this Option shall vest and become exercisable at the time or times set forth in the Notice.
[Include, if applicable: Notwithstanding the schedule in the Notice, in the event your Separation from Service is due to your death or Disability, the unvested portion of your Option shall become one hundred percent (100%) vested on the date of your death or Disability.]
2. Duration of Option. Except as otherwise provided herein, this Option may be exercised for three (3) months after you incur a Separation from Service from the Company; provided, however, in the event your Separation from Service is due to your death or Disability, the Option may be exercised for one year following such Separation from Service. In no case, however, may the Option be exercised after the Final Exercise Date set forth in the Notice. If, prior to the final exercise date set forth in the preceding sentence, you incur a Separation from Service for Cause (as defined below), the right to exercise the Option shall terminate immediately upon the effective date of such Separation from Service. If you are a party to an agreement with the Company that contains an applicable definition of “cause,” “Cause” shall have the meaning ascribed to such term in such agreement. Otherwise, “Cause” shall mean willful misconduct or willful failure to perform your responsibilities to the Company (including, without limitation, breach of any provision of any employment, consulting, advisory, nondisclosure, non-competition or other similar agreement between you and the Company), as determined by the Company, which determination shall be conclusive. You shall be considered to have been discharged for “Cause” if the Company determines, within 30 days after your resignation, that discharge for “Cause” was warranted.
3. Exercise of Option.
(a) Right to Exercise. This Option is exercisable during its term in accordance with the vesting schedule set out in Section 1.
2
(b) Method of Exercise. This Option is exercisable by delivery of an Exercise Notice, in the form attached as Exhibit A (the “Exercise Notice”), which shall state the election to exercise the Option, the number of Shares of common stock of the Company in respect of which the Option is being exercised (the “Exercised Shares”), and such other representations and agreements as may be required by the Company pursuant to the provisions of the Plan. The Exercise Notice shall be completed by you and delivered to the Secretary of the Company. The Exercise Notice shall be accompanied by payment in full of the aggregate exercise price as to all Exercised Shares. This Option shall be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by such aggregate exercise price.
No Shares of common stock of the Company shall be issued pursuant to the exercise of this Option unless such issuance and exercise comply with applicable laws. Assuming such compliance, for income tax purposes the exercised Shares shall be considered transferred to you on the date the Option is exercised with respect to such Exercised Shares.
4. Method of Payment. Payment of the aggregate exercise price shall be by any of the following, or a combination thereof, at your election:
(a) cash;
(b) check;
(c) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan; or
(d) surrender of other Shares of common stock of the Company which (i) in the case of Shares of common stock of the Company acquired upon exercise of an option, have been owned by you for more than six (6) months on the date of surrender, and (ii) have a fair market value on the date of surrender equal to the aggregate exercise price of the Exercised Shares.
5. Non-Assignability of Option. This Option may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, other than by will or by the laws of descent or distribution and may be exercised during your lifetime only by you except in the case of your disability, this Option may be exercised by your representative. The terms of the Plan and this Award Agreement shall be binding upon your executors, administrators, heirs, successors and assigns.
6. Legend. Any certificate representing Shares shall bear a legend substantially in the following form (in addition to, or in combination with, any legend required by applicable federal and state securities laws and agreements relating to the transfer and/or voting of the Company securities):
“THE SHARES REPRESENTED BY THIS CERTIFICATE, AND THE TRANSFER THEREOF, ARE SUBJECT TO THE RESTRICTIONS ON TRANSFER PROVISIONS OF THE BYLAWS OF THE COMPANY, A COPY OF WHICH IS ON FILE IN, AND MAY BE EXAMINED AT, THE PRINCIPAL OFFICE OF THE COMPANY.
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THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR APPLICABLE LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.”
7. Code Section 409A. The Option Price is intended to be not less than the Fair Market Value of the common stock of the Company on the Date of Grant. The Company has determined the Fair Market Value of the common stock of the Company in good faith and using the reasonable applicable of a reasonable valuation method, for purposes of determining the Option Price. Notwithstanding this, the Internal Revenue Service may assert that the Fair Market Value of the common stock of the Company on the Date of Grant was greater than the Option Price. Under Code Section 409A, if the Option Price is less than the Fair Market Value of the common stock of the Company on the Date of Grant, this Option may be treated as a form of deferred compensation and you may be subject to an additional twenty percent (20%) tax, plus interest and possible penalties. You hereby acknowledge that the Company has advised you to consult with a tax advisor regarding the potential impact of Code Section 409A and that the Company, in the exercise of its sole discretion and without your consent, may amend or modify this Award Agreement in any manner and delay the payment of any amounts payable pursuant to this Award Agreement to the minimum extent necessary to meet the requirements of Code Section 409A, as amplified by any Internal Revenue Service or U.S. Treasury Department regulations or guidance as the Company deems appropriate or advisable.
You have reviewed with your own tax advisors the federal, state, local and foreign tax consequences of this Award Agreement. You are relying solely on such advisors and not on any statements or representations of the Company or any of its agents. You understand that you (and not the Company) shall be responsible for your own tax liability that may arise as a result of this Award Agreement.
8. No Guarantee of Continued Service. YOU ACKNOWLEDGE AND AGREE THAT THE VESTING OF OPTIONS PURSUANT TO THE VESTING SCHEDULE SET FORTH HEREIN ARE EARNED ONLY BY CONTINUING SERVICE AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). YOU FURTHER ACKNOWLEDGE AND AGREE THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED SERVICE FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE IN ANY WAY WITH YOUR RIGHT OR THE COMPANY’S RIGHT TO TERMINATE YOUR SERVICE WITH OR WITHOUT CAUSE.
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The Plan is incorporated herein by reference and a copy is attached hereto. The Plan and this Award Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and you with respect to the subject matter hereof, and may not be modified adversely to your interest except by means of a writing signed by the Company and you. This Award Agreement is governed by the laws of the State of Texas.
By your signature and the signature of the Company’s representative below, you and the Company agree that the Option is granted under and governed by the terms and conditions of the Plan and this Award Agreement. You have reviewed the Plan and this Award Agreement in their entirety, have had an opportunity to obtain the advice of counsel prior to executing this Agreement and fully understand all provisions of the Plan and this Award Agreement. You hereby agree to accept as binding, conclusive and final all decisions or interpretations of the Committee upon any questions relating to the Plan and Award Agreement. You further agree to notify the Company upon any change in your residence address indicated below.
| PARTICIPANT | GENERATION HEMP INC. | |
| Signature | By | |
| Print Name | Title | |
| Residence Address | ||
5
Exhibit A
EXERCISE NOTICE
OF INCENTIVE STOCK OPTION
Generation Hemp Inc.
------------------------
(date)
Re: Incentive Stock Option
Notice is hereby given pursuant to Section 3 of my Incentive Stock Option Award Agreement that I elect to purchase the number of Shares set forth below at the Option Price set forth in my Incentive Stock Option Award Agreement:
| Stock Option dated: | --------------------------- | ||
| Number of shares being purchased: | --------------------------- | ||
| Option Price: | --------------------------- | ||
| Aggregate Option Exercise Price: | --------------------------- |
A check (or cash) in the amount of the aggregate price of the shares being purchased is attached [or specify other method of payment].
I understand that the shares of Common Stock that I receive upon exercise of my Option may not be freely tradable.
I agree to provide to the Company such additional documents or information as may be required pursuant to the Generation Hemp 2021 Omnibus Incentive Plan.
| (Signature) | |
| (Name of Optionee) |
6
Exhibit 10.38
GENERATION HEMP, INC.
2021 OMNIBUS INCENTIVE PLAN
NOTICE OF NON-QUALIFIED STOCK OPTION
Generation Hemp, Inc., a Delaware corporation (the “Company”) grants to you the following Non-Qualified Stock Option to purchase Shares of the common stock of the Company, no par value per share, pursuant to the Company’s 2021 Omnibus Incentive Plan (the “Plan”) and the attached Non-Qualified Stock Option Award Agreement (the “Award Agreement”):
| Participant: | [insert name] |
| Total Number of Shares: | [insert number of shares] |
| Date of Grant: | [insert date] |
| Option Price per Share: | [insert Fair Market Value as of Date of Grant] |
| Vesting Commencement Date: | [insert Vesting Commencement Date] |
| Vesting Schedule: | [insert Vesting Schedule] |
| Final Exercise Date: | [insert Final Exercise Date]. The Option may expire earlier pursuant to Section 2 of the Award Agreement if the Participant’s relationship with the Company is terminated, or pursuant to Section V of the Plan. |
GENERATION HEMP, INC.
2021 OMNIBUS INCENTIVE PLAN
Non-Qualified Stock Option Award Agreement
Dear [insert name],
On [insert date], the Committee approved a grant of a Non-Qualified Stock Option (the “Option”) to you to purchase Shares of common stock of Generation Hemp, Inc. (the “Company”) pursuant to the Generation Hemp, Inc. 2021 Omnibus Incentive Plan (the “Plan”). The Option shall constitute and be treated at all times by you and the Company as a “non-qualified stock option” for Federal income tax purposes and shall not constitute and shall not be treated as an “incentive stock option” as defined under Section 422(b) of the Internal Revenue Code of 1986, as amended (the “Code”). Capitalized terms not defined in this Award Agreement shall have the meaning set forth in the Plan and the attached Notice of Non-Qualified Stock Option (the “Notice”).
You are hereby granted an Option to purchase [insert number] Shares of common stock of the Company at the Option Price which represents the Fair Market Value of the Shares of common stock of the Company on the Date of Grant.
1. Vesting. This Option may be exercised only to the extent it is vested. Subject to your not having incurred a Separation from Service from the Company prior to the applicable vesting dates, this Option shall vest and become exercisable at the time or times set forth in the Notice.
[Include, if applicable: Notwithstanding the schedule in the Notice, in the event your Separation from Service is due to your death or Disability, the unvested portion of your Option shall become one hundred percent (100%) vested on the date of your death or Disability.]
2. Duration of Option. Except as otherwise provided herein, this Option may be exercised for three (3) months after you incur a Separation from Service from the Company; provided, however, in the event your Separation from Service is due to your death or Disability, the Option may be exercised for one year following such Separation from Service. In no case, however, may the Option be exercised after the Final Exercise Date set forth in the Notice. If, prior to the final exercise date set forth in the preceding sentence, you incur a Separation from Service for Cause (as defined below), the right to exercise the Option shall terminate immediately upon the effective date of such Separation from Service. If you are a party to an agreement with the Company that contains an applicable definition of “cause,” “Cause” shall have the meaning ascribed to such term in such agreement. Otherwise, “Cause” shall mean willful misconduct or willful failure to perform your responsibilities to the Company (including, without limitation, breach of any provision of any employment, consulting, advisory, nondisclosure, non-competition or other similar agreement between you and the Company), as determined by the Company, which determination shall be conclusive. You shall be considered to have been discharged for “Cause” if the Company determines, within 30 days after your resignation, that discharge for “Cause” was warranted.
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3. Exercise of Option.
(a) Right to Exercise. This Option is exercisable during its term in accordance with the vesting schedule set out in Section 1.
(b) Method of Exercise. This Option is exercisable by delivery of an Exercise Notice, in the form attached as Exhibit A (the “Exercise Notice”), which shall state the election to exercise the Option, the number of Shares of common stock of the Company in respect of which the Option is being exercised (the “Exercised Shares”), and such other representations and agreements as may be required by the Company pursuant to the provisions of the Plan. The Exercise Notice shall be completed by you and delivered to the Secretary of the Company. The Exercise Notice shall be accompanied by payment in full of the aggregate exercise price as to all Exercised Shares. This Option shall be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by such aggregate exercise price.
No Shares of common stock of the Company shall be issued pursuant to the exercise of this Option unless such issuance and exercise comply with applicable laws. Assuming such compliance, for income tax purposes the Exercised Shares shall be considered transferred to you on the date the Option is exercised with respect to such Exercised Shares.
4. Method of Payment. Payment of the aggregate exercise price shall be by any of the following, or a combination thereof, at your election:
(a) Cash;
(b) check;
(c) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan, if any; or
(d) surrender of other Shares of common stock of the Company which (i) in the case of Shares of common stock of the Company acquired upon exercise of an option, have been owned by you for more than six (6) months on the date of surrender, and (ii) have a fair market value on the date of surrender equal to the aggregate exercise price of the Exercised Shares.
5. Non-Assignability of Option. This Option may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, other than by will or by the laws of descent or distribution and may be exercised during your lifetime only by you except in the case of your Disability, this Option may be exercised by your representative. The terms of the Plan and this Award Agreement shall be binding upon your executors, administrators, heirs, successors and assigns.
6. Legend. Any certificate representing Shares shall bear a legend substantially in the following form (in addition to, or in combination with, any legend required by applicable federal and state securities laws and agreements relating to the transfer and/or voting of the Company securities):
“THE SHARES REPRESENTED BY THIS CERTIFICATE, AND THE TRANSFER THEREOF, ARE SUBJECT TO THE RESTRICTIONS ON TRANSFER PROVISIONS OF THE BYLAWS OF THE COMPANY, A COPY OF WHICH IS ON FILE IN, AND MAY BE EXAMINED AT, THE PRINCIPAL OFFICE OF THE COMPANY.
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR APPLICABLE LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.”
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7. Code Section 409A. The Option Price is intended to be not less than the Fair Market Value of the common stock of the Company on the Date of Grant. The Company has determined the Fair Market Value of the common stock of the Company in good faith and using the reasonable applicable of a reasonable valuation method, for purposes of determining the Option Price. Notwithstanding this, the Internal Revenue Service may assert that the Fair Market Value of the common stock of the Company on the Date of Grant was greater than the Option Price. Under Code Section 409A, if the Option Price is less than the Fair Market Value of the common stock of the Company on the Date of Grant, this Option may be treated as a form of deferred compensation and you may be subject to an additional twenty percent (20%) tax, plus interest and possible penalties. You hereby acknowledge that the Company has advised you to consult with a tax advisor regarding the potential impact of Code Section 409A and that the Company, in the exercise of its sole discretion and without your consent, may amend or modify this Award Agreement in any manner and delay the payment of any amounts payable pursuant to this Award Agreement to the minimum extent necessary to meet the requirements of Code Section 409A, as amplified by any Internal Revenue Service or U.S. Treasury Department regulations or guidance as the Company deems appropriate or advisable.
You have reviewed with your own tax advisors the federal, state, local and foreign tax consequences of this Award Agreement. You are relying solely on such advisors and not on any statements or representations of the Company or any of its agents. You understand that you (and not the Company) shall be responsible for your own tax liability that may arise as a result of this Award Agreement.
8. No Guarantee of Continued Service. YOU ACKNOWLEDGE AND AGREE THAT THE VESTING OF OPTIONS PURSUANT TO THE VESTING SCHEDULE SET FORTH HEREIN ARE EARNED ONLY BY CONTINUING SERVICE AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). YOU FURTHER ACKNOWLEDGE AND AGREE THAT THIS AWARD AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED SERVICE FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE IN ANY WAY WITH YOUR RIGHT OR THE COMPANY’S RIGHT TO TERMINATE YOUR SERVICE WITH OR WITHOUT CAUSE.
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The Plan is incorporated herein by reference and a copy is attached hereto. The Plan and this Award Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and you with respect to the subject matter hereof, and may not be modified adversely to your interest except by means of a writing signed by the Company and you. This Award Agreement is governed by the laws of the State of TEXAS.
By your signature and the signature of the Company’s representative below, you and the Company agree that the Option is granted under and governed by the terms and conditions of the Plan and this Award Agreement. You have reviewed the Plan and this Award Agreement in their entirety, have had an opportunity to obtain the advice of counsel prior to executing this Award Agreement and fully understand all provisions of the Plan and this Award Agreement. You hereby agree to accept as binding, conclusive and final all decisions or interpretations of the Committee upon any questions relating to the Plan and Award Agreement. You further agree to notify the Company upon any change in your residence address indicated below.
| PARTICIPANT | GENERATION HEMP, INC. | |
| Signature | By | |
| Print Name | Title | |
| Residence Address | ||
5
Exhibit A
EXERCISE NOTICE
OF NON-QUALIFIED STOCK OPTION
Generation Hemp, Inc.
------------------------
(date)
Re: Non-Qualified Stock Option
Notice is hereby given pursuant to Section 3 of my Non-Qualified Stock Option Award Agreement that I elect to purchase the number of Shares set forth below at the Option Price set forth in my Non-Qualified Stock Option Award Agreement:
| Stock Option dated: | --------------------------- | ||
| Number of Shares being purchased: | --------------------------- | ||
| Option Price: | --------------------------- | ||
| Aggregate Option Exercise Price: | --------------------------- |
A check (or cash) in the amount of the aggregate price of the shares being purchased is attached [or specify other method of payment].
I understand that the Shares of common stock of the Company that I receive upon exercise of my Option may not be freely tradable.
Further, I understand that, as a result of this exercise of rights, I will recognize income in an amount equal to the amount by which the fair market value of the Shares of common stock of the Company exceeds the exercise price. I agree to report such income in accordance with then applicable law and to cooperate with the Company in establishing the withholding and corresponding deduction to the Company for its income tax purposes.
I agree to provide to the Company such additional documents or information as may be required pursuant to the Generation Hemp, Inc. 2021 Omnibus Incentive Plan.
| (Signature) | |
| (Name of Optionee) |
6
Exhibit 10.39
GENERATION HEMP, INC.
2021 OMNIBUS INCENTIVE PLAN
NOTICE OF RESTRICTED STOCK
Generation Hemp, Inc., a Delaware corporation (the “Company”) grants to you the following Restricted Stock pursuant to the Company’s 2021 Omnibus Incentive Plan (the “Plan”) and the attached Restricted Stock Award Agreement (the “Award Agreement”):
| Participant: | [insert name] |
| Total Shares of Restricted Stock: | [insert number of shares] |
| Date of Grant: | [insert date] |
| Purchase Price Per Share: | [insert] |
| Vesting Commencement Date: | [insert Vesting Commencement Date] |
| Vesting Schedule: | [insert Vesting Schedule] |
GENERATION
HEMP, INC.
2021 OMNIBUS INCENTIVE PLAN
Restricted Stock Award Agreement
Dear [insert name],
On [insert date], the Committee approved a grant of restricted stock (the “Restricted Stock”) to you to purchase Shares of common stock of Generation Hemp, Inc. (the “Company”) pursuant to the Generation Hemp, Inc. 2021 Omnibus Incentive Plan (the “Plan”). Capitalized terms not defined in this Award Agreement shall have the meaning set forth in the Plan and the attached Notice of Restricted Stock (the “Notice”).
You are granted [insert number] Shares of Restricted Stock in the Company. The Date of Grant of the Restricted Stock is [insert date]. [insert, as applicable: The purchase price per Share of Restricted Stock is [ ]. The aggregate purchase price for the Shares shall be paid by you by a check payable to the order of the Company or such other method as may be acceptable to the Company. Upon receipt of said consideration by the Company for the Shares, the Company shall issue to the Participant one or more certificates in your name for that number of the Shares purchased by you.]
1. Restrictions. Subject to the terms and conditions set forth herein, during the Period of Restriction, you shall not be permitted to sell, transfer, pledge or assign the Restricted Stock. The Company shall maintain possession of the certificates respecting the Restricted Stock during the Period of Restriction.
2. Lapse of Restrictions. Subject to your not incurring a Separation from Service with the Company prior to the applicable vesting dates, the Shares of Restricted Stock shall vest at the time or times set forth in the Notice.
[Insert, as applicable: Notwithstanding the schedule in the Notice, in the event your termination of employment is due to your death or Disability, all unvested Restricted Stock shall become one hundred percent (100%) vested on the date of your death or Disability.]
3. Rights as Shareholder; Limits on Transfer. Each Share of Restricted Stock represents a promise by the Company to deliver one Share to you upon vesting of the Restricted Stock. You [will/will not] have any rights of a shareholder with respect to any Share of Restricted Stock (including any voting rights) unless and until the Share of Restricted Stock vests and is settled. The Shares of Restricted Stock may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the end of the Period of Restriction. All rights with respect to the Restricted Stock shall be available during your lifetime only to you or your legal representative for the Period of Restriction.
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Any certificate representing Shares shall bear legends substantially in the following form (in addition to, or in combination with, any legend required by applicable federal and state securities laws and agreements relating to the transfer and/or voting of the Company securities):
“The securities represented by this certificate are subject to restrictions on transfer and an option purchase set forth in a restricted stock award agreement between the Company and registered owner of these shares (or such owner’s predecessor in interest), and such restricted stock award agreement is available for inspection without charge at the principal office of the Company.
The securities represented by this certificate, and the transfer thereof, are subject to the restriction on transfer provisions of the Bylaws of the Company, a copy of which is on file in, and may be examined at, the principal offices of the Company.
The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended, or any state securities laws, and may not be sold, pledged, or otherwise transferred without an effective registration thereof under such Act or applicable laws, or an opinion of counsel satisfactory to the Company and its counsel that such registration is not required.”
4. Dividends. Each Share of Restricted Stock shall be credited with an amount equal to the dividends paid on a Share between the Date of Grant and the date such Restricted Stock is no longer subject to a substantial risk of forfeiture (if at all). Dividends shall vest, if at all, upon the same terms and conditions governing the vesting of Restricted Stock under the Plan. Payment of the dividends shall be made at the same time as payment of the Restricted Stock and shall be made without interest or other adjustment. If the Share of Restricted Stock is forfeited, you shall have no right to dividends.
5. Withholding Taxes; Section 83(b) Election.
(a) You will be required to pay to the Company, and the Company will have the right to deduct from any compensation paid to you pursuant to this Award Agreement or otherwise, the amount of any required withholding or other applicable taxes in respect of the Restricted Stock, including upon the vesting and/or settlement of the Restricted Stock, and to take all such other action as the Committee deems necessary to satisfy all obligations for the payment of such withholding or other applicable taxes. The Committee may permit you to satisfy any federal, state or local tax withholding obligation (income or employment) by authorizing the Company to withhold Shares from the Shares otherwise deliverable to you as a result of the vesting and settlement of the Restricted Stock; provided, however, that no Shares will be withheld with a value exceeding the minimum amount of tax required to be withheld by law.
(b) You have reviewed with your own tax advisors the federal, state, local and foreign tax consequences of this Award Agreement. You are relying solely on such advisors and not on any statements or representations of the Company or any of its agents. You understand that you (and not the Company) shall be responsible for your own tax liability that may arise as a result of this Award Agreement.
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(c) The Restricted Stock is intended to constitute property that is subject to a substantial risk of forfeiture during the Period of Restriction, and subject to federal income tax in accordance with Section 83 of the Code. Section 83 of the Code generally provides that you will recognize compensation income with respect to the Restricted Stock at the expiration of the Period of Restriction in an amount equal to the then Fair Market Value of the Shares for which restrictions have lapsed. Alternatively, you may elect, pursuant to Section 83(b) of the Code, to recognize compensation income for all or any part of the Restricted Stock at the Date of Grant in an amount equal to the Fair Market Value of the Restricted Stock subject to the election on the Date of Grant. Such election must be made within thirty (30) days of the Date of Grant and you shall immediately notify the Company if such an election is made. You should consult your tax advisors to determine whether a Section 83(b) election is appropriate.
6. Compliance with Law. The issuance and transfer of the Shares will be subject to compliance by the Company and you with all applicable requirements of federal and state securities laws and with all applicable requirements of any stock exchange on which the Stock may be listed. No shares of Stock will be issued or transferred unless and until any then applicable requirements of state and federal law and regulatory agencies have been fully complied with to the satisfaction of the Company and its counsel.
7. Electronic Delivery. The Company may, in its sole discretion, deliver by electronic means any documents related to current or future participation in the Plan. You hereby consent to receive such documents by electronic delivery and agree to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company.
8. Recovery of Compensation. The Shares of Restricted Stock will be subject to recoupment by the Company to the extent required to comply with applicable law or regulation or the rules of the stock exchange on which the Shares of the Company’s common stock is traded, if any.
9. Notices. Any notice required to be delivered to the Company under this Award Agreement will be in writing and addressed to the Secretary of the Company at the Company’s principal corporate offices. Any notice required to be delivered to you under this Award Agreement will be in writing and addressed to you at the address as shown in the records of the Company. Either party may designate another address in writing (or by such other method approved by the Company) from time to time.
10. Governing Law. This Award Agreement will be construed and interpreted in accordance with the laws of the State of Texas without regard to conflict of law principles.
11. Interpretation. Any dispute regarding the interpretation of this Award Agreement will be submitted by you or the Company to the Committee for review. The resolution of such dispute by the Committee will be final and binding on you and the Company.
12. Successors and Assigns. The Company may assign any of its rights under this Award Agreement. This Award Agreement will be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth herein, this Award Agreement will be binding upon you and your beneficiaries, executors or Committees.
13. Severability. The invalidity or unenforceability of any provision of the Plan or this Award Agreement will not affect the validity or enforceability of any other provision of the Plan or this Award Agreement, and each provision of the Plan and this Award Agreement will be severable and enforceable to the extent permitted by law.
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14. Amendment. The Committee has the right to amend, alter, suspend, discontinue or cancel the Restricted Stock, prospectively or retroactively; provided, that, no such amendment will adversely affect your material rights under this Award Agreement without your consent.
15. Counterparts. This Award Agreement may be executed in counterparts, each of which will be deemed an original but all of which together will constitute one and the same instrument.
The Plan is incorporated herein by reference and a copy is attached hereto. The Plan and this Award Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and you with respect to the subject matter hereof, and may not be modified adversely to your interest except by means of a writing signed by the Company and you.
By your signature and the signature of the Company’s representative below, you and the Company agree that the Restricted Stock is granted under and governed by the terms and conditions of the Plan and this Award Agreement. You have reviewed the Plan and this Award Agreement in their entirety, have had an opportunity to obtain the advice of counsel prior to executing this Award Agreement and fully understand all provisions of the Plan and this Award Agreement. You hereby agree to accept as binding, conclusive and final all decisions or interpretations of the Committee upon any questions relating to the Plan and Award Agreement. You further agree to notify the Company upon any change in your residence address indicated below.
| PARTICIPANT | GENERATION HEMP, INC. | |
| Signature | By | |
| Print Name | Title | |
| Residence Address | ||
5
Exhibit 10.40
GENERATION HEMP, INC.
2021 OMNIBUS INCENTIVE PLAN
NOTICE OF RESTRICTED STOCK UNITS
Generation Hemp, Inc., a Delaware corporation (the “Company”) grants to you the following Restricted Stock Units (“RSUs”), pursuant to the Company’s 2021 Omnibus Incentive Plan (the “Plan”) and the attached Restricted Stock Unit Award Agreement (the “Award Agreement”):
| Participant: | [insert name] |
| Total Number of RSUs: | [insert number of shares] |
| Date of Grant: | [insert date] |
| Vesting Commencement Date: | [insert Vesting Commencement Date] |
| Vesting Schedule: | [insert Vesting Schedule] |
GENERATION HEMP, INC.
2021 OMNIBUS INCENTIVE PLAN
Restricted Stock Unit Award Agreement
Dear [insert name]:
On [insert date], the Committee of Generation Hemp, Inc. (the “Company”) approved an award of Restricted Stock Units (the “RSUs”) to you pursuant to the terms of the Generation Hemp, Inc. 2021 Omnibus Incentive Plan (the “Plan”). Capitalized terms not explicitly defined in this Award Agreement shall have the meaning set forth in the Plan and the attached Notice of Restricted Stock Units (the “Notice”).
You are granted [insert number] RSUs in the Company. The Date of Grant of the RSUs is [insert date].
1. Vesting. Subject to your not incurring a Separation from Service with the Company prior to the applicable vesting dates, the RSUs shall vest at the time or times set forth in the Notice.
[Insert, as applicable: Notwithstanding the schedule in the Notice, in the event your termination of employment is due to your death or Disability, all unvested Restricted Stock Units shall become one hundred percent (100%) vested on the date of your death or Disability.]
2. Grant of RSUs. Each RSU granted to you represents the conditional right to receive, without payment, but subject to the conditions and limitations set forth in this Award Agreement and the Plan, one Share of common stock of the Company to be settled as provided in Section 5.
3. Award Subject to Plan. The Award is subject in its entirety to the provisions of the Plan, which are incorporated herein by reference and a copy is attached hereto. In the event of any conflict, the terms of the Plan will control.
4. Rights as Shareholder; Limits on Transfer. Each RSU represents an unfunded and unsecured promise by the Company to deliver one Share to you upon vesting of the RSU. Except as provided in Section 6, you will not have any rights of a shareholder with respect to any RSU (including any voting rights) unless and until the RSU vests and is settled by the issuance of a Share or settled in cash. Neither the RSUs nor the rights relating thereto may be sold, transferred, pledged, assigned, or otherwise alienated, other than by will or by laws of descent and distribution.
5. Settlement. Subject to Section 8, promptly following the applicable Vesting Date and in any event no later than two and one-half (2 1/2) months following the last day of the calendar year in which occurs such Vesting Date, as determined by the Committee, the Company will:
a) issue and deliver to you the number of Shares equal to the applicable number of RSUs that vested on such Vesting Date (No fractional shares will be issued under this Award Agreement);
b) settle the vested RSUs in cash; or
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c) a combination of (a) and (b) above.
6. Dividend Equivalents. Each RSU shall be credited with an amount equal to the dividends paid on a Share between the Date of Grant and the date such RSU is paid to you (if at all). Dividend equivalents shall vest, if at all, upon the same terms and conditions governing the vesting of RSUs under the Plan. Payment of the dividend equivalent shall be made at the same time as payment of the RSU and shall be made without interest or other adjustment. If the RSU is forfeited, you shall have no right to dividend equivalents.
7. Withholding; Code Section 409A; Tax Liability.
7.1 You will be required to pay to the Company, and the Company will have the right to deduct from any compensation paid to you pursuant to this Award Agreement or otherwise, the amount of any required withholding or other applicable taxes in respect of the RSUs, including upon the vesting and/or settlement of the RSUs, and to take all such other action as the Committee deems necessary to satisfy all obligations for the payment of such withholding or other applicable taxes. The Committee may permit you to satisfy any federal, state or local tax withholding obligation (income or employment) by authorizing the Company to withhold Shares from the Shares otherwise deliverable to you as a result of the vesting and settlement of the RSUs; provided, however, that no Shares will be withheld with a value exceeding the minimum amount of tax required to be withheld by law.
7.2 If you are determined to be a “Specified Employee” within the meaning of Section 409A, the Treasury regulations thereunder, and the Plan, as determined by the Committee, at the time of your “separation from service” within the meaning of Section 409A and the Treasury regulations thereunder, then to the extent necessary to prevent any accelerated or additional tax under Section 409A, the settlement and delivery of any Shares hereunder upon such separation from service will be delayed until the earlier of (a) the date that is six months and one day following your separation from service and (b) your death. For purposes of this Award Agreement, all references to “termination of employment” and correlative phrases will be construed to require a “separation from service” (as defined in Section 1.409A-1(h) of the Treasury regulations after giving effect to the presumptions contained therein).
7.3 This Award Agreement is intended to comply with Section 409A or an exemption thereunder, and will be construed and interpreted in a manner that is consistent with the requirements for avoiding additional taxes or penalties under Section 409A. Notwithstanding the foregoing, the Company makes no representations that the payments and benefits provided under this Award Agreement comply with Section 409A, and in no event will the Company be liable for all or any portion of any taxes, penalties, interest or other expenses that may be incurred by you on account of non-compliance with Section 409A. You hereby acknowledge that the Company has advised you to consult with a tax advisor regarding the potential impact of Code Section 409A and that the Company, in the exercise of its sole discretion and without your consent, may amend or modify this Award Agreement in any manner and delay the payment of any amounts payable pursuant to this Award Agreement to the minimum extent necessary to meet the requirements of Code Section 409A, as amplified by any Internal Revenue Service or U.S. Treasury Department regulations or guidance as the Company deems appropriate or advisable.
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7.4 You have reviewed with your own tax advisors the federal, state, local and foreign tax consequences of this Award Agreement. You are relying solely on such advisors and not on any statements or representations of the Company or any of its agents. You understand that you (and not the Company) shall be responsible for your own tax liability that may arise as a result of this Award Agreement.
8. Compliance with Law. The issuance and transfer of the Shares will be subject to compliance by the Company and you with all applicable requirements of federal and state securities laws and with all applicable requirements of any stock exchange on which the Stock may be listed. No shares of Stock will be issued or transferred unless and until any then applicable requirements of state and federal law and regulatory agencies have been fully complied with to the satisfaction of the Company and its counsel.
9. Electronic Delivery. The Company may, in its sole discretion, deliver by electronic means any documents related to current or future participation in the Plan. You hereby consent to receive such documents by electronic delivery and agree to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company.
10. Recovery of Compensation. The RSUs, any Shares delivered hereunder and any gains realized or other amounts in respect of such RSUs will be subject to recoupment by the Company to the extent required to comply with applicable law or regulation or the rules of the stock exchange on which Shares of the Company’s common stock is traded, if any.
11. Notices. Any notice required to be delivered to the Company under this Award Agreement will be in writing and addressed to the Secretary of the Company at the Company’s principal corporate offices. Any notice required to be delivered to you under this Award Agreement will be in writing and addressed to you at the address as shown in the records of the Company. Either party may designate another address in writing (or by such other method approved by the Company) from time to time. To the extent that you have any ability to defer the recognition of income under Section 83(i) of the Internal Revenue Code of 1986, as amended (in which case, the Company shall provide you with the appropriate notice and election forms), you hereby agree to notify the Company of such election within ten (10) days after filing notice of the election with the Internal Revenue Service or other government authority.
12. Governing Law. This Award Agreement will be construed and interpreted in accordance with the laws of the State of Texas without regard to conflict of law principles.
13. Interpretation. Any dispute regarding the interpretation of this Award Agreement will be submitted by you or the Company to the Committee for review. The resolution of such dispute by the Committee will be final and binding on you and the Company.
14. Successors and Assigns. The Company may assign any of its rights under this Award Agreement. This Award Agreement will be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth herein, this Award Agreement will be binding upon you and your beneficiaries, executors or Committees.
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15. Severability. The invalidity or unenforceability of any provision of the Plan or this Award Agreement will not affect the validity or enforceability of any other provision of the Plan or this Award Agreement, and each provision of the Plan and this Award Agreement will be severable and enforceable to the extent permitted by law.
16. Amendment. The Committee has the right to amend, alter, suspend, discontinue or cancel the RSUs, prospectively or retroactively; provided, that, no such amendment will adversely affect your material rights under this Award Agreement without your consent.
17. Counterparts. This Award Agreement may be executed in counterparts, each of which will be deemed an original but all of which together will constitute one and the same instrument.
The Plan is incorporated herein by reference and a copy is attached hereto. The Plan and this Award Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and you with respect to the subject matter hereof, and may not be modified adversely to your interest except by means of a writing signed by the Company and you. This Award Agreement is governed by the laws of the State of Texas.
By your signature and the signature of the Company’s representative below, you and the Company agree that the RSUs are granted under and governed by the terms and conditions of the Plan and this Award Agreement. You have reviewed the Plan and this Award Agreement in their entirety, have had an opportunity to obtain the advice of counsel prior to executing this Award Agreement and fully understand all provisions of the Plan and this Award Agreement. You hereby agree to accept as binding, conclusive and final all decisions or interpretations of the Committee upon any questions relating to the Plan and Agreement. You further agree to notify the Company upon any change in your residence address indicated below.
| PARTICIPANT | GENERATION HEMP, INC. | |
| Signature | By | |
| Print Name | Title | |
| Residence Address | ||
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Exhibit 10.41
GENERATION HEMP, INC.
2021 OMNIBUS INCENTIVE PLAN
NOTICE OF STOCK APPRECIATION RIGHTS
Generation Hemp, Inc., a Delaware corporation (the “Company”) grants to you the following Stock Appreciation Rights (“SARs”), pursuant to the Company’s 2021 Omnibus Incentive Plan (the “Plan”) and the attached Stock Appreciation Rights Award Agreement (the “Award Agreement”):
| Participant: | [insert name] |
| Total Number of SARs: | [insert number of shares] |
| Form of SARs: | [insert Tandem/Freestanding/Combination] |
| Date of Grant: | [insert date] |
| Grant Price per Share: | [insert Fair Market Value as of Date of Grant] |
| Vesting Commencement Date: | [insert Vesting Commencement Date] |
| Vesting Schedule: | [insert Vesting Schedule] |
| Final Exercise Date: | [insert Final Exercise Date]. The SARs may expire earlier pursuant to Section 2 of the Award Agreement if the Participant’s relationship with the Company is terminated, or pursuant to Section VI of the Plan. |
GENERATION HEMP, INC.
2021 OMNIBUS INCENTIVE PLAN
Stock Appreciation Rights Award Agreement
Dear [insert name]:
On [insert date], the Committee approved a grant of Stock Appreciation Rights (“SARs”) to you with respect to Shares of common stock of Generation Hemp, Inc. (the “Company”) pursuant to the Generation Hemp, Inc. 2021 Omnibus Incentive Plan (the “Plan”). The SARs shall constitute and be treated at all times by you and the Company as [Freestanding SARs/Tandem SARs/combination of Freestanding SARs and Tandem SARs]. Capitalized terms not defined in this Award Agreement shall have the meaning set forth in the Plan and the attached Notice of Stock Appreciation Rights (the “Notice”).
You are granted [insert amount] SARs of the Company, with [all SARs being Freestanding SARs/Tandem SARs / with [insert amount] being Freestanding SARs and [insert amount] being Tandem SARs]. The Date of Grant is [insert date] and the Fair Market Value of a Share of common stock of the Company as of such date is the Grant Price.
1. Vesting. Subject to your not incurring a Separation from Service with the Company prior to the applicable vesting dates, the SARs shall vest and become exercisable at the time or times set forth in the Notice.
[Include, if applicable: Notwithstanding the schedule in the Notice, in the event your Separation from Service is due to your death or Disability, the unvested portion of your SARs shall become one hundred percent (100%) vested on the date of your death or Disability.]
2. Duration of SARs. SARs may be exercised at any point in time between the Vesting Date and the Final Exercise Date set forth in the Notice. Except as otherwise provided herein, the SARs may be exercised for three (3) months after you incur a Separation from Service from the Company; provided, however, in the event your Separation from Service is due to your death or Disability, the SARs may be exercised for one year following such event. If, prior to the Final Exercise Date set forth in the Notice, you incur a Separation from Service for Cause (as defined below), the right to exercise the SARs shall terminate immediately upon the effective date of such Separation from Service. If you are a party to an agreement with the Company that contains an applicable definition of “cause,” “Cause” shall have the meaning ascribed to such term in such agreement. Otherwise, “Cause” shall mean willful misconduct or willful failure to perform your responsibilities to the Company (including, without limitation, breach of any provision of any employment, consulting, advisory, nondisclosure, non-competition or other similar agreement between you and the Company), as determined by the Company, which determination shall be conclusive. You shall be considered to have been discharged for “Cause” if the Company determines, within 30 days after your resignation, that discharge for “Cause” was warranted.
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3. Exercise of SARs. Upon exercise (by delivery of an Exercise Notice, in the form attached as Exhibit A), and subject to applicable tax withholding, you will be entitled to receive payment from the Company in an amount determined by multiplying (a) the difference between the Fair Market Value of a Share of common stock of the Company on the exercise date and the Grant Price, by (b) the number of Shares with respect to which the SAR is exercised. This amount will be paid to you in [cash/shares/combination].
If you are an Employee, you acknowledge and agree that applicable tax withholding shall be accomplished by having the Company withhold Shares having a fair market value equal to the minimum statutory total tax obligations.
4. Non-Assignability of SARs. The SARs may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, other than by will or by the laws of descent or distribution and may be exercised during your lifetime only by you except in the case of your Disability, the SARs may be exercised by your representative. The terms of the Plan and this Award Agreement shall be binding upon your executors, administrators, heirs, successors and assigns.
5. Code Section 409A. The Grant Price is intended to be not less than the Fair Market Value of the common stock of the Company on the Date of Grant. The Company has determined the Fair Market Value of the common stock of the Company in good faith and using the reasonable applicable of a reasonable valuation method, for purposes of determining the Grant Price. Notwithstanding this, the Internal Revenue Service may assert that the Fair Market Value of the common stock of the Company on the Date of Grant was greater than the Grant Price. Under Code Section 409A, if the Grant Price is less than the Fair Market Value of the common stock of the Company on the Date of Grant, the SARs may be treated as a form of deferred compensation and you may be subject to an additional twenty percent (20%) tax, plus interest and possible penalties. You hereby acknowledge that the Company has advised you to consult with a tax advisor regarding the potential impact of Code Section 409A and that the Company, in the exercise of its sole discretion and without your consent, may amend or modify this Award Agreement in any manner and delay the payment of any amounts payable pursuant to this Award Agreement to the minimum extent necessary to meet the requirements of Code Section 409A, as amplified by any Internal Revenue Service or U.S. Treasury Department regulations or guidance as the Company deems appropriate or advisable.
You have reviewed with your own tax advisors the federal, state, local and foreign tax consequences of this Award Agreement. You are relying solely on such advisors and not on any statements or representations of the Company or any of its agents. You understand that you (and not the Company) shall be responsible for your own tax liability that may arise as a result of this Award Agreement.
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6. No Guarantee of Continued Service. YOU ACKNOWLEDGE AND AGREE THAT THE VESTING OF SARs PURSUANT TO THE VESTING SCHEDULE SET FORTH HEREIN ARE EARNED ONLY BY CONTINUING SERVICE AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THE SARs OR ACQUIRING SHARES HEREUNDER). YOU FURTHER ACKNOWLEDGE AND AGREE THAT THIS AWARD AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED SERVICE FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE IN ANY WAY WITH YOUR RIGHT OR THE COMPANY’S RIGHT TO TERMINATE YOUR SERVICE WITH OR WITHOUT CAUSE.
The SARs granted to you are subject to and governed by the terms of the Plan which is incorporated by reference and a copy is attached hereto. The Plan and this Award Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and you with respect to the subject matter hereof, and may not be modified adversely to your interest except by means of a writing signed by the Company and you. This Award Agreement is governed by the laws of the State of Texas.
By your signature and the signature of the Company’s representative below, you and the Company agree that this SAR is granted under and governed by the terms and conditions of the Plan and this Award Agreement. You have reviewed the Plan and this Award Agreement in their entirety, have had an opportunity to obtain the advice of counsel prior to executing this Award Agreement and fully understand all provisions of the Plan and this Award Agreement. You hereby agree to accept as binding, conclusive and final all decisions or interpretations of the Committee upon any questions relating to the Plan and Award Agreement. You further agree to notify the Company upon any change in your residence address indicated below.
| PARTICIPANT | GENERATION HEMP, INC. | |
| Signature | By | |
| Print Name | Title | |
| Residence Address |
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Exhibit A
EXERCISE NOTICE
OF STOCK APPRECIATION RIGHTS
Generation Hemp, Inc.
(date)
Re: Stock Appreciation Rights
Notice is hereby given pursuant to Section 3 of my Stock Appreciation Rights Award Agreement that I elect to exercise the number of stock appreciation rights set forth below at the exercise price set forth in my Stock Appreciation Rights Award Agreement:
| Stock Appreciation Rights dated: | |||
| Number of SARs being exercised: | |||
| Grant Price: |
I understand that the Shares of common stock of the Company that I may receive upon exercise of my Stock Appreciation Rights may not be freely tradable.
Further, I understand that, as a result of this exercise of rights, I will recognize income in an amount equal to the amount by which the fair market value of the Shares of common stock of the Company exceeds the exercise price. I agree to report such income in accordance with then applicable law and to cooperate with the Company in establishing the withholding and corresponding deduction to the Company for its income tax purposes.
I agree to provide to the Company such additional documents or information as may be required pursuant to the Generation Hemp, Inc. 2021 Omnibus Incentive Plan.
| (Signature) | |
| (Name of Participant) |
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Exhibit 21
List of Subsidiaries
| Entity | Jurisdiction | |
| Energy Hunter Resources, Inc. | Delaware | |
| JDONE LLC | Colorado | |
| GENH Halcyon Acquisition, LLC | Texas |
Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Gary C. Evans, certify that:
| 1) | I have reviewed this annual report of Generation Hemp, Inc. on Form 10-K; |
| 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) | I am 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 the 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. |
| (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) | 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 over financial reporting. |
| DATE: April 12, 2022 | By: | /s/ Gary C. Evans |
| Gary C. Evans Chairman Chief Executive Officer (Principal Executive Office and Principal Accounting and Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT 0F 2002
In connection with the Annual Report of Generation Hemp, Inc. (the Company”) on Form 10-K for the period ended herein as filed with the Securities and Exchange Commission (the “Report”), I. Gary C. Evans, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (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 fully presents, in all material respects, the financial condition and results of operations or the Company. |
| DATE: April 12, 2022 | By: | /s/ Gary C. Evans |
| Gary C. Evans Chairman Chief Executive Officer (Principal Executive Office and Principal Accounting and Financial Officer) |
Consolidated Balance Sheets (Parentheticals) - USD ($) |
Dec. 31, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Common stock, par value (in Dollars per share) | $ 0.00001 | |
| Common stock, shares authorized | 200,000,000 | 100,000,000 |
| Common stock, shares issued | 113,094,002 | 17,380,317 |
| Common stock, shares outstanding | 113,094,002 | 17,380,317 |
| Series B Redeemable Preferred Stock | ||
| Preferred stock par value (in Dollars per share) | ||
| Preferred stock, Stated Value (in Dollars) | $ 10,000 | $ 10,000 |
| Preferred stock, shares authorized | 300 | 300 |
| Preferred stock, shares issued | 118 | 135 |
| Preferred stock, shares outstanding | 118 | 135 |
| Series A Preferred Stock | ||
| Preferred stock par value (in Dollars per share) | $ 0.00001 | $ 0.00001 |
| Preferred stock, shares authorized | 6,500,000 | 6,500,000 |
| Preferred stock, shares issued | 6,328,948 | |
| Preferred stock, shares outstanding | 6,328,948 | |
| Preferred stock, stated value (in Dollars per share) | $ 1 | $ 1 |
Description of the Business |
12 Months Ended |
|---|---|
Dec. 31, 2021 | |
| Business [Abstract] | |
| Description of the Business | 1. Description of the Business
Generation Hemp, Inc. (the “Company”), formerly known as Home Treasure Finders, Inc. (“HTF”), was incorporated on August 21, 2021 in the State of Delaware. The Company was originally incorporated on July 28, 2008 in the State of Colorado. On November 27, 2019, HTF purchased approximately 94% of the common stock of Energy Hunter Resources, Inc. (“EHR”) in a series of transactions accounted for as a reverse merger (the “Transaction”). Upon closing of the Transaction, HTF changed its name to Generation Hemp, Inc.
On January 11, 2021, we completed the acquisition of certain assets of Halcyon Thruput, LLC (“Halcyon”). With this acquisition, we commenced providing post-harvest and midstream services to growers by drying, processing, cleaning and stripping harvested hemp directly from the field and wetbaled at our 48,000 square foot leased facility located in Hopkinsville, Kentucky. Additionally, the Company offers safe storage services for processed hemp, which enables farmers to maximize strategic market timing. In August 2021, the Company launched its small animal bedding consumer goods product line (“Rowdy Rooster”) made from the hemp hurd byproduct that is produced from its hemp processing operations.
We also generate revenue from rental of our “Cannabis Zoned” (Hemp) warehouse property located in Denver, Colorado currently leased to an unaffiliated hemp seed company.
As of December 31, 2021, EHR held an approximate 8% working interest in an oil & gas property located in Cochran County, Texas within the Slaughter-Levelland Field of the San Andres formation in the Northwest Shelf of West Texas. EHR’s oil & gas activities are currently held for sale and are presented in these consolidated financial statements as discontinued operations for each of the periods presented.
Our management team has been and continues to actively review acquisition candidates involved in the hemp industry that operate within a number of vertical businesses, predominantly within the midstream sector that are attractive to us and are within the hemp supply chain.
Going Concern and Management’s Plans – The Company is dependent upon obtaining additional funding to continue ongoing operations and to pursue its strategy and execute its acquisition plans.
In 2021, the Company used $3.5 million of cash for its operating activities. At December 31, 2021, the Company’s current liabilities, including financing obligations due within one year, totaled $4.4 million as compared with its current assets of $238 thousand.
The Company will continue to pursue additional capital raising opportunities in order to fund future acquisitions and meet its obligations as they become due. We may not be successful in obtaining additional financing needed. In the event financing cannot be obtained, the Company may not be able to satisfy these plans and obligations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Impact of COVID-19 Pandemic on Our Business – Our business, results of operations and financial condition were adversely affected by the COVID-19 pandemic in 2020. The COVID-19 pandemic and measures taken to contain it subjected our business, results of operations, financial condition, stock price and liquidity to a number of material risks and uncertainties, all of which may continue or may worsen. |
Summary of Significant Accounting Policies |
12 Months Ended | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2021 | |||||||||||
| Accounting Policies [Abstract] | |||||||||||
| Summary of Significant Accounting Policies | 2. Summary of Significant Accounting Policies
Basis of Presentation – The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and U.S. Securities and Exchange Commission regulations. The consolidated financial statements comprise the financial statements of the Company, its wholly-owned subsidiaries, and subsidiaries that it controls due to ownership of a majority voting interest. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Company obtains control, and continue to be consolidated until the date when such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the Company. All significant intercompany balances and transactions are eliminated upon consolidation.
Business Combinations – The Company accounts for business combinations under the acquisition method of accounting. Under this method, acquired assets, including separately identifiable intangible assets, and any assumed liabilities are recorded at their acquisition date estimated fair value. Determining the fair value of assets acquired and liabilities assumed involves the use of significant estimates and assumptions. The excess of purchase price over the fair value amounts assigned to the assets acquired and liabilities assumed represents the goodwill amount resulting from the acquisition.
Use of Estimates – The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Significant items subject to such estimates and assumptions include the (i) impairment of long-lived assets and goodwill, (ii) valuation allowances for deferred income tax assets and (iii) estimates of accrued liabilities. Actual results could differ from those estimates.
Revenue Recognition – Post-harvest and midstream services revenue is typically determined based on volumes processed at agreed-upon contractual prices and is recognized when performance obligations under the terms of a contract with our customers are satisfied. This occurs when control of the product is transferred to our customers upon completion of our processing.
Rental revenue is recognized based on the contractual cash rental payments for the period.
Cash – The Company maintains its deposits of cash in financial institutions, which may at times exceed amounts covered by insurance provided by the U.S. Federal Deposit Insurance Corporation (“FDIC”). The Company has not experienced any losses related to amounts in excess of FDIC limits.
Inventories – Inventories are stated at the lower of cost or net realizable value. Cost, which includes the cost of raw materials, labor and overhead, is determined using the first-in, first-out method. Net realizable value is the estimated selling price in the ordinary business, less reasonably predictable cost of completion, disposal and transportation.
Property and Equipment – property and equipment is stated at cost and depreciated using the straight-line method over the estimated useful lives of assets. Upon disposition, the cost and accumulated depreciation are removed and any gain or loss on the disposal is reflected in the statements of operations. The cost of maintenance and repairs is charged to income as incurred; significant renewals and improvements are capitalized.
Leases – The Company’s lease arrangements are operating leases which are capitalized on the balance sheet as right-of-use (“ROU”) assets and obligations. Right of use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. These are recognized at the lease commencement date based on the present value of payments over the lease term. If leases do not provide for an implicit rate, we use our incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term as the lease payments. Lease expense is recognized on a straight-line basis over the lease term.
Intangible Assets – Definite-lived intangible assets are amortized and are tested for impairment when an event occurs or circumstances change that indicate it is more likely than not that an impairment exists. Intangible assets consist of customer relationships and non-compete agreements acquired in the acquisition of certain assets of Halcyon. These intangibles have a gross carrying amount of $2.7 million and accumulated amortization of $818 thousand at December 31, 2021. Future amortization expense in each of the next five years amounts to $587 thousand for 2022, $419 thousand for 2023, $278 thousand for 2024, $194 thousand for 2025, $130 thousand for 2026 and $250 thousand thereafter.
Impairment of Long-Lived Assets – We review long-lived assets for potential impairment when events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. In this assessment, future pre-tax cash flows (undiscounted) resulting from the use of the asset and its eventual disposal are estimated. If the undiscounted future cash flows are less than the carrying amount of the asset, an impairment loss is recognized for the difference between its carrying value and estimated fair value.
Common Stock Units Issuable – From time to time, the Company accepts payment from investors for common stock unit subscriptions pursuant to approved offerings of securities. Amounts received before completion and closing of the offerings are reported as liabilities.
Noncontrolling Interest – Noncontrolling interests represent the portion of net assets in consolidated entities that are not owned by the Company. As of December 31, 2021 and 2020, minority investors owned approximately 6% of EHR.
Stock-based Compensation – We account for employee stock-based compensation using the fair value method. Compensation cost for equity incentive awards is based on the fair value of the equity instrument generally on the date of grant and is recognized over the requisite service period. Forfeitures are recognized as they occur.
Income Taxes – Income taxes are accounted for using a balance sheet approach. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. In assessing the realizability of deferred tax assets, management considers whether it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax asset (including the impact of available carryback and carryforward periods), projected future taxable income, and tax-planning strategies in making this assessment. A valuation allowance for deferred tax assets is recorded when it is more likely than not that the benefit from the deferred tax asset will not be realized.
The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which a change in judgment occurs. The Company had no material uncertain tax positions as of December 31, 2021 or 2020. Income tax returns we file may be routinely examined by tax authorities. The statute of limitations is currently open for tax returns filed after 2017.
The Company is subject to the Texas margin tax; however, tax expense was zero for the years ended December 31, 2021 and 2020.
Discontinued Operations – In connection with the Transaction, management determined to fully divest of EHR’s oil and gas activities. As such, these activities are presented as discontinued operations for each of the periods presented.
The Company follows the successful efforts method of accounting for its oil and gas properties. Costs to acquire mineral interests in oil and gas properties and to drill and equip new development wells and related asset retirement costs are capitalized. In 2019, the Company’s oil and gas properties became fully impaired and the carrying amount of the properties was expensed to the market decline and the Company’s determination to exit the oil and gas business. The oil & gas properties have limited production and operations for which the Company recognizes its share as a non-operating working interest owner. Oil & gas revenue is recognized for discontinued operations based on delivered quantities in the amount of the consideration to which the Company is entitled.
The Company records a liability for the plugging, abandonment and remediation of its properties at the end of their productive lives. The Company computes the liability for asset retirement obligations by calculating the present value of estimated future cash flows related to each property. This requires the Company to use significant assumptions, including current estimates of plugging and abandonment costs, annual inflation of these costs, the productive lives of wells and its risk-adjusted interest rate. Changes in any of these assumptions can result in significant revisions to the estimated asset retirement obligations.
Asset retirement obligations are recorded as a liability at their estimated present value at the asset’s inception, with an offsetting increase to producing properties in the accompanying balance sheet which is amortized to expense on a unit-of-production basis. Periodic accretion of the discount on asset retirement obligations is recorded as expense.
Fair Value Measurements – Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three levels related to fair value measurements are as follows:
The estimated fair values of cash, accounts receivable, accounts payable and indebtedness approximate their carrying amounts due to the relatively short maturity of these instruments.
Earnings (loss) per Share – Basic earnings (loss) per share amounts are calculated by dividing income available to common shareholders, after deducting preferred stock dividends, by the weighted average number of shares of common stock outstanding. Diluted earnings per share amounts are calculated by dividing net income by the weighted average number of shares of common stock and common stock equivalents outstanding. Common stock equivalents represent shares issuable upon the assumed conversion of preferred stock, outstanding convertible notes and the assumed exercise of common stock options and warrants outstanding.
Major Customer and Concentration of Credit Risk – We estimate an allowance for doubtful accounts based on an analysis of specific customers, taking into consideration the age of past due accounts and an assessment of the customer’s ability to pay. An allowance for doubtful accounts was not needed as of December 31, 2021 or 2020.
During 2021, one customer accounted for approximately 91% of our post-harvest and midstream services revenue, respectively. No amounts were due from this customer at December 31, 2021.
Our rental revenue is derived from a single lessee on a commercial warehouse owned by the Company. There were no amounts due from this customer at December 31, 2021 or 2020.
Reclassifications – Financial statements presented for prior periods include reclassifications that were made to conform to the current-year presentation.
Recent Accounting Pronouncements – In December 2019, the FASB issued ASU 2019-12, Income Taxes, which enhances and simplifies various aspects of the income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law. We adopted this standard in the first quarter of 2021. Adoption of this ASU did not have a significant impact on our consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40). The new standard reduces the number of accounting models for convertible debt instruments and convertible preferred stock, and amends the guidance for the derivatives scope exception for contracts in an entity’s own equity. The standard also amends and makes targeted improvements to the related earnings per share guidance. The ASU is effective for fiscal years beginning after December 15, 2021. The standard allows for either modified or full retrospective transition methods. The Company will adopt this standard on January 1, 2022. We do not expect that the adoption of this ASU will have a significant impact on our consolidated financial statements. |
Acquisition |
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| Business Combinations [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Acquisition | 3. Acquisition
On January 11, 2021, the Company completed the acquisition of certain assets of Halcyon pursuant to the Asset Purchase Agreement dated March 7, 2020, as amended on January 11, 2021 and October 8, 2021. The purchase consideration totaled approximately $6.1 million consisting of 6,250,000 shares of Company common stock valued at $2.5 million ($0.40 per share; restricted from trading for a period of up to one year), $1.75 million in cash, a promissory note for $850,000 issued by the Company’s subsidiary, GenH Halcyon Acquisition, LLC, and guaranteed by Gary C. Evans, CEO of the Company, and assumption of approximately $1.0 million of new indebtedness of Halcyon. The Company was granted an option to purchase the real estate occupied by Halcyon for $993,000. This option is exercisable at any time before its expiration on January 11, 2022. This purchase option was subsequently amended and extended as disclosed in Note 14.
The acquisition was accounted for as a business combination where the Company is the acquirer and the acquisition method of accounting was applied in accordance with GAAP. Accordingly, the aggregate value of the consideration we paid to complete the acquisition was allocated to the assets acquired based upon their estimated fair values on the acquisition date.
The following table summarizes the purchase price allocation for the assets acquired:
Intangible assets consist of customer relationships and non-compete agreements, each having definite-lives. These intangible assets are being amortized over the estimated useful life on an accelerated basis reflecting the anticipated future cash flows of the Company post acquisition of Halcyon. The weighted-average useful life assigned to the intangible assets is years.
The results of operations for the acquired Halcyon assets have been included in the Company’s consolidated financial statements since the January 11, 2021 acquisition date.
Concurrent with the closing of the asset acquisition, the Company entered into term employment agreements with two executives to serve as vice presidents of the Company for a term of at least two years and the issuance of 250,000 shares of restricted common stock of the Company as a signing bonus. Such shares are subject to restrictions on the trading or transfer of such common stock.
Further, the term employment agreements each provide for the payment by the executives of liquidated damages if the employee terminates his employment without good reason during the initial term, other than due to the employee’s death or disability. Such liquidated damages total $375,000 if termination occurs prior to January 11, 2023.
On March 3, 2021, the Company repaid the outstanding principal and interest balance on the $850,000 promissory note issued in connection with the acquisition.
Supplemental Pro Forma Information – The supplemental pro forma financial information presented below is for illustrative purposes only and is not necessarily indicative of the financial position or results of operations that would have been realized if the acquisition of certain assets of Halcyon had been completed on the date indicated, nor is it indicative of future operating results or financial position. The pro forma adjustments are based upon currently available information and certain assumptions that management believes are reasonable under the circumstances.
The supplemental pro forma financial information reflects pro forma adjustments to present the combined pro forma results of operations as if the acquisition had occurred on January 1, 2020, to give effect to certain events that management believes to be directly attributable to the acquisition. These pro forma adjustments primarily include:
The supplemental pro forma financial information for the periods presented is as follows:
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Property and Equipment |
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| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property and Equipment | 4. Property and Equipment
Property and equipment consisted of the following:
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Notes Payable – Related Parties |
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| Related Party Transactions [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Payable – Related Parties | 5. Notes Payable – Related Parties
Notes payable – related parties consisted of the following:
Senior Secured Promissory Note – On March 31, 2017, the Company entered into a subscription agreement under which we issued a $3,000,000 10% Senior Secured Promissory Note to Satellite Overseas (Holdings) Limited (“SOHL”), a stockholder of the Company’s common shares. The interest rate of the Senior Secured Promissory Note was 12%. On March 9, 2021, the total principal, interest and accrued fees under the Senior Secured Promissory Note was contributed to the Company and exchanged into 1,000,000 common shares.
Convertible Promissory Note – In October 2019, HTF issued a convertible promissory note to EHR in exchange for EHR’s payment of HTF’s accounts payable and Transaction expenses. The convertible promissory note bore interest at 4% per annum and was convertible by the holder at any time into common stock of the Company at a rate of $0.352 per share. On March 9, 2021, the convertible promissory note, together with accrued interest thereon, was converted into 618,660 common shares under the terms of the note.
Subordinated Promissory Note to CEO – Our CEO made advances to the Company during 2020 under a subordinated promissory initially note due September 30, 2021. This note was amended to a new maturity date of June 30, 2022. If the Company raises new equity capital of $3 million or more, then the full amount outstanding under the note is due within five days. The note bears interest at 10% per annum. Accrued interest on this subordinated promissory note totaled $7,602 at December 31, 2021.
Convertible Promissory Note to CEO – In 2021, our CEO made advances totaling $410,000 to the Company under a convertible promissory note. The convertible note matured on January 1, 2022 but was subsequently amended to extend the maturity date to June 30, 2022. If the Company raises new equity capital of $3 million or more, then the full amount outstanding under the note is due within five days. The note bears interest at 10%. The principal and interest due on the convertible note may be converted, at the option of the holder, into restricted shares of the Company’s common stock at a conversion price equal to $0.50 per share. Accrued interest on this convertible promissory note totaled $19,118 at December 31, 2021.
Secured Promissory Note and Warrants to Coventry Asset Management, LTD. – On December 30, 2020, the Company received proceeds from issuance of a secured promissory note in principal amount of $1,000,000 to Coventry Asset Management, LTD, a Company stockholder. The promissory note is secured by the property acquired in the acquisition of certain assets of Halcyon. The unpaid balance of the secured promissory note bears interest at a rate of 10% per annum and initially matured on June 30, 2021. The promissory note has been extended three times each including the issuance of 20,000 restricted common shares as extension fees. The maturity date of the promissory note is April 30, 2022, as amended. If before April 30, 2022 the Company raises new equity capital of $10 million or more, then the full amount outstanding under the promissory note is due within five days. Additionally, the holder of the promissory note was given an option exercisable until April 7, 2022 to convert $250,000 of the outstanding principal balance into shares of the Company’s common stock at an exercise price of $0.60 per share. Accrued interest on this secured note totaled $100,275 at December 31, 2021.
The holder of the secured promissory note received a warrant to purchase 1,000,000 shares of common stock exercisable at an exercise price of $0.352 per share upon origination of the promissory note in 2020. This warrant was subsequently exercised in the first quarter of 2021.
Subordinated Promissory Note and Warrants to Investor – On December 30, 2020, the Company issued a subordinated promissory note in principal amount of $500,000 to an accredited investor who is also a Company stockholder. The unpaid balance of the Subordinated Note bears interest at a rate of 10% per annum. The Company made a principal payment of $250,000 in April 2021. The subordinated note principal together with accrued and unpaid interest was due, as previously amended, on March 31, 2022 but was subsequently extended. As subsequently amended, a payment of $50,000 is due March 31, 2022 and the remaining principal of $200,000 together with accrued interest is due on June 30, 2022. If at any time prior to the note’s maturity the Company raises new equity capital of $5 million or more, then the full amount outstanding under the note is due within five days. Accrued interest on this subordinated promissory note totaled $18,699 at December 31, 2021.
The holder of the subordinated note received a warrant to purchase 500,000 shares of common stock exercisable for cash until December 30, 2022 at an exercise price of $0.352 per share. |
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Other Indebtedness |
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| Other Indebtedness | 6. Other Indebtedness
Other indebtedness consisted of the following:
Mortgage Payable and Operating Lease – The Company is obligated under a mortgage payable dated September 15, 2014 secured by its warehouse property located in Denver, Colorado. The note provided for a 25-year amortization period and an initial interest rate of 9% annually. The note has been amended several times to a maturity date of January 15, 2022. In January 2022, the note was again amended to a new maturity date of April 15, 2022. The Company is paying monthly extension fees of $1,000 each. The new monthly payment of the note is $5,800 including interest at an effective rate of approximately 12%.
The Company leases the Denver warehouse property to a tenant under an operating lease which was renewed with a new tenant and extended to August 1, 2023 for a monthly rent of $7,500. The lease requires a true-up with the tenant for property taxes and insurance paid by the Company and requires the tenant to maintain the interior and exterior of the warehouse (except for the roof). The lease provides for a rent abatement in the first and last month of the contracted extension. Minimum future rents for 2022 are $90,000 and for 2023 are $52,500.
Paycheck Protection Program Loan – Congress created the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) to provide forgivable loans to eligible small businesses facing economic hardship to retain U.S. employees on their payroll during the Coronavirus Disease 2019 (“COVID-19”) pandemic.
PPP loan recipients may be eligible to have their loans forgiven if the funds were used for eligible expenses over the eight-week coverage period commencing when the loan was originally disbursed. The amount of forgiveness may be reduced if the percentage of eligible expenses attributed to nonpayroll expenses exceeds 25% of the loan, if employee headcount decreases, or compensation decreases by more than 25% for each employee making less than $100,000 per year, unless the reduced headcount or compensation levels are restored.
On April 29, 2020, we received disbursement of an approved PPP loan in the amount of $25,200. The Company received notice that the PPP Loan principal and interest thereon was fully forgiven on April 20, 2021. |
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Commitments and Contingencies |
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| Commitments and Contingencies Disclosure [Abstract] | |
| Commitments and Contingencies | 7. Commitments and Contingencies
Leases – The Company assumed Halcyon’s lease of office space in Fort Worth, Texas for managerial offices. This lease requires monthly payments of $2,000 and is month-to-month. Lease expense for this facility totaled $22,000 in 2021.
The Company leases its operating facility in Kentucky from Oz Capital, LLC, a related party, under a lease expiring May 31, 2024. The lease provides for monthly payments of $10,249. Oz Capital, LLC is responsible for all taxes and maintenance under the lease. Lease expense for this facility totaled $119,351 in 2021. A right-of-use asset and lease liability is recorded for this lease. As the lease does not provide an implicit rate, the Company used its estimated incremental borrowing rate of 10% in determining the present value of the lease payments.
Pending Insurance Claim – In 2019, drying equipment that Halcyon purchased from a third party was being placed into service when a fire loss subsequently occurred and destroyed the equipment causing significant business interruption. The cost of this drying equipment totaled $1.1 million. In 2020, Halcyon received, as partial payment, insurance proceeds of $595,000 from its insurance carrier. The Company has made a formal claim against the insurance carrier and is pursuing all available options to recover the unpaid amounts.
Litigation – From time to time, we are subject to various litigation and other claims in the normal course of business. Below is a discussion of specific matters. We cannot estimate the ultimate outcome of these matters.
Generation Hemp, Inc. v. Colorado Mills Equipment, LLC, Dallas, Texas Small Claims Court Case No. JS 22.00018A
The Defendant sold to the Company a faulty piece of equipment for $16,000 and will not refund the Company the purchase price after repeated attempts to return their equipment. A lawsuit was filed by the Company against Colorado Mills in January 2022.
Halcyon Thruput, LLC, Plaintiff v. United National Insurance Company, Defendant, United States District Court for the Northern District of Texas, Dallas Division, Case No. 3:21-CV-3136-K.
Halcyon Thruput, LLC (Halcyon) obtained an all-risks commercial insurance policy, including an Equipment Breakdown Endorsement (Policy) from United National Insurance Company (UNIC) to provide substantial coverages for Halcyon Thruput LLC’s (Halcyon) $1,203,735 hemp processing dryer (Dryer) at its facility in Hopkinsville, Kentucky. During the Policy period, the Dryer caught fire due to the Dryer being defectively designed.
While UNIC paid a number of Halcyon’s claims, Halcyon’s claim for the cost of the replacement Dryer of $1,380,374 was denied as described below.
Buyer, a wholly owned subsidiary of the Company, pursuant to an Asset Purchase Agreement as twice amended, then acquired all the assets of Halcyon, except for the right to the proceeds of UNIC’s insurance policy since the Policy prohibited assignment. Halcyon and Buyer agreed that Buyer’s principal, Gary C. Evans, had the right to control the litigation, engage counsel for Halcyon and make all decisions relating to any proceeds received in the litigation by settlement or otherwise.
Halcyon’s suit against UNIC, which was removed to federal court, seeks $796,865.53 (the cost of the replacement dryer of $1,380,374, less a credit for $583,508.47 previously paid by UNIC to Halcyon for the Dryer fire=$796,865.53) plus statutory interest on that sum from August 10, 2020 for violating the Texas Insurance Code’s requirement that claims be promptly paid, additional statutory penalties, and attorneys’ fees. Certain documents have been executed between the Company, Halcyon and legal counsel, which provide for a sharing of costs and expenses and awards, if any, against UNIC. Mediation of the case is set for April 12, 2022.
JDONE, LLC v. Grand Traverse Holdings, LLC and John Gallegos, Denver District Court Case No. 2019CV33723
JDONE, LLC (“JDONE”) is a wholly owned subsidiary of the Company and landlord of a commercial warehouse building that was previously leased to Grand Traverse Holdings, LLC on December 31, 2018 for a term of 61 months, with a personal guaranty from Defendant, John Gallegos. On April 12, 2019, Grand Traverse presented JDONE with an alleged forged, signed copy of the draft early termination amendment that JDONE had previously rejected. JDONE has suffered damages due to Defendant’s alleged misconduct of approximately $823,504 plus interest and attorney’s fees exceeding $400,000. A court ordered mediation was held in May 2020 without success. All material defendant motions have been denied by the court. The case is set for jury trial in July 2022. We believe that Grand Traverse Holdings, LLC and John Gallegos are jointly liable for the asserted damages which exceed $1 million plus attorney’s fees and we continue to vigorously pursue our claims.
KBSIII Tower at Lake Carolyn, LLC and Prime US-Tower at Lake Carolyn, LLC (collectively – “KBSIII” v. Energy Hunter Resources, Inc.)
Plaintiff/Counterdefendant KBSIII was seeking lost rent on office space for periods after EHR vacated office premises located in Las Colinas, Texas. EHR filed a counter suit alleging specific damages due to uninhabitable premises of the office space due to the intolerable conduct of other tenants located on the same floor. On December 23, 2020, the trial court entered a summary judgment against EHR for $230,712. The judgment provides for post-judgment interest at a rate of 5% per annum until paid and further provides for additional amounts owed should EHR pursue unsuccessful appeals to higher courts. At December 31, 2021, the Company had accrued $252,583 for this judgment, which is exclusively an EHR obligation. |
Income Taxes |
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| Income Tax Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Taxes | 8. Income Taxes
No amounts were recorded for income tax expense during the years ended December 31, 2021 or 2020. A reconciliation of the expected statutory federal tax and the total income tax expense from continuing operations was as follows:
The tax effect of temporary differences that gave rise to significant components of deferred tax assets and liabilities consisted of the following:
The Company has federal net operating loss (“NOL”) carryforwards of approximately $21.5 million at December 31, 2021, of which about $6.5 million begin to expire in 2034 and the remainder have no expiration.
The Company estimates that a majority of its NOL carryforwards are subject to annual limitations under Internal Revenue Code Section 382 as a result of ownership changes at various times including in the Transaction. These NOL carryforwards may never be utilized by the Company. |
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Equity |
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| Stockholders' Equity Note [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity | 9. Equity
Change of Corporate Domicile – On August 21, 2021, the Company changed its domicile from the State of Colorado to the State of Delaware. The change of domicile had no effect on the number of outstanding securities of the Company. The Company is authorized for 200 million shares of capital stock, par value $0.00001 per share and 20 million shares of preferred stock, par value $0.00001 per share.
Series A Preferred Stock – Our Series A Preferred Stock was originally issued in connection with the Transaction completed in December 2019. On September 8, 2021, holders of the Company’s Series A Preferred Stock elected to convert such shares into shares of the Company’s common stock. As a result, 6,328,948 shares of Series A Preferred Stock were converted into 75,947,376 shares of common stock, with each share of Series A Preferred Stock converting into 12 shares of restricted common stock pursuant to the applicable Certificate of Designations.
Series B Preferred Stock Units – On December 30, 2020, the Company sold to certain accredited investors, including Gary C. Evans, our Chief Executive Officer, an aggregate of 135 preferred stock units comprised of (i) one share of Series B Redeemable Convertible Preferred Stock, no par value, and (ii) one warrant exercisable for 50,000 shares of common stock of the Company until December 30, 2022 at an exercise price of $0.352 per share.
The sale of the preferred stock units for $10,000 each resulted in aggregate gross proceeds of approximately $1.35 million, before deducting estimated offering expenses payable by the Company. Substantially all of the proceeds raised in the offering were used to fund the acquisition of assets of Halcyon, expenses related thereto and for general corporate purposes.
Each share of Series B Preferred Stock is initially convertible into 25,000 shares of common stock, subject to adjustment. Holders of Series B Preferred Stock are entitled to receive dividends of 6.00% per annum based on the stated value equal to $10,000 per share. Except as otherwise required by law, the Series B Preferred Stock does not have voting rights. However, as long as any shares of Series B Preferred Stock are outstanding, the Company will not, without the affirmative vote of the holders of a majority of the then outstanding shares of the Series B Preferred Stock, (a) alter or change adversely the powers, preferences or rights given to the Series B Preferred Stock, (b) alter or amend the related certificate of designation, (c) amend its certificate of incorporation or other charter documents in any manner that adversely affects any rights of the holders of Series B Preferred Stock, (d) repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of its common stock, (e) enter into any agreement with respect to any of the foregoing, or (f) pay cash dividends or distributions on any equity securities of the Company other than pursuant to the terms of the outstanding Series B Preferred Stock. The Series B Preferred Stock does not have a preference upon any liquidation, dissolution or winding-up of the Company.
Any or all of the Series B Preferred Stock may be converted, at their holder’s option, into 25,000 shares of common stock, as adjusted for any stock dividends, splits, combinations or similar events.
At any time after the occurrence of a “Qualifying Event,” the Company, upon 5-day written notice, shall have the right to cause each share of Series B Preferred Stock (and all accrued in-kind dividends with respect thereto) to be converted into common stock. For purposes of this automatic conversion of the Series B Preferred Stock, a “Qualifying Event” shall have occurred if (A) (1) the rolling five-trading day volume-weighted average trading price of shares of the common stock exceeds $1.00, and (2) there shall be an effective registration statement under the Securities Act of 1933, as amended covering all of the shares of common stock which would be issuable upon conversion of all of the outstanding shares of Series B Preferred Stock or (B) the Company closes a firm commitment underwriting of the common stock on a Form S-1 Registration Statement with aggregate gross proceeds of at least $5,000,000 at a price per share equal to or greater than $1.00. In each instance, a conversion may not be made unless the Company has filed an amendment to its Articles of Incorporation effecting an increase in its authorized common stock so that the Company has a sufficient number of authorized and unissued shares of common stock so as to permit the conversion of all outstanding shares.
The Series B Preferred Stock may be redeemed by the Company for its stated value, plus accrued and unpaid dividends, at any time. Initially, redemption payments of 12.5% each of the total amount of Series B Preferred Stock then outstanding plus accrued dividends were due from the Company to each Holder of Series B Preferred Stock at the end of each calendar quarter of 2021. The first required redemption payments totaling $137,500 were made in April 2021. In May, June and October of 2021, the three holders of the Series B Preferred Stock, including the Company’s chief executive officer, entered into transactions in which they accepted the mandatory redemption payment required pursuant to the Series B Preferred Stock certificate of designation in a number of Series B Units to effectively waive the redemption requirement. All other terms of the Series B Units remain unchanged and the holders’ ownership interest in the Series B Preferred Units remains the same as it was before such transactions.
Common Stock – At December 31, 2021, the Company had 113,094,002 common shares outstanding. Following is a discussion of common stock issuances during the periods presented:
The common stock issued in the exchange was valued using the trading price of the common stock on February 20, 2020. The warrants were valued at $45,848 using a binomial lattice valuation model using inputs as of the exchange date. Our expected volatility assumption was based on the historical volatility of the Company’s common stock (252%). The expected life assumption was based on the expiration date of the warrant (two years). The risk-free interest rate for the expected term of the warrant was based on the U.S. Treasury yield curve in effect at the time of measurement (1.39%). The warrants are classified within equity in the consolidated balance sheets. Under GAAP, the anti-dilution provisions will be accounted for if and when these provisions are triggered.
Common Stock Warrants Outstanding – Following is a summary of warrants outstanding as of December 31, 2021:
Following is a summary of outstanding stock warrants activity for the periods presented:
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Stock-Based Compensation |
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| Stock-Based Compensation | 10. Stock-Based Compensation
We award restricted stock or stock options as incentive compensation to employees. Generally, these awards include vesting periods of up to three years from the date of grant.
The 2021 Omnibus Incentive Plan (“2021 Plan”) was adopted by our Board on July 1, 2021. The 2021 Plan provides for the initial reservation of 15 million shares of common stock for issuance, and provides that the maximum number of shares that may be issued pursuant to the exercise of ISOs is 15 million. The number of shares of common stock available for issuance under the 2021 Plan constituted approximately 13.1% of the Company’s fully diluted common shares outstanding as of the date of Board approval, including shares issuable upon the conversion of preferred shares, as calculated on an as-converted basis. On the one-year anniversary date of the 2021 Plan, the number of shares of common stock reserved for issuance thereunder shall automatically increase to 20% of the fully diluted common shares outstanding, including shares issuable upon the conversion of preferred shares, as calculated on an as-converted basis.
In the first quarter of 2021, the Company issued 500,000 restricted shares valued at $155,000 as incentive compensation to two executives who joined the Company. The awards vest after one year of service. Compensation expense related to these awards totaled $155,000 for 2021.
In the fourth quarter of 2021, the Company awarded options for 13,850,000 shares of the Company’s common stock as incentive compensation. One-third of the awarded options vested immediately with the remaining options vesting in two equal annual tranches over the next two years. Vested options may be exercised at any time until their expiration after 10 years at an exercise price of $0.76 per share. Unvested options are forfeited upon termination of employment.
Compensation expense for stock option grants was recognized based on the fair value at the date of grant using the Black-Scholes option pricing model. Key assumptions included a risk-free interest rate ranging from 1.18% to 1.28%, historical volatility ranging from 331% to 643% and an expected life of the stock options ranging from five to six years. We recognized $4.4 million of compensation expense for option awards in 2021. As of December 31, 2021, there was $6.1 million of total unrecognized compensation cost related to options to be recognized over a remaining weighted average period of 24 months.
The following table summarizes options outstanding, as well as activity for the periods presented:
The remaining weighted average contractual life of exercisable options at December 31, 2021 was 9.8 years. |
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Discontinued Operations |
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| Discontinued Operations and Disposal Groups [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Discontinued Operations | 11. Discontinued Operations
The following is a summary of the carrying amounts of major classes of assets and liabilities of the discontinued operations to assets and liabilities held for sale:
The following is a summary of the major classes of line items constituting loss on discontinued operations shown in the consolidated statements of operations:
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Supplemental Cash Flow Information |
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| Supplemental Cash Flow Information | 12. Supplemental Cash Flow Information
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Earnings (Loss) Per Share |
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| Earnings (Loss) per Share | 13. Earnings (Loss) per Share
The following table is a calculation of the earnings (loss) per basic and diluted share:
The computation of diluted earnings per common share excludes the assumed conversion of the Series B Preferred Stock and outstanding convertible notes and exercise of common stock options and warrants in periods when we report a loss. The dilutive effect of the assumed exercise of outstanding options and warrants was calculated using the treasury stock method. |
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Subsequent Events |
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| Subsequent Events [Abstract] | |
| Subsequent Events | 14. Subsequent Events
Advances under Promissory Note – In the first quarter of 2022, Investment Hunter, LLC, a Texas LLC controlled by our CEO, made advances totaling $449,000 to the Company under a promissory note due June 30, 2022. If the Company raises new equity capital of $3 million or more, then the full amount outstanding under the note is due within five days. The note bears interest at 10% per annum.
Joint-Venture With Crypt Solutions, Inc. – On January 16, 2022, the Company and Crypt Solutions, Inc., DBA Cryptech Solutions (“Crypt”) a leading player in the cryptocurrency space, executed a Memorandum of Understanding and Letter of Intent to build “Green Energy” plants and Bitcoin mining complexes that will utilize hemp feedstock as a fuel source to power Bitcoin mining equipment and offset the draw on power from the local utility.
On February 23, 2022, the Company and Crypt executed the first Letter of Intent that specifically applies to their joint Green Energy project, to be located adjacent to the Company’s current hemp processing facility in Hopkinsville, Kentucky. This first project is being designed for two (2) megawatts of Bitcoin mining, which will include approximately 576 mining machines. The Bitcoin mining installation is expected to be running prior to the end of the second quarter 2022. Initial electricity needs for the project will come from the grid or the existing electricity provider until such time as biomass or other renewable methods are installed.
Amendment of Real Estate Purchase Option - On March 25, 2022, the Company’s option that expired January 11, 2022 to purchase the operating facility in Kentucky it leases from Oz Capital, LLC for $993,000 was amended and extended. As amended, the Company may purchase the facility on or before June 30, 2022 for a purchase price of $1,293,000. The amended agreement also required the Company to pay all past due obligations related to the facility, including rent, totaling approximately $46,000. This payment was made in April 2022. |
Accounting Policies, by Policy (Policies) |
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| Basis of Presentation | Basis of Presentation – The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and U.S. Securities and Exchange Commission regulations. The consolidated financial statements comprise the financial statements of the Company, its wholly-owned subsidiaries, and subsidiaries that it controls due to ownership of a majority voting interest. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Company obtains control, and continue to be consolidated until the date when such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the Company. All significant intercompany balances and transactions are eliminated upon consolidation.
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| Business Combinations | Business Combinations – The Company accounts for business combinations under the acquisition method of accounting. Under this method, acquired assets, including separately identifiable intangible assets, and any assumed liabilities are recorded at their acquisition date estimated fair value. Determining the fair value of assets acquired and liabilities assumed involves the use of significant estimates and assumptions. The excess of purchase price over the fair value amounts assigned to the assets acquired and liabilities assumed represents the goodwill amount resulting from the acquisition.
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| Use of Estimates | Use of Estimates – The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Significant items subject to such estimates and assumptions include the (i) impairment of long-lived assets and goodwill, (ii) valuation allowances for deferred income tax assets and (iii) estimates of accrued liabilities. Actual results could differ from those estimates.
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| Revenue Recognition | Revenue Recognition – Post-harvest and midstream services revenue is typically determined based on volumes processed at agreed-upon contractual prices and is recognized when performance obligations under the terms of a contract with our customers are satisfied. This occurs when control of the product is transferred to our customers upon completion of our processing.
Rental revenue is recognized based on the contractual cash rental payments for the period.
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| Cash | Cash – The Company maintains its deposits of cash in financial institutions, which may at times exceed amounts covered by insurance provided by the U.S. Federal Deposit Insurance Corporation (“FDIC”). The Company has not experienced any losses related to amounts in excess of FDIC limits.
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| Inventories | Inventories – Inventories are stated at the lower of cost or net realizable value. Cost, which includes the cost of raw materials, labor and overhead, is determined using the first-in, first-out method. Net realizable value is the estimated selling price in the ordinary business, less reasonably predictable cost of completion, disposal and transportation.
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| Property and Equipment | Property and Equipment – property and equipment is stated at cost and depreciated using the straight-line method over the estimated useful lives of assets. Upon disposition, the cost and accumulated depreciation are removed and any gain or loss on the disposal is reflected in the statements of operations. The cost of maintenance and repairs is charged to income as incurred; significant renewals and improvements are capitalized.
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| Leases | Leases – The Company’s lease arrangements are operating leases which are capitalized on the balance sheet as right-of-use (“ROU”) assets and obligations. Right of use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. These are recognized at the lease commencement date based on the present value of payments over the lease term. If leases do not provide for an implicit rate, we use our incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term as the lease payments. Lease expense is recognized on a straight-line basis over the lease term.
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| Intangible Assets | Intangible Assets – Definite-lived intangible assets are amortized and are tested for impairment when an event occurs or circumstances change that indicate it is more likely than not that an impairment exists. Intangible assets consist of customer relationships and non-compete agreements acquired in the acquisition of certain assets of Halcyon. These intangibles have a gross carrying amount of $2.7 million and accumulated amortization of $818 thousand at December 31, 2021. Future amortization expense in each of the next five years amounts to $587 thousand for 2022, $419 thousand for 2023, $278 thousand for 2024, $194 thousand for 2025, $130 thousand for 2026 and $250 thousand thereafter.
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| Impairment of Long-Lived Assets | Impairment of Long-Lived Assets – We review long-lived assets for potential impairment when events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. In this assessment, future pre-tax cash flows (undiscounted) resulting from the use of the asset and its eventual disposal are estimated. If the undiscounted future cash flows are less than the carrying amount of the asset, an impairment loss is recognized for the difference between its carrying value and estimated fair value.
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| Common Stock Units Issuable | Common Stock Units Issuable – From time to time, the Company accepts payment from investors for common stock unit subscriptions pursuant to approved offerings of securities. Amounts received before completion and closing of the offerings are reported as liabilities.
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| Noncontrolling Interest | Noncontrolling Interest – Noncontrolling interests represent the portion of net assets in consolidated entities that are not owned by the Company. As of December 31, 2021 and 2020, minority investors owned approximately 6% of EHR.
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| Stock-based Compensation | Stock-based Compensation – We account for employee stock-based compensation using the fair value method. Compensation cost for equity incentive awards is based on the fair value of the equity instrument generally on the date of grant and is recognized over the requisite service period. Forfeitures are recognized as they occur.
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| Income Taxes | Income Taxes – Income taxes are accounted for using a balance sheet approach. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. In assessing the realizability of deferred tax assets, management considers whether it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax asset (including the impact of available carryback and carryforward periods), projected future taxable income, and tax-planning strategies in making this assessment. A valuation allowance for deferred tax assets is recorded when it is more likely than not that the benefit from the deferred tax asset will not be realized.
The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which a change in judgment occurs. The Company had no material uncertain tax positions as of December 31, 2021 or 2020. Income tax returns we file may be routinely examined by tax authorities. The statute of limitations is currently open for tax returns filed after 2017.
The Company is subject to the Texas margin tax; however, tax expense was zero for the years ended December 31, 2021 and 2020.
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| Discontinued Operations | Discontinued Operations – In connection with the Transaction, management determined to fully divest of EHR’s oil and gas activities. As such, these activities are presented as discontinued operations for each of the periods presented.
The Company follows the successful efforts method of accounting for its oil and gas properties. Costs to acquire mineral interests in oil and gas properties and to drill and equip new development wells and related asset retirement costs are capitalized. In 2019, the Company’s oil and gas properties became fully impaired and the carrying amount of the properties was expensed to the market decline and the Company’s determination to exit the oil and gas business. The oil & gas properties have limited production and operations for which the Company recognizes its share as a non-operating working interest owner. Oil & gas revenue is recognized for discontinued operations based on delivered quantities in the amount of the consideration to which the Company is entitled.
The Company records a liability for the plugging, abandonment and remediation of its properties at the end of their productive lives. The Company computes the liability for asset retirement obligations by calculating the present value of estimated future cash flows related to each property. This requires the Company to use significant assumptions, including current estimates of plugging and abandonment costs, annual inflation of these costs, the productive lives of wells and its risk-adjusted interest rate. Changes in any of these assumptions can result in significant revisions to the estimated asset retirement obligations.
Asset retirement obligations are recorded as a liability at their estimated present value at the asset’s inception, with an offsetting increase to producing properties in the accompanying balance sheet which is amortized to expense on a unit-of-production basis. Periodic accretion of the discount on asset retirement obligations is recorded as expense.
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| Fair Value Measurement | Fair Value Measurements – Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three levels related to fair value measurements are as follows:
The estimated fair values of cash, accounts receivable, accounts payable and indebtedness approximate their carrying amounts due to the relatively short maturity of these instruments.
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| Earnings (loss) per Share | Earnings (loss) per Share – Basic earnings (loss) per share amounts are calculated by dividing income available to common shareholders, after deducting preferred stock dividends, by the weighted average number of shares of common stock outstanding. Diluted earnings per share amounts are calculated by dividing net income by the weighted average number of shares of common stock and common stock equivalents outstanding. Common stock equivalents represent shares issuable upon the assumed conversion of preferred stock, outstanding convertible notes and the assumed exercise of common stock options and warrants outstanding.
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| Major Customer and Concentration of Credit Risk | Major Customer and Concentration of Credit Risk – We estimate an allowance for doubtful accounts based on an analysis of specific customers, taking into consideration the age of past due accounts and an assessment of the customer’s ability to pay. An allowance for doubtful accounts was not needed as of December 31, 2021 or 2020.
During 2021, one customer accounted for approximately 91% of our post-harvest and midstream services revenue, respectively. No amounts were due from this customer at December 31, 2021.
Our rental revenue is derived from a single lessee on a commercial warehouse owned by the Company. There were no amounts due from this customer at December 31, 2021 or 2020.
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| Reclassifications | Reclassifications – Financial statements presented for prior periods include reclassifications that were made to conform to the current-year presentation.
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| Recent Accounting Pronouncements | Recent Accounting Pronouncements – In December 2019, the FASB issued ASU 2019-12, Income Taxes, which enhances and simplifies various aspects of the income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law. We adopted this standard in the first quarter of 2021. Adoption of this ASU did not have a significant impact on our consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40). The new standard reduces the number of accounting models for convertible debt instruments and convertible preferred stock, and amends the guidance for the derivatives scope exception for contracts in an entity’s own equity. The standard also amends and makes targeted improvements to the related earnings per share guidance. The ASU is effective for fiscal years beginning after December 15, 2021. The standard allows for either modified or full retrospective transition methods. The Company will adopt this standard on January 1, 2022. We do not expect that the adoption of this ASU will have a significant impact on our consolidated financial statements. |
Acquisition (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of purchase price allocation for the assets acquired |
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| Schedule of pro forma consolidated results of operations |
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Property and Equipment (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Property and equipment |
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Notes Payable – Related Parties (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Related Party Transactions [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of notes payable related parties |
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Other Indebtedness (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of other indebtedness |
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Income Taxes (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Tax Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of reconciliation of the expected statutory federal tax |
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| Schedule of deferred tax assets and liabilities |
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Equity (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stockholders' Equity Note [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of warrants outstanding |
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| Schedule of outstanding stock warrants activity |
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Stock-Based Compensation (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based Payment Arrangement [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of summarizes options outstanding |
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Discontinued Operations (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Discontinued Operations and Disposal Groups [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of discontinued operations shown in the consolidated statements of operation |
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| Schedule of discontinued operations shown in the consolidated statements of operation |
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Supplemental Cash Flow Information (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Supplemental Cash Flow Elements [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of supplemental cash flow information |
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Earnings (Loss) Per Share (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings Per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of earnings (loss) per basic and diluted share |
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Description of the Business (Details) $ in Thousands |
1 Months Ended | 12 Months Ended | |
|---|---|---|---|
|
Jan. 11, 2021
$ / ft²
|
Nov. 27, 2019 |
Dec. 31, 2021
USD ($)
|
|
| Business [Abstract] | |||
| Approximately percentage | 94.00% | ||
| Square Foot Facility (in Dollars per Square Foot) | $ / ft² | 48,000 | ||
| Description of business, description | EHR held an approximate 8% working interest in an oil & gas property located in Cochran County, Texas within the Slaughter-Levelland Field of the San Andres formation in the Northwest Shelf of West Texas. EHR’s oil & gas activities are currently held for sale and are presented in these consolidated financial statements as discontinued operations for each of the periods presented. | ||
| Operating activities | $ 3,500 | ||
| Financing obligations | 4,400 | ||
| Current Assets | $ 238 |
Acquisition (Details) - USD ($) |
12 Months Ended | |||
|---|---|---|---|---|
Jan. 11, 2021 |
Dec. 31, 2021 |
Mar. 03, 2021 |
Dec. 31, 2020 |
|
| Acquisition (Details) [Line Items] | ||||
| Company common stock (in Shares) | 113,094,002 | 17,380,317 | ||
| Per share value (in Dollars per share) | $ 0.00001 | |||
| Promissory note | $ 850,000 | |||
| Weighted-average useful life | 3 years | |||
| Employee terminates, description | the employee terminates his employment without good reason during the initial term, other than due to the employee’s death or disability. Such liquidated damages total $375,000 if termination occurs prior to January 11, 2023. | |||
| Halcyon [Member] | ||||
| Acquisition (Details) [Line Items] | ||||
| Consideration value | $ 6,100,000 | |||
| Company common stock (in Shares) | 6,250,000 | |||
| Common stock, value | $ 2,500,000 | |||
| Per share value (in Dollars per share) | $ 0.4 | |||
| Cash | $ 1,750,000 | |||
| Promissory note | $ 850,000 | |||
| Real estate occupied, description | the Company, and assumption of approximately $1.0 million of new indebtedness of Halcyon. The Company was granted an option to purchase the real estate occupied by Halcyon for $993,000. This option is exercisable at any time before its expiration on January 11, 2022. |
Acquisition (Details) - Schedule of purchase price allocation for the assets acquired - Acquisitions [Member] |
Dec. 31, 2021
USD ($)
|
|---|---|
| Asset Acquisition [Line Items] | |
| Accounts receivable | $ 75,470 |
| Other working capital | 224,530 |
| Property and equipment, other | 1,912,900 |
| Intangibles: | |
| Non-competition agreements | 63,176 |
| Customer relationships | 2,612,650 |
| Other assets - Purchase option on real estate | 407,000 |
| Goodwill | 799,888 |
| Assets acquired | $ 6,095,614 |
Acquisition (Details) - Schedule of pro forma consolidated results of operations - USD ($) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2021 |
Dec. 31, 2020 |
|
| Schedule of pro forma consolidated results of operations [Abstract] | ||
| Revenue, continuing operations | $ 675,762 | $ 3,050,017 |
| Income (loss) from continuing operations | $ (9,847,650) | $ (841,518) |
| Earnings (loss) per common share: | ||
| Basic and diluted (in Dollars per share) | $ (0.17) | $ (0.05) |
Other Indebtedness (Details) - USD ($) |
12 Months Ended | ||||
|---|---|---|---|---|---|
Aug. 01, 2023 |
Dec. 31, 2023 |
Dec. 31, 2022 |
Dec. 31, 2021 |
Apr. 29, 2020 |
|
| Other Indebtedness (Details) [Line Items] | |||||
| Mortgage payable, description | The note provided for a 25-year amortization period and an initial interest rate of 9% annually. The note has been amended several times to a maturity date of January 15, 2022. In January 2022, the note was again amended to a new maturity date of April 15, 2022. The Company is paying monthly extension fees of $1,000 each. | ||||
| Interest expenses | $ 5,800 | ||||
| Interest rate | 12.00% | ||||
| Nonpayroll expenses | 25.00% | ||||
| Compensation decreases percentage | 25.00% | ||||
| Compensation levels amount | $ 100,000 | ||||
| PPP loan amount | $ 25,200 | ||||
| Forecast [Member] | |||||
| Other Indebtedness (Details) [Line Items] | |||||
| Lease and rental expense | $ 7,500 | ||||
| Minimum future rents twelve months | $ 90,000 | ||||
| Minimum future rents two years | $ 52,500 | ||||
Other Indebtedness (Details) - Schedule of other indebtedness - USD ($) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2021 |
Dec. 31, 2020 |
|
| Schedule of other indebtedness [Abstract] | ||
| Mortgage Payable | $ 501,668 | $ 619,461 |
| Paycheck Protection Program Loan | 25,200 | |
| Total | 501,668 | 644,661 |
| Less current portion | (501,668) | (619,461) |
| Total other indebtedness - long-term | $ 25,200 | |
Commitments and Contingencies (Details) - USD ($) |
1 Months Ended | 12 Months Ended | ||||
|---|---|---|---|---|---|---|
Apr. 12, 2019 |
Dec. 23, 2020 |
Dec. 31, 2021 |
Dec. 31, 2020 |
Dec. 31, 2019 |
Dec. 31, 2018 |
|
| Commitments and Contingencies (Details) [Line Items] | ||||||
| Lease requires monthly payments | $ 2,000 | |||||
| Lease expense | $ 22,000 | |||||
| Estimated incremental borrowing rate | 10.00% | |||||
| Cost of drying equipment total | $ 1,100,000 | |||||
| Insurance proceeds | $ 595,000 | |||||
| Purchase price of equipment | 16,000 | |||||
| Insurance claim for replacement | 1,380,374 | |||||
| Description of Suit against UNIC | which was removed to federal court, seeks $796,865.53 (the cost of the replacement dryer of $1,380,374, less a credit for $583,508.47 previously paid by UNIC to Halcyon for the Dryer fire=$796,865.53) plus statutory interest on that sum from August 10, 2020 for violating the Texas Insurance Code’s requirement that claims be promptly paid, additional statutory penalties, and attorneys’ fees. Certain documents have been executed between the Company, Halcyon and legal counsel, which provide for a sharing of costs and expenses and awards, if any, against UNIC. Mediation of the case is set for April 12, 2022. | |||||
| Fees Exceeding | $ 400,000 | |||||
| Amount of summary judgment | $ 230,712 | |||||
| Litigation settlement interest percentage | 5.00% | |||||
| Legal fees | $ 252,583 | |||||
| Oz Capital, LLC [Member] | ||||||
| Commitments and Contingencies (Details) [Line Items] | ||||||
| Lease requires monthly payments | 10,249 | |||||
| Lease expense | $ 119,351 | |||||
| Halcyon Thruput LLC’s [Member] | ||||||
| Commitments and Contingencies (Details) [Line Items] | ||||||
| Substantial coverages | $ 1,203,735 | |||||
| Grand Traverse Holdings, LLC [Member] | ||||||
| Commitments and Contingencies (Details) [Line Items] | ||||||
| Lease term | 61 months | |||||
| Interest and attorney fees | 823,504 | |||||
| Grand Traverse Holdings, LLC [Member] | John Gallegos [Member] | ||||||
| Commitments and Contingencies (Details) [Line Items] | ||||||
| Liable for the asserted damages | $ 1,000,000 | |||||
Income Taxes (Details) $ in Millions |
12 Months Ended |
|---|---|
|
Dec. 31, 2021
USD ($)
| |
| Income Tax Disclosure [Abstract] | |
| Federal net operating loss not expiration | $ 21.5 |
| Federal net operating loss expiration | $ 6.5 |
| Expire description | begin to expire in 2034 and the remainder have no expiration. |
Income Taxes (Details) - Schedule of reconciliation of the expected statutory federal tax - USD ($) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2021 |
Dec. 31, 2020 |
|
| Schedule of reconciliation of the expected statutory federal tax [Abstract] | ||
| Federal statutory rate | $ (2,056,480) | $ (319,008) |
| State income taxes, net | (198,940) | (31,480) |
| Change in valuation allowance | 3,655,210 | 312,464 |
| Change in state tax rates | (178,644) | |
| True-up of prior year deferred items | (929,450) | |
| Other, net | (291,696) | 38,024 |
| Total income tax expense | ||
Income Taxes (Details) - Schedule of deferred tax assets and liabilities - USD ($) |
Dec. 31, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Assets: | ||
| Net operating loss carryforwards | $ 4,960,487 | $ 2,200,036 |
| Stock-based compensation | 1,046,464 | |
| Property and equipment | 33,803 | 27,847 |
| Intangible assets | 135,012 | |
| Other | 292,673 | |
| Subtotal | 6,175,766 | 2,520,556 |
| Valuation allowance | (6,175,766) | (2,520,556) |
| Net deferred tax asset |
Equity (Details) - USD ($) |
12 Months Ended | ||||
|---|---|---|---|---|---|
Dec. 30, 2020 |
Dec. 31, 2021 |
Aug. 21, 2021 |
Apr. 30, 2021 |
Dec. 31, 2020 |
|
| Equity (Details) [Line Items] | |||||
| Shares authorized | 200,000,000 | ||||
| Preferred stock, par value (in Dollars per share) | $ 0.00001 | ||||
| Sale of preferred stock units (in Dollars) | $ 10,000 | ||||
| Aggregate gross proceeds (in Dollars) | $ 1,350,000 | ||||
| Common stock shares Issued | 25,000 | ||||
| Equity, description | For purposes of this automatic conversion of the Series B Preferred Stock, a “Qualifying Event” shall have occurred if (A) (1) the rolling five-trading day volume-weighted average trading price of shares of the common stock exceeds $1.00, and (2) there shall be an effective registration statement under the Securities Act of 1933, as amended covering all of the shares of common stock which would be issuable upon conversion of all of the outstanding shares of Series B Preferred Stock or (B) the Company closes a firm commitment underwriting of the common stock on a Form S-1 Registration Statement with aggregate gross proceeds of at least $5,000,000 at a price per share equal to or greater than $1.00. | ||||
| Redemption payments percentage | 12.50% | ||||
| Redemption payments (in Dollars) | $ 137,500 | ||||
| Weighted average market price of common stock exceed (in Dollars per share) | $ 1 | ||||
| Shares of Common stock | 25,000 | ||||
| Preferred Stock [Member] | |||||
| Equity (Details) [Line Items] | |||||
| Preferred stock, par value (in Dollars per share) | $ 0.00001 | ||||
| Preferred stock, share issued | 20,000,000 | ||||
| Common Stock [Member] | |||||
| Equity (Details) [Line Items] | |||||
| Equity, description | the Company had 113,094,002 common shares outstanding. Following is a discussion of common stock issuances during the periods presented: ● February 2020 Issuance of Common Stock Units – In February 2020, the Company issued 250,000 common units for $100,000. Each unit consisted of one share of common stock and a warrant for purchase of one common share for $0.40 per share. The warrant expired March 1, 2022. Proceeds of this issuance were used for general corporate purposes. The common stock issued in the exchange was valued using the trading price of the common stock on February 20, 2020. The warrants were valued at $45,848 using a binomial lattice valuation model using inputs as of the exchange date. Our expected volatility assumption was based on the historical volatility of the Company’s common stock (252%). The expected life assumption was based on the expiration date of the warrant (two years). The risk-free interest rate for the expected term of the warrant was based on the U.S. Treasury yield curve in effect at the time of measurement (1.39%). The warrants are classified within equity in the consolidated balance sheets. Under GAAP, the anti-dilution provisions will be accounted for if and when these provisions are triggered. ● Acquisition of Certain Assets of Halcyon – In January 2021, the Company issued 6,250,000 shares of common stock valued at $2.5 million ($0.40 per share; restricted from trading for a period of up to one year) in the acquisition. Refer to Note 3. ● 2021 First Quarter Issuances of Common Stock Units – In the first quarter of 2021, the Company issued 800,000 common stock units for total proceeds of $400,000. Each common stock unit consists of one share of common stock and a warrant for the purchase of two shares of common stock for $0.50 each. Each warrant is exercisable any time before its expiration on the second anniversary of its issuance. The Company allocated the total proceeds based on the relative fair values of the common stock and warrants. The fair value of the warrants was determined using an options valuation model with key assumptions including a risk-free interest rate of 0.11% and historical volatility of 272%. A total of $263,293 was allocated to the warrants and reported in additional paid-in capital. ● Warrant Exercises – In the first quarter of 2021, the Company received $2,967,000 for the exercise of 8,428,976 outstanding warrants. In the fourth quarter of 2021, the Company received $375,000 for the exercise of 1,065,340 outstanding warrants. ● Issuances for Exchange or Conversion of Debt – The Company issued a total of 1,618,660 common shares for the exchange or conversion of outstanding debt. Refer to Note 5. ● Issuance to Vendor for Services – In the third quarter of 2021, the Company issued 125,000 common shares to a vendor for services performed. ● Issuance for Extension of Secured Note – The Company issued 20,000 common shares as consideration to extend the maturity of a senior note in the third quarter of 2021. Refer to Note 5. ● Issuance for Conversion of Series A Preferred Stock – As noted above, in the third quarter of 2021, the Company issued 75,947,376 common shares for the conversion of all outstanding shares of its Series A Preferred Stock. ● 2021 Fourth Quarter Issuances of Common Stock Units – In the fourth quarter of 2021, the Company issued 958,333 common stock units to accredited investors for total proceeds of $575,000. Each common stock unit consists of one share of common stock and a warrant for the purchase of one share of common stock for $0.60 each. Each warrant is exercisable any time before its expiration on the second anniversary of its issuance. The Company allocated the total proceeds based on the relative fair values of the common stock and warrants. The fair value of the warrants was determined using an options valuation model with key assumptions including risk-free interest rates ranging from 0.48% to 0.70% and historical volatility ranging from 237% to 258%. A total of $276,947 was allocated to the warrants and reported in additional paid-in capital. ●Stock-based Compensation – The Company issued 500,000 restricted common shares valued at $155,000 as incentive compensation to two executives who joined the Company in the first quarter of 2021. | ||||
| Warrant [Member] | |||||
| Equity (Details) [Line Items] | |||||
| Warrant per share (in Dollars per share) | $ 0.0001 | ||||
| Series A Preferred Stock [Member] | |||||
| Equity (Details) [Line Items] | |||||
| Preferred stock, par value (in Dollars per share) | $ 0.00001 | $ 0.00001 | |||
| Preferred stock, share issued | 6,328,948 | ||||
| Shares of preferred stock | 6,328,948 | ||||
| Shares of common stock | 75,947,376 | ||||
| Preferred Stock converting shares | 12 | ||||
| Series B Preferred Stock [Member] | |||||
| Equity (Details) [Line Items] | |||||
| Preferred stock, description | the Company sold to certain accredited investors, including Gary C. Evans, our Chief Executive Officer, an aggregate of 135 preferred stock units comprised of (i) one share of Series B Redeemable Convertible Preferred Stock, no par value, and (ii) one warrant exercisable for 50,000 shares of common stock of the Company until December 30, 2022 at an exercise price of $0.352 per share. | ||||
| Preferred stock converted into common stock | 25,000 | ||||
| Annual dividends rate | 6.00% | ||||
| Preferred stock stated value (in Dollars) | $ 10,000 |
Equity (Details) - Schedule of warrants outstanding |
12 Months Ended | |||||
|---|---|---|---|---|---|---|
|
Dec. 31, 2021
$ / shares
shares
| ||||||
| Class of Warrant or Right [Line Items] | ||||||
| Number of Warrants | 8,808,333 | |||||
| December 2020 [Member] | Subordinated note to investor [Member] | ||||||
| Class of Warrant or Right [Line Items] | ||||||
| Number of Warrants | 500,000 | [1] | ||||
| Exercise Price (each) | $ / shares | $ 0.352 | [1] | ||||
| Expiration Date | December 30, 2022 | [1] | ||||
| Method of Exercise | Cash | [1] | ||||
| Common stock units [Member] | February 2020 [Member] | ||||||
| Class of Warrant or Right [Line Items] | ||||||
| Number of Warrants | 250,000 | [2] | ||||
| Exercise Price (each) | $ / shares | $ 0.4 | [2] | ||||
| Expiration Date | March 1, 2022 | [2] | ||||
| Method of Exercise | Cash | [2] | ||||
| Common stock units [Member] | Q1 2021 [Member] | ||||||
| Class of Warrant or Right [Line Items] | ||||||
| Number of Warrants | 1,600,000 | [1] | ||||
| Exercise Price (each) | $ / shares | $ 0.5 | [1] | ||||
| Expiration Date | January-February, 2023 | [1] | ||||
| Method of Exercise | Cash | [1] | ||||
| Common stock units [Member] | Q4 2021 [Member] | ||||||
| Class of Warrant or Right [Line Items] | ||||||
| Number of Warrants | 958,333 | [1] | ||||
| Exercise Price (each) | $ / shares | $ 0.6 | [1] | ||||
| Expiration Date | Oct-Dec, 2023 | [1] | ||||
| Method of Exercise | Cash | [1] | ||||
| Series B preferred units [Member] | December 2020 [Member] | ||||||
| Class of Warrant or Right [Line Items] | ||||||
| Number of Warrants | 5,500,000 | [1] | ||||
| Exercise Price (each) | $ / shares | $ 0.352 | [1] | ||||
| Expiration Date | December 30, 2022 | [1] | ||||
| Method of Exercise | Cash | [1] | ||||
| ||||||
Equity (Details) - Schedule of outstanding stock warrants activity - $ / shares |
12 Months Ended | |
|---|---|---|
Dec. 31, 2021 |
Dec. 31, 2020 |
|
| Schedule of outstanding stock warrants activity [Abstract] | ||
| Warrants, beginning | 22,988,632 | 14,488,638 |
| Weighted Average Exercise Price, Warrants beginning | $ 0.407 | $ 0.353 |
| Warrants, Issued | 2,558,333 | 8,499,994 |
| Weighted Average Exercise Price, Issued | $ 0.537 | $ 0.353 |
| Cancelled | (7,244,316) | |
| Warrants, Weighted Average Exercise Price, Cancelled | $ 0.352 | |
| Exercised | (9,494,316) | |
| Warrants, Weighted Average Exercise Price, Exercised | $ 0.352 | |
| Warrants, ending | 8,808,333 | 22,988,632 |
| Warrants, Weighted Average Exercise Price, Warrants ending | $ 0.407 | $ 0.353 |
Stock-Based Compensation (Details) - Schedule of summarizes options outstanding |
12 Months Ended |
|---|---|
|
Dec. 31, 2021
USD ($)
$ / shares
shares
| |
| Schedule of summarizes options outstanding [Abstract] | |
| Number of Options Beginning (in Shares) | shares | |
| Weighted Average Grant Date Fair Value Beginning | |
| Weighted Average Exercise Price Beginning | |
| Aggregate Intrinsic Value Beginning (in Dollars) | $ | |
| Number of Options Ending (in Shares) | shares | 13,850,000 |
| Weighted Average Grant Date Fair Value Ending | $ 0.76 |
| Weighted Average Exercise Price Ending | $ 0.76 |
| Aggregate Intrinsic Value Ending (in Dollars) | $ | |
| Number of Options Granted (in Shares) | shares | 13,850,000 |
| Weighted Average Grant Date Fair Value Granted | $ 0.76 |
| Weighted Average Exercise Price Granted | $ 0.76 |
| Aggregate Intrinsic Value Granted (in Dollars) | $ |
Discontinued Operations (Details) - Schedule of discontinued operations to assets and liabilities held for sale - Discontinued Operations [Member] - USD ($) |
Dec. 31, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Assets - | ||
| Oil and natural gas properties held for sale, at cost | $ 1,874,849 | $ 1,874,849 |
| Accumulated DD&A | (1,874,849) | (1,874,849) |
| Total assets of discontinued operations held for sale | ||
| Liabilities | ||
| Accrued liabilities | 48,997 | 31,117 |
| Asset retirement obligations | 52,368 | 56,834 |
| Revenue payable | 52,117 | 52,117 |
| Current liabilities of discontinued operations held for sale | 153,482 | 140,068 |
| Asset retirement obligations - | ||
| Long-term liabilities of discontinued operations held for sale | 162,948 | 144,149 |
| Total liabilities of discontinued operations held for sale | $ 316,430 | $ 284,217 |
Discontinued Operations (Details) - Schedule of discontinued operations shown in the consolidated statements of operation - Discontinued Operations [Member] - USD ($) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2021 |
Dec. 31, 2020 |
|
| Revenue - | ||
| Oil and gas sales | $ 116,710 | $ 103,097 |
| Costs and Expenses | ||
| Lease operating expense | 134,590 | 93,709 |
| Depreciation, depletion & amortization | 9,942 | |
| Accretion | 14,333 | 34,796 |
| Gain on disposal of oil & gas property interests | (24,008) | |
| Total costs and expenses | 148,923 | 114,439 |
| Interest expense | 22,917 | |
| Loss from discontinued operations | $ (32,213) | $ (34,259) |
Supplemental Cash Flow Information (Details) - Schedule of supplemental cash flow information - USD ($) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2021 |
Dec. 31, 2020 |
|
| Schedule of supplemental cash flow information [Abstract] | ||
| Cash paid for interest | $ 138,736 | |
| Cash paid for taxes | ||
| Acquisition of certain assets of Halcyon Thruput, LLC | ||
| - issuance of common shares | 2,500,000 | |
| - issuance of subordinated note | 850,000 | |
| - assumption of Halcyon bank note | 995,614 | |
| Series B preferred stock dividend payable | 58,312 | |
| Issuance of common stock units previously subscribed | 50,000 | |
| Issuances of common shares for exchange or conversion of debt | 2,160,269 | |
| Conversion of Series A preferred stock into common stock | $ 4,975,503 | |
Subsequent Events (Details) - USD ($) |
1 Months Ended | ||
|---|---|---|---|
Jun. 30, 2022 |
Mar. 25, 2022 |
Dec. 31, 2021 |
|
| Subsequent Events (Details) [Line Items] | |||
| Equity capital | $ 3,000,000 | ||
| Interest percentage | 10.00% | ||
| Subsequent Event [Member] | |||
| Subsequent Events (Details) [Line Items] | |||
| Purchase lease | $ 993,000 | ||
| Purchase price | $ 1,293,000 | ||
| Amended agreement | $ 46,000 | ||
| Forecast [Member] | |||
| Subsequent Events (Details) [Line Items] | |||
| Advances | $ 449,000 | ||