PART II AND III 2 partiiandiii.htm

 

An offering statement pursuant to Regulation A relating to these securities has been filed with the Securities and Exchange Commission. Information contained in this Preliminary Offering Circular is subject to completion or amendment. These securities may not be sold nor may offers to buy be accepted before the offering statement filed with the Commission is qualified. This Preliminary Offering Circular shall not constitute an offer to sell or the solicitation of an offer to buy nor may there be any sales of these securities in any state in which such offer, solicitation or sale would be unlawful before registration or qualification under the laws of any such state. We may elect to satisfy our obligation to deliver a Final Offering circular by sending you a notice within two business days after the completion of our sale to you that contains the URL where the Final Offering Circular or the offering statement in which such Final Offering Circular was filed may be obtained.

 

Preliminary Offering Circular Subject To Completion

Dated March __, 2022

 

KOLABORATION VENTURES CORPORATION

 

 

183 Main Street, Rio Vista, California 94571

(480-225-1167)

KolaborationVentures.com

 

Offering:

20,000,000 Common Shares at $1.25 per Share

Maximum Offering: Up to $25,000,000.00 USD1

Minimum Subscription Amount per Investor: $1,000 or 800 Shares

 

Preliminary Offering Circular Date: March __, 2022

 

Kolaboration Ventures Corporation (“KVC”, the “Corporation,” “we,” “us,” and “our”) is offering up to 20,000,000 shares of Common Shares (“Shares” or “Stock”), for $1.25 per Share (the “Offering”), for gross proceeds to the Corporation of up to $25,000,000.00, before deduction of Offering expenses, assuming all Shares are sold. For more information regarding the securities being offered, see the section entitled “Securities Being Offered” on page 77 for further details.

 

Kolaboration Ventures Corporation is a Wyoming Corporation formed on August 11, 2021, for the purpose of organizing its various business activities under a parent corporation. The reorganization included its predecessor entity, KVC, LLC as well as several partially-owned companies engaged in cannabis operations or real estate ventures related to the Corporation’s cannabis operations. The reorganization was effective as of October 1, 2021. For further details, see the “Roll-up Transaction” on page 42.

 

 
 

 

We expect to commence the Offering on the date on which the Offering Statement of which this Offering Circular is a part (this “Offering Circular”) is qualified by the Securities and Exchange Commission (“SEC”) and will terminate one year thereafter or once all offered securities are sold, whichever occurs first (“Termination Date”). Notwithstanding the foregoing, the Corporation may extend the Offering by an additional 90 days or terminate the Offering at any time.

 

All of the Shares are being offered (the “Offered Shares”) on a “best efforts” basis pursuant to Regulation A of Section 3(6) of the Securities Act of 1933, as amended, for Tier 2 offerings. Subscriptions will be deposited into escrow and held by Equiniti Trust Company as the escrow agent in this Offering. We will withdraw funds from escrow at our discretion and hold multiple closings of subscriptions until the 20,000,000 Shares (the “Maximum Offering”) are sold or until we decide to terminate the Offering. The minimum subscription that investors may make for the Offering is 800 Shares for $1,000.00. Subscriptions may be made by either wire transfer or ACH deposits. The transactions contemplated hereby will be completed electronically through the software provided by Dealmaker.Tech, see Dealmaker.Tech Agreement, Exhibit 1A-1B.

 

The Corporation has engaged The Dalmore Group (CRD# 136352), 525 Green Place, Woodmere, New York 11598, as broker-dealer of record, but not for underwriting of private placement services, for this Offering. For further details, see Broker-Dealer Services Agreement, Exhibit 1A-1A.

 

1 Unless otherwise specifically noted, all references to “dollars” or “$” are being expressed in United States Dollars (“USD”) in this Offering Circular.

 

This Offering is being made pursuant to Tier 2 of Regulation A following the Offering Circular disclosure format, and is being made on a “best efforts” basis.

 

Title of Each Class To be registered  Price to Public   Underwriting Discount and Commissions(1)   Proceeds to Corporation(2)   Proceeds to Other Persons 

Common Stock Offered by KVC

Price Per Share

  $1.25   $0.0125   $1.2375    -0- 

Minimum Investment

(800 Shares)

  $1,000   $10.00   $990.00    -0- 

Maximum Offering

(20,000,000 Shares)

  $25,000,000   $250,000   $24,750,000    -0- 

 

Note:

 

 

(1)

 

The Corporations has not engaged any placement agent or underwriter in connection with this offering. To the extent that it does, the Corporation will file a supplement to the Offering Statement of which this Offering Circular is a part. The Corporation has engaged Dalmore Group, LLC, member FINRA/SIPC (“Dalmore”), to perform administrative and technology related functions in connection with this offering, but not for underwriting or placement agent services. This includes the one percent (1%) commission on gross Offering proceeds but does not include the consulting fee of $20,000, and the one-time set-up fee of $5,000 payable by the Corporation to Dalmore. See “Plan of Distribution and Selling Security Holders” for details.

  (2)

The Corporation is offering up to $25,000,000.00 in Common Shares. If all 20,000,000 Shares are sold, the actual proceeds raised by the Corporation will be $24,750,000.

 

The Corporation has authorized a total of One Billion (1,000,000,000) of Common Shares with par value of $0.0001 per share. Holders of Common Shares shall not be entitled to any voting rights except for the right to vote for two (2) directors to the Corporation Board of Directors. Holders of Common Shares shall be entitled to receive as and when declared by the directors, dividends in cash or property of the Corporation. For a complete description of the rights and restrictions attached to the Common Shares, see the “Securities Being Offered” section of this Offering Circular, and the Corporation’s Amended and Restated Articles of Incorporation, attached as Exhibit 1A-2A.

 

 2 
 

 

Prior to this Offering, there has been no public market for our Common Shares. The Corporation expects to have our Common Shares initially quoted for trading on the OTCQX Market or the OTCQB Market. There is no assurance that the Common Shares will ever be quoted on the OTC, see “Plan of Distribution” on page 37 of this Offering Circular.

 

We are offering our Offered Shares in this Offering based upon a valuation of our Corporation and its subsidiaries of approximately Five Hundred Million Dollars ($500,000,000) prior to this Offering. The $1.25 per share Offering Price of the Common Stock has been arbitrarily determined by the management of KVC and is not based on book value, assets, earnings or any other recognizable standard of value.

 

The shares of Common Stock are being offered directly by the Corporation and its management on a “best efforts” basis. No commissions or other compensation will be paid to Corporation management with respect to sales initiated by them.

 

On November 30, 2021, the Corporation engaged Dalmore, a registered broker/dealer, as its managing broker-dealer of record (the “BD”). The BD may engage one or more selling agents or selected dealers. However, under the terms of its engagement agreement with the Corporation, neither the BD nor any selling agent shall have any marketing or sales obligations other than to process subscriptions forwarded to the BD by the Corporation or its management. The BD is not purchasing any of the shares of Common Stock being offered by the Corporation in the Offering and is not required to sell any specific number or dollar amount of such shares in the Offering. Under the terms of its engagement agreement with Dalmore, the Corporation has agreed to pay a commission and fee equal to one percent (1%) of all gross proceeds received by the Corporation in the Offering, as well as a consulting fee of $20,000 upon the issuance of a No Objection Letter and a one-time set up fee of $5,000. Dalmore shall be indemnified by the Corporation with respect to the Offering and the disclosures made by the Corporation in its Form 1-A and related Offering Circular.

 

The Corporation has not authorized anyone to provide purchasers with information different from that contained or incorporated by reference in this Offering Circular. An investment in the securities of the Corporation is highly speculative and involves significant risks that should be carefully considered by prospective investors before purchasing such securities. The risks outlined in this Offering Circular should be carefully reviewed and considered by prospective investors in connection with an investment in such securities. See “Risk Factors” beginning on page 12 for further details. Potential investors are advised to consult their own legal counsel and other professional advisers in order to assess income tax, legal and other aspects of this investment.

 

Generally, no sale may be made to you in this offering if the aggregate purchase price you pay is more than 10% of the greater of your annual income or net worth. Different rules apply to accredited investors and non-natural persons. Before making any representation that your investment does not exceed applicable thresholds, we encourage you to review Rule 251(d)(2)(i)(C) of Regulation A. For general information on investing, we encourage you to refer to www.investor.gov.

 

THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION (“SEC”) DOES NOT PASS UPON THE MERITS OF OR GIVE ITS APPROVAL TO ANY SECURITIES OFFERED OR THE TERMS OF THE OFFERING, NOR DOES IT PASS UPON THE ACCURACY OR COMPLETENESS OF ANY OFFERING CIRCULAR OR OTHER SOLICITATION MATERIALS. THESE SECURITIES ARE OFFERED PURSUANT TO AN EXEMPTION FROM REGISTRATION WITH THE COMMISSION; HOWEVER, THE COMMISSION HAS NOT MADE AN INDEPENDENT DETERMINATION THAT THE SECURITIES OFFERED ARE EXEMPT FROM REGISTRATION.

 

THIS OFFERING CIRCULAR DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS CONCERNING THE CORPORATION OTHER THAN THOSE CONTAINED IN THIS OFFERING CIRCULAR, AND IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON.

 

INVESTORS WILL BE REQUIRED TO REPRESENT THAT THEY ARE ABLE TO BEAR THE ECONOMIC RISK OF THEIR INVESTMENT AND THAT THEY (OR THEIR PURCHASER REPRESENTATIVES) ARE FAMILIAR WITH AND UNDERSTAND THE TERMS AND RISKS OF THIS OFFERING. THE CONTENTS OF THIS OFFERING CIRCULAR ARE NOT TO BE CONSTRUED AS LEGAL OR TAX ADVICE. EACH INVESTOR SHOULD CONSULT HIS OR HER OWN ATTORNEY, ACCOUNTANT OR BUSINESS ADVISOR AS TO LEGAL, TAX AND RELATED MATTERS CONCERNING THIS INVESTMENT. ALL FINAL DECISIONS IN RESPECT TO SALES OF SECURITIES WILL BE MADE BY THE CORPORATION, WHICH RESERVES THE RIGHT TO REVOKE THE OFFER AND TO REFUSE TO SELL TO ANY PROSPECTIVE INVESTOR.

 

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NO PERSONS, EXCEPT THE CORPORATION OR ITS AGENTS AND SUCH REGISTERED BROKER-DEALERS AS THE CORPORATION HAS ELECTED TO UTILIZE, HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS OFFERING CIRCULAR AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE CORPORATION. NEITHER THE DELIVERY OF THIS OFFERING CIRCULAR NOR ANY SALE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE THE IMPLICATION THERE HAS BEEN NO CHANGE IN THE INFORMATION CONTAINED HEREIN SUBSEQUENT TO THE DATE HEREOF.

 

PROSPECTIVE INVESTORS ARE NOT TO CONSTRUE THE CONTENTS OF THIS OFFERING CIRCULAR, OR OF ANY PRIOR OR SUBSEQUENT COMMUNICATIONS FROM THE CORPORATION OR ANY OF ITS EMPLOYEES, AGENTS OR AFFILIATES, AS INVESTMENT, LEGAL, FINANCIAL OR TAX ADVICE.

 

BEFORE INVESTING IN THIS OFFERING, PLEASE REVIEW ALL DOCUMENTS CAREFULLY, ASK ANY QUESTIONS OF THE CORPORATION’S MANAGEMENT THAT YOU WOULD LIKE ANSWERED AND EACH PROSPECTIVE INVESTOR SHOULD CONSULT WITH HIS OR HER OWN PROFESSIONAL TAX, LEGAL AND INVESTMENT ADVISORS TO ASCERTAIN THE MERITS AND RISKS OF INVESTING IN THE SECURITIES DESCRIBED IN THIS OFFERING CIRCULAR PRIOR TO SUBSCRIBING TO SECURITIES OF THE CORPORATION.

 

SUBSCRIBER AGREES TO INDEMNIFY AND HOLD HARMLESS THE CORPORATION AND ITS RESPECTIVE OFFICERS, DIRECTORS AND AFFILIATES, AND EACH OTHER PERSON, IF ANY, WHO CONTROLS THE CORPORATION WITHIN THE MEANING OF SECTION 15 OF THE SECURITIES ACT OF 1933 (THE “SECURITIES ACT”) AGAINST ALL LOSSES THAT EACH MAY INCUR (INDIVIDUALLY AND/OR COLLECTIVELY, JOINTLY AND SEVERALLY) BY REASON OF (I) THE FAILURE OF THE SUBSCRIBER TO FULFILL ANY OF THE TERMS OR CONDITIONS OF THE SUBSCRIPTION AGREEMENT, (II) ANY BREACH OF OR INACCURACY IN ANY OF THE REPRESENTATIONS, WARRANTIES AND/OR COVENANTS MADE BY THE SUBSCRIBER IN CONNECTION WITH THE SUBSCRIPTION AGREEMENT, (III) THE DISPOSITION OF SUBORDINATE VOTING SHARES BY THE SUBSCRIBER, CONTRARY TO SUCH REPRESENTATIONS, WARRANTIES AND/OR COVENANTS AND/OR (IV) ANY ACTION, SUIT OR PROCEEDING BASED UPON THE FACT THAT SAID REPRESENTATIONS, WARRANTIES AND/OR COVENANTS WERE INACCURATE OR MISLEADING OR OTHERWISE CAUSE FOR OBTAINING RESCISSION, DAMAGES OR REDRESS FROM THE CORPORATION.

 

THE SUBSCRIPTION AGREEMENT FOR THESE SHARES WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MICHIGAN. THE EXCLUSIVE VENUE FOR ANY LEGAL ACTION UNDER THIS AGREEMENT WILL BE IN THE PROPER FORUM IN THE STATE OF CALIFORNIA. THIS DOES NOT APPLY TO CLAIMS BROUGHT TO ENFORCE ANY DUTY OR LIABILITY CREATED BY THE SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE ACT OF 1934, OR THE RULES AND REGULATIONS THEREUNDER.

 

NASAA UNIFORM LEGEND

 

FOR RESIDENTS OF ALL STATES: THE PRESENCE OF A LEGEND FOR ANY GIVEN STATE REFLECTS ONLY THAT A LEGEND MAY BE REQUIRED BY THAT STATE AND SHOULD NOT BE CONSTRUED TO fMEAN AN OFFER OR SALE MAY BE MADE IN A PARTICULAR STATE. IF YOU ARE UNCERTAIN AS TO WHETHER OR NOT OFFERS OR SALES MAY BE LAWFULLY MADE IN ANY GIVEN STATE, YOU ARE HEREBY ADVISED TO CONTACT THE CORPORATION. THE SECURITIES DESCRIBED IN THIS OFFERING CIRCULAR HAVE NOT BEEN REGISTERED UNDER ANY STATE SECURITIES LAWS (COMMONLY CALLED “BLUE SKY LAWS”).

 

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IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE PERSON OR ENTITY CREATING THE SECURITIES AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

 

THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT, AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.

 

NOTICE TO FOREIGN INVESTORS

 

IF THE PURCHASER LIVES OUTSIDE THE UNITED STATES, IT IS THE PURCHASER’S RESPONSIBILITY TO FULLY OBSERVE THE LAWS OF ANY RELEVANT TERRITORY OR JURISDICTION OUTSIDE THE UNITED STATES IN CONNECTION WITH ANY PURCHASE OF THE SECURITIES, INCLUDING OBTAINING REQUIRED GOVERNMENTAL OR OTHER CONSENTS OR OBSERVING ANY OTHER REQUIRED LEGAL OR OTHER FORMALITIES. THE CORPORATION RESERVES THE RIGHT TO DENY THE PURCHASE OF THE SECURITIES BY ANY FOREIGN PURCHASER.

 

IMPORTANT INFORMATION ABOUT THIS OFFERING CIRCULAR

 

Unless the context otherwise requires, any references in this Offering Circular to the “Corporation” or “KVC” refer to Kolaboration Ventures Corporation and its subsidiaries.

 

We are offering to sell, and seeking offers to buy, our securities only in jurisdictions where such offers and sales are permitted. Please carefully read the information in this Offering Circular and any accompanying Offering Circular supplements, which we refer to collectively as the “Offering Circular.” You should rely only on the information contained in this Offering Circular. We have not authorized anyone to provide you with any information other than the information contained in this Offering Circular. The information contained in this Offering Circular is accurate only as of its date or as of the respective dates of any documents or other information incorporated herein by reference, regardless of the time of its delivery or of any sale or delivery of our securities. The Corporation’s business, financial condition, results of operations, and prospects may have changed since that date. Neither the delivery of this Offering Circular nor any sale nor delivery of our securities shall, under any circumstances, imply that there has been no change in our affairs since the date of this Offering Circular. This Offering Circular will be updated and made available for delivery to the extent required by the federal securities laws.

 

You should read this Offering Circular and the related exhibits filed with the SEC and any offering circular supplement, together with additional information contained in our annual reports, semi-annual reports and other reports and information statements that we will file periodically with the SEC (collectively referred to as the “Offering Statement”). The Offering Statement and all supplements and reports that we have filed or will file in the future can be read at the SEC website, www.sec.gov.

 

Unless otherwise indicated, data contained in this Offering Circular concerning the business of the Corporation are based on information from various public sources. Although we believe that these data are generally reliable, such information is inherently imprecise, and our estimates and expectations based on these data involve a number of assumptions and limitations. As a result, you are cautioned not to give undue weight to such data, estimates or expectations.

 

Statements contained herein as to the content of any agreements or other documents are summaries and, therefore, are necessarily selective and incomplete and are qualified in their entirety by the actual agreements or other documents. The Corporation will provide the opportunity to ask questions of and receive answers from the Corporation’s management concerning terms and conditions of the Offering, the Corporation or any other relevant matters and any additional reasonable information to any prospective investor prior to the consummation of the sale of the Shares. This Offering Circular do not purport to contain all of the information that may be required to evaluate the Offering and any recipient hereof should conduct its own independent analysis. The statements of the Corporation contained herein are based on information believed to be reliable. No warranty can be made as to the accuracy of such information or that circumstances have not changed since the date of this Offering Circular. The Corporation does not expect to update or otherwise revise its Form 1-A, Offering Circular or other materials supplied herewith. The delivery of the Form 1-A and Offering Circular at any time does not imply that the information contained herein is correct as of any time subsequent to the date of this Offering Circular. This Offering Circular is submitted in connection with the Offering described herein and may not be reproduced or used for any other purpose.

 

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MARKET RESEARCH AND PUBLIC DATA

 

This Offering Circular also contains or references certain market, industry and peer group data which is based upon information from independent industry publications, market research, analyst reports and surveys and other publicly available sources. Although the Corporation believes these sources to be generally reliable, such information is subject to interpretation and cannot be verified with complete certainty due to limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other inherent limitations and uncertainties. Neither the Corporation nor the agents have independently verified any of the data from third party sources referred to in this Offering Circular and accordingly, the accuracy and completeness of such data is not guaranteed. In addition, projections, assumptions and estimates of the Corporation’s future performance or the future performance of the industry and markets in which the Corporation operates are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in this Offering Circular under “Risk Factors” and “Forward-Looking Statements”.

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

This Offering Circular contains forward-looking statements and forward-looking information (collectively referred to herein as “forward-looking statements”). Such forward-looking statements relate to the Corporation’s current expectations and views of future events or future performance. All statements other than statements of historical fact may be forward-looking statements. The forward- looking statements are contained principally in the sections entitled “Summary Information”, “Description of the Business”, “Management’s Discussion and Analysis” and “Risk Factors”.

 

In some cases, these forward-looking statements can be identified by words or phrases such as “may”, “might”, “will”, “expect”, “anticipate”, “estimate”, “intend”, “plan”, “indicate”, “seek”, “believe”, “predict” or “likely”, or the negative of these terms, or other similar expressions intended to identify forward-looking statements. Forward-looking statements include estimates, plans, expectations, opinions, forecasts, projections, targets, guidance, or other statements that are not statements of fact. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. The Corporation has based these forward-looking statements on its current expectations and projections about future events and financial trends that it believes might affect its financial condition, results of operations, business strategy and financial needs. These forward-looking statements include, among other things, statements relating to:

 

  (1) the Corporation’s expectations regarding its consolidated revenue, expenses and operations;

 

  (2) the Corporation’s anticipated cash needs, its needs for additional financing, and changes to its dividend policies;

 

  (3)

the legalization and regulatory control of cannabis for recreational use in the United States and elsewhere including federal, state and municipal regulations pertaining thereto and the related timing thereof and the Corporation’s intention and ability to participate in such market;

 

  (4) the use of proceeds from this Offering;

 

  (5) the preparation and filing of this Offering Circular;

 

 6 
 

 

  (6) the impact of competition on the Corporation;

 

  (7)

the intentions of the board of directors of the Corporation (the “Board of Directors”) with respect to future acquisitions and the ability of the Corporation to successfully identify targets for acquisition and assimilate any acquired operations into the Corporation or its subsidiaries;

 

  (8)

the sufficiency of cash flows and working capital to achieve the Corporation’s stated business objective upon completion of certain acquisitions; and

 

  (9) the Corporation’s ability to market successfully to customers.

 

Certain of the forward-looking statements and forward-looking information and other information contained in this Offering Circular concerning our industry and the markets in which we operate, including our general expectations and market position, market opportunities and market share, are based on estimates prepared by the Corporation using data from publicly available governmental sources as well as from market research and industry analysis and on assumptions based on data and knowledge of this industry which the Corporation believes to be reasonable. While the Corporation is not aware of any misstatement regarding any industry or government data presented herein, the cannabis industry involves risks and uncertainties that are subject to change based on various factors and the Corporation has not independently verified such third-party information. See “Market Research and Public Data” above.

 

Forward-looking statements are based on certain assumptions and analyses made by the Corporation in light of the experience and perception of historical trends, current conditions and expected future developments and other factors it believes are appropriate, and are subject to risks and uncertainties. Although we believe that the assumptions underlying these statements are reasonable, they may prove to be incorrect, and we cannot assure that actual results will be consistent with these forward-looking statements. Given these risks, uncertainties and assumptions, you should not place undue reliance on these forward-looking statements. Whether actual results, performance or achievements will conform to the Corporation’s expectations and predictions is subject to a number of known and unknown risks, uncertainties, assumptions and other factors, including those listed under “Risk Factors”.

 

If any of these risks or uncertainties materialize, or if assumptions underlying the forward-looking statements prove incorrect, actual results might vary materially from those anticipated in those forward-looking statements, which could have a material adverse effect on the business, financial condition and results of operations of the Corporation.

 

Information contained in forward-looking statements in this document is provided as of the date of this Offering Circular, and the Corporation and its agents disclaim any obligation to update any forward-looking statements, whether as a result of new information or future events or results, except to the extent required by applicable securities laws. Accordingly, potential investors should not place undue reliance on forward-looking statements or the information contained in those statements.

 

REGULATION A+

 

We are offering our Common Shares pursuant to the rules of the SEC mandated under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). The offering rules are often referred to as “Regulation A+”. We are relying upon Tier 2 of Regulation A+, which allows us to offer securities of up to Seventy-Five Million ($75,000,000) in a 12-month period.

 

Accordingly, we are required to publicly file annual, semiannual, and current event reports with the SEC.

 

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TABLE OF CONTENTS

 

IMPORTANT INFORMATION ABOUT THIS OFFERING CIRCULAR 5
MARKET RESEARCH AND PUBLIC DATA 6
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS 6
REGULATION A+ 7
SUMMARY INFORMATION 9
TAX CONSIDERATIONS 12
RISK FACTORS 12
REGULATORY FRAMEWORK 27
DILUTION 36
PLAN OF DISTRIBUTION AND SELLING SECURITYHOLDERS 37
USE OF PROCEEDS TO ISSUER 41
DIVIDEND POLICY 42
DESCRIPTION OF BUSINESS 42
DESCRIPTION OF PROPERTIES 60

MANAGEMENT’S DISCUSSION AND ANALYSIS

 61
DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES 71
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS 73
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITYHOLDERS 74
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS 75
SECURITIES BEING OFFERED 77
LEGAL MATTERS 78
EXPERTS 78
PRIOR SALES 78
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES LIABILITIES 79
DISQUALIFYING EVENTS DISCLOSURE 79
INVESTOR ELIGIBILITY STANDARDS 79
SECTION F/S FINANCIAL STATEMENTS F-2
SIGNATURE PAGE 81
ACKNOWLEDGEMENT ADOPTING TYPED SIGNATURES 81
INDEX TO EXHIBITS 82

 

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SUMMARY INFORMATION

 

The following is a summary of the principal features of this Offering Circular and should be read together with the more detailed information and financial data and statements contained elsewhere in this Offering Circular. Prospective investors should carefully consider, among other things, the matters discussed under “Risk Factors” beginning on page 12.

 

The Issuer:   Kolaboration Ventures Corporation (“KVC”) is a Wyoming corporation formed on August 11, 2021, for the purpose of organizing its various business activities under a parent corporation. KVC is a roll-up of the following entities: Kolaboration Ventures, LLC, Rio Vista Farms, LLC, Contra Costa Farms, LLC, Kolaboration Vallejo, LLC and Kolaboration Concord, LLC, all of which are engaged cannabis operations or real estate ventures relating to the companies’ cannabis operations in California. The reorganization was effective as of October 1, 2021. See “Description of the Business” for an organizational chart depicting the rollup. The Corporation’s principal office is located at 183 Main Street, Rio Vista, CA 94571.
     
 Business of Issuer:   The Corporation is a diversified cannabis company specializing in cultivation, non-volatile manufacturing, retail, brand development and distribution. KVC and its subsidiaries are working to expand in California both through organic growth and acquisitions while building a respected portfolio of top shelf bands. Wholly-owned, licensed and/or distributed brands within KVC’s portfolio include: Farms Brand, Fat Boys Farms, Ole 4 Fingers, Atoms Infused Flower, Rio Vista Farms and CoCo Farms. The Corporation has made, and plans to make in the future, strategic business relationships and investments in operations, branding, cultivation, processing and licensing in key markets. See “Description of the Business”.
     
Shares Being Offered:  

A maximum of 20,000,000 shares of KVC Common Shares, $0.0001 par value per share (“Common Stock” or “Common Shares”) at an offering price of $1.25 per share, for total maximum gross proceeds to the Corporation of $25,000,000. See “Description of Securities being Offered” on page 77 below.

 

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Proposed Listing:   Although we expect to have our shares of Common Stock quoted on the OTCQX Market or the OTCQB Market, there is no assurance that the shares of Common Stock will ever be quoted on the OTC. To be quoted on the OTC, a market maker must apply with the Financial Industry Regulatory Authority (“FINRA”) to make a market in our Common Stock. As of the date of this Supplement, we have engaged in discussions with a FINRA market maker regarding participation in a future trading market for our securities; and have made filings with FINRA. However, we have not, as yet received final FINRA approval.
     
    We may continue to offer our Common Stock under this Offering Circular until the Termination Date. As a result, you may experience a delay between the closing of your purchase of shares of our Common Stock and the commencement of exchange trading of such shares on the OTCQX or OTCQB Market.
     
    There can be no assurance that the KVC Common Stock sold in this Offering will be quoted on the OTC Market. See “Risk Factors” starting on page 12 of this Offering Circular.
     
Use of Proceeds:  

If we sell all of the 20,000,000 Common Shares being offered, our net proceeds after offering expenses (estimated $250,000) will be approximately $24,750,000. We will use these proceeds for: support of existing operations in the State of California; reduction of outstanding liabilities; acquisition of additional properties for cultivation expansion, processing, and provisioning centers; developing additional strategic partnerships; obtaining additional licenses; research and development, working capital, and general corporate purposes. For further detail, see the “Use of Proceeds to Issuer” section on page 41.

 

While the Corporation currently intends to use the net proceeds from this Offering for the purposes set out herein, it will have discretion in the actual application of the net proceeds, and may elect to use the net proceeds differently than as described herein, if the Corporation believes it is in its best interests to do so.

     
Transfer Agent and Registrar:   Equiniti Trust Company, as transfer agent. For further detail on the securities being offered, see “Securities Being Offered” on page 77.
     
Restrictions on Resale:   These securities may be subject to certain restrictions on transferability and resale, and may only be transferred or resold as permitted under the Securities Act and applicable state securities laws, pursuant to registration or an exemption therefrom. Investors should be aware that they will be required to bear the financial risks of this investment for an indefinite period of time, see “Securities Being Offered” on page 77.
     
Voting Rights and Voting Power:   Holders of Common Shares are not entitled to notice of nor are they entitled to attend any meeting of the shareholders of the Corporation, except a meeting at which two (2) directors are to be elected by vote of the holders of Common Shares. At each such meeting, holders of Common Shares are entitled to one vote in respect of each Common Share held. Except with respect to the right to vote for the election of two (2) directors to the Board of Directors, holders of Common Shares do not have any voting rights.

 

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As of the date of this Offering Circular, there are currently 407,494,700 Common Shares issued and outstanding. Currently, Charles Wesley, director and Chief Financial Officer, controls 19.14% of the outstanding Common Shares, Andrew Wesley, Vice President of Partner Development and a director, controls 19.27% of the outstanding Common Shares and Martin Wesley, President and a director, controls 20.08% of the outstanding Common Shares. Andrew and Martin Wesley are both sons of Charles Wesley and are the founders of the Corporation (the “Founders”). Together, our Founders control a total of 58.49% of the outstanding Common Shares. In addition, our Founders own all of the issued and outstanding Series A Preferred Shares of the Corporation. The Preferred Shares have exclusive voting control over matters entitled to stockholder vote except with respect to the election of two (2) directors to our Board of Directors. See Security Ownership of Management and Certain Securityholders for further details. Assuming this current Offering is fully subscribed, there will be 427,494,700 Common Shares, on an as-converted basis. Our Founders would therefore control 55.75% of the outstanding Common Shares.

     
Summary Financial Information:  

The following table sets forth selected financial information for the periods indicated. The selected financial information for the fiscal years ended December 31, 2019 and December 31, 2020 have been derived from the Corporation’s audited financial statements and accompanying notes, in each case prepared in accordance with United States Generally Accepted Accounting Principals (“US GAAP”) and presented elsewhere in this Offering Circular.

     
   

The selected financial information should be read in conjunction with the Corporation’s management’s discussion and analysis (the “MD&A”) for the fiscal years ended December 31, 2019 and December 31, 2020 and the nine month period ended September 30, 2021 and the financial statements and accompanying notes contained elsewhere in this Offering Circular. The selected financial information set out below may not be indicative of the Corporation’s future performance. See “Description of the Business – Summary of Financial Information” on page F-2, and “Management’s Discussion and Analysis” on page 61.

 

   For The Years Ended   2020 Incr (Decr) from 2019 
   December 31, 2020   December 31, 2019  

$
Change

  

%

Change

 
Revenue  $42,905,128   $8,362,603   $34,542,525    413%
Cost of Goods Sold   26,238,892    4,366,931    21,871,961    501%
Cost of Goods Sold - Depreciation   147,050    93,870    53,180    57%
Gross Profit   16,519,186    3,901,802    12,617,384    323%
                     
Operating Expenses:                    
Sales and Marketing   1,368,972    405,938    963,034    237%
General and Administrative   8,877,948    2,239,926    6,638,022    296%
Depreciation and Amortization   264,262    42,217    222,045    526%
Total Operating Expense   10,511,182    2,688,081    7,823,101    291%
Income from Operations   6,008,004    1,213,721    4,794,283    395%
                     
Other Income (Expense):                    
Interest Expense   (610,469)   (223,411)   387,058    173%
Other Expense   (181,250)   -    181,250    -- 
Total Other Expense   (791,719)   (223,411)   568,308    254%
                     
Net Income  $5,216,285   $990,310    4,225,975    427%

 

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Risk Factors:   An investment in the securities of the Corporation is speculative and involves a high degree of risk due to the nature of the business of the Corporation. This investment involves risks, uncertainties and other factors, many of which are beyond the control of the Corporation that could influence actual results of the investment. The Corporation cannot assure you that it will successfully address any or all of these risks. Readers should carefully consider the information set out under “Risk Factors” and the other information in this Offering Circular.

 

TAX CONSIDERATIONS

 

NO INFORMATION CONTAINED HEREIN, NOR IN ANY PRIOR, CONTEMPORANEOUS OR SUBSEQUENT COMMUNICATION SHOULD BE CONSTRUED BY A PROSPECTIVE INVESTOR AS LEGAL OR TAX ADVICE. WE ARE NOT PROVIDING ANY TAX ADVICE AS TO THE ACQUISITION, HOLDING OR DISPOSITION OF THE SECURITIES OFFERED HEREIN. IN MAKING AN INVESTMENT DECISION, INVESTORS ARE STRONGLY ENCOURAGED TO CONSULT THEIR OWN TAX ADVISOR TO DETERMINE THE U.S. FEDERAL, STATE AND ANY APPLICABLE FOREIGN TAX CONSEQUENCES RELATING TO THEIR INVESTMENT IN OUR SECURITIES. THIS WRITTEN COMMUNICATION IS NOT INTENDED TO BE “WRITTEN ADVICE”, AS DEFINED IN CIRCULAR 230 PUBLISHED BY THE U.S. TREASURY DEPARTMENT

 

RISK FACTORS

 

In addition to the other information provided in this Offering Circular, you should carefully consider the following risk factors in evaluating our business and before purchasing any of our Common Shares. All material risks identified by the Corporation are discussed in this section.

 

We are subject to a number of risks, including risks that may prevent us from achieving our business objectives or that may adversely affect our business, financial condition, results of operations, cash flows and prospects. You should carefully consider the risks discussed in this section. Some of the most significant challenges and risks include the following:

 

●the effect of the volatility of the market price and liquidity risks of the Common Shares;

●the effect of the voting control exercised by our Founders who are the sole holders of our Series A Preferred Shares;

●our ability to attract and maintain key personnel;

●our ability to continue to open new dispensaries and cultivation facilities as anticipated;

●the illegality of cannabis under federal law;

●our ability to comply with state and federal regulations;

●the uncertainty regarding enforcement of cannabis laws;

●the effect of restricted access to banking and other financial services;

●the effect of constraints on marketing and risks related to our products;

●the effect of unfavorable tax treatment for cannabis businesses;

●the effect of security risks;

●the effect of infringement or misappropriation claims by third parties;

●our ability to comply with potential future FDA regulations;

●our ability to enforce our contracts;

●the effect of unfavorable publicity or consumer perception;

●the effect of risks related to material acquisitions, dispositions and other strategic transactions;

●the effect of agricultural and environmental risks;

●the effect of risks related to information technology systems;

●the effect of product liability claims and other litigation to which we may be subjected;

●the effect of risks related to the results of future clinical research;

●the effect of intense competition in the industry;

●the effect of adverse changes in the wholesale and retail prices;

●the effect of outbreaks of pandemic diseases, fear of such outbreaks or economic disturbances due to such outbreaks, particularly the impact of the COVID-19 illness; and

●the effect of general economic risks, such as the unemployment level, interest rates and inflation, and challenging global economic conditions.

 

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Before you invest in our Common Shares, you should carefully consider all the information in this Offering Circular.

 

Risks related to Our Business and Industry

 

Cannabis is illegal under United States federal law.

 

In the United States, or the U.S., cannabis is largely regulated at the state level. Each state in which we operate (or are currently proposing to operate) authorizes, as applicable, adult-use cannabis production and distribution by licensed or registered entities, and numerous other states have legalized cannabis in some form. However, under U.S. federal law, the possession, use, cultivation, and transfer of cannabis and any related drug paraphernalia is illegal, and any such acts are criminalized under the Controlled Substances Act, as amended, which we refer to as the CSA. Cannabis is a Schedule I controlled substance under the CSA, and is thereby deemed to have a high potential for abuse, no accepted medical use in the United States, and a lack of safety for use under medical supervision. The concepts of “retail cannabis” and “adult-use cannabis” do not exist under U.S. federal law. Although we believe that our business activities are compliant with applicable state and local laws in the United States, strict compliance with state and local cannabis laws would not provide a defense to any federal proceeding which may be brought against us. Any such proceedings may result in a material adverse effect on us. We derive 100% of our revenues from the cannabis industry. The enforcement of applicable U.S. federal laws poses a significant risk to us.

 

Violations of any United States federal laws and regulations could result in significant fines, penalties, administrative sanctions, or settlements arising from civil proceedings conducted by either the United States federal government or private citizens. We may also be subject to criminal charges under the CSA, and if convicted could face a variety of penalties including, but not limited to, disgorgement of profits, cessation of business activities or divestiture. Any of these penalties could have a material adverse effect on our reputation and ability to conduct our business, our holding (directly or indirectly) of adult-use cannabis licenses in the United States, our financial position, operating results, profitability or liquidity or the market price of our publicly-traded shares. In addition, it is difficult for us to estimate the time or resources that would be needed for the investigation, settlement or trial of any such proceedings or charges, and such time or resources could be substantial.

 

The regulation of cannabis in the United States is uncertain.

 

Our activities are subject to regulation by various state and local governmental authorities. Our business objectives are contingent upon, in part, compliance with regulatory requirements enacted by these governmental authorities and obtaining all regulatory approvals necessary for the sale of our products in the jurisdictions in which we operate. Any delays in obtaining or failure to obtain necessary regulatory approvals would significantly delay our development of markets and products, which could have a material adverse effect on our business, results of operations and financial condition. Furthermore, although we believe that our operations are currently carried out in accordance with all applicable state and local rules and regulations, no assurance can be given that new rules and regulations will not be enacted or that existing rules and regulations will not be applied in a manner that could limit or curtail our ability to distribute or produce cannabis. Amendments to current laws and regulations governing the importation, distribution, transportation and/or production of cannabis, or more stringent implementation thereof could have a substantial adverse impact on us.

 

The cannabis industry is relatively new.

 

We are operating in a relatively new industry and market. In addition to being subject to general business risks, we must continue to build brand awareness in this industry and market share through significant investments in our strategy, production capacity, quality assurance and compliance with regulations. There is no assurance that the cannabis industry and the market for adult-use cannabis will continue to exist and grow as currently anticipated or function and evolve in a manner consistent with management’s expectations and assumptions. Any event or circumstance that adversely affects the cannabis industry, such as the imposition of further restrictions on sales and marketing or further restrictions on sales in certain areas and markets could have a material adverse effect on our business, financial condition and results of operations.

 

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We face risks due to industry immaturity or limited comparable, competitive or established industry best practices.

 

As a relatively new industry, there are not many established operators in the adult use cannabis industries whose business models we can follow or build upon. Similarly, there is no or limited information about comparable companies available for potential investors to review in making a decision about whether to invest in us.

 

Shareholders and investors should consider, among other factors, our prospects for success in light of the risks and uncertainties encountered by companies, like us, that are in their early stages. For example, unanticipated expenses and problems or technical difficulties may occur, which may result in material delays in the operation of our business. We may fail to successfully address these risks and uncertainties or successfully implement our operating strategies. If we fail to do so, it could materially harm our business to the point of having to cease operations and could impair the value of the Common Shares to the extent that investors may lose their entire investments.

 

Our ability to grow our adult-use cannabis product offerings and dispensary services may be limited.

 

As we introduce or expand our adult-use cannabis product offerings and dispensary services, we may incur losses or otherwise fail to enter certain markets successfully. Our expansion into new markets may place us in competitive and regulatory environments with which we are unfamiliar and involve various risks, including the need to invest significant resources and the possibility that returns on those investments will not be achieved for several years, if at all. In attempting to establish new product offerings or dispensary services, we may incur significant expenses and face various other challenges, such as expanding our work force and management personnel to cover these markets and complying with complicated cannabis regulations that apply to these markets. In addition, we may not successfully demonstrate the value of these product offerings and dispensary services to consumers, and failure to do so would compromise our ability to successfully expand these additional revenue streams.

 

We may acquire other companies or technologies.

 

Our success will depend, in part, on our ability to grow our business in response to the demands of consumers and other constituents within the cannabis industry as well as competitive pressures. In some circumstances, we may determine to do so through the acquisition of complementary businesses rather than through internal development. The identification of suitable acquisition candidates can be difficult, time-consuming, and costly, and we may not be able to successfully complete identified acquisitions. In addition, we may not realize the expected benefits from completed acquisitions. The risks we face in connection with acquisition include:

 

  ● diversion of management time and focus from operating our business to addressing acquisition integration challenges;
     
  ● coordination of research and development and sales and marketing functions;
     
  ● retention of employees from the acquired corporation;
     
  ● cultural challenges associated with integrating employees from the acquired corporation into our organization;
  ● integration of the acquired Corporation’s accounting, management information, human resources, and other administrative systems;
     
  ● the need to implement or improve controls, procedures, and policies at a business that prior to the acquisition may have lacked effective controls, procedures, and policies;
     
  ● potential write-offs of intangible assets or other assets acquired in transactions that may have an adverse effect on our operating results in a given period;
     
  ● liability for activities of the acquired corporation before the acquisition, including patent and trademark infringement claims, violations of laws, commercial disputes, tax liabilities, and other known and unknown liabilities; and
     
  ● litigation or other claims in connection with the acquired corporation, including claims from terminated employees, consumers, former stockholders, or other third parties.

 

Our failure to address these risks or other problems encountered in connection with any future acquisitions or investments could cause us to fail to realize the anticipated benefits of these acquisitions or investments, cause us to incur unanticipated liabilities, and harm our business generally. Future acquisitions could also result in the incurrence of debt, contingent liabilities, amortization expenses, or the impairment of goodwill, any of which could harm our financial condition.

 

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We may issue additional Common Shares in connection with such transactions, which would dilute our other shareholders’ interests in us. The presence of one or more material liabilities of an acquired company that are unknown to us at the time of acquisition could have a material adverse effect on our business, results of operations, prospects and financial condition. A strategic transaction may result in a significant change in the nature of our business, operations and strategy. In addition, we may encounter unforeseen obstacles or costs in implementing a strategic transaction or integrating any acquired business into our operations.

 

If we cannot manage our growth, it could have a material adverse effect on our business, financial condition and results of operations.

 

We may be subject to growth-related risks, including capacity constraints and pressure on our internal systems and controls. Our ability to manage growth effectively will require us to continue to implement and improve our operational and financial systems and to expand, train and manage our employee base. Our inability to successfully manage our growth may have a material adverse effect on our business, financial condition, results of operations or prospects.

 

Anti-Money Laundering Laws in the United States may limit access to funds from banks and other financial institutions.

 

In February 2014, the Financial Crimes Enforcement Network, or FinCEN, bureau of the United States Treasury Department issued guidance (which is not law) with respect to financial institutions providing banking services to cannabis businesses, including rigorous due diligence expectations and reporting requirements. While the guidance advised prosecutors not to focus their enforcement efforts on banks and other financial institutions that serve cannabis-related businesses, so long as they meet certain conditions, this guidance does not provide any safe harbors or legal defenses from examination or regulatory or criminal enforcement actions by the United States Department of Justice, or DOJ, FinCEN or other federal regulators. Because of this and the fact that the guidance may be amended or revoked at any time, most banks and other financial institutions have not been willing to provide banking services to cannabis-related businesses. In addition to the foregoing, banks may refuse to process debit card payments and credit card companies generally refuse to process credit card payments for cannabis-related businesses. As a result, we may have limited or no access to banking or other financial services in the United States and may have to operate our United States business on an all-cash basis. If we are unable or limited in our ability to open or maintain bank accounts, obtain other banking services or accept credit card and debit card payments, it may be difficult for us to operate and conduct our business as planned. Although, we are actively pursuing alternatives that ensure our operations will continue to be compliant with the FinCEN guidance (including requirements related to disclosures about cash management and U.S. federal tax reporting), we may not be able to meet all applicable requirements.

 

We are also subject to a variety of laws and regulations in the United States that involve money laundering, financial recordkeeping and proceeds of crime, including the Currency and Foreign Transactions Reporting Act of 1970 (commonly known as the Bank Secrecy Act), as amended by Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, or the USA PATRIOT Act, and any related or similar rules, regulations or guidelines, issued, administered or enforced by governmental authorities in the United States.

 

In the event that any of our operations or related activities in the United States were found to be in violation of money laundering legislation or otherwise, those transactions could be viewed as proceeds of crime under one or more of the statutes noted above or any other applicable legislation. This could restrict or otherwise jeopardize our ability to declare or pay dividends or effect other distributions.

 

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Potential regulation by the FDA could have a material adverse effect on our business, financial condition and results of operations.

 

Should the United States federal government legalize cannabis, it is possible that the FDA would seek to regulate it under the Food, Drug and Cosmetics Act of 1938. Additionally, the FDA may issue rules and regulations, including good manufacturing practices related to the growth, cultivation, harvesting and processing of cannabis. In the event that some or all of these regulations are imposed, the impact on the cannabis industry is uncertain and could include the imposition of new costs, requirements, and prohibitions. If we are unable to comply with the regulations or registration as prescribed by the FDA, it may have an adverse effect on our business, operating results, and financial condition.

 

We expect to incur significant ongoing costs and obligations related to our investment in infrastructure, growth, regulatory compliance and operations

 

We expect to incur significant ongoing costs and obligations related to our investment in infrastructure and growth and for regulatory compliance, which could have a material adverse impact on our results of operations, financial condition and cash flows. In addition, future changes in regulations, more vigorous enforcement thereof or other unanticipated events could require extensive changes to our operations, increase our compliance costs or give rise to material liabilities, which could have a material adverse effect on our business, results of operations and financial condition. Our efforts to grow our business may be more costly than expected, and we may not be able to increase our revenue enough to offset these higher operating expenses. We may incur significant losses in the future for a number of reasons, including unforeseen expenses, difficulties, complications and delays, and other unknown events. If we are unable to achieve and sustain profitability, the market price of our securities may significantly decrease.

 

The COVID-19 pandemic could adversely affect our business, financial condition and results of operations.

 

The global outbreak of the novel strain of the coronavirus known as COVID-19 has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods and social distancing, have caused material disruption to businesses globally, resulting in an economic slowdown. Global equity markets have experienced significant volatility and weakness. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions. The duration and impact of the COVID-19 outbreak is unknown at this time, as is the efficacy of the government and central bank interventions. It is not possible to reliably estimate the length and severity of these developments or their impact on our financial results and condition. In response to the medical community’s successful development of vaccines designed to immunize against and minimize the effects of COVID-19, along with the widespread availability of such treatments, the United States initially experienced a significant decrease in the spread and rate of infections of COVID-19. However, the recent development of related viruses including the Delta and Omicron variants, are continuing to have a significant adverse impact on the economic recovery of the U.S. A renewed spread of COVID-19, the Delta variant, Omicron variant or any related virus for which effective treatments have yet to be developed may result in a material adverse effect on local, state, federal and global economies.

 

Our business could be materially and adversely affected by the risks, or the public perception of the risks, related to the continuing COVID-19 pandemic. The risk of a pandemic, or public perception of such a risk, could cause customers to avoid public places, including retail properties, and could cause temporary or long-term disruptions in our supply chains and/or delays in the delivery of our products. These risks could also adversely affect our customers’ financial condition, resulting in reduced spending for the products we sell. Moreover, any epidemic, pandemic, outbreak or other public health crisis, including COVID-19, could cause our employees to avoid our properties, which could adversely affect our ability to adequately staff and manage our businesses. “Shelter-in-place” or other such orders by governmental entities could also disrupt our operations if employees who cannot perform their responsibilities from home are not able to report to work. Risks related to an epidemic, pandemic or other health crisis, such as COVID-19, could also lead to the complete or partial closure of one or more of our stores or other facilities. Historically, our adult use dispensaries in California have been considered essential services and therefore have been allowed to remain operational.

 

The ultimate extent of the impact of any epidemic, pandemic or other health crisis on our business, financial condition and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of such epidemic, pandemic or other health crisis and actions taken to contain or prevent its further spread, among others. These and other potential impacts of an epidemic, pandemic or other health crisis, such as COVID-19, could therefore materially and adversely affect our business, financial condition, growth strategies and results of operations.

 

We may not be able to locate and obtain the rights to operate at preferred locations.

 

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In California, the local municipality has authority to choose where any cannabis establishment will be located. These authorized areas are frequently removed from other retail operations. Because the cannabis industry remains illegal under U.S. federal law, the disadvantaged tax status of businesses deriving their income from cannabis, and the reluctance of the banking industry to support cannabis businesses, it may be difficult for us to locate and obtain the rights to operate at various preferred locations. Property owners may violate their mortgages by leasing to us, and those property owners that are willing to allow use of their facilities may require payment of above fair market value rents to reflect the scarcity of such locations and the risks and costs of providing such facilities.

 

As a cannabis business, we are subject to certain tax provisions that have a material adverse effect on our business, financial condition and results of operations.

 

Under Section 280E of the U.S. Internal Revenue Code of 1986, as amended, or the IRC, “no deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.” This provision has been applied by the United States Internal Revenue Service, or the IRS, to cannabis operations, prohibiting them from deducting expenses directly associated with cannabis businesses. Section 280E may have a lesser impact on cannabis cultivation and manufacturing operations than on sales operations. Section 280E and related IRS enforcement activity has had a significant impact on the operations of cannabis companies. As a result, an otherwise profitable business may, in fact, operate at a loss, after taking into account its United States income tax expenses.

 

Fraudulent cannabis-related securities activity may adversely affect the ability of legitimate cannabis businesses to attract future investors.

 

In 2014, both the SEC and FINRA issued alerts to investors regarding potential fraud in securities related to cannabis-related companies. Additionally, the North American Securities Administrators Association (“NASAA”) and various state securities regulators have issued similar alerts and have taken enforcement actions against issuers of fraudulent cannabis-related securities. While the Corporation intends to comply with all laws and regulations applicable to its operations, including its securities offering, it is possible that the Corporation will come under additional security by the SEC, FINRA, state securities administrators, or other regulators, due to its status as a cannabis-related business.

 

We may not have access to United States bankruptcy protections available to non-cannabis businesses.

 

Because cannabis is a Schedule I controlled substance under the CSA, many courts have denied cannabis businesses federal bankruptcy protections, making it difficult for lenders to be made whole on their investments in the cannabis industry in the event of a bankruptcy. If we were to experience a bankruptcy, there is no guarantee that United States federal bankruptcy protections would be available to us, which would have a material adverse effect on us and may make it more difficult for us to obtain debt financing.

 

We are a holding corporation and our ability to pay dividends or make other distributions to shareholders may be limited.

 

Kolaboration Ventures Corporation is a holding corporation and essentially all of its assets are the capital stock of its subsidiaries. We currently conduct substantially all of our business through our wholly-owned subsidiaries which generate substantially all of our revenues. Consequently, our cash flows and ability to complete current or desirable future growth opportunities are dependent on the earnings of our subsidiaries and the distribution of those earnings to KVC. The ability of our subsidiaries to pay dividends and other distributions will depend on those subsidiaries’ operating results and will be subject to applicable laws and regulations that require that solvency and capital standards be maintained by a subsidiary company and contractual restrictions contained in the instruments governing any current or future indebtedness of our subsidiaries. In the event of a bankruptcy, liquidation or reorganization of our subsidiaries, holders of indebtedness and trade creditors of that subsidiary may be entitled to payment of their claims from that subsidiary’s assets before we or our shareholders would be entitled to any payment or residual assets.

 

There is doubt regarding our ability to enforce contracts.

 

 17 
 

 

It is a fundamental principle of law that a contract will not be enforced if it involves a violation of law or public policy. Because cannabis remains illegal at a federal level in the United States, judges in multiple states have on a number of occasions refused to enforce contracts for the repayment of money when the loan was used in connection with activities that violate U.S. federal law, even if there is no violation of state law. There remains doubt and uncertainty that we will be able to legally enforce our contracts. If we are unable to realize the benefits of or otherwise enforce the contracts into which we enter, it could have a material adverse effect on our business, financial condition and results of operations.

 

We face increasing competition that may materially and adversely affect our business, financial condition and results of operations.

 

We face competition from companies that may have greater capitalization, access to public equity markets, more experienced management or more maturity as a business. The vast majority of both manufacturing and retail competitors in the cannabis market consists of localized businesses (those doing business in a single state), although there are a few multistate operators with which we compete directly. Aside from this direct competition, out-of-state operators that are capitalized well enough to enter markets through acquisitive growth are also part of the competitive landscape. Similarly, as we execute our growth strategy, operators in our future state markets will inevitably become direct competitors. We are likely to continue to face increasing and intense competition from these companies. Increased competition by larger and better financed competitors could materially and adversely affect our business, financial condition and results of operations.

 

If the number of users of adult-use cannabis in the United States increases, the demand for products will increase. Consequently, we expect that competition will become more intense as current and future competitors begin to offer an increasing number of diversified products to respond to such increased demand. To remain competitive, we will require a continued investment in research and development, marketing, sales and client support. We may not have sufficient resources to maintain sufficient levels of investment in research and development, marketing, sales and client support efforts to remain competitive, which could materially and adversely affect our business, financial condition and results of operations.

 

The cannabis industry is undergoing rapid growth and substantial change, which has resulted in an increase in competitors, consolidation and the formation of strategic relationships. Acquisitions or other consolidating transactions could harm us in a number of ways, including losing customers, revenue and market share, or forcing us to expend greater resources to meet new or additional competitive threats, all of which could harm our operating results. As competitors enter the market and become increasingly sophisticated, competition in our industry may intensify and place downward pressure on retail prices for our products and services, which could negatively impact our profitability.

 

We may not be able to accurately forecast our operating results and plan our operations due to uncertainties in the cannabis industry.

 

Because U.S. federal and state laws prevent widespread participation in and otherwise hinder market research in the adult-use cannabis industry, the third-party market data available to us is limited and unreliable. Accordingly, we must rely largely on our own market research to forecast sales as detailed forecasts are not generally obtainable from other sources at this early stage of the cannabis industry. Our market research and projections of estimated total retail sales, demographics, demand, and similar consumer research, are based on assumptions from limited and unreliable market data, and generally represent the personal opinions of our management team. A failure in the demand for our products to materialize as a result of competition, technological change or other factors could have a material adverse effect on our business, results of operations, financial condition or prospects.

 

We are subject to risks related to growing an agricultural product.

 

Our business involves the growing of cannabis, an agricultural product. Such business is subject to the risks inherent in the agricultural business, such as losses due to infestation by insects or plant diseases and similar agricultural risks. Although much of our growing is expected to be completed indoors, there can be no assurance that natural elements will not have a material adverse effect on our future production.

 

We may not be able to adequately protect our intellectual property.

 

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As long as cannabis remains illegal under U.S. federal law as a Schedule I controlled substance under the CSA, the benefit of certain federal laws and protections that may be available to most businesses, such as federal trademark and patent protection, may not be available to us. As a result, our intellectual property may never be adequately or sufficiently protected against the use or misappropriation by third parties. In addition, since the regulatory framework of the cannabis industry is in a constant state of flux, we can provide no assurance that we will ever obtain any protection for our intellectual property, whether on a federal, state or local level.

 

Our property is subject to risk of civil asset forfeiture.

 

Because the cannabis industry remains illegal under U.S. federal law, any property owned by participants in the cannabis industry that is either used in the course of conducting or comprises the proceeds of a cannabis business could be subject to seizure by law enforcement and subsequent civil asset forfeiture. Even if the owner of the property were never charged with a crime, the property in question could still be seized and subject to an administrative proceeding by which, with minimal process, it could become subject to forfeiture.

 

We face inherent risks of liability claims related to the use of our products.

 

As a distributor of products designed to be ingested by humans, we face an inherent risk of exposure to product liability claims, regulatory action and litigation if our products cause or are alleged to have caused significant loss or injury. We may be subject to various product liability claims, including, among others, that our products caused injury or illness, include inadequate instructions for use or include inadequate warnings concerning possible side effects or interactions with other substances. A product liability claim or regulatory action against us, whether or not successful, could result in materially increased costs, adversely affect our reputation with our clients and consumers generally, and have a material adverse effect on our results of operations and financial condition.

 

We may become party to litigation from time to time in the ordinary course of business which could adversely affect our business. Should any litigation in which we become involved be determined against us, such a decision could adversely affect our ability to continue operating and the market price for the Common Shares. Even if we achieve a successful result in any litigation in which we are involved, the costs of litigation and redirection of our management’s time and attention could have an adverse effect on our results of operations and financial condition.

 

Product recalls could result in a material and adverse impact on our business, financial condition and results of operations.

 

Manufacturers and distributors of products are sometimes subject to the recall or return of their products for a variety of reasons, including product defects, such as contamination, unintended harmful side effects or interactions with other substances, packaging safety and inadequate or inaccurate labelling disclosure. If any of our products are recalled due to an alleged product defect or for any other reason, we could be required to incur the unexpected expense of the recall and any legal proceedings that might arise in connection with the recall. We may lose a significant amount of sales and may not be able to replace those sales at an acceptable margin or at all. In addition, a product recall may require significant management attention. Although we have detailed procedures in place for testing our products, there can be no assurance that any quality, potency or contamination problems will be detected in time to avoid unforeseen product recalls, regulatory action or lawsuits. Additionally, if one of our significant brands were subject to recall, the image of that brand and our corporation generally could be harmed. Any recall could lead to decreased demand for our products and could have a material adverse effect on our results of operations and financial condition. Additionally, product recalls may lead to increased scrutiny of our operations by regulatory agencies, requiring further management attention and potential legal fees and other expenses.

 

We could be subject to criminal prosecution or civil liabilities under RICO.

 

The Racketeer Influenced Corrupt Organizations Act (“RICO”) criminalizes the use of any profits from certain defined “racketeering” activities in interstate commerce. While intended to provide an additional cause of action against organized crime, due to the fact that cannabis is illegal under U.S. federal law, the production and sale of cannabis qualifies cannabis related businesses as “racketeering” as defined by RICO. As such, all officers, managers and owners in a cannabis related business could be subject to criminal prosecution under RICO, which carries substantial criminal penalties.

 

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RICO can create civil liability as well: persons harmed in their business or property by actions which would constitute racketeering under RICO often have a civil cause of action against such “racketeers,” and can claim triple their amount of estimated damages in attendant court proceedings. KVC or its subsidiaries, as well as its officers, managers and owners could all be subject to civil claims under RICO.

 

We are subject to security risks related to our products as well as our information and technology systems.

 

Given the nature of our product and its limited legal availability, we are at significant risk of theft at our facilities. A security breach at one of our facilities could expose us to additional liability and to potentially costly litigation, increase expenses relating to the resolution and future prevention of these breaches and may deter potential patients from choosing our products.

 

In addition, we collect and store personal information about our customers and we are responsible for protecting that information from privacy breaches. We store certain personally identifiable information and other confidential information of our customers on our systems and applications. Though we maintain robust, proprietary security protocols, we may experience attempts by third parties to obtain unauthorized access to the personally identifiable information and other confidential information of our customers. This information could also be otherwise exposed through human error or malfeasance. The unauthorized access or compromise of this personally identifiable information and other confidential information could have a material adverse impact on our business, financial condition and results of operations.

 

A privacy breach may occur through procedural or process failure, information technology malfunction, or deliberate unauthorized intrusions. Theft of data for competitive purposes, particularly patient lists and preferences, is an ongoing risk whether perpetrated via employee collusion or negligence or through deliberate cyber-attack. Any such theft or privacy breach would have a material adverse effect on our business, financial condition and results of operations.

 

Our operations depend and will depend, in part, on how well we protect our networks, equipment, information technology, or IT, systems and software against damage from a number of threats, including, natural disasters, intentional damage and destruction, fire, power loss, hacking, computer viruses, vandalism and theft. Our operations also depend and will continue to depend on the timely maintenance, upgrade and replacement of networks, equipment, IT systems and software, as well as preemptive expenses to mitigate the risks of failures. Any of these and other events could result in information system failures, delays and/or increase in capital expenses. The failure of information systems or a component of information systems could, depending on the nature of any such failure, adversely impact our reputation and results of operations.

 

We may have increased labor costs based on union activity.

 

Labor unions are working to organize workforces in the cannabis industry in general. Currently, there is no labor organization that has been recognized as a representative of our employees. However, it is possible that certain retail and/or manufacturing locations will be organized in the future, which could lead to work stoppages or increased labor costs and adversely affect our business, profitability and our ability to reinvest into the growth of our business. We cannot predict how stable our relationships with U.S. labor organizations would be or whether we would be able to meet any unions’ requirements without impacting our financial condition. Labor unions may also limit our flexibility in dealing with our workforce. Work stoppages and instability in our union relationships could delay the production and sale of our products, which could strain relationships with customers and cause a loss of revenues which would adversely affect our operations.

 

We face risks related to our products.

 

We have committed and expect to continue committing significant resources and capital to develop and market existing products and new products and services. These products are relatively untested in the marketplace, and we cannot assure shareholders and investors that we will achieve market acceptance for these products, or other new products and services that we may offer in the future. Moreover, these and other new products and services may be subject to significant competition with offerings by new and existing competitors in the industry. In addition, new products and services may pose a variety of challenges and require us to attract additional qualified employees. The failure to successfully develop, manage and market these new products and services could seriously harm our business, prospects, revenue, results of operation and financial condition.

 

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We may be at a higher risk of IRS audit.

 

Based on anecdotal information, we believe there is a greater likelihood that the Internal Revenue Service will audit the tax returns of cannabis-related businesses. Any such audit of our tax returns could result in our being required to pay additional tax, interest and penalties, as well as incremental accounting and legal expenses, which could be material.

 

The Corporation is not subject to Sarbanes-Oxley regulations and lack the financial controls and safeguards required of public companies.

 

The Corporation does not have the internal infrastructure necessary, and is not required, to complete an attestation about the Corporation’s financial controls that would be required under the Sarbanes-Oxley Act of 2002. There can be no assurances that there are no significant deficiencies or material weaknesses in the quality of the Corporation’s financial controls.

 

Material weakness in the Corporation’s internal controls could reduce the market’s confidence in our financial statements and affect the value of the Corporation’s Shares.

 

Effective internal controls are necessary for the Corporation to provide reliable financial reports and to help prevent fraud. During the course of our financial statement audit and review, we found certain deficiencies in internal controls. Some of those found are significant and are a material weakness, as follows: (1) there was not adequate support for some accounting records; (2) some accounting records were not reconciled on a timely basis; (3) the Corporation implemented new business software with no formal implementation process; (4) the Corporation does not have proper segregation of duties; and (5) the Corporation did not have sufficient controls related to consolidations and disclosures. Those responsible for governance for the Corporation have been apprised of these deficiencies and are in the process of correcting them.

 

Although the Corporation will undertake a number of procedures and will implement a number of safeguards, in each case, in order to help ensure the reliability of its financial reports, including those imposed on the Corporation under U.S. securities laws, the Corporation cannot be certain that such measures will ensure that the Corporation will maintain adequate control over financial processes and reporting. Failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm the Corporation’s results of operations or cause it to fail to meet its reporting obligations. If the Corporation or its auditors discover a material weakness, the disclosure of that fact, even if quickly remedied, could reduce the market’s confidence in the Corporation’s consolidated financial statements and materially adversely affect the value of our Shares.

 

We are highly dependent on certain key personnel.

 

We depend on key managerial personnel, including Charles Wesley, our Chairman and Chief Financial Officer, Andrew Wesley, our Vice President of Partner Development and Martin Wesley, our President, for our continued success, and our anticipated growth may require additional expertise and the addition of new qualified personnel. Qualified individuals within the cannabis industry are in high demand and we may incur significant costs to attract and retain qualified management personnel, or be unable to attract or retain personnel necessary to operate or expand our business. The loss of the services of existing personnel or our failure to recruit additional key managerial personnel in a timely manner, or at all, could harm our business development programs and our ability to manage day-to-day operations, attract collaboration partners, attract and retain other employees, and generate revenues, and could have a material adverse effect on our business, financial condition and results of operations.

 

Our significant indebtedness may adversely affect our business, financial condition and financial results.

 

Our ability to make certain payments or advances will be subject to applicable laws and contractual restrictions in the instruments governing our indebtedness, including mortgage financing. The contractual restrictions in the instruments governing such notes include restrictive covenants that limit our discretion with respect to certain business matters. These covenants place restrictions on, among other things, our ability to create liens or other encumbrances, to pay distributions or make certain other payments, and to sell or otherwise dispose of certain assets. A failure to comply with such obligations could result in a default, which, if not cured or waived, could permit acceleration of the relevant indebtedness. Our significant indebtedness could have important consequences, including: (i) our ability to obtain additional financing for working capital, capital expenditures, or acquisitions may be limited; and (ii) all or part of our cash flow from operations may be dedicated to the payment of the principal of and interest on our indebtedness, thereby reducing funds available for operations. These factors may adversely affect our cash flow. Our inability to generate sufficient cash flow to satisfy our debt obligations, or to refinance our indebtedness on commercially reasonable terms or at all, may materially and adversely affect our business, results of operations, and financial condition.

 

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We may be unable to obtain adequate insurance coverage.

 

We have obtained insurance coverage with respect to workers’ compensation, general liability, directors’ and officers’ liability, fire and other similar policies customarily obtained for businesses to the extent commercially appropriate; however, because we are engaged in and operate within the cannabis industry, there are exclusions and additional difficulties and complexities associated with our insurance coverage that could cause us to suffer uninsured losses, which could adversely affect our business, results of operations, and profitability. There is no assurance that we will be able to obtain insurance coverage at a reasonable cost or fully utilize such insurance coverage, if necessary.

 

We rely on key utility services.

 

Our business is dependent on a number of key inputs and their related costs, including raw materials and supplies related to our growing operations, as well as electricity, water and other local utilities. Our cannabis growing operations consume and will continue to consume considerable energy, which makes us vulnerable to rising energy costs. Accordingly, rising or volatile energy costs may, in the future, adversely impact our business and our ability to operate profitably. Additionally, any significant interruption or negative change in the availability or economics of the supply chain for our key inputs could materially impact our business, financial condition and operating results. If we are unable to secure required supplies and services on satisfactory terms, it could have a materially adverse impact on our business, financial condition and operating results.

 

Risks Related to this Offering and our Common Shares

 

We do not intend to pay dividends on our Common Shares and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our Common Shares.

 

We have never declared or paid any cash dividend on our Common Shares and do not currently intend to do so in the foreseeable future. We currently anticipate that we will retain future earnings, if materialized, for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends in the foreseeable future. Therefore, the success of an investment in our Common Shares will depend upon any future appreciation in their value. Our Common Shares may not appreciate in the short term or long term or even maintain the price at which said Common Shares were purchased. A holding of our Common Shares is speculative and involves a high degree of risk and should be undertaken only by holders whose financial resources are sufficient to enable them to assume such risks and who have no need for immediate liquidity in their investment. Holding our Common Shares is appropriate only for holders who have the capacity to absorb a loss of some or all of their holdings.

 

Our voting control will be concentrated.

 

Martin Wesley, a founder, director and our President, Charles Wesley, a founder, director and our Chairman and Chief Financial Officer and Andrew Wesley, a founder, director and our Vice President of Partner Development (each of the foregoing a “Founder” and collectively our “Founders”) have the ability to exercise significant voting power with respect to our outstanding shares because of the Series A Preferred Shares each of these Founders owns and controls as well as the number of Common Shares each of these individuals holds. Our Series A Preferred Shares have exclusive voting rights over all matters entitled to a vote of the Corporation’s stockholders and the right to elect all directors to the Board of Directors except for two (2) directors to be elected by holders of the Common Shares. Holders of our Common Shares are not entitled to any voting rights except the right to vote for two (2) directors to our Board of Directors. Martin Wesley, Charles Wesley and Andrew Wesley are directors on our board of directors and there are no other outside or independent directors on our board. Charles Wesley is the father of Martin and Andrew Wesley. In addition to their ownership of all of the outstanding Series A Preferred Shares, Martin Wesley owns approximately 20.08% of the outstanding Common Shares, Charles Wesley owns approximately 19.14% of the outstanding Common Shares and Andrew Wesley owns approximately 19.27% of the outstanding Common Shares.

 

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As a result, Martin Wesley, Charles Wesley and Andrew Wesley have the ability to exercise significant voting power on decisions that require stockholder approval, including the election and removal of directors and significant corporate transactions. This ability to exercise significant voting power could delay, defer or prevent a change of control, arrangement or merger or sale of all or substantially all of our assets that our other stockholders may support, which in turn could have a material adverse effect on the market price of our Common Shares. Conversely, this concentrated control could allow the holders of the Series A Preferred Shares to consummate such a transaction that our other stockholders do not support

 

Our capital structure and voting control may cause unpredictability in the price of our Common Shares.

 

Given the concentration of voting control that is held by our founders and directors, this capital structure and voting control could result in a lower trading price for, or greater fluctuations in, the trading price of our shares of Common Shares, adverse publicity or other adverse consequences.

 

If you purchase our Common Shares in this offering, you will incur immediate and substantial dilution in the book value of your shares.

 

If you purchase Common Shares in this offering, you will incur immediate and substantial dilution of $1.18 per share after giving effect to the sale by us of 20,000,000 Common Shares offered in this offering at the offering price of $1.25 per share. See the section titled “Dilution” appearing elsewhere in this Offering Circular for a more detailed description of the dilution to new investors in the offering.

 

The market price for the Common Shares may be volatile, which may affect the price at which you could sell the Common Shares.

 

The market price for securities of cannabis companies generally is likely to be volatile. In addition, the market price for the Common Shares has been and may be subject to wide fluctuations in response to numerous factors beyond our control, including, but not limited to:

 

●actual or anticipated fluctuations in our quarterly results of operations;

●recommendations by securities research analysts;

●changes in the economic performance or market valuations of companies in the industry in which we operate;

●addition or departure of our executive officers and other key personnel;

●release or expiration of transfer restrictions on outstanding Common Shares;

●sales or perceived sales of additional Common Shares;

●operating and financial performance that varies from the expectations of management, securities analysts and investors;

●regulatory changes affecting our industry generally and our business and operations both domestically and abroad, or legislative or regulatory decisions to halt adult-use cannabis programs;

●announcements of developments and other material events by us or our competitors;

●fluctuations in the costs of vital production materials and services;

●changes in global financial markets and global economies and general market conditions, such as interest rates and pharmaceutical product price volatility;

●significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving us or our competitors;

●operating and share price performance of other companies that investors deem comparable to us or from a lack of market comparable companies; and

●news reports relating to trends, concerns, technological or competitive developments, regulatory changes and other related issues in our industry or target markets.

 

Financial markets have at times historically experienced significant price and volume fluctuations that: (i) have particularly affected the market prices of equity securities of companies, and (ii) have often been unrelated to the operating performance, underlying asset values or prospects of such companies. Accordingly, the market price of the Common Shares from time to time may decline even if our operating results, underlying asset values or prospects have not changed. Additionally, these factors, as well as other related factors, may cause decreases in asset values that may result in impairment losses to us. Further fluctuations in price and volume of equity securities may occur in the future. If increased levels of volatility and market turmoil continue, our operations could be adversely impacted, and the trading price of the Common Shares may be materially adversely affected.

 

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We may face liquidity risks.

 

There is currently no public market for these Common Shares and there can be no assurance that a liquid, public market will develop. This may affect the pricing of the Shares in the secondary market, the transparency and availability of trading prices, the liquidity of the Shares and the extent of issuer regulation. In the absence of an active trading market for the Shares, investors may have difficulty selling their Shares. The Corporation cannot predict the prices at which the Common Shares will trade.

 

Anti-takeover provisions in our certificate of incorporation, amended and restated articles of incorporation and bylaws could discourage a takeover.

Our certificate of incorporation, amended and restated articles of incorporation and bylaws, as adopted in connection with this offering, will contain provisions that might enable our management to resist a takeover. These provisions include:

 

●authorizing the issuance of “blank check” preferred stock that could be issued by our Board to increase the number of outstanding shares and thwart a takeover attempt;

●advance notice requirements applicable to stockholders for matters to be brought before a meeting of stockholders and requirements as to the form and content of a stockholder’s notice;

●the dual-class structure of our common and preferred shares, which gives our founders significant influence over all matters requiring stockholder approval, including the election of directors, amendments to our charter documents and significant corporate transactions, such as a merger or other sale of our Corporation or its assets;

●a requirement that the authorized number of directors may be changed only by resolution of the Board;

●allowing all vacancies, including newly created directorships, to be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum, except as otherwise required by law;

●limiting the persons that can call special meetings of our stockholders to our Board, the president, the secretary or a majority of the authorized number of directors.

 

These provisions might discourage, delay or prevent a change in control of our Corporation or a change in our Board or management. The existence of these provisions could adversely affect the voting power of holders of Common Shares and limit the price that investors might be willing to pay in the future for Common Shares. See “Description of Capital Stock.”

 

We may issue shares of preferred stock in the future, which could make it difficult for another Corporation to acquire us or could otherwise adversely affect holders of our Common Shares, which could depress the price of our Common Shares.

 

Our amended and restated articles of incorporation authorize us to issue one or more series of preferred stock. Our Board will have the authority to determine the preferences, limitations and relative rights of the shares of preferred stock and to fix the number of shares constituting any series and the designation of such series, without any further vote or action by our stockholders. We have already issued 30,000 shares of Series A Preferred Shares to our founders and the Series A Preferred Shares have exclusive voting rights except for the right to elect two (2) directors to our Board of Directors which is permitted to the holders of Common Shares. We may issue more Series A Preferred Shares in the future or we may issue a new series of preferred stock with different preferences, limitation and relative rights. The potential issuance of preferred stock may delay or prevent a change in control of us, discourage bids for our Common Shares at a premium to the market price, and materially and adversely affect the market price and the voting and other rights of the holders of our Common Shares.

 

Risks related to owning Common Shares

 

Our three founders have control over all stockholder decisions because they control all of the Series A Preferred Shares which has nearly exclusive voting power. The Common Shares issued in this offering will not dilute our co-founders’ voting control because the Common Shares have extremely limited voting rights that allows only for the election of two (2) directors to our Board of Directors and no vote on any other matter subject to vote of the stockholders.

 

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As a result of the Series A Preferred Shares that they hold, Charles Wesley, Martin Wesley and Andrew Wesley, each own 10,000 Series A Preferred Shares and the Founders collectively own a total of 30,000 Series A Preferred Shares which represents control of all of the outstanding voting stock since the Series A Preferred Shares have full voting power according to our amended and restated articles of incorporation and bylaws. Our Common Shares only have voting rights to elect two (2) directors to our Board of Directors but do not have the right to vote for any other matter subject to stockholder voting.

 

As a result, our Founders and potentially either one of them alone, have the ability to control the outcome of all matters submitted to our stockholders for approval, including the election, removal, and replacement of directors and any merger, consolidation, or sale of all or substantially all of our assets. If any Founder’s employment with us is terminated, they will continue to have the ability to exercise the same significant voting power and potentially control the outcome of all matters submitted to our stockholders for approval. This concentrated control could delay, defer, or prevent a change of control, merger, consolidation, or sale of all or substantially all of our assets that our other stockholders support. Conversely, this concentrated control could allow our Founders to consummate such a transaction that our other stockholders do not support. In addition, our Founders may make long-term strategic investment decisions and take risks that may not be successful and may seriously harm our business.

 

As our President, Martin Wesley, has control over our day-to-day management and the implementation of major strategic investments of our Corporation, subject to authorization and oversight by our board of directors. As board members and officers, Charles Wesley and Andrew Wesley, owe a fiduciary duty to our stockholders and must act in good faith in a manner they reasonably believe to be in the best interests of our stockholders. As stockholders, even controlling stockholders, our Founders are entitled to vote their shares, and shares over which they have voting control, in their own interests, which may not always be in the interests of our stockholders generally. For a description of the rights of our Founders and the Common Shares and Series A Preferred Shares, see “Description of Capital Stock.”

 

Additional issuances of Common Shares may result in further dilution and could have anti-takeover effects.

 

We may issue additional equity or convertible debt securities in the future, which may dilute an existing shareholder’s holdings. Our articles permit the issuance of up to One Billion (1,000,000,000) Common Shares and existing shareholders will have no pre-emptive rights in connection with such further issuances. Our board of directors has discretion to determine the price and the terms of further issuances. The ability of our board of directors to issue additional Common Shares could also have anti-takeover effects. Moreover, we may issue convertible debt securities in the future and to the extent holders of our options, warrants or other convertible securities convert or exercise their securities and sell Common Shares they receive, the trading price of the Common Shares may decrease due to the additional amount of Common Shares available in the market. We cannot predict the size or nature of future issuances or the effect that future issuances and sales of Common Shares will have on the market price of the Common Shares. Issuances of a substantial number of additional Common Shares, or the perception that such issuances could occur, may adversely affect prevailing market prices for the Common Shares. With any additional issuance of Common Shares, our investors will suffer dilution to their voting power and economic interest.

 

Sales of substantial amounts of Common Shares by our existing shareholders in the public market may have an adverse effect on the market price of the Common Shares.

 

Sales of a substantial number of Common Shares in the public market could occur at any time. These sales, or the perception in the market that holders of a large number of shares intend to sell shares, or the availability of such securities for sale, could adversely affect the prevailing market prices for the Common Shares. As of January 21, 2022, we had an aggregate of 407,494,700 Common Shares outstanding. A decline in the market prices of the Common Shares could impair our ability to raise additional capital through the sale of securities should it desire to do so.

 

The Determination of the Offering Price of the Common Shares may not reflect the value of the Corporation

 

The $1.25 per share Offering Price of the Common Stock has been arbitrarily determined by the Corporation and is not based on book value, assets, earnings or any other recognizable standard of value. No assurance can be given that our Common Stock, or any portion thereof, could be sold for the Offering Price or for any amount. If profitable results are not achieved from our operations, of which there can be no assurance, the value of the Common Stock sold pursuant to this Offering could fall below the Offering Price and the Common Stock could become worthless.

 

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There is no trading market for our Common Shares and even if the Common Shares are available on a future trading market, there may not be sufficient liquidity in such markets for our Common Shares.

 

There is no current trading market for our Common Shares and there is no assurance or guarantee that the Common Shares will eventually be traded on a market. Even if the Common Shares are quoted on an over-the-counter (“OTC”) market or listed on an exchange, the liquidity of any such market for the shares of our Common Shares will depend on a number of factors, including:

 

  ● the number of shareholders;

 

  ● our operating performance and financial condition;

 

  ● the market for similar securities;

 

  ● the extent of coverage by securities or industry analysts; and

 

  ● the interest of securities dealers in making a market in the shares.

 

The market price for the Common Shares is likely to continue to be volatile.

 

The market price for the Common Shares may be volatile and subject to wide fluctuations in response to numerous factors, many of which will be beyond our control, including, but not limited to, the following: (i) actual or anticipated fluctuations in our quarterly results of operations; (ii) recommendations by securities research analysts; (iii) changes in the economic performance or market valuations of companies in the cannabis industry; (iv) additions or departures of our executive officers and other key personnel; (v) release or expiration of transfer restrictions on our issued and outstanding shares; (vi) regulatory changes affecting the cannabis industry generally and our business and operations; (vii) announcements by us and our competitors of developments and other material events; (viii) fluctuations in the costs of vital production materials and services; (ix) changes in global financial markets and global economies and general market conditions, such as interest rates and pharmaceutical product price volatility; (x) significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving us or our competitors; (xi) operating and share price performance of other companies that investors deem comparable to us or from a lack of market comparable companies; (xii) false or negative reports issued by individuals or companies who have taken aggressive short sale positions; and (xiii) news reports relating to trends, concerns, technological or competitive developments, regulatory changes and other related issues in our industry or target markets.

 

Financial markets have experienced significant price and volume fluctuations that have affected the market prices of equity securities of companies and that have often been unrelated to the operating performance, underlying asset values or prospects of those companies. Accordingly, the market price of the Common Shares may decline even if our operating results, underlying asset values or prospects have not changed.

 

These factors, as well as other related factors, may cause decreases in asset values that are deemed to be other than temporary, which may result in impairment losses. There can be no assurance that continuing fluctuations in price and volume will not occur. If such increased levels of volatility and market turmoil continue, our operations could be adversely impacted, and the trading price of the Common Shares could be materially adversely affected.

 

We will be subject to penny stock regulations and restrictions and you may have difficulty selling these Common Shares.

 

The SEC has adopted regulations which generally define so-called “penny stocks” to be an equity security that has a market price less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions. Our Common Shares are considered “penny stocks”, and we are subject to Rule 15g-9 under the Exchange Act (or the “Penny Stock Rule”). This rule imposes additional sales practice requirements on broker-dealers that sell such securities to persons other than established customers. For transactions covered by Rule 15g-9, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to sale. As a result, this rule may affect the ability of broker-dealers to sell our securities and may affect the ability of purchasers to sell any of our securities in the secondary market.

 

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For any transaction involving a penny stock, unless exempt, the rules require delivery, prior to any transaction in a penny stock, of a disclosure schedule prepared by the SEC relating to the penny stock market. Disclosure is also required to be made about sales commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements are required to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stock.

 

We do not anticipate that our Shares will qualify for exemption from the Penny Stock Rule. In any event, even if our Shares were exempt from the Penny Stock Rule, we would remain subject to Section 15(b)(6) of the Exchange Act, which gives the SEC the authority to restrict any person from participating in a distribution of penny stock, if the SEC finds that such a restriction would be in the public interest.

 

FINRA sales practice requirements may also limit a shareholder’s ability to buy and sell these Common Shares.

 

In addition to the Penny Stock Rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must take certain steps to ensure that the investment is in the best interest of that customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker- dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy these Shares, which may limit your ability to buy and sell these Shares and have an adverse effect on the market for these Shares.

 

We are an emerging growth company and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our Common Shares less attractive to investors.

 

For as long as we continue to be an emerging growth company, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies including, but not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our Common Shares less attractive because we will rely on these exemptions. If some investors find our Common Shares less attractive as a result, there may be a less active trading market for our Common Shares and our stock price may be more volatile.

 

We will remain an emerging growth company until the earliest of (i) the end of the fiscal year in which the market value of our Common Shares that is held by non-affiliates exceeds $700 million as of June 30, (ii) the end of the fiscal year in which we have total annual gross revenue of $1.07 billion or more during such fiscal year, (iii) the date on which we issue more than $1 billion in non-convertible debt in a three-year period or (iv) five years from the effectiveness date of the Corporation’s Regulation A+ Offering Circular.

 

REGULATORY FRAMEWORK

 

Regulatory Overview

 

Below is a discussion of the federal and state-level U.S. regulatory regimes in those jurisdictions where we are currently directly involved, through our subsidiaries, in the cannabis industry. KVC, through its subsidiaries, is engaged in the manufacture, possession, sale or distribution of cannabis in the adult-use cannabis marketplace in the State of California. KVC is also engaged in cannabis cultivation, processing and retailing in the State of California.

 

Federal and State Regulation of Cannabis in the United States

 

The United States federal government regulates drugs in large part through the Controlled Substances Act, or CSA. Marijuana, which is a form of cannabis, is classified as a Schedule I controlled substance. As a Schedule I controlled substance, the federal Drug Enforcement Agency, or DEA, considers marijuana to have a high potential for abuse; no currently accepted medical use in treatment in the United States; and a lack of accepted safety for use of the drug under medical supervision. According to the U.S. federal government, cannabis having a concentration of tetrahydrocannabinol, or THC, greater than 0.3% is marijuana. Cannabis with a THC content below 0.3% is classified as hemp. The scheduling of marijuana as a Schedule I controlled substance is inconsistent with what we believe to be widely accepted medical uses for marijuana by physicians, researchers, patients, and others.

 

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Cannabis is largely regulated at the state level in the United States. State laws regulating cannabis are in conflict with the CSA, which makes cannabis use and possession federally illegal. Although certain states and territories of the United States authorize medical or adult-use cannabis production and distribution by licensed or registered entities (see table below for state-by-state analysis), under United States federal law, the possession, use, cultivation, and transfer of cannabis and any related drug paraphernalia is illegal. Although our activities are compliant with the applicable state and local laws in the state where we maintain such licenses (California), strict compliance with state and local laws with respect to cannabis may neither absolve us of liability under United States federal law nor provide a defense to any federal criminal action that may be brought against us.

 

Legal Status   Medicinal   Decriminalized
Alabama   Mixed   Yes
Alaska   Fully Legal   Yes
Arizona   Fully Legal   Yes
Arkansas   Mixed   Yes
California   Fully Legal   Yes
Colorado   Fully Legal   Yes
Connecticut   Fully Legal   Yes
Delaware   Mixed   Yes
District of Columbia   Fully Legal   Yes
Florida   Mixed   Yes
Georgia   Mixed   CBD Oil Only
Hawaii   Mixed   Yes
Idaho   Fully Illegal   No
Illinois   Fully Legal   Yes
Indiana   Mixed   CBD Oil Only
Iowa   Mixed   CBD Oil Only
Kansas   Fully Illegal   No
Kentucky   Mixed   CBD Oil Only
Louisiana   Mixed   Yes
Maine   Fully Legal   Yes
Maryland   Mixed   Yes
Massachusetts   Fully Legal   Yes
Michigan   Fully Legal   Yes
Minnesota   Mixed   Yes
Mississippi   Mixed   Yes
Missouri   Mixed   Yes
Montana   Fully Legal   Yes
Nebraska   Fully Illegal   No
Nevada   Fully Legal   Yes
New Hampshire   Mixed   Yes
New Jersey   Fully Legal   Yes
New Mexico   Fully Legal   Yes
New York   Fully Legal   Yes
North Carolina   Fully Illegal   No
North Dakota   Mixed   Yes
Ohio   Mixed   Yes
Oklahoma   Mixed   Yes
Oregon   Fully Legal   Yes
Pennsylvania   Mixed   Yes
Rhode Island   Mixed   Yes
South Carolina   Fully Illegal   No
South Dakota   Mixed*   Yes
Tennessee   Mixed   CBD Oil Only
Texas   Mixed   CBD Oil Only
Utah   Mixed   Yes
Vermont   Fully Legal   Yes
Virginia   Fully Legal   Yes
Washington   Fully Legal   Yes
West Virginia   Mixed   Yes
Wisconsin   Mixed   CBD Oil Only
Wyoming   Fully Illegal   No

 

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Source: https://disa.com/map-of-marijuana-legality-by-state (December 2021)

 

In 2013, as more and more states began to legalize medical and/or adult-use cannabis, the federal government attempted to provide clarity on the incongruity between federal law and these state-legal regulatory frameworks. Until 2018, the federal government provided guidance to federal agencies and banking institutions through a series of Department of Justice (“DOJ”) memoranda. The most notable of this guidance came in the form of a memorandum issued by former U.S. Deputy Attorney General James Cole on August 29, 2013, which we refer to as the Cole Memorandum.

 

The Cole Memorandum offered guidance to federal agencies on how to prioritize civil enforcement, criminal investigations and prosecutions regarding cannabis in all states and quickly set a standard for cannabis-related businesses to comply with. The Cole Memorandum put forth eight prosecution priorities:

 

  1. Preventing the distribution of cannabis to minors;
     
  2. Preventing revenue from the sale of cannabis from going to criminal enterprises, gangs and cartels;
     
  3. Preventing the diversion of cannabis from states where it is legal under state law in some form to other states;
     
  4. Preventing the state-authorized cannabis activity from being used as a cover or pretext for the trafficking of other illegal drugs or other illegal activity;
     
  5. Preventing violence and the use of firearms in the cultivation and distribution of cannabis;
     
  6. Preventing drugged driving and the exacerbation of other adverse public health consequences associated with cannabis use;
     
  7. Preventing the growing of cannabis on public lands and the attendant public safety and environmental dangers posed by cannabis production on public lands; and
     
  8. Preventing cannabis possession or use on federal property.

 

On January 4, 2018, former United States Attorney General Jeff Sessions rescinded the Cole Memorandum by issuing a new memorandum to all United States Attorneys, which we refer to as the Sessions Memo. Rather than establishing national enforcement priorities particular to marijuana-related crimes in jurisdictions where certain cannabis activity was legal under state law, the Sessions Memo simply rescinded the Cole Memorandum and instructed that “[i]n deciding which marijuana activities to prosecute. with the [DOJ’s] finite resources, prosecutors should follow the well-established principles that govern all federal prosecutions.” Namely, these include the seriousness of the offense, history of criminal activity, deterrent effect of prosecution, the interests of victims, and other principles.

 

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On January 21, 2021, Joseph R. Biden, Jr. was sworn in as President of the United States. President Biden’s nomination for Attorney General, Merrick Garland, was confirmed by the United States Senate on March 10, 2021. It is not yet known whether the Department of Justice under President Biden and Attorney General Garland, will re-adopt the Cole Memorandum or announce a substantive cannabis enforcement policy. Attorney General Garland indicated at a confirmation hearing before the United States Senate that it did not seem to him to be a useful use of limited resources to pursue prosecutions in states that have legalized and that are regulating the use of cannabis, either medically or otherwise.

 

Nonetheless, there is no guarantee that state laws legalizing and regulating the sale and use of cannabis will not be repealed or overturned, or that local governmental authorities will not limit the applicability of state laws within their respective jurisdictions. Unless and until the United States Congress amends the CSA with respect to cannabis (and as to the timing or scope of any such potential amendments there can be no assurance), and the President approves such amendment, there is a risk that federal authorities may enforce current U.S. federal law. Currently, in the absence of uniform federal guidance, as had been established by the Cole memorandum, enforcement priorities are determined by respective United States Attorneys.

As an industry best practice, despite the rescission of the Cole Memorandum, we abide by the following standard operating policies and procedures, which are designed to ensure compliance with the guidance provided by the Cole Memorandum:

 

  1. Continuously monitor our operations for compliance with all licensing requirements as established by the applicable state, county, municipality, town, township, borough, and other political/administrative divisions;

 

  2. Ensure that our cannabis related activities adhere to the scope of the licensing obtained (for example: in the states where cannabis is permitted only for adult-use, the products are only sold to individuals who meet the requisite age requirements);

 

  3. Implement policies and procedures to prevent the distribution of our cannabis products to minors;

 

  4. Implement policies and procedures in place to avoid the distribution of the proceeds from our operations to criminal enterprises, gangs or cartels;

 

  5. Implement an inventory tracking system and necessary procedures to reliably track inventory and prevent the diversion of cannabis or cannabis products into those states where cannabis is not permitted by state law, or across any state lines in general;

 

  6. Monitor the operations at our facilities so that our state-authorized cannabis business activity is not used as a cover or pretense for trafficking of other illegal drugs or engaging in any other illegal activity; and

 

  7. Implement quality controls so that our products comply with applicable regulations and contain necessary disclaimers about the contents of the products to avoid adverse public health consequences from cannabis use and discourage impaired driving.

 

In addition, we frequently conduct background checks to confirm that the principals and management of our operating subsidiaries are of good character and have not been involved with other illegal drugs, engaged in illegal activity or activities involving violence, or the use of firearms in the cultivation, manufacturing or distribution of cannabis. We also conduct ongoing reviews of the activities of our cannabis businesses, the premises on which they operate and the policies and procedures that are related to the possession of cannabis or cannabis products outside of the licensed premises.

 

Moreover, in recent years, certain temporary federal legislative enactments that protect the medical cannabis and hemp industries have also been in effect. For instance, certain cannabis businesses receive a measure of protection from federal prosecution by operation of temporary appropriations measures that have been enacted into law as amendments (or “riders”) to federal spending bills passed by Congress and signed by both Presidents Obama and Trump. For instance, in the Appropriations Act of 2015, Congress included a budget “rider” that prohibits DOJ from expending any funds to enforce any law that interferes with a state’s implementation of its own medical cannabis laws. The rider is known as the “Rohrabacher-Farr” Amendment after its original lead sponsors. Originally, a Republican-controlled House and Democratic-controlled Senate passed the Rohrabacher-Farr Amendment. The bill was a bipartisan appropriations measure that looks to prohibit the DOJ from spending federally allocated funds to interfere with state-level medical cannabis operations. Subsequently, the amendment has been included in multiple budgets passed by a Republican-controlled Congress. While the Rohrabacher-Farr Amendment has been included in successive appropriations legislation or resolutions since 2015, its inclusion or non-inclusion is subject to political change.

 

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The Rohrabacher-Farr Amendment was extended most recently in the Omnibus Appropriations Act of 2021, which funds the agencies of the federal government through September 30, 2021. Notably, Rohrabacher-Farr has applied only to medical cannabis programs and has not provided the same protections to enforcement against adult-use activities. On December 3, 2021, the amendment was renewed through a pair of stopgap spending bills, with the most recent extension effective through February 18, 2022. If the Rohrabacher-Farr Amendment is no longer in effect, the risk of federal enforcement and override of state marijuana laws would increase.

 

United States Border Entry

 

The United States Customs and Border Protection, or CBP, enforces the laws of the United States as they pertain to lawful travel and trade into and out of the U.S. Crossing the border while in violation of the CSA and other related United States federal laws may result in denied admission, seizures, fines, and apprehension. CBP officers administer determine the admissibility of travelers who are non-U.S. citizens into the United States pursuant to the United States Immigration and Nationality Act. An investment in our Subordinate Voting Shares, if it became known to CBP, could have an impact on a non-U.S. citizen’s admissibility into the United States and could lead to a lifetime ban on admission.

 

Because cannabis remains illegal under United States federal law, those investing in Canadian companies with operations in the United States cannabis industry could face detention, denial of entry, or lifetime bans from the United States for their business associations with United States cannabis businesses. Entry happens at the sole discretion of CBP officers on duty, and these officers have wide latitude to ask questions to determine the admissibility of a non-US citizen or foreign national. The government of Canada has started warning travelers that previous use of cannabis, or any substance prohibited by United States federal laws, could mean denial of entry to the United States. Business or financial involvement in the cannabis industry in the United States could also be reason enough for CBP to deny entry. On September 21, 2018, CBP released a statement outlining its current position with respect to enforcement of the laws of the United States. It stated that Canada’s legalization of cannabis will not change CBP enforcement of United States laws regarding controlled substances and because cannabis continues to be a controlled substance under United States law, working in or facilitating the proliferation of the legal cannabis industry in U.S. states where it is deemed legal may affect admissibility to the United States. As a result, CBP has affirmed that, employees, directors, officers, managers and investors of companies involved in business activities related to cannabis in the United States, who are not United States citizens, face the risk of being barred from entry into the United States.

 

Anti-Money Laundering Laws and Access to Banking

 

The Corporation is subject to a variety of laws and regulations in the United States that involve anti-money laundering, financial recordkeeping and the proceeds of crime, including the Currency and Foreign Transactions Reporting Act of 1970 (referred to herein as the “Bank Secrecy Act”), as amended by Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act), and any related or similar rules, regulations or guidelines, issued, administered or enforced by governmental authorities in the United States.

 

Additionally, under United States federal law, it may potentially be a violation of federal anti-money laundering statutes for financial institutions to take any proceeds from the sale of any Schedule I controlled substance. For example, banks and other financial institutions could potentially be prosecuted and convicted of aiding and abetting money laundering under the Bank Secrecy Act for providing services to cannabis businesses. Therefore, under the Bank Secrecy Act, banks or other financial institutions that provide a cannabis business with a checking account, debit or credit card, small business loan, or any other financial service could be charged with money laundering or conspiracy.

 

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While there has been no change in U.S. federal banking laws to accommodate businesses in the large and increasing number of U.S. states that have legalized medical or adult-use cannabis, FinCEN, in 2014, issued guidance, or the FinCEN Guidance, to prosecutors of money laundering and other financial crimes. The FinCEN Guidance is viewed as advising prosecutors not to focus their enforcement efforts on banks and other financial institutions that serve cannabis-related businesses so long as that cannabis-related business activities are legal in their state and none of the federal enforcement priorities referenced in the Cole Memorandum are being violated (such as keeping cannabis out of the hands of organized crime). Importantly, the FinCEN Guidance also clarifies how financial institutions can provide financial services to cannabis-related businesses consistent with their Bank Secrecy Act obligations, including through enhanced customer due diligence, but makes it clear that they are doing so at their own risk. The customer due diligence steps typically include:

 

  1. Verifying with the appropriate state authorities whether the business is duly licensed and registered;

 

  2. Reviewing the license application (and related documentation) submitted by the business for obtaining a state license to operate its cannabis-related business;

 

  3. Requesting available information about the business and related parties from state licensing and enforcement authorities;

 

  4. Developing an understanding of the normal and expected activity for the business, including the types of products to be sold and the type of customers to be served (e.g., medical versus adult-use customers);

 

  5. Ongoing monitoring of publicly available sources for adverse information about the business and related parties;

 

  6. Ongoing monitoring for suspicious activity, including for any of the red flags described in the FinCEN Guidance; and

 

  7. Refreshing information obtained as part of customer due diligence on a periodic basis and commensurate with the risk.

 

With respect to information regarding state licensure obtained in connection with such customer due diligence, a financial institution may reasonably rely on the accuracy of information provided by state licensing authorities, where states make such information available.

 

While the FinCEN Guidance decreased some risk for banks and financial institutions considering servicing the cannabis industry, in practice it has not increased banks’ willingness to provide services to cannabis-related businesses. This is because current U.S. federal law does not guarantee banks immunity from prosecution, and it also requires banks and other financial institutions to undertake time-consuming and costly due diligence (i.e. enhanced due diligence) on each cannabis-related business they accept as a customer.

 

Those commercial banks and/or credit unions that have agreed to work with cannabis businesses are typically limiting those accounts to small percentages of their total deposits to avoid creating liquidity and concentration risk. Since, theoretically, the federal government could change the banking laws as it relates to cannabis-related businesses at any time and without notice, these banks and credit unions must keep sufficient cash on hand to be able to return the full value of all deposits from cannabis-related businesses in a single day, while also keeping sufficient liquid capital on hand to service their other customers. Because many banks and credit unions that are providing banking services to cannabis-related businesses are smaller institutions, applicable concentration limits may also impose limits in the aggregate amounts of loans that might be provided to the industry. Those commercial banks and credit unions that do have customers in the cannabis industry can charge cannabis businesses high fees to cover the added cost of ensuring compliance with the FinCEN Guidance.

 

Unlike the Cole Memorandum, however, the FinCEN Guidance has not been rescinded, but FinCEN has stated that it views the FinCEN Guidance to include compliance with the requirements of the rescinded Cole Memorandum. Secretary of the Treasury, Janet Yellen, has not made any public statements with regards to how the Treasury Department plans to treat cannabis-related businesses.

As an industry best practice and consistent with its standard operating procedures, KVC adheres to all customer due diligence steps in the FinCEN Guidance and any additional requirements imposed by those financial institutions it utilizes. However, in the event that any of our operations, or any proceeds thereof, any dividends or distributions therefrom, or any profits or revenues accruing from such operations in the United States were found to be in violation of anti-money laundering legislation or otherwise, such transactions could be viewed as proceeds of crime under one or more of the statutes noted above or any other applicable legislation. This could restrict or otherwise jeopardize our ability to declare or pay dividends or effect other distributions.

 

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In the United States, the “SAFE Banking Act” was adopted by the U.S. House of Representatives, which would grant banks and certain financial institutions immunity from federal criminal prosecution for servicing cannabis-related businesses if the underlying cannabis business follows state law. The SAFE Banking Act was reintroduced in the United States House of Representatives. On March 23, 2021, the bill was reintroduced in the United States Senate as well. While there is strong support in the public and within Congress for the SAFE Banking Act, there can be no assurance that it will be passed as presently proposed or at all. In both Canada and the United States, transactions involving banks and other financial institutions are both difficult and unpredictable under the current legal and regulatory landscape. Legislative changes could help to reduce or eliminate these challenges for companies in the cannabis space and would improve the efficiency of both significant and minor financial transactions. While there is strong support in the public and within Congress for the SAFE Banking Act and similar legislation, there can be no assurance that it will be passed as presently proposed or at all. In both Canada and the United States, transactions involving banks and other financial institutions are both difficult and unpredictable under the current legal and regulatory landscape. Legislative changes could help to reduce or eliminate these challenges for companies in the cannabis space and would improve the efficiency of both significant and minor financial transactions.

 

Tax Concerns

 

An additional challenge for cannabis-related businesses is that the provisions of IRC Section 280E are being applied by the IRS to businesses operating in the adult-use cannabis industry. IRC Section 280E prohibits cannabis businesses from deducting their ordinary and necessary business expenses, forcing them to pay higher effective federal tax rates than similar companies in other industries. The effective tax rate on a cannabis business depends on how large its ratio of non-deductible expenses is to its total revenues. Therefore, businesses in the legal cannabis industry may be less profitable than they would otherwise be. Furthermore, although the IRS issued a clarification allowing the deduction of cost of goods sold, the scope of such items is interpreted very narrowly, and the bulk of operating costs and general administrative costs are not permitted to be deducted.

 

Regulation of the Cannabis Market in California

 

In 1996, California was the first state to legalize medical cannabis through Proposition 215, the Compassionate Use Act of 1996. This provided an affirmative defense for defendants charged with the use, possession and cultivation of medical cannabis by patients with a physician recommendation for treatment of cancer, anorexia, AIDS, chronic pain, spasticity, glaucoma, arthritis, migraine, or any other illness for which cannabis provides relief. In 2003, Senate Bill 420 was signed into law, decriminalizing the use, possession, and collective cultivation of medical cannabis, and establishing an optional identification card system for medical cannabis patients.

 

In September 2015, the California legislature passed three bills collectively known as the “Medical Marijuana Regulation and Safety Act,” or MCRSA. The MCRSA established a licensing and regulatory framework for medical marijuana businesses in California. The system created testing laboratories, and distributors. Edible infused product manufacturers would require either volatile solvent or non-volatile solvent manufacturing licenses depending on their specific extraction methodology. Multiple agencies would oversee different aspects of the program and businesses would require a state license and local approval to operate. However, in November 2016, voters in California overwhelmingly passed Proposition 64, the “Adult Use of Marijuana Act,” or AUMA, creating an adult-use marijuana program for adult-use 21 years of age or older. In June 2017, the California State Legislature passed Senate Bill No. 94, known as Medicinal and Adult-Use Marijuana Regulation and Safety Act, or MAUCRSA, which amalgamated MCRSA and AUMA to provide a set of regulations to govern the medical and adult-use licensing regime for marijuana businesses in the State of California. MAUCRSA went into effect on January 1, 2018. The three primary licensing agencies that regulate marijuana at the state level are the Bureau of Cannabis Control, or BCC, California Department of Food and Agriculture, or CDFA, and the California Department of Public Health, or CDPH.

 

One of the central features of MAUCRSA is known as “local control.” In order to legally operate a cannabis business in California, an operator must have both a local and state license. This requires license-holders to operate in cities or counties with cannabis licensing programs. Cities and counties in California are allowed to determine the number of licenses they will issue to cannabis operators, or, alternatively, can choose to ban cannabis licenses.

 

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California License Categories/ Types (the “California License”)

 

Once an operator obtains local approval, the operator must obtain state licenses before conducting any commercial cannabis activity. There are multiple license categories that cover all commercial activity. Categories include: (1) cultivation/nurseries, (2) testing laboratories, (3) distributors/transporters, (4) retailers, (5) microbusinesses, (6) event organizers, and (7) manufacturers. Categories of licenses are further broken down into subtypes. For example, there are multiple types of cultivation licenses available depending upon the size of the cultivation operation and whether the operation is indoors/outdoors or uses mixed lighting. Different manufacturing licenses are available depending upon whether volatile or nonvolatile solvents are used. Retail licenses are available depending upon whether the retailer operates from a store-front or a non-store front.

 

California Agencies Regulating the Commercial Cannabis Industry

 

The CDFA oversees nurseries and cultivators; the CDPH oversees manufacturers, and the BCC oversees distributors, retailers, delivery services, and testing laboratories. Operators must apply to one or more of these agencies for their licenses, and each agency has released regulations specific to the operation of the types of businesses they oversee. The BCC has a number of regulations that apply to all licensees, but the CDFA and CDPH regulations only apply to the licensees in their charge.

 

The Cannabis Supply Chain in California

 

In California, depending on a local government’s own cannabis ordinances, plants may be cultivated outdoors, using mixed-light methods, or fully indoors. Cultivators must initially acquire seeds, clones, teens, or other immature plants from nurseries.

 

The cultivation, processing, and movement of cannabis within the state is tracked by the METRC system, into which all licensees are required to input their track and trace data (either manually or using another software that automatically uploads to METRC). Immature plants are assigned a Unique Identifier number, or UID, and this number follows the flowers and biomass resulting from that plant through the supply chain, all the way to the consumer. Each licensee in the supply chain is required to meticulously log any processing, packaging, and sales associated with that UID.

 

When cannabis plants mature and complete their life cycle, they are harvested cured, and trimmed, in preparation of being sold to distributors or manufacturers. Cultivators have two main products: flowers, or “buds,” and the biomass, or “trim,” which is typically removed from the mature flowers. Trim is commonly sold to manufacturers for further processing into cannabis extracts. Buds may also be sold to manufacturers, or to distributors for sale to retailers. The cultivator may package and label its cannabis flowers or may sell flower in bulk and the distributor may package and label the flower.

 

Manufactured cannabis goods may be sold from a manufacturer to a distributor but must be provided to distributors in their final packaging. Distributors may not package manufactured cannabis goods. Certain tax rates apply to the cannabis flower and biomass, which are assessed per ounce of product sold. The California State excise tax is paid by the cultivator to the distributor, or alternatively the manufacturer, and it is the distributor that has the responsibility of tendering the excise taxes to the State of California.

 

Cannabis in California may only be transported by licensed distributors. Some cultivators and manufacturers have their own distribution licenses, and others contract with third party distributors. Distributors may or may not take possession of the cannabis and cannabis products. This has evolved in such a way that, similar to the alcohol distribution model, retailers are choosing from a portfolio of products carried by the distributors they work with. Brands are doing some direct marketing to retailers, but many brands target their marketing to distributors.

 

Distributors are the point in the supply chain where final quality assurance testing is performed on products before they go to a retailer. Retailers may not accept product without an accompanying certificate of analysis, or “COA”. Distributors must hold product to be tested on their premises in “quarantine” and arrange for an employee of a licensed testing laboratory to come to their premises and obtain samples from any and all goods proposed to be shipped to a retailer. Cannabis and cannabis products are issued either a “pass” or “fail” by the testing laboratory. Under some circumstances, the BCC’s regulations allow for failing product to be “remediated” or to be re-labeled to more accurately reflect the COA.

 

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See “Description of Business - KVC Licensing” for a description of the licenses held by the operating companies owned by KVC.

 

Retail Compliance in California

 

California requires that certain warnings, images, and content information be printed on all cannabis packaging. BCC regulations also include certain requirements about tamper-evident and child-resistant packaging. Distributors and retailers are responsible for confirming that products are properly labeled and packaged before they are sold to a customer.

 

Consumers aged 21 and up may purchase cannabis in California from a dispensary with an “adult-use” license. Some localities still only allow medicinal dispensaries. Consumers aged 18 and up with a valid physician’s recommendation may purchase cannabis from a medicinal-only dispensary or an adult-use dispensary. Consumers without valid physician’s recommendations may not purchase cannabis from a medicinal-only dispensary. All cannabis businesses are prohibited from hiring employees under the age of 21.

 

Security Requirements

 

Each local government in California has its own security requirements for cannabis businesses, which usually include comprehensive video surveillance, intrusion detection and alarms, and limited access areas in the dispensary. The State also has similar security requirements, including that there be limited-access areas where only employees and other authorized individuals may enter. All Licensee employees must wear employee badges. The limited access areas must be locked with “commercial-grade, nonresidential door locks on all points of entry and exit to the licensed premises.”

 

Each licensed premises must have a digital video surveillance system that can “effectively and clearly” record images of the area under surveillance. Cameras must be in a location that allows the camera to clearly record activity occurring within 20 feet of all points of entry and exit on the licensed premises. The regulations list specific areas which must be under surveillance, including places where cannabis goods are weighed, packed, stored, loaded, and unloaded, security rooms, and entrances and exits to the premises. Retailers must record point of sale areas on the video surveillance system.

 

Licensed retailers must hire security personnel to provide on-site security services for the licensed retail premises during hours of operation. All security personnel must be licensed by the Bureau of Security and Investigative Services.

 

California also has extensive record-keeping and track and trace requirements for all licensees.

 

Inspections

 

All licensees are subject to annual and random inspections of their premises. Cultivators may be inspected by the California Department of Fish and Wildlife, the California Regional Water Quality Control Boards, and the California Department of Food and Agriculture. Manufacturers are subject to inspection by the California Department of Public Health, and Retailers, Distributors, Testing Laboratories, and Delivery services are subject to inspection by the Bureau of Cannabis Control. Inspections can result in notices to correct, or notices of violation, fines, or other disciplinary action by the inspecting agency.

 

Retail taxes in California

 

Retailers generally must pay the excise tax to final distributors when they make wholesale purchases. These distributors then remit the retail excise taxes to the California Department of Tax Fee Administration, or CDTFA, which administers State cannabis taxes. Retailers must make these payments before they sell the products to consumers, so the tax is based directly on the wholesale price (the price that retailers pay to distributors) rather than the retail price (the price that consumers pay to retailers). The CDTFA sets the tax based on its estimate of the average ratio of the average ratio of retail prices to wholesale prices—commonly known as a ‘markup’. CDTFA’s current markup estimate (as of January 1, 2020) is 80%. Due to the 15% statutory tax rate and the 80% markup estimate, the current effective tax rate on wholesale gross receipts is 27%.

 

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In addition, the State taxes, cities and counties throughout California apply their own approaches to taxing cannabis. These approaches fall into three broad categories. First, many local governments impose the same tax rate on all cannabis businesses regardless of type. Second, many local governments impose higher tax rates on retailers than other types of cannabis businesses. Third, a few local governments license cannabis businesses but do not levy taxes specifically on cannabis. The California Legislative Analyst’s Office estimates that the average cumulative local tax rate over the whole supply chain is roughly equivalent to a 14% tax on retail sales.

 

DILUTION

 

Dilution represents the difference between the offering price and the net tangible book value per share immediately after completion of this offering. Net tangible book value is the amount that results from subtracting total liabilities and intangible assets from total assets. Dilution arises mainly as a result of our arbitrary determination of the offering price of the shares being offered. Dilution of the value of the shares you purchase is also a result of the lower book value of the shares held by our existing shareholders.

 

As of September 30, 2021, the net tangible book value of our shares of common stock was $5,429,625 or approximately $0.0133 per share based upon 407,494,700 (adjusted for subsequent forward stock split) number of Common Shares outstanding. Upon completion of this Offering, the net tangible book value of the 427,494,700 Common Shares to be outstanding (assuming the Maximum Offering sold) will be $30,429,625 or approximately $0.07. The net tangible book value of the shares held by our existing shareholders will be increased by $0.06 per share without any additional investment on their part. You will incur an immediate dilution of $1.18 per share. After completion of this Offering, purchasers of Common Shares in the Offering will collectively own approximately 4.68% of the total number of Common Shares then outstanding shares for which the purchasers will have made cash investments in the aggregate of $20,000,000 or $1.25 per share. Our existing shareholders will own approximately 95.32% of the total number of Common Shares then outstanding, for which they will not have made additional capital contributions resulting in dilution to new investors of approximately 94.3% assuming the Maximum Offering amount is sold. These calculations further do not include the costs associated with this Offering, and such expenses will cause further dilution. The Corporation estimates the offering expenses will be approximately $250,000.

 

The following table compares the differences of your investment in our Common Shares with the investment of our existing shareholders. Following is a table detailing dilution as of September 30, 2021, to investors if 100%, 75%, or 50%, of the Offering is sold.

 

   100% of Offered
Shares are Sold		   75% of Offered
Shares are Sold		   50% of Offered
Shares are Sold		 
             
Offering Price  $1.25   $1.25   $1.25 
                
Outstanding Common Shares   407,494,700    407,494,700    407,494,700 
Net Tangible Book Value at 9/30/2021   5,429,625    5,429,625    5,662,371 
Net Tangible Book Value per Share  $0.0133   $0.0133   $0.0139 
                
Common Shares Sold   20,000,000    15,000,000    10,000,000 
Net Tangible Book Value After Giving Effect to the Offering   30,429,625    24,179,625    18,162,371 
Post-Offering Common Shares Outstanding   427,494,700    422,494,700    417,494,700 
Post-Offering Net Tangible Book Value Per Share  $0.07   $0.06   $0.04 
                
Increase in Net Tangible Book Value Per Share Attributable to Cash Payments Made by New Investors  $0.06   $0.04   $0.03 
                
Per Share Dilution to New Investors  $1.18   $1.19   $1.21 
                
Percent Dilution to New Investors   94.3%   95.4%   96.5%

 

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PLAN OF DISTRIBUTION AND SELLING SECURITYHOLDERS

 

All of our shares of Common Stock are being offered on a “best efforts” basis pursuant to Regulation A of Section 3(6) of the Securities Act of 1933, as amended, for Tier 2 offerings. We intend to continue selling our shares of Common Stock up as late as the Termination Date and intend to hold additional closings of the balance of the maximum 20,000,000 Offered Shares. Equiniti Trust Company of Mendota Heights, MN will serve as the escrow agent in this Offering. The minimum subscription that investors may make for the Offering Share is 800 shares or $1,000. Subscriptions may be made by either wire transfer or ACH deposits. Subscriptions will be processed through the portal managed by Dealmaker.Tech.

 

The shares of Common Stock are being offered directly by the Corporation and its management on a “best efforts” basis. No commissions or other compensation will be paid to Corporation management with respect to sales initiated by them.

 

Dalmore Agreement

 

The Corporation has engaged Dalmore Group, LLC (“Dalmore”), a broker-dealer registered with the Commission and a member of FINRA, to act as the broker-dealer of record for this Offering, but not for underwriting or placement agent services. As compensation, the Corporation has agreed to pay Dalmore a commission equal to 1% of the amount raised in the Offering to support the Offering on all invested funds after the issuance of a No Objection Letter by FINRA. In addition, the Corporation has paid Dalmore a one-time advance set up fee of $5,000 to cover reasonable out-of-pocket accountable expenses actually anticipated to be incurred by Dalmore, such as, among other things, preparing the FINRA filing. Dalmore will refund any fee related to the advance to the extent it is not used, incurred or provided to the Corporation. In addition, the Corporation will pay a one-time $20,000 consulting fee that will be due immediately after FINRA issues a No Objection Letter.

 

Dealmaker Agreement

 

The Corporation has entered into an agreement with Dealmaker under which Dealmaker will provide web hosting on its platform and related services, including “bad actor” background checks. The Corporation has also entered into an escrow agreement with Equiniti Trust Company under which Equiniti will hold in escrow all proceeds of this Offering. However, there is no minimum offering amount and we will be able to hold multiple closings and withdraw funds from escrow from time to time until the Maximum Offering amount is sold or the Offering is terminated.

 

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Prior to this Offering, there was no public market for our Common Stock. We expect to have our shares of Common Stock quoted for trading on the OTCQX Market or the OTCQB Market. There is no assurance that the shares of Common Stock will ever be quoted on the OTC. To be quoted on the OTC, a market maker must apply with the Financial Industry Regulatory Authority (“FINRA”) to make a market in our Common Stock. As of the date of this Offering Circular, we have engaged in discussions with a FINRA market maker regarding participation in a future trading market for our securities; and have made filings with FINRA. However, we have not, as yet received final FINRA approval. For further information, see “Plan of Distribution –Trading Market and Proposed Exchange Listing” below.

 

Exchange Listing or Quotation

 

We will initially apply to list our Common Stock for quotation on the OTC Markets’ OTCQX or OTCQB. We may continue to offer our Common Stock under this Offering Circular until as late as one year from the qualification date of this Offering. As a result, you may experience a delay between the closing of your purchase of shares of our Common Stock and the commencement of such shares being quoted on the OTCQX or OTCQB.

 

There can be no assurance that the KVC Common Stock sold in this Offering will be quoted on the OTC Market. See “Risk Factors” on page 12 of this Offering Circular.

 

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”) and, as such, may elect to comply with certain reduced reporting requirements for this Offering Circular and future filings after this Offering.

 

The Common Shares, are being offered pursuant to Regulation A of Section 3(b) of the Securities, as amended, for Tier 2 offerings, by the management of the Corporation on a “best-efforts” basis directly to purchasers who satisfy the requirements set forth in Regulation A. We have the option in our sole discretion to accept less than the minimum individual investment. We have no minimum capitalization requirement, and we may use the proceeds from this Offering immediately following our acceptance of the corresponding Subscription Agreements towards our business strategy including potential acquisitions, payoff of our outstanding liabilities, expansion of our cultivation facilities offering expenses (which include legal, accounting, printing, due diligence, marketing, selling and other costs incurred in the Offering), working capital, general corporate purposes, and other uses, as more specifically set forth in the “Use of Proceeds to Issuer” section of this Offering Circular, on page 41. There is no arrangement for the return of funds to investors if all of the Shares offered are not sold in the Offering.

 

This Offering will expire on the first to occur of (a) the sale of all 20,000,000 Shares offered hereby; (b) the expiration of 365 days from the date of this Offering Circular unless extended in its sole discretion by the Corporation; or (c) when our Board of Directors elects in its sole discretion to terminate the Offering.

 

Generally speaking, Rule 3a4-1 under the Exchange Act provides an exemption from the broker-dealer registration requirements of the Exchange Act for persons associated with an issuer that participate in an offering of the issuer’s securities. The Corporation’s directors and officers will not register as broker-dealers under Section 15 of the Exchange Act in reliance upon Rule 3a4-1. Rule 3a4-1 sets forth those conditions under which a person associated with an issuer may participate in the offering of the issuer’s securities and not be deemed to be a broker-dealer. The conditions are that:

 

●

the person is not statutorily disqualified, as that term is defined in Section 3(a)(39) of the Securities Act, at the time of his or her participation; and

 

● the person is not at the time of their participation an associated person of a broker-dealer; and

 

● the person meets the conditions of paragraph (a)(4)(ii) of Rule 3a4-1 of the Exchange Act, in that he or she (i) primarily performs, or is intended primarily to perform at the end of the offering, substantial duties for or on behalf of the issuer otherwise than in connection with transactions in securities; and (ii) is not a broker or dealer, or an associated person of a broker or dealer, within the preceding 12 months; and (iii) does not participate in selling and offering of securities for any issuer more than once every 12 months other than in reliance on paragraphs (a)(4)(i) or (a)(4)(iii) of Rule 3a4-1 of the Exchange Act.

 

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The Corporation’s officers and directors are not statutorily disqualified, are not being compensated, and are not associated with a broker-dealer. They are and will continue to hold their positions as officers or directors following the completion of the offering and have not been during the past 12 months and are currently not brokers or dealers or associated with brokers or dealers. They have not nor will they participate in the sale of securities of any issuer more than once every 12 months.

 

This Offering will commence on the qualification of this Offering Circular, as determined by the Securities and Exchange Commission and continue for a period of 365 days unless the maximum amount of the Offering is raised prior to that period ending. The Corporation may extend the Offering for an additional time period unless the Offering is completed or otherwise terminated by the Corporation. Funds received from investors will be counted towards the Offering only if the form of payment clears the banking system and represents immediately available funds held by the Corporation prior to the termination of the subscription period, or prior to the termination of the extended subscription period if extended by the Corporation, or as otherwise set out herein.

 

Should any fundamental change occur regarding the status of this Offering or other matters concerning the Corporation, we will file an amendment to this Offering Circular disclosing such matters.

 

Investment Limitations

 

Generally, no sale may be made to you in this Offering if the aggregate purchase price you pay is more than ten percent (10%) of the greater of your annual income or net worth (please see below on how to calculate your net worth). Different rules apply to accredited investors and non-natural persons. Before making any representation that your investment does not exceed applicable thresholds, we encourage you to review Rule 251(d)(2)(i)(C) of Regulation A. For general information on investing, we encourage you to refer to www.investor.gov.

 

Because this is a Tier 2, Regulation A offering, most investors must comply with the ten percent (10%) limitation on investment in the Offering. The only investor in this Offering exempt from this limitation is an “accredited investor” as defined under Rule 501 of Regulation D under the Securities Act (an “Accredited Investor”). If you meet one of the following tests you should qualify as an Accredited Investor:

 

  (i)

You are a natural person who has had individual income in excess of $200,000 in each of the two (2) most recent years, or joint income with your spouse in excess of $300,000 in each of these years, and have a reasonable expectation of reaching the same income level in the current year;

     
  (ii)

You are a natural person and your individual net worth, or joint net worth with your spouse, exceeds $1,000,000

at the time you purchase Shares (please see below on how to calculate your net worth);

     
  (iii)

You are an executive officer or general partner of the issuer or a manager or executive officer of the general partner of the issuer;

     
  (iv)

You are an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, or the Code, a corporation, a Massachusetts or similar business trust or a partnership, not formed for the specific purpose of acquiring the Offered Shares, with total assets in excess of $1,100,000;

     
  (v)

You are a bank or a savings and loan association or other institution as defined in the Securities Act, a broker or dealer registered pursuant to Section 15 of the Exchange Act, an insurance company as defined by the Securities Act, an investment company registered under the Investment Company Act of 1940 (the “Investment Company Act”), or a business development company as defined in that act, any Small Business Investment Company licensed by the Small Business Investment Act of 1958 or a private business development company as defined in the Investment Advisers Act of 1940;

     
  (vi)

You are an entity (including an Individual Retirement Account trust) in which each equity owner is an

accredited investor;

 

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  (vii)

You are a trust with total assets in excess of $1,100,000, your purchase of Shares is directed by a person who either alone or with his purchaser representative(s) (as defined in Regulation D promulgated under the Securities Act) has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of the prospective investment, and you were not formed for the specific purpose of investing in the Offered Shares; or

     
  (viii)

You are a plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has assets in excess of $1,100,000.

 

Offering Period and Expiration Date

 

This Offering will start on or immediately prior to the date on which the SEC initially qualifies this Offering Statement (the “Qualification Date”) and will terminate on the Termination Date (the “Offering Period”).

 

Procedures for Subscribing

 

If you decide to subscribe for Common Shares in this Offering, you should:

 

  1.

Electronically receive, review, execute and deliver to us a subscription agreement pursuant to the procedures

required by Dealmaker.Tech; and

     
  2.

Deliver funds directly by either wire transfer or ACH deposits to the escrow agent, Equiniti Trust Company pursuant to the instructions set forth in the subscription agreement and the procedures required for

electronic processing by Dealmaker.Tech.

 

Any potential investor will have ample time to review the subscription agreement, along with their counsel, prior to making any final investment decision. We shall only deliver such subscription agreement upon request after a potential investor has had ample opportunity to review this Offering Circular.

 

Right to Reject Subscriptions

 

After we receive your complete, executed subscription agreement and the funds required under the subscription agreement have been transferred to our designated account, we have the right to review and accept or reject your subscription in whole or in part, for any reason or for no reason. We will return all monies from rejected subscriptions immediately to you, without interest or deduction.

 

Acceptance of Subscriptions

 

Upon our acceptance of a subscription agreement, we will countersign the subscription agreement and issue the shares subscribed at closing. Once you submit the subscription agreement and it is accepted, you may not revoke or change your subscription or request your subscription funds. All accepted subscription agreements are irrevocable.

 

Under Rule 251 of Regulation A, non-accredited, non-natural investors are subject to the investment limitation and may only invest funds which do not exceed ten percent (10%) of the greater of the purchaser’s revenue or net assets (as of the purchaser’s most recent fiscal year end). A non-accredited, natural person may only invest funds which do not exceed ten percent (10%) of the greater of the purchaser’s annual income or net worth (please see below on how to calculate your net worth).

 

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NOTE: For the purposes of calculating your net worth, it is defined as the difference between total assets and total liabilities. This calculation must exclude the value of your primary residence and may exclude any indebtedness secured by your primary residence (up to an amount equal to the value of your primary residence). In the case of fiduciary accounts, net worth and/or income suitability requirements may be satisfied by the beneficiary of the account or by the fiduciary if the fiduciary directly or indirectly provides funds for the purchase of the Offered Shares.

 

In order to purchase our Common Stock shares and prior to the acceptance of any funds from an investor, an investor will be required to represent, to the Corporation’s satisfaction, that he is either an accredited investor or is in compliance with the ten percent (10%) of net worth or annual income limitation on investment in this Offering.

 

Selling Security Holders

 

No securities are being sold for the account of security holders; all net proceeds of this offering will go to the Corporation.

 

USE OF PROCEEDS TO ISSUER

 

The Use of Proceeds is an estimate based on the Corporation’s current business plan. The Corporation may find it necessary or advisable to reallocate portions of the net proceeds reserved for one category to another, or to add additional categories, and the Corporation will have broad discretion in doing so. The Corporation does not intend to use proceeds from this Offering to compensate or otherwise make payments to officers or directors of the Corporation or any of its affiliates. Because the Offering is a “best efforts” offering, the Corporation may close the Offering without sufficient funds for all the intended purposes set out below or even to cover the costs of the Offering.

 

We estimate that the net proceeds to us from the sale of the maximum amount of Shares offered hereby will be approximately $24,750,000 after the deduction of approximately $250,000 for offering expenses. The following table illustrates the Corporation’s current intentions for the use of the net proceeds of the Offering depending on the total amount of proceeds received by the Corporation on the sale of 25%, 50%, 75% and 100% of the Shares offered hereby, over an approximate 12-month period.

 

Capital Sources and Uses

 

Gross Proceeds   25%   50%   75%   100%
                     
Expansion of Cultivation Facilities  $1,237,500   $2,475,000   $3,712,500   $4,950,000 
                     
Federal Tax Liability (2019/2020; 2021)(1)  $1,485,000   $2,970,000   $4,455,000   $5,940,000 
                     
Reduction of Liabilities  $495,000   $990,000   $1,485,000   $1,980,000 
                     
Acquisitions and General Corporate Purposes  $2,970,000   $5,940,000   $8,910,000   $11,880,000 
                     
TOTALS:  $6,187,500   $12,375,000   $18,562,500   $24,750,000 

 

  (1) Through 2020 and the first nine months through September 30, 2021, the Company was an LLC; so, any tax exposure for those periods would be assessed to the LLC Members. However, if the Members are assessed additional federal taxes for these periods, the Corporation intends to fund this obligation on behalf of the LLC Members.

 

The Corporation’s plan of operations for the next few years includes providing continued support of its KVC-affiliated entities which includes: including funding of federal income tax liability (due to the Corporation’s operation as a cannabis business, it is unable to deduct operating expenses which results in increased federal income tax liability), building out operations their cultivation facilities, developing and optimizing production of their products; acquiring additional facilities in the State of California for the purpose of cultivation, processing and retail; identifying additional partnership opportunities; expanding the KVC brand through various licensing and partnership arrangements; developing new product; identifying additional cannabis markets in the State and securing the necessary licenses and permits; and developing, executing and monitoring marketing strategies designed to support and further KVC’s mission and values.

 

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The amounts set forth above are our current estimates for such development activities, and we cannot be certain that actual costs will not vary from these estimates. The Corporation’s management has significant flexibility and broad discretion in applying the net proceeds received in this Offering and making short-term interest-bearing investments of the proceeds for capital preservation purposes. The Corporation cannot assure you that its assumptions, expected costs and expenses and estimates will prove to be accurate or that unforeseen events, problems or delays will not occur that would require us to seek additional debt and/or equity funding, which may not be available on favorable terms, or at all. See “Risk Factors” for more information regarding the risks associated with an investment in our securities.

 

Pending the Corporation’s use of the net proceeds from this Offering, it may invest the net proceeds in a variety of capital preservation investments, including without limitation short-term, investment grade, interest-bearing instruments and United States government securities and including investments in related parties. The Corporation may also use a portion of the net proceeds for the investment in strategic partnerships and possibly the acquisition of complementary businesses, products or technologies.

 

Although it is difficult to predict future liquidity requirements, the Corporation believes that the net proceeds from this Offering, if fully subscribed, together with our existing cash and cash equivalents will fund our operations into the second quarter of 2024. See “Risk Factors”.

 

DIVIDEND POLICY

 

The Corporation has not declared dividends on any of its shares in the past and does not intend to pay any in the foreseeable future. Any future determination to pay dividends will be at the discretion of the Board of Directors and will depend on the financial condition, business environment, operating results, capital requirements, any contractual restrictions on the payment of dividends, and any other factors that the Board of Directors deems relevant.

 

DESCRIPTION OF BUSINESS

 

Kolaboration Ventures Corporation (KVC) is a Wyoming Corporation formed on August 11, 2021, for the purpose of organizing the various business activities under a parent corporation. KVC is a rollup of the following entities: Kolaboration Ventures, LLC; Rio Vista Farms, LLC; Contra Costa Farms, LLC; Kolaboration Vallejo, LLC; and Kolaboration Concord, LLC. The members of these entities exchanged their membership interests in each respective entity for KVC Common Stock. The reorganization was effective as of October 1, 2021 (the “Roll-up Transaction”).

 

KVC is a diversified cannabis company specializing in cultivation, non-volatile manufacturing, retail, brand development and distribution. KVC and its subsidiaries are working to expand in California through both organic growth and acquisitions while building a respected portfolio of top shelf brands. Wholly-owned, licensed and/or distributed brands within KVC’s portfolio include: Farms Brand, Fat Boys Farms, Ole 4 Fingers, Atoms Infused Flower, Rio Vista Farms and CoCo Farms.

 

Description of Companies Acquired by KVC in the Roll-up Transaction:

 

Rio Vista Farms, LLC (“RVF”) was the first business to be formed by Charles Wesley, Andrew Wesley and Martin Wesley (the “Founders”). A California limited liability company, RVF was formed on July 14, 2017. RVF is a California Type 12 Microbusiness operating at 11 Richard Brann Drive in Rio Vista CA. From July 2017 to June 2018, the Founders (1) developed a business and project plan, (2) secured seed capital financing, (3) purchased the 1.24-acre parcel of land from the City of Rio Vista, (4) secured the use permit from the City, (5) managed the engineering, permitting and erection of the Phase I facility (8,480sf), (6) secured the state cannabis license, and (7) opened for business on June 6, 2018. The Phase I operation cultivated, packaged, sold wholesale and sold retail through its on-site dispensary. During the period March 2019 through October 2019, RVF added Phase II to its facility (8,960 square feet). This expansion enabled RVF to maximize its Type 12 License, which limits plants in Flower to 10,000 square feet. Until its reorganization under KVC, RVF was majority owned and controlled by our Founders, Martin, Charles and Andrew Wesley.

 

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Contra Costa Farms, LLC (“CCF”) was the second business to be formed by our Founders. A California limited liability company, CCF was formed on October 12, 2018, and operates as CoCo Farms. The idea of CCF was first suggested by officials from the nearby City of Antioch, who had recently passed a cannabis ordinance. They observed our Rio Vista operation autonomously and then announced that they wanted the same company presence as our Rio Vista operation to be the face of cannabis in Antioch. They connected us with a broker who located and closed on a 9-acre parcel in the industrial area of Antioch. We then proceeded through the same process used for RVF to open our Antioch Type 12 cannabis business on December 24, 2019. CCF now does light manufacturing, wholesale sales and retail sales through its 2,000 square feet dispensary. In November 2020, CCF added a processing license, which permits it to trim the flower of other cultivators, including RVF. At this time, CCF conducts manufacturing, wholesale and retail from a 5,000 square feet building, and processing from a 2,000 square feet building. Until the reorganization, CCF was majority owned and controlled by the Founders.

 

Kolaboration Vallejo, LLC (“KVL”) was the third business formed by our Founders. A California limited liability company, KVL was formed on June 11, 2020, and operates as V-Town Farms. Vallejo, together with its surrounding communities, is a large market which already has 11 dispensaries. However, they are all small with very marginal commitments to serving retail customers. The City of Vallejo is not issuing new cannabis use permits. To get a cannabis use permit, an operator would have to purchase an existing one from an existing operator. The plan, which we executed, was to (1) identify and reach an agreement with an existing operator, (2) identify and secure a facility that would enable a large-footprint dispensary, (3) with the existing operator, go through the steps to update its use permit to a “7200” use permit, (4) secure the necessary permits for tenant improvements, (5) secure planning commission and city council approval, (6) transfer the use permit from the existing operator to KVL, (7) secure the state license and (8) open for business; which we did on July 30, 2021. KVL operates with a Type 12 cannabis license in a 21,000sf facility. The 21,000 square feet is only a portion of the real property that KVL is leasing with an option to purchase. Altogether, the parcel has 5.1 acres and 65,000 square feet of commercial space. In the 21,000 square feet premise, KVL performs light manufacturing, packages, sells wholesale and sells retail through its 9,000 square feet dispensary. Until the reorganization, KVL was majority owned and controlled by CCF; which was majority owned and controlled by the Founders.

 

Kolaboration Concord, LLC (“KCL”) was the fourth business formed by our Founders. A California limited liability company, KCL was formed on October 5, 2020. The City of Concord had just passed a cannabis ordinance and was permitting a limited number of retail storefronts; which storefronts would be awarded through a competitive bid process. During the period October through April 2021, KCL (1) identified and secured a facility large enough to hold a large footprint dispensary and sufficient parking for the anticipated traffic and (2) competed for one of the storefronts and was selected at the March 23, 2021city council meeting. Since the award, KCL has been working with the city to secure the use permit, secure site & design review sign-offs, draft the development agreement with the city and then secure the permits for tenant improvements. The dispensary is now expected to open on or about May 1, 2022. We are leasing this 19,183 square feet facility with an option to purchase it. When open, KCL will perform light manufacturing, wholesale sales, and retail sales within the 6,532 square feet dispensary area. Until the reorganization, KCL was 99% controlled by CCF; which was 75% controlled by the Founders.

 

Kola Center Management, LLC (“KCM”) was formed on October 12, 2020 by our Founders. KCM is not a cannabis business. It was formed solely to serve as the property management company for the eight commercial locations located on the parcel in Vallejo where KVL operates, other than the location occupied by KVL. Four of the seven units are currently unoccupied. When funds become available, KCM intends to refurbish these four units and then start and operate non-cannabis businesses complementary to V-Town Farms. There are currently three non-cannabis tenants; all of whom are remitting lease payments monthly.

 

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In the fall of 2020, the Founders acquired a 50% interest in two failing dispensaries; one in Del Rey Oaks, California and one in Salinas, California. Together, they are called DRO Legacy, Inc. The Founders also acquired a 50% interest in the real property in which the Del Rey Oaks dispensary operates; Portola Drive LLC. Both dispensaries were rebranded (Del Rey Farms and Valley Farms), and both facilities were updated with the “look and feel” of Rio Vista Farms and CoCo Farms. Product selection was expanded and prices were reduced to produce the same compelling shopping experience found at Rio Vista Farms and CoCo Farms. CCF, which is now 100% owned by KVC, owns 50% of DRO Legacy Inc. and 50% of Portola Drive LLC. DRO Legacy, Inc., holds a dispensary license and a distribution license.

 

In December of 2020, DRO Legacy, Inc., (in which we own a 50% interest through our ownership of Contra Costa Farms, LLC) acquired a 100% interest in Emerald Skyway, LLC which operates licensed dispensaries in California.

An organization chart depicting all of the above is set forth below:

 

 

In the reorganization effective October 1, 2021, Membership Interests were exchanged for Common Shares in KVC. The calculation of the number shares to be issued for each Member’s interest were based on valuations provided by an independent valuations firm in August & September of 2021.

 

There is no change in the cost structure of our operations resulting from the reorganization. We are currently evaluating the impacts of ASC 740 Income Tax resulting from the reorganization from a limited liability company to a corporation including, without limitation, the temporary book to tax differences such as tax appreciation vs. book depreciation, Internal Revenue Code Section 263(a) inventory differences, Internal Revenue Code Section 163(j) interest limitations and changes in accrued payroll expense limitations. While we anticipate an income tax expense relating to the reorganization, the evaluations of such tax differences are not complete as of the date of this Offering Circular.

 

As LLCs, the income tax obligation was passed to each of the Members, individually, with the filing of K-1s for each Member. With the reorganization, the tax status for each LLC was changed from “partner” to “corporate”. As such, all of the LLCs will be combined under KVC for income tax reporting purposes. In terms of cash flow, there is no material impact as a result of the reorganization. Historically, each entity made distributions to its Members to cover their tax obligations. These distributions are no longer required for this purpose and will be applied to the income tax obligations at the corporate level.

 

The following unaudited pro forma condensed consolidated balance sheet as of September 30, 2021 and the unaudited pro forma condensed consolidated statements of operations for the three and nine months ended September 30, 2021 are based on the historical consolidated financial statements of Kolaboration Ventures, LLC., (“KVL,” “we,” “us,” “our” and the “Company”) as adjusted to give an estimated effect to the October 1, 2021 reorganization into Kolaboration Ventures Corporation, (“KVC”).

 

The unaudited pro forma condensed consolidated combined financial statements reflect what the company’s financial condition or results of operations would have been had the reorganization occurred on the dates indicated. They also may not be useful in predicting the future financial condition and results of operations of the combined company. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors. The Company continues to evaluate the all accounting guidance for complete compliance. Specifically, the compliance with ASC 740 in the reorganization from the pass-through entity to the corporation is being evaluated, in conjunction with IRS compliance.

 

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KOLABORATION VENTURES CORPORATION and subsidiaries

UNAUDITED PRO FORMA BALANCE SHEET

 

    Kolaboration Ventures, LLC         Kolaboration Ventures Corporation
Pro-forma 		 
    September 30, 2021     Adjustments     September 30, 2021  
                   
ASSETS                        
Current assets                        
Cash and cash equivalents   $ 175,448             $ 175,448  
Accounts receivable     141,086               141,086  
Inventory     11,588,585               11,588,585  
Prepaids and other current assets     1,416,066               1,416,066  
      13,321,185               13,321,185  
                         
Property, plant and equipment, net     12,325,841               12,325,841  
Intangible assets     6,500,000               6,500,000  
Goodwill     2,628,853               2,628,853  
Other assets     9,268               9,268  
Total assets   $ 34,785,147             $ 34,785,147  
                         
LIABILITIES AND MEMBERS’ AND STOCKHOLDERS’ EQUITY                        
Current liabilities                        
Cash overdraft   $ 184,806             $ 184,806  
Accounts payable     10,061,378               10,061,378  
Accrued and other current liabilities     4,847,729               4,847,729  
Contract liability     1,063,023               1,063,023  
Current portion of notes payable - related parties     15,000               15,000  
Current portion of notes payable     2,804,959               2,804,959  
      18,976,895               18,976,895  
                         
Notes payable, net of current portion     10,200,627               10,200,627  
Other long-term liabilities     178,000               178,000  
Total liabilities     29,355,522               29,355,522  
                         
Commitment and contingencies (Note 11)                        
                         
Members’ and stockholders’ equity                        
Common stock $0.0001 par value, 1,000,000,000 shares authorized, 339,292,240 shares issued and outstanding,     -       33,929 (a)     33,929  
Additional paid-in capital     -       5,177,659 (a)     5,177,659  
Members’ capital     (282,530 )     282,530 (a)     -  
Retained earnings     5,494,118       (5,494,118 )(a)     -  
Noncontrolling interest     218,037               218,037  
Total members’ and stockholders’ equity     5,429,625       -       5,429,625  
Total liabilities and members’ and stockholders’ equity   $ 34,785,147             $ 34,785,147  

 

(a) Shares of Company common stock issued (post split) to members      
  APIC     5,177,659  
  Estimated shares     339,292,240  
  Par value   $ 0.0001  
  Common stock impact     33,929  
  Members equity exchanged        
  Members’ capital     (282,530 )
  Retained earnings     5,494,118  

  

 45 
 

 

KOLABORATION VENTURES CORPORATION and subsidiaries

UNAUDITED PRO FORMA BALANCE SHEET (Continued)

 

    Kolaboration Ventures, LLC         Kolaboration Ventures Corporation
Pro-forma 		 
    December 31, 2020     Adjustments     December 31, 2020  
                   
Current assets                        
Cash and cash equivalents   $ 458,550               458,550  
Accounts receivable     305,351               305,351  
Inventory     7,188,969               7,188,969  
Prepaids and other current assets     969,556               969,556  
      8,922,426               8,922,426  
                         
Property, plant and equipment, net     11,848,333               11,848,333  
Goodwill     2,628,853               2,628,853  
Total assets   $ 23,399,612             $ 23,399,612  
                         
Current liabilities                        
Cash overdraft   $ 83,976             $ 83,976  
Accounts payable     4,662,146               4,662,146  
Accrued and other current liabilities     2,056,053               2,056,053  
Contract liability     793,149               793,149  
Current portion of notes payable - related parties     235,000               235,000  
Current portion of notes payable     2,278,575               2,278,575  
      10,108,899               10,108,899  
                         
Notes payable, net of current portion     4,872,737               4,872,737  
Other long-term liabilities     135,500               135,500  
Total liabilities     15,117,136               15,117,136  
                         
Commitment and contingencies (Note 11)                        
                         
Members’ and stockholders’ equity                        
Common stock $0.0001 par value, 1,000,000,000 shares authorized, 501,869,820 shares issued and outstanding,     -       50,187 (b)     50,187  
Additional paid-in capital     -       7,658,621 (b)     7,658,621  
Members’ capital     2,881,463       (2,881,463 )(b)     -  
Retained earnings     4,827,345       (4,827,345 )(b)     -  
Noncontrolling interest     573,668               573,668  
Total members’ and stockholders’ equity     8,282,476       -       8,282,476  
Total liabilities and members’ and stockholders’ equity   $ 23,399,612             $ 23,399,612  

 

(b) Shares of Company common stock issued (post split) to members      
  APIC     7,658,621  
  Estimated shares     501,869,820  
  Par value   $ 0.0001  
  Common stock impact     50,187  
  Members equity exchanged        
  Members’ capital     2,881,463  
  Retained earnings     4,827,345  

 

 46 
 

 

KOLABORATION VENTURES CORPORATION and subsidiaries

UNAUDITED PRO FORMA BALANCE SHEET (Continued)

 

    Kolaboration Ventures, LLC         Kolaboration Ventures Corporation
Pro-forma 		 
    December 31, 2019     Adjustments     December 31, 2019  
                   
Current assets                        
Cash and cash equivalents   $ 8,754             $ 8,754  
Accounts receivable     65,574               65,574  
Inventory     4,640,452               4,640,452  
Prepaids and other current assets     238,773               238,773  
      4,953,553               4,953,553  
                         
Property, plant and equipment, net     7,072,635               7,072,635  
Total assets   $ 12,026,188             $ 12,026,188  
                         
Current liabilities                        
Cash overdraft   $ 117,210             $ 117,210  
Accounts payable     3,771,298               3,771,298  
Accrued and other current liabilities     1,005,850               1,005,850  
Contract liability     58,761               58,761  
Current portion of notes payable - related parties     206,740               206,740  
Current portion of notes payable     826,115               826,115  
      5,985,974               5,985,974  
                         
Notes payable, net of current portion     3,773,690               3,773,690  
Notes payable - related parties, net of current portion     235,000               235,000  
Total liabilities     9,994,664               9,994,664  
                         
Commitment and contingencies (Note 11)                        
                         
Members’ and stockholders’ equity                        
Common stock $0.0001 par value, 1,000,000,000 shares authorized, 132,259,175 shares issued and outstanding,     -       13,226 (c)     13,226  
Additional paid-in capital     -       2,018,298 (c)     2,018,298  
Members’ capital     2,432,388       (2,432,388 )(c)     -  
Retained earnings     (400,864 )     400,864 (c)     -  
Noncontrolling interest     -               -  
Total members’ and stockholders’ equity     2,031,524       -       2,031,524  
Total liabilities and members’ and stockholders’ equity   $ 12,026,188             $ 12,026,188  

 

(c) Shares of Company common stock issued (post split) to members      
  APIC     2,018,298  
  Estimated shares     132,259,175  
  Par value   $ 0.0001  
  Common stock impact     13,226  
  Members equity exchanged        
  Members’ capital     2,432,388  
  Retained earnings     (400,864 )

 

 47 
 

 

KOLABORATION VENTURES CORPORATION and subsidiaries

UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS

 

    Kolaboration Ventures, LLC         Kolaboration Ventures Corporation
Pro-forma 		 
    Nine months ended           Nine months ended  
    September 30, 2021     Adjustments     September 30, 2021  
                   
Revenue   $ 38,251,470               $ 38,251,470  
Cost of goods sold     22,906,296               22,906,296  
Cost of goods sold - depreciation     122,546           122,546  
Gross profit (loss)     15,222,628               15,222,628  
                         
Operating expenses:                        
Sales and marketing     1,669,823               1,669,823  
General and administration     11,203,936               11,203,936  
Depreciation and amortization     373,109               373,109  
Total operating expenses     13,246,868               13,246,868  
Income from operations     1,975,760               1,975,760  
                         
Other income (expenses):                        
Interest expense     (1,411,828 )             (1,411,828 )
Other expense     (252,790 )             (252,790 )
Total other expenses     (1,664,618 )             (1,664,618 )
                         
Net income (loss)     311,142               311,142  
Net income (loss) attributable to noncontrolling interest     (355,631 )             (355,631 )
Net income (loss) attributable to Kolaboration Ventures, LLC.   $ 666,773             $ 666,773  
                         
Net loss per common share – basic and diluted                   $ -  
                         
Weighted average common shares outstanding – basic and diluted             458,825,988 (d)     458,825,988  

 

(d)        
  Weighted average common shares outstanding – basic and diluted        
  Common stock issued for the nine months ended 9/30/2021     458,825,988  

 

 48 
 

 

KOLABORATION VENTURES CORPORATION and subsidiaries

UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)

 

    Kolaboration Ventures, LLC         Kolaboration Ventures Corporation
Pro-forma 		 
    Year ended           Year ended  
    December 31, 2020     Adjustments      December 31, 2020  
                   
Revenue   $ 42,905,128           $ 42,905,128  
Cost of goods sold     26,238,892               26,238,892  
Cost of goods sold - depreciation     147,050           147,050  
Gross profit (loss)     16,519,186               16,519,186  
                         
Operating expenses:                        
Sales and marketing     1,368,972               1,368,972  
General and administration     8,877,948               8,877,948  
Depreciation and amortization     264,262               264,262  
Total operating expenses     10,511,182               10,511,182  
Income from operations     6,008,004               6,008,004  
                         
Other income (expenses):                        
Interest expense     (610,469 )             (610,469 )
Other expense     (181,250 )             (181,250 )
Total other expenses     (791,719 )             (791,719 )
                         
Net income (loss)     5,216,285               5,216,285  
Net income (loss) attributable to noncontrolling interest     (11,924 )             (11,924 )
Net income (loss) attributable to Kolaboration Ventures, LLC.   $ 5,228,209             $ 5,228,209  
                         
Net loss per common share – basic and diluted                   $ 0.01  
                         
Weighted average common shares outstanding – basic and diluted             357,658,576 (e)     357,658,576  

 

(e)  
  Weighted average common shares outstanding – basic and diluted        
  Common stock issued for the year ended 12/31/2020     357,658,576  

 

 49 
 

 

KOLABORATION VENTURES CORPORATION and subsidiaries

UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)

 

    Kolaboration Ventures, LLC           Kolaboration Ventures Corporation
Pro-forma 		 
    Year ended           Year ended  
    December 31, 2019      Adjustments     December 31, 2019  
                   
Revenue   $ 8,362,603           $ 8,362,603  
Cost of goods sold     4,366,931               4,366,931  
Cost of goods sold - depreciation