UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

 

PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

Date of Report (Date of earliest event reported): May 11, 2017

 

CYBERSPACE VITA, INC.

(Exact name of registrant as specified in its charter)

 

Nevada   333-141929   14-1982491
(State or other jurisdiction
of incorporation)
  (Commission
File Number)
  (I.R.S. Employer
Identification Number)

 

Cond. Madrid Suite 304, 1760 Loiza Street
San Juan, Puerto Rico 00911

(Address of principal executive offices) (zip code)

 

(787) 641-8447

(Registrant’s telephone number, including area code)

 

Copy to:

Darrin M. Ocasio, Esq.

Sichenzia Ross Ference Kesner LLP

61 Broadway, 32nd Floor

New York, New York 10006

Phone: (212) 930-9700

Fax: (212) 930-9725

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

[  ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

[  ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

[  ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

[  ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

     

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Form 8-K and other reports filed by Cyberspace Vita, Inc. (“ Cyberspace Vita ” or the “ Company ”) from time to time with the Securities and Exchange Commission (collectively the “ Filings ”) contain or may contain forward looking statements and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by the Company’s management. When used in the filings the words “anticipate”, “believe”, “estimate”, “expect”, “future”, “intend”, “plan” or the negative of these terms and similar expressions as they relate to the Company or Company’s management identify forward looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions and other factors (including the risks contained in the section of this report entitled “ Risk Factors ”) relating to the Company’s industry, the Company’s operations and results of operations and any businesses that may be acquired by the Company. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended or planned.

 

Although the Company’s management believes that the expectations reflected in the forward looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results. The following discussion should be read in conjunction with the Company’s pro forma financial statements and the related notes filed with this Form 8-K.

 

Item 1.01 Entry into a Material Definitive Agreement.

 

Share Exchange Agreement

 

On May 11, 2017, Cyberspace Vita, Inc., a Nevada corporation (the “ Company ”) entered into a share exchange agreement (the “ Exchange Agreement ”) with Peter Zachariou, the majority shareholder of the Company (the “ Shareholder ”), Project 1493, LLC, a limited liability company organized under the laws of the Commonwealth of Puerto Rico (“ 1493 ”), and the sole member of 1493 (the “ Member ”), pursuant to which the Member transferred all of the outstanding membership interests of 1493 to the Company in exchange for 16,690,912 restricted shares of common stock of the Company (the “ Exchange Shares ”), warrants to purchase up to 3,000,000 shares of common stock at an exercise price of $0.50 per share for a period of three (3) years from the date of issuance (the “ Exchange Warrants ”) and 1,000 shares of Series A Preferred Stock that grants the holders thereof fifty-one percent (51%) voting power (the “ Preferred Shares ” and together with the Exchange Shares, and the Exchange Warrants, the “ Exchange Securities ”). The transaction closed on May 11, 2017 (the “ Closing Date ”).

 

In connection with the Exchange Agreement, the Company is withholding one hundred thousand (100,000) shares of common stock of the Shareholder for a period of six (6) months, subject to certain post-closing conditions.

 

As a result, 1493 became a wholly-owned subsidiary of the Company, and the Member acquired a controlling interest in the Company (the “ Share Exchange ”). For accounting purposes, the Share Exchange was treated as an acquisition of Cyberspace Vita and a recapitalization of 1493. 1493 is the accounting acquirer, and the results of its operations carryover. Accordingly, the operations of Cyberspace Vita are not carried over and have been adjusted to $0.

 

In issuing the Exchange Securities to the Member, the Company relied upon the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, as, among other things, the transaction did not involve a public offering and the securities were acquired for investment purposes only and not with a view to or for sale in connection with any distribution thereof.

 

In connection with the Exchange Agreement, Alexander Diener, our previous Chief Executive Officer, Chief Financial Officer, Treasurer, Secretary and sole director resigned from all of his positions with the Company effective May 11, 2017. Concurrently therewith, Leslie Ball was appointed to serve as our Chief Executive Officer and sole director, and Thomas Gingerich was appointed to serve as our Chief Financial Officer.

 

Debt Exchange Agreement

 

On May 11, 2017, the Company also entered into a debt exchange agreement (the “ Debt Exchange ”) with Fountainhead Capital Management Limited (“ Fountainhead ”), a related party, whereby Fountainhead agreed to cancel a promissory note in the aggregate amount of $510,652 plus accrued interest of $129,265, which represents all amounts owed to Fountainhead as of the date of the Debt Exchange. As consideration, Fountainhead received an aggregate of 1,800,000 shares of the Company’s common stock, of which 200,000 shares of common stock has previously issued.

 

  2  

 

 

Private Placement Offering

 

On May 11, 2017, the Company entered into a subscription agreement (the “ Subscription Agreement ”) with selected accredited investors (each, an “ Investor ” and, collectively, the “ Investors ”). Pursuant to the terms of the Subscription Agreement, the Company offered in a private placement (the “ Offering ”) a minimum of $1,000,000 and up to a maximum of $3,300,000 of its securities, consisting of (i) shares of its common stock (“ Shares ”); and (ii) warrants to purchase shares of the Company’s common stock (the “ Warrants ”). Each Warrant shall be exercisable at any time on or after the date of issuance for a period of three (3) years at an exercise price per share equal to $0.50 per share, subject to adjustment as provided in the agreement evidencing the Warrants. The number of shares of common stock underlying the Warrants is equal to 30% of the number of Shares issued to each Investor in the Offering (the “ Warrant Shares ”).

 

The Offering closed on May 11, 2017. The Company issued a total of 8,461,538 Shares and 2,538,462 Warrants to purchase up to 2,538,462 shares of the Company’s common stock, for total gross proceeds of $3,300,000.

 

The foregoing descriptions of the Exchange Agreement, Debt Exchange and Subscription Agreement does not purport to be complete and is qualified in its entirety by reference to the complete text of the Exchange Agreement, Debt Exchange and Subscription Agreement, filed as Exhibits 10.1, 10.2, and 10.3, respectively, hereto and incorporated herein by reference.

 

Other Issuances

 

In connection with the Exchange Agreement, Debt Exchange and Subscription Agreement, the Company issued to certain consultants an aggregate of 3,000,000 shares of common stock and warrants to purchase up to an aggregate of 500,000 shares of common stock at an exercise price of $0.50 per share for a period of three (3) years from the date of issuance.

 

In connection with the foregoing issuances, the Company relied upon the exemption from securities registration provided by Section 4(a)(2) under the Securities Act of 1933, as amended (the “ Securities Act ”) for transactions not involving a public offering.

 

Item 2.01 Completion of Acquisition or Disposition of Assets.

 

As described in Item 1.01 above, on May 11, 2017, we acquired all the issued and outstanding shares of 1493 pursuant to the Exchange Agreement and 1493 became our wholly-owned subsidiary. The acquisition was accounted for as a recapitalization effected by a share exchange, wherein 1493 is considered the acquirer for accounting and financial reporting purposes. The assets and liabilities of 1493 have been brought forward at their book value and no goodwill has been recognized.

 

As a result of the acquisition of all the issued and outstanding membership interest of 1493, we have now assumed 1493’s business operations as our own and we are no longer a shell corporation as the term is defined in Rule 405 of the Securities Act and Rule 12b-2 of the Exchange Act.

 

FORM 10 DISCLOSURE

 

As disclosed elsewhere in this Current Report, on May 11, 2017, we acquired 1493 in a reverse merger acquisition transaction. Item 2.01(f) of Form 8-K states that if the registrant were a shell company before a reverse merger transaction disclosed under Item 2.01, then the registrant must disclose the information that would be required if the registrant were filing a general form for registration of securities under the Exchange Act on Form 10.

 

As we were a shell company defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”) immediately before the transaction, we provide below the information that would be included for the registration of securities on Form 10.

 

Description of Business

 

Effective on the Closing Date, pursuant to the Exchange Agreement, 1493 became a wholly-owned subsidiary of the Company. The acquisition of 1493 is treated as a reverse acquisition, and the business of 1493 became the business of the Company. At the time of the reverse acquisition, Cyberspace Vita was not engaged in any business activity.

 

References to the “Company”, “Project 1493”, “1493”, “we,” “us,” “our” and similar words refer to the Company, unless the context indicates otherwise. References to “Cyberspace Vita” refers to the Company and its business prior to the reverse acquisition.

 

Summary

 

Project 1493, LLC is a limited liability company organized under the laws of the Commonwealth of Puerto Rico on March 17, 2017. Cyberspace Vita is a Nevada corporation formed on November 7, 2006. Our offices are located at Cond. Madrid Suite 304, 1760 Loiza Street, San Juan, Puerto Rico 00911, and our telephone number at such address is (787) 641-8447.

 

  3  

 

 

Business Overview

 

Cyberspace Vita’s initial business plan was related to the online sale of vitamins and supplements. Effective May 5, 2008, Cyberspace Vita discontinued these operations. Prior to the reverse acquisition, Cyberspace Vita did not have any significant assets or operations.

 

Project 1493 is a limited liability company organized in Puerto Rico on March 17, 2017. 1493’s business plan relates to the acquisition, development and operation of medical marijuana dispensaries. 1493 intends to initially operate in Puerto Rico and may potentially expand into other markets located within the U.S. and U.S. territories in the future. However, there can be no assurance that we will expand into such other markets.

 

As described in Item 1.01 above, on May 11, 2017, Cyberspace Vita acquired all of the issued and outstanding membership interests in 1493 pursuant to the Exchange Agreement, in exchange for 16,690,912 restricted shares of common stock of Cyberspace Vita, warrants to purchase up to 3,000,000 shares of common stock at an exercise price of $0.50 per share for a period of three (3) years from the date of issuance, and 1,000 shares of Series A Preferred Stock that grants the holders thereof fifty-one percent (51%) voting power. Thereafter, 1493 became Cyberspace Vita’s wholly owned subsidiary.

 

Our Business

 

Cyberspace Vita is a holding company that, through its wholly-owned subsidiary, 1493, is in the business of acquiring, developing and operating medical marijuana dispensaries in Puerto Rico and as of the date of this report, is in the process of acquiring four medical marijuana dispensaries, with a plan to acquire an additional 15 dispensaries over the next 12-18 months. The four facilities that are in the process of being acquired are modelled after those in Denver, Colorado. The four dispensary locations are in the following cities: (1) Fajardo, which is a hub for boating and fishing and a launching port for islands Vieques, Culebra, the U.S. Virgin Islands and the British Virgin Islands; (2) Carolina, which is tourist center near Puerto Rico’s international airport and home of top luxury hotels and casinos; (3) Dorado, which is deemed to be an affluent residential area in Puerto Rico; and lastly (4) San Juan, the capital of Puerto Rico and among the largest cruise destination ports.

 

We anticipate that all four dispensaries will be operational by July 30, 2017. It is anticipated that costs associated with operating the dispensaries will be approximately $600,000 per dispensary, $100,000 of which will be used to obtain the license to operate, $300,000 for operating capital, $200,000 to complete the facility and for stock inventory. We also anticipate requiring approximately $900,000 for working capital over the next twelve months.

 

The Company anticipates earning revenue by selling medical marijuana, edibles, pills, creams, patches and oral drops, and paraphernalia such as vaporizes, The average net profit for medical marijuana dispensaries is 20% in the U.S., according to a study conducted by Marijuana Business Daily and the media annual revenue is $1,200,000. We aim to undercut our competition by acquiring our goods at a lower than average cost which we anticipate will allow us to achieve 30% net margins, 50% higher than the industry average.

 

The Four Dispensaries

 

The dispensaries that we are in the process of purchasing are located in the following areas, which were chosen based on their strategic location relevant to important factors such as population density, disposable income, and proximity to key commercial and district tourist destinations:

 

  (1) Carolina : The municipality of Carolina is home to Luis Munos Marin Airport, Puerto Rico’s main airport. With a population density of 177,000, Carolina is a center of manufacturing and commerce. The township has one of the island’s largest shopping areas, Plaza Carolina. Carolina also has a high concentration of young professionals, whom industry trends suggest is a growing user class of medical marijuana. Carolina is also strategically located between San Juan and the east coast of the island. The east coast is home to many of the island’s most spectacular beaches, and a heavy tourist area.
     
  (2) Fajardo : Fajardo is located in the Northeast coast of the island. It is known for its luxury hotels such as the Waldorf Astoria and the Puerto Del Rey Marina. While its population is only 36,000 it is the watersports capital of the island as well as the primary access point to the Keys of Puerto Rico and the British and U.S. Virgin Islands and thus is a popular tourist spot and a favorite vacation and recreational area for Puerto Rican citizens.
     
  (3) Dorado : Dorado, situated 15 miles west of San Juan, is a township located on the north shore of Puerto Rico and the wealthiest community on the island with a population of approximately 38,165 people. The municipality’s demographic consists of upper-income and retired residents as well as upper-income tourists. It is also the home to several resort hotels such as Embassy Suites, Sheraton and the Reserve at Ritz Carlton.
     
  (4) San Juan : the capital of Puerto Rico, is the cultural and historic center of Puerto Rico with the island’s largest population center of 395,326. Well known for the port at Old San Juan, and cruise ships that bring thousands of tourists daily to the island. The hotels, beaches and points of interest in the area attract millions of visitors each year. Our goal in San Juan is to create a flagship store to capitalize on the tourism in this area and build a large local following of patients.

 

  4  

 

 

Business Model

 

We plan to operate as a service business specializing in the sale of medical marijuana, edibles and paraphernalia, including, oils, lotions, THC pills, vaporizers, rigs, grinders, t-shirts, hats, logo items, and bongs and pipes with vaporizer attachments through our strategically located dispensaries in Puerto Rico.

 

We intend to purchase our products from the largest and most sophisticated grower on the island, who operates a state-of-the art facility and currently has over 36 strands available and is able to produce up to 2,000 pounds a week. We anticipate procuring products at a 20% discount to current wholesale market prices. We anticipate that based on such prices, we will realize gross margins of approximately 75%.

 

We intend to sell and keep inventory of the top 5 selling brands, which will be determined by sales velocity. We intend to use a state-of-art CRM to track our customers, their buying habits and monthly spend. Customer Segments will be categorized by age, occupation and medical condition.

 

In addition, we will focus on providing the best and most friendly customer service, and provide the highest quality brands and widest variety possible in order to attract repeat business. We expect to realize, although no assurance can be given, approximately 30% net margins on edibles, with 50% net margins on edibles and paraphernalia.

 

Revenue Streams:

 

We anticipate that revenues will be generated from the following:

 

  Medical Cannabis, up to 10 strains in each dispensary.
  Derivatives (oils, lotions, edibles, THC pills)
  Paraphernalia (vaporizers, grinders, rigs, bongs and pipes with vaporizer attachments)
  Clothing (hats, t-shirts, logos)

 

Cost Structure: We intend to price our product at below market rates, however we intend to market certain items as “boutique” items, such as gourmet style edibles or exotic strains and clothing and paraphernalia.

 

Marketing

 

Our marketing and sales strategy will be aimed at generating long-term, repeat customers, as well as attracting tourists who visit the island who wish to purchase medical marijuana. In order to generate repeat customers, we intend to provide the highest quality medical marijuana, at the lowest possible cost to insure we build a loyal customer base. Further, we intend to train all of our employees to provide excellent customer service.

 

At this time Puerto Rico only allows digital advertising for medical marijuana. Thus, we intend to leverage the Internet and social media platforms, including, Instagram, Facebook, Twitter, YouTube, Google+, LinkedIn, the Yellow Pages online, YELP and over 50 marijuana websites we have identified. Our marketing will focus on the wide variety of our cannabis products and their high quality and low cost point relative to our competition.

 

We also intend to utilize blogs, micro-ads, testimonial interviews, articles and deploy this media across all social media channels and websites accessed by our customer targets.

 

Capital Requirements and Use of Proceeds

 

On May 11, 2017, we completed the Offering in which we sold to shares of our common stock and warrants to selected accredited investors for total gross proceeds of $3,300,000, the proceeds of which will be used for opening and the operation of our four (4) dispensaries.

 

As noted above, we anticipate that the costs associated with opening and operating the dispensaries will $600,000 for each dispensary, as follows:

 

  1. $100,000 representing costs associated with obtaining the business license;
  2. $300,000 for working capital for the next 12 months;
  3. $100,000 to complete the build out of each dispensary; and
  4. $100,000 for equipment and starting inventory,

 

It is also anticipated that the remainder from the proceeds received from the Offering will be used for general working capital.

 

  5  

 

 

Competition

 

We face significant competition in all aspects of our business. Specifically, we face competition from a number of companies that operate dispensaries in the legal cannabis market within the United States and U.S. territories.

 

While such competition exists within the industry as a whole, there is limited competition in Puerto Rico. Currently, there are seven dispensaries with approved licenses in Puerto Rico, and one of the seven is currently closed for lack of proper permits. There are 170 pre-qualified dispensary licenses, but it is expected that only 70-80 of those pre-qualified dispensary licenses will meet all the government criteria and will have the necessary funding to operate.

 

We also anticipate additional competition from the unauthorized sale and purchase of cannabis through the “black market” in Puerto Rico, which is estimated by the government at $200 million annually. While we deem the “black market” to be a major competitor, we believe, although no assurance can be given, that we can transition those consumers by offering a greater variety of product at competitive prices.

 

Competitive Strengths

 

Consumers generally choose their dispensary based on several factors, including proximity to where they live and work, price, quality, variety and the overall service experience. We believe that our advantage stems from our relationships with our supplier. Our supplier, who operates a state-of-the art facility, has over 36 strands available and can produce up to 2,000 pounds a week. Our supplier, the largest in Puerto Rico in total production capacity, has agreed to sell products to us at reduced prices which we believe will allow us to achieve 75% gross margins, all while maintaining a major price advantage over competitors.

 

We also believe we possess certain other competitive strengths and advantages in the industries in which we operate:

 

Range of Services . We are able to leverage our breadth of services and resources to deliver comprehensive, integrated solutions to companies in the cannabis industry—from operational, compliance and marketing consulting to products, security and financing services.

 

Strategic Alliances . We are dedicated to growing through strategic acquisitions, partnerships and agreements that will enable us to enter and expand into new markets. Our strategy is to pursue alliances with potential targets that have the ability to generate positive cash flow, effectively meet customer needs and supply desirable products, services or technologies, among other considerations. We anticipate that strategic alliances will play a significant role as more states pass legislation permitting the cultivation and sale of hemp and cannabis.

 

Regulatory Compliance . The state laws regulating the cannabis industry are changing at a rapid pace. Currently, there are 28 U.S. states, the District of Columbia and the territories of Guam and Puerto Rico that have created a legislative body to manage the medical cannabis industry. Eight of those states also allow recreational use. We plan to take such steps necessary to ensure that all aspects of our operations are in compliance with all laws, policies, guidance and regulations to which we are subject and providing an opportunity to our customers and allies to use our services in order to ensure that they, too, are in full compliance are both critical components of our business plan.

 

Industry Knowledge . We continue to create, share and leverage information and experiences with the purpose of creating awareness and identifying opportunities to increase shareholder value. Our management team has business expertise, extensive knowledge of the cannabis industry and closely monitors changes in legislation. We intend to work with partners who will enhance the breadth of our industry knowledge.

 

Lending Capabilities . In February 2014, the Treasury Department issued guidelines for financial institutions dealing with cannabis-related businesses. Nevertheless, many banks and traditional financial institutions refuse to provide financial services to cannabis-related businesses. We plan to provide finance and leasing solutions to market participants using the FinCEN guidelines as a primary guide for compliance with federal law.

 

The Cannabis Industry—Market Opportunity

 

The legal cannabis markets in the United States are expanding rapidly. There are now twenty-eight states and Washington, D.C., with medical cannabis programs and eight of these states (Alaska, California, Colorado, Maine, Massachusetts, Nevada, Oregon and Washington), plus Washington, D.C. have also legalized cannabis for recreational use.

 

We believe the market will continue to rapidly expand as existing states broaden the definition of the approved uses for cannabis (i.e. from medicinal to recreational use) and additional states legalize cannabis for at least some other purposes. Despite the fact that the Federal Controlled Substances Act makes the use and possession of marijuana illegal on a national level, recent guidance from the federal government suggests that it will continue to tolerate legalization at the state level, especially when backed by strong and effective regulation. We believe it is significant that in 2016, the Congressional Spending Bill specifically prevented the Justice Department from spending money to enforce the federal ban on growing or selling cannabis in states where cannabis has been approved.

 

The Company believes that not since the repeal of Prohibition in 1933, has a consumer product business opportunity of this magnitude been created simply by changes in the law. According to an IBISWorld report, the cannabis industry is expected to achieve rapid growth over the next five years. We believe the industry will continue to benefit from increasingly favorable attitudes towards medical cannabis-based treatments and applications as acceptance and legitimacy of cannabis continues to grow.

 

  6  

 

 

Our target markets are those where states or U.S. territories have legalized the production and use of cannabis, such as Puerto Rico and, eventually, Colorado. According to published reports, Colorado’s cannabis industry reported estimated wholesale and retail sales during calendar years 2016 and 2015 of $1,313 million and $996 million, respectively.

 

Most recently, voters in California, Nevada, Maine and Massachusetts approved ballot measures to legalize cannabis for adult recreational use, bringing the total number of states with legalized recreational cannabis use to eight, in addition to the District of Columbia.

 

As of December 31, 2016, 28 U.S. states, the District of Columbia and the territories of Guam and Puerto Rico have legalized the use of cannabis for medical use in some form, including five states in 2016 alone. While it is difficult to estimate the amount of time it would take for a state to establish regulations relating to the sale of cannabis, or for those businesses engaged in this activity to begin generating revenue from operations, we anticipate, but no assurance can be given, that for new states legalizing the medical use of cannabis, revenues will begin to be realized in 2018 and 2019.

 

Continued development of the regulated cannabis industry depends on continued legislative authorization at the state level. Progress, while encouraging, is not assured and any number of factors could slow or halt progress in the cannabis industry.

 

Puerto Rico – a Unique Market Opportunity

 

Puerto Rico benefits from a large and growing tourism industry. According to an article published by Travel Pulse in March 2016 and by PRT Newswire dated December 2016, Puerto Rico’s tourism doubled from 5 million visitors in 2015 to 10 million in 2016. Importantly, patients who hold a license to buy medical marijuana in the 28 states where it is now legal may use their patient license to purchase marijuana at Puerto Rico’s dispensaries.

 

The Academic Sciences of Puerto Rico (ASPR), in collaboration with the Cannabis Doctors of Puerto Rico, conducted a certification program for doctors to obtain the Health Department (HD) license and recommended medicinal cannabis to nearly 200,000 patients. Based on such, and considering that Puerto Rico is an island with a population of 3.5 million, there is a potential market of 200,000 patients, or 6% of Puerto Rico’s current population. In addition, there is a potentially very large market opportunity presented by the burgeoning tourist industry. If only 2% of the tourist visiting Puerto Rico purchase medical marijuana, that would add another 200,000 patients on an annual basis or an average of approximately 18,000 patients per month.

 

We believe our initial locations present significant revenue potential and growth opportunity. We have strategically picked our initial locations based on the following factors: population density, disposable income, and proximity to commercial and districts tourist destinations.

 

Medical Cannabis Market

 

The last five years have seen a dramatic shift in public opinion on medical marijuana, which is reflected in the direction of individual states toward legalization. A Quinnipiac Poll published by Politico on June 6, 2016 showed 89% of registered voters in the United States favor the use of medically prescribed cannabis. Twenty-eight states and Washington, D.C., have enacted medical cannabis laws, and there are approximately 1.2 million registered patients within these states. The five states with the largest known current medical marijuana patient populations are: California, Colorado, Michigan, Oregon and Washington.

 

Cannabis is used for medicinal purposes and has proven to be an effective treatment for pain relief, inflammation and a number of other medical disorders. According to an IBISWorld report, new medical research and changing public opinion have boosted industry growth.

 

Doctors may prescribe ‘legalized’ medical cannabis in approved states where patients can receive a “recommendation” from a state-approved, licensed physician for the treatment of certain conditions specified by the state. Medical cannabis is being used to treat severe or chronic pain, inflammation, nausea and vomiting, neurologic symptoms (including muscle spasticity), glaucoma, cancer, multiple sclerosis, post-traumatic stress disorder, anorexia, arthritis, Alzheimer’s, Crohn’s disease, fibromyalgia, ADD, ADHD, Tourette’s syndrome, spinal cord injury and numerous other conditions. Cannabis oil has also been proven effective in treating epileptic seizures in children.

 

Recreational Cannabis Market

 

Eight states have legalized recreational cannabis – Alaska, California, Colorado, Maine, Massachusetts, Nevada, Oregon, Washington, plus Washington, D.C. In November 2012, Colorado voters legalized recreational marijuana use. This history-changing legislation created a window of opportunity for the commercialization and state taxation of a plant group that has, until recently, been virtually untouchable and has set the wheels in motion for other states to follow. In July of 2014, Washington State launched its recreational program, while Oregon and Alaska and the District of Columbia voted to introduce recreational programs commencing in 2015. In November 2016, California, Maine, Massachusetts, and Nevada all passed ballot initiatives for the legalization of recreational cannabis. A Gallup Poll survey from October 2016 showed that 60% of Americans are in favor of legalizing cannabis.

 

  7  

 

 

 

Government and Industry Regulation

 

Cannabis is currently a Schedule I controlled substance under the CSA and is, therefore, illegal under federal law. Even in those states in which the use of cannabis has been legalized pursuant to state law, its use, possession or cultivation remains a violation of federal law. A Schedule I controlled substance is defined as one that has no currently accepted medical use in the United States, a lack of safety for use under medical supervision and a high potential for abuse. The U.S. Department of Justice (the “ DOJ ”) defines Schedule I controlled substances as “the most dangerous drugs of all the drug schedules with potentially severe psychological or physical dependence.” If the federal government decides to enforce the CSA in Colorado with respect to cannabis, persons that are charged with distributing, possessing with intent to distribute or growing cannabis could be subject to fines and/or terms of imprisonment, the maximum being life imprisonment and a $50 million fine.

 

Notwithstanding the CSA, as of the date of this filing, 28 U.S. states, the District of Columbia and the U.S. territories of Guam and Puerto Rico allow their residents to use medical cannabis. Voters in the states of Alaska, California, Colorado, Maine, Massachusetts, Nevada, Oregon and Washington have approved ballot measures to legalize cannabis for adult recreational use. Such state and territorial laws are in conflict with the federal CSA, which makes cannabis use and possession illegal at the federal level.

 

In light of such conflict between federal laws and state laws regarding cannabis, the previous administration under President Obama had effectively stated that it was not an efficient use of resources to direct federal law enforcement agencies to prosecute those lawfully abiding by state-designated laws allowing the use and distribution of medical cannabis. For example, the prior DOJ Deputy Attorney General of the Obama administration, James M. Cole, issued a memorandum (the “ Cole Memo ”) to all United States Attorneys providing updated guidance to federal prosecutors concerning cannabis enforcement under the CSA. The Cole Memo ultimately emphasizes the need for robust state regulation of marijuana. The memorandum “rests on its expectation that state and local governments that have enacted laws authorizing marijuana-related conduct will implement strong and effective regulatory and enforcement systems that will address the threat those state laws could pose to public safety, public health, and other law enforcement interests.” In addition, the Financial Crimes Enforcement Network (“ FinCEN ”) provided guidelines (the “ FinCEN Guidelines ”) on February 14, 2014, regarding how financial institutions can provide services to cannabis-related businesses consistent with their Bank Secrecy Act (“ BSA ”) obligations.

 

Additional existing and pending legislation provides, or seeks to provide, protection to persons acting in violation of federal law but in compliance with state laws regarding cannabis. The Rohrabacher-Farr Amendment to the Commerce, Justice, Science and Related Agencies Appropriations Bill, which funds the DOJ, prohibits the DOJ from using funds to prevent states with medical cannabis laws from implementing such laws. The Rohrabacher-Farr Amendment is effective through April 28, 2017, but as an amendment to an appropriations bill, it must be renewed annually. The Compassionate Access Compassionate Access, Research Expansion, and Respect States Act (the “ CARERS Act ”) has been introduced in the U.S. Senate, which proposes to reclassify cannabis under the CSA to Schedule II, thereby changing the plant from a federally criminalized substance to one that has recognized medical uses. More recently, the Respect State Marijuana Laws Act of 2017 has been introduced in the U.S. House of Representatives, which proposes to exclude persons who produce, possess, distribute, dispense, administer or deliver marijuana in compliance with state laws from the regulatory controls and administrative, civil and criminal penalties of the CSA.

 

However, as of the date of this filing, neither the CARERS Act nor the Respect State Marijuana Laws Act of 2017 has been enacted, the Rohrabacher-Farr Amendment has not yet been renewed beyond April 28, 2017, and the new administration under President Trump has not yet indicated whether it will change the previously stated policy of low-priority enforcement of federal laws related to cannabis set forth in the Cole Memo or the FinCEN Guidelines. The Trump administration could change this policy and decide to strongly enforce the federal laws applicable to cannabis. Any such change in the federal government’s enforcement of current federal laws could cause significant financial damage to us. While we do not currently harvest, distribute or sell cannabis, we may be irreparably harmed by a change in enforcement policies of the federal government. However, once we commence operations, we could be deemed to be aiding and abetting illegal activities, a violation of federal law.

 

  8  

 

 

Absent any future changes in cannabis-related policies under the Trump administration, we intend to remain within the guidelines outlined in the Cole Memo and the FinCEN Guidelines, where applicable; however, we cannot provide assurance that we are in full compliance with the Cole Memo, the FinCEN Guidelines or any applicable federal laws or regulations.

 

Licensing and Local Regulations

 

Where applicable, we will apply for state licenses that are necessary to conduct our business in compliance with local laws. Local laws at the city, county and municipal levels add a layer of complexity to legalized cannabis. Despite a state’s adoption of legislation legalizing cannabis, cities, counties and municipalities within the state may have the ability to otherwise restrict cannabis activities, including but not limited to cultivation, retail or consumption.

 

Zoning sets forth the approved use of land in any given city, county or municipality. Zoning is set by local governments or local voter referendum, and may otherwise be restricted by state laws. For example, under certain state laws a seller of liquor may not be allowed to operate within 1,000 feet of a school. There may be similar restrictions imposed on cannabis operators, which will restrict where cannabis operations may be located and the manner and size to which they can grow and operate. Zoning can be subject to change or withdrawal, and properties can be re-zoned. The zoning of our properties will have a direct impact on our business operations.

 

Regulatory Environment

 

The regulatory status of the cannabis industry is shifting rapidly at the state level, with momentum toward a change at the federal level through pressure on the U.S. Congress and the White House. Current federal regulations classify cannabis as a Schedule 1 substance, defined as “drugs with no currently accepted medical use and a high potential for abuse.” This drug classification also includes heroin, LSD and ecstasy.

 

The legal cannabis industry has evolved considerably over the past 3-5 years. We believe the industry has reached the tipping point for legalization through pressure from citizens’ groups in individual states for the legalization of medical and/or recreational marijuana. As reported by Pew Research Center in April 2015, nearly half (49%) of Americans say they have tried marijuana, and 12% have tried it within the past year.

 

In a national poll in October 2014 by Third Way, a public policy think tank, 78% of respondents favored allowing individuals to use marijuana for medical purposes if “recommended” by a doctor. This trend is further illustrated in recent surveys of public opinion for marijuana legalization rapidly outpacing opposition. A majority of Americans now favor broad legalization of marijuana. Opinions have changed drastically since 1969, when Gallup first asked the question and found that just 12% favored legalizing marijuana use compared to 89% as of June 6, 2016 showed 89%.

 

Millennials (currently 18-34) have been in the forefront of this change: 68% favor legalizing marijuana use, by far the highest percentage of any age group. But across all generations - except for the Silent Generation (ages 70- 87) – support for legalization has risen sharply over the past decade. Third Way also found that 67% of respondents favor Congress passing a bill giving states that have legalized marijuana a safe haven from federal marijuana laws, so long as they have a strong regulatory system, and when given an option of state or federal control, 60% favor states’ control in deciding whether to legalize marijuana.

 

Public support has given rise to the passage of new marijuana laws and regulations in a number of states, as well as multiple legal reforms on legislative dockets. Each state’s legal environment is unique, making it critical for businesses to know and understand the regulatory landscape on a state-by-state basis.

 

Another regulatory variable adding to the complexity of the legal cannabis market are the local laws at the municipality and county levels. Even when a state enacts legislation legalizing cannabis, each level of local government has the right to exercise restrictions on cannabis activities, such as retail, consumption, transportation and cultivation. Zoning is an area of particular concern, which is set forth at the local level. This can restrict where businesses can be located and the manner and size in which they operate. Understanding individual state’s laws and local regulations requires business operators and investors to account for multiple levels of regulatory compliance, such as how marijuana may be sourced, processed, distributed, and to whom, where and how it may be sold.

 

State Legal Status

 

While new state-level legalization efforts continue to expand the number of states involved in the cannabis industry, only a handful of existing states have any meaningful full-scale operations for the cultivation and distribution of cannabis. This presents a significant growth opportunity for investment over the next several years as the existing legalized states and new states’ markets come online.

 

  9  

 

 

  Medical Cannabis Legalization - 28 states have legalized medical marijuana, plus Washington, D.C. and the U.S. territories of Guam and Puerto Rico
  Recreational Cannabis Legalization - 8 states (AK, CA, CO, ME, MA, NV, OR, WA, plus Washington, D.C.) have passed laws that allow for adult recreational use of marijuana

 

Federal Legal Status

 

Cannabis is still classified as an illegal substance in the U.S. The Drug Enforcement Agency (“ DEA ”) and the Food and Drug Administration (“ FDA ”) currently classify cannabis as a Schedule 1 drug under the Controlled Substances Act. The classification makes cannabis illegal under federal law to cultivate, manufacture, distribute or possess cannabis, and has created a discrepancy between state’s rights and federal law.

 

This discrepancy has created a complicated environment for cannabis businesses in regards to restrictive banking regulations, interstate trade, IRS tax code and federal bankruptcy laws, especially for companies that directly “touch the plant” such as growers and distributors. For example, FinCEN provided guidance regarding how financial institutions can provide services to cannabis-related businesses consistent with their BSA obligations. While we believe we do not qualify as a financial institution in the United States, we cannot be certain that we do not fall under the scope of the FinCEN guidelines. We plan to use the FinCEN Guidelines, as may be amended, as a basis for assessing our relationships with potential tenants, clients and customers. As such, as we engage in financing activities, we intend to adhere to the guidance of FinCEN in conducting and monitoring our financial transactions. Because this area of the law is uncertain but expected to evolve rapidly, we believe that FinCEN’s guidelines will help us best operate in a prudent, reasonable and acceptable manner. There is no assurance, however, that our activities will not violate some aspect of the CSA. If we are found to violate the federal statute or any other in connection with our activities, our company could face serious criminal and civil sanctions.

 

Additionally, because the possession or distribution of cannabis violates federal law, banks that provide services may face the threat of prosecution or sanctions and thus we may have difficulty acquiring or maintaining bank accounts and insurance, and our stockholders may find it difficult to deposit their stock with brokerage firms.

 

The banking issues created by the federal laws have required the cannabis industry to focus on viable alternatives and have created opportunities for new providers, from finance companies to security and software firms. The issue of interstate trade requires companies that grow or distribute cannabis to duplicate efforts within each state they wish to legally operate and has limited the development of ‘national’ brands. These laws do not directly affect companies operating in ancillary businesses.

 

In February 2014, the White House and the Department of the Treasury gave a roadmap for conducting transactions with cannabis companies operating within state regulations. The most sweeping federal reforms to date, however, have come from Congress in the federal spending bill that passed both Houses in June 2015 and continued in June 2016. Congress voted to protect state medical marijuana and hemp laws from federal interference and cut the DEA’s budget. As an example of increased support for the removal of federal laws banning medical marijuana, the medical marijuana-protecting amendment passed the House 219-189 and became law last year and was accepted by a larger 242-186 majority this year, with even more Republican members’ support.

 

The Senate also introduced The Compassionate Access, Research Expansion and Respect States (CARERS) Act in March 2015, co-sponsored by Senator Rand Paul (R-Ky.) and now by 19 total U.S. Senators, which seeks to drastically reduce the federal government’s ability to crack down on state-legal medical marijuana programs, open the banking system, reclassify cannabis’ Schedule 1 drug rating and encourage more research through several major changes in federal law. This legislation currently is waiting for the Senate Judiciary Chair to grant the bill a hearing.

 

Ancillary Cannabis-Related Businesses

 

As more states enact cannabis legislation, the demand for cannabis-related products and services grows. The rapid expansion of the cannabis market combined with more sophisticated management teams and business models entering the market has spurred the development of numerous cannabis-related niche markets. These ancillary markets that do not physically “touch the plant” include infrastructure and support for the cannabis industry in such areas as social media, security, consulting, delivery systems, financial services, software & high-tech, electronic hardware, infused products, extracts & oils, hemp production, ancillary cultivation solutions, and retail.

 

As mentioned, the federal government still classifies cannabis as a Schedule 1 substance, which leaves many traditional businesses fearing reputational and legal risks of serving the cannabis industry. However, ancillary businesses that do cater to the legal cannabis industry are well positioned to benefit from the growth in the industry.

 

  10  

 

 

FORWARD-LOOKING STATEMENTS

 

Statements in this current report on Form 8-K may be “forward-looking statements.” Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. These statements are based on current expectations, estimates and projections about our business based, in part, on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may, and are likely to, differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including those described above and those risks discussed from time to time in this report, including the risks described under “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Plan of Operations” in this report and in other documents which we file with the Securities and Exchange Commission. In addition, such statements could be affected by risks and uncertainties related to:

 

  our ability to raise funds for general corporate purposes and operations;
  the commercial feasibility and success of our technology;
  our ability to recruit qualified management and technical personnel; and
  the other factors discussed in the “Risk Factors” section and elsewhere in this report.

 

Any forward-looking statements speak only as of the date on which they are made, and except as may be required under applicable securities laws, we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this current report.

 

RISK FACTORS

 

An investment in the Company’s common stock involves a high degree of risk. In determining whether to purchase the Company’s common stock, an investor should carefully consider all of the material risks described below, together with the other information contained in this report. An investor should only purchase the Company’s securities if he or she can afford to suffer the loss of his or her entire investment.

 

We have a limited operating history and face many of the risks and difficulties frequently encountered by an early stage company .

 

Although our management team has extensive knowledge of the cannabis industry and closely monitors changes in legislation, we also operate in an evolving industry that may not develop as expected. Furthermore, our operations continue to evolve under our business plan as we continually assess new strategic opportunities for our business within our industry. Assessing the future prospects of our business is challenging in light of both known and unknown risks and difficulties we may encounter. Growth prospects in our industry can be affected by a wide variety of factors including:

 

  Competition from other similar companies;
  Regulatory limitations on the products we can offer and markets we can serve;
  Other changes in the regulation of medical and recreational cannabis use;
  Changes in underlying consumer behavior;
  Our ability to access adequate financing on reasonable terms and our ability to raise additional capital in order to fund our operations;
  Challenges with new products, services and markets; and
  Fluctuations in the credit markets and demand for credit.

 

We may not be able to successfully address these factors, which could negatively impact our growth, harm our business and cause our operating results to be worse than expected.

 

We may need to secure additional financing.

 

While we have raised funds that we believe will be sufficient to fund our operations for the next twelve months, we anticipate that we may require additional funds for our operations in the future. If we are not successful in securing additional financing when needed, we may be unable to execute our business strategy, which could result in curtailment of our operations.

 

Our ability to raise additional capital is uncertain and dependent on numerous factors beyond our control including, but not limited to, economic conditions and availability or lack of availability of credit. We currently do not have any committed external source of funds.

 

If we need additional capital and cannot raise it on acceptable terms, we may not be able to, among other things:

 

  continue to expand our development, sales and marketing teams;
  acquire complementary technologies, products or businesses;
  if determined to be appropriate, expand our global operations;
  hire, train and retain employees; and
  respond to competitive pressures or unanticipated working capital requirements.

 

To the extent that we raise additional capital through the sale of equity or convertible debt securities, then-existing stockholders’ interests may be materially diluted, and the terms of such securities could include liquidation or other preferences that adversely affect their rights as common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specified actions, such as incurring additional debt, making capital expenditures or declaring dividends.

 

  11  

 

 

Cannabis remains illegal under federal law, and any change in the enforcement priorities of the federal government could render our current and planned future operations unprofitable or even prohibit such operations.

 

We operate in the cannabis industry, which is dependent on state laws and regulations pertaining to such industry; however, under federal law, cannabis remains illegal.

 

The United States federal government regulates drugs through the Controlled Substances Act (the “ CSA ”), which places controlled substances, including cannabis, on one of five schedules. Cannabis is currently classified as a Schedule I controlled substance, which is viewed as having a high potential for abuse and having no currently accepted medical use in treatment in the United States. No prescriptions may be written for Schedule I substances, and such substances are subject to production quotas imposed by the United States Drug Enforcement Administration (the “ DEA ”). Because of this, doctors may not prescribe cannabis for medical use under federal law, although they can recommend its use under the First Amendment.

 

Currently, 28 U.S. states, the District of Columbia and the U.S. territories of Guam and Puerto Rico allow the use of medical cannabis. Voters in the states of Alaska, California, Colorado, Maine, Massachusetts, Nevada, Oregon and Washington have approved ballot measures to legalize cannabis for adult recreational use. Such state and territorial laws are in conflict with the federal CSA, which makes cannabis use and possession illegal at the federal level. Because cannabis is a Schedule I controlled substance, the development of a legal cannabis industry under the laws of these states is in conflict with the CSA, which makes cannabis use and possession illegal on a national level. The United States Supreme Court has confirmed that the federal government has the right to regulate and criminalize cannabis, including for medical purposes, and that federal law criminalizing the use of cannabis preempts state laws that legalize its use.

 

In light of such conflict between federal laws and state laws regarding cannabis, the previous administration under President Obama had effectively stated that it was not an efficient use of resources to direct federal law enforcement agencies to prosecute those lawfully abiding by state-designated laws allowing the use and distribution of medical cannabis. For example, the prior DOJ Deputy Attorney General of the Obama administration, James M. Cole, issued a memorandum (the “ Cole Memo ”) to all United States Attorneys providing updated guidance to federal prosecutors concerning cannabis enforcement under the CSA. The Cole Memo ultimately emphasizes the need for robust state regulation of marijuana. The memorandum “rests on its expectation that state and local governments that have enacted laws authorizing marijuana-related conduct will implement strong and effective regulatory and enforcement systems that will address the threat those state laws could pose to public safety, public health, and other law enforcement interests.” In addition, the Financial Crimes Enforcement Network (“ FinCEN ”) provided guidelines (the “ FinCEN Guidelines ”) on February 14, 2014, regarding how financial institutions can provide services to cannabis-related businesses consistent with their Bank Secrecy Act (“ BSA ”) obligations.

 

In 2014, the United States House of Representatives passed an amendment (the “ Rohrabacher-Farr Amendment ”) to the Commerce, Justice, Science, and Related Agencies Appropriations Bill, which funds the United States Department of Justice (the “ DOJ ”). The Rohrabacher-Farr Amendment prohibits the DOJ from using funds to prevent states with medical cannabis laws from implementing such laws. In August 2016, a 9 th Circuit federal appeals court ruled in United States v. McIntosh that the Rohrabacher-Farr Amendment bars the DOJ from spending funds on the prosecution of conduct that is allowed by state medical cannabis laws, provided that such conduct is in strict compliance with applicable state law. In March 2015, bipartisan legislation titled the Compassionate Access, Research Expansion, and Respect States Act (the “ CARERS Act ”) was introduced, proposing to allow states to regulate the medical use of cannabis by changing applicable federal law, including by reclassifying cannabis under the Controlled Substances Act to a Schedule II controlled substance and thereby changing the plant from a federally-criminalized substance to one that has recognized medical uses. More recently, the Respect State Marijuana Laws Act of 2017 has been introduced in the U.S. House of Representatives, which proposes to exclude persons who produce, possess, distribute, dispense, administer or deliver marijuana in compliance with state laws from the regulatory controls and administrative, civil and criminal penalties of the CSA.

 

Although these developments have been met with a certain amount of optimism in the cannabis industry, neither the CARERS Act nor the Respect State Marijuana Laws Act of 2017 have yet been adopted. In addition, the Rohrabacher-Farr Amendment, being an amendment to an appropriations bill that must be renewed annually, has not been renewed beyond April 28, 2017. Furthermore, the ruling in United States v. McIntosh is only applicable in the 9 th Circuit, which does not include Colorado, the state where we currently primarily operate. The new administration under President Trump has not yet indicated whether it will change the previously stated policy of low-priority enforcement of federal laws related to cannabis set forth in the Cole Memo or FinCEN Guidelines. The Trump administration could change this policy and decide to strongly enforce the federal laws applicable to cannabis. Any such change in the federal government’s enforcement of current federal laws could cause significant financial damage to us. While we do not currently harvest, distribute or sell cannabis, we may be irreparably harmed by a change in enforcement policies of the federal government.

 

Additionally, as we are always assessing potential strategic acquisitions of new businesses, we may in the future also pursue opportunities that include growing and distributing medical or recreational cannabis, should we determine that such activities are in the best interest of the Company and our stockholders. Any such pursuit would involve additional risks with respect to the regulation of cannabis.

 

  12  

 

 

Any potential growth in the cannabis industry continues to be subject to new and changing state and local laws and regulations.

 

Continued development of the cannabis industry is dependent upon continued legislative legalization of cannabis at the state level, and a number of factors could slow or halt progress in this area, even where there is public support for legislative action. Any delay or halt in the passing or implementation of legislation legalizing cannabis use, or its sale and distribution, or the re-criminalization or restriction of cannabis at the state level could negatively impact our business. Additionally, changes in applicable state and local laws or regulations could restrict the products and services we offer or impose additional compliance costs on us or our customers and tenants. Violations of applicable laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on our operations. We cannot predict the nature of any future laws, regulations, interpretations or applications, and it is possible that regulations may be enacted in the future that will be materially adverse to our business.

 

The cannabis industry faces significant opposition, and any negative trends will adversely affect our business operations.

 

We are substantially dependent on the continued market acceptance, and the proliferation of consumers, of medical and recreational cannabis. We believe that with further legalization, cannabis will become more accepted, resulting in a growth in consumer demand. However, we cannot predict the future growth rate or future market potential, and any negative outlook on the cannabis industry may adversely affect our business operations.

 

Large, well-funded business sectors may have strong economic reasons to oppose the development of the cannabis industry. For example, medical cannabis may adversely impact the existing market for the current “cannabis pill” sold by mainstream pharmaceutical companies. Should cannabis displace other drugs or products, the medical cannabis industry could face a material threat from the pharmaceutical industry, which is well-funded and possesses a strong and experienced lobby. Any inroads the pharmaceutical or any other potentially displaced, industry or sector could make in halting or impeding the cannabis industry could have a detrimental impact on our business.

 

We operate in a highly competitive industry.

 

The markets for ancillary businesses in the medical marijuana and recreational marijuana industries are competitive and evolving. There is no material aspect of our business that is protected by patents, copyrights, trademarks, or trade names, and we face strong competition from larger companies that may offer similar products and services to ours. Many of our current and potential competitors have longer operating histories, significantly greater financial, marketing and other resources and larger client bases than us, and there can be no assurance that we will be able to successfully compete against these or other competitors.

 

Given the rapid changes affecting the global, national, and regional economies generally and the medical marijuana and recreational marijuana industries, in particular, we may not be able to create and maintain a competitive advantage in the marketplace. Our success will depend on our ability to keep pace with any changes in our markets, particularly, legal and regulatory changes. Our success will also depend on our ability to respond to, among other things, changes in the economy, market conditions, and competitive pressures. Any failure by us to anticipate or respond adequately to such changes could have a material adverse effect on our financial condition and results of operations.

 

We may be unable to obtain capital to fully execute our business plan.

 

Our business plan involves the acquisition of an additional 15 dispensaries over the next 12-18 month. We anticipate that we will need additional capital in the future to fully execute our business plan. However, there can be no assurance that we will be able to obtain financing on agreeable terms, if at all, and any future sale of our equity securities will dilute the ownership of our existing stockholders and could be at prices substantially below the price of the shares of common stock sold in the past. If we are unable to obtain the necessary capital, we may need to delay the implementation of, or curtail our business plan.

 

We face risks associated with strategic acquisitions.

 

As an important part of our business strategy, we intend to acquire additional dispensaries. These acquisitions involve a number of financial, accounting, managerial, operational, legal, compliance and other risks and challenges, including the following, any of which could adversely affect our results of operations:

 

  The applicable restrictions on cannabis industry and its participants may limit the number of available suitable businesses and dispensaries that we can acquire;
  Any acquired dispensary could under-perform relative to our expectations and the price that we paid for it, or not perform in accordance with our anticipated timetable;
  We may incur or assume significant debt in connection with our acquisitions;
  Acquisitions could cause our results of operations to differ from our own or the investment community’s expectations in any given period, or over the long term; and
  Acquisitions could create demands on our management that we may be unable to effectively address, or for which we may incur additional costs.

 

  13  

 

 

Additionally, following any business acquisition, we could experience difficulty in integrating personnel, operations, financial and other systems, and in retaining key employees and customers.

 

Our future success depends on our ability to grow and expand our customer base and operational territory.

 

Our success and the planned growth and expansion of our business depend on our products and services achieving greater and broader acceptance, resulting in a larger customer base, and on the expansion of our operations into new areas and markets. However, there can be no assurance that customers will purchase our products, or that we will be able to continually expand our customer base. Additionally, if we are unable to effectively market or expand our product offerings, we will be unable to grow and expand our business or implement our business strategy.

 

Operating in new markets may expose us to new operational, regulatory or legal risks and subject us to increased compliance costs. We may need to modify our existing business model and cost structure to comply with local regulatory or other requirements. Facilities we open in new markets may take longer to reach expected revenue and profit levels on a consistent basis, may have higher construction, occupancy or operating costs, and may present different competitive conditions, consumer preferences and spending patterns than we anticipate.

 

Any of the above could materially impair our ability to increase sales and revenue.

 

Conditions in the economy, the markets we serve and the financial markets generally may adversely affect our business and results of operations.

 

Our business is sensitive to general economic conditions. Slower economic growth, volatility in the credit markets, high levels of unemployment, and other challenges that affect the economy adversely could affect us and our customers and suppliers. If growth in the economy or in any of the markets we serve slows for a significant period, if there is a significant deterioration in the economy or such markets or if improvements in the economy do not benefit the markets we serve, our business and results of operations could be adversely affected.

 

We depend on our management, certain key personnel and board of directors, as well as our ability to attract, retain and motivate qualified personnel.

 

Our future success depends largely upon the experience, skill, and contacts of our officers and directors, and the loss of the services of these officers or directors may have a material adverse effect upon our business. Additionally, shortages in qualified personnel could also limit our ability to successfully implement our growth plan. As we grow, we will need to attract and retain highly skilled experts in the cannabis industry, as well as managerial, sales and marketing, security and finance personnel. There can be no assurance, however, that we will be able to attract and retain such personnel.

 

Our reputation and ability to do business may be negatively impacted by the improper conduct by our business partners, employees or agents.

 

We depend on third party suppliers to produce and timely deliver our inventory. Products purchased from our suppliers are resold to our customers. These suppliers could fail to produce products to our specifications or quality standards and may not deliver units on a timely basis. Any changes in our suppliers to resolve production issues could disrupt our ability to fulfill orders. Any changes in our suppliers to resolve production issues could also disrupt our business due to delays in finding new suppliers.

 

Furthermore, we cannot provide assurance that our internal controls and compliance systems will always protects us from acts committed by our employees, agents or business partners in violation of U.S. federal or state laws. Any improper acts or allegations could damage our reputation and subject us to civil or criminal investigations and related shareholder lawsuits, could lead to substantial civil and criminal monetary and non-monetary penalties, and could cause us to incur significant legal and investigatory fees.

 

If we do not effectively manage changes in our business, these changes could place a significant strain on our management and operations.

 

Our ability to grow successfully requires that we have an effective planning and management process. The expansion and growth of our business could place a significant strain on our management systems, infrastructure and other resources. To manage our growth successfully, we must continue to improve and expand our systems and infrastructure in a timely and efficient manner. Our controls, systems, procedures and resources may not be adequate to support a changing and growing company. If our management fails to respond effectively to changes and growth in our business, including acquisitions, this could have a material adverse effect on the Company’s business, financial condition, results of operations and future prospects.

 

Catastrophic events may disrupt our business.

 

Our inventory, dispensaries and overall operations are vulnerable to damage or interruption from fires, floods, power losses, telecommunications failures, cyber-attacks, terrorist attacks, acts of war, human errors, break-ins and similar events. Additionally, we rely on our third-party suppliers for our inventory . In the event of a catastrophic event, we may be unable to continue our operations and may endure system interruptions, reputational harm, delays in our product development, and lengthy interruptions in our services, breaches of data security and loss of critical data, all of which could have an adverse effect on our future operating results.

 

  14  

 

 

Any new or changes made to laws, regulations, rules or other industry standards affecting our business may have an adverse impact on our financial results.

 

We are subject to a number of foreign and domestic laws and regulations that affect companies conducting business within the cannabis industry, many of which are still evolving and could be interpreted in ways that could harm our business. In the United States, cannabis is currently classified as a Schedule I controlled substance under the CSA and is, therefore, illegal under federal law. Even in those states in which the use of cannabis has been legalized pursuant to state laws, its use, possession or cultivation remains a violation of federal law. A Schedule I controlled substance is defined as one that has no currently accepted medical use in the United States, a lack of safety for use under medical supervision and a high potential for abuse. The U.S. Department of Justice (the “DOJ”) defines Schedule I controlled substances as “the most dangerous drugs of all the drug schedules with potentially severe psychological or physical dependence.”

 

Notwithstanding the CSA, as of the date of this filing, 28 U.S. states, the District of Columbia and the U.S. territories of Guam and Puerto Rico allow their residents to use medical cannabis. Voters in the states of Alaska, California, Colorado, Maine, Massachusetts, Nevada, Oregon and Washington have approved ballot measures to legalize cannabis for adult recreational use. Such state and territorial laws are in conflict with the federal CSA, which makes cannabis use and possession illegal at the federal level.

 

Such conflict between federal laws and state laws regarding cannabis has created a complicated environment for cannabis businesses in regards to restrictive banking regulations, interstate trade, IRS tax code and federal bankruptcy laws, especially for companies that directly “touch the plant” such as growers and distributors. For example, since the possession or distribution of cannabis violates federal law, banks that provide services may face the threat of prosecution or sanctions. As a result of being denied banking services or direct access to conventional loans, many of the companies that grow or distribute cannabis directly are forced to transact business on a cash-only basis.

 

The banking issues created by the federal laws have required the cannabis industry to focus on viable alternatives and have created opportunities for new providers, from finance companies to security and software firms. The issue of interstate trade requires companies that grow or distribute cannabis to duplicate efforts within each state they wish to legally operate and has limited the development of ‘national’ brands. If we are unable to raise capital or conduct operations as a result of various laws and regulations, we may be unable to finance our activities which would have an adverse impact on our operations and financial results.

 

Our success will be dependent on our ability to attract and retain key personnel.

 

We believe our success depends on the continued service of our management personnel and upon our ability to attract and retain qualified employees, independent contractors and consultants,. The competition for qualified personnel is intense, and the loss of key personnel or the inability to hire such personnel when needed could have a material adverse impact on our results of operation and financial condition.

 

Laws and regulations affecting the cannabis industry are constantly changing, and this may affect our consumer base in ways that we are unable to predict.

 

Local, state and federal medical cannabis laws and regulations are broad in scope and subject to evolving interpretations. We cannot predict the nature of any future laws, regulations, interpretations or applications that may affect us, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on the vitality of the cannabis legalization movement or the unification or popularity of the community in favor of legalization, the members of which community form our anticipated consumer base and underpin our business model.

 

Risks Related to Our Common Stock

 

There is not an active liquid trading market for the Company’s common stock.

 

The Company’s common stock is quoted on the OTC Pink Market under the symbol “CYVA”. However, there has been minimal reported trading to date in the Company’s common stock, and we cannot give an assurance that an active trading market will develop. As a result, investors may find it difficult to dispose of, or to obtain accurate quotations of the price of, our securities. This severely limits the liquidity of the common stock, and may adversely affect the market price of our common stock. A limited market may also impair our ability to raise capital by selling shares of capital stock and may impair our ability to acquire other companies or assets by using common stock as consideration.

 

If an active market for the Company’s common stock develops, there is a significant risk that the Company’s stock price may fluctuate dramatically in the future in response to any of the following factors, some of which are beyond our control:

 

  variations in our quarterly operating results;
  announcements that our revenue or income are below analysts’ expectations;
  general economic slowdowns;
  sales of large blocks of the Company’s common stock; and
  announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments.

 

  15  

 

 

Our common stock is subject to the “penny stock” rules of the Securities and Exchange Commission, which may make it more difficult for stockholders to sell our common stock.

 

The SEC has adopted Rule 15g-9 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require that a broker or dealer approve a person’s account for transactions in penny stocks, and the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

 

In order to approve a person’s account for transactions in penny stocks, the broker or dealer must obtain financial information and investment experience objectives of the person, and make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

 

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form sets forth the basis on which the broker or dealer made the suitability determination, and that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

 

Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of the Company’s common stock if and when such shares are eligible for sale and may cause a decline in the market value of its stock.

 

Because we became a public by means of a reverse acquisition, we may not be able to attract the attention of brokerage firms.

 

Because we became public through a “reverse acquisition”, securities analysts of brokerage firms may not provide coverage of us since there is little incentive to brokerage firms to recommend the purchase of our common stock. No assurance can be given that brokerage firms will want to conduct any secondary offerings on behalf of the Company in the future.

 

Applicable regulatory requirements, including those contained in and issued under the Sarbanes-Oxley Act of 2002, may make it difficult for the Company to retain or attract qualified officers and directors, which could adversely affect the management of its business and its ability to obtain or retain listing of its common stock.

 

We may be unable to attract and retain those qualified officers, directors and members of board committees required to provide for effective management because of the rules and regulations that govern publicly held companies, including, but not limited to, certifications by principal executive officers. The enactment of the Sarbanes-Oxley Act has resulted in the issuance of a series of related rules and regulations and the strengthening of existing rules and regulations by the SEC, as well as the adoption of new and more stringent rules by the stock exchanges. The perceived increased personal risk associated with these changes may deter qualified individuals from accepting roles as directors and executive officers.

 

Further, some of these changes heighten the requirements for board or committee membership, particularly with respect to an individual’s independence from the corporation and level of experience in finance and accounting matters. We may have difficulty attracting and retaining directors with the requisite qualifications. If we are unable to attract and retain qualified officers and directors, the management of its business and its ability to obtain or retain listing of our shares of common stock on any stock exchange (assuming we elect to seek and are successful in obtaining such listing) could be adversely affected.

 

Voting power of our shareholders is highly concentrated in one shareholder.

 

Peach Management LLC currently beneficially owns 11% of our outstanding common stock, as well as one thousand (1,000) shares of Series A Preferred Stock which entitles it to 51% of the voting power. In addition, pursuant to the Certificate of Designation for of the Series A Preferred Stock, the Company is prohibited from designating any other class or series of preferred stock without first obtaining prior approval from the holder of the Series A Preferred Stock. Such concentrated control of the Company may adversely affect the price of our common stock. A shareholder that acquires common stock will not have an effective voice in the management of the Company.

 

We do not intend to pay dividends for the foreseeable future.

 

We have paid no dividends on our common stock to date and we do not anticipate paying any cash dividends to holders of our common stock in the foreseeable future. While our future dividend policy will be based on the operating results and capital needs of the business, we currently anticipate that we will retain any earnings to finance our future expansion and for the implementation of our business plan. A lack of a dividend can further affect the market value of our stock, and could significantly affect the value of any investment in our Company.

 

  16  

 

 

Our stockholders may experience significant dilution.

 

We have a significant number of warrants to purchase our common stock outstanding, the exercise of which would be dilutive to stockholders. In certain instances, the exercise prices are subject to adjustment if we issue or sell shares of our common stock or equity-based instruments at a price per share less than the exercise price then in effect. In such case, both the issuance and the adjustment would be dilutive to stockholders.

 

We may from time to time finance our future operations or acquisitions through the issuance of equity securities, which securities may also have rights and preferences senior to the rights and preferences of our common stock. We may also grant options to purchase shares of our common stock to our directors, employees and consultants, the exercise of which would also result in dilution to our stockholders.

 

Our articles of incorporation allow for our board to create new series of preferred stock without further approval by our stockholders, which could adversely affect the rights of the holders of our common stock.

 

Our Board of Directors has the authority to fix and determine the relative rights and preferences of preferred stock. Our Board of Directors has the authority to issue, upon obtaining prior consent from the holder of Series A Preferred Stock, up to 9,999,000 shares of our preferred stock without further stockholder approval. As a result, our Board of Directors could authorize the issuance of a series of preferred stock that would grant to holders the preferred right to our assets upon liquidation, the right to receive dividend payments before dividends are distributed to the holders of common stock and the right to the redemption of the shares, together with a premium, prior to the redemption of our common stock. In addition, our board of directors could authorize the issuance of a series of preferred stock that has greater voting power than our common stock or that is convertible into our common stock, which could decrease the relative voting power of our common stock or result in dilution to our existing stockholders. Although we have no present intention to issue any additional shares of preferred stock or to create any additional series of preferred stock, we may issue such shares in the future.

 

As an issuer of “penny stock”, the protection provided by the federal securities laws relating to forward looking statements does not apply to us.

 

Although federal securities laws provide a safe harbor for forward-looking statements made by a public company that files reports under the federal securities laws, this safe harbor is not available to issuers of penny stocks. As a result, we will not have the benefit of this safe harbor protection in the event of any legal action based upon a claim that the material provided by us contained a material misstatement of fact or was misleading in any material respect because of our failure to include any statements necessary to make the statements not misleading. Such an action could hurt our financial condition.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

 

This Management’s Discussion and Analysis or Plan of Operations includes a number of forward-looking statements that reflect Management’s current views with respect to future events and financial performance. You can identify these statements by forward-looking words such as “may,” “will,” “expect,” “anticipate,” “believe,” “estimate” and “continue,” or similar words. Those statements include statements regarding the intent, belief or current expectations of us and members of our management team as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements.

 

Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the Securities and Exchange Commission. Important factors currently known to management could cause actual results to differ materially from those in forward-looking statements. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time. We believe that our assumptions are based upon reasonable data derived from and known about our business and operations. No assurances are made that actual results of operations or the results of our future activities will not differ materially from our assumptions. Factors that could cause differences include, but are not limited to, expected market demand for our products, fluctuations in pricing for our products, and competition.

 

Business Overview

 

Cyberspace Vita was incorporated in the State of Nevada on November 7, 2006. Its initial business plan was related to the online sale of vitamins and supplements.

 

On May 11, 2017, Cyberspace Vita entered into an Exchange Agreement with Cyberspace Vita’s majority shareholder, Project 1493, LLC, a limited liability company organized under the laws of the Commonwealth of Puerto Rico, and the sole member of 1493, pursuant to which the member transferred all of the outstanding membership interests of 1493 to Cyberspace Vita in exchange for 16,690,912 of its restricted shares of common stock and warrants to purchase up to 3,000,000 shares of common stock at an exercise price of $0.50 per share. As a result, 1493 became a wholly-owned subsidiary of the Cyberspace Vita, and the member of 1493 acquired a controlling interest in Cyberspace Vita. For accounting purposes, the Share Exchange was treated as an acquisition of Cyberspace Vita and a recapitalization of 1493. 1493 is the accounting acquirer, and the results of its operations carryover. Accordingly, the operations of Cyberspace Vita are not carried over and have been adjusted to $0.

 

  17  

 

 

As a result of the acquisition of all the issued and outstanding membership interest of 1493, we have now assumed 1493’s business operations as our own.

 

Nature of Operations

 

Project 1493 is a limited liability company organized in Puerto Rico on March 17, 2017. The Company was formerly known as Grey Finland Advisors, LLC (“ Grey ”), which was organized under the laws of the Commonwealth of Puerto Rico on March 24, 2011, and has had no operations since that time. The Company filed a Certificate of Restoration on March 17, 2017 and elected to change its name to Project 1493, LLC.

 

1493’s business plan relates to the acquisition, development and operation of medical marijuana dispensaries. 1493 intends to initially operate in Puerto Rico and has executed two Memorandums of Understanding (“MOU”) to acquire four cannabis dispensaries. 1493 anticipates potentially expanding into other markets located within the U.S. and U.S. territories in the future. However, there can be no assurance that we will expand into such markets.

 

Limited Operating History

 

There is no historical financial information about us which to base an evaluation of our performance. As of the date of this filing, we have not generated any revenues from our operations. We cannot guarantee we will be successful in our business operations. Our business is subject to risks inherent in the establishment of a new business enterprise in a complicated regulatory environment.

 

The following discussion and analysis should be read in conjunction with the audited financial statements for Cyberspace Vita, Inc. for the period ended December 31, 2016 and accompanying notes that appear as an exhibit to this Current Report.

 

DESCRIPTION OF PROPERTY

 

We are currently in the process of purchasing four (4) dispensaries as follows:

 

Property Name   Location   Description
Fajardo   Bo. Quebrada de Fajardo, Carr. #3 Km. 44.9, Fajardo, P.R. 00648   ● 2,774 square feet
Carolina   65th Infantry Avenue, Km. 11.0, marginal 3, Lomas de Carolina, Carolina, P.R. 00987   ● 2,500 square feet
Dorado   Paseo del Plata Shopping Center, Building No. 3, P.R. 696, int. José Efrón Avenue, Dorado, P.R., 00646   ● 1,900 square feet
San Juan   Calle Andalucía 509, San Juan, Puerto Rico   ● 1,500 square feet

 

  18  

 

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNER AND MANAGEMENT.

 

The following table sets forth certain information with respect to the beneficial ownership of our voting securities following the completion of the reverse merger described in Items 1.01 and 3.02 of this report by (i) any person or group owning more than 5% of any class of voting securities; (ii) our director and chief executive officer; (iii) our chief financial officer; and (iv) all executive officers and directors as a group as of May 9, 2017. Unless otherwise indicated, the address of all listed stockholders is c/o Cyberspace Vita, Inc., Cond. Madrid Suite 304, 1760 Loiza Street, San Juan, Puerto Rico 00911.

 

Name of Beneficial Owner   Common Stock Beneficially Owned     Percentage of Common Stock  
Directors and Officers:                
                 
Leslie Ball     335,000 (1)     1.11 %
                 
Thomas Gingerich     150,000 (1)     * %
                 
All officers and directors as a group (2 person)     485,000       1.60 %
                 
Beneficial owners of more than 5%:                
                 
Peter Zachariou (2)     1,800,000 (3)     6.00 %
                 
Peach Management LLC     19,690,912 (4)(5)     63.48 %
                 
Keith Jensen     9,416,667 (6)     29.27 %

 

* Less than 1%

  (1) Includes warrants to purchase up to 100,000 shares of the Company’s common stock exercisable within 60 days.
  (2) The address of Peter Zachariou is 132 Calo Den Real, 07830 San Josep, Ibiza, Spain.
  (3) Includes 100,000 shares withheld by the Company pursuant to the terms of the Exchange Agreement.
  (4) Represents (i) 16,690,912 shares of the Company’s common stock and (ii) warrants to purchase up to 3,000,000 shares of the Company’s common stock, exercisable within 60 days.
  (5) Does not include shares of Series A Preferred Stock held by the shareholder, which gives the holder 51% of the voting power of the Company.
  (6) Represents (i) 7,243,590 shares of the Company’s common stock and (ii) warrants to purchase up to 2,173,077 shares of the Company’s common stock, exercisable within 60 days.

 

DIRECTORS AND EXECUTIVE OFFICERS

 

In connection with the change in control of the Company on May 11, 2017, Alexander Diener, our previous Chief Executive Officer, Chief Financial Officer, Treasurer, Secretary and sole director resigned from all of his positions with the Company effective May 11, 2017. Concurrently therewith, Leslie Ball was appointed to serve as our Chief Executive Officer and director, and Thomas Gingerich was appointed to serve as our Chief Financial Officer.

 

Set forth below is certain information concerning our current director and officers, following the reverse merger:

 

Name   Age   Positions Held
         
Leslie Ball   72   Chief Executive Officer
         
Thomas Gingerich   56   Chief Financial Officer

 

Leslie Ball serves as a member of our board of directors and is our Chief Executive Officer. Mr. Ball has served as Vice Chairman of the Board of Directors of Cinsay, Inc. since 2009. Before that, Mr. Ball was the Chief Executive Officer and president of Corral West Ranchwear. Under his guidance, the company became one of the largest retailers of western and workware and grew to 140 locations in the United States. At Montgomery Ward Corporation, Mr. Ball was President of Softgoods and Foreign Offices as well as Executive Vice President, where he headed its apparel business. His retail experience also encompasses another 22 years in various executive roles at R.H. Macy, Inc., including President of Macy’s East, President of Macy’s Wholesale, President of Macy’s South, and Chairman and Chief Executive Officer of Macy’s Midwest. Mr. Ball attended the Detroit Institute of Technology.

 

  19  

 

 

Thomas Gingerich is our Chief Financial Officer. He has 33 years of accounting experience in public and private practice, specializing in tax compliance, structures and tax planning. He is a former Partner at Lain, Faulkner & Co, PC specializing in forensic accounting. He is a Certified Public Accountant and a member of the American Institute of Certified Public Accountants.

 

Board Leadership Structure and Role in Risk Oversight

 

Due to the small size and early stage of the Company, we have not adopted a formal policy on whether the Chairman and Chief Executive Officer positions should be separate or combined.

 

Our Board of Directors is primarily responsible for overseeing our risk management processes on behalf of the Company. The Board of Directors receives and reviews periodic reports from management, auditors, legal counsel, and others, as considered appropriate regarding our company’s assessment of risks. The Board of Directors focuses on the most significant risks facing our company and our company’s general risk management strategy, and also ensures that risks undertaken by our Company are consistent with the board’s appetite for risk. While the board oversees our company’s risk management, management is responsible for day-to-day risk management processes. We believe this division of responsibilities is the most effective approach for addressing the risks facing our company and that our board leadership structure supports this approach.

 

Involvement in Certain Legal Proceedings

 

To our knowledge, our directors and executive officers have not been involved in any of the following events during the past ten years:

 

  1. any bankruptcy petition filed by or against such person or any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
     
  2. any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
     
  3. being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from or otherwise limiting his involvement in any type of business, securities or banking activities or to be associated with any person practicing in banking or securities activities;
     
  4. being found by a court of competent jurisdiction in a civil action, the SEC or the Commodity Futures Trading Commission to have violated a Federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
     
  5. being subject of, or a party to, any Federal or state judicial or administrative order, judgment decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of any Federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
     
  6. being subject of or party to any sanction or order, not subsequently reversed, suspended, or vacated, of any self-regulatory organization, any registered entity or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

 

Board Committees

 

There are currently no committees of the Board of Directors, and the Company does not presently have a director who meets the definition of an “audit committee financial expert”.

 

Code of Ethics

 

Our board of directors intends to adopt a code of ethics that our officers, directors and any person who may perform similar functions will be subject to.

 

  20  

 

 

EXECUTIVE COMPENSATION

 

No past officer or director of the Company has received any compensation and none is due or payable prior to the reverse merger. Our former sole officer and director, Alexander Diener, did not receive any compensation for the services he rendered to the Company, has not received compensation in the past, and is not accruing any compensation pursuant to any agreement with the Company. No retirement, pension, profit sharing, stock option or insurance programs or other similar programs have been adopted by the Company for the benefit of the Company’s employees prior to the reverse merger. In addition, no compensation has been paid or due to our current officers and director.

 

Employment Agreements with Named Officers

 

We have not entered into employment agreements our officer but anticipate entering into such agreement in the near future. It is anticipated that such agreement would contain provisions regarding compensation, and other applicable terms relating to competition and term of employment.

 

Outstanding Equity Awards at Fiscal Year-End

 

We have not granted any equity or option awards to our executive officers as of December 31, 2016.

 

Director Compensation

 

We have not paid any compensation to our directors as of December 31, 2016.

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

Certain Relationships and Related Transactions

 

Peach Management LLC, an entity owned which is controlled by one of our shareholders, advanced $40,734 to the Company for various prepaid expenses for professional fees and restoration fees for the Company to be in compliance with Puerto Rico laws.

On April 18, 2017 Peach Management LLC made a short term advance of $150,000 to the Company. The proceeds of the loan were used as a 50% deposit for the purchase of the first three dispensaries, according to the Memorandum of Understanding with Puerto Rico Industrial Commercial Holdings Biotech Corporation (“ PRICHBC ”).

 

Director Independence

 

Company currently has one director who does not meet the definition of “independent”.

 

MARKET PRICE OF AND DIVIDENDS ON COMMON EQUITY

AND RELATED STOCKHOLDER MATTERS

 

The Company’s common stock is quoted on the OTC Pink Market under the symbol “CYVA”. There has been minimal reported trading to date in the Company’s common stock.

 

The following table sets forth the high and low closing bid prices for our common stock for the fiscal quarter indicated as reported on the OTC. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.

 

Period   High     Low  
January 1, 2015-March 31, 2015   $ 1.00     $ 1.00  
April 1, 2015-June 30, 2015   $ 1.00     $ 1.00  
July 1, 2015-September 30, 2015   $ 1.00     $ 1.00  
October 1, 2015-December 31, 2015   $ 1.00     $ 1.00  
January 1, 2016-March 31, 2016   $ 1.00     $ 1.00  
April 1, 2016-June 30, 2016   $ 1.00     $ 0.96  
July 1, 2016-September 30, 2016   $ 0.96     $ 0.96  
October 1, 2016-December 31, 2016   $ 0.96     $ 0.50  
January 1, 2017 – March 31, 2017   $ 0.96     $ 0.72  
April 1, 2017 – May 9, 2017   $ 0.96     $ 0.96  

 

As of May 9 2017, there were approximately 28 holders of record of the Company’s common stock.

 

  21  

 

 

Dividends

 

The Company has never declared or paid any cash dividends on its common stock. The Company currently intends to retain future earnings, if any, to finance the expansion of its business. As a result, the Company does not anticipate paying any cash dividends in the foreseeable future.

 

Securities Authorized for Issuance Under Equity Compensation Plans

 

The Company has not adopted any equity compensation plans.

 

LEGAL PROCEEDINGS

 

We are not currently involved in any litigation or similar proceedings.

 

RECENT SALES OF UNREGISTERED SECURITIES

 

Share Exchange Agreement

 

On May 11, 2017, Cyberspace Vita, Inc., a Nevada corporation (the “ Company ”) entered into a share exchange agreement (the “ Exchange Agreement ”) with Peter Zachariou, the majority shareholder of the Company (the “ Shareholder ”), Project 1493, LLC, a limited liability company organized under the laws of the Commonwealth of Puerto Rico (“ 1493 ”), and the sole member of 1493 (the “ Member ”), pursuant to which the Member transferred all of the outstanding membership interests of 1493 to the Company in exchange for 16,690,912 restricted shares of common stock of the Company (the “ Exchange Shares ”) and warrants to purchase up to 3,000,000 shares of common stock at an exercise price of $0.50 per share for a period of three (3) years from the date of issuance (the “ Exchange Warrants ”, and together with the Exchange Shares, the “ Exchange Securities ”). The transaction closed on May 11, 2017 (the “ Closing Date ”).

 

In connection with the Exchange Agreement, the Company is withholding one hundred thousand (100,000) shares of common stock of the Shareholder for a period of six (6) months, subject to certain post-closing conditions.

 

As a result, 1493 became a wholly-owned subsidiary of the Company, and the Member acquired a controlling interest in the Company (the “ Share Exchange ”). For accounting purposes, the Share Exchange was treated as an acquisition of Cyberspace Vita and a recapitalization of 1493. 1493 is the accounting acquirer, and the results of its operations carryover. Accordingly, the operations of Cyberspace Vita are not carried over and have been adjusted to $0.

 

In issuing the Exchange Securities to the Member, the Company relied upon the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, as, among other things, the transaction did not involve a public offering and the securities were acquired for investment purposes only and not with a view to or for sale in connection with any distribution thereof.

 

Debt Exchange Agreement

 

On May 11, 2017, the Company also entered into a debt exchange agreement (the “ Debt Exchange ”) with Fountainhead Capital Management Limited (“ Fountainhead ”), a related party, whereby Fountainhead agreed to cancel a promissory note in the aggregate amount of $510,652 plus accrued interest of $129,265. As consideration, Fountainhead received an aggregate of 1,800,000 shares of the Company’s common stock, of which 200,000 shares of common stock have already been issued.

 

Private Placement Offering

 

On May 11, 2017, the Company entered into a subscription agreement (the “ Subscription Agreement ”) with selected accredited investors (each, an “ Investor ” and, collectively, the “ Investors ”). Pursuant to the terms of the Subscription Agreement, the Company had the right to sell in a private placement (the “ Offering ”) a minimum of $1,000,000 and up to a maximum of $3,300,000 of its securities, consisting of (i) shares of its common stock (“ Shares ”), and (ii) warrants to purchase shares of common stock (the “ Warrants ”), at a purchase price of $0.39 per Share. Each Warrant shall be exercisable at any time on or after the date of issuance for a period of three (3) years at an exercise price per share equal to $0.50 per share, subject to adjustment as provided in the agreement evidencing the Warrants. The number of shares of common stock underlying the Warrants is equal to 30% of the number of Shares issued to each Investor in the Offering (the “ Warrant Shares ”).

 

The Offering closed on May 11, 2017. The Company issued a total of 8,461,538 Shares and 2,538,462 Warrants to purchase up to 2,538,462 for total gross proceeds of $3,300,000.

 

Other Issuances

 

In connection with the Exchange Agreement, Debt Exchange and Subscription Agreement, the Company issued to certain consultants an aggregate of 3,000,000 shares of common stock and warrants to purchase up to an aggregate of 500,000 shares of common stock at an exercise price of $0.50 per share for a period of three (3) years from the date of issuance.

 

  22  

 

 

In connection with the foregoing issuances, the Company relied upon the exemption from securities registration provided by Section 4(a)(2) under the Securities Act for transactions not involving a public offering.

 

DESCRIPTION OF SECURITIES

 

Authorized and Outstanding Capital Stock

 

We have authorized 100,000,000 shares of common stock, par value $0.001, of which 30,000,000 are currently issued and outstanding. We currently have 9,999,000 shares of “blank check” preferred stock, and 1,000 shares of Series A Preferred Stock.

 

Common Stock

 

The holders of our common stock are entitled to one vote per share. In addition, the holders of our common stock will be entitled to receive ratably dividends, if any, declared by our board of directors out of legally available funds; however, the current policy of our board of directors is to retain earnings, if any, for operations and growth. Upon liquidation, dissolution or winding-up, the holders of our common stock will be entitled to share ratably in all assets that are legally available for distribution. The holders of our common stock will have no preemptive, subscription, redemption or conversion rights. The rights, preferences and privileges of holders of our common stock will be subject to, and may be adversely affected by, the rights of the holders of any series of preferred stock, which may be designated solely by action of our board of directors and issued in the future.

 

Series A Preferred Stock

 

The holder of Series A Preferred Stock shall have full voting right and shall vote together as a single class with the holders of the Company’s common stock. The holder of Series A Preferred Stock are entitled to fifty-one percent (51%) of the total votes on all matters brought before shareholders of the Company, regardless of the actual number of shares of Series A Preferred Stock then outstanding. In addition, the Company is prohibited from issuing any other class of preferred stock without first obtaining the prior approval of the holders of Series A Preferred Stock.

 

Blank Check Preferred Stock

 

Our board of directors will be authorized, subject to any limitations prescribed by law, without further vote or action by our stockholders, to issue from time to time shares of preferred stock in one or more series. Each series of preferred stock will have the number of shares, designations, preferences, voting powers, qualifications and special or relative rights or privileges as shall be determined by our board of directors, which may include, among others, dividend rights, voting rights, liquidation preferences, conversion rights and preemptive rights.

 

INDEMNIFICATION OF DIRECTORS AND OFFICERS

 

Neither our Articles of Incorporation nor Bylaws prevent us from indemnifying our officers, directors and agents to the extent permitted under the Nevada Revised Statute (“NRS”). NRS Section 78.7502 provides that a corporation shall indemnify any director, officer, employee or agent of a corporation against expenses, including attorneys’ fees, actually and reasonably incurred by him in connection with any the defense to the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to Section 78.7502(1) or 78.7502(2), or in defense of any claim, issue or matter therein.

 

NRS 78.7502(1) provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding if he: (a) is not liable pursuant to NRS 78.138; or (b) acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.

 

NRS Section 78.7502(2) provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses, including amounts paid in settlement and attorneys’ fees actually and reasonably incurred by him in connection with the defense or settlement of the action or suit if he: (a) is not liable pursuant to NRS 78.138; or (b) acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation. Indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals there from, to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper.

 

  23  

 

 

NRS Section 78.747 provides that except as otherwise provided by specific statute, no director or officer of a corporation is individually liable for a debt or liability of the corporation, unless the director or officer acts as the alter ego of the corporation. The court as a matter of law must determine the question of whether a director or officer acts as the alter ego of a corporation.

 

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed hereby in the Securities Act and we will be governed by the final adjudication of such issue.

 

Item 3.02 Unregistered Sales of Equity Securities.

 

Reference is made to the disclosure made under Item 1.01 and 2.01 which are incorporated herein by reference.

 

Item 4.01 Changes in Registrant’s Certifying Accountant.

 

None.

 

Item 5.01 Changes in Control of Registrant

 

The information set forth in Item 1.01 and Item 2.01 of this Current Report on Form 8-K is incorporated by reference to this Item 5.01.

 

Item 5.02 Departure of Directors and Principal Officers, Election of Directors, Appointment of Principal Officers

 

Reference is made to the disclosure made under Item 1.01 and Item 2.01 which is incorporated herein by reference. For certain biographical and other information regarding the newly appointed officers and directors, see the disclosure under the heading “DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS” under Item 2.01 which disclosure is incorporated herein by reference.

 

Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.

 

On May 11, 2017, the Company filed a certificate of designation designating 1,000 shares of Series A preferred stock (the “ Preferred Stock ”). The holder of Preferred Stock shall have full voting right and shall vote together as a single class with the holders of the Company’s common stock. The holder of the Preferred Stock is entitled to fifty-one percent (51%) of the total votes on all matters brought before shareholders of the Company, regardless of the actual number of shares of Preferred Stock then outstanding. In addition, the Company is prohibited from issuing any other class of preferred stock without first obtaining the prior approval of the holders of Preferred Stock.

 

Item 5.06 Change in Shell Company Status.

 

As a result of the consummation of the Exchange Agreement described in Item 1.01 of this Current Report on Form 8-K, we are no longer a shell corporation as the term is defined in Rule 405 of the Securities Act and Rule 12b-2 of the Exchange Act.

 

Item 9.01 Financial Statements and Exhibits.

 

(a) Financial statements of Project 1493, LLC are included following the signature page.

 

(b) Pro forma financial information. See exhibit 99.1.

 

(c) Shell Company Transactions. See (a) and (b) of this Item 9.01.

 

(d) Exhibits

 

  24  

 

 

Exhibit
Number
  Description
3.1   Articles of Incorporation
3.2   By-Laws
3.3   Certificate of Designation for Series A Preferred Stock
10.1   Share Exchange Agreement, by and among Cyberspace Vita, Inc., Peter Zachariou, the majority shareholder of the Company, Project 1493, LLC, and the sole member of Project 1493, LLC, dated May 11, 2017
10.2   Form of Debt Exchange Agreement
10.3   Form of Subscription Agreement
10.4   Form of Warrant
23.1   Consent of Turner, Stone & Company
99.1   Pro-Forma Financial Information

 

  25  

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

  CYBERSPACE VITA, INC.
     
Dated: May 15, 2017 By: /s/ Leslie Ball
  Name: Leslie Ball
  Title: Chief Executive Officer

 

  26  

 

   

Project 1493, LLC

Balance Sheet

April 30, 2017

      

Assets        
         
Current Assets        
  Prepaid Expenses   $ 21,734  
Total Current Assets     21,734  
         
Other Assets        
  Deposit (Note 7)     150,000  
Total Other Assets     150,000  
         
Total Assets   $ 171,734  
         
Liabilities and Member Equity        
         
Current Liabilities        
   Advances Payable, related party (Note 5)   $ 20,734  
   Short term advance, related parties (Notes 5 and 6)     150,000  
Total Current Liabilities     170,734  
         
Total Liabilities     170,734  
         
Commitments and Contingencies (Note 7)        
         
Member Equity (Note 3)        
         
  Member equity     1,000  
         
Total Member Equity     1,000  
         
Total Liabilities and Member Equity   $ 171,734  

           

The accompanying footnotes are an integral part of this financial statement.

 

  F- 1  
 

 

Project 1493, LLC

Notes to Balance Sheet

April 30, 2017

 

 

1. Nature of Operations

 

Project 1493, LLC (“Company”) was organized under the laws of the Commonwealth of Puerto Rico on March 17, 2017. The Company was formerly known as Grey Finland Advisors, LLC (“Grey”), which was organized under the laws of the Commonwealth of Puerto Rico on March 24, 2011, and has had no operations since that time. The Company filed a Certificate of Restoration on March 17, 2017 and elected to change its name to Project 1493, LLC.

 

The Company will operate licensed cannabis dispensaries throughout Puerto Rico. Currently, the Company is focused on identifying sites, purchasing pre-qualifications to dispensary licenses, building sites and opening dispensaries for service. The Company has executed two Memorandums of Understanding (“MOU”) to acquire four cannabis dispensaries. (Note 7).

 

Omitted financial statements

 

Since the Company has had nominal activity since its inception through April 30, 2017, the Company is omitting the Statement of Operations and Statement of Cash Flows. The Company has had nominal equity activity since inception through April 30, 2017. As of April 30, 2017 the sole member contributed $1,000. See Note 3.

 

2. Summary of Significant Accounting Policies

 

Basis of Presentation

 

The balance sheet of the Company has been prepared in accordance with generally accepted accounting principles in the United States of America.

 

Use of Estimates and Assumptions

 

The preparation of the balance sheet in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet.

 

Cash and cash equivalents

 

The Company considers all cash on hand, cash in banks and all highly liquid debt instruments purchased with a maturity of three months or less to be cash and cash equivalents. At times, cash and cash equivalent balances at a limited number of banks and financial institutions may exceed insurable amounts. The Company believes it mitigates its risks by depositing cash or investing in cash equivalents in major financial institutions. At April 30, 2017 the Company had no cash.

 

Revenue Recognition

 

The Company will recognize revenue when:

 

  Persuasive evidence of an arrangement exists:
  Delivery has occurred;
  Price is fixed or determinable; and
  Collectability is reasonably assured.

 

  F- 2  
 

 

The Company follows the provisions of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic (“ASC”) 605, “Revenue Recognition”, which includes the guidelines of Staff Accounting Bulletin No. 104 as described above.

 

Fair Value of Financial Instruments

 

The carrying value of the Company’s current liabilities approximates fair value because of the short maturity of these instruments. Unless otherwise noted, it is management’s opinion the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments.

 

Income Taxes

 

The Company will follow the accrual method of accounting for income taxes. Under this method, deferred income tax assets and liabilities are recognized for the estimated tax consequences attributable to differences between the financial statement carrying values and their respective income tax basis (temporary differences). The effect on the deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company was organized under the laws of the Commonwealth of Puerto Rico, and therefore will be taxed at normal U.S. Federal corporate income tax rates.

 

Recent Accounting Pronouncements

 

As of April 30, 2017 and through May 10, 2017, there were several new accounting pronouncements issued by the Financial Accounting Standards Board. Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s financial position or future operating results. The Company will monitor these emerging issues to assess any potential future impact on its financial statements.

 

3. Member Equity

 

On March 17, 2017, the Company authorized the issuance of 1,000 units to Peach Management, LLC (“Peach”) for $1,000, used for prepaid expenses on behalf of the Company. Peach is beneficially owned 100% by Christian Briggs, the Company’s sole manager.

 

4. Income Taxes

 

Deferred income taxes are reported using the liability method. Deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Current and accumulated deferred tax benefit will be at the effective U.S. Federal corporate income tax rates.

 

  F- 3  
 

 

5. Related Party Transactions

 

Since inception of the Company through April 30, 2017, Peach advanced $20,734, unsecured and payable upon demand, to the Company for various prepaid expenses for professional fees and restoration fees for the Company to be in compliance with Puerto Rico laws. The advance does not bear interest or accrue interest.

 

On April 18, 2017 Peach made a short term advance of $150,000 to the Company. The proceeds of the loan were used as a 50% deposit for the purchase of the first three dispensaries, according to the Memorandum of Understanding with Puerto Rico Industrial Commercial Holdings Biotech Corporation (“PRICHBC”), an unrelated third party. See Note 7.

 

6. Short Term Advance

 

On April 18, 2017 the Company entered into an unsecured short term advance from Peach of $150,000, payable upon demand. The short term advance does not carry an interest rate and is not subject to an interest accrual.

 

7. Commitments and Contingencies

 

Reverse Acquisition

 

On March 22, 2017 the Company entered a binding term sheet (“term sheet”) with Cyberspace Vita, Inc. (“CVI”) whereby CVI will acquire 100% of the membership interests of the Company. The anticipated closing date was April 1, 2017, but was amended on April 28, 2017 to extend the transaction until May 31, 2017. CVI is a publicly traded company listed on the OTC markets. The Company will enter into a securities exchange agreement with CVI which exchange shall qualify as a tax-free reorganization under the U.S. Internal Revenue Code, and pursuant to which all of the outstanding membership interests of the Company will be exchanged for shares of CVI common stock. In the exchange, Peach will receive 16,178,091 CVI shares.

 

Escrow Agreement

 

On April 18, 2017, the Company entered into an escrow agreement with PRIHBC with the intention of purchasing three medicinal cannabis dispensaries for $300,000. The agreement states the funds will be held by the escrow agent, Sichenzia Ross Ference Kesner (“Sichenzia”). The Company deposited $150,000 into the escrow account as of April 30, 2017. The escrow agreement expires June 2, 2017. If the Company determines that a misrepresentation of fact has been made, the Company will be entitled to the full reimbursement of any amount that may be held in escrow and termination of the agreement.

 

Memorandum of Understanding – PRIHBC

 

On April 19, 2017, the Company entered into a Memorandum of Understanding (“MOU”) with PRIHBC to purchase three medical marijuana dispensaries in Puerto Rico for $300,000. The Company deposited $150,000 into escrow with Sichenzia for a deposit towards the purchase price. The agreement sells all legal rights, permits, licenses, leasing contracts and assets of the three dispensaries from PRIHBC to the Company. The Company is in the 45 day due diligence period, which ends June 2, 2017 and the funds have not been disbursed from escrow. During the due diligence period, the Company has exclusive negotiation rights regarding the proposed acquisition. The Company can terminate the MOU for misrepresentation of material facts with the due diligence period or failure to cooperate with the Company during the due diligence period as it may pertain to furnishing material information related to the representations made by PRIHBC.

 

  F- 4  
 

 

Memorandum of Understanding – Good Vibes Distributors, LLC (“Good Vibes”)

 

On April 6, 2017, the Company entered into a MOU with Good Vibes to purchase one medicinal cannabis dispensary in Puerto Rico for $75,000. The MOU called for $7,500 funded into escrow with Sichenzia for a deposit towards the purchase price. As of May 10, 2017 the deposit has not been made to the escrow account. The agreement sells all assets, rights and licenses from Good Vibes to the Company. The Company is in the 45 day due diligence period which ends on May 21, 2017. During the due diligence period, the Company has exclusive negotiation rights regarding the proposed acquisition. The agreement establishes a non-compete clause with Good Vibes for a five mile radius of the dispensary. The Company can terminate the MOU for misrepresentation of material facts with the due diligence period or failure to cooperate with the Company during the due diligence period as it may pertain to furnishing material information related to the representations made by Good Vibes. If there is a misrepresentation by Good Vibes, the Company is entitled to any amount held in escrow and $50,000 for legal and accounting expenses incurred during the due diligence period.

 

Long Term Supply Agreement

 

On April 18, 2017 the Company entered into a long term supply agreement (“supply agreement”) with to purchase flower and manufactured products for the dispensaries upon approval of the appropriate licensing by the Puerto Rico Department of Health. The Company will purchase at least 50% of all flower and manufactured products to be sold in the dispensaries owned by the Company or its affiliates. The supply agreement is valid for ten years from the moment of its coming into effect. If neither party announces termination of the supply agreement thirty days before its stated expiration, the supply agreement shall be automatically extended for each subsequent year with no limit of years.

 

Risk of Prosecution for Marijuana-Related Companies

 

A company that is connected to the marijuana industry must be aware that marijuana-related companies may be at risk of federal, and perhaps state, criminal prosecution. The Department of Treasury recently issued guidance noting: “The Controlled Substances Act” (“CSA”) makes it illegal under federal law to manufacture, distribute, or dispense marijuana. Many states impose and enforce similar prohibitions. Notwithstanding the federal ban, as of the date of this guidance, 20 states and the District of Columbia have legalized certain marijuana-related activity.

 

  F- 5  
 

 

 

     
   

 

 

     
   

 

 

 

     
   

 

 

     
   

 

 

 

     
   

 

 

     
   

 

 

     
   

 

 

     
   

 

 

     
   

 

 

     
   

 

 

     
   

 

 

     
   

 

 

 

CYBERSPACE VITA, INC.

 

CERTIFICATE OF DESIGNATION OF PREFERENCES,

RIGHTS AND LIMITATIONS

OF

SERIES A PREFERRED STOCK

 

PURSUANT TO SECTION 78 OF THE

NEVADA REVISED STATUTES

 

THE UNDERSIGNED , the Chief Executive Officer of CYBERSPACE VITA, INC., a Nevada corporation (the “ Corporation ”) DOES HEREBY CERTIFY that the following resolutions were duly adopted by the Board of Directors of the Corporation by unanimous written consent on May 11, 2017;

 

WHEREAS , the Board of Directors is authorized within the limitations and restrictions stated in the Articles of Incorporation of the Corporation (the “ Articles ”), to provide by resolution or resolutions for the issuance of such series of Preferred Stock, par value $0.001 per share, of the Corporation, with such designations, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions, as the Corporation’s Board of Directors shall fix by resolution or resolutions providing for the issuance thereof duly adopted by the Board of Directors; and

 

WHEREAS , it is the desire of the Board of Directors, pursuant to its authority as aforesaid, to authorize and fix the terms of a new series of Preferred Stock and the number of shares constituting such series.

 

NOW, THEREFORE, BE IT RESOLVED:

 

Section 1. Designation and Authorized Shares . The Corporation shall be authorized to issue one thousand (1,000) shares of Series A Preferred Stock, par value $0.001 per share (the “ Series A Preferred Stock ”).

 

Section 2. Stated Value. Each share of Series A Preferred Stock shall have a stated value of $0.001 (the “ Stated Value ”).

 

Section 3. Liquidation .

 

(a) Upon the liquidation, dissolution or winding up of the business of the Corporation, whether voluntary or involuntary, each holder of Series A Preferred Stock shall be entitled to receive, for each share thereof, out of assets of the Corporation legally available therefor, a preferential amount in cash equal to (and not more than) the product obtained by multiplying such holders’ shares of Series A Preferred Stock by the Stated Value. All preferential amounts to be paid to the holders of Series A Preferred Stock in connection with such liquidation, dissolution or winding up shall be paid before the payment or setting apart for payment of any amount for, or the distribution of any assets of the Corporation to the holders of (i) any other class or series of capital stock whose terms expressly provide that the holders of Series A Preferred Stock should receive preferential payment with respect to such distribution (to the extent of such preference) and (ii) the Corporation’s common stock (the “ Common Stock ”). If upon any such distribution the assets of the Corporation shall be insufficient to pay the holders of the outstanding shares of Series A Preferred Stock (or the holders of any class or series of capital stock ranking on a parity with the Series A Preferred Stock as to distributions in the event of a liquidation, dissolution or winding up of the Corporation) the full amounts to which they shall be entitled, such holders shall share ratably in any distribution of assets in accordance with the sums which would be payable on such distribution if all sums payable thereon were paid in full.

 

     

 

 

(b) Any distribution in connection with the liquidation, dissolution or winding up of the Corporation, or any bankruptcy or insolvency proceeding, shall be made in cash to the extent possible. Whenever any such distribution shall be paid in property other than cash, the value of such distribution shall be the fair market value of such property as determined in good faith by the Board of Directors of the Corporation.

 

Section 4. Voting . Except as otherwise expressly required by law or this Section 4, the holders of Series A Preferred Stock shall be entitled, collectively, to 51% of the total votes on all matters brought before the shareholders of the Company, regardless of the actual number of shares of Series A Preferred Stock then outstanding and owned on the record date for the determination of shareholders entitled to vote on such matter or, if no such record date is established, on the date such vote is taken or any written consent of shareholders is solicited. Except as otherwise required by law or this Section 4, the holders of shares of Series A Preferred Stock shall vote together with the holders of Common Stock on all matters and shall not vote as a separate class.

 

(a) Additional Preferred Stock Designations. The Corporation shall be prohibited from issuing any other class of preferred stock without first obtaining the prior approval of all of the holders of Series A Preferred Stock.

 

Section 5. Other Provisions . The Corporation and its transfer agent, if any, for the Series A Preferred Stock may deem and treat the record holder of any shares of Series A Preferred Stock as reflected on the books and records of the Corporation as the sole true and lawful owner thereof for all purposes, and neither the Corporation nor any such transfer agent shall be affected by any notice to the contrary.

 

IN WITNESS WHEREOF , the undersigned have executed this Certificate of Designation this 11th day of May, 2017.

 

  CYBERSPACE VITA, INC.  
     
  By: /s/ Alexander Diener.
  Name: Alexander Diener.
  Title: Chief Executive Officer

 

     

 

 

SHARE EXCHANGE AGREEMENT

 

This SHARE EXCHANGE AGREEMENT (this “ Agreement ”), dated as of May 11, 2017, is by and among Cyberspace Vita, Inc., a Nevada corporation (the “ Parent ”), Peter Zachariou (“ Zachariou”), the majority shareholder of the Parent, Project 1493, LLC, a limited liability company organized under the laws of the Commonwealth of Puerto Rico (the “ Company ”), and the sole Member of the Company named in the signature page hereof (the “ Member ”). Each of the parties to this Agreement is individually referred to herein as a “ Party ” and collectively as the “ Parties .”

 

WHEREAS , the undersigned Member currently owns all of the issued and outstanding membership interest (“ Interests ”) of the Company.

 

WHEREAS , the undersigned Member has agreed to transfer the Interests in exchange (the Exchange”) for (i) 16,690,912 restricted shares of common stock of the Parent (the “ Exchange Shares ”); (ii) three (3) year warrants to purchase up to 3,000,000 shares of common stock of the Parent at an exercise price of $0.50 per share the “ Exchange Warrants” ) and (iii) 1,000 shares of preferred stock of the Parent that will grant the holders thereof fifty-one percent (51%) voting power (the “ Preferred Shares ”) Collectively, the Exchange Shares, the Exchange Warrants, and the Preferred Shares are referred to herein as the “ Exchange Securities ”).

 

WHEREAS , the Exchange is intended to constitute a reorganization within the meaning of the Internal Revenue Code of 1986, as amended (the “ Code ”), or such other tax free reorganization or restructuring provisions as may be available under the Code.

 

WHEREAS , the Board of Directors of the Parent and the members of the Company have determined that it is desirable to effectuate the Exchange.

 

WHEREAS , immediately prior to the closing of the Exchange, Zachariou entered into a Share Exchange Agreement with a certain creditor of the Parent, pursuant to which Zachariou has the right to receive an aggregate of 1,800,000 shares of the Company’s common stock.

 

WHEREAS , Zachariou has agreed that of the 1,800,000 shares issuable to him, 100,000 shares shall be held by Sichenzia Ross Ference Kesner LLP, as escrow agent, for a period of six (6) months following the Closing, to secure the performance of the Parent’s obligations under this Agreement

 

NOW THEREFORE , for good and valuable consideration the receipt and sufficiency is hereby acknowledged, the Parties hereto intending to be legally bound hereby agree as follows:

 

ARTICLE I

 

The Exchange

 

SECTION 1.01. Exchanges by the Parties . At the Closing (as defined in Section 1.02 below), (i) the Member shall sell, transfer, convey, assign and deliver to the Parent, the Interests, free and clear of all Liens, and (ii) the Parent shall, simultaneously therewith, deliver to the Member a certificate representing the Exchange Shares, the Exchange Warrants, and a certificate representing the Preferred Shares.

 

     
   

 

SECTION 1.02. Closing . The closing (the “ Closing ”) of the transactions contemplated by this Agreement (the “ Transactions ”) shall take place on the Effective Date (as defined below) at such location to be determined by the Company and Parent, commencing upon the satisfaction or waiver of all conditions and obligations of the Parties to consummate the Transactions contemplated hereby, as more fully set forth in Article VI herein (other than conditions and obligations with respect to the actions that the respective Parties will take at Closing) or such other date and time as the Parties may mutually determine (the “ Closing Date ”). For purposes hereof, the effective date of the Closing (the “ Effective Date ”) shall be at the time of satisfaction, in full, of the conditions set forth in Article VI herein.

 

ARTICLE II

 

Representations and Warranties of the Member

 

The Member hereby represents and warrants to the Parent, as follows:

 

SECTION 2.01. Good Title . The Member is the record and beneficial owner of the Interests, and has good and marketable title thereto, with the right and authority to sell and deliver such Interests to Parent as provided herein. Upon registering of the Parent as the acquirer of such Interests in the share register of the Company, the Parent will receive good title to such Interests, free and clear of all liens, security interests, pledges, equities and claims of any kind, voting trusts and other encumbrances (collectively, “ Liens ”).

 

SECTION 2.02. Power and Authority . All acts required to be taken by the Member in order to enter into this Agreement and to carry out the Transactions as contemplated herein have been properly taken. This Agreement constitutes a legal, valid and binding obligation of the Member, enforceable against them in accordance with the terms hereof.

 

SECTION 2.03. No Conflicts . The execution and delivery of this Agreement by the Member, and its performance of its obligations hereunder in accordance with the terms hereof: (i) will not require the consent of any third party or any federal, state, local or foreign government or any court of competent jurisdiction, administrative agency or commission or other governmental authority or instrumentality, domestic or foreign (“ Governmental Entity ”) under any statutes, laws, ordinances, rules, regulations, orders, writs, injunctions, judgments, or decrees (collectively, “ Laws ”); (ii) will not violate any Laws applicable to the Member; and (iii) will not violate or breach any contractual obligation to which they are a party.

 

SECTION 2.04. No Finder’s Fee . The Member has created any obligation for any finder’s, investment banker’s or broker’s fee in connection with the Transactions that the Parent will be responsible for.

 

SECTION 2.05. Purchase Entirely for Own Account. The Exchanged Securities proposed to be acquired by the Member hereunder will be acquired for investment purposes, for its own account, and not with a view to the resale or distribution of any part thereof, and the Member has no present intention of selling or otherwise distributing the Exchanged Securities except in compliance with applicable securities laws.

 

SECTION 2.06. Available Information . The Member has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of an investment in the Parent.

 

    2  
   

 

SECTION 2.07. Non-Registration . The Member understands that the Exchanged Securities have not been registered under the Securities Act of 1933, as amended (the “ Securities Act ”) and, if issued in accordance with the provisions of this Agreement, will be issued by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Member’s representations as expressed herein.

 

SECTION 2.08. Restricted Securities . The Member understands that the Exchanged Securities is characterized as “restricted securities” under the Securities Act inasmuch as this Agreement contemplates that, if acquired by the Member pursuant hereto, the Exchanged Securities would be acquired in a transaction not involving a public offering. The Member further acknowledges that if the Exchanged Securities is issued to the Member in accordance with the provisions of this Agreement, such Exchanged Securities may not be resold without registration under the Securities Act or the existence of an exemption therefrom. The Member represents that it is familiar with Rule 144 promulgated under the Securities Act, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act.

 

SECTION 2.09. Legends . The Member understands that the shares of Exchange Securities will bear the following legend or another legend that is similar to the following:

 

THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.

 

and any legend required by the “blue sky” laws of any state to the extent such laws are applicable to the securities represented by the certificate so legended.

 

SECTION 2.10. Accredited Investor . The Member is an “accredited investor” within the meaning of Rule 501 under the Securities Act and the Member was not organized for the specific purpose of acquiring the Exchanged Securities.

 

SECTION 2.11 Member Acknowledgment. The Member acknowledges that it has read the representations and warranties of the Company set forth in Article III herein and such representations and warranties are, to the best of his or her knowledge, true and correct as of the date hereof.

 

    3  
   

 

ARTICLE III

 

Representations and Warranties of the Company

 

The Company represents and warrants to the Parent as follows:

 

SECTION 3.01. Organization, Standing and Power . The Company is duly organized, validly existing and in good standing under the laws of Puerto Rico and has the corporate power and authority and possesses all governmental franchises, licenses, permits, authorizations and approvals necessary to enable it to own, lease or otherwise hold its properties and assets and to conduct its businesses as presently conducted, other than such franchises, licenses, permits, authorizations and approvals the lack of which, individually or in the aggregate, has not had and would not reasonably be expected to have a material adverse effect on the Company, a material adverse effect on the ability of the Company to perform its obligations under this Agreement or on the ability of the Company to consummate the Transactions (a “ Company Material Adverse Effect ”). The Company is duly qualified to do business in each jurisdiction where the nature of its business or its ownership or leasing of its properties make such qualification necessary, except where the failure to so qualify would not reasonably be expected to have a Company Material Adverse Effect. The Company has delivered to the Parent true and complete copies of the organization documents of the Company in effect as of the date of this Agreement (the “ Company Charter Documents ”).

 

SECTION 3.02. Capital Structure . Apart from all the Interests of the Member, no other class of Interests and other voting or non-voting securities of the Company are issued, reserved for issuance or outstanding. All outstanding Interests of the Company are duly authorized, validly issued, fully paid and non-assessable and not subject to or issued in violation of any purchase option, call option, right of first refusal, preemptive right, subscription right or any similar right under any provision of the applicable corporate laws of its state of incorporation, the Company Charter Documents or any Contract (as defined in Section 3.04) to which the Company is a party or otherwise bound. There are no bonds, debentures, notes or other indebtedness of the Company having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which holders of Interests may vote (“ Voting Company Debt ”).

 

SECTION 3.03. Authority; Execution and Delivery; Enforceability . The Company has all requisite corporate power and authority to execute and deliver this Agreement and to consummate the Transactions. The execution and delivery by the Company of this Agreement and the consummation by the Company of the Transactions have been duly authorized and approved by the Board of Directors of the Company and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement and the Transactions. When executed and delivered, this Agreement will be enforceable against the Company in accordance with its terms, subject to bankruptcy, insolvency and similar laws of general applicability as to which the Company is subject.

 

SECTION 3.04. No Conflicts; Consents . The execution and delivery by the Company of this Agreement does not, and the consummation of the Transactions and compliance with the terms hereof and thereof will not, conflict with, or result in any violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to loss of a material benefit under, or result in the creation of any Lien upon any of the properties or assets of the Company under any provision of (i) the Company Charter Documents, (ii) any material contract, lease, license, indenture, note, bond, agreement, permit, concession, franchise or other instrument (a “ Contract ”) to which the Company is a party or by which any of their respective properties or assets is bound or (iii) any material judgment, order or decree (“ Judgment ”) or material Law applicable to the Company or its properties or assets, other than, in the case of clauses (ii) and (iii) above, any such items that, individually or in the aggregate, have not had and would not reasonably be expected to have a Company Material Adverse Effect.

 

    4  
   

 

SECTION 3.05. Taxes .

 

(a)       The Company has timely filed, or has caused to be timely filed on its behalf, all Tax Returns required to be filed by it, and all such Tax Returns are true, complete and accurate, except to the extent any failure to file or any inaccuracies in any filed Tax Returns, individually or in the aggregate, have not had and would not reasonably be expected to have a Company Material Adverse Effect. All Taxes shown to be due on such Tax Returns, or otherwise owed, have been timely paid, except to the extent that any failure to pay, individually or in the aggregate, has not had and would not reasonably be expected to have a Company Material Adverse Effect. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim.

 

(b)       If applicable, the Company has established an adequate reserve reflected on its financial statements for all Taxes payable by the Company (in addition to any reserve for deferred Taxes to reflect timing differences between book and Tax items) for all Taxable periods and portions thereof through the date of such financial statements. No deficiency with respect to any Taxes has been proposed, asserted or assessed against the Company, and no requests for waivers of the time to assess any such Taxes are pending, except to the extent any such deficiency or request for waiver, individually or in the aggregate, has not had and would not reasonably be expected to have a Company Material Adverse Effect.

 

(c)       For purposes of this Agreement:

 

Taxes ” includes all forms of taxation, whenever created or imposed, and whether of the United States or elsewhere, and whether imposed by a local, municipal, governmental, state, foreign, federal or other Governmental Entity, or in connection with any agreement with respect to Taxes, including all interest, penalties and additions imposed with respect to such amounts.

 

Tax Return ” means all federal, state, local, provincial and foreign Tax returns, declarations, statements, reports, schedules, forms and information returns and any amended Tax return relating to Taxes.

 

SECTION 3.06. Litigation . There is no action, suit, inquiry, notice of violation, proceeding (including any partial proceeding such as a deposition) or investigation pending or threatened in writing against or affecting the Company, or any of its properties before or by any court, arbitrator, governmental or administrative agency, regulatory authority whether federal, state, county, local or foreign (“ Action ”) which (i) adversely affects or challenges the legality, validity or enforceability of any of this Agreement or (ii) could, if there were an unfavorable decision, individually or in the aggregate, have or reasonably be expected to result in a Company Material Adverse Effect. Neither the Company nor any officer thereof (in his or her capacity as such), is or has been the subject of any Action involving a claim or violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty.

 

SECTION 3.07. Compliance with Applicable Laws . The Company is in compliance with all applicable Laws except for instances of noncompliance that, individually and in the aggregate, have not had and would not reasonably be expected to have a Company Material Adverse Effect. This Section 3.07 does not relate to matters with respect to Taxes, which are the subject of Section 3.05.

 

SECTION 3.08. Brokers; Schedule of Fees and Expenses . No broker, investment banker, financial advisor or other person is entitled to any broker’s, finder’s, financial advisor’s or other similar fee or commission in connection with the Transactions based upon arrangements made by or on behalf of the Company.

 

    5  
   

 

SECTION 3.09. Contracts . There are no Contracts that are material to the business, properties, assets, condition (financial or otherwise), results of operations or prospects of the Company taken as a whole. The Company is not in violation of or in default under (nor does there exist any condition which upon the passage of time or the giving of notice would cause such a violation of or default under) any Contract to which it is a party or by which it or any of its properties or assets is bound, except for violations or defaults that would not, individually or in the aggregate, reasonably be expected to result in a Company Material Adverse Effect.

 

SECTION 3.10. Title to Properties . The Company has sufficient title to, or valid leasehold interests in, all of its properties and assets used in the conduct of its businesses. All such assets and properties, other than assets and properties in which the Company has leasehold interests, are free and clear of all Liens other than those Liens that, in the aggregate, do not and will not materially interfere with the ability of the Company to conduct business as currently conducted.

 

SECTION 3.11. Insurance . The Company does not hold any insurance policy.

 

SECTION 3.12. Labor Matters . There are no collective bargaining or other labor union agreements to which the Company is a party or by which it is bound. No material labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company.

 

SECTION 3.13. Investment Company . The Company is not, and is not an affiliate of, and immediately following the Closing will not have become, an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

 

SECTION 3.14. Disclosure . The Company confirms that neither it nor any person acting on its behalf has provided the Member or its respective agents or counsel with any information that the Company believes constitutes material, non-public information, except insofar as the existence and terms of the proposed transactions hereunder may constitute such information and except for information that will be disclosed by the Parent under a current report on Form 8-K filed no later than four (4) business days after the Closing. The Company understands and confirms that the Parent will rely on the foregoing representations and covenants in effecting transactions in securities of the Parent. All disclosure provided to the Parent regarding the Company, its business and the Transactions, furnished by or on behalf of the Company (including the Company’s representations and warranties set forth in this Agreement) are true and correct and do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading.

 

SECTION 3.15. Absence of Certain Changes or Events . Except in connection with the Transactions, since inception, the Company has conducted its business only in the ordinary course, and during such period there has not been:

 

(a)       any change in the assets, liabilities, financial condition or operating results of the Company, except changes in the ordinary course of business that have not caused, in the aggregate, a Company Material Adverse Effect;

 

(b)       any damage, destruction or loss, whether or not covered by insurance, that would have a Company Material Adverse Effect;

 

(c)       any waiver or compromise by the Company of a valuable right or of a material debt owed to it;

 

    6  
   

 

(d)       any satisfaction or discharge of any lien, claim, or encumbrance or payment of any obligation by the Company, except in the ordinary course of business and the satisfaction or discharge of which would not have a Company Material Adverse Effect;

 

(e)       any material change to a material Contract by which the Company or any of its assets is bound or subject;

 

(f)       any mortgage, pledge, transfer of a security interest in, or lien, created by the Company, with respect to any of its material properties or assets, except liens for taxes not yet due or payable and liens that arise in the ordinary course of business and do not materially impair the Company’s ownership or use of such property or assets;

 

(g)       any loans or guarantees made by the Company to or for the benefit of its employees, officers or directors, or any members of their immediate families, other than travel advances and other advances made in the ordinary course of its business;

 

(h)       any declaration or payment of dividend or distribution of cash or other property to the Member or any purchase, redemption or agreements to purchase or redeem any Interests;

 

(i)       any issuance of equity securities to any officer or affiliate; or

 

(j)       any arrangement or commitment by the Company to do any of the things described in this Section.

 

SECTION 3.16. Foreign Corrupt Practices . Neither the Company, nor, to the Company’s knowledge, any officer, agent, employee or other person acting on behalf of the Company has, in the course of its actions for, or on behalf of, the Company (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; (iii) violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.

 

SECTION 3.17. No Liabilities . As of the Closing Date, the Company will have no liabilities or obligations whatsoever.

 

ARTICLE IV

 

Representations and Warranties of the Parent

 

The Parent represents and warrants as follows to the Member and the Company that:

 

SECTION 4.01. Organization, Standing and Power . The Parent is duly organized, validly existing and in good standing under the laws of the State of Nevada and has full corporate power and authority and possesses all governmental franchises, licenses, permits, authorizations and approvals necessary to enable it to own, lease or otherwise hold its properties and assets and to conduct its businesses as presently conducted, other than such franchises, licenses, permits, authorizations and approvals the lack of which, individually or in the aggregate, has not had and would not reasonably be expected to have a material adverse effect on the Parent, a material adverse effect on the ability of the Parent to perform its obligations under this Agreement or on the ability of the Parent to consummate the Transactions (a “ Parent Material Adverse Effect ”). The Parent is duly qualified to do business in each jurisdiction where the nature of its business or their ownership or leasing of its properties make such qualification necessary and where the failure to so qualify would reasonably be expected to have a Parent Material Adverse Effect. The Parent has delivered to the Company true and complete copies of the Articles of Incorporation of the Parent, as amended to the date of this Agreement (as so amended, the “ Parent Charter ”), and the Bylaws of the Parent, as amended to the date of this Agreement (as so amended, the “ Parent Bylaws ”).

 

    7  
   

 

SECTION 4.02. Subsidiaries; Equity Interests . The Parent does not own, directly or indirectly, any capital stock, membership interest, partnership interest, joint venture interest or other equity interest in any person.

 

SECTION 4.03. Capital Structure . The authorized share capital of the Parent consists of: (i) One Hundred Million (100,000,000) shares of common stock with 247,550 shares issued and outstanding immediately prior to the execution of this Agreement; (ii) Nine Million Nine Hundred Ninety Nine (9,999,000) shares of “blank check” preferred stock authorized, none of which is currently issued and outstanding immediately prior to the execution of this Agreement; and (iii) One Thousand (1,000) shares of Series A Preferred Stock to be issued to the Member pursuant to the terms of this Agreement. All outstanding shares of the capital stock of the Parent are duly authorized, validly issued, fully paid and non-assessable and not subject to or issued in violation of any purchase option, call option, right of first refusal, preemptive right, subscription right or any similar right under any provision of the applicable corporate laws of its state of incorporation, the Parent Charter, the Parent Bylaws or any Contract to which the Parent is a party or otherwise bound. There are no bonds, debentures, notes or other indebtedness of the Parent having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which holders of Parent’s capital stock may vote (“ Voting Parent Debt ”). As of the date of this Agreement, there are no options, warrants, rights, convertible or exchangeable securities, “phantom” stock rights, stock appreciation rights, stock-based performance units, commitments, Contracts, arrangements or undertakings of any kind to which the Parent is a party or by which it is bound (i) obligating the Parent to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other equity interests in, or any security convertible or exercisable for or exchangeable into any capital stock of or other equity interest in, the Parent or any Voting Parent Debt, (ii) obligating the Parent to issue, grant, extend or enter into any such option, warrant, call, right, security, commitment, Contract, arrangement or undertaking or (iii) that give any person the right to receive any economic benefit or right similar to or derived from the economic benefits and rights occurring to holders of the capital stock of the Parent. As of the date of this Agreement, there are no outstanding contractual obligations of the Parent to repurchase, redeem or otherwise acquire any shares of capital stock of the Parent. The Parent is not a party to any agreement granting any security holder of the Parent the right to cause the Parent to register shares of the capital stock or other securities of the Parent held by such security holder under the Securities Act. The stockholder list provided to the Company is a current stockholder list generated by its stock transfer agent, and such list accurately reflects all of the issued and outstanding shares of the Parent’s common stock as at the Closing.

 

SECTION 4.04. Authority; Execution and Delivery; Enforceability . The execution and delivery by the Parent of this Agreement and the consummation by the Parent of the Transactions have been duly authorized and approved by the Board of Directors of the Parent and no other corporate proceedings on the part of the Parent are necessary to authorize this Agreement and the Transactions. This Agreement constitutes a legal, valid and binding obligation of the Parent, enforceable against the Parent in accordance with the terms hereof.

 

    8  
   

 

SECTION 4.05. No Conflicts; Consents .

 

(a)       The execution and delivery by the Parent of this Agreement, does not, and the consummation of Transactions and compliance with the terms hereof and thereof will not, conflict with, or result in any violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to loss of a material benefit under, or to increased, additional, accelerated or guaranteed rights or entitlements of any person under, or result in the creation of any Lien upon any of the properties or assets of the Parent under, any provision of (i) the Parent Charter or Parent Bylaws, (ii) any material Contract to which the Parent is a party or by which any of its properties or assets is bound or (iii) subject to the filings and other matters referred to in Section 4.05(b), any material Judgment or material Law applicable to the Parent or its properties or assets, other than, in the case of clauses (ii) and (iii) above, any such items that, individually or in the aggregate, have not had and would not reasonably be expected to have a Parent Material Adverse Effect.

 

(b)       No Consent of, or registration, declaration or filing with, or permit from, any Governmental Entity is required to be obtained or made by or with respect to the Parent in connection with the execution, delivery and performance of this Agreement or the consummation of the Transactions, other than the (A) filing with the SEC of reports under Sections 13 and 16 of the Exchange Act, and (B) filings under state “blue sky” laws, as each may be required in connection with this Agreement and the Transactions.

 

SECTION 4.06. Undisclosed Liabilities . As of the date hereof, all liabilities of the Parent have been paid off and/or settled in full, and shall in no event remain liabilities of the Parent, the Company or the Member following the Closing.

 

SECTION 4.07. Taxes .

 

(a)       Other than as set forth in Other than as set forth in Schedule 4.07 hereof, the Parent has timely filed, or has caused to be timely filed on its behalf, all Tax Returns required to be filed by it, and all such Tax Returns are true, complete and accurate, except to the extent any failure to file, any delinquency in filing or any inaccuracies in any filed Tax Returns, individually or in the aggregate, have not had and would not reasonably be expected to have a Parent Material Adverse Effect. All Taxes shown to be due on such Tax Returns, or otherwise owed, has been timely paid, except to the extent that any failure to pay, individually or in the aggregate, has not had and would not reasonably be expected to have a Parent Material Adverse Effect.

 

(b)       There are no Liens for Taxes (other than for current Taxes not yet due and payable) on the assets of the Parent. The Parent is not bound by any agreement with respect to Taxes.

 

SECTION 4.08. ERISA Compliance; Excess Parachute Payments . The Parent does not, and since its inception never has, maintained, or contributed to any “employee pension benefit plans” (as defined in Section 3(2) of ERISA), “employee welfare benefit plans” (as defined in Section 3(1) of ERISA) or any other Parent Benefit Plan for the benefit of any current or former employees, consultants, officers or directors of Parent.

 

SECTION 4.09. Litigation . There is no Action which (i) adversely affects or challenges the legality, validity or enforceability of any of this Agreement or (ii) could, if there were an unfavorable decision, individually or in the aggregate, have or reasonably be expected to result in a Parent Material Adverse Effect. Neither the Parent nor any director or officer thereof (in his or her capacity as such), is or has been the subject of any Action involving a claim or violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty.

 

    9  
   

 

SECTION 4.10. Compliance with Applicable Laws . The Parent is in compliance with all applicable Laws, except for instances of noncompliance that, individually and in the aggregate, have not had and would not reasonably be expected to have a Parent Material Adverse Effect. The Parent has not received any written communication during the past two years from a Governmental Entity that alleges that the Parent is not in compliance in any material respect with any applicable Law. The Parent is in compliance with all effective requirements of the Sarbanes-Oxley Act of 2002, as amended, and the rules and regulations thereunder, that are applicable to it, except where such noncompliance could not have or reasonably be expected to result in a Parent Material Adverse Effect.

 

SECTION 4.11. Contracts . There are no Contracts that are material to the business, properties, assets, condition (financial or otherwise), results of operations or prospects of the Parent taken as a whole. The Parent is not in violation of or in default under (nor does there exist any condition which upon the passage of time or the giving of notice would cause such a violation of or default under) any Contract to which it is a party or by which it or any of its properties or assets is bound, except for violations or defaults that would not, individually or in the aggregate, reasonably be expected to result in a Parent Material Adverse Effect.

 

SECTION 4.12. Title to Properties . The Parent does not own or lease any properties.

 

SECTION 4.13. Labor Matters . There are no collective bargaining or other labor union agreements to which the Parent is a party or by which it is bound. No material labor dispute exists or, to the knowledge of the Parent, is imminent with respect to any of the employees of the Parent.

 

SECTION 4.14. Transactions With Affiliates and Employees . None of the officers or directors of the Parent and, to the knowledge of the Parent, none of the employees of the Parent is presently a party to any transaction with the Parent or any subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Parent, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner.

 

SECTION 4.15. Application of Takeover Protections . The Parent has taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Parent’s charter documents or the laws of its state of incorporation that is or could become applicable to the Member as a result of the Member and the Parent fulfilling their obligations or exercising their rights under this Agreement, including, without limitation, the issuance of the Exchange Securities and the Member’ ownership of the Exchange Securities.

 

SECTION 4.16. No Additional Agreements . The Parent does not have any agreement or understanding with the Member with respect to the Transactions other than as specified in this Agreement.

 

SECTION 4.17. Investment Company . The Parent is not, and is not an affiliate of, and immediately following the Closing will not have become, an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

 

SECTION 4.18. Disclosure . The Parent confirms that neither it nor any person acting on its behalf has provided any Member or its agents or counsel with any information that the Parent believes constitutes material, non-public information except insofar as the existence and terms of the proposed transactions hereunder may constitute such information and except for information that will be disclosed by the Parent under a current report on Form 8-K filed after the Closing. All disclosure provided to the Member regarding the Parent, its business and the transactions contemplated hereby, furnished by or on behalf of the Parent (including the Parent’s representations and warranties set forth in this Agreement) are true and correct and do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading

 

    10  
   

 

SECTION 4.19. Listing and Maintenance Requirements . The Parent is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with the listing and maintenance requirements for continued listing of its shares of common stock on the trading market on which such shares are currently listed or quoted. The issuance and sale of the shares of the Exchanges Securities under this Agreement does not contravene the rules and regulations of the trading market on which the Parent’s securities are currently listed or quoted, and all approvals of the stockholders of the Parent, as required for the Parent to issue and deliver to the Member the Exchange Securities contemplated by this Agreement, have been obtained.

 

ARTICLE V

 

Deliveries

 

SECTION 5.01. Deliveries of the Member .

 

(a)       Concurrently herewith, the Member shall deliver to the Parent an executed version of this Agreement, which shall constitute a duly executed share transfer power for transfer by the Member of its Interests to the Parent.

 

(b)       At or prior to the Closing, the Member shall deliver to the Parent certificates representing its Interests along with duly executed stock powers for transfer of the Interests to the Parent.

 

SECTION 5.02. Deliveries of the Parent .

 

(a)       Concurrently herewith, the Parent shall deliver to the Member and to the Company, a copy of this Agreement executed by the Parent.

 

(b)       At or prior to the Closing, the Parent shall deliver to the Company:

 

(i)       a certificate from the Parent, signed by its Secretary or Assistant Secretary certifying that the attached copies of the Parent Charter, Parent Bylaws and resolutions of the Board of Directors of the Parent approving this Agreement and the transactions contemplated hereunder, are all true, complete and correct and remain in full force and effect;

 

(ii)       true and accurate copies of all subscription agreements or other documents pursuant to which the Parent has issued shares of its common stock or other securities;

 

(iii)       the Parent’s CIK and CCC codes for the Securities and Exchange Commission’s (“SEC”) Edgar filing system;

 

    11  
   

 

(iv)       a list of the Parent’s shareholders immediately prior to Closing Date and the Parent’s entire corporate books and records;

 

(v)       a letter of resignation from Alexander Diener from all offices and directorships that he holds with the Parent, indicating that such resignation shall be effective upon Closing;

 

(vi)       evidence of the appointment of Leslie Ball was appointed to serve as our Chief Executive Officer and director, and the appointment of Thomas Gingerich was appointed to serve as our Chief Financial Officer, effective upon the Closing;

 

(vii)       such pay-off letters, releases, indemnifications, debt exchange agreements or other documentation confirming that all liabilities of the Parent have been settled in full, as the Company shall require and such documentation shall be in form and substance satisfactory to the Company;

 

(viii)       a copy of the certificate of the Secretary of the State of Nevada certifying that the Certificate of Designation of Series A Preferred Shares, attached as Exhibit A hereof, has been filed and is effective; and

 

(ix)       if requested, the results of UCC, judgment lien and tax lien searches with respect to the Parent, the results of which indicate no liens on the assets of the Parent.

 

(c)        At Closing, the Company shall also deliver to Sichenzia Ross Ference Kesner LLP, as escrow agent, a certificate for one hundred thousand (100,000) shares of the Company’s common stock, issued in the name of Zachariou. The Company and Zachariou understand and agree that such shares shall be held by the escrow agent for a period of six (6) months following the Closing, to secure the performance of the Parent’s obligations under this Agreement.

 

(d)       Promptly following the Closing, the Parent shall deliver to the Member, certificates representing the Exchange Securities to the Member.

 

(d)       Within thirty (30) days following the Closing, the Parent shall provide to the Member documentary evidence that true, complete and accurate Tax Returns, as listed in Schedule 4.07 hereof, have been filed, and that all amounts owed thereunder, if any, shall be paid in full.

 

SECTION 5.03. Deliveries of the Company .

 

(a)       Concurrently herewith, the Company is delivering to the Parent this Agreement executed by the Company.

 

(b)       At or prior to the Closing, the Company shall deliver to the Parent a certificate from the Company, signed by its Secretary or Assistant Secretary certifying that the attached copies of the Company’s Charter Documents and resolutions of the members of the Company approving this Agreement and the Transactions, are all true, complete and correct and remain in full force and effect.

 

    12  
   

 

ARTICLE VI

Conditions to Closing

 

SECTION 6.01. Member and Company Conditions Precedent . The obligations of the Member and the Company to enter into and complete the Closing is subject, at the option of the Member and the Company, to the fulfillment on or prior to the Closing Date of the following conditions.

 

(a)        Representations and Covenants . The representations and warranties of the Parent contained in this Agreement shall be true in all material respects on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date. The Parent shall have performed and complied in all material respects with all covenants and agreements required by this Agreement to be performed or complied with by the Parent on or prior to the Closing Date.

 

(b)        Litigation . No action, suit or proceeding shall have been instituted before any court or governmental or regulatory body or instituted or threatened by any governmental or regulatory body to restrain, modify or prevent the carrying out of the Transactions or to seek damages or a discovery order in connection with such Transactions, or which has or may have, in the reasonable opinion of the Company or the Member, a materially adverse effect on the assets, properties, business, operations or condition (financial or otherwise) of the Parent or the Company.

 

(c)        No Material Adverse Change . There shall not have been any occurrence, event, incident, action, failure to act, or transaction since the date as first set forth above which has had or is reasonably likely to cause a Parent Material Adverse Effect.

 

(d)        Post-Closing Capitalization . At, and immediately after, the Closing, the authorized capitalization, and the number of issued and outstanding shares of capital stock of the Parent, on a fully-diluted basis, shall be as described in Section 4.03.

 

(e)        Deliveries . The deliveries specified in Section 5.02 shall have been made by the Parent.

 

(f)        No Suspensions of Trading; Listing . Trading in the Parent’s securities shall not have been suspended by the SEC or any trading market (except for any suspensions of trading of not more than one trading day solely to permit dissemination of material information regarding the Parent) at any time since the date of execution of this Agreement, and the Parent securities shall have been at all times since such date listed for trading on a trading market.

 

(g)        Satisfactory Completion of Due Diligence . The Company and the Member shall have completed their legal, accounting and business due diligence of the Parent and the results thereof shall be satisfactory to the Company and the Member in their sole and absolute discretion.

 

SECTION 6.02. Parent Conditions Precedent . The obligations of the Parent to enter into and complete the Closing are subject, at the option of the Parent, to the fulfillment on or prior to the Closing Date of the following conditions, any one or more of which may be waived by the Parent in writing.

 

(a)        Representations and Covenants . The representations and warranties of the Member and the Company contained in this Agreement shall be true in all material respects on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date. The Member and the Company shall have performed and complied in all material respects with all covenants and agreements required by this Agreement to be performed or complied with by the Member and the Company on or prior to the Closing Date.

 

(b)        Litigation . No action, suit or proceeding shall have been instituted before any court or governmental or regulatory body or instituted or threatened by any governmental or regulatory body to restrain, modify or prevent the carrying out of the Transactions or to seek damages or a discovery order in connection with such Transactions, or which has or may have, in the reasonable opinion of the Parent, a materially adverse effect on the assets, properties, business, operations or condition (financial or otherwise) of the Company.

 

    13  
   

 

(c)        No Material Adverse Change . There shall not have been any occurrence, event, incident, action, failure to act, or transaction since inception which has had or is reasonably likely to cause a Company Material Adverse Effect.

 

(d)        Deliveries . The deliveries specified in Section 5.01 and Section 5.03 shall have been made by the Member and the Company, respectively.

 

(e)        Post-Closing Capitalization . At, and immediately after, the Closing, the authorized capitalization, and the number of issued and outstanding shares of the Company, on a fully-diluted basis, shall be described in Section 3.02.

 

(f)        Satisfactory Completion of Due Diligence . The Parent shall have completed their legal, accounting and business due diligence of the Company and the results thereof shall be satisfactory to the Parent in its sole and absolute discretion.

 

ARTICLE VII

 

Covenants

 

SECTION 7.01. Anti-Dilution . Notwithstanding any other provision of this Agreement, if, during the period from the date hereof until the earlier of (i) ninety (90) days after the date on which a registration statement covering the Exchange Shares is declared effective by the Securities and Exchange Commission (the “SEC”), or (ii) a date which is fifteen (15) months after the date upon which all of the outstanding membership interests of Project 1493, LLC have been exchanged for the Company’s common stock, the Company shall issue additional shares of common stock, or other securities exchangeable for, convertible into, or exercisable for shares of its common stock, for a consideration per share, or with an exercise or conversion price per share, less than $0.39 per share (the “Lower Price”), Zachariou shall be entitled to promptly receive from the Company (for no additional consideration), additional shares of the Company’s common stock (the “Common Stock”) in an amount such that, when added to the number of shares of Common Stock received by Zachariou under this Agreement, will equal the number of shares of Common Stock that Zachariou would have been entitled to receive based on the Lower Price.

 

SECTION 7.02. Public Announcements . The Parent and the Company will consult with each other before issuing, and provide each other the opportunity to review and comment upon, any press releases or other public statements with respect to the Agreement and the Transactions and shall not issue any such press release or make any such public statement prior to such consultation, except as may be required by applicable Law, court process or by obligations pursuant to any listing agreement with any national securities exchanges.

 

SECTION 7.03. Fees and Expenses . All fees and expenses incurred in connection with this Agreement shall be paid by the Party incurring such fees or expenses, whether or not this Agreement is consummated, provided that, upon Closing no payments will be due to any party in connection with the preparation and execution of this Agreement.

 

    14  
   

 

SECTION 7.04. Continued Efforts . Each Party shall use commercially reasonable efforts to (a) take all action reasonably necessary to consummate the Transactions, and (b) take such steps and do such acts as may be necessary to keep all of its representations and warranties true and correct as of the Closing Date with the same effect as if the same had been made, and this Agreement had been dated, as of the Closing Date.

 

SECTION 7.05. Exclusivity . Each of the Parent and the Company shall not (and shall not cause or permit any of their affiliates to) engage in any discussions or negotiations with any person or take any action that would be inconsistent with the Transactions and that has the effect of avoiding the Closing contemplated hereby. Each of the Parent and the Company shall notify each other immediately if any person makes any proposal, offer, inquiry, or contact with respect to any of the foregoing.

 

SECTION 7.06. Filing of 8-K and Press Release . The Parent shall file, no later than four (4) business days of the Closing Date, a current report on Form 8-K and attach as exhibits all relevant agreements with the SEC disclosing the terms of this Agreement and other requisite disclosure regarding the Transactions.

 

SECTION 7.07. Access . Each Party shall permit representatives of any other Party to have full access to all premises, properties, personnel, books, records (including Tax records), contracts, and documents of or pertaining to such Party.

 

SECTION 7.08. Preservation of Business . From the date of this Agreement until the Closing Date, the Company and the Parent shall operate only in the ordinary and usual course of business consistent with their respective past practices (provided, however, that Parent shall not issue any securities without the prior written consent of the Company), and shall use reasonable commercial efforts to (a) preserve intact their respective business organizations, (b) preserve the good will and advantageous relationships with customers, suppliers, independent contractors, employees and other persons material to the operation of their respective businesses, and (c) not permit any action or omission that would cause any of their respective representations or warranties contained herein to become inaccurate or any of their respective covenants to be breached in any material respect.

 

ARTICLE VIII

 

Miscellaneous

 

SECTION 8.01. Indemnification . Each Party hereby agrees to indemnify and hold harmless the other party, its officers, directors, employees and agents against any and all losses, claims, expenses, damages or liabilities, jointly and severally, to which any of them may become subject or which they may incur, including all reasonable attorney’s fees and costs, to the fullest extent lawful, and all costs and expenses arising out of or in connection with any suit, action, or claim, arising out of the breach of their respective duties and responsibilities under this Agreement, or resulting from any breach of any representations or warranties under this Agreement with respect to their business, operations or assets.

 

SECTION 8.02. Notices . All notices, requests, claims, demands and other communications under this Agreement shall be in writing and shall be deemed given upon receipt by the Parties at the following addresses (or at such other address for a Party as shall be specified by like notice):

 

    15  
   

 

If to the Parent, to:

 

Cyberspace Vita, Inc.

41 Ulua Place

Haiku, HI 96708

Attn: Alexander Diener

 

If to the Company, to:

 

Project 1493, LLC

Cond. Madrid Suite 304, 1760 Loiza Street

San Juan, Puerto Rico 00911

Attn: Christian Briggs

 

With a copy to:

 

Sichenzia Ross Ference Kesner LLP

61 Broadway, 32 nd Floor

New York, NY 10006

Attn: Darrin M. Ocasio, Esq.

 

If to the Member, to the address set forth opposite such Member’s name on the signature page hereto

 

SECTION 8.03. Amendments; Waivers; No Additional Consideration . No provision of this Agreement may be waived or amended except in a written instrument signed by the Company, Parent and the Member. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any Party to exercise any right hereunder in any manner impair the exercise of any such right.

 

SECTION 8.04. Replacement of Securities . If any certificate or instrument evidencing any Exchange Security is mutilated, lost, stolen or destroyed, the Parent shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof, or in lieu of and substitution therefore, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Parent of such loss, theft or destruction and customary and reasonable indemnity, if requested. The applicants for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs associated with the issuance of such replacement Exchange Security. If a replacement certificate or instrument evidencing any Exchange Securities is requested due to a mutilation thereof, the Parent may require delivery of such mutilated certificate or instrument as a condition precedent to any issuance of a replacement.

 

SECTION 8.05. Remedies . In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, the Member, Parent and the Company will be entitled to specific performance under this Agreement. The Parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations described in the foregoing sentence and hereby agrees to waive in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.

 

SECTION 8.06. Limitation of Liability . Notwithstanding anything herein to the contrary, each of the Parent and the Company acknowledge and agree that the liability of the Member arising directly or indirectly, under any transaction document of any and every nature whatsoever shall be satisfied solely out of the assets of the Member, and that no trustee, officer, other investment vehicle or any other affiliate of the Member or any investor, Member or holder of shares of beneficial interest of the Member shall be personally liable for any liabilities of the Member.

 

    16  
   

 

SECTION 8.07. Interpretation . When a reference is made in this Agreement to a Section, such reference shall be to a Section of this Agreement unless otherwise indicated. Whenever the words “include,” “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation.”

 

SECTION 8.08. Severability . If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule or Law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the Transactions contemplated hereby is not affected in any manner materially adverse to any Party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that Transactions contemplated hereby are fulfilled to the extent possible.

 

SECTION 8.09. Counterparts; Facsimile Execution . This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the Parties and delivered to the other Parties. Facsimile execution and delivery of this Agreement is legal, valid and binding for all purposes.

 

SECTION 8.10. Entire Agreement; Third Party Beneficiaries . This Agreement, (a) constitutes the entire agreement, and supersede all prior agreements and understandings, both written and oral, among the Parties with respect to the Transactions and (b) is not intended to confer upon any person other than the Parties any rights or remedies.

 

SECTION 8.11. Governing Law . This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of New York, without reference to principles of conflicts of laws. Any action or proceeding brought for the purpose of enforcement of any term or provision of this Agreement shall be brought only in the Federal or state courts sitting in the State of New York and the parties hereby waive any and all rights to trial by jury.

 

SECTION 8.12. Assignment . Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise by any of the Parties without the prior written consent of the other Parties. Any purported assignment without such consent shall be void. Subject to the preceding sentences, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the Parties and their respective successors and assigns.

 

[Signature Page Follows]

 

    17  
   

 

IN WITNESS WHEREOF, the parties hereto have executed and delivered this Share Exchange Agreement as of the date first above written.

 

The Parent:

 

  CYBERSPACE VITA, INC.
     
  By:  
  Name: Alexander Diener
  Title: Chief Executive Officer, Chief Financial Officer, Treasurer and Secretary

 

[Company, Member and Zachariou Signature Pages Follow]

 

    18  
   

 

The Company:

 

  PROJECT 1493, LLC
     
  By:  
  Name: Christian Briggs
  Title: Manager

 

[Member Signature Page Follows]

 

[ Signature Page to Share Exchange Agreement ]

 

    19  
   

 

The Member:

 

  PEACH MANAGEMENT, LLC
     
  By:  
  Name: Christian Briggs
  Title: Manager

 

[Zachariou Signature Page Follows]

 

[ Signature Page to Share Exchange Agreement ]

 

    20  
   

 

Zachariou:

 

     
  Name: Peter Zachariou

 

[ Signature Page to Share Exchange Agreement ]

 

    21  
   

 

Schedule 4.07

 

Tax Returns

 

All Federal and State Tax Returns since inception of the Parent.

 

    22  
   

 

 

DEBT EXCHANGE AGREEMENT

 

DEBT EXCHANGE AGREEMENT (the “ Agreement ”) is made as of the 11 th day of May, 2017 (the “ Effective Date ”), by and between Cyberspace Vita, Inc., a Nevada corporation (the “ Company ”), and Fountainhead Capital Management Limited (the “ Fountainhead ”).

 

WHEREAS , the Company was indebted at March 31, 2017 to Fountainhead under a promissory note (the “ Note ”) in the aggregate amount, including accrued interest, of $639,917. Fountainhead additionally advanced funds of $6,516 to the Company subsequent to March 31, 2017 (“Additional Indebtedness”).

 

WHEREAS , the Company and Fountainhead have agreed to exchange the Note and Additional Indebtedness for an aggregate of one million eight hundred thousand (1,800,000) shares of the Company’s common stock (the “ Common Stock ”), par value $0.001 per share, which amount of Common Stock shall be reduced by the 200,000 Shares of Common Stock held, directly or indirectly, by Fountainhead immediately prior to the execution of this Agreement (the “ Exchange Shares ”);

 

WHEREAS , the exchange of the Note and Additional Indebtedness for the Exchange Shares is being made in reliance upon the exemption from registration provided by Section 3(a)(9) of the Securities Act (as defined below).

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in consideration of the premises and the mutual agreements, representations and warranties, provisions and covenants contained herein, the parties hereto, intending to be legally bound hereby, agree as follows:

 

1.        Exchange. On the Effective Date, subject to the terms and conditions of this Agreement, Fountainhead shall, and the Company shall, in reliance upon the exemption from registration provided by Section 3(a)(9) of the Securities Act of 1933, as amended (the “ Securities Act ”), exchange the Note and Additional Indebtedness for the Exchange Shares. On the Effective Date, the following transactions shall occur (such transactions in this Section 1, the “ Exchange ”):

 

(a)       Concurrently herewith, Fountainhead shall deliver or cause to be delivered to the Company (or its designee) the Note, free and clear of all liens. As of the Effective Date, all of Fountainhead’s rights under the Note shall be extinguished.

 

(b)       Concurrently herewith, in exchange for the Note and Additional Indebtedness, the Company shall issue the Exchange Shares to Fountainhead. The parties agree that the holding period of the Exchange Shares, for purposes of Rule 144 under the Securities Act of 1933 tacks back to the original issue dates of the Note.

 

(c)       The Company and Fountainhead shall execute and/or deliver such other documents and agreements as are customary and reasonably necessary to effectuate the Exchange.

 

1
 

 

2.        Waiver and Release.

 

2.1       In consideration of the transactions contemplated by this Agreement, effective as of the Effective Date, Fountainhead on behalf of itself and, to the extent permitted by law, its members, officers, members, employees, consultants, representatives, predecessors, principals, agents, parents, associates, affiliates, subsidiaries, attorneys, accountants, successors, successors-in-interest and assigns (collectively, the “ Fountainhead Releasing Persons ”), hereby, knowingly, voluntarily and with full understanding of its terms and effects, waives and releases, to the fullest extent permitted by law, any and all actions, causes of action, covenants, contracts, claims and demands whatsoever, known and unknown, relating to the Existing Claims (as defined below) that any of Fountainhead Releasing Persons had, currently has or may have, that are directly or indirectly related to, based upon, arise out of, or arise in connection with any fact, matter, act or omission, cause, transaction, occurrence or thing occurring up to the date of this release against (i) the Company, (ii) any of the Company’s current or former parents, affiliates, subsidiaries, predecessors, assigns, attorneys or counsel, accountants, auditors, employees, consultants or representatives, or (iii) any of the Company’s or such other persons’ or entities’ current or former officers, directors, employees, agents, principals, and signatories or, in the case of any person or entity other than the Company or any of its subsidiaries, such other persons’ or entities’ current or former members, partners, shareholders, agents, principals, signatories, advisors, spouses, heirs, estates, executors and associates and members of their immediate families (the aforementioned persons and entities set forth in (i), (ii) and (iii) being hereinafter collectively referred to as the “ Company Parties ”). Each Fountainhead Releasing Persons hereby acknowledges that Fountainhead has not relied on any representations or statements of the Company or any other person not set forth herein.

 

2.2       For purposes of this Agreement, “ Existing Claims ” shall mean all actions, causes of action, suits, debts, dues, sums of money, accounts, reckonings, bonds, bills, specialties, covenants, contracts, controversies, agreements, promises, variances, trespasses, damages, judgments, extents, executions, claims, and demands whatsoever, whether known or unknown, in law, admiralty, or equity, against any of the Company Parties, which the Fountainhead Releasing Persons ever had, now has or hereafter can, shall, or may have for, upon, or by reason of any violation of terms of the Note prior to the day of the date of this Agreement.

 

3.        Representations and Warranties of the Company . The Company hereby represents and warrants to Fountainhead that:

 

3.1        Organization, Good Standing and Qualification . The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure to so qualify would have a material adverse effect on its business or properties.

 

3.2        Capitalization and Voting Rights . The authorized capital of the Company as of the date hereof consists of (i) 10,000,000 shares of “blank check” Preferred Stock, par value $0.001 per share (the “Preferred Stock”), none of which is issued and outstanding, and (ii) 100,000,000 shares of Common Stock, of which 247,550 shares of Common Stock were issued and outstanding as of May 10, 2017.

 

3.3        Authorization . All corporate action on the part of the Company, its officers, directors and stockholders necessary for the authorization, execution and delivery of this Agreement and the performance of all obligations of the Company hereunder and thereunder, including, without limitation, the authorization of the Exchange, and the issuance (or reservation for issuance) of the Exchange Shares have been taken on or prior to the date hereof.

 

3.4        Securities Law Exemptions . Assuming the accuracy of the representations and warranties of Fountainhead contained herein, the offer and issuance by the Company of the Exchange Shares is exempt from registration under the Securities Act and all applicable state securities laws. The offer and issuance of the Exchange Shares is exempt from registration under the Securities Act pursuant to the exemption provided by Section 3(a)(9) thereof.

 

2
 

 

3.5        Valid Issuance of the Securities . The Exchange Shares when issued and delivered in accordance with the terms of this Agreement, for the consideration expressed herein, will be duly and validly issued, fully paid and non-assessable. .

 

3.6        No Consideration Paid . No commission or other remuneration has been paid by the Company for soliciting the exchange of the Note for the Exchange Shares as contemplated hereby.

 

4.        Representations and Warranties of Fountainhead. Fountainhead hereby represents, warrants and covenants that:

 

4.1        Organization; Authority . Fountainhead is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with full right, corporate or partnership power and authority to enter into and to consummate the transactions contemplated hereby and otherwise to carry out its obligations hereunder. The execution and delivery of this Agreement and performance by Fountainhead of the transactions contemplated hereby have been duly authorized by all necessary corporate or similar action on the part of Fountainhead. This Agreement has been duly executed by Fountainhead, and when delivered by Fountainhead in accordance with the terms hereof, will constitute the valid and legally binding obligation of Fountainhead, enforceable against it in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of Fountainheads’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law

 

4.2        Own Account . Fountainhead understands that the Exchange Shares are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Exchange Shares as principal for its own account (including those of its affiliated group companies and its ultimate beneficial owners). With the exception of assignments to affiliated group companies and their ultimate beneficial owners, Fountainhead is not acquiring the Exchange Shares with a view to or for distributing or reselling such securities or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing any of such securities in violation of the Securities Act or any applicable state securities law and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such securities (this representation and warranty not limiting Fountainhead’s right to sell the Exchange Shares pursuant to a registration statement or otherwise in compliance with applicable federal and state securities laws) in violation of the Securities Act or any applicable state securities law. Fountainhead is acquiring the Exchange Shares hereunder in the ordinary course of its business.

 

4.3        Fountainhead Status . At the time Fountainhead was offered the Exchange Shares, it was, and as of the date hereof it is either: (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act. Fountainhead is not required to be registered as a broker-dealer under Section 15 of the Exchange Act.

 

3
 

 

4.4        Experience of Fountainhead . Fountainhead, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the investment in the Exchange Shares. Fountainhead has evaluated the merits and risks of such investment. Fountainhead is able to bear the economic risk of an investment in the Exchange Shares and, at the present time, is able to afford a complete loss of such investment.

 

4.5        Reliance on Exemptions . Fountainhead understands that the Exchange Shares are being offered and issued to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying in part upon the truth and accuracy of, and Fountainhead’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of Fountainhead set forth herein in order to determine the availability of such exemptions and the eligibility of Fountainhead to acquire the Exchange Shares. Fountainhead understands that the Exchange Shares are characterized as “ restricted securities ” under applicable U.S. federal and state securities laws.

 

4.6        Ownership . Fountainhead is the record and beneficial owner of, and has good and marketable title to the Note, free and clear of any and all liens, security interests, charges or encumbrances, agreements, voting trusts, proxies or other arrangements or restrictions of any kind whatsoever.

 

5.        Covenants of Fountainhead .

 

5.1        Transfer Restrictions.

 

(a) Fountainhead acknowledges and agrees that the Exchange Shares may only be disposed of in compliance with state and federal securities laws, and is not restricted in ability to transfer the Exchange Shares to affiliated group companies and their ultimate beneficial owners. In connection with any transfer of the Exchange Shares other than pursuant to an effective registration statement or Rule 144, to the Company or in connection with a pledge, the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Exchange Shares under the Securities Act.

 

(b) Fountainhead agrees to the imprinting, so long as is required by this Section 5.1, of a legend on the Exchange Shares in the following form:

 

THIS SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

4
 

 

6.        Indemnification .

 

6.1        Indemnification by the Company. The Company agrees to indemnify, hold harmless, reimburse and defend Fountainhead, and its officers, directors, agents, affiliates, members, managers, control persons, and principal shareholders, against any claim, cost, expense, liability, obligation, loss or damage (including reasonable legal fees) of any nature, incurred by or imposed upon Fountainhead or any such person which results, arises out of or is based upon (i) any material misrepresentation by Company or breach of any representation or warranty by Company in this Agreement or in any exhibits or schedules attached hereto, or other agreement delivered pursuant hereto; or (ii) after any applicable notice and/or cure periods, any breach or default in performance by the Company of any covenant or undertaking to be performed by the Company hereunder, or any other agreement entered into by the Company and Fountainhead relating hereto.

 

6.2        Indemnification by Fountainhead. Fountainhead agrees to indemnify, hold harmless, reimburse and defend the Company and any of its officers, directors, agents, affiliates, members, managers, control persons, and principal shareholders, against any claim, cost, expense, liability, obligation, loss or damage (including reasonable legal fees) of any nature, incurred by or imposed upon Fountainhead or any such person which results, arises out of or is based upon (i) any material misrepresentation by Fountainhead or breach of any representation or warranty by Fountainhead in this Agreement or in any exhibits or schedules attached hereto, or other agreement delivered pursuant hereto; or (ii) after any applicable notice and/or cure periods, any breach or default in performance by Fountainhead of any covenant or undertaking to be performed by Fountainhead hereunder, or any other agreement entered into by the Company and Fountainhead relating hereto.

 

7.        Miscellaneous

 

7.1        Successors and Assigns. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the parties hereto and the respective successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party, other than the parties hereto or their respective successors and assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

 

7.2        Governing Law; Jurisdiction; Jury Trial. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state or federal courts sitting in The City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY .

 

5
 

 

7.3        Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

 

7.4        Notices. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient; if not, then on the next business day, (c) five (5) business days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to (a) in the case of the Company to: Cyberspace Vita, Inc., Attention: Chief Executive Officer, with a copy (which shall not constitute notice) to Sichenzia Ross Ference Kesner LLP, 61 Broadway, New York, NY 10006, or (b) in the case of Fountainhead, to the address as set forth on the signature page or exhibit pages hereof or, in either case, at such other address as such party may designate by TEN (10) business days advance written notice to the other parties hereto.

 

7.5        Amendments and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and Fountainhead. Any amendment or waiver effected in accordance with this paragraph shall be binding upon Fountainhead and the Company, provided that no such amendment shall be binding on a holder that does not consent thereto to the extent such amendment treats such party differently than any party that does consent thereto.

 

7.6        Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.

 

7.7        Entire Agreement. This Agreement represents the entire agreement and understandings between the parties concerning the exchange and the other matters described herein and therein and supersedes and replaces any and all prior agreements and understandings solely with respect to the subject matter hereof and thereof.

 

7.8        Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

7.9        Interpretation. Unless the context of this Agreement clearly requires otherwise, (a) references to the plural include the singular, the singular the plural, the part the whole, (b) references to any gender include all genders, (c) “including” has the inclusive meaning frequently identified with the phrase “but not limited to” and (d) references to “hereunder” or “herein” relate to this Agreement.

 

[SIGNATURES ON THE FOLLOWING PAGE]

 

6
 

 

IN WITNESS WHEREOF , the parties have caused this Agreement to be duly executed and delivered as of the date provided above.

 

  THE COMPANY
     
  CYBERSPACE VITA, INC.,
     
  By:                
  Name:  
  Title:  
     
  FOUNTAINHEAD:
     
  FOUNTAINHEAD CAPITAL MANAGEMENT LIMITED
     
  By:  
  Name:  
  Title:  
     
  Address for Notices:
     
     
     
   

 

7
 

 

 

 

SUBSCRIPTION AGREEMENT

 

This Subscription Agreement (this “ Agreement ”) is being delivered to the purchaser identified on the signature page to this Agreement (the “ Subscriber ”) in connection with its investment in Cyberspace Vita, Inc., a Nevada corporation (the “ Company ”). The Company is conducting a private placement (the “ Offering ”) of a minimum of One Million Dollars ($1,000,000) (the “ Minimum Offering ”) and a maximum of Three Million Three Hundred Thousand Dollars ($3,300,000) (the “ Maximum Offering ”) of the Company’s securities consisting of (i) shares of the Company’s common stock (the “ Shares ”), and (ii) warrants to purchase shares of common stock (the “ Warrants ”), at a purchase price of $0.39 per Share (the “ Purchase Price ”). Each Warrant shall be exercisable at any time on or after the date of issuance for a period of three (3) years at an exercise price per share equal to $0.50 per share, subject to adjustment as provided in the agreement evidencing the Warrants in the form attached hereto as Exhibit A . The number of shares of common stock underlying the Warrant shall be equal to 30% of the number of Shares issued to the Subscriber under this Agreement. The shares of common stock underlying the Warrants may hereinafter be referred to as the “ Warrant Shares ”, and, together with the Shares, the “ Securities ”.

 

The Company intends to acquire Project 1493, LLC (“1493”), which will own four (4) medicinal cannabis dispensaries upon completion of the transactions contemplated by two memorandums of understanding (each, a “ MOU ”).

 

The two MOUs to which 1493 is a party is for the purchase of all legal rights, permits, licenses and assets to acquire a total of four (4) medicinal cannabis dispensaries located in Puerto Rico (the “ Acquisition ”). Pursuant to the terms of the MOU dated April 6, 2017, 1493 intends to purchase one (1) medicinal cannabis dispensary located in San Juan, Puerto Rico for a total amount of $75,000. Pursuant to the terms of the MOU dated April 18, 2017, 1493 intends to purchase for a total amount of $300,000 three (3) medicinal cannabis dispensaries located in: (1) Lomas de Carolina, Carolina, Puerto Rico; (2) Dorado, Puerto Rico; and (3) Fajardo, Puerto Rico.

 

Prior to closing on the Minimum Offering, additional information with respect to 1493 and its assets will be provided to Subscribers, including additional risks factors which, in addition to those contained in the SEC filings made by the Company, are important to an investment decision in the Company, and which are hereby incorporated by reference.  Peach Management LLC, managing member of 1493, advanced $150,000 to 1493 for certain expenses, and may advance additional funds in the future (the “ Advance ”).

 

Each Subscriber will receive a draft of the Current Report on Form 8-K describing the planned Acquisition and will be required to reconfirm their purchase of Securities prior to the closing for the Minimum Offering.  The Advance made to 1493, plus any accrued interest, may be converted into Securities in the Offering and may be included in satisfying the Minimum Offering. 

 

1 .        SUBSCRIPTION AND PURCHASE PRICE

 

(a)        Subscription . Subject to the conditions set forth in Section 2 hereof, the Subscriber hereby subscribes for and agrees to purchase the number of Securities indicated on the signature page hereof on the terms and conditions described herein.

 

(b)        Purchase of Securities . The Subscriber understands and acknowledges that the purchase price to be remitted to the Company in exchange for the Securities shall be as set forth in the preamble to this Agreement, and the Company shall round up, or down, to the nearest whole number any fractional purchases per Securities, for an aggregate purchase price as set forth on the signature pages hereof (the “ Aggregate Purchase Price ”). The Subscriber’s delivery of this Agreement to the Company shall be accompanied by payment for the Securities subscribed for hereunder, payable in United States Dollars, by wire transfer of immediately available funds delivered contemporaneously with the Subscriber’s delivery of this Agreement to the Company in accordance with the Escrow Agreement and wire instructions attached hereto as Exhibit B . The Subscriber understands and agrees that, subject to Section 2 and applicable laws, by executing this Agreement, it is entering into a binding agreement.

 

(c)        Anti-Dilution . Notwithstanding any other provision of this Agreement, if, during the period from the Closing of the Offering until the earlier of (i) ninety (90) days after the date on which a registration statement covering the Shares is declared effective by the Securities and Exchange Commission (the “ SEC ”), or (ii) a date which is fifteen (15) months after the date upon which all of the outstanding membership interests of 1493 will be exchanged for the Company’s Shares, the Company shall issue additional Shares or other securities exchangeable for, convertible into, or exercisable for Shares, for a consideration per share, or with an exercise or conversion price per share, less than the Purchase Price (the “ Lower Price ”), the Subscriber shall be entitled to promptly receive from the Company (for no additional consideration), additional Shares in an amount such that, when added to the number of Shares purchased by the Subscriber under this Agreement, will equal the number of Shares that the Subscriber’s Purchase Price for the Shares set forth on the signature page hereof would have purchased at the Lower Price.

 

  - 1 -  
 

 

2.       Acceptance, Offering Term and Closing Procedures

 

(a)        Acceptance or Rejection . The obligation of the Subscriber to purchase the Securities shall be irrevocable, and the Subscriber shall be legally bound to purchase the Securities subject to the terms set forth in this Agreement. The Subscriber understands and agrees that the Company reserves the right to reject this subscription for Securities in whole or part in any order at any time prior to the Closing for any reason, notwithstanding the Subscriber’s prior receipt of notice of acceptance of the Subscriber’s subscription. In the event of rejection of this subscription by the Company in accordance with this Section 2, or if the sale of the Securities is not consummated by the Company for any reason or no reason, this Agreement and any other agreement entered into between the Subscriber and the Company relating to this subscription shall thereafter have no force or effect, and the Company shall promptly return or cause to be returned to the Subscriber the purchase price remitted to the Company, without interest thereon or deduction therefrom.

 

(b)        Closing . The closing of the purchase and sale of the Securities hereunder (the “ Closing ”) shall take place at the offices of Sichenzia Ross Ference Kesner LLP, 61 Broadway, 32nd Fl., New York, NY 10006 or such other place as determined by the Company. The Closing shall take place on a Business Day promptly following the satisfaction of the conditions set forth in Section 7 below, as determined by the Company (the “ Closing Date ”). “ Business Day ” shall mean from the hours of 9:00 a.m. (Eastern Time) through 5:00 p.m. (Eastern Time) of a day other than a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required to be closed. The Securities purchased by the Subscriber will be delivered by the Company promptly following the Closing.

 

(c)        Following Acceptance or Rejection . The Subscriber acknowledges and agrees that this Agreement and any other documents delivered in connection herewith will be held by the Company. In the event that this Agreement is not accepted by the Company for whatever reason, which the Company expressly reserves the right to do, this Agreement, the Aggregate Purchase Price received (without interest thereon) and any other documents delivered in connection herewith will be returned to the Subscriber at the address of the Subscriber as set forth in this Agreement. If this Agreement is accepted by the Company, the Company is entitled to treat the Aggregate Purchase Price received as an interest free loan to the Company until such time as the Subscription is accepted.

 

3.       THE SUBSCRIBER’s Representations, Warranties AND cOVENANTS

 

The Subscriber hereby acknowledges, agrees with and represents, warrants and covenants to the Company, as follows:

 

(a)       The Subscriber has full power and authority to enter into this Agreement, the execution and delivery of which has been duly authorized, if applicable, and this Agreement constitutes a valid and legally binding obligation of the Subscriber.

 

(b)       The Subscriber acknowledges its understanding that the Offering and sale of the Securities is intended to be exempt from registration under the Securities Act of 1933, as amended (the “ Securities Act ”), by virtue of Section 4(2) of the Securities Act and the provisions of Regulation D promulgated thereunder (“ Regulation D ”). In furtherance thereof, the Subscriber represents and warrants to the Company and its affiliates as follows:

 

(i)       The Subscriber realizes that the basis for the exemption from registration may not be available if, notwithstanding the Subscriber’s representations contained herein, the Subscriber is merely acquiring the Securities for a fixed or determinable period in the future, or for a market rise, or for sale if the market does not rise. The Subscriber does not have any such intention.

 

(ii)       The Subscriber realizes that the basis for exemption would not be available if the Offering is part of a plan or scheme to evade registration provisions of the Securities Act or any applicable state or federal securities laws.

 

  - 2 -  
 

 

(iii)       The Subscriber is acquiring the Securities solely for the Subscriber’s own beneficial account, for investment purposes, and not with a view towards, or resale in connection with, any distribution of the Securities. If other than an individual, the Subscriber also represents it has not been organized solely for the purpose of acquiring the Securities.

 

(iv)       The Subscriber has the financial ability to bear the economic risk of the Subscriber’s investment, has adequate means for providing for its current needs and contingencies, and has no need for liquidity with respect to an investment in the Company.

 

(v)       The Subscriber and the Subscriber’s attorney, accountant, purchaser representative and/or tax advisor, if any (collectively, the “ Advisors ”) has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of a prospective investment in the Securities. The Subscriber has not authorized any person or entity to act as its Purchaser Representative (as that term is defined in Regulation D of the General Rules and Regulations under the Securities Act) in connection with the Offering.

 

(vi)       The Subscriber (together with its Advisors, if any) has received all documents requested by the Subscriber, if any, has carefully reviewed them and understands the information contained therein, prior to the execution of this Agreement.

 

(c)       The Subscriber is not relying on the Company or any of its employees, agents, sub-agents or advisors with respect to the legal, tax, economic and related considerations involved in this investment. The Subscriber has relied on the advice of, or has consulted with, only its Advisors. Each Advisor, if any, has disclosed to the Subscriber in writing (a copy of which is annexed to this Agreement) the specific details of any and all past, present or future relationships, actual or contemplated, between the Advisor and the Company or any affiliate or sub-agent thereof.

 

(d)       The Subscriber has carefully considered the potential risks relating to the Company and a purchase of the Securities, and fully understands that the Securities are a speculative investment that involves a high degree of risk of loss of the Subscriber’s entire investment. Among other things, the Subscriber has carefully considered each of the risks described under the heading “Risk Factors” in the Company’s SEC Filings (as defined in Section 4(e) below), which risk factors are incorporated herein by reference.

 

(e)       The Subscriber will not sell or otherwise transfer any Securities without registration under the Securities Act or an exemption therefrom, and fully understands and agrees that the Subscriber must bear the economic risk of its purchase because, among other reasons, the Securities have not been registered under the Securities Act or under the securities laws of any state and, therefore, cannot be resold, pledged, assigned or otherwise disposed of unless they are subsequently registered under the Securities Act and under the applicable securities laws of such states, or an exemption from such registration is available. In particular, the Subscriber is aware that the Securities are “restricted securities,” as such term is defined in Rule 144 promulgated under the Securities Act (“ Rule 144 ”), and they may not be sold pursuant to Rule 144 unless all of the conditions of Rule 144 are met. The Subscriber also understands that, except as otherwise provided in Section 5 hereof, the Company is under no obligation to register the Securities on behalf of the Subscriber or to assist the Subscriber in complying with any exemption from registration under the Securities Act or applicable state securities laws. The Subscriber understands that any sales or transfers of the Securities are further restricted by state securities laws and the provisions of this Agreement.

 

(f)       No oral or written representations or warranties have been made, or information furnished, to the Subscriber or its Advisors, if any, by the Company or any of its officers, employees, agents, sub-agents, affiliates, advisors or subsidiaries in connection with the Offering, other than any representations of the Company contained herein, and in subscribing for the Securities, the Subscriber is not relying upon any representations other than those contained herein.

 

(g)       The Subscriber’s overall commitment to investments that are not readily marketable is not disproportionate to the Subscriber’s net worth, and an investment in the Securities will not cause such overall commitment to become excessive.

 

  - 3 -  
 

 

(h)       The Subscriber understands and agrees that the certificates for the Securities shall bear substantially the following legend until (i) such Securities shall have been registered under the Securities Act and effectively disposed of in accordance with a registration statement that has been declared effective or (ii) in the opinion of counsel for the Company, such Securities may be sold without registration under the Securities Act, as well as any applicable “blue sky” or state securities laws:

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY APPLICABLE STATE SECURITIES LAWS. SUCH SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES AND MAY NOT BE OFFERED FOR SALE, SOLD, DELIVERED AFTER SALE, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FILED BY THE ISSUER WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION COVERING SUCH SECURITIES UNDER THE SECURITIES ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH REGISTRATION IS NOT REQUIRED.

 

(i)       Neither the SEC nor any state securities commission has approved the Securities or passed upon or endorsed the merits of the Offering. There is no government or other insurance covering any of the Securities.

 

(j)       The Subscriber and its Advisors, if any, have had a reasonable opportunity to ask questions of and receive answers from a person or persons acting on behalf of the Company concerning the Offering and the business, financial condition, results of operations and prospects of the Company, and all such questions have been answered to the full satisfaction of the Subscriber and its Advisors, if any.

 

(k)       The Subscriber is unaware of, is in no way relying on, and did not become aware of, the Offering through or as a result of, any form of general solicitation or general advertising, including, without limitation, any article, notice, advertisement or other communication published in any newspaper, magazine or similar media or broadcast over television or radio, or electronic mail over the Internet, in connection with the Offering and is not subscribing for Securities and did not become aware of the Offering through or as a result of any seminar or meeting to which the Subscriber was invited by, or any solicitation of a subscription by, a person not previously known to the Subscriber in connection with investments in securities generally.

 

(l)       The Subscriber has taken no action that would give rise to any claim by any person for brokerage commissions, finders’ fees or the like relating to this Agreement or the transactions contemplated hereby.

 

(m)       The Subscriber acknowledges that any estimates or forward-looking statements or projections furnished by the Company to the Subscriber were prepared by the management of the Company in good faith, but that the attainment of any such projections, estimates or forward-looking statements cannot be guaranteed by the Company or its management and should not be relied upon.

 

(n)       (For ERISA plans only) The fiduciary of the ERISA plan (the “ Plan ”) represents that such fiduciary has been informed of and understands the Company’s investment objectives, policies and strategies, and that the decision to invest “plan assets” (as such term is defined in ERISA) in the Company is consistent with the provisions of ERISA that require diversification of plan assets and impose other fiduciary responsibilities. The Subscriber or Plan fiduciary (i) is responsible for the decision to invest in the Company; (ii) is independent of the Company and any of its affiliates; (iii) is qualified to make such investment decision; and (iv) in making such decision, the Subscriber or Plan fiduciary has not relied primarily on any advice or recommendation of the Company or any of its affiliates.

 

(o)       This Agreement is not enforceable by the Subscriber unless it has been accepted by the Company, and the Subscriber acknowledges and agrees that the Company reserves the right to reject any subscription for any reason.

 

  - 4 -  
 

 

(p)       The Subscriber will indemnify and hold harmless the Company and, where applicable, its directors, officers, employees, agents, advisors, affiliates and shareholders, and each other person, if any, who controls any of the foregoing from and against any and all loss, liability, claim, damage and expense whatsoever (including, but not limited to, any and all fees, costs and expenses whatsoever reasonably incurred in investigating, preparing or defending against any claim, lawsuit, administrative proceeding or investigation whether commenced or threatened) (a “ Loss ”) arising out of or based upon any representation or warranty of the Subscriber contained herein or in any document furnished by the Subscriber to the Company in connection herewith being untrue in any material respect or any breach or failure by the Subscriber to comply with any covenant or agreement made by the Subscriber herein or therein; provided , however , that the Subscriber shall not be liable for any Loss that in the aggregate exceeds the Subscriber’s Aggregate Purchase Price tendered hereunder.

 

(q)       The Subscriber is, and on each date on which the Subscriber continues to own restricted securities from the Offering will be, an “Accredited Investor” as defined in Rule 501(a) under the Securities Act. In general, an “Accredited Investor” is deemed to be an institution with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 (excluding the value of their primary residence) or annual income exceeding $200,000 or $300,000 jointly with his or her spouse.

 

(r)       The Subscriber has reviewed, or had an opportunity to review, all of the SEC Filings.

 

(s)       The Subscriber acknowledges receipt and careful review of all documents furnished in connection with this transaction by the Company (collectively, the “Offering Documents”) and has been furnished by the Company during the course of this transaction with all information regarding the Company which the Subscriber has requested or desires to know; and the Subscriber has been afforded the opportunity to ask questions of and receive answers from duly authorized officers or other representatives of the Company concerning the terms and conditions of the Offering, and any additional information which the Subscriber has requested.

 

(t)       The Subscriber acknowledges that if the Subscriber is a Registered Representative of a Financial Industry Regulatory Authority, Inc. (“FINRA”) member firm, the Subscriber must give such firm the notice required by the FINRA’s Conduct Rules, receipt of which must be acknowledged by such firm on the signature page hereof.

 

(u)       The Subscriber hereby acknowledges that neither the Company nor any persons associated with the Company who may provide assistance or advice in connection with the Offering (other than the placement agent, if one is engaged by the Company) are or are expected to be members or associated persons of members of the FINRA or registered broker-dealers under any federal or state securities laws. This Offering is made directly by the Company.

 

(v)       The Subscriber understands that, pursuant to the terms of the Offering, the Company may pay one or more placement agents a commission of up to ten (10%) percent in connection with the Offering. The Subscriber further understands that, pursuant to the terms of the Offering, the Company must receive subscriptions for an aggregate purchase price of $1,000,000 (subject to reduction as set forth in the introductory paragraph hereto) in order to close on the sale of any Securities and that persons affiliated with the Company, its consultants, advisors, or placement agents may subscribe for Common Stock, in which case the Company may accept subscriptions from such affiliated parties in order to reach the Minimum Offering; and that, accordingly, no investor should conclude that achieving the Minimum Offering is the result of any independent assessment of the merits or advantages of the Offering or the Company made by Subscribers in the Minimum Offering.

 

(w)       The Subscriber hereby represents that, except as expressly set forth in the Offering Documents, no representations or warranties have been made to the Subscriber by the Company or any agent, employee or affiliate of the Company and, in entering into this transaction, the Subscriber is not relying on any information other than that contained in the Offering Documents and the results of independent investigation by the Subscriber.

 

(x)       All information provided by the Subscriber in the Investor Questionnaire attached hereto is true and accurate in all respects, and the Subscriber acknowledges that the Company will be relying on such information to its possible detriment in deciding whether the Company can sell these securities to the Subscriber without giving rise to the loss of the exemption from registration under applicable securities laws.

 

  - 5 -  
 

 

4.       The Company’s Representations, Warranties and Covenants

 

The Company hereby acknowledges, agrees with and represents, warrants and covenants to the Subscriber, as follows:

 

(a)       The Company has the corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement has been duly authorized, executed and delivered by the Company and is valid, binding and enforceable against the Company in accordance with its terms.

 

(b)       Capitalization and Additional Issuances. The authorized and outstanding capital stock of the Company on a fully diluted basis as of the Closing Date is set forth on Schedule 4(b). Except as set forth on Schedule 4(b), there are no options, warrants, or rights to subscribe to, securities, rights, understandings or obligations convertible into or exchangeable for or giving any right to subscribe for any shares of capital stock or other equity interest of the Company or any of the Subsidiaries.

 

(c)       The only officer, director, employee and consultant stock option or stock incentive plan or similar plan currently in effect or contemplated by the Company is described on Schedule 4(b). There are no outstanding agreements or preemptive or similar rights affecting the Company's Common Stock.

 

(d)       The Securities to be issued to the Subscriber pursuant to this Agreement, when issued and delivered in accordance with the terms of this Agreement, will be duly and validly issued and will be fully paid and non-assessable.

 

(e)       Neither the execution and delivery nor the performance of this Agreement by the Company will conflict with the Company’s organizational materials, as amended to date, or result in a breach of any terms or provisions of, or constitute a default under, any material contract, agreement or instrument to which the Company is a party or by which the Company is bound.

 

(f)       The Company is subject to, and in full compliance with, the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”). The Company has made available to each Subscriber through the EDGAR system true and complete copies of each of the Company’s Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K and Current Reports on Form 8-K (collectively, the “ SEC Filings ”), and all such SEC Filings are incorporated herein by reference. The SEC Filings, when they were filed with the SEC (or, if any amendment with respect to any such document was filed, when such amendment was filed), complied in all material respects with the applicable requirements of the Exchange Act and the rules and regulations thereunder and did not, as of such date, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. All reports and statements required to be filed by the Company under the Securities Act and the Exchange Act have been filed, together with all exhibits required to be filed therewith. The Company and each of its direct and indirect subsidiaries, if any (collectively, the “ Subsidiaries ”), are engaged in all material respects only in the business described in the SEC Filings, and the SEC Filings contain a complete and accurate description in all material respects of the business of the Company and the Subsidiaries.

 

(g)       The Company acknowledges and agrees that the Subscriber is acting solely in the capacity of an arm’s length purchaser with respect to the Securities and the transactions contemplated hereby. The Company further acknowledges that the Subscriber is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereby and any advice given by the Subscriber or any of its representatives or agents in connection with this Agreement and the transactions contemplated hereby is merely incidental to the Subscriber’s purchase of the Securities. The Company further represents to the Subscriber that the Company’s decision to enter into this Agreement has been based solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives.

 

(h)       The Company will indemnify and hold harmless the Subscriber and, where applicable, its directors, officers, employees, agents, advisors and shareholders, from and against any and all Loss arising out of or based upon any representation or warranty of the Company contained herein or in any document furnished by the Company to the Subscriber in connection herewith being untrue in any material respect or any breach or failure by the Company to comply with any covenant or agreement made by the Company to the Subscriber in connection therewith; provided , however , that the Company’s liability shall not exceed the Subscriber’s Aggregate Purchase Price tendered hereunder.

 

  - 6 -  
 

 

5.       PIggy-back registration rights  

 

(a) For a period of twelve (12) months following the Closing Date, the Company shall notify the Subscriber in writing at least twenty (20) days prior to the filing of any registration statement under Securities Act, in connection with a public offering of shares of the Company’s common stock (including, but not limited to, registration statements relating to secondary offerings of securities of the Company but excluding any registration statements (i) on Form S-8 (or any successor or substantially similar form), or of any employee stock option, stock purchase or compensation plan or of securities issued or issuable pursuant to any such plan, or a dividend reinvestment plan, (ii) otherwise relating to any employee, benefit plan or corporate reorganization or other transactions covered by Rule 145 promulgated under the Securities Act, or (iii) on any registration form that does not permit secondary sales or does not include substantially the same information as would be required to be included in a registration statement covering the resale of the Securities) and will afford the Subscriber an opportunity to include in such registration statement all or part of the Securities held by the Subscriber. In the event the Subscriber desires to include in any such registration statement all or any part of the Securities held by the Subscriber, the Subscriber shall within ten (10) days after the above-described notice from the Company, so notify the Company in writing, including the number of such Securities that the Subscriber wishes to include in such registration statement. If the Subscriber decides not to include all of its Securities and in any registration statement thereafter filed by the Company, the Subscriber shall nevertheless continue to have the right to include any Securities in any subsequent registration statement or registration statements as may be filed by the Company with respect to the offering of the securities, all upon the terms and conditions set forth herein.

 

(b) Notwithstanding the foregoing, if the managing underwriter or underwriters of any such proposed public offering or private placement advise the Company that the total amount or kind of securities that the Subscriber, the Company and any other persons intended to be included in such proposed public offering is sufficiently large to adversely affect the success of such proposed public offering or private placement, then the amount or kind of securities to be offered for the various parties wishing to have shares of the Company’s common stock registered shall be included in the following order:

 

(i) if the Company proposes to register treasury shares or authorized but unissued shares of its common stock (collectively, “ Primary Securities ”):

 

(A) first, the Primary Securities; and

 

(B) second, the Securities requested to be included in such registration statement, together with shares of its common stock that do not constitute Securities or Primary Securities (“ Other Securities ”) held by parties exercising similar piggy-back registration rights (or if necessary, such Securities and Other Securities pro rata among the holders thereof based upon the number of such Securities and Other Securities requested to be registered by each such holder).

 

(ii) if the Company proposes to register Other Securities:

 

(A) first, the Other Securities requested to be included in such registration by holders exercising demand registration rights; and

 

(B) second, the Securities requested to be included in such registration, together with Other Securities held by parties exercising similar piggy-back registration rights (or if necessary, such Securities and Other Securities pro rata among the holders thereof based upon the number of such Securities and Other Securities requested to be registered by each such holder).

 

Anything to the contrary in this Agreement notwithstanding, the Company may withdraw or postpone a registration statement referred to herein at any time before it becomes effective or withdraw, postpone or terminate the offering after it becomes effective without obligation to the Subscriber.

 

  - 7 -  
 

 

(c) In connection with its obligation under this Section 5, the Company will (i) furnish to the Subscriber without charge, at least one copy of any effective registration statement and any post-effective amendments thereto, including financial statements and schedules, and, if the Subscriber so requests in writing, all documents incorporated therein by reference and all exhibits (including those incorporated by reference) in the form filed with the SEC; and (ii) deliver to the Subscriber and the underwriters, if any, without charge, as many copies of the then effective prospectus included in the registration statement, as the same may be amended or supplemented (including such prospectus subject to completion) (the “ Prospectus ”), and any amendments or supplements thereto as such persons may reasonably request.

 

(d) As a condition to the inclusion of its Securities, the Subscriber shall furnish to the Company such information regarding the Subscriber and the distribution proposed by the Subscriber as the Company may request in writing or as shall be required in connection with any registration, qualification or compliance referred to in this Agreement.

 

(e) The Subscriber agrees by acquisition of the Securities that, upon receipt of any notice from the Company of the happening of any event that, in the good faith judgment of the Company’s Board of Directors, requires the suspension of the Subscriber’s rights under this Section 5, the Subscriber will forthwith discontinue disposition of the Securities pursuant to the then current Prospectus until the Subscriber is advised in writing by the Company that the use of the Prospectus may be resumed. If so directed by the Company, on the happening of such event, the Subscriber will deliver to the Company (at the Company’s expense) all copies, other than permanent file copies then in the Subscriber’s possession, of the Prospectus covering the Securities at the time of receipt of such notice.

 

(f) The Subscriber hereby covenants with the Company (i) not to make any sale of Securities without effectively causing the prospectus delivery requirements under the Securities Act to be satisfied, and (ii) if such Securities are to be sold by any method or in any transaction other than on a national securities exchange, the Nasdaq Global Select Market, the Nasdaq Global Market, Nasdaq Capital Market or in the over-the-counter market, in privately negotiated transactions, or in a combination of such methods, to notify the Company at least 5 business days prior to the date on which the Subscriber first offers to sell any such Securities.

 

(g) The Subscriber acknowledges and agrees that the Securities sold pursuant to a registration statement described in this Section 5 are not transferable on the books of the Company unless the stock certificate submitted to the transfer agent evidencing the Securities is accompanied by a certificate reasonably satisfactory to the Company to the effect that (x) the Securities have been sold in accordance with such registration statement and (y) the requirement of delivering a current Prospectus has been satisfied.

 

(h) The Subscriber shall not take any action with respect to any distribution deemed to be made pursuant to such registration statement that would constitute a violation of Regulation M under the Exchange Act, or any other applicable rule, regulation or law.

 

(i) Upon the expiration of the effectiveness of any registration statement described in this Section 5, the Subscriber shall discontinue sales of the Securities pursuant to such registration statement upon receipt of notice from the Company of the Company’s intention to remove from registration the Securities covered by such registration statement that remain unsold, and the Subscriber shall notify the Company of the number of registered Securities that remain unsold immediately upon receipt of such notice from the Company.

 

(j) Anything to the contrary contained in this Agreement notwithstanding, when, in the opinion of counsel for the Company, registration of the Securities and is not required by the Securities Act, in connection with a proposed sale of such Securities, the Subscriber shall have no rights pursuant to this Section 5. In furtherance and not in limitation of the foregoing, the Subscriber shall have no rights pursuant to this Section 5 at such time as all of the Subscriber’s Securities may be sold without limitation pursuant to Rule 144.

 

6.       Use of Proceeds

 

The Company anticipates using the gross proceeds from the Offering for general corporate purposes including growth initiatives and capital expenditures.

 

  - 8 -  
 

 

7.       CONDITIONS TO ACCEPTANCE OF SUBSCRIPTION

 

The Company’s right to accept the subscription of the Subscriber is conditioned upon satisfaction of the following conditions precedent on or before the date the Company accepts such subscription:

 

(a)       As of the Closing, no legal action, suit or proceeding shall be pending that seeks to restrain or prohibit the transactions contemplated by this Agreement.

 

(b)       The representations and warranties of the Company contained in this Agreement shall have been true and correct in all material respects on the date of this Agreement and shall be true and correct as of the Closing as if made on the Closing Date.

 

8. MISCELLANEOUS PROVISIONS

 

(a)       All parties hereto have been represented by counsel, and no inference shall be drawn in favor of or against any party by virtue of the fact that such party’s counsel was or was not the principal draftsman of this Agreement.

 

(b)       Each of the parties hereto shall be responsible to pay the costs and expenses of its own legal counsel in connection with the preparation and review of this Agreement and related documentation.

 

(c)       Neither this Agreement, nor any provisions hereof, shall be waived, modified, discharged or terminated except by an instrument in writing signed by the party against whom any waiver, modification, discharge or termination is sought.

 

(d)       The representations, warranties and agreement of the Subscriber and the Company made in this Agreement shall survive the execution and delivery of this Agreement and the delivery of the Securities.

 

(e)       Any party may send any notice, request, demand, claim or other communication hereunder to the Subscriber at the address set forth on the signature page of this Agreement or to the Company at its primary office (including personal delivery, expedited courier, messenger service, fax, ordinary mail or electronic mail), but no such notice, request, demand, claim or other communication will be deemed to have been duly given unless and until it actually is received by the intended recipient. Any party may change the address to which notices, requests, demands, claims and other communications hereunder are to be delivered by giving the other parties written notice in the manner herein set forth.

 

(f)       Except as otherwise provided herein, this Agreement shall be binding upon, and inure to the benefit of, the parties to this Agreement and their heirs, executors, administrators, successors, legal representatives and assigns. If the Subscriber is more than one person or entity, the obligation of the Subscriber shall be joint and several and the agreements, representations, warranties and acknowledgments contained herein shall be deemed to be made by, and be binding upon, each such person or entity and its heirs, executors, administrators, successors, legal representatives and assigns. This Agreement sets forth the entire agreement and understanding between the parties as to the subject matter hereof and merges and supersedes all prior discussions, agreements and understandings of any and every nature among them.

 

(g)       This Agreement is not transferable or assignable by the Subscriber.

 

(h)       This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to conflicts of law principles.

 

(i)       The Company and the Subscriber hereby agree that any dispute that may arise between them arising out of or in connection with this Agreement shall be adjudicated before a court located in the City of New York, Borough of Manhattan, and they hereby submit to the exclusive jurisdiction of the federal and state courts of the State of New York located in the City of New York, Borough of Manhattan with respect to any action or legal proceeding commenced by any party, and irrevocably waive any objection they now or hereafter may have respecting the venue of any such action or proceeding brought in such a court or respecting the fact that such court is an inconvenient forum, relating to or arising out of this Agreement or any acts or omissions relating to the sale of the securities hereunder, and consent to the service of process in any such action or legal proceeding by means of registered or certified mail, return receipt requested, postage prepaid, in care of the address set forth herein or such other address as either party shall furnish in writing to the other.

 

(j)       This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

[Signature Pages Follow]

 

  - 9 -  
 

 

ACCEPTED this ___ day of ____________ 2017, on behalf of Cyberspace Vita, Inc.

 

  By:  
  Name:  
  Title:  

 

  - 10 -  
 

 

ALL SUBSCRIBERS MUST COMPLETE THIS PAGE

 

IN WITNESS WHEREOF, the Subscriber has executed this Agreement on the ____ day of __________ 2017.

 

  x $0.39 =  
Shares subscribed for         Aggregate Purchase Price
     
Warrants (30% coverage)    

 

Manner in which Title is to be held (Please Check One ):

 

1. ___ Individual 7. ___

Trust/Estate/Pension or Profit sharing Plan

Date Opened:______________

2. ___ Joint Tenants with Right of Survivorship 8. ___

As a Custodian for

________________________________

Under the Uniform Gift to Minors Act of the State of

________________________________

3. ___ Community Property 9. ___ Married with Separate Property
4. ___ Tenants in Common 10. ___ Keogh
5. ___ Corporation/Partnership/ Limited Liability Company 11. ___ Tenants by the Entirety
6. ___ IRA      

 

ALTERNATIVE DISTRIBUTION INFORMATION

 

To direct distribution to a party other than the registered owner, complete the information below. YOU MUST COMPLETE THIS SECTION IF THIS IS AN IRA INVESTMENT .

 

Name of Firm (Bank, Brokerage, Custodian):

 

Account Name:

 

Account Number:

 

Representative Name:

 

Representative Phone Number:

 

Address:

 

City, State, Zip:

 

  - 11 -  
 

 

IF MORE THAN ONE SUBSCRIBER, EACH SUBSCRIBER MUST SIGN.
INDIVIDUAL SUBSCRIBERS MUST COMPLETE THIS PAGE 10.
SUBSCRIBERS WHICH ARE ENTITIES MUST COMPLETE PAGE 11.

 

EXECUTION BY NATURAL PERSONS

 

_____________________________________________________________________________

Exact Name in Which Title is to be Held

 

_________________________________

Name (Please Print)

 

_________________________________

Name of Additional Purchaser

_________________________________

Residence: Number and Street

 

_________________________________

Address of Additional Purchaser

_________________________________

City, State and Zip Code

 

_________________________________

City, State and Zip Code

_________________________________

Social Security Number

 

_________________________________

Social Security Number

_________________________________

Telephone Number

 

_________________________________

Telephone Number

_________________________________

Fax Number (if available)

 

________________________________

Fax Number (if available)

_________________________________

E-Mail (if available)

 

________________________________

E-Mail (if available)

__________________________________

(Signature)

 

________________________________

(Signature of Additional Purchaser)

 

  - 12 -  
 

 

EXECUTION BY SUBSCRIBER WHICH IS AN ENTITY

(Corporation, Partnership, LLC, Trust, Etc.)

 

_____________________________________________________________________________

Name of Entity (Please Print)

 

Date of Incorporation or Organization:

 

State of Principal Office:

 

Federal Taxpayer Identification Number:

____________________________________________

Office Address

____________________________________________

City, State and Zip Code

  ____________________________________________

Telephone Number

____________________________________________

Fax Number (if available)

____________________________________________

E-Mail (if available)

 

  By:  
  Name:  
  Title:  

 

[seal]  
   
Attest: _________________________________ _________________________________
                           (If Entity is a Corporation) _________________________________
  Address

 

  - 13 -  
 

 

INVESTOR QUESTIONNAIRE

 

Instructions: Check all boxes below which correctly describe you.

You are ( i ) a bank, as defined in Section 3(a)(2) of the Securities Act of 1933, as amended (the “ Securities Act ”), ( ii ) a savings and loan association or other institution, as defined in Section 3(a)(5)(A) of the Securities Act, whether acting in an individual or fiduciary capacity, ( iii ) a broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), ( iv ) an insurance company as defined in Section 2(13) of the Securities Act, ( v ) an investment company registered under the Investment Company Act of 1940, as amended (the “ Investment Company Act ”), ( vi ) a business development company as defined in Section 2(a)(48) of the Investment Company Act, ( vii ) a Small Business Investment Company licensed by the U.S. Small Business Administration under Section 301 (c) or (d) of the Small Business Investment Act of 1958, as amended, ( viii ) a plan established and maintained by a state, its political subdivisions, or an agency or instrumentality of a state or its political subdivisions, for the benefit of its employees and you have total assets in excess of $5,000,000, or ( ix ) an employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”) and (1) the decision that you shall subscribe for and purchase shares of common stock (the “ Shares ”) and warrants to purchase shares of common stock (the “ Warrants ”, and, together with the Shares, the “ Securities ”), is made by a plan fiduciary, as defined in Section 3(21) of ERISA, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or (2) you have total assets in excess of $5,000,000 and the decision that you shall subscribe for and purchase the Securities is made solely by persons or entities that are accredited investors, as defined in Rule 501 of Regulation D promulgated under the Securities Act (“ Regulation D ”) or (3) you are a self-directed plan and the decision that you shall subscribe for and purchase the Securities is made solely by persons or entities that are accredited investors.
     
You are a private business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940, as amended.
     
You are an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the “ Code ”), a corporation, Massachusetts or similar business trust or a partnership, in each case not formed for the specific purpose of making an investment in the Securities and its underlying securities in excess of $5,000,000.
     
You are a director or executive officer of the Company.
     
You are a natural person whose individual net worth, or joint net worth with your spouse, exceeds $1,000,000 at the time of your subscription for and purchase of the Securities (excluding principal residence).
     
You are a natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with your spouse in excess of $300,000 in each of the two most recent years, and who has a reasonable expectation of reaching the same income level in the current year.
     
You are a trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the Securities and whose subscription for and purchase of the Securities is directed by a sophisticated person as described in Rule 506(b)(2)(ii) of Regulation D.
     
You are an entity in which all of the equity owners are persons or entities described in one of the preceding paragraphs.

 

  - 14 -  
 

 

Check all boxes below which correctly describe you.

 

With respect to this investment in the Securities, your:

 

Investment Objectives:  [  ] Aggressive Growth [  ] Speculation

 

Risk Tolerance:  [  ] Low Risk  [  ] Moderate Risk  [  ] High Risk

 

Are you associated with a FINRA Member Firm?  [  ] Yes  [  ] No

 

Your initials (purchaser and co-purchaser, if applicable) are required for each item below:

 

____   ____  I/We understand that this investment is not guaranteed.
   
____   ____  I/We are aware that this investment is not liquid.
   
____   ____  I/We are sophisticated in financial and business affairs and are able to evaluate the risks and merits of an investment in this offering.
   
____   ____  I/We confirm that this investment is considered “high risk.” (This type of investment is considered high risk due to the inherent risks including lack of liquidity and lack of diversification.  Success or failure of private placements such as this is dependent on the corporate issuer of these securities and is outside the control of the investors. While potential loss is limited to the amount invested, such loss is possible.)

 

FINRA Affiliation

 

Are you affiliated directly or indirectly with a member broker-dealer firm of the Financial Industry Regulatory Authority, Inc. as an employee, officer, director, partner or shareholder or as a relative or member of the same household of an employee, director, partner or shareholder of a FINRA member broker-dealer firm?

 

Yes____ No_____

 

If the answer is “yes,” then, in order to purchase securities in the offering, the Subscriber will need to provide the Issuer with a FINRA member affiliate certification whereby the FINRA member firm acknowledges the affiliation and its receipt of the notice required by Article 3, Sections 28(a) and (b) of the Rules of Fair Practice with respect to an investment in Securities pursuant to the offering described herein.

 

Anti-Money Laundering Rules

 

In order for the Company to comply with applicable anti-money laundering/U.S. Treasury Department Office of Foreign Assets Control (“OFAC”) rules and regulations, Subscriber is required to provide the following information:

 

(a) Payment Information

 

(i)       Name and address (including country) of the bank from which Subscriber’s payment to the Company is being wired (the “Wiring Bank”):

 

_______________________________________

_______________________________________

_______________________________________

_______________________________________

 

  - 15 -  
 

 

(ii)       Subscriber’s wiring instructions at the Wiring Bank:

 

_______________________________________
_______________________________________
_______________________________________

(iii)       Is the Wiring Bank located in the U.S. or another “FATF Country”*?

 

_____ Yes ______ No

 

(iv) Is Subscriber a customer of the Wiring Bank?

 

_____ Yes ______ No

 

(b)       Additional Information

 

Investors wishing to subscribe must provide the following additional information or documents unless you have previously delivered such information to the Company or to a Placement Agent for the Offering as part of the establishment of your account at the Placement Agent.

 

For Individual Investors :

 

____ A government issued form of picture identification (e.g., passport or drivers license).
   
____ Proof of the individual’s current address (e.g., current utility bill), if not included in the form of picture identification.
   
____ One or more of the above documentations has previously provided to Placement Agent.

 

For Funds of Funds or Entities that Invest on Behalf of Third Parties :

 

_____ A certificate of due formation and organization and continued authorization to conduct business in the jurisdiction of its organization (e.g., certificate of good standing).
   
_____ An “incumbency certificate” attesting to the title of the individual executing these subscription materials on behalf of the prospective investor.
   
_____ A completed copy of a certification that the entity has adequate anti-money laundering policies and procedures (“AML Policies and Procedures”) in place that are consistent with the USA PATRIOT Act, OFAC and other relevant federal, state or non-U.S. anti-money laundering laws and regulations (with a copy of the entity’s current AML Policies and Procedures to which such certification relates).
   
_____ A letter of reference for any entity not located in the U.S. or other FATF country, from the entity’s local office of a reputable bank or brokerage firm that is incorporated, or has its principal place of business located, in the U.S. or other FATF Country certifying that the prospective investor maintains an account at such bank/brokerage firm for a length of time and containing a statement affirming the prospective investor’s integrity.
   
____ One or more of the above documentations has previously provided to Placement Agent.

 

 

 

* As of the date hereof, countries that are members of the Financial Action Task Force on Money Laundering (“FATF Country”) are: Argentina, Australia, Austria, Belgium, Brazil, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Iceland, Ireland, Italy, Japan, Luxembourg, Mexico, Kingdom of the Netherlands, New Zealand, Norway, Portugal, Russian Federation, Singapore, South Africa, S pain, Sweden, Switzerland, Turkey, United Kingdom and the United States of America.

 

  - 16 -  
 

 

For all other Entity Investors :

 

_____ A certificate of due formation and organization and continued authorization to conduct business in the jurisdiction of its organization (e.g., certificate of good standing).
   
_____ An “incumbency certificate” attesting to the title of the individual executing these subscription materials on behalf of the prospective investor.
   
_____ A letter of reference from the entity’s local office of a reputable bank or brokerage firm that is incorporated, or has its principal place of business located, in the U.S. or other FATF Country certifying that the prospective investor maintains an account at such bank/brokerage firm for a length of time and containing a statement affirming the prospective investor’s integrity.
   
_____ If the prospective investor is a privately-held entity, a certified list of the names of every person or entity who is directly or indirectly the beneficial owner of 25% or more of any voting or non-voting class of equity interests of the Subscriber, including (i) country of citizenship (for individuals) or principal place of business (for entities) and, (ii) for individuals, such individual’s principal employer and position.

 

If the prospective investor is a trust, a certified list of (i) the names of the current beneficiaries of the trust that have, directly or indirectly, 25% or more of any interest in the trust, (ii) the name of the settlor of the trust, (iii) the name(s) of the trustee(s) of the trust, and (iv) the country of citizenship (for individuals) or principal place of business (for entities).

 

  _____ One or more of the above documentations has previously provided to Placement Agent.

 

The Subscriber hereby represents and warrants that all of its answers to this Investor Questionnaire are true as of the date of its execution of the Subscription Agreement pursuant to which it purchased the Securities.

 



___________________________________
Name of Purchaser [please print]

___________________________________

Signature of Purchaser (Entities please

provide signature of Purchaser’s duly

authorized signatory.)

___________________________________

Name of Signatory (Entities only)

___________________________________

Title of Signatory (Entities only)



___________________________________
Name of Co-Purchaser [please print]

___________________________________

Signature of Co-Purchaser

 

  - 17 -  
 

 

VERIFICATION OF INVESTMENT ADVISOR/BROKER

 

I state that I am familiar with the financial affairs and investment objectives of the investor named above and reasonably believe that a purchase of the securities is a suitable investment for this investor and that the investor, either individually or together with his or her purchaser representative, understands the terms of and is able to evaluate the merits of this offering. I acknowledge:

 

(a) that I have reviewed the Subscription Agreement and forms of securities presented to me, and attachments (if any) thereto;
     
(b) that the Subscription Agreement and attachments thereto have been fully completed and executed by the appropriate party; and
     
(c) that the subscription will be deemed received by the Company upon acceptance of the Subscription Agreement.

 

Deposit securities from this offering directly to purchaser’s account? [  ] Yes  [  ] No

 

If “Yes,” please indicate the account number: _____________________________________

 

____________________________________   ____________________________________
Broker/Dealer   Account Executive
_____________________________________   ____________________________________
(Name of Broker/Dealer)   (Signature)
_____________________________________   ____________________________________
(Street Address of Broker/Dealer Office)   (Print Name)
_____________________________________   ____________________________________
(City of Broker/Dealer Office) (State) (Zip)   (Representative I.D. Number)
_____________________________________   ____________________________________
(Telephone Number of Broker/Dealer Office)   (Date)
_____________________________________   ____________________________________
(Fax Number of Broker/Dealer Office)   (E-mail Address of Account Executive)

 

  - 18 -  
 

 

SCHEDULE 4(b)

 

Capitalization

 

Capitalization following closing of the Offering at: $0.39
 
Issued and Outstanding 30,000,000 shares
$3,300,000 Common Stock %
Issued in the Offering                         8,461,538 28.21%
Pubco Majority Shareholder                         1,800,000 6.00%
Pubco Float                              47,550 0.16%
Consultants                         3,000,000 10.00%
1493 Majority Shareholder                  16,690,911.54 55.64%
Total                       30,000,000 100.00%
 
  Warrants @ $.50 %
30% warrant coverage issued                         2,538,462 42.04%
1493 shareholders                         3,000,000 49.68%
Consultants                            500,000 8.28%
Total                         6,038,462 100.00%
 
  Preferred* %
1493 Stockholders 1,000 100%
*the preferred will contain super voting preference that constitutes 51% of the voting power.


 

  - 19 -  
 

 

Exhibit A

 

Form of Warrant

 

(see attached)

 

  - 20 -  
 

 

Exhibit B

 

Form of Escrow Agreement

 

(see attached)

 

  - 21 -  
 

 

 

 

FORM OF WARRANT

 

Warrant Shares: [_______] Issuance Date: [________], 2017

 

THIS COMMON STOCK PURCHASE WARRANT (this “ Warrant ”) certifies that, for value received, _____________ or its assigns (the “ Holder ”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the Issuance Date hereof (the “ Initial Exercise Date ”) and on or prior to the close of business on the third year anniversary of the Issuance Date (the “ Termination Date ”) but not thereafter, to subscribe for and purchase from CYBERSPACE VITA, INC., a Nevada corporation (the “ Company ”), up to ______ shares (as subject to adjustment hereunder, the “ Warrant Shares ”) of Common Stock. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

 

Section 1 . Definitions . Except as set forth in this Section 1, capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Subscription Agreement (the “ Subscription Agreement ”), dated [__________], 2017, by and between the Company and the Holder.

 

Affiliate ” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.

 

Business Day ” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

 

Commission ” means the United States Securities and Exchange Commission.

 

Common Stock Equivalents ” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.

 

Exchange Act ” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 

Person ” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

 

Registration Statement ” means the registration statement of the Company, if any, filed under the Securities Act of 1933, as amended, covering the resale of the securities of the Company by the Holder, in the manner described in the Registration Statement.

 

Securities Act ” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

Trading Day ” means a day on which the Common Stock is traded on a Trading Market.

 

     
 

 

Transfer Agent ” means American Registrar & Transfer Co., the current transfer agent of the Company, with a mailing address of 1234 W South Jordan Pkwy Ste 3-B, South Jordan, UT 84095 and a facsimile number of (801) 363-9066, and any successor transfer agent of the Company.

 

Section 2 . Exercise .

 

a)       Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly executed facsimile copy or pdf copy submitted by email attachment of the Notice of Exercise in the form annexed hereto (“ Notice of Exercise ”). Within the earlier of (i) three (3) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined in Section 2(d)(i) herein) following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and this Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise within one (1) Business Day of receipt of such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.

 

b)        Exercise Price . The exercise price per share of the Common Stock under this Warrant shall be $0.50 , subject to adjustment hereunder (the “ Exercise Price ”).

 

c)        Cashless Exercise . Notwithstanding anything herein to the contrary, if at the time of exercise of this Warrant, the Registration Statement is not effective or the prospectus contained therein is not available for use for the issuance by the Company to the Holder of all of the Warrant Shares, then the Holder may, in its sole discretion, exercise this Warrant in whole or in part and, in lieu of making the cash payment otherwise contemplated to be made to the Company upon such exercise in payment of the aggregate Exercise Price elect instead to receive upon such exercise the “Net Number” of shares of Common Stock determined according to the following formula (a “ cashless exercise ”):

 

Net Number = (A x B) - (A x C)
               B

 

     
 

 

For purposes of the foregoing formula:

 

  A= the total number of shares with respect to which this Warrant is then being exercised.
     
  B= as applicable: (i) the closing sale price of the Common Stock on the principal trading market on which the Common Stock may then be listed on the Trading Day immediately preceding the date of the applicable Notice of Exercise if such Notice of Exercise is (1) both executed and delivered pursuant to Section 2(a) hereof on a day that is not a Trading Day or (2) both executed and delivered pursuant to Section 2(a) hereof on a Trading Day prior to the opening of “regular trading hours” (as defined in Rule 600(b)(64) of Regulation NMS promulgated under the federal securities laws) on such Trading Day, (ii) the bid price of the Common Stock on the principal trading market on which the Common Stock may then be listed as of the time of the Holder’s execution of the applicable Notice of Exercise if such Notice of Exercise is executed during “regular trading hours” on a Trading Day and is delivered within two (2) hours thereafter pursuant to Section 2(a) hereof or (iii) the closing sale price of the Common Stock on the principal trading market on which the Common Stock may then be listed on the date of the applicable Notice of Exercise if the date of such Notice of Exercise is a Trading Day and such Notice of Exercise is both executed and delivered pursuant to Section 2(a) hereof after the close of “regular trading hours” on such Trading Day.
     
  C=  the Exercise Price then in effect for the applicable Warrant Shares at the time of such exercise.

 

If Warrant Shares are issued in such a cashless exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9) of the Securities Act, the Warrant Shares shall take on the registered characteristics of the Warrants being exercised. Notwithstanding anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant to this Section 2(c).

 

d)        Mechanics of Exercise .

 

i.        Delivery of Warrant Shares Upon Exercise . The Company shall cause the Warrant Shares purchased hereunder shall be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s prime broker with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“ DWAC ”) if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by Holder or (B) this Warrant is being exercised via cashless exercise, and otherwise by physical delivery to the address specified by the Holder in the Notice of Exercise by the date that is the later of (A) the earlier of (i) three (3) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period, in each case after the delivery to the Company of the Notice of Exercise and (B) one (1) Trading Day after the payment of the aggregate Exercise Price as set forth above (including by cashless exercise, if permitted) (such date, the “ Warrant Share Delivery Date ”). Except as set forth below, the Warrant Shares shall be deemed to have been issued, and the Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date this Warrant has been exercised, with payment to the Company of the Exercise Price (or by cashless exercise, if permitted) and all taxes required to be paid by the Holder, if any, pursuant to Section 2(d)(vi) prior to the issuance of such shares, having been paid. The Holder shall be deemed to have exercised this Warrant upon delivery of a duly completed Notice of Exercise. If the Company fails for any reason to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Common Stock on the date of the applicable Notice of Exercise), $5 per Trading Day (increasing to $10 per Trading Day on the fifth Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise. As used in this Warrant, “ Standard Settlement Period ” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect to the Common Stock as in effect on the date of delivery of the Notice of Exercise. The Company agrees to maintain a transfer agent that is a participant in the FAST Program so long as this Warrant remains outstanding and exercisable.

 

     
 

 

ii.        Delivery of New Warrants Upon Exercise . If this Warrant shall have been exercised in part, the Company shall, at the request of the Holder and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to Holder a new Warrant evidencing the rights of Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.

 

iii.        Rescission Rights . If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.

 

iv.        Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise . In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares in accordance with the provisions of Section 2(d)(i) pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “ Buy-In ”), then the Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of this Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver Warrant Shares upon exercise of this Warrant as required pursuant to the terms hereof. For purposes of this Agreement “VWAP” shall mean for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on the NYSE MKT, the Nasdaq Stock Market or the NYSE (each, “Trading Market”), the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if the Common Stock is then listed or quoted on the OTC Bulletin Board, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board, (c) if the Common Stock is not then listed or quoted for trading on the OTC Bulletin Board and if prices for the Common Stock are then reported in the “Pink Sheets” published by Pink OTC Markets, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holders of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company

 

v.        No Fractional Shares or Scrip . No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.

 

vi.        Charges, Taxes and Expenses . Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided , however , that in the event Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise and all fees to the Depository Trust Company (or other established clearing corporation performing similar functions) required for same day electronic delivery of the Warrant Shares.

 

     
 

 

vii.        Closing of Books . The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.

 

e)        Holder’s Exercise Limitations . The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “ Attribution Parties ”)), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(e), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates or Attribution Parties since the date as of which such number of outstanding shares of Common Stock was reported. The “ Beneficial Ownership Limitation ” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant held by the Holder and the provisions of this Section 2(e) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61 st day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.

 

     
 

 

Section 3 . Certain Adjustments .

 

a)        Stock Dividends and Splits . If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

b)        [RESERVED]

 

c)        [RESERVED]

 

d)        Fundamental Transaction . If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “ Fundamental Transaction ”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 2(e) on the exercise of this Warrant), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “ Alternate Consideration ”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. Notwithstanding anything to the contrary, in the event of a Fundamental Transaction that is (1) an all cash transaction, (2) a “Rule 13e-3 transaction” as defined in Rule 13e-3 under the Exchange Act, or (3) a Fundamental Transaction involving a person or entity not traded on a national securities exchange, including, but not limited to, the Nasdaq Global Select Market, the Nasdaq Global Market, or the Nasdaq Capital Market, the Company or any Successor Entity (as defined below) shall, at the Holder’s option, exercisable at any time concurrently with, or within 30 days after, the consummation of the Fundamental Transaction, purchase this Warrant from the Holder by paying to the Holder an amount of cash equal to the Black Scholes Value of the remaining unexercised portion of this Warrant on the date of the consummation of such Fundamental Transaction. “ Black Scholes Value ” means the value of this Warrant based on the Black and Scholes Option Pricing Model obtained from the “OV” function on Bloomberg, L.P. (“ Bloomberg ”) determined as of the day of consummation of the applicable Fundamental Transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date, (B) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg as of the Trading Day immediately following the public announcement of the applicable Fundamental Transaction, (C) the underlying price per share used in such calculation shall be the sum of the price per share being offered in cash, if any, plus the value of any non-cash consideration, if any, being offered in such Fundamental Transaction and (D) a remaining option time equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date. The payment of the Black Scholes Value will be made by wire transfer of immediately available funds within five Business Days of the Holder’s election (or, if later, on the effective date of the Fundamental Transaction).The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “ Successor Entity ”) to assume in writing all of the obligations of the Company under this Warrant and the other Transaction Documents in accordance with the provisions of this Section 3(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.

 

     
 

 

e)        Calculations . All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.

 

f)        Notice to Holder .

 

i.        Adjustment to Exercise Price . Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly deliver to the Holder by facsimile or email a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.

 

ii.        Notice to Allow Exercise by Holder . If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be delivered by facsimile or email to the Holder at its last facsimile number or email address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided in this Warrant constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

 

     
 

 

Section 4 . Piggy-back Registration Rights .

 

a)       For a period of twelve (12) months following the Closing Date, the Company shall notify the Holder in writing at least twenty (20) days prior to the filing of any registration statement under Securities Act, in connection with a public offering of shares of the Company’s common stock (including, but not limited to, registration statements relating to secondary offerings of securities of the Company but excluding any registration statements (i) on Form S-8 (or any successor or substantially similar form), or of any employee stock option, stock purchase or compensation plan or of securities issued or issuable pursuant to any such plan, or a dividend reinvestment plan, (ii) otherwise relating to any employee, benefit plan or corporate reorganization or other transactions covered by Rule 145 promulgated under the Securities Act, or (iii) on any registration form that does not permit secondary sales or does not include substantially the same information as would be required to be included in a registration statement covering the resale of the Warrant Shares) and will afford the Holder an opportunity to include in such registration statement all or part of the Warrant Shares held by the Holder. In the event the Holder desires to include in any such registration statement all or any part of the Warrant Shares held by the Holder, the Holder shall within ten (10) days after the above-described notice from the Company, so notify the Company in writing, including the number of such Warrant Shares that the Holder wishes to include in such registration statement. If the Holder decides not to include all of its Warrant Shares and in any registration statement thereafter filed by the Company, the Holder shall nevertheless continue to have the right to include any Warrant Shares in any subsequent registration statement or registration statements as may be filed by the Company with respect to the offering of the securities, all upon the terms and conditions set forth herein.

 

b)       Notwithstanding the foregoing, if the managing underwriter or underwriters of any such proposed public offering or private placement advise the Company that the total amount or kind of securities that the Holder, the Company and any other persons intended to be included in such proposed public offering is sufficiently large to adversely affect the success of such proposed public offering or private placement, then the amount or kind of securities to be offered for the various parties wishing to have shares of the Company’s common stock registered shall be included in the following order:

 

i.       if the Company proposes to register treasury shares or authorized but unissued shares of its common stock (collectively, “ Primary Securities ”):

 

     
 

 

(A)       first, the Primary Securities; and

 

(B) second, the Warrant Shares requested to be included in such registration statement, together with shares of its common stock that do not constitute Warrant Shares or Primary Securities (“ Other Securities ”) held by parties exercising similar piggy-back registration rights (or if necessary, such Warrant Shares and Other Securities pro rata among the holders thereof based upon the number of such Warrant Shares and Other Securities requested to be registered by each such holder).

 

ii.       if the Company proposes to register Other Securities:

 

(A)       first, the Other Securities requested to be included in such registration by holders exercising demand registration rights; and

 

(B)       second, the Warrant Shares requested to be included in such registration, together with Other Securities held by parties exercising similar piggy-back registration rights (or if necessary, such Warrant Shares and Other Securities pro rata among the holders thereof based upon the number of such Se Warrant Shares curities and Other Securities requested to be registered by each such holder).

 

Anything to the contrary in this Agreement notwithstanding, the Company may withdraw or postpone a registration statement referred to herein at any time before it becomes effective or withdraw, postpone or terminate the offering after it becomes effective without obligation to the Subscriber.

 

c)       In connection with its obligation under this Section 4, the Company will (i) furnish to the Holder without charge, at least one copy of any effective registration statement and any post-effective amendments thereto, including financial statements and schedules, and, if the Holder so requests in writing, all documents incorporated therein by reference and all exhibits (including those incorporated by reference) in the form filed with the SEC; and (ii) deliver to the Holder and the underwriters, if any, without charge, as many copies of the then effective prospectus included in the Registration Statement, as the same may be amended or supplemented (including such prospectus subject to completion) (the “ Prospectus ”), and any amendments or supplements thereto as such persons may reasonably request.

 

d)       As a condition to the inclusion of its Warrant Shares, the Holder shall furnish to the Company such information regarding the Holder and the distribution proposed by the Holder as the Company may request in writing or as shall be required in connection with any registration, qualification or compliance referred to in the Subscription Agreement.

 

e)       The Holder agrees by acquisition of the Warrant Shares that, upon receipt of any notice from the Company of the happening of any event that, in the good faith judgment of the Company’s Board of Directors, requires the suspension of the Holder’s rights under this Section 4, the Holder will forthwith discontinue disposition of the Warrant Shares pursuant to the then current Prospectus until the Holder is advised in writing by the Company that the use of the Prospectus may be resumed. If so directed by the Company, on the happening of such event, the Holder will deliver to the Company (at the Company’s expense) all copies, other than permanent file copies then in the Holder’s possession, of the Prospectus covering the Warrant Shares at the time of receipt of such notice.

 

     
 

 

f)       The Holder hereby covenants with the Company (i) not to make any sale of Warrant Shares without effectively causing the prospectus delivery requirements under the Securities Act to be satisfied, and (ii) if such Warrant Shares are to be sold by any method or in any transaction other than on a national securities exchange, the Nasdaq Global Select Market, the Nasdaq Global Market, Nasdaq Capital Market or in the over-the-counter market, in privately negotiated transactions, or in a combination of such methods, to notify the Company at least 5 business days prior to the date on which the Holder first offers to sell any such Warrant Shares.

 

g)       The Holder acknowledges and agrees that the Warrant Shares sold pursuant to a registration statement described in this Section 4 are not transferable on the books of the Company unless the stock certificate submitted to the transfer agent evidencing the Warrant Shares is accompanied by a certificate reasonably satisfactory to the Company to the effect that (x) the Warrant Shares have been sold in accordance with such registration statement and (y) the requirement of delivering a current Prospectus has been satisfied.

 

h)       The Holder shall not take any action with respect to any distribution deemed to be made pursuant to such registration statement that would constitute a violation of Regulation M under the Exchange Act, or any other applicable rule, regulation or law.

 

i)       Upon the expiration of the effectiveness of any registration statement described in this Section 4, the Holder shall discontinue sales of the Warrant Shares pursuant to such registration statement upon receipt of notice from the Company of the Company’s intention to remove from registration the Warrant Shares covered by such registration statement that remain unsold, and the Holder shall notify the Company of the number of registered Warrant Shares that remain unsold immediately upon receipt of such notice from the Company.

 

j)       Anything to the contrary contained in this Agreement notwithstanding, when, in the opinion of counsel for the Company, registration of the Warrant Shares and is not required by the Securities Act, in connection with a proposed sale of such Warrant Shares, the Holder shall have no rights pursuant to this Section 4. In furtherance and not in limitation of the foregoing, the Holder shall have no rights pursuant to this Section 4 at such time as all of the Holder’s Warrant Shares may be sold without limitation pursuant to Rule 144.

 

Section 5 . Transfer of Warrant .

 

a)        Transferability . This Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. This Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

 

b)        New Warrants . This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 5(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for this Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the initial issuance date of this Warrant and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.

 

     
 

 

c)        Warrant Register . The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “ Warrant Register ”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

 

Section 6 . Miscellaneous .

 

a)        No Rights as Stockholder Until Exercise . This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in Section 3.

 

b)        Loss, Theft, Destruction or Mutilation of Warrant . The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

 

c)        Saturdays, Sundays, Holidays, etc . If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then, such action may be taken or such right may be exercised on the next succeeding Business Day.

 

d)        Authorized Shares .

 

The Company covenants that, during the period this Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).

 

     
 

 

Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.

 

Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.

 

e)        Jurisdiction . All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Subscription Agreement.

 

f)        Restrictions . The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, and the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.

 

g)        Nonwaiver and Expenses . No course of dealing or any delay or failure to exercise any right hereunder on the part of the Holder shall operate as a waiver of such right or otherwise prejudice Holder’s rights, powers or remedies. Without limiting any other provision of this Warrant or the Subscription Agreement, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

 

h)        Notices . Any notices, consents, waivers or other document or communications required or permitted to be given or delivered under the terms of this Warrant must be in writing and will be deemed to have been delivered: (i) upon receipt, if delivered personally; (ii) when sent, if sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); (iii) when sent, if sent by e-mail (provided that such sent e-mail is kept on file (whether electronically or otherwise) by the sending party and the sending party does not receive an automatically generated message from the recipient’s e-mail server that such e-mail could not be delivered to such recipient) and (iv) if sent by overnight courier service, one (1) Trading Day after deposit with an overnight courier service with next day delivery specified, in each case, properly addressed to the party to receive the same. If notice is given by facsimile or email, a copy of such notice shall be dispatched no later than the next business day by first class mail, postage prepaid. The addresses, facsimile numbers and e-mail addresses for such communications shall be:

 

     
 

 

If to the Company:

 

  ATTN:    
       
  Address:    
       
       

 

If to a Holder, to its address, facsimile number or e-mail address set forth herein or on the books and records of the Company.

 

Or, in each of the above instances, to such other address, facsimile number or e-mail address and/or to the attention of such other Person as the recipient party has specified by written notice given to each other party at least five (5) days prior to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender’s facsimile machine containing the time, date and recipient facsimile number or (C) provided by an overnight courier service shall be rebuttable evidence of personal service, receipt by facsimile or receipt from an overnight courier service in accordance with clause (i), (ii) or (iv) above, respectively. A copy of the e-mail transmission containing the time, date and recipient e mail address shall be rebuttable evidence of receipt by e-mail in accordance with clause (iii) above.

 

i)        Limitation of Liability . No provision hereof, in the absence of any affirmative action by Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of Holder, shall give rise to any liability of the Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

 

j)        Remedies . The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.

 

k)        Successors and Assigns . Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.

 

l)        Amendment . This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.

 

m)        Severability . Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

 

n)        Headings . The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

 

********************

 

(Signature Page Follows)

 

     
 

 

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.

 

 

CYBERSPACE VITA, INC.

     
  By:      
  Name:  
  Title:  

 

(Signature Page to Firm Warrant)

 

     
 

 

NOTICE OF EXERCISE

 

To: CYBERSPACE VITA, INC.

 

(1)       The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

 

(2)       Payment shall take the form of (check applicable box):

 

[  ] in lawful money of the United States; or

 

[  ] the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).

 

(3)       Please issue Warrant Shares in the name of the undersigned or in such other name as is specified below:

 

_______________________________

 

In accordance with Section 2(d) of the Warrant, the Warrant Shares shall be delivered to the following DWAC Account Number or by physical delivery of a certificate to:

 

_______________________________

 

_______________________________

 

_______________________________

 

[SIGNATURE OF HOLDER]

 

Name of Investing Entity:

________________________________________________________________________

Signature of Authorized Signatory of Investing Entity :

_________________________________________________

Name of Authorized Signatory:

___________________________________________________________________

Title of Authorized Signatory:

____________________________________________________________________

Date:

________________________________________________________________________________________

 

     
 

 

ASSIGNMENT FORM

 

(To assign the foregoing Warrant, execute
this form and supply required information.
Do not use this form to exercise the Warrant.)

 

FOR VALUE RECEIVED, [_______] shares underlying the foregoing Warrant and all rights evidenced thereby are hereby assigned to

 

_______________________________________________ whose address is

 

_______________________________________________________________.

 

_______________________________________________________________

 

Dated: ______________, _______

 

  Holder’s Signature:    
       
  Holder’s Address:    
       

 

Signature Guaranteed: ___________________________________________

 

NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.

 

     
 

 

 

 

 

Report of Independent Registered Public Accounting Firm

 

Member of

Project 1493, LLC

Dorado, Puerto Rico

 

We have audited the accompanying balance sheet of Project 1493, LLC. (the “Company”) as of April 30, 2017. This financial statement is the responsibility of the Company’s management. Our responsibility is to express an opinion on this financial statement based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the balance sheet is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the balance sheet. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall balance sheet presentation. We believe that our audit of the balance sheet provides a reasonable basis for our opinion.

 

In our opinion, the balance sheet referred to above presents fairly, in all material respects, the financial position of Project 1493, LLC at April 30, 2017, in conformity with accounting principles generally accepted in the United States of America.

 

/s/ Turner, Stone & Company, LLP  
   
Dallas, Texas  
May 15, 2017  

 

     

 

 

CONTENTS

 

Balance Sheet as of April 30, 2017 2
   
Statement of Operations for the four month period January 1, 2017 through April 30, 2017 3
   
Statement of Stockholders’ Equity for the four month period January 1, through April 30, 2017 4
   
Statement of Cash Flows for the four month period January 1, 2017 through April 30, 2017 5

 

    1  
 

 

Cyberspace Vita, Inc.

Pro Forma Consolidated Balance Sheets

(Unaudited)

 

    Cyberspace     Project                  
    Vita, Inc.     1493, LLC     Pro Forma         Pro Forma  
    Mar. 31, 2017     April 30, 2017     Adjustments     Notes   Balance Sheet  
Assets                                    
Current Assets                                    
Cash   $ 0     $ 0     $ 3,300,000     2b   $ 3,300,000  
Prepaid Expenses     0       21,734       0           21,734  
Total Current Assets     0       21,734       3,300,000           3,321,734  
                                     
Other Assets                                    
Deposits     0       150,000       0           150,000  
Total Other Assets     0       150,000       0           150,000  
                                     
TOTAL ASSETS   $ 0     $ 171,734     $ 3,300,000         $ 3,471,734  
                                     
Liabilities and Owner Equity                                    
Current Liabilities                                    
Accounts payable   $ 6,516     $ 0     ($ 6,516 )   2b   $ 0  
Advance payable - related party     0       20,734       0           20,734  
Short term advance, related party     0       150,000       0           150,000  
Accrued interest - related party     129,265       0       (129,265 )   2b     0  
Notes payable - related party     510,652       0       (510,652 )   2b     0  
Total current liabilities     646,433       170,734       (646,433 )         170,734  
Total Liabilities     646,433       170,734       (646,433 )         170,734  
                                     
Stockholders’ and Member Equity                                    
Preferred Stock     0       0       1     2b     1  
Common Stock     248       0       29,753     2a, 2b     30,001  
Member Equity     0       1,000       (1,000 )   2a, 2b     0  
Additional paid-in capital     44,030       0       3,226,968     2a     3,270,998  
Accumulated Deficit     (690,711 )     0       690,711     2a     0  
Total Stockholders’ (Deficit) and Member Equity     (646,433 )     1,000       3,946,433           3,301,000  
Total Liabilities and Stockholders’ (Deficit) and Member Equity   $ 0     $ 171,734     $ 3,300,000         $ 3,471,734  

 

    2  
 

 

Cyberspace Vita, Inc.

Pro Forma Consolidated Statement of Operations

(Unaudited)

 

    Cyberspace     Project                  
    Vita, Inc.     1493, LLC                  
    For the Three Months Ended Mar. 31, 2017     For the Four Months Ended Apr. 30, 2017     Pro Forma Adjustments     Notes   Pro Forma Statement of Operations  
                             
Revenues   $ 0     $ 0     $ 0         $ 0  
                                     
Operating Expenses                                    
Professional fees     5,500       0       (5,500 )   2a     0  
Management Fees-related party     10,000       0       (10,000 )   2a     0  
General and administrative     1,561       0       (1,561 )   2a     0  
Operating Loss     (17,061 )     0       17,061           0  
                                     
Other Expenses                                    
Interest expense-related party     (7,349 )     0       7,349     2a     (7,349 )
Net Loss   $ (24,410 )   $ 0     $ 24,410         $ (7,349 )

 

    3  
 

 

Cyberspace Vita, Inc.

Pro Forma Consolidated Statement of Stockholders’ Equity

(Unaudited)

 

    Preferred     Preferred     Common     Common           Additional              
    Stock     Stock     Stock     Stock     Member     Paid-in     Retained        
    Shares     Amount     Shares     Amount     Equity     Capital     Deficit     Total  
                                                 
Balance as of December 31, 2016     0     $ 0       247,550     $ 248     $ 0     $ 44,030     $ (690,711 )   $ (646,433 )
                                      1,000                     $ 1,000  
Common stock issued for debt exchange     0       0       1,600,000       1,600       0       (706,403 )     0       (704,803 )
Recapitalization for reverse acquistion of Project 1493, LLC     1,000       1       16,690,912       16,691       (1,000 )     644,833       690,711       1,351,236  
Common stock issued for cash     0       0       8,461,530       8,462       0       3,291,538       0       3,300,000  
Comons stock issued for services     0       0       3,000,000       3,000       0       (3,000 )     0       0  
                                                                 
Balance as of April 30, 2017     1,000     $ 1       29,999,992     $ 30,001     $ -     $ 3,270,998     $ 0     $ 3,301,000  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

    4  
 

 

Cyberspace Vita, Inc.

Pro Forma Consolidated Statement of Cash Flows

 

    Cyberspace     Project                  
    Vita, Inc.     1493, LLC                  
    For the Three Months Ended Mar. 31, 2017     For the Four Months Ended Apr. 30, 2017     Pro Forma Adjustments     Notes   Pro Forma Statement of Operations  
                       
Cash Flows from Operating Activities                                    
Net loss   $ (24,410 )   $ 0     $ 24,410     2a   $ 0  
                                     
Adjustments to Reconcile Net Loss to Net Cash used in Operating Activities                                    
 Increase (Decrease) in accounts payable     3,020       0       (3,020 )   2a     0  
 Increase in accrued interest- related party     7,349       0       (7,349 )   2a     0  
Net cash used in operating activities     (14,041 )     0       14,041           0  
                                     
Cash Flows from Financing Activities                                    
 Proceeds from shareholder loans     14,041       0       (14,041 )   2a     0  
Net Cash Provided by Financing Activities     14,041       0       (14,041 )         0  
                                     
Cash Flows from Investing Activities                                    
 Proceeds from issuance of common stock     0       0       3,300,000     2b     3,300,000  
Net Cash Provided by Investing Activities     0       0       3,300,000           3,300,000  
                                     
Net increase (decrease) in cash     0       0       3,300,000           3,300,000  
Cash at beginning of period     0       0       0           0  
Cash at end of period   $ 0     $ 0     $ 3,300,000         $ 3,300,000  
                                     
Supplemental cash flow information                                    
Cash paid during period for interest   $ 0     $ 0     $ 0         $ 0  
Cash paid during period for income taxes   $ 0     $ 0     $ 0         $ 0  

 

    5  
 

 

Cyberspace Vita, Inc.

Notes to Unaudited Pro Forma

Consolidated Financial Statements

April 30, 2017

 

1. Nature of Operations

 

On May 11, 2017, Cyberspace Vita, Inc., a Nevada corporation (the “ Company ”) entered into a share exchange agreement (the “ Exchange Agreement ”) with Project 1493, LLC, a private Puerto Rican limited liability company (“ 1493 ”), and the member of 1493 (the “ Members ”), pursuant to which the Members transferred all of the outstanding membership interests of 1493 to the Company in exchange for 16,690,912 restricted shares of common stock of the Company (the “ Exchange Shares ”), warrants to purchase up to 3,000,000 shares of common stock at an exercise price of $0.50 per share for a period of three (3) years from the date of issuance (the “ Exchange Warrants ”) and 1,000 shares of Series A Preferred Stock that grants the holders thereof fifty-one percent (51%) voting power (the “ Preferred Shares ” and together with the Exchange Shares, and the Exchange Warrants, the “ Exchange Securities ”). The transaction closed on May 11, 2017 (the “ Closing Date ”).

 

As a result, 1493 became a wholly-owned subsidiary of the Company, and the Members acquired a controlling interest in the Company (the “ Share Exchange ”). For accounting purposes, the Share Exchange was treated as an acquisition of Cyberspace Vita and a recapitalization of 1493. 1493 is the accounting acquirer, and the results of its operations carryover. Accordingly, the operations of Cyberspace Vita are not carried over and have been adjusted to $0.

 

In issuing the Exchange Securities to the Members, the Company relied upon the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, as, among other things, the transaction did not involve a public offering and the securities were acquired for investment purposes only and not with a view to or for sale in connection with any distribution thereof.

 

In connection with the Exchange Agreement, Alexander Diener, our previous Chief Executive Officer, Chief Financial Officer, Treasurer, Secretary and sole director resigned from all of his positions with the Company effective May 11, 2017. Concurrently therewith, Leslie Ball was appointed to serve as our Chief Executive Officer and director, and Thomas Gingerich was appointed to serve as our Chief Financial Officer.

 

The unaudited consolidated pro forma statements include the historical unaudited consolidated statements of Cyberspace Vita, Inc. and Project 1493, LLC giving effect to the Share Exchange and other related events as if it had occurred on April 30, 2017. These unaudited consolidated pro forma financial statements have been prepared for comparative purposes only and do not purport to be indicative of the results of operations which actually would have resulted had the transaction occurred on the date indicated and are not necessarily indicative of the results that may be expected in the future.

 

Debt Exchange Agreement

 

On May 11, 2017, the Company also entered into a debt exchange agreement (the “ Debt Exchange ”) with Fountainhead Capital Management Limited (“ Fountainhead ”), a related party, whereby Fountainhead agreed to cancel a promissory note in the aggregate amount of $510,652 plus accrued interest of $129,265. As consideration, Fountainhead received an aggregate of 1,800,000 shares of the Company’s common stock, of which 200,000 shares of common stock has been previously issued.

 

Private Placement Offering

 

On May 11, 2017, the Company entered into a subscription agreement (the “Subscription Agreement”) with selected accredited investors (each, an “Investor” and, collectively, the “Investors”). Pursuant to the terms of the Subscription Agreement, the Company offered in a private placement (the “Offering”) a minimum of $1,000,000 and up to a maximum of $3,300,000 of its securities, consisting of (i) shares of its common stock (“Shares”); and (ii) warrants to purchase shares of the Company’s common stock (the “Warrants”). Each Warrant shall be exercisable at any time on or after the date of issuance for a period of three (3) years at an exercise price per share equal to $0.50 per share, subject to adjustment as provided in the agreement evidencing the Warrants. The number of shares of common stock underlying the Warrants is equal to 30% of the number of Shares issued to each Investor in the Offering (the “Warrant Shares”).

 

    6  
 

 

Cyberspace Vita, Inc.

Notes to Unaudited Pro Forma

Consolidated Financial Statements

April 30, 2017

 

The Offering closed on May 11, 2017. The Company issued a total of 8,461,538 Shares and 2,538,462 Warrants to purchase up to 2,538,462 shares of the Company’s common stock, for total gross proceeds of $3,300,000.

 

The foregoing descriptions of the Exchange Agreement, Debt Exchange and Subscription Agreement does not purport to be complete and is qualified in its entirety by reference to the complete text of the Exchange Agreement, Debt Exchange and Subscription Agreement, filed as Exhibits 10.1, 10.2, and 10.3, respectively, hereto and incorporated herein by reference.

 

Other Issuances

 

In connection with the Exchange Agreement, Debt Exchange and Subscription Agreement, the Company issued to certain consultants an aggregate of 3,000,000 shares of common stock and warrants to purchase up to an aggregate of 500,000 shares of common stock at an exercise price of $0.50 per share for a period of three (3) years from the date of issuance.

 

In connection with the foregoing issuances, the Company relied upon the exemption from securities registration provided by Section 4(a)(2) under the Securities Act of 1933, as amended (the “ Securities Act ”) for transactions not involving a public offering.

 

2. Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying unaudited pro forma consolidated balance sheet have been presented as of April 30, 2017.The unaudited pro forma consolidated statements of operations, cash flow and stockholders’ ended April 30, 2017, as well as the unaudited pro forma consolidated statement of changes in stockholders’ equity for the period ended April 30, 2017 have been presented as if the acquisition had occurred April 30, 2017.

 

As described in Note 1 above, on May 11, 2017, we acquired all the issued and outstanding shares of 1493 pursuant to the Exchange Agreement and 1493 became our wholly-owned subsidiary. The acquisition was accounted for as a recapitalization effected by a share exchange, wherein 1493 is considered the acquirer for accounting and financial reporting purposes. The assets and liabilities of 1493 have been brought forward at their book value and no goodwill has been recognized.

 

As a result of the acquisition of all the issued and outstanding membership interest of 1493, we have now assumed 1493’s business operations as our own and we are no longer a shell corporation as the term is defined in Rule 405 of the Securities Act and Rule 12b-2 of the Exchange Act.

 

The unaudited pro forma adjustments are included in the accompanying unaudited pro forma consolidated balance sheet as of April 30, 2017, the unaudited pro forma consolidated statements of operations for the period ended April 30, 2017.

 

a. To record the spin-off of the Company’s liabilities prior to the reverse acquisition;
b. These adjustments reflect the recapitalization as a result of the transactions related to the share exchange.

 

The unaudited pro forma consolidated statements do not necessarily represent the actual results that would have been achieved had the companies been combined at the beginning of the year, nor may they be indicative of future operations. These unaudited pro forma financial statements should be read in conjunction with the companies’ respective historical financial statements and notes included thereto.

 

    7