Table of Contents

As filed with the Securities and Exchange Commission on May 15, 2018

Registration No. 333-________

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM S-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

 

URBAN-GRO, INC.

(Exact name of registrant as specified in its charter)

 

Colorado 5083 46-5158469

(State or other jurisdiction of

Incorporation or organization)

(Primary Standard Industrial

Classification Code Number)

(I.R.S. Employer

Identification No.)

 

1751 Panorama Point

Unit G

Lafayette, CO 80026

(720) 390-3880

(Address, including zip code, and telephone number, including area code,

of registrant’s principal executive offices)

 

Bradley Nattrass

Chief Executive Officer

urban-gro, Inc.

1751 Panorama Point

Unit G

Lafayette, CO 80026

(720) 390-3880

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

Copies to:

Andrew I. Telsey, Esq.

Andrew I. Telsey, P.C.

12835 E. Arapahoe Road

Tower I Penthouse #803

Centennial, CO 80112

Tel: (303) 768-9221

 

As soon as practicable after the effective date of this Registration Statement

(Approximate date of commencement of proposed sale to the public)

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: x

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:  o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

o  Large accelerated filer   o  Accelerated filer
o  Non-accelerated filer (Do not check if a smaller reporting company)   x  Smaller reporting company
x  Emerging Growth Company    

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. o

 

CALCULATION OF REGISTRATION FEE

 

Title of Each Class of Securities

to be Registered

 

Amount to be

Registered

 

Proposed Maximum

Offering Price Per

Share  (1)

 

Proposed Maximum

Aggregate

Offering Price

 

Amount of

Registration Fee

                 

Common Stock,

Par value $0.001 per share

  4,157,936   $1.00   $ 4,157,936   $ 517.67

__________________

(1) Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(a) under the Securities Act of 1933.

 

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.

 

 

     

 

 

 

Subject to Completion, dated May 15, 2018

 

PROSPECTUS

 

PRELIMINARY

PROSPECTUS

 

URBAN-GRO, INC.

 

4,157,936 Shares of Common Stock

 

This Prospectus relates to the offer and sale of up to 4,157,936 shares of our Common Stock (“Common Stock”) held by Selling Stockholders listed beginning on page 13 of this Prospectus (the “Selling Stockholders”), (the “Offering”).  See SELLING STOCKHOLDERS .”

 

The Selling Stockholders may sell their shares of our Common Stock (the “Shares”) from time to time at the initial price of $1.00 per share until our common shares are quoted on the OTCQB and thereafter at prevailing market prices or privately negotiated prices. See DETERMINATION OF OFFERING PRICE ,” “ SELLING STOCKHOLDERS ” and “ PLAN OF DISTRIBUTION .”

 

We will pay the expenses of registering these Shares. We will not receive any proceeds from the sale of Shares of Common Stock in this Offering. All of the net proceeds from the sale of the Shares will go to the Selling Stockholders. The Selling Shareholders are expected to receive aggregate net proceeds of approximately $4,157,936 from the sale of their Shares (approximately $1.00 per share).

 

Our Common Stock is not currently listed for trading on any exchange. It is our intention to seek quotation on the OTCQB if we qualify for listing on the same. There can be no assurances that our Common Stock will be approved for trading on the OTCQB, or any other trading exchange.

 

This Prospectus is part of a registration statement that we have filed with the US Securities and Exchange Commission. Prior to filing of our registration statement, we were not a reporting company under the Securities Exchange Act of 1934, as amended. Following the effectiveness of our registration statement we will become subject to the reporting requirements under the aforesaid Act.

 

We are an “emerging growth company” as defined under the federal securities laws and are subject to reduced public company reporting requirements.

 

Investing in our Common Stock involves a high degree of risk. You should invest in our Common Stock only if you can afford to lose your entire investment.

 

SEE RISK FACTORS ” BEGINNING ON PAGE 4.

 

The information in this Prospectus is not complete and may be changed. This Prospectus is included in the registration statement that was filed by URBAN-GRO, INC. with the Securities and Exchange Commission. The Selling Stockholders may not sell these Shares until the registration statement becomes effective. This Prospectus is not an offer to sell these Shares and is not soliciting an offer to buy these Shares in any State where the offer or sale is not permitted.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

The date of this Prospectus is ____________, 2018

 

     

 

 

TABLE OF CONTENTS

 

  Page No.
   
Prospectus Summary 1  
Special Note About Forward-Looking Statements 3  
Risk Factors 4  
Use of Proceeds 11  
Determination of the Offering Price 12  
Market Price of and Dividends on the Company’s Common Equity and Related Stockholder Matters 12  
Selling Stockholders 13  
Plan of Distribution 15  
Management’s Discussion and Analysis of Financial Condition and Results of Operations 17  
Description of Business 21  
Management 34  
Executive Compensation 35  
Security Ownership of Certain Beneficial Owners & Management 35  
Certain Relationships and Related Transactions 37  
Description of Securities 37  
Shares Eligible for Future Sale 38  
Interests of Named Experts and Counsel 39  
Legal Matters 39  
Experts 39  
Disclosure of Commission Position on Indemnification for Securities Act Liabilities 39  
Additional Information 39  
Financial Statements 39  

 

 

 

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PROSPECTUS SUMMARY

 

This summary provides an overview of certain information contained elsewhere in this Prospectus and does not contain all of the information that you should consider or that may be important to you. Before making an investment decision, you should read the entire Prospectus carefully, including the “RISK FACTORS” section and the financial statements and the notes to the financial statements. In this Prospectus, the terms “the “Company,” “we,” “us” and “our” refer to URBAN-GRO, INC., unless otherwise specified herein.

 

The terms the “Company,” “we,” “us,” and “our” refer collectively to urban-gro, Inc., unless the context clearly indicates otherwise. All references in this Prospectus “$” or “dollars” are to United States dollars, unless specifically stated otherwise.

 

We were originally formed on March 20, 2014, as a Colorado limited liability company. In March 2017, we converted to a corporation and issued 193.3936722 shares of our Common Stock for every Member Interest issued and outstanding on the date of conversion.

 

We are an agricultural technology systems integrator that provides full design and expertise on climate and automated control of fertigation/irrigation systems, lighting systems, environmental, substrate and inventory monitoring, water treatment systems, integrated pest management solutions, and a complete line of cultivation equipment targeting growers of the world’s highest value crops including cannabis, tomatoes, strawberries, chilies and peppers, and leaf lettuce. While it is our intention to expand our operations to additional applications, to date, all of our revenues have been generated in the cannabis industry.

 

We manufacture, distribute and sell lighting, pest management, fertigation, water and other products to the medical and recreational cannabis industry in states where operation of a cannabis production facility has been legalized. Our clients consist primarily of large scale indoor and greenhouse commercial cultivators growing high-value crops. We design and engineer state of the art facilities and systems that focus on maximizing plants yields and lowering overall operational costs. . We engage directly with the ownership groups and growers at large indoor and outdoor greenhouse cultivation facilities and strategically work with them to provide value-added services and industry best products that assist them in lowering production costs and increasing crop yields.

 

While earmarking the emerging cannabis market as our principal target market, we are also marketing to customers outside of the cannabis industry to diversify our operations. We are attempting to expand our business operations and diversify our target markets. We believe this is a reasonable and prudent business decision. However, there can be no assurances that these efforts will be successful, or that we will generate sufficient revenues from these new opportunities to become profitable. See “RISK FACTORS” and “BUSINESS.”

 

In May 2017, we commenced a private offering of our Common Stock wherein we received aggregate subscriptions of $2,546,000 from the sale of 2,546,000 shares, at $1 per share, to 76 investors, including 58 “accredited” investors, as that term is defined under the Securities Act of 1933, as amended. These funds were used to repay debt, expansion of our existing business operations, new investment

 

During 2017 and 2016, we generated revenues of $12,298,015 and $7,033,273, respectively, and incurred net losses of ($2,577,395) in 2017 and ($1,808,861) in 2016. Total stockholders’ equity at December 31, 2017 was ($1,361,028). As of December 31, 2017, we had $1,656,791 in cash. See “RISK FACTORS” and “FINANCIAL STATEMENTS.”

 

Our executive office is located at 1751 Panorama Point, Unit G, Lafayette, CO 80026, and our phone number is (720) 390-3880. Our Company website is www.urban-gro.com , which contain a description of our Company and products, but such websites and the information contained on our websites are not part of this Prospectus. In addition, we also maintain branded product websites of www.soleiltech.ag and www.opti-dura.com.

 

About The Offering

 

Common Stock to be Offered by Selling Shareholders   4,157,936 shares. This number represents approximately 16.9% of the total number of shares outstanding following this Offering.
     
Number of shares outstanding before and after the Offering   24,671,000 (1)
     
Use of Proceeds   We will not receive any proceeds from the sale of the Common Stock.
     
Risk Factors   See the discussion under the caption “RISK FACTORS” and other information in this Prospectus for a discussion of factors you should carefully consider before deciding to invest in our Common Stock.

_________________________

(1) Because we are not selling any of our Common Stock as part of this Offering, the number of issued and outstanding shares of our Common Stock will remain the same following this Offering.

 

 

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Selected Financial Data

 

The following selected financial data should be read in conjunction with our financial statements and the related notes to those statements included in “FINANCIAL STATEMENTS” and with “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS” appearing elsewhere in this Prospectus. The selected financial data has been derived from our audited financial statements.

 

Statement of Operations:

 

   

Year Ended

December 31, 2017

   

Year Ended

December 31, 2016

 
             
Revenues   $ 12,298,015     $ 7,033,273  
Cost of Goods Sold   $ 9,244,329     $ 5,622,373  
Gross Profit   $ 3,053,686     $ 1,410,900  
                 
Total operating expenses   $ 5,416,829     $ 3,020,352  
Income (loss) from operations   $ (2,363,143 )   $ (1,609,452 )
Other income (expense)   $ (214,252 )   $ (199,409 )
Provision for income tax   $     $  
Net income (loss)   $ (2,577,395 )   $ (1,808,861 )
                 
Net income (loss) per share – (basic and fully diluted)   $ (0.13 )   $ (17.66 )
                 
Weighted common shares outstanding     20,047,885       102,455  

 

Balance Sheet:

 

    December 31, 2017  
Cash   $ 1,656,791  
Current assets   $ 4,296,875  
Total assets   $ 4,966,392  
Current liabilities   $ 6,027,420  
Total liabilities   $ 6,327,420  
Total stockholders’ equity   $ (1,361,028 )

 

 

 

 

 

 

 

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SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS

 

We have made some statements in this Prospectus, including some under “RISK FACTORS,” “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,” “DESCRIPTION OF BUSINESS” and elsewhere, which constitute forward-looking statements. These statements may discuss our future expectations or contain projections of our results of operations or financial condition or expected benefits to us resulting from acquisitions or transactions and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any results, levels of activity, performance or achievements expressed or implied by any forward-looking statements. These factors include, among other things, those listed under “RISK FACTORS” and elsewhere in this Prospectus. In some cases, forward-looking statements can be identified by terminology such as “may,” “should,” “could,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology. Although we believe that the expectations reflected in forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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RISK FACTORS

 

An investment in our Common Stock is a risky investment. In addition to the other information contained in this Prospectus, prospective investors should carefully consider the following risk factors before purchasing shares of our Common Stock offered hereby. We believe that we have included all material risks.

 

Risks Related to our Operations

 

We have limited operational history that has earmarked the cannabis market, an emerging industry, as its principal market. The cannabis industry has been legalized in some states but remains illegal in others and under federal law, making it difficult to accurately predict and forecast business operation.

 

Because we have only a limited operational history it is and will continue to be extremely difficult to make accurate predictions and forecasts on our growth and finances. There is no guarantee our services will remain attractive to potential and current clients as our industry continues to grow and develop.

 

Additionally, though our management team has varied and extensive business backgrounds and technical expertise, they, along with everyone else involved in the cannabis industry have limited substantive prior working experience and managing operations in the cannabis industry. Because of our limited operating history and the recent development of the cannabis industry in general it is very difficult to evaluate our business and the future prospects. We will encounter risks and difficulties and, in order to overcome these risks and difficulties, we believe we must:

 

· Execute our business and marketing strategy successfully;
· Increase the number of clients;
· Meet the expected demand with quality, timely services;
· When appropriate, partner with affiliate marketing companies to explore the demand;
· Leverage initial relationships with earliest customers;
· Upgrade our product and services and continuously provide wider distribution; and
· Attract, hire, motivate and retain qualified personnel.

 

If these objectives are not achieved our results of operations could suffer.

 

While there are other aspects of our business, we are relying heavily upon the various federal governmental memos issued in the past (Ogden, Cole, and others), as well as recent assurances issued by the Trump administration, to remain acceptable to those state and federal entities that regulate, enforce, or choose to defer enforcement of certain current regulations regarding cannabis and that the Federal Government will not change its attitude to those practitioners in the cannabis industry as long as they comply with their state and local jurisdictional rules and authorities.

 

We have not generated profits from our operations.

 

We were initially organized as a limited liability company in the State of Colorado on March 20, 2014. In March 2017, we converted into a corporation with the expectation of becoming a public reporting, trading company in the future. During our existence we have generated what we consider to be significant revenues from our operations. During the year ended December 31, 2017, we generated revenues of $12,298,015 and incurred a net loss of $2,577,395. During the year ended December 31, 2016, we generated revenue of $7,033,273, and incurred a net loss of $1,808,861. While we believe we will be profitable in 2018, there are no assurances that this will occur or that we will ever establish profitable operations.

 

We may incur losses in the near future, which may impact our ability to implement our business strategy and adversely affect our financial condition.

 

We expect to significantly increase our operating expenses by expanding our marketing activities and increasing our level of capital expenditures in order to grow our business. Such increases in operating expense levels and capital expenditures may adversely affect our operating results if we are unable to immediately realize benefits from such expenditures. In addition, if we are unable to manage a significant increase in operating expenses, our liquidity will likely decrease and negatively impact our cash flow and ability to sustain operations. In turn, this would have a negative impact on our financial condition and share price, if a share price develops, of which there can be no assurance.

 

 

 

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We also expect that our operating expenses will significantly increase as a result of becoming a public company in the future, of which there can be no assurance. We also cannot assure you that we will be profitable or generate sufficient profits from operations in the future. If our revenues do not grow, we may experience a loss in one or more future periods. We may not be able to reduce or maintain our expenses in response to any decrease in our revenue, which may impact our ability to implement our business strategy and adversely affect our financial condition. This would also have a negative impact on our share price.

 

We may become subject to additional regulation of farm and grow products .

 

We do not believe that our targeted products are subject to regulation by the Food and Drug Administration or any similar state agency. However, changes in the industry, including growth or additional regulation makes it possible that such regulations may be put into place and that such regulations could impact sales or otherwise negatively impact our revenues and business opportunities.

 

Competition in our industry is intense.

 

There are many competitors in the cannabis industry, including many who offer similar products and services as those offered by us. There can be no guarantees that in the future other companies won’t enter this arena by developing products that are in direct competition with us. We anticipate the presence as well as entry of other companies in this market space but acknowledges that we may not be able to establish or if established, to maintain a competitive advantage. Some of these companies may have longer operating histories, greater name recognition, larger customer bases and significantly greater financial, technical, sales and marketing resources. This may allow them to respond more quickly than us to market opportunities. It may also allow them to devote greater resources to the marketing, promotion and sale of their products and/or services. These competitors may also adopt more aggressive pricing policies and make more attractive offers to existing and potential customers, employees, strategic partners, distribution channels and advertisers. Increased competition is likely to result in price reductions, reduced gross margins and a potential loss of market share.

 

Our management and principal shareholders have the ability to significantly influence or control matters requiring a shareholder vote and other shareholders may not have the ability to influence corporate transactions.

 

Currently, our principal shareholders own in excess of a majority of our outstanding Common Stock. As a result, they have the ability to determine the outcome on all matters requiring approval of our shareholders, including the election of directors and approval of significant corporate transactions.

 

Our management does not have significant financial reporting experience, or significant experience in managing a public company.

 

This may make it difficult in establishing and maintaining acceptable internal controls on financial reporting and which also   may lead to delays in filing required reports with the Securities and Exchange Commission and suspension of quotation of our securities on the OTCQB or a national exchange if and when we are approved for trading, which will make it more difficult for you to sell your securities.

 

The OTCQB and other national stock exchanges each limits quotations to securities of issuers that are current in their reports filed with the Securities and Exchange Commission. Because we do not have significant financial reporting experience we may experience delays in filing required reports with the Securities and Exchange Commission (the “SEC”). Because issuers whose securities are qualified for quotation on the OTCQB or any other national exchange are required to file these reports with the SEC in a timely manner, the failure to do so may result in a suspension of trading or delisting.

 

We are dependent upon our management to continue our growth.

 

We believe we will rapidly and significantly expand our operations and growth as a result of the continued expansion of the cannabis industry. There are no assurances this will occur. However, if it does occur we will need to significantly expand our administrative facilities which will continue to be required in order to address potential market opportunities. The rapid growth will place a significant strain on our management and operational and financial resources. Our success is principally dependent on our current management personnel for the operation of our business.

 

We may not be able to hire or retain qualified staff. If qualified and skilled staff are not attracted and retained, growth of our business may be limited. The ability to provide high quality service will depend on attracting and retaining educated staff, as well as professional experiences that is relevant to our market, including for marketing, technology and general experience in this industry. There will be competition for personnel with these skill sets. Some technical job categories may experience severe shortages in the United States.

 

 

 

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Our ability to deliver quality services depends on our ability to manage and expand our marketing, operational and distribution systems, recruit additional qualified employees and train, and manage and motivate both current and new employees. Failure to effectively manage our growth would have a material adverse effect on our business.

 

The loss of our officers and directors or our failure to attract and retain additional key personnel could adversely affect our business.

 

Our success depends largely upon the efforts, abilities, and decision-making of our executive officers and directors. Although we believe that we maintain a core group sufficient for us to effectively conduct our operations, the loss of any of our key personnel could, to varying degrees, have an adverse effect on our operations and business development. While we intend to purchase key man insurance on Messrs. Nattrass and Gutierrez, we do not currently have any such insurance in place. If we do purchase this insurance there can be no assurance that this coverage will be sufficient to allow us to replace them or the services of any member of our management will remain available to us for any period of time, or that we will be able to enter into employment contracts with any of our management, or that any of our plans to reduce dependency upon key personnel will be successfully implemented.

 

We believe the knowledge and expertise of Messrs. Nattrass and Gutierrez are critical to our operations. There is no guarantee that we will be able to retain our current officers and directors, or be able to hire suitable replacements in the event that some or all of our current management leave our Company. If we lose key members of our staff, or if we are unable to find suitable replacements, we may not be able to maintain our business and might have to cease operations, in which case you might lose all of your investment.

 

We are dependent upon third party suppliers of our raw materials.

 

We are dependent on outside vendors for our supplies of raw materials. While we believe that there are numerous sources of supply available, if the third party suppliers were to cease production or otherwise fail to supply us with quality raw materials in sufficient quantities on a timely basis and we were unable to contract on acceptable terms for these services with alternative suppliers, our ability to produce our products would be materially adversely affected.

 

Changes in accounting standards and subjective assumptions, estimates and judgments by management related to complex accounting matters could significantly affect our financial results.

 

Generally Accepted Accounting Principles (“GAAP”) and related pronouncements, implementation guidelines and interpretations with regard to a wide variety of matters that are relevant to our business, such as, but not limited to, revenue recognition, stock-based compensation, trade promotions, sports sponsorship agreements and income taxes are highly complex and involve many subjective assumptions, estimates and judgments by our management. Changes to these rules or their interpretation or changes in underlying assumptions, estimates or judgments by our management could significantly change our reported results.

 

Provisions of our Articles of Incorporation and Bylaws may delay or prevent a take-over that may not be in the best interests of our stockholders.

 

Provisions of our Articles of Incorporation and Bylaws may be deemed to have anti-takeover effects, which include when and by whom special meetings of our stockholders may be called, and may delay, defer or prevent a takeover attempt.

 

In addition, our Articles of Incorporation authorizes the issuance of up to 10,000,000 shares of Preferred Stock with such rights and preferences determined from time to time by our Board of Directors. As of the date of this Memorandum, none of our Preferred Stock is currently issued or outstanding. Our Board of Directors may, without stockholder approval, issue additional Preferred Stock with dividends, liquidation, conversion, voting or other rights that could adversely affect the voting power or other rights of the holders of our Common Stock.

 

Risks Related to Our Industry

 

Our proposed business is dependent on state laws pertaining to the cannabis industry.

 

The Federal Controlled Substances Act, classifies cannabis as a Schedule I controlled substance and makes cannabis use and possession illegal on a national level. The United States Supreme Court has ruled that it is the Federal Government that has the right to regulate and criminalize cannabis, even for medical purposes, and thus federal law criminalizing the use of cannabis preempts state laws that legalize its use. As of the date of this Prospectus, 28 states and the District of Columbia allow their residents to use medical cannabis. While voters in the states of with Texas being the most recent state to add a medical initiative. Additionally, voters in the states of Colorado, Washington, Alaska, Oregon, California, Nevada, Maine, and Massachusetts, as well as the District of Columbia, have all approved legalization of cannabis for adult use approve ballot measures to legalize cannabis for adult use, continued expansion of such ‘recreational use’ is not well defined at this time and any continued development of the cannabis industry will be dependent upon continued new legislative authorization of cannabis at the state, and perhaps the federal level. Any number of events or occurrences could slow or halt progress all together in this space. While progress within the cannabis industry channel is currently encouraging, growth is not assured. While there appears to be ample public support for favorable legislative action, numerous factors may impact or negatively affect the legislative process(s) within the various states we have business interests in. Any one of these factors could slow or halt use of cannabis, which would negatively impact our business up to possibly causing us to discontinue operations as a whole.

 

 

 

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Cannabis remains illegal under federal law.

 

Despite the development of a cannabis industry legal under state laws, state laws legalizing medicinal and adult cannabis use are in conflict with the Federal Controlled Substances Act, which classifies cannabis as a Schedule I controlled substance and makes cannabis use and possession illegal on a national level. The United States Supreme Court has ruled that it is the Federal Government that has the right to regulate and criminalize cannabis, even for medical purposes, and thus federal law criminalizing the use of cannabis preempts state laws that legalize its use. However, while the Obama Administration effectively stated that it is 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 and recreational cannabis and the Trump Administration recently announced that it did not intend to interfere with state initiatives in the cannabis space, there is no guarantee that the Trump Administration will not change its stated policy. Any such change in the Federal Government’s enforcement of federal laws could cause significant financial damage to us and our shareholders.

 

As the possession and use of cannabis is illegal under the Federal Controlled Substances Act, we may be deemed to be aiding and abetting illegal activities through the services that we provide to users and advertisers. As a result, we may be subject to enforcement actions by law enforcement authorities, which would materially and adversely affect our business.

 

Under federal law, and more specifically the Federal Controlled Substances Act, the possession, use, cultivation, and transfer of cannabis is illegal. Our business provides products and services to customers that are engaged in the business of possession, use, cultivation, and/or transfer of cannabis. As a result, law enforcement authorities, in their attempt to regulate the illegal use of cannabis, may seek to bring an action or actions against us, including, but not limited to, a claim of aiding and abetting another’s criminal activities. The federal aiding and abetting statute provides that anyone who “commits an offense against the United States or aids, abets, counsels, commands, induces or procures its commission, is punishable as a principal.” 18 U.S.C. §2(a). As a result of such an action, we may be forced to cease operations and our investors could lose their entire investment. Such an action would have a material negative effect on our business and operations.

  

Federal enforcement practices could change with respect to product and services providers to participants in the cannabis industry, which could adversely impact us. If the Federal Government were to change its practices, or were to expend its resources enforcing existing federal laws on such providers in the cannabis industry, such action could have a materially adverse effect on our operations, our customers, or the sales of our products up to and including a complete interruption of our business.

 

It is possible that additional federal or state legislation could be enacted in the future that would prohibit our clients from selling cannabis, and if such legislation were enacted, such clients may discontinue the use of our services, and our potential source of customers would be reduced causing revenues to decline. Further, additional government disruption in the cannabis industry could cause potential customers and users to be reluctant to use our services, which would be detrimental to us. We cannot predict the nature of any future laws, regulations, interpretations or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on our business.

 

Risks Relating to our Common Stock

 

There is no trading market for our securities and there can be no assurance that such a market will develop in the future.

 

We intend to cause an application to be filed on our behalf to trade our Common Stock on the OTCQB in the near future. There is no assurance that our application will be approved, or once approved that a market will develop in the future or, if developed, that it will continue. In the absence of a public trading market, an investor may be unable to liquidate his investment in our Company.

 

There are no automated systems for negotiating trades on the OTCQB and it is possible for the price of a stock to go up or down significantly during a lapse of time between placing a market order and its execution, which may affect your trades in our securities.

 

Because there are no automated systems for negotiating trades on the OTCQB, they are conducted via telephone. In times of heavy market volume, the limitations of this process may result in a significant increase in the time it takes to execute investor orders. Therefore, when investors place market orders, an order to buy or sell a specific number of shares at the current market price, it is possible for the price of a stock to go up or down significantly during the lapse of time between placing a market order and its execution.

 

 

 

  7  

 

 

If our application to trade our Common Stock is approved, our stock will be considered a “penny stock” so long as it trades below $5.00 per share. This can adversely affect its liquidity.

 

If our application to trade our Common Stock on the OTCQB is approved, of which there can be no assurance, it is anticipated that our Common Stock will be considered a “penny stock” and will continue to be considered a penny stock so long as it trades below $5.00 per share and as such, trading in our Common Stock will be subject to the requirements of Rule 15g-9 under the Securities Exchange Act of 1934. Under this rule, broker/dealers who recommend low-priced securities to persons other than established customers and accredited investors must satisfy special sales practice requirements. The broker/dealer must make an individualized written suitability determination for the purchaser and receive the purchaser’s written consent prior to the transaction.

 

SEC regulations also require additional disclosure in connection with any trades involving a “penny stock,” including the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and its associated risks. In addition, broker-dealers must disclose commissions payable to both the broker-dealer and the registered representative and current quotations for the securities they offer. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from recommending transactions in our securities, which could severely limit the liquidity of our securities and consequently adversely affect the market price for our securities. In addition, few broker or dealers are likely to undertake these compliance activities. Other risks associated with trading in penny stocks could also be price fluctuations and the lack of a liquid market.

 

Any adverse effect on the market price of our Common Stock could make it difficult for us to raise additional capital through sales of equity securities at a time and at a price that we deem appropriate.

 

Sales of substantial amounts of our Common Stock, or in anticipation that such sales could occur, may materially and adversely affect prevailing market prices for our Common Stock, if and when such market develops in the future.

  

The market price of our Common Stock may fluctuate significantly in the future.

 

If our application to trade our Common Stock on the OTCQB is approved, we expect that the market price of our Common Stock may fluctuate in response to one or more of the following factors, many of which are beyond our control:

 

  · competitive pricing pressures;

 

  · our ability to market our services on a cost-effective and timely basis;

 

  · our inability to obtain working capital financing, if needed;

 

  · changing conditions in the market;

 

  · changes in market valuations of similar companies;

 

  · stock market price and volume fluctuations generally;

 

  · regulatory developments;

 

  · fluctuations in our quarterly or annual operating results;

 

  · additions or departures of key personnel; and

 

  · future sales of our Common Stock or other securities.

 

 

 

  8  

 

 

The price at which you purchase shares of our Common Stock may not be indicative of the price that will prevail in the trading market. You may be unable to sell your shares of Common Stock at or above your purchase price, which may result in substantial losses to you and which may include the complete loss of your investment. In the past, securities class action litigation has often been brought against a company following periods of stock price volatility. We may be the target of similar litigation in the future. Securities litigation could result in substantial costs and divert management’s attention and our resources away from our business. Any of the risks described above could adversely affect our sales and profitability and also the price of our Common Stock.

 

Provisions of our Articles of Incorporation and Bylaws may delay or prevent a take-over that may not be in the best interests of our stockholders.

 

Provisions of our Articles of Incorporation and Bylaws may be deemed to have anti-takeover effects, which include when and by whom special meetings of our stockholders may be called, and may delay, defer or prevent a takeover attempt.

 

The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain executive management and qualified board members.

 

As a public company, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, the Sarbanes-Oxley Act, the Dodd-Frank Act, and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources, particularly after we are no longer an “emerging growth company,” as defined in the Jumpstart our Business Startups Act, or the JOBS Act. The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and operating results. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, which could adversely affect our business and operating results. We may need to hire more employees in the future or engage outside consultants, which will increase our costs and expenses.

 

In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business may be adversely affected.

 

However, for as long as we remain an “emerging growth company,” we may take advantage of certain exemptions from various reporting requirements that are applicable to public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We may take advantage of these reporting exemptions until we are no longer an “emerging growth company.”

 

We would cease to be an “emerging growth company” upon the earliest of: (i) the first fiscal year following the fifth anniversary of this Prospectus, (ii) the first fiscal year after our annual gross revenues are $1.0 billion or more, (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities, or (iv) as of the end of any fiscal year in which the market value of our Common Stock held by non-affiliates exceeded $700 million as of the end of the second quarter of that fiscal year.

  

We also expect that being a public company and these new rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage once we put such coverages in place, which we intend to implement in the near future. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers.

 

 

 

  9  

 

 

As a result of disclosure of information in this Prospectus and in filings required of a public company, our business and financial condition will become more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and operating results could be adversely affected, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and adversely affect our business and operating results.

 

The market price for our Common Stock will be particularly volatile given our status as a relatively unknown company, with a limited operating history and lack of profits which could lead to wide fluctuations in our share price. You may be unable to sell your Common Stock at or above your purchase price, which may result in substantial losses to you.

 

While there is no market for our Common Stock, our price volatility in the future will be particularly volatile when compared to the shares of larger, more established companies that trade on a national securities exchange and have large public floats. The volatility in our share price will be attributable to a number of factors. First, our Common Stock will be, compared to the shares of such larger, more established companies, sporadically and thinly traded. As a consequence of this limited liquidity, the trading of relatively small quantities of shares by our shareholders may disproportionately influence the price of those shares in either direction. The price for our shares could decline precipitously in the event that a large number of our Common Stock are sold on the market without commensurate demand. Secondly, we are a speculative or “risky” investment due to our limited operating history and lack of profits to date, and uncertainty of future market acceptance for our potential products. As a consequence of this enhanced risk, more risk-adverse investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined to sell their shares on the market more quickly and at greater discounts than would be the case with the stock of a larger, more established company that trades on a national securities exchange and has a large public float. Many of these factors are beyond our control and may decrease the market price of our Common Stock, regardless of our operating performance. We cannot make any predictions or projections as to what the prevailing market price for our Common Stock will be at any time.

 

Our future results may vary significantly which may adversely affect the price of our Common Stock.

 

It is possible that our quarterly revenues and operating results may vary significantly in the future and that period-to-period comparisons of our revenues and operating results are not necessarily meaningful indicators of the future. You should not rely on the results of one quarter as an indication of our future performance. It is also possible that in some future quarters, our revenues and operating results will fall below our expectations or the expectations of market analysts and investors. If we do not meet these expectations, the price of our Common Stock may decline significantly.

 

We are classified as an “emerging growth company” as well as a “smaller reporting company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies and smaller reporting companies will make our Common Stock less attractive to investors.

 

As a reporting company under the Exchange Act, we expect to be classified as an "emerging growth company," as defined in the JOBS Act, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our Common Stock less attractive because we may rely on these exemptions. If some investors find our Common Stock less attractive as a result, there may be a less active trading market for our Common Stock and our stock price may be more volatile.

 

Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933 (the “Securities Act” or “33 Act”) for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably opted out of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act.

 

We could remain an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our Common Stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period.

 

 

 

  10  

 

 

Notwithstanding the above, we expect that we would be a “smaller reporting company.” In the event that we are still considered a “smaller reporting company,” at such time are we cease being an “emerging growth company,” the disclosure we will be required to provide in our SEC filings will increase, but will still be less than it would be if we were not considered either an “emerging growth company” or a “smaller reporting company.” Specifically, similar to “emerging growth companies,” “smaller reporting companies” are able to provide simplified executive compensation disclosures in their filings; are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that independent registered public accounting firms provide an attestation report on the effectiveness of internal control over financial reporting; and have certain other decreased disclosure obligations in their SEC filings. Decreased disclosures in our SEC filings due to our status as an “emerging growth company” or “smaller reporting company” may make it harder for investors to analyze our results of operations and financial prospects. Should we cease to be an “emerging growth company” but remain a “smaller reporting company”, we would be required to: (1) comply with new or revised US GAAP accounting standards applicable to public companies, (2) comply with new Public Company Accounting Oversight Board requirements applicable to the audits of public companies, and (3) to make additional disclosures with respect to related party transactions, namely Item 404(d).

 

There is no public market for the securities and even if a market is created, the market price of our Common Stock will be subject to volatility.

 

Prior to the date of this Prospectus there has been no public market for our securities and there can be no assurance that an active trading market for the securities offered herein will develop in the future, or, if developed, be sustained. We anticipate that, upon effectiveness of our registration statement, of which this Prospectus is a part, we will cause an application to be filed on our behalf to list our Common Stock for trading on the OTCQB. If for any reason, however, our application is not approved or if and when listed we do not take all action necessary to allow such market to continue quotation on the OTCQB or a public trading market does not develop, purchasers of our Common Stock may have difficulty selling their securities should they desire to do so and holders may lose their entire investment.

 

FINRA sales practice requirements may limit a stockholder’s ability to buy and sell our stock.

 

The Financial Industry Regulatory Authority (“FINRA”) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, the FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our Common Stock, which may have the effect of reducing the level of trading activity in our Common Stock. As a result, fewer broker-dealers may be willing to make a market in our Common Stock, reducing a stockholder’s ability to resell shares of our Common Stock.

 

State securities laws may limit secondary trading, which may restrict the states in which you can sell the shares offered by this Prospectus.

 

If you purchase shares of our Common Stock sold in this Offering, you may not be able to resell the shares in any state unless and until the shares of our Common Stock are qualified for secondary trading under the applicable securities laws of such state or there is confirmation that an exemption, such as listing in certain recognized securities manuals, is available for secondary trading in such state. There can be no assurance that we will be successful in registering or qualifying our Common Stock for secondary trading, or identifying an available exemption for secondary trading in our Common Stock in every state. If we fail to register or qualify, or to obtain or verify an exemption for the secondary trading of, our Common Stock in any particular state, our Common Stock could not be offered or sold to, or purchased by, a resident of that state. In the event that a significant number of states refuse to permit secondary trading in our Common Stock, the market for our Common Stock will be limited which could drive down the market price of our Common Stock and reduce the liquidity of the shares of our Common Stock and a stockholder’s ability to resell shares of our Common Stock at all or at current market prices, which could increase a stockholder’s risk of losing some or all of his investment.

 

USE OF PROCEEDS

 

We will receive none of the proceeds from the sale of the Common Stock issued and held by our Selling Stockholders in this Offering.

 

 

 

 

  11  

 

 

DETERMINATION OF THE OFFERING PRICE

 

There is no public market for our Common Stock. We have arbitrarily determined the offering price of our publicly tradable Common Stock offered pursuant to this Prospectus to be $1.00 per share. We believe that this price reflects the appropriate price that a potential investor would be willing to invest in our Common Stock at this initial stage of our development. The price was arbitrarily determined and bears no relationship whatsoever to our business plan, the price paid for our shares by our founders, our assets, earnings, book value or any other criteria of value. The offering price should not be regarded as an indicator of the future market price of the securities, which is likely to fluctuate.

 

MARKET PRICE OF AND DIVIDENDS ON THE COMPANY'S

COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

 

Market Information

 

As of the date of this Prospectus there is no market for our Common Stock. We intend to take certain steps to cause a licensed market maker to file an application with FINRA to list our Common Stock for trading on the OTCQB. There can be no assurances that our Common Stock will be approved for listing on the OTCQB, or any other existing U.S. trading market. See “RISK FACTORS.”

 

Holders

 

As of the date of this Prospectus we had 89 holders of record for our Common Shares. See “DESCRIPTION OF SECURITIES.”

 

We are registering the 4,157,936 shares of Common Stock held by 82 holders of our Shares in our registration statement of which this Prospectus is a part.

 

Dividend Policy

 

We have not paid any dividends since our incorporation and do not anticipate the payment of dividends in the foreseeable future. At present, our policy is to retain earnings, if any, to develop and market our products. The payment of dividends in the future will depend upon, among other factors, our earnings, capital requirements, and operating financial conditions. 

 

 

 

  12  

 

 

SELLING STOCKHOLDERS

 

The Selling Stockholders named in this Prospectus are offering the 4,157,936 shares of Common Stock offered through this Prospectus. Except as indicated, the Selling Stockholders are U.S. persons who acquired the 4,157,936 shares of Common Stock offered through this Prospectus from us in either our private placement transactions pursuant to Regulation D promulgated under the 33 Act or as a result of other authorized issuance by our Board of Directors pursuant to available exemptions from registration.

 

The following table provides as of the date of this Prospectus, information regarding the beneficial ownership of our Common Stock held by each of the Selling Stockholders and the percentage owned by each Selling Stockholder. Assuming all of the shares registered below are sold by the Selling Stockholders, none of the Selling Stockholders will own one percent or more or our Common Stock.

 

Name of Selling Shareholder (1)  

Shares of Common

Stock Owned

  % of Ownership
         
Cloud9 Support (2)   644,775   6.48%
Robert Schamel   268,624   2.70%
Stanley Wagner   322,774   3.24%
Alpha Holdings (3)   25,000   0.25%
Andrew M. Stone   50,000   0.50%
Andrew Zuckerman   10,000   0.10%
Anthony L. Beckmann   20,000   0.20%
April Hartmeister   5,000   0.05%
Aric Stott   20,000   0.20%
Atul Patel   10,000   0.10%
Be A Tiger, LLC (4)   50,000   0.50%
Brian Goldstein   10,000   0.10%
Brian Margolis   25,000   0.25%
C&C 2016 Metz Family Trust   10,000   0.10%
Carla Bank   15,000   0.15%
Carol Ditchkus   20,000   0.20%
Chris Parks   300,000   3.02%
Dan and Sue Dolquist   25,000   0.25%
David Culberson   50,000   0.50%
David Parks   200,000   2.01%
Debra Fine and Steven Tilliss   15,000   0.15%
Derek N. Eichenwald   25,000   0.25%
Desert Vista Ventures, LLC (5)   25,000   0.25%
Diane C. Burke   20,000   0.20%
Dune Road Capital (6)   50,000   0.50%
Eduardo Montemayor   10,000   0.10%
Elke Heiss   10,000   0.10%
Gary and Barbara Sillasen   14,000   0.14%
George R. Pullar   25,000   0.25%
Grant D. Melvin   50,000   0.50%
Guy Anthony Harrigan   50,000   0.50%
HMG MRB Partners LP (7)   75,000   0.75%
Holly Armstrong   10,000   0.10%
James and Kimberly Godwin   25,000   0.25%
James Peters   10,000   0.10%
James Troy Hojel   50,000   0.50%
Jan J Cummings Trust   30,000   0.30%
Janet L. Baumgartner   10,000   0.10%
Jason Park   40,000   0.40%
Jeffrey T. Kaufmann   50,000   0.50%

 

 

 

  13  

 

Name of Selling Shareholder (1)  

Shares of Common

Stock Owned

  % of Ownership
Jesse Truman   40,000   0.40%
Joaquim Dias De Castro   50,000   0.50%
John and Holly LaPorte   25,000   0.25%
John J. Czarkowski   50,000   0.50%
John M. Rinderknecht   25,000   0.25%
John P. Frey   25,000   0.25%
Joseph David Pault III   50,000   0.50%
Josh Roberts   10,000   0.10%
Kenneth Bank   75,000   0.75%
Kerry Underwood   20,000   0.20%
Leah Nattrass-Shultz (9)   75,000   0.75%
Lucia Meza   30,000   0.30%
Lynn Cohen   50,000   0.50%
Marion W. Peebles III   10,000   0.10%
Mark Borkovec   25,000   0.25%
Mary Pittman   10,000   0.10%
Melinda Visel   10,000   0.10%
Micah C. Fonoroff   10,000   0.10%
Michael A. Rutherford   10,000   0.10%
Michael Sandy Bank   40,000   0.40%
Online Tax LLC (8)   15,000   0.15%
Ralph W. Shaw   10,000   0.10%
Rhea Keenan   15,000   0.15%
Richard Luna   50,000   0.50%
Robert Birn   15,000   0.15%
Ryan M. Cook   10,000   0.10%
Scott Bridges   12,500   0.13%
Shelly Peterson   20,000   0.20%
Stephen M. Sanford   30,000   0.30%
Stephen Stowe   12,000   0.12%
Susan Piser   15,000   0.15%
Thomas Wildes   5,000   0.05%
Timothy J. McDermott   20,000   0.20%
Tut Holdings Ltd. (9)   25,000   0.25%
UGI Investment (10)   112,500   1.13%
Virginia McAllister   20,000   0.20%
William Allen   25,000   0.25%
William D. Hillen, Jr.   50,000   0.50%
Yasmin Damy Novoa   5,000   0.05%
Andrew I. Telsey (11)   350,763   3.27%
Stacia D. Telsey   12,500   0.13%
Matthew J. Telsey   12,500   0.13%
         
TOTALS   4,157,936   16.9%

________

(1) The named party beneficially owns such shares. The numbers in this table assume that none of the Selling Stockholders purchases additional shares of Common Stock.
(2) The principal of this company is James Lowe.
(3) The principal of this company is Ryan Krauser.
(4) The principal of this company is  Martin Rafael Guerrero
(5) The principals of this company are Joe Clancy and Michelle Smith.
(6) The principal of this company is Peter J. Richards.
(7) The principal of this company is James H. Dennedy.
(8) The principal of this company is Jessica Franz
(9) The principals of this company are Mal and Sharon Nattrass, who are also the father and mother of Brad Nattrass, our CEO. Leah Nattrass Shultz is his sister.
(10) The principal of this company is Eric Gooley.
(11) Mr. Telsey is the owner and principal shareholder of Andrew I. Telsey, P.C., our legal counsel.

 

Other than as disclosed hereinabove, none of the other Selling Stockholders has had a material relationship with us or any of our affiliates other than as a stockholder at any time within the past three years.

 

  14  

 

 

PLAN OF DISTRIBUTION

 

The Selling Stockholders registering Common Stock and any of his/her pledges, assignees, and successors-in-interest may, from time to time, sell any or all of their shares of Common Stock on any stock exchange, market, or trading facility on which the shares are traded or in private transactions. The Selling Stockholders may offer shares in transactions at fixed or negotiated prices. We intend to encourage a securities broker-dealer to apply on Form 211 to quote our stock in the OTCQB, concurrent with the date of the Prospectus, but we cannot assure when or whether this application will be approved or that, if approved, quotations of our Common Stock will commence on any trading facility or will result in the development of a viable trading market for our shares sufficient to provide stockholders with the opportunity for liquidity. See “RISK FACTORS.” Sales may be at fixed or negotiated prices. A selling security holder may use any one or more of the following methods when selling shares:

 

  · ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

 

  · block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

 

  · purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

 

  · an exchange distribution in accordance with the rules of the applicable exchange;

 

  · privately negotiated transactions;

 

  · settlement of short sales entered into after the effective date of the registration statement of which this Prospectus is a part;

 

  · broker-dealers may agree with the selling security holders to sell a specified number of such shares at a stipulated price per share;

 

  · through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;

 

  · a combination of any such methods of sale; or

 

  · any other method permitted pursuant to applicable law.

 

Broker-dealers engaged by the Selling Stockholders may arrange for other broker-dealers to participate in sales in amounts to be negotiated, but in the case of an agency transaction not in excess of a customary brokerage commission, and in the case of a principal transaction a markup or markdown not in excessive amounts. Each Selling Stockholder is an underwriter, within the meaning of Section 2(a)(11) of the Securities Act. Any broker-dealers or agents that participate in the sale of the Common Stock or interests therein may also be deemed to be an “underwriter” within the meaning of Section 2(a)(11) of the Securities Act. Any discounts, commissions, concessions or profit earned on any resale of the shares may be underwriting discounts and commissions under the Securities Act. A Selling Stockholder, who is an “underwriter” within the meaning of Section 2(a)(11) of the Securities Act, is subject to the Prospectus delivery requirements of the Securities Act.

 

We are bearing all costs relating to the registration of the Common Stock, which are estimated at approximately $42,386. The Selling Stockholders, however, will pay any commissions or other fees payable to brokers or dealers in connection with the sale of the Common Stock. We are paying the expenses of the Offering because we seek to enable our Common Stock to be traded on the OTC Bulletin Board. We believe that the registration of the resale of shares on behalf of existing shareholders may facilitate the development of a public market in our Common Stock if our Common Stock is approved for trading on the OTC Bulletin Board. We have agreed to indemnify the Selling Stockholders against certain losses, claims, damages, and liabilities, including liabilities under the 33 Act.

 

We agreed to keep this Prospectus effective until the earlier of (i) the date on which the shares may be resold by the Selling Stockholders without registration by reason of Rule 144 under the Securities Act or any other rule of similar effect, or (ii) all of the shares have been sold pursuant to this Prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with. 

 

 

 

  15  

 

 

Under applicable rules and regulations under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), any person engaged in the distribution of the resale shares may not simultaneously engage in market-making activities with respect to the Common Stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the Selling Stockholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of the Common Stock by the selling stockholders or any other person. We will make copies of this Prospectus available to the Selling Stockholders and have informed them of the need to deliver a copy of this Prospectus to each purchaser at or prior to the time of the sale.

 

Some of the information in this Prospectus contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as “may,” “will,” “expect,” “anticipate,” “believe,” “estimate” and “continue,” or similar words. You should read statements that contain these words carefully because they:

 

  · discuss our future expectations;

 

  · contain projections of our future results of operations or of our financial condition; and

 

  · state other “forward-looking” information.

 

We believe it is important to communicate our expectations. However, there may be events in the future that we are not able to accurately predict or over which we have no control. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under “RISK FACTORS” and “DESCRIPTION OF BUSINESS” and elsewhere in this Prospectus. See “RISK FACTORS.”

 

 

 

 

 

 

 

 

 

 

 

  16  

 

 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

 

Some of the information in this Prospectus contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as “may,” “will,” “expect,” “anticipate,” “believe,” “estimate” and “continue,” or similar words. You should read statements that contain these words carefully because they:

 

  · discuss our future expectations;

 

  · contain projections of our future results of operations or of our financial condition; and  

 

  · state other “forward-looking” information.

 

We believe it is important to communicate our expectations. However, there may be events in the future that we are not able to accurately predict or over which we have no control. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under “RISK FACTORS” and “DESCRIPTION OF BUSINESS” and elsewhere in this Prospectus. See “RISK FACTORS.”

 

Overview

 

We were originally formed on March 20, 2014, as a Colorado limited liability company. In March 2017, we converted to a corporation and issued 193.3936722 shares of our Common Stock for every Member Interest issued and outstanding on the date of conversion.

 

We are an agricultural technology systems integrator that provides full design and expertise on climate and automated control of fertigation/irrigation systems, lighting systems, environmental, substrate and inventory monitoring, water treatment systems, integrated pest management solutions, and a complete line of cultivation equipment targeting growers of the world’s highest value crops including cannabis, tomatoes, strawberries, chilies and peppers, and leaf lettuce. While it is our intention to expand our operations to additional applications, to date, all of our revenues have been generated in the cannabis industry.

 

We engage directly in the business of manufacturing, distributing and selling lighting, pest management, fertigation, water and other products to the medical and recreational cannabis industry in states where operation of a cannabis production facility has been legalized. We have and will continue to work with grow operations and production facilities to pursue strategies to provide services, products, and other potential revenue-producing opportunities with respect to the cannabis industry in those states where the same is lawful. We engage directly with the ownership groups and growers at large indoor and outdoor greenhouse cultivation facilities and strategically work with them to provide value-added services and industry best products that assist them in lowering production costs and increasing crop yields. While earmarking the emerging cannabis market as our principal target market, we are also marketing to customers outside of the cannabis industry to diversify our operations.

 

Our executive office is located at 1751 Panorama Point, Unit G, Lafayette, CO 80026, and our phone number is (720) 390-3880. Our Company website is www.urban-gro.com , which contain a description of our Company and products, but such websites and the information contained on our websites are not part of this Prospectus.  In addition, we also maintain branded product websites of www.soleiltech.ag and www.opti-dura.com.

 

Results of Operations

 

Comparison of Results of Operations for the fiscal years ended December 31, 2017 and 2016

 

During 2017 and 2016, we generated revenues of $12,298,015 and $7,033,273, respectively, an increase of $5,264,742 (74%). We believe that this increase in revenue occurred primarily as a result of an increase of over $2 million in revenues derived from cultivation technologies, approximately $3 million in fertigation, $2 million in the sale of cultivation equipment, while revenues from lighting decreased by approximately $400,000. As discussed below, in 2016, we began diversifying our business, moving from a lighting distribution company to emphasizing cultivation technologies. Our aggressive diversification plans in 2016 resulted in negative cash flow. In 2015, we were considered a value added reseller of P.L. grow light systems, with 97% of our revenues generated from lighting related product sales. In the last calendar quarter of 2015, we made a strategic decision to:

 

·       focus on building/positioning our brand as an ancillary national market leader delivering best in class value-added product solutions to Cannabis cultivators;

·       expand our sales reach to extend across the US; and

·       expand our product offering to include a full line of other cultivation equipment and products used by cannabis cultivators.

 

 

 

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We believe the loss incurred in 2016 was directly tied to our investment in personnel, marketing expenses to establish our brand, and all travel related expenses tied to building out sales territories and exhibiting at 10 trade shows/conferences. While no assurances can be provided, we believe our revenues will continue to grow in 2018 and we expect to become cash flow positive in 2018. There are no assurances this will occur.

 

Cost of sales in 2017 were $9,244,329, compared to $5,622,373 in 2016, an increase of $3,621,956 (64%), which we attribute to increased revenues. Specifically, total cultivation equipment costs increased by approximately $1.5 million in 2017 compared to 2016, total fertigation costs increased by approximately $1.7 million, while lighting systems costs decreased by approximately $500,000.

 

Operating expense incurred during the year ended December 31, 2017 was $5,416,829, compared to $3,020,352 during the comparable period in 2016, an increase of $2,396,477 (44.24%). These increases were as a result of increased personnel expense arising from increased employees, of approximately $2 million, spending on marketing (approximately $100,000, office and facility expense of approximately $200,000. Travel expense and professional fees increased by approximately $180,000 each.

 

Interest expense remained relatively consistent, as we incurred $216,576 in 2017, compared to $218,430 in 2016.

 

As a result we generated net losses of ($2,577,395) in 2017 (0.13 per share) and ($1,808,861) in 2016 ($17.66 per Unit).

 

Liquidity and Capital Resources

 

At December 31, 2017, we had $1,656,791 in cash.

 

Net cash used in operating activities was $244,661 during the year ended December 31, 2017, compared to $(1,045,814) during the comparable period in 2016. We anticipate that overhead costs in current operations will increase in the future as a result of our anticipated increased marketing activities.

 

Cash flows provided or used in investing activities were $(612,543) during the year ended December 31, 2017, compared to ($136,406) during the comparable period in 2016. Cash flows provided or used by financing activities were $2,007,210 during the year ended December 31, 2017, compared to $1,168,182 during the comparable period in 2016.

 

In August 2016, when still an LLC, we undertook a private offering of member interests wherein we received subscriptions of $575,107 in the form of 6,392 member interests to three (3) accredited investors (approximately $90 per member interest) or approximately $0.46 per share based upon the conversion rate of 193.3636722 shares per member interest issued when we converted into a corporation in 2017). These funds were used to (i) add two systems designers to expand our Cultivation Technologies team to support market demand; (ii) expand our operations into the expanding fertigation marketplace as States approving legalized cannabis increased, (iii) hire a mechanical engineer to begin vetting opportunities to add IP and technology to our future business offering, (iv) hired a strategic financial consultant to aid in compiling a business forecast model;, and (v) fund working capital to support brand building marketing initiatives focused on trade show participation and an Increased on-hand inventory position.

 

In May 2017, we commenced a private offering of our Common Stock wherein we received aggregate subscriptions of $2,546,000 from the sale of 2,546,000 shares, at $1 per share, to 76 investors, including 58 “accredited” investors, as that term is defined under the Securities Act of 1933, as amended. These funds were used to repay debt, expansion of our existing business operations, new investment opportunities and working capital.

 

In April, 2018, the holder of a $300,000 note agreed to extend the loan through March 23, 2019. Interest accrues at the rate of 1.65% per month and interest payments are tendered twice a month.

 

In September 2016, a shareholder and our Vice President of Marketing and Human Resources loaned us the principal amount of $14,500, with interest at 2% per month. The loan was due upon demand. At December 31, 2017 and December 31, 2016 the note payable balance was $0 and $14,500, respectively. In October 2016, he loaned an additional $17,815, with interest at 3% per month. The loan was due upon demand At December 31, 2017 and December 31, 2016, the note payable balance was $0 and $17,815, respectfully. All loans were repaid in full by September 2017.

 

 

 

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We currently have three other notes outstanding, all of which are unsecured. Two of the note holders agreed to convert $300,000 and $200,000 of their respective notes into shares of our Common Stock as part of our private placement of common stock in 2017, leaving a balance of $80,000 and $100,000, respectively. Interest accrues at 1.7% and 1.5% per month on these notes. Both are unsecured and due December 31, 2018. The third note has a principal balance of $300,000, accrues interest at the rate of 1.65% per month and was due to mature March 23, 2018. This note was extended for one year. Interest is paid twice monthly.

 

While no assurances can be provided we anticipate that we will generate sufficient revenues during the remainder of 2018 and into 2019 to satisfy our needs. However, if we do not generate profits, or if such profits are insufficient, or if additional acquisitions are identified and we cannot use our securities as compensation, we will need additional capital to continue to implement our business plan.. If such capital is required, we estimate that we will need approximately $500,000. While we believe we will be able to raise these funds in either debt or equity, we have no agreement with any third party to provide us the same and there can be no assurances that we will be able to raise any capital on commercially reasonable terms, or at all. If we require additional capital and are unable to raise the same, it could have a material negative impact on our results of operations.

 

Critical Accounting Policies and Estimates

 

Critical accounting estimates – The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The following represents a summary of our critical accounting policies, defined as those policies that we believe are the most important to the portrayal of our financial condition and results of operations and that require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain.

 

Stock-based Compensation – We account for stock-based compensation using the fair value method following the guidance set forth in section 718-10 of the FASB Accounting Standards Codification for disclosure about Stock-Based Compensation. This section requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award- the requisite service period (usually the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service.

 

Leases – We follow the guidance in ASC 840 “ Leases ,” which requires us to evaluate the lease agreements we enter into to determine whether they represent operating or capital leases at the inception of the lease.

 

Inflation

 

Although our operations are influenced by general economic conditions, we do not believe that inflation had a material effect on our results of operations during the year ended December 31, 2017.

 

Off-Balance Sheet Arrangements

 

We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources and would be considered material to investors.

   

Recent Accounting Pronouncements

 

Under the Jumpstart Our Business Startups Act, or the JOBS Act, we meet the definition of an “emerging growth company.” We have irrevocably elected to opt out of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act. As a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non- emerging growth companies.

 

 

 

 

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From time to time, the FASB or other standards setting bodies issue new accounting pronouncements. Updates to the FASB ASCs are communicated through issuance of an Accounting Standards Update ("ASU"). Unless otherwise discussed, we believe that the impact of recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on our consolidated financial statements upon adoption.

 

FASB ASU No. 2014-09 (Topic 606), “Revenue from Contracts with Customers”  – Issued in May 2014, ASU 2014-09 will require an entity to recognize revenue when it transfers promised goods or services to customers using a five-step model that requires entities to exercise judgment when considering the terms of the contracts. In August 2015, the FASB issued ASU No. 2015-14,  “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date” . This amendment defers the effective date of ASU 2014-09 by one year. In March 2016, the FASB issued ASU 2016-08,  “Principal versus Agent Considerations (Reporting Gross versus Net)”,  which amends the principal versus agent guidance and clarifies that the analysis must focus on whether the entity has control of the goods or services before they are transferred to the customer. In addition, the FASB issued ASU Nos. 2016-20,  “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers”  and 2016-12,  “Narrow-Scope Improvements and Practical Expedients” , both of which provide additional clarification of certain provisions in Topic 606. These ASC updates are effective for annual reporting periods beginning after December 15, 2017, but early adoption is permitted. Early adoption is permitted only as of annual reporting periods after December 15, 2016. The standard permits the use of either the retrospective or cumulative effect transition method.

 

The Company expects to apply the guidance using the modified retrospective transition method. The Company does not expect the adoption of ASU 2014-09 to have a material impact on the Company’s financial position or results of operations but will result in additional disclosures regarding the Company’s revenue recognition policies. The Company also does not expect the adoption of ASU 2014-09 will require material or significant changes to its internal controls over financial reporting. In connection with the application of that guidance and the adoption of ASU 2014-09, the Company expects that it will expand its revenue recognition inquiries and update its questionnaires primarily to identify matters that would signal variable consideration implications under the new guidance.

 

FASB ASU 2016-02, Leases (Topic 842)  - ASU 2016-02 requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right FASB ASU No. 2014-15,  “Disclosure of Uncertainties about an Entities Ability to Continue as a Going Concern, to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (i.e., January 1, 2019, for a calendar year entity). Early application is permitted for all public business entities and all nonpublic business entities upon issuance. The adoption of this standard is not expected to have a material impact on the Company’s financial position and results of operations. 

 

There were various other accounting standards and interpretations issued during 2014, none of which are expected to have a material impact on our consolidated financial position, operations or cash flows.

 

 

 

 

 

 

 

 

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DESCRIPTION OF BUSINESS

 

Overview

 

We were originally formed on March 20, 2014, as a Colorado limited liability company. In March 2017, we converted to a corporation and issued 193.3936722 shares of our Common Stock for every Member Interest issued and outstanding on the date of conversion.

 

We are an agricultural technology systems integrator that provides full design and expertise on lighting systems, climate control and automated control of fertigation/irrigation systems, environmental, substrate and inventory monitoring, water treatment systems, integrated pest management solutions, and a complete line of cultivation equipment. As of the date of this S1 Filing, all of our revenues have been derived from sales to the Cannabis industry. We are not required to be licensed by the Colorado Marijuana Enforcement Division, as we do not touch the plant, nor otherwise generate any revenues from the sale of marijuana. Rather, we are an ancillary company that provides supporting products and services to those who cultivate marijuana. In 2017 and in 2018, the National Cannabis Industry Association (NCIA) awarded its annual Cannavation Award, for innovation in Technology and Cultivation, to urban-gro. The NCIA is one of the larger national Cannabis associations in the US.

 

Our primary business purpose is to engage directly with large scale indoor and greenhouse commercial cultivators growing high-value crops and design and engineer state of the art facilities and systems that focus on maximizing plants yields and lowering overall operational costs. We have and will continue to work with grow operations and production facilities to pursue strategies to, provide services, products, and other potential revenue-producing opportunities in the high value crop arenas. We engage directly with the ownership groups and growers at these facilities and strategically work with them to provide value-added services and industry best products that assist them in lowering production costs and increasing crop yields. We believe our customers work with us because we save them time, money, and resources.

 

In August 2016, when still an LLC, we undertook a private offering of our member interests wherein we received subscriptions of $575,107 in the form of 6,392 member interests to three (3) accredited investors (approximately $90 per member interest, or approximately $0.46 per share based upon the conversion rate of 193.3936722 shares per member interest issued when we converted into a corporation in 2017). These funds were used to (i) add two systems designers to expand our Cultivation Technologies team to support market demand; (ii) expand our operations into the expanding fertigation marketplace as States approving legalized cannabis increased, (iii) hire a mechanical engineer to begin vetting opportunities to add IP and technology to our future business offering, (iv) hired a strategic financial consultant to aid in compiling a business forecast model;, and (v) fund working capital to support brand building marketing initiatives focused on trade show participation and an Increased on-hand inventory position.

 

In May 2017, we commenced a private offering of our Common Stock wherein we received subscriptions of $2,546,000 from the sale of 2,546,000 shares, at $1 per share, to 76 investors, including 58 “accredited” investors, as that term is defined under the Securities Act of 1933, as amended. These funds were used to repay debt, expansion of our existing business operations, new investment opportunities and working capital.

 

Our Company website is www.urban-gro.com , which contain a description of our Company and products, but such websites and the information contained on our websites are not part of this Prospectus.  In addition, we also maintain branded product websites of www.soleiltech.ag and www.opti-dura.com.

 

Current Business

 

We view ourselves as a leading ancillary business in the rapidly expanding legalized cannabis market in the US. We currently have an existing client base of over 500 large commercial cannabis cultivators located throughout the US and Canada, and, while no assurances can be provided, we forecast 2,000+ customers purchasing our cultivation products bi-monthly by 2020, provided that additional countries, and states in the US continue to adopt legislation approving the use of medical or recreational marijuana, of which there can be no assurance. Our intent is to continue to capture market share as the cannabis industry continues to develop and mature, and to leverage that experience and our technology development to penetrate the faster growing segments of the broader horticultural and agricultural industries. In the cannabis industry we engage directly with ownership groups and growers operating large indoor and outdoor greenhouse cultivation facilities and strategically work with them to provide value-added services and industry best products that assist them in lowering production costs and increasing crop yields.

 

 

 

 

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We are focused on driving shareholder value by continually developing the technology platform that we added to our business plan in 2017, and focusing on bringing more intellectual property (“IP”) in-house. We are focused on integrating technologies including high density wireless sensors, machine learning, and artificial intelligence into our product offerings. We intend to diversify our sector sales strategy by targeting traditional horticulture operators with our service and systems to companies involved in growing tomatoes, strawberries, chilies and peppers, and leaf lettuce. Focusing on global agriculture and all high value crops, this technology is expected to allow us to offer our customers drastically better efficiencies while decreasing costs of production and increasing yields. There are no assurances this benefit will accrue.

 

We define our relationships with our customers through three areas comprised of products, services and technology:

 

We offer the following cultivation equipment and crop management products:

 

· Climate Control, Fertigation & Irrigation Distribution
· Freshwater, Wastewater & Condensate Treatment Systems
· HPS, CMH & LED Light Planning and CAD Design
· Rolltop Benches
· Odor Mitigation & Air Sanitizing
· Pesticides & Biocontrols
· Fans & Industrial Spray Applicators
· Fertilizer & Plant Nutrition

 

We offer the following Design & Integration Services:

 

· Systems Design, Engineering & Integration
· Project Management
· Commissioning and Post-Commissioning Services
· Remote Monitoring and Support
· Integrated Pest Management

 

We also offer the following hardware and software solutions technology:

 

· Environmental Sensing
· Environmental Control
· Lighting Controls

 

Industry Partnerships

 

As a systems integrator we believe it is imperative for us to maintain close relationships with leading technology partners, and as such, we have attempted to integrate ourselves in the horticulture and agriculture industry, having formed strategic partnerships with a number of industry-leading solution providers like Argus Control Systems, Biobest Group NV, Crop Production Services, Dosatron International, and Netafim,. A brief description of these company, as take from their marketing collateral, is as follows:

 

Argus Control Systems, a Conviron Company - Argus provides automated environmental control and fertigation systems for horticulture, aquaculture, and related biotechnology industries. Argus’ capabilities Include facilities automation and specialty monitoring and control applications to support the needs of its customers. Argus is an automated control systems pioneer with over thirty years of leadership and innovation in control technology. Argus was among the first to use computers for integrating the control of greenhouse environments and irrigation systems. Argus systems are used in horticulture and biotechnology research facilities, universities, aquaculture and aquaponics, and many other custom control applications at sites throughout the world.

 

Biobest Group NV This company specializes in pollination and biological control. In 1987, Biobest was the first company to put bumblebees on the market. With thirty years of expertise, Biobest continues to deliver high quality products at all times by maintaining quality at every level: in the factory and during the transport in order to guarantee an optimal result in the crop. Biobest strongly focuses on research and development, providing tailored advice for crops worldwide.

 

 

 

 

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Crop Production Services (CPS), a division of Agrium - CPS is one of the largest farm market retailers in North America. With over 150 years in business, CPS is the most effective and efficient supply chain for rapid development of seed, fertilizer and crop protection products.

 

Dosatron International - Dosatron is the original inventor of the water-powered dosing pump. Since the first Dosatron was first manufactured in 1974, Dosatron has grown to be the world leader in water-powered dosing technology. Today, Dosatron manufactures and sells a wide variety of chemical injectors in over 100 countries worldwide.

 

Dosatron International has been serving North and Central America for nearly 30 years. Their full-service operation has an injector to meet virtually any chemical management need. Their injectors are used for everything from horticulture fertilization to vehicle wash chemical applications; from livestock medication and vaccination to pest control and plant sanitation. Dosatron injectors feature superior engineering to create the most durable, easy-to-use, low-maintenance product on the market. Dosatron manages its customers’ chemical application through repeatability, regardless of fluctuations in pressure or flow. Dosatron’s chemical injectors operate on a volumetric dosing principle, which allows them to inject the correct amount of concentrate, regardless of changes in water pressure or flow.

 

Netafim - Netafim is recognized as the world leader in drip irrigation systems and agricultural projects. Since 1965, Israel based Netafim has been a pioneer in drippers, dripper lines, sprinklers and micro-emitters. Netafim also manufactures and distributes crop management technologies including monitoring and control systems, dosing systems, and crop management software.

 

Product Branding Strategy:

 

Soleil® Lighting Product Line

 

Over the course of the last several years as the cannabis market matured and grew more competitive, we witnessed downward pressure on the pricing and margins of grow light systems. In response to this evolution of the industry our lighting team sought a middle-market alternative to the high-end systems previously marketed. In 2016, we began manufacturing our own fixtures under the Soleil® brand. First to market was our 315W Ceramic Metal Halide system for vegetative growth stage. The following year, Soleil® introduced a 1000W Double-Ended High-Pressure Sodium (HPS) grow light system for the flower growth stage. This fixture features wireless control capability, dimming options, two reflector options (wide and narrow) to accommodate desired light distribution, and various hanging methods (greenhouse bracket, chain, unistrut bracket, custom brackets). Testing by a third-party lab has verified that the Soleil® HPS fixture delivers comparable intensity and light distribution relative to the most superior fixtures on the market. All Soleil® fixtures are ETL listed and assembled either at our facility in Colorado or at our partner’s facility in Asia.

 

While the prevalence of LED lighting is growing in the horticulture market, traditional HID Lighting still maintains the majority of the market share. Industry indicators suggest that trend will continue as LED systems are tested in facilities and the price of technology decreases to achieve a reasonable ROI.

 

Soleil® Sense and Control Technologies

 

Soleil® Sense. In August 2017, we made a strategic investment into Edyza, Inc. (Edyza), a pioneer in the use of high-density wireless sensors in the horticulture and other industries, securing position as the firm’s exclusive agriculture (Controlled Environmental Agriculture and traditional outdoor) partner for both domestic and international markets. The technology platform leverages sensor data and machine-based learning to reduce operating costs and increase yields. Scalable to thousands of ultra-high-efficiency sensors, growers are able to access real-time, actionable data from anywhere in the world and use that insight to optimize growing conditions or address potential issues before they affect the crop.

 

On August 18, 2017, we entered into an agreement with Edyza Sensors, Inc., (”Edyza”), wherein we became Edyza’s exclusive agricultural partner in the attempt to provide wireless sensors to the cultivation solutions we offer to the cannabis industry. As part of the terms of this agreement, Edyza has assigned us all of their rights to two patent pending applications for sensor rods and moisture and salinity measurements, along with any additional patent rights that may arise as a result of our collaboration. Edyza issued us a convertible note in the principal amount of $400,000, which is convertible into a 5% interest in Edyza, at our election. Our investment not only secured IP in the form of two patent pending applications, but most importantly, it secured global distribution rights for this technology in both agriculture and horticulture. As a result, we, in conjunction with Edyza, have developed wireless sensors that will allow cannabis and traditional crop cultivators to monitor and control their operation in real-time, reducing inefficiencies and resource waste, thereby increasing crop yields and profitability. We believe that this new technology, once perfected, will revolutionize many different industries in the world. There is no assurance that this technology will be perfected or that it will make a significant difference.

 

 

 

 

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As water resources become scarce and transportation, energy, and labor costs rise, CEA (the production of cannabis, vegetables, and flowers indoors) is quickly gaining popularity across the globe. The ability to precisely control environmental and plant conditions in a regulated, indoor environment helps optimize crop yield and quality. With just a few clicks, growers are able to assess temperature, moisture content, nutrient content, and pH—among other factors—in order to maintain ideal growing conditions. While existing substrate (soil) sensing technology is very costly to implement and is subject to scalability, wire, efficiency, and reliability constraints, the demand for real-time data is on the rise.

 

Compared with existing wired sensor solutions which cost $500+ for implementation, the cost of our Soleil® sensors at low production (beta) volume is approximately $15-$50 per sensor, enabling early, large-scale implementation in cannabis. As production volumes rise, costs will fall, easily justifying implementation in lower margin crops like tomatoes, peppers, and cut flowers. The lower price point makes it possible for growers to install multiple sensors per climate or irrigation zone, supporting a more complete overview of the environment to more accurately direct climate and irrigation decisions.

 

In addition to environmental and soil sensing, the same platform is being leveraged to economically monitor mission critical mechanical systems using vibration, energy consumption, and temperature. The sensors will alert cultivators to potential equipment failures like broken fans, clogged emitters, or inefficient HVAC systems.

 

We recently concluded a beta-testing phase of the Soleil® Sense and Control platform and received a commitment to move forward on a multi-year “software as a service” agreement to monitor a 15,000 sq. ft. facility for one of the premier growing conglomerates in North America. If successful, we anticipate the customer will introduce the technology in their other facilities as well (>500,000 sq. ft.) located around the world. By installing our technology, the customer is mitigating the need to run wires and invest in costly hardware. The intelligent Soleil® sensors independently manage their own power supply and recharge as necessary, eliminating the need for batteries and extensive maintenance. The sensors easily integrate into the existing control systems used in these facilities, allowing the grower to focus on growing, not troubleshooting technology.

 

Soleil ® Control – Focus on Vertical Integration . As the cannabis industry consolidates and larger players enter, we believe that the ability to manage operations on a massive scale is a key differentiator that allows cultivators to drive higher yields at lower costs. Since our inception, our management has designed and engineered a multitude of projects that seek to leverage scale that also require complex and sophisticated climate and fertigation controls.  Based on these insights and experiences we recognized that the current technology available in the agricultural space is not sufficient, scalable or flexible to meet the growing and complex demands of cultivators seeking to maximize yields in cannabis and modern horticulture and agriculture.  In that light, we sought out new and highly sophisticated tools that brought together the latest in a broad spectrum of controls technologies.

 

In February 2018, we acquired a 5% interest in Total Grow Holdings, LLC ("TGH"), for $125,000. TGH was borne out of the highly complex petrochemical industry. This agreement also provides us with the right to purchase an additional 5% on a fully diluted basis at the same valuation on or before August 31, 2018. We also have the right to name one of the 3 Board members to the company. The TGH technology and the management team experiences bring us the ability to meet our increasingly complex needs of supplying product and services to the larger sized cannabis grow operations that are being developed as the cannabis industry matures.

 

The technology is not only more sophisticated than existing agricultural controls, it is also a more "open" technology that allows for more application program interfacing (APIs) to other new technologies and existing legacy technologies. We expect that the ability to integrate to a multitude of technologies will enable our Soleil 360® platform to tie more data points together, thereby offering more relevant actionable insights to our customer base.

 

We are currently merchandising the TGC produced line of climate controls and fertigation under our Soleil® Controls brand and plan to launch a complete line of products during the second calendar quarter of 2018.

 

Soleil® Lighting Product Line

 

Over the course of the last several years as the cannabis market matured and grew more competitive, we witnessed downward pressure on the pricing and margins of grow light systems. In response to this evolution of the industry our lighting team sought a middle-market alternative to the high-end systems previously marketed. In 2016, we began manufacturing our own fixtures under the Soleil® brand. First to market was our 315W Ceramic Metal Halide system for vegetative growth stage. The following year, Soleil® introduced a 1000W Double-Ended High-Pressure Sodium (HPS) grow light system for the flower growth stage. This fixture features wireless control capability, dimming options, two reflector options (wide and narrow) to accommodate desired light distribution, and various hanging methods (greenhouse bracket, chain, unistrut bracket, custom brackets). Testing by a third-party lab has verified that the Soleil® HPS fixture delivers comparable intensity and light distribution relative to the most superior fixtures on the market. All Soleil® fixtures are ETL listed and assembled either at our facility in Colorado or at our partner’s facility in Asia.

 

 

 

 

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While the prevalence of LED lighting is growing in the horticulture market, traditional HID Lighting still maintains the majority of the market share. Industry indicators suggest that trend will continue as LED systems are tested in facilities and the price of technology decreases to achieve a reasonable ROI.

 

Opti-Dura® Cultivation Product & Equipment Offering

 

Since commencement of adult-use legalization in 2014, the price of legal, commercially produced cannabis has dropped from highs of $5,000 per lb., to below $1,000 per lb. in some mature state markets. We expect this trend to continue as additional states adopt legal cannabis. We believe this is a positive develop as it drives out the black and grey markets.

 

With lower product prices there is increased interest in reducing cultivation costs through procurement of new products and equipment. We have created a high-quality, value-driven “house brand” of cultivation products and equipment. Our sourcing of cultivation products and equipment has been researched and developed by cultivators – those who know first-hand the quality and specifications desired by cultivators.

 

Our OPTI-DURA product line includes:

 

· OPTI-DURA Bench Systems – We have white labeled a major North American manufacturer of bench systems, and we have the exclusive rights to sell this bench system into the cannabis market. The manufacturer provides high quality, industry leading equipment including benches that “roll” 40% more than competitors, and the highest rust resistant steel on the market. Additionally, as a part of our procurement process, we have enhanced the bench systems to meet the needs of the most demanding environments. The bench systems are marketed under the OPTI-DURA brand – utilizing our in-house marketing team to build out the brand, website, collateral and systems. Our competitive analysis indicates that we can deliver a bench system that is 20% less than other benching companies while also maintaining healthy profit margins.

 

· OPTI-DURA Large-Scale Pesticide Applicators - Many cannabis cultivators have grown from small operations over the years. As they have grown, they have kept application processes that are out-of-date and inefficient for larger-scale operations. Our OPTI-DURA commercial pesticide applicators are made in America and built by farmers. They are a must-have for commercial cannabis facilities utilizing high pressures and special spray nozzles that help get under the leaves where pests like to hide. We are an exclusive distributor of the heaviest duty sprayers on the market.

 

· OPTI-DURA Nutrients and Fertilizers – Currently in development, OPTI-DURA nutrients and fertilizers are expected to significantly reduce the price of these key components to cultivation. The nutrient and fertilizer lines will enable cultivators to “dial in” the needs of specific strains for high quality, consistent cannabis.

 

SALES STRATEGY

 

“The urban-gro® Solution”

 

Our sales team is comprised of one Vice President, one Director, three Regional Sales Managers, and one contract Sales Management Company. These “relationship ambassadors” are located across the U.S. and their sole responsibility is to find, build, and support customer relationships. The internal sales management team is compensated with a base salary, and are additionally leveraged on a commission structure tied to quarterly revenues and gross profits.

 

When the technical sell window opens on a specific opportunity we provide the appropriate technical expert whom is able to quickly and effectively explain a proposed solution to resolve customer’s specific challenges. While we only sell solutions, we believe the true value is in the expertise behind the product. Services like full fertigation and irrigation distribution design in CAD, light plan layout design, air flow design, air sanitizing and odor mitigation design, bench layout design, and complete system commissioning are all services that our customers pay us for.

 

We believe this technical sales process requires true segment expertise, which we also believe has not been readily available to cannabis companies. As a systems integrator we employ a team of segment-specific educated and technical experts with deep experience in each of the five solution segments, including:

 

  · Environmental Sense and Control
  · Fertigation and Irrigation Distribution Design and Engineering,
  · Integrated Pest Management (IPM)
  · Lighting, and
  · Water Treatment.

 

 

 

 

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Our team includes highly talented and educated individuals including individuals with a Master’s degree in Business Administration, Plant Science, Horticulture, Biology, and post-secondary degrees in Environmental Science, Horticulture, Agricultural Engineering, and Electrical/Mechanical/Controls. We rely on these technical experts in their areas of expertise to find and vet the best-in-class solutions, and then educate and inform our customers on best solution use and techniques.

 

In addition to leads generated from the execution of our marketing strategy, for additional new business opportunities, we focus on referrals generated from our relationships with industry partners, and from contract referral agents. By offering a referral program to consultants whose primary business model is to help their clients set up cultivation facilities from the design stage through cultivation, we ensure access to a strong network of commercial cultivators.

 

MARKETING STRATEGY

 

urban-gro Brand Strategy: For the Life of the Grow

 

Our existing customer base consists of large-scale commercial cannabis cultivators located throughout the United States, Canada, and around the world. We provide customers with services and solutions throughout the life of their grow — from system design and engineering, through compliance and competitiveness—our team of scientists and experts understand the regulations, challenges, and opportunities unique to cultivators. The following outlines the various stages of cultivation operation and defines the ways in which we serve the needs of cultivators and their stakeholders.

 

Early-Stage Engagement/ Planning & Building Consensus

 

· Cultivation Systems Expertise | Early-stage engagement with stakeholders builds consensus -- saving stakeholders money and time through smart, informed decision making.
· Systems & Space Programming | Early-stage engagement with stakeholders builds consensus -- saving stakeholders money and time through smart, informed decisions.
· Specification & Design | Guaranteed Design Professionally designed layouts for irrigation, climate control, benches, fans, and lighting ensure optimal space utilization and product performance.
· Actionable Data | Soleil® Sense and Control Technology’s high density wireless network provides real-time data-driven monitoring for a complete picture of a cultivation.
· Durable Products | Fertigation systems, rolling bench systems, HAF / VAF fans and commercial sprayers are effective and efficient.

 

Today’s cultivation systems are extremely complex. Our team of project managers and engineers support the installation process by coordinating with a client’s engineers and stakeholders to avoid project bottlenecks and support construction trades. Our commissioning team ensure that the equipment is installed according to the design and operates as committed.

 

In addition, our team of IPM technologists and pest control advisors understand the complex cannabis cultivation laws around the country and assists our clients in maintaining their grow in compliance with the evolving legislation.

 

Through our IPM (integrated pest management) subscription service, we work with cultivators to provide cutting-edge pesticide and biocontrol regimens that adhere to a client’s regulatory environment. Our procurement team leverages our national buying power to ensure the best product value. These are consumables that commercial cultivators purchase on a regular basis. They include pesticides, nutrients and fertilizers and are paid for prior to ship or on terms for existing customers. Net 30-day terms are offered to existing customers and lines are increased according to account history.

 

Our Soleil® climate sensors and environmental controls offer real-time data to make informed decisions to optimize crop environments, preventing crop loss through actionable alerts and programmed responses to conditions.

 

We generate our profits based on the value we provide for design, engineering, and systems expertise.  We begin projects by using a proprietary project estimation tool that inputs multiple variables about the size and complexity of a potential new facility or a retrofitted facility.  The output of the tool estimates the dollar amount of design and engineering time, systems, materials, project management, and miscellaneous costs necessary to provide a system that meets the needs of the customer.  Once the project estimate is determined, a design fee and project deposit are determined. The design fee is a function of the complexity of the controls system, the number of irrigation zones, types of nutrients used, and the number of individual plants that require individual irrigation. The project deposit is between 10% and 15% of total project cost and varies based complexity and type of systems.

 

 

 

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When the customer approves the estimate and pays the respective fee and deposit, our designers and engineers begin configuring and customizing the system.  When a final design is approved by the customer, we then determine a final cost for time and materials and provides a final quote to meet all specifications.  We then collect an order deposit to begin the procurement process.  Within two weeks of system readiness, we collect a final deposit from the customer.  We then ship the final system to our customer. Once the system is installed by the customer’s chosen mechanical, electrical and plumbing contractors we dispatch an engineering team to commission the system.

 

To date, the cost to our customers for our systems have ranged between $75,000 and $2,500,000, depending upon depending on the size of cultivation, the complexity of systems, types, and the number of systems utilized from our product portfolio. We do not provide financing.

 

Growth by Acquisitions

 

As discussed above, our management is always aware of other related companies and how they may positively impact our business. We have already consummated two acquisitions and intend to continue to engage in what we believe to be synergistic acquisitions or joint ventures with unrelated companies that we believe will enhance our business plan. Ultimately, our intent is to become a national or internationally branded cultivation company. One of the principal reasons why we have elected to become a reporting, trading company is to allow us to utilize our securities as compensation for these potential acquisitions. There are no assurances we will become a reporting, trading company or if we are so successful, that we will be able to consummate additional acquisitions using our securities as consideration, or at all.

 

There are numerous things that will need to occur in order to allow us to implement this aspect of our business plan and there are no assurances that any of these developments will occur, or if they do occur, that we will be successful in fully implementing our plan. Among other things, the most important developments that need to occur include the legalization and commercialization of marijuana in the United States Until this occurs we will be unable to fully integrate all aspects of the marijuana industry under our corporate umbrella.

 

If we are successful, the acquisition of related, complimentary businesses is expected to increase revenues and profits by providing a broader range of services in vertical markets which are consolidated under one parent, thus reducing overhead costs by streamlining operations and eliminating duplicitous efforts and costs. There are no assurances that we will increase profitability if we are successful in acquiring other synergistic companies.

 

Management will seek out and evaluate related, complimentary businesses for acquisition. The integrity and reputation of any potential acquisition candidate will first be thoroughly reviewed to ensure it meets with management’s standards. Once targeted as a potential acquisition candidate, we will enter into negotiations with the potential candidate and commence due diligence evaluation of each business, including its financial statements, cash flow, debt, location and other material aspects of the candidate’s business. One of the principal reasons for our filing of our registration statement of which this Prospectus is a part and the filing of an application to list our securities for trading is our intention to utilize the issuance of our securities as part of the consideration that we will pay for these proposed acquisitions. If we are successful in our attempts to acquire synergistic companies utilizing our securities as part or all of the consideration to be paid, our current shareholders will incur dilution. See “RISK FACTORS.”

  

In implementing a structure for a particular acquisition, we may become a party to a merger, consolidation, reorganization, joint venture, or licensing agreement with another corporation or entity. We may also acquire stock or assets of an existing business. On the consummation of a transaction, we do not intend that our present management and shareholders will no longer be in control of our Company.

 

As part of our investigation, our officers and directors will meet personally with management and key personnel, may visit and inspect material facilities, obtain independent analysis of verification of certain information provided, check references of management and key personnel, and take other reasonable investigative measures, to the extent of our limited financial resources and management expertise. The manner in which we participate in an acquisition will depend on the nature of the opportunity, the respective needs and desires of us and other parties, the management of the acquisition candidate and our relative negotiation strength.

 

We will participate in an acquisition only after the negotiation and execution of appropriate written agreements. Although the terms of such agreements cannot be predicted, generally such agreements will require some specific representations and warranties by all of the parties thereto, will specify certain events of default, will detail the terms of closing and the conditions which must be satisfied by each of the parties prior to and after such closing, will outline the manner of bearing costs, including costs associated with our attorneys and accountants, will set forth remedies on default and will include miscellaneous other terms.

 

Depending upon the nature of the acquisition, including the financial condition of the acquisition company, as a reporting company under the Securities Exchange Act of 1934 (the “34 Act”), it may be necessary for such acquisition candidate to provide independent audited financial statements. If so required, we will not acquire any entity which cannot provide independent audited financial statements within a reasonable period of time after closing of the proposed transaction. If such audited financial statements are not available at closing, or within time parameters necessary to insure our compliance with the requirements of the 34 Act, or if the audited financial statements provided do not conform to the representations made by the candidate to be acquired in the closing documents, the closing documents will provide that the proposed transaction will be voidable, at the discretion of our present management. If such transaction is voided, the agreement will also contain a provision providing for the acquisition entity to reimburse us for all costs associated with the proposed transaction.

 

 

 

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Competition

 

We have several niche competitors in the cannabis industry who offer limited solutions and some similar products as those offered by us, including many who have greater financial resources than we currently have available. Our competitors include wholesale horticulture dealers, but we believe their models are different than ours. To differentiate our model, we vet the ‘best in class’ solutions and that is the only product that we sell. For example, horticulture dealers such as Griffin Greenhouse sell thousands of products. Due to the extreme depth of their product line, their sales associates may know a couple of ‘features’ about a specific product, whereas our employees are trained specifically on not only why our product solutions are the best option for our customer, but on how they are to be used in order to reach their maximum effectiveness.

 

In addition, we also compete with electrical contractors, online retailers and manufacturer direct sales.

 

There can be no guarantees that in the future other companies will not enter this arena by developing products that are in direct competition with us. We anticipate the presence as well as entry of other companies in this market space, but acknowledge that we may not be able to establish, or if established, maintain a competitive advantage. Some of these companies may have longer operating histories, greater name recognition, larger customer bases and significantly greater financial, technical, sales and marketing resources. This may allow them to respond more quickly than us to market opportunities. It may also allow them to devote greater resources to the marketing, promotion and sale of their products and or services. These competitors may also adopt more aggressive pricing policies and make more attractive offers to existing and potential customers, employees, strategic partners, distribution channels and advertisers. Increased competition is likely to result in price reductions, reduced gross margins and a potential loss of market share. See “RISK FACTORS.”

  

Government Regulation

 

While we do not generate revenues from the direct sale of cannabis products, we are engaged in assisting companies who are so engaged in various start up aspects of the cannabis industry. Marijuana is a Schedule-I controlled substance and is illegal under federal law. Even in those states in which the use of marijuana has been legalized, its use remains a violation of federal laws.

 

A Schedule I controlled substance is defined as a substance 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 Department of Justice defines Schedule 1 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 Controlled Substances Act in Colorado with respect to marijuana, persons that are charged with distributing, possessing with intent to distribute, or growing marijuana could be subject to fines and terms of imprisonment, the maximum being life imprisonment and a $50 million fine. Any such change in the Federal Government’s enforcement of current federal laws could cause significant financial damage to us. While we do not intend to harvest, distribute or sell cannabis, we may be irreparably harmed by a change in enforcement by the federal or state governments.

 

As of the date of this report, there are 28 states and the District of Columbia allow their citizens to use Medical Marijuana, with Texas being the most recent state to add a medical initiative. Additionally, voters in the states of Colorado, Washington, Alaska, Oregon, California, Nevada, Maine, and Massachusetts have all approved legalization of cannabis for adult use. The state laws are in conflict with the Federal Controlled Substances Act, which makes marijuana use and possession illegal on a national level. If the federal government decides to enforce the Controlled Substances Act with respect to marijuana, persons that are charged with distributing, possessing with intent to distribute, or growing marijuana could be subject to fines and imprisonment, the maximum being life imprisonment and a $50 million fine. Any such change in the federal government’s enforcement of current federal laws will cause significant financial damage to us.

 

Previously, the Obama administration took the position 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 marijuana. The Trump administration has revised this policy. Specifically, the Attorney General vacated the Cole Memorandum in favor of deferral of any enforcement of federal regulation to the individual states Department of Justice/US Attorney. However, certain other protections remain in place via budgetary element embedment (Rohrabacher-Farr amendment now referred to as the Rohrabacher-Blumenauer Amendment), which limits funding of any enforcement of anti-cannabis legislation. The Department of Justice has stated that it will continue to enforce the Controlled Substance Act with respect to marijuana to prevent:

 

  the distribution of marijuana to minors;

 

  criminal enterprises, gangs and cartels receiving revenue from the sale of marijuana;

 

  the diversion of marijuana from states where it is legal under state law to other states;

 

 

 

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  state-authorized marijuana activity from being used as a cover or pretext for the trafficking of other illegal drugs or other illegal activity;

 

  violence and the use of firearms in the cultivation and distribution of marijuana;

 

  driving while impaired and the exacerbation of other adverse public health consequences associated with marijuana use;

 

  the growing of marijuana on public lands; and

 

  marijuana possession or use on federal property.

 

Since the use of marijuana is illegal under federal law, federally chartered banks will not accept for deposit funds from businesses involved with marijuana. Consequently, businesses involved in the marijuana industry often have trouble finding a bank willing to accept their business. The inability to open bank accounts may make it difficult for our clients to operate. There does appears to be recent movement to allow state-chartered banks and credit unions to provide banking to the industry, but as of the date of this Prospectus there are only nominal entities that have been formed that offer these services.

 

Although cultivation and distribution of marijuana for medical use is permitted in many states, provided compliance with applicable state and local laws, rules, and regulations, marijuana is illegal under federal law. Strict enforcement of federal law regarding marijuana would likely result in the inability to proceed with our business plan and could expose us and our management to potential criminal liability and subject their properties to civil forfeiture. Though the cultivation and distribution of marijuana remains illegal under federal law, H.R. 83, enacted by Congress on December 16, 2014, provides that none of the funds made available to the DOJ pursuant to the 2015 Consolidated and Further Continuing Appropriations Act may be used to prevent states from implementing their own laws that authorize the use, distribution, possession, or cultivation of medical marijuana. However, state laws do not supersede the prohibitions set forth in the federal drug laws.

 

For a comprehensive and up to date perspective on this process and current states and territories cannabis laws please refer to the following link: http://www.mpp.org/states/key-marijuana-policy-reform.html

 

In order to participate in either the medical or recreational sides of the marijuana industry in Colorado and elsewhere, all businesses and employees must obtain licenses from the state and, for businesses, local jurisdictions. Colorado issues four types of business licenses including cultivation, manufacturing, dispensing, and testing. In addition, all owners and employees must obtain an occupational license to be permitted to own or work in a facility. All applicants for licenses undergo a background investigation, including a criminal record check for all owners and employees.

 

Colorado has also enacted stringent regulations governing the facilities and operations of marijuana businesses. All facilities are required to be licensed by the state and local authorities and are subject to comprehensive security and surveillance requirements. In addition, each facility is subject to extensive regulations that govern its businesses practices, which includes mandatory seed-to-sale tracking and reporting, health and sanitary standards, packaging and labeling requirements, and product testing for potency and contaminants.

 

Laws and regulations affecting the medical marijuana industry are constantly changing, which could detrimentally affect our proposed operations. Local, state and federal medical marijuana laws and regulations are broad in scope and subject to evolving interpretations, which could require us to incur substantial costs associated with compliance or alter our business plan. In addition, violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on our operations. It is also possible that regulations may be enacted in the future that will be directly applicable to our business. These ever-changing regulations could even affect federal tax policies that may make it difficult to claim tax deductions on our returns. We cannot predict the nature of any future laws, regulations, interpretations or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on its business.

 

 

 

 

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Property

 

Our principal place of business is located at 1751 Panorama Point, Units F and G, Lafayette, CO 80026. This location consists of approximately 10,000 square feet, including approximately 3,500 of office space and 6,500 square feet of warehouse space. The relevant lease expires August 31, 2018, but contains a two year extension, at our discretion. We pay monthly rent of $7,500, through the remaining term of the lease. We believe we will require additional space in the near future to facilitate our anticipated growth. We are currently looking at finding additional or new space.

 

We entered into a lease agreement with Bravo Lighting a related party, to sublease office space for 12 months commencing in September 2017. Minimum lease payments are $27,000 in 2018.

 

We lease two cars for the use of our employees, which lease commenced in December 2017. Annual lease payments of $11,550 are required through termination of the leases in December 2020

 

We are also currently considering expanding the physical presence of our operations by opening satellite offices in California and the Northeast US, but have not identified specific locations as of the date of this Prospectus.

 

Competition

 

We have several niche competitors in the cannabis industry who offer limited solutions and some similar products as those offered by us, including many who have greater financial resources than we currently have available. Our competitors include wholesale horticulture dealers, but we believe their models are different than ours. To differentiate our model, we vet the ‘best in class’ solutions and that is the only product that we sell. For example, horticulture dealers such as Griffin Greenhouse sell thousands of products. Due to the extreme depth of their product line, their sales associates may know a couple of ‘features’ about a specific product, whereas our employees are trained specifically on not only why our product solutions are the best option for our customer, but on how they are to be used in order to reach their maximum effectiveness.

 

In addition, we also compete with electrical contractors, online retailers and manufacturer direct sales.

 

There can be no guarantees that in the future other companies will not enter this arena by developing products that are in direct competition with us. We anticipate the presence as well as entry of other companies in this market space, but acknowledge that we may not be able to establish, or if established, maintain a competitive advantage. Some of these companies may have longer operating histories, greater name recognition, larger customer bases and significantly greater financial, technical, sales and marketing resources. This may allow them to respond more quickly than us to market opportunities. It may also allow them to devote greater resources to the marketing, promotion and sale of their products and or services. These competitors may also adopt more aggressive pricing policies and make more attractive offers to existing and potential customers, employees, strategic partners, distribution channels and advertisers. Increased competition is likely to result in price reductions, reduced gross margins and a potential loss of market share. See “RISK FACTORS.”

 

Employees

 

As of the date of this Prospectus we employ 44 persons, including two members of our senior management team, four vice presidents, five directors, including director of marketing, director of business development, marketing, systems integration, sales and integrated pest management, one controller, fifteen persons in cultivation technology delivery, three regional sales managers, six in administration, four customer experience managers and four in production. We also utilize the services of three independent contractors focused on business development, and a revolving number of referral agents.

 

Our employees work at will and are not represented by a collective bargaining unit. We believe our relationship with our employees is excellent. We require all our employees and consultants to sign a confidentiality and non-disclosure agreement. Our success relies on our ability to hire additional employees, particularly on the sales side in markets around the world. We believe there are numerous high quality people to choose from throughout our area of operations.

 

 

 

 

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Legal Proceedings

 

We have incurred a sales tax liability involving sales we made during 2015 and 2016 in 7 separate states. We were incorrectly advised by our prior accounting firm that we were exempt from the obligation to pay sales tax on these sales. We estimate our current maximum liability to be $611,262. Of this amount, we believe we will be able to recoup $196,000 from our customers, We have not been able to recoup all of this obligation because come of our client are no longer in business, and some have refused to pay. As of the date of this Prospectus we have paid our tax liability for Washington and New Mexico in full. We have set up payment plans with California, Massachusetts and Illinois. We are currently in negotiations with Arizona and Nevada to set up a payment plans.  Additionally, some of the customers with a receivable may be able to provide re-sellers permits that exempt them from paying sales tax. We have retained a tax consultant to work with the states to reduce our liability and reduce our receivable from those customer able to provide valid exemption certificates. While no assurances can be provided, we expect this reduction to be approximately $113,985.

 

Other than disclosed above, from time to time we become involved in or are threatened with what we consider to be immaterial disputes. Currently, we are not involved in any legal proceedings, nor are we aware of any legal proceedings threatened or in which any director or officer or any of their affiliates is a party adverse to our Company or has a material interest adverse to us.

 

Trademarks and Patents

 

We have applied for and received or are awaiting receipt of the following pending registrations with the US Patent and Trademark Organization:

 

Application Mark Filing Date Country Status
85950395 URBAN-GRO June 04, 2013 USA

Registered

Reg. No. 4,618,322

87008605 OPTI-CANNA April 20, 2016 USA Pending
87199613 OPTI-DURA Oct 11, 2016 USA Pending
86340114 SOLEIL July 17, 2014 USA Pending

 

We have also applied for trademark registrations for these Marks in other countries as well, including Canada, the UK and with the European Union.

 

Soleil® Light Fixtures

 

In 2016, we designed and manufactured our first proprietary grow light system, a 315W Ceramic Metal Halide system for the vegetative growth stage under the Soleil® brand name. In the first half of 2017, we intend to launch our second product in the Soleil® family, a 1000W Double Ended High Pressure Sodium Grow Light System.

 

Patents. Provided that we execute definitive agreements with Edyza, as part of the proposed business relationship we will be assigned the ownership of the following two patent rights: See “BUSINESS – Investment into Edyza Sensors”

 

Patent Application 1: Sensor Rods

 

Edyza has filed a provisional patent under “Mizi Technology” that supports the modular system used within the Edyza Mizi soil moisture sensor which can serve several purposes. This patent will be converted to a non-provisional patent by 06/19/2017.

 

Application Number 62/351,989
Filing Date 06/19/2016
Title Modular sensor architecture for soil and water analysis at various depths from the surface
Inventor(s) Rana Basheer and Atul Patel
Applicant(s) Rana Basheer and Atul Patel

 

This patent application provides the foundation for critical claims that create a protection for both modularity in hardware design and modularity in sensing data. This enables the extension of the product line into different grow mediums.

 

 

 

 

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Patent Application 2: Moisture and Salinity Measurements

 

A second provisional patent is being prepared and filed for the measurement of moisture and salinity as a factor of soil resistance and capacitance. Pursuant to the proposed terms of the joint venture with Edyza, this patent will be assigned to us, provided definitive agreements are executed by the parties, of which there is no assurance. Edyza will continue to work on the processing of the patent until it is converted to a non-provisional status.

 

We also acknowledges that certain protections normally available to us related to design or other utility patents in the cannabis industry would not currently be enforceable under federal law.

 

We attempt to protect our intellectual property via the deployment of non-disclosure agreements with both prospects as well as licensees. There are no assurances that these non-disclosure agreements will prevent a third party from infringing upon our rights. See “RISK FACTORS.”

 

Industry Analysis

 

According to Marijuana Business Daily, US marijuana sales may reach $10 billion in 2018, and $22 billion by 2022. This year’s retail sales of medical and recreational cannabis in the US are expected to increase approximately 50% from 2017. According to the Colorado Department of Revenue, Colorado’s marijuana industry reported over $1.5 billion in total marijuana sales in 2017.

 

Nationally, the industry has continued to gain ground through the addition of many states and their passing of medical and or recreational provisions for the use of cannabis. While there certainly appears to be a trend towards acceptance of cannabis, there are no assurances offered that this business will be able to sustain itself over time if the Federal Government changes its current position related to state legalized operations.

 

While no assurances can be provided, we believe that over the next three to five years there will be as many as thirty five to forty states adopting various types of cannabis legislation (medical and recreational) and that there will occur a certain tipping point by which the Federal Government will have to take some sort of stand on the legal status of cannabis.. We also believe that due to the strong growth in the industry as a whole at the state level, the Federal Government will eventually de-schedule cannabis, similar to the alcoholic beverage prohibition repeal in the mid 1930’s, and as motivated by its citizenry decriminalize cannabis as well as regulate it under the auspices of some existing or newly formed agency. 

 

 

 

 

 

 

 

 

 

 

 

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MANAGEMENT

 

Executive Officers, Directors and Key Personnel

 

The following table sets forth information regarding our executive officers and directors:

 

 

Name   Age   Position
Bradley J. Nattrass   45   Chief Executive Officer, President and Chairman of the Board
Octavio (“Tav”) Gutierrez   47   Chief Development Officer, Secretary, Director
George R. Pullar   49   Director

 

The above listed officers and directors will serve until the next annual meeting of the shareholders or until their death, resignation, retirement, removal, or disqualification, or until their successors have been duly elected and qualified. Vacancies in the existing Board of Directors are filled by majority vote of the remaining Directors. Officers serve at the will of the Board of Directors.

 

Resumes

 

Bradley J. Nattrass , is one of our founders and was our Managing Member from March 2014 until March 2017 when we converted to a corporation and he became our Chief Executive Officer, President and our Chairman. From October 2015 to August 2016 he was the Managing Member of enviro-glo, LLC, a Colorado limited liability company engaged in the manufacturing and branding of commercial lighting products . Previously, from January 2012 through August 2016, he was the Managing Member of Bravo Lighting, LLC, a Colorado limited liability company engaged in the distribution of commercial lighting products. From April 2011 to January 2014, he was a Vice President for Barbeque Wood Flavors, Inc., a Texas corporation engaged in the manufacturing, import and sale of barbeque grilling products. Mr. Nattrass received a Bachelor of Commerce degree from the University of Calgary in marketing in 1995 and an MBA from the University of Phoenix in 2001. He devotes substantially all of his time to our affairs.

 

Octavio (“Tav”) Gutierrez is also one of our founders and was one of our Managing Members from March 2014 until March 2017 when we converted to a corporation and he became our Chief Development Officer and a director. Starting in October 2015 he has been the Managing Member of enviro-glo, LLC, a Colorado limited liability company engaged in the manufacturing and branding of commercial lighting products . Previously, starting in January 2012 he has been the Managing Member of Bravo Lighting, LLC, a Colorado limited liability company engaged in the distribution of commercial lighting products. From July 2010 through November 2013, he was the Vice President of Operations for Stone Lighting, LLC, an Illinois limited liability company engaged in the material sourcing, manufacturing, assembly, and distribution of premium decorative and low voltage lighting systems. Mr. Gutierrez received a Bachelor of International Business from Universidad Autonoma de Guadalajara in Guadalajara, Mexico. He devotes substantially all of his time to our affairs.

 

George R. Pullar was appointed as a director in May 2018. He had been advising with us since October 2016, primarily in the areas of accounting, finance and strategic planning. Previously, from December 2016 through October 2017 he was the Chief Financial Officer for Massroots, Inc., a publicly held social media company in the cannabis industry based in Denver Colorado. Additionally, since 2006, Mr. Pullar has been the Managing Director of Axis Private Equity Group LLC, a private equity firm in Englewood, Colorado. Mr. Pullar received a Bachelor of Arts degree from the University of Toledo in 1991 and an MBA degree from Southern Methodist University in 2002. He devotes only such time as necessary to our affairs.

 

Board Committees

 

As of the date of this Prospectus we do not have any committees of our Board of Directors. We expect to appoint additional outside Directors to serve on our Board in the near future, but as of the date of this Prospectus we have not identified such prospective Directors. Once appointed and we become a reporting company, of which there is no assurance, we expect to form an Audit Committee, a Compensation Committee, a Corporate Governance Committee and a Nominating Committee.

 

Family Relationships

 

There are no family relationships between any of our Directors or executive officers.

 

Conflicts of Interest

 

Insofar as our officers and directors are engaged in other business activities, management anticipates it will devote a substantial majority of their business time to our affairs.

 

 

 

 

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EXECUTIVE COMPENSATION

 

REMUNERATION

 

The table below summarizes all compensation awarded to, earned by, or paid to our Chief Executive Officer and our two most highly compensated executive officers at the end of our last fiscal year for all services rendered in all capacities to us during the years during which they served as executive officers. Where a named executive officer is also a director, all compensation relates to such individual’s position as an officer only.

 

SUMMARY COMPENSATION TABLE

 

Name and Principal Position   Year    

Salary

($)

   

Bonus

($)

   

Option Awards

($)

   

All Other

Compensation ($)

   

Total

($)

 
                                     
Bradley J. Nattrass   2015     $ 113,500     $     $     $     $ 113,500  
President, CEO,   2016     $ 49,097     $     $     $     $ 49,097  
    2017     $ 150,000     $ 50,000                     $ 200,000  
                                                 
Octavio Gutierrez, CDO, Secretary   2015     $ 66,000     $     $     $     $ 66,000  
    2016     $ 5,200     $     $     $     $ 5,200  
    2017     $ 150,000     $ 50,000                     $ 200,000  
                                                 
John Chandler   2017     $ 120,000     $     $     $ 40,441     $ 160,441  

 

Mr. Chandler resigned his positions with us in 2018.

 

Employment Agreements

 

None of our executive officers is party to an employment agreement with us.

 

Stock Plan

 

In January 2018, we adopted a stock options plan to reward and attract employees and consultants with common stock. Stock options and grants may be offered as part of an employment offer package or as a reward for performance. An aggregate of 3,000,000 shares have been reserved for issuance under the Plan. As of the date of this Prospectus, one option has been granted under the Plan to one employee, who was granted an option to purchase 25,000 shares of our Common Stock at an exercise price of $1.00 per share. The option vests over a 3 year period with a third vesting on March 31, 2019, 2020 and 2021.

 

 

 

 

34

 

 

 

SECURITY OWNERSHIP OF CERTAIN

BENEFICIAL OWNERS AND MANAGEMENT

 

The following tabulates holdings of common shares of our Company by each person who, at the date of this Prospectus, holds of record or is known by our management to own beneficially more than 5% of our common shares and, in addition, by all our directors and officers individually and as a group. The shareholders listed below have sole voting and investment power over their shares.

 

Class of Shares   Name and Address   # of Shares   % of Class Prior to Offering  
               
Common  

Bradley Nattrass (1)

1751 Panorama Point

Unit G

Lafayette, CO 80026

 

  9,569,684   38.8%  
Common  

Octavio Gutierrez (1)

1751 Panorama Point

Unit G

Lafayette, CO 80026

  9,569,684   38.8 %  
               
Common   George R. Pullar

1751 Panorama Point

Unit G

Lafayette, CO 80026

  25,000   *  
               
Common   All Officers and Directors as a Group (3 persons)   19,164,368   77.7%  

* Less than 1%

(1)        Officer and director of our Company.

     

 

 

 

Director Independence

 

Our Board is currently composed of three members. Our Common Stock is not currently listed for trading on a national securities exchange and, as such, we are not subject to any director independence standards. However, we have determined that one director, George Robert Pullar, currently qualifies as an independent directors. We evaluated independence in accordance with the rules of The New York Stock Exchange, Inc., which generally provides that a director is not independent if: (i) the director is, or in the past three years has been, an employee of ours; (ii) a member of the director’s immediate family is, or in the past three years has been, an executive officer of ours; (iii) the director or a member of the director’s immediate family has received more than $120,000 per year in direct compensation from us other than for service as a director (or for a family member, as a non-executive employee); (iv) the director or a member of the director’s immediate family is, or in the past three years has been, employed in a professional capacity by our independent public accountants, or has worked for such firm in any capacity on our audit; (v) the director or a member of the director’s immediate family is, or in the past three years has been, employed as an executive officer of a company where one of our executive officers serves on the compensation committee; or (vi) the director or a member of the director’s immediate family is an executive officer of a company that makes payments to, or receives payments from, us in an amount which, in any twelve-month period during the past three years, exceeds the greater of $1,000,000 or 2% of that other company’s consolidated gross revenues.

 

Once we achieve public status, of which there can be no assurance, we will insure that our committees as well as Board of Directors complies with all the requirements of a public company under the auspices of the OTC Marketplace.

 

 

 

 

35

 

 

 

Board Committees

 

As of the date of this Prospectus we do not have any committees of our Board of Directors. We expect to form an Audit Committee, a Compensation Committee, a Corporate Governance Committee and a Nominating Committee in the near future, prior to our becoming a public company. We have adopted charters for each proposed committee, as well as a code of ethics and expect to move forward and utilize these committees moving forward.

 

Family Relationships

 

There are no family relationships between any of our directors or executive officers.

 

Conflicts of Interest

 

Members of our management are associated with other firms involved in a range of business activities. Consequently, there are potential inherent conflicts of interest in their acting as officers and directors of our Company. Insofar as the officers and directors are engaged in other business activities, management anticipates they will devote only a minor amount of time to our affairs. See “RISK FACTORS.”

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

We have purchased lighting products from Bravo Lighting (“Bravo”), a distributor of customized lighting solutions. Bravo is a company owned by our two principal shareholders, who are also officers and directors of our Company. Purchases from Bravo totaled $515,605 and $590,693 for the twelve months ended December 31, 2017 and 2016, respectively. Outstanding receivables from Bravo totaled $13,540 and $2,189 on December 31, 2017 and December 31, 2016, respectively. Net outstanding payables to Bravo totaled $93,394 and $52,049 at December 31, 2017 and December 31, 2016, respectively. In July 2016, Bravo issued us a $200,000 note payable with interest at 12% per annum. At December 31, 2017 and December 31, 2016, the note payable balance was $0 and $130,477 respectively.

 

We entered into a lease agreement with Bravo to sublease office space for 12 months commencing in September 2017. Minimum lease payments are $27,000 in 2018.

 

In September 2016, a shareholder and our Vice President of Marketing and Human Resources loaned us the principal amount of $14,500, with interest at 2% per month. The loan is due upon demand. At December 31, 2017 and December 31, 2016 the note payable balance was $0 and $14,500, respectively. In October 2016, he loaned an additional $17,815, with interest at 3% per month. The loan was due upon demand. At December 31, 2017 and December 31, 2016, the note payable balance was $0 and $17,815. All notes were paid in full by September 2017.

 

Notes payable balances to above related parties totaled $0 and $162,792 at December 31, 2017 and December 31, 2016, respectively.

 

There have been no other related party transactions, or any other transactions or relationships required to be disclosed pursuant to Item 404 of Regulation S-K.

  

DESCRIPTION OF SECURITIES

 

Common Stock

 

There are 100,000,000 shares of Common Stock, $.001 par value, authorized, with 24,671,000 shares issued and outstanding. The holders of Common Stock are entitled to one vote for each share held on all matters submitted to a vote of shareholders. Holders of Common Stock are entitled to receive ratably such dividends, if any, as may be declared by the Board of Directors out of funds legally available therefor, subject to any preferential dividend rights of outstanding Preferred Stock, which may be authorized and issued in the future. Upon a liquidation, dissolution or winding up of our Company the holders of Common Stock are entitled to receive ratably the net assets available after the payment of all debts and other liabilities, and subject further only to the prior rights of any outstanding Preferred Stock which may be authorized and issued in the future. The holders of Common Stock have no preemptive, subscription, redemption or conversion rights. The outstanding shares of Common Stock are, and the shares offered herein will be, when issued and paid for, fully paid and non-assessable. Cumulative voting in the election of directors is not permitted and the holders of a majority of the number of outstanding shares will be in a position to control the election of directors at a general shareholder meeting and may elect all of the directors standing for election. We have no present intention to pay cash dividends to the holders of Common Stock.

 

 

 

  36  

 

 

Preferred Stock

 

Our Articles of Incorporation, as amended, also authorizes ten million shares of Preferred Stock, par value of $0.10 per share, none of which has been issued. The Preferred Stock is entitled to preference over the Common Stock with respect to the distribution of assets of our Company in the event of liquidation, dissolution, or winding-up of our Company, whether voluntarily or involuntarily, or in the event of the any other distribution of our assets, among our stockholders for the purposes of winding-up affairs. The authorized but unissued shares of Preferred Stock may be divided into and issued in designated series from time to time by one or more resolutions adopted by the Board of Directors. The Directors, in their sole discretion, have the power to determine the relative powers, preferences, and rights of each series of Preferred Stock.

 

Transfer Agent and Registrar

 

 We have retained Corporate Stock Transfer, Inc., 3200 Cherry Creek Drive South, Suite 430, Denver, CO 80209, phone (303) 282-4800 as the transfer agent for our Common Stock.

 

SHARES ELIGIBLE FOR FUTURE SALE

 

In the event our Common Stock is approved for trading in the future, of which there can be no assurance, market sales of shares of our Common Stock after this Offering and from time to time, and the availability of shares for future sale, may reduce the market price of our Common Stock. Sales of substantial amounts of our Common Stock, or the perception that these sales could occur, could adversely affect prevailing market prices for our Common Stock and could impair our future ability to obtain capital, especially through an offering of equity securities. After the effective date of the registration statement of which this Prospectus is a part, all of the shares sold in this Offering will be freely tradable without restrictions or further registration under the Securities Act, unless the shares are purchased by our affiliates. After the effective date of the registration statement of which this Prospectus is a part, all of the shares sold in this Offering, constituting 4,157,936 shares, will be freely tradable without restrictions or further registration under the Securities Act, unless the shares are purchased by our affiliates, as that term is defined in Rule 144 under the Securities Act. The balance of 20,538,064 shares which are not being registered will be eligible for sale pursuant to the exemption from registration. However, these shares not being registered are held by our management and other affiliates who are limited to selling only 1% of our issued and outstanding shares every 90 days.

 

If our application to trade our Common Stock on the OTCQB is approved, of which there can be no assurance, it is anticipated that our Common Stock will be considered a “penny stock” and will continue to be considered a penny stock so long as it trades below $5.00 per share and as such, trading in our Common Stock will be subject to the requirements of Rule 15g-9 under the Securities Exchange Act of 1934. Under this rule, broker/dealers who recommend low-priced securities to persons other than established customers and accredited investors must satisfy special sales practice requirements. The broker/dealer must make an individualized written suitability determination for the purchaser and receive the purchaser’s written consent prior to the transaction.

 

SEC regulations also require additional disclosure in connection with any trades involving a “penny stock,” including the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and its associated risks. In addition, broker-dealers must disclose commissions payable to both the broker-dealer and the registered representative and current quotations for the securities they offer. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from recommending transactions in our securities, which could severely limit the liquidity of our securities and consequently adversely affect the market price for our securities. In addition, few broker or dealers are likely to undertake these compliance activities. Other risks associated with trading in penny stocks could also be price fluctuations and the lack of a liquid market. See “RISK FACTORS.”

 

Rule 144

 

Rule 144, adopted by the Securities and Exchange Commission pursuant to the Securities Act of 1933, generally provides an exemption for the resale or privately offered securities provided the conditions of the rule are met, which include, among other limitations, that the securities be held for a minimum of six months due to the fact that we expect to be a reporting company pursuant to the Securities Exchange Act of 1934, as amended. Consequently, our shareholders who are affiliates and whose shares are not being registered as part of the registration statement we have filed with the SEC (of which this Prospectus is a part) may not be able to avail themselves of Rule 144 or otherwise be readily able to liquidate their investments in the event of an emergency or for any other reason, and the shares may not be accepted as collateral for a loan. If such non-affiliate has owned the shares for at least six months, he or she may sell the shares without complying with any of the restrictions of Rule 144 once we are deemed a reporting company.

 

 

 

  37  

 

 

INTERESTS OF NAMED EXPERTS AND COUNSEL

 

No expert or counsel named in this Prospectus as having prepared or certified any part of this Prospectus or having given an opinion upon the validity of the securities being registered or upon other legal matters in connection with the registration or offering of the Common Stock was employed on a contingency basis, or had, or is to receive, in connection with the Offering, a substantial interest, direct or indirect, in the Company or any of its parents or subsidiaries. Nor was any such person connected with the Company or any of its parents or subsidiaries as a promoter, managing or principal underwriter, voting trustee, director, officer, or employee.

 

LEGAL MATTERS

 

The validity of the Common Stock offered hereby will be passed upon by Andrew I. Telsey, P.C., Centennial, Colorado. Andrew I. Telsey, sole shareholder of Andrew I. Telsey, P.C., owns 350,763 shares of our Common Stock.

 

EXPERTS

 

The financial statements of urban-gro, Inc. as of and for the year ended December 31, 2017 and 2016 included herein have been audited by BF Borgers CPA PC, independent registered public accountants, as indicated in their reports with respect thereto, and are in reliance upon the authority of said firm as experts in accounting and auditing. 

 

 

DISCLOSURE OF COMMISSION POSITION ON

INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

 

Insofar as indemnification for liabilities arising under the 33 Act may be permitted to directors, officers or persons controlling our Company pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

 

ADDITIONAL INFORMATION

 

We have filed this registration statement on Form S-1, including exhibits, with the SEC with respect to the shares being offered in this Offering. This Prospectus is part of the registration statement, but it does not contain all of the information included in the registration statement or exhibits. If and when the SEC declares our registration statement effective, we will begin filing reports pursuant to the Securities Exchange Act of 1934, as amended. For further information with respect to our Common Stock, and us we refer you to the registration statement and to the exhibits and schedules to the registration statement. Statements contained in this Prospectus as to the contents of any contract or any other document referred to herein are not necessarily complete, and in each instance, we refer you to the copy of the contract or other document filed as an exhibit to the registration statement. Each of these statements is qualified in all respects by this reference. You may inspect a copy of the registration statement without charge at the SEC’s principal office in Washington, D.C., and copies of all or any part of the registration statement may be obtained from the Public Reference Section of the SEC, 100 F. St. NE, Washington, D.C. 20549, upon payment of fees prescribed by the SEC. The SEC maintains a worldwide website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of the website is http://www.sec.gov . The SEC’s toll free investor information service can be reached at 1-800-SEC-0330.

 

FINANCIAL STATEMENTS

 

Our audited financial statements for the fiscal years ended December 31, 2017 and 2016 are set forth on pages F-1 through F-17.

 

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS, OR OF ANY SALE OF OUR COMMON STOCK.

 

 

 

  38  

 

 

urban-gro, Inc.

INDEX TO FINANCIAL STATEMENTS

 

 

Report of Independent Registered Public Accounting Firm F-2
Balance Sheets at December 31, 2017 and 2016 F-3
Statements of Operations and Comprehensive Income For the years Ended December 31, 2017 and 2016 F-4
Statements of Shareholders’ Deficit For the Years Ended December 31, 2016 and 2017 F-5
Statements of Cash Flows For the 12 months ending (unaudited) F-6
Notes to Financial Statements F-7

 

 

 

 

 

 

 

 

 

 

 

 

 

  F- 1  

 

 

 

Report of Independent Registered Public Accounting Firm

 

 

To the shareholders and the board of directors of urban-gro, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying balance sheets of urban-gro, Inc. (the "Company") as of December 31, 2017 and 2016, the related statements of operations and comprehensive income, shareholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

 

 

/s/ B F Borgers CPA PC

 

We have served as the Company’s auditor since 2017.

 

Lakewood, Colorado

May 15, 2018 

 

  F- 2  

 

 

urban-gro Inc.

BALANCE SHEETS

   

 

    December 31,     December 31,  
    2017     2016  
Assets            
Current Assets                
Cash   $ 1,656,791     $ 17,463  
Accounts receivable, net     642,553       508,550  
Inventory     1,124,714       806,177  
Related party receivable     13,540       2,189  
Prepayments and advances     859,277       117,044  
Total current assets     4,296,875       1,451,423  
                 
                 
Non-current assets                
Property, plant, and equipment, net     224,824       118,940  
Investments     400,000        
Other assets     44,693       9,644  
Total non-current assets     669,517       128,584  
                 
Total assets   $ 4,966,392     $ 1,580,007  
                 
Liabilities                
Current liabilities                
Accounts payable   $ 1,338,661     $ 888,888  
Accrued expenses     1,256,115       647,575  
Related party payable     93,394       52,049  
Customer deposits     3,151,250       379,175  
Short term notes payable -related party           162,792  
Short term notes payable - other     188,000       766,000  
Total current liabilities     6,027,420       2,896,479  
                 
Long-term liabilities                
Long term notes payable     300,000       8,000  
Total long-term liabilities     300,000       8,000  
                 
Total liabilities     6,327,420       2,904,479  
                 
Commitments and contingencies, note 10                
                 
Equity                
Members equity           742,313  
Preferred stock, $0.1 par value; 10,000,000 shares authorized; 0 shares issued and outstanding as of December 31, 2017            
Common stock, $0.001 par value; 100,000,000 shares authorized; 25,046,000 shares issued and outstanding as of December 31, 2017     25,036        
Additional Paid in Capital     3,258,116        
Retained earnings / (deficit)     (4,644,180 )     (2,066,785 )
                 
Total equity (deficit)     (1,361,028 )     (1,324,472 )
Total liabilities and equity   $ 4,966,392     $ 1,580,007  

 

See accompanying notes to financial statements

 

 

 

  F- 3  

 

 

urban-gro Inc.

STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

   

 

    For the Years Ended  
    December 31,     December 31,  
    2017     2016  
Revenue   $ 12,298,015     $ 7,033,273  
                 
Cost of sales     9,244,329       5,622,373  
Gross profit     3,053,686       1,410,900  
                 
Operating expenses                
Marketing   $ 402,621     $ 308,529  
General and administrative     5,014,208       2,711,823  
Total operating expenses     5,416,829       3,020,352  
                 
Loss from operations     (2,363,143 )     (1,609,452 )
                 
Other Income (Expenses)                
Other income     2,324       19,021  
Interest expense     (216,576 )     (218,430 )
Total other expenses     (214,252 )     (199,409 )
                 
                 
                 
Net income (loss)   $ (2,577,395 )   $ (1,808,861 )
                 
Comprehensive income (loss)   $ (2,577,395 )   $ (1,808,861 )
                 
Earnings per share                
Net loss per share - basic and diluted   $ (0.13 )   $ (17.66 )
                 
Weighted average outstanding shares for the year ended December 31, 2017     20,047,885        
Weighted average outstanding units for the year ending December 31, 2016           102,455  

 

See accompanying notes to financial statements

 

 

 

  F- 4  

 

 

urban-gro Inc.

STATEMENTS OF SHAREHOLDERS' DEFICIT

FOR THE YEARS ENDED December 31, 2016 and 2017

 

 

                            Retained        
                      Additional     Earnings     Total  
    Members'     Common Stock     Paid in     (accumulated     Shareholders'  
    Equity     Shares     Amount     Capital     deficits)     Deficit  
Balance, December 31, 2015   $ 200                       $ (257,924 )   $ (257,724 )
Contributions     575,107                               575,107  
Member equity compensation expense     167,006                                       167,006  
Distributions                                    
Net loss for year ended December 31, 2016                             (1,808,861 )     (1,808,861 )
Balance, December 31, 2016   $ 742,313           $     $     $ (2,066,785 )   $ (1,324,472 )
Common stock converted from LLC Units     (742,313 )     22,500,000       22,500       719,813              
Common stock issued in settlement of debt           500,000       500       499,500             500,000  
Sale of common stock           2,046,000       2,036       1,953,966             1,956,002  
Stock based compensation                       84,837             84,837  
Net loss for year ended December 31, 2017                             (2,577,395 )     (2,577,395 )
Balance, December 31, 2017   $ (0 )     25,046,000     $ 25,036     $ 3,258,116     $ (4,644,180 )   $ (1,361,028 )

 

See accompanying notes to financial statements

 

 

 

  F- 5  

 

 

urban-gro Inc.

STATEMENTS OF CASH FLOWS

 

 

  For the 12 months ending (unaudited)  
  December 31,     December 31,  
    2017     2016  
Cash Flows from Operating Activities                
Net Loss   $ (2,577,395 )   $ (1,808,861 )
Adjustment to reconcile net loss from operations:                
                 
Depreciation     75,605       47,760  
Inventory write-offs     82,404       (38,416 )
Bad debt expense     141,288       198,064  
Stock compensation expense     84,839       167,006  
                 
Changes in Operating Assets and Liabilities                
Accounts receivable     (286,642 )     (366,026 )
Inventory     (331,203 )     (7,745 )
Prepayments and advances     (742,231 )     (47,906 )
Other assets     (3,995 )     (6,644 )
Accounts payable     421,380       385,095  
Accrued expenses     608,541       321,448  
Customer deposits     2,772,070       110,411  
Net Cash Provided by (Used in) Operating Activities     244,661       (1,045,814 )
                 
Cash Flows from Investing Activities                
Purchase of investment     (400,000 )      
Purchases of property and equipment     (204,494 )     (136,406 )
Purchases of intangible assets     (8,049 )      
Net Cash Used by Investing Activities     (612,543 )     (136,406 )
                 
Cash Flows from Financing Activities                
Equity contribution           575,107  
Issuance of capital stock     1,956,002        
Proceeds from issuance of notes payable     300,000       436,792  
Proceeds from issuance of convertible debentures           500,000  
Repayment of related party loan           (343,717 )
Repayment of notes payable     (248,792 )      
Net Cash Provided by Financing Activities     2,007,210       1,168,182  
                 
Net Increase (Decrease) in Cash     1,639,328       (14,039 )
Cash at Beginning of Period     17,463       31,502  
Cash at End of Period     1,656,791       17,463  
                 
Supplemental Cash Flow Information:                
Interest Paid     216,576       218,430  
Income Tax Paid            
                 
Supplemental disclosure of non-cash investing and financing activities:                
Common stock issued to reduce convertible and promissory notes payable     (500,000 )      

 

See accompanying notes to financial statements

 

 

 

  F- 6  

 

 

urban-gro, Inc.

Notes to Financial Statements

For the years ended December 31, 2017 and December 31, 2016

 

NOTE 1 – ORGANIZATION, BASIS OF PRESENTATION AND LIQUIDITY

 

urban-gro, a Colorado corporation (the “Company”), was founded in 2014 as a limited liability company. On March 10, 2017, the Company was converted into a corporation. The Company provides product solutions to the commercial Cannabis cultivation industry, including commercial grade LED and HPS grow light systems, integrated pest management, automated fertilization / irrigation solutions, and a complete line of water treatment solutions in the state of Colorado, throughout the US and Canada. The Company’s products are integrated to ensure a cohesive approach to cultivation that is economical and legal.

  

Basis of Presentation

 

These financial statements are presented in United States dollars and have been prepared in accordance with United States generally accepted accounting principles.

 

Business Plan

 

Our diversification plans have led to the strategic decision to focus on brand as an ancillary national market leader delivering the best in class value added product solutions to cannabis cultivators. Managements plans the following actions to increase profit margins and generate positive operating cash flow; 1) Establish strategic partnerships with our vendors to increase our margins for benches and control systems. 2) Implement fees to the customer for the design of their grow systems 3) Create a commissioning team and charge commissioning fees 4) Create and implement integrated pest management plans for our customers and increase sales of the biological controls and pesticides. We believe these objectives will increase our gross profit and increase cash provided by operations.

 

Liquidity

 

Since inception, urban-gro has incurred operating losses and has funded its operations primarily through issuance of equity securities, unsecured debt, and operating revenue. At December 31, 2017, urban-gro had an accumulated deficit of $(4,644,180) working capital of $(1,730,545) and stockholders’ equity of $(1,361,028). Urban-gro has evaluated its projected cash flows and believes that its cash and cash equivalents of $1,656,791 as of December 31, 2017, will be sufficient to fund urban-gro’s operations through at least twelve months from the issuance date of these financial statements, or at least through May 31, 2019. Future financings, if necessary, may not be available to urban-gro at acceptable terms, or if at all. Sales of additional equity securities would result in the dilution of interests of current shareholders.

  

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Use of Estimates

 

In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates. Significant estimates include estimated useful lives and potential impairment of property and equipment, inventory write offs, and allowance for bad debt.

 

 

 

  F- 7  

 

 

Going concern assessment

 

With the implementation of FASB’s new standard on going concern, ASC No. 205-40, beginning with the year ended December 31, 2016 and all annual and interim periods thereafter, we will assess going concern uncertainty for our financial statements to determine if we have sufficient cash and cash equivalents on hand and working capital to operate for a period of at least one year from the date the financial statements are issued or are available to be issued, which is referred to as the “look - forward period” as defined by ASC No. 205-40. As part of this assessment, based on conditions that are known and reasonably knowable to us, we will consider various scenarios, forecasts, projections, and estimates, and we will make certain key assumptions, including the timing and nature of projected cash expenditures or programs, and our ability to delay or curtail those expenditures or programs, among other factors, if necessary, within the look-forward period in accordance with ASC No 205-40.

 

Fair Value of Financial Instruments

 

Our financial instruments consist principally of cash and cash equivalents, accounts receivable, accounts payable, notes payable and other current assets and liabilities. We value our financial assets and liabilities using fair value measurements. Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are categorized based on whether the inputs are observable in the market and the degree that the inputs are observable. The categorization of financial instruments within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The hierarchy is prioritized into three levels

(with Level 3 being the lowest) defined as follows:

 

Level 1 : Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.

 

Level 2: Observable inputs other than prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated with observable market data.

 

Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs.

 

The carrying amount of our cash and cash equivalents, accounts receivable, accounts payable, and other current assets and liabilities in our consolidated financial statements approximates fair value because of the short-term nature of the instruments. Investments in non-marketable equity securities are carried at cost less other-than-temporary impairments. The carrying amount of our notes payable and convertible debt at December 31, 2017 and 2016 approximates their fair values based on our incremental borrowing rates.

 

There have been no changes in Level 1, Level 2, and Level 3 categorizations and no changes in valuation techniques for these assets or liabilities for the year ended December 31, 2017 and year ended December 31, 2016.

 

 

 

  F- 8  

 

 

Cash and Cash Equivalents

 

The Company considers all highly liquid short term cash investments with an original maturity of three months or less to be cash equivalents. For the year ended December 31, 2017 and 2016 the company did not maintain any cash equivalents. We maintain cash and cash equivalent balances with financial institutions that may from time to time exceed federally-insured limits. We have not experienced any losses related to these balances and believe the risk to minimal.

 

Accounts Receivable, Net

 

Trade accounts receivables are carried at the original invoiced amounts less an allowance for doubtful accounts. The allowances for doubtful accounts are calculated based on a detailed review of certain individual customer accounts and an estimation of the overall economic conditions affecting the Company's customer base. The Company reviews a customer's credit history before extending credit to the customer. If the financial condition of its customers were to deteriorate, resulting in an impairment of their ability to make payments, additions to the allowance would be required. A provision is made against accounts receivable to the extent they are considered unlikely to be collected. 

 

Inventory

 

Inventories are stated at the lower of cost or net realizable value. The Company periodically reviews the value of items in inventory and provides write-downs or write-offs of inventory based on its assessment of market conditions. All inventory is finished goods and no raw products or work in progress is recorded on the balance sheet. Write-downs and write-offs are charged to cost of goods sold at the realization of change in value. Once written down, inventories are carried at this lower cost basis until sold or scrapped.

 

Property, Plant and Equipment, Net

 

Property and equipment is stated at cost less accumulated depreciation and impairment.  Expenditures for major additions and improvements are capitalized and minor replacements, maintenance, and repairs are charged to expense as incurred. When property and equipment is retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes. The Company uses other depreciation methods (generally accelerated) for tax purposes where appropriate. No impairment charges were recorded for year ended December 31, 2017 and 2016.

 

The estimated useful lives for significant property and equipment categories are as follows:

 

Computer and technology equipment 3 years
Furniture and Equipment 5 years
Leasehold Improvements Lease term
Molds and Tooling 3 years
Vehicles 3 years
Warehouse Equipment 3 years
Software 3 years

 

Intangible Assets

 

Our intangible assets, consisting of legal fees for application of patents and trademarks are recorded at cost, and once approved will be amortized using the straight-line method over an estimated life, generally 5 years for patents and 10 to 20 years for trademarks.

 

 

 

  F- 9  

 

 

Cost Method Investments

 

We account for investments that we do not exercise significant influence over using the cost method of accounting. Investments are accounted for as assets on the balance sheet at historical cost to acquire. Investments are assessed for impairment if there are any events or changes in circumstances indicating that the cost exceeds fair value of the investment. If the cost exceeds fair value, the asset is written down to the fair market value and an impairment loss is recognized in net income unless the impairment is considered temporary.

 

Revenue Recognition

 

We recognize revenue in line with ASC 605, when the four revenue recognition criteria are met, as follows:

 

Persuasive evidence of an arrangement exists – our customary practice is to obtain written evidence, typically in the form of a sales contract or purchase order;

 

Delivery – when custody is transferred to our customers either upon shipment to or receipt at our customers’ locations, with no right of return or further obligations, such as installation;

 

The price is fixed or determinable – prices are typically fixed at the time the order is placed and no price protections or variables are offered; and

 

Collectability is reasonably assured – we typically work with businesses with which we have a long standing relationship, as well as monitoring and evaluating customers’ ability to pay.

 

Refunds and returns, which are minimal, are recorded as a reduction of revenue. Payments received by customers prior to our satisfying the above criteria are recorded as customer deposits in the balance sheets.

 

Cost of Goods Sold

 

Our policy is to recognize cost of revenues in the same manner as, and in conjunction with, revenue recognition. Our cost of revenues includes the costs directly attributable to revenue recognized and includes expenses related to the purchasing of our products, fees for third-party commissions and shipping costs. Total shipping costs included in the cost of goods sold was $198,822 for the year ended December 31, 2017 and $169,813 for the year ended December 31, 2016.

 

Income Taxes

 

The Company accounts for income taxes in accordance with the asset and liability method. Deferred taxes are recognized for the future tax consequences attributable to temporary differences between the carrying amounts of assets and liabilities for financial statement purposes and income tax purposes using enacted rates expected to be in effect when such amounts are realized or settled. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established, as needed to reduce the amount of deferred tax assets if it is considered more likely than not that some portion or all of the deferred tax assets will not be realized.

 

 

 

  F- 10  

 

 

The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. There were no such interest or penalty for the years ended December 31, 2017 and 2016.

 

On December 22, 2017 the U.S. Tax Reform, which among other effects, reduces the U.S. federal corporate income tax rate to 21% from 34% (or 35% in certain cases) beginning in 2018, requires companies to pay a one-time transition tax on certain unrepatriated earnings from non-U.S. subsidiaries that is payable over eight years, makes the receipt of future non-U.S. sourced income of non-U.S. subsidiaries tax-free to U.S. companies and creates a new minimum tax on the earnings of non-U.S. subsidiaries relating to the parent’s deductions for payments to the subsidiaries. Our provisional estimate is that no tax will be due under this provision. We continue to gather information relating to this estimate."

 

Advertising Costs

 

The Company expenses advertisings costs in the periods the costs are incurred. Prepayments made under contracts are included in prepaid expenses and expensed when the advertisement is run. Total advertising expense incurred was $54,412 for the year ended December 31, 2017 and $54,438 for the year ended December 31, 2016.

 

Share-Based Compensation

 

The Company periodically issues shares of its common stock to non-employees in non-capital raising transactions for fees and services. The Company accounts for stock issued to non-employees in accordance with ASC 505,  Equity , whereas the value of the stock compensation is based upon the measurement date as determined at either (a) the date at which a performance commitment is reached, or (b) at the date at which the necessary performance to earn the equity instruments is complete.

 

The Company also grants stock to employees. The Company accounts for stock grants issued and vesting to employees based on ASC 718, Compensation – Stock Compensation , whereas the award is measured at its fair value at the date of grant and is amortized ratably over the vesting period. Accounting for stock-based compensation to employees requires the measurement and recognition of compensation expense for all share-based payment awards made to employees based on estimated fair values. The Company also estimates forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from its estimates.

 

Earnings (Loss) Per Share

 

The Company computes net earnings (loss) per share under Accounting Standards Codification subtopic 260-10, “Earnings Per Share” (“ASC 260-10”). Basic earnings or loss per share (“EPS”) is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS is computed by dividing net income (loss) by the weighted-average of all potentially dilutive shares of common stock that were outstanding during the periods presented.

 

The treasury stock method is used in calculating diluted EPS for potentially dilutive stock options and share purchase warrants, which assumes that any proceeds received from the exercise of in-the-money stock options and share purchase warrants, would be used to purchase common shares at the average market price for the period.

 

Recently Issued Accounting Pronouncements

 

From time to time, the FASB or other standards setting bodies issue new accounting pronouncements. Updates to the FASB ASCs are communicated through issuance of an Accounting Standards Update ("ASU"). Unless otherwise discussed, we believe that the impact of recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on our consolidated financial statements upon adoption.

 

 

 

  F- 11  

 

 

FASB ASU No. 2014-09 (Topic 606), “Revenue from Contracts with Customers”  – Issued in May 2014, ASU 2014-09 will require an entity to recognize revenue when it transfers promised goods or services to customers using a five-step model that requires entities to exercise judgment when considering the terms of the contracts. In August 2015, the FASB issued ASU No. 2015-14,  “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date” . This amendment defers the effective date of ASU 2014-09 by one year. In March 2016, the FASB issued ASU 2016-08,  “Principal versus Agent Considerations (Reporting Gross versus Net)”,  which amends the principal versus agent guidance and clarifies that the analysis must focus on whether the entity has control of the goods or services before they are transferred to the customer. In addition, the FASB issued ASU Nos. 2016-20,  “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers”  and 2016-12,  “Narrow-Scope Improvements and Practical Expedients” , both of which provide additional clarification of certain provisions in Topic 606. These ASC updates are effective for annual reporting periods beginning after December 15, 2017, but early adoption is permitted. Early adoption is permitted only as of annual reporting periods after December 15, 2016. The standard permits the use of either the retrospective or cumulative effect transition method.

 

The Company expects to apply the guidance using the modified retrospective transition method. The Company does not expect the adoption of ASU 2014-09 to have a material impact on the Company’s financial position or results of operations but will result in additional disclosures regarding the Company’s revenue recognition policies. The Company also does not expect the adoption of ASU 2014-09 will require material or significant changes to its internal controls over financial reporting. In connection with the application of that guidance and the adoption of ASU 2014-09, the Company expects that it will expand its revenue recognition inquiries and update its questionnaires primarily to identify matters that would signal variable consideration implications under the new guidance.

 

FASB ASU No. 2016-02,  (Topic 842) “Leases” Issues in February 2016, ASU 2016-02,  Leases (Topic 842),  which requires lessees to recognize assets and liabilities for leases with lease terms greater than twelve months in the statement of financial position. Leases will be classified as either financing or operating, with classification affecting the pattern of expense recognition in the statements of operations. ASU 2016-02 also requires improved disclosures to help users of financial statements better understand the amount, timing and uncertainty of cash flows arising from leases. The update is effective for fiscal years beginning after December 15, 2018, including interim reporting periods within that reporting period. Early adoption is permitted. Although Asterias has not completed its evaluation of the impact of the adoption of ASU 2016-02, Asterias currently holds a significant portion of its operating leases, related to tenant improvements on Asterias’ balance sheet (see Note 8), the adoption of ASU 2016-02 is expected to have a material impact to Asterias’ financial statements.

 

There are other various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to have a material impact on the Company's financial position, results of operations or cash flows.

 

NOTE 3 – RELATED PARTY TRANSACTIONS

 

The Company purchases lighting products from Bravo Lighting (“Bravo”), a distributor of customized lighting solutions with common control. Purchases from Bravo were $515,605 and $590,693 for the twelve months ended December 31, 2017 and 2016, respectively. Outstanding receivables from Bravo totaled $13,540 and $2,189 on December 31, 2017 and December 31, 2016, respectively. Net outstanding payables to Bravo totaled $93,394 and $52,049 at December 31, 2017 and December 31, 2016, respectively. In July 2016, Bravo issued to the Company a $200,000 note payable with interest at 12% per annum. The note was fully repaid in 2017. At December 31, 2017 and December 31, 2016, the note payable balance was $0 and $130,477 respectively.

 

In September 2016, a shareholder and the Company’s Vice President of Marketing and Human Resources loaned the Company the principal amount of $14,500, with interest at 2% per month. The loan is due upon demand. At December 31, 2017 and December 31, 2016 the note payable balance was $0 and $14,500, respectively. In October 2016, he loaned an additional $17,815, with interest at 3% per month. The loan is due upon demand. At December 31, 2017 and December 31, 2016, the note payable balance was $0 and $17,815. These notes were paid in full by September 2017.

 

The Company entered into a lease agreement with Bravo Lighting a related party, to sublease office space for 12 months commencing in September 2017. Minimum lease payments are $27,000 in 2018.

 

Notes payable balances to above related parties totaled $0 and $162,792 at December 31, 2017 and December 31, 2016, respectively. Interest expense incurred on related party notes payable was $10,060 and $31,990 for the year ended December 31, 2017 and 2016, respectively.

 

 

 

  F- 12  

 

 

The following is a summary of all notes payable to related parties:

 

    December 31,     December 31,  
    2017     2016  
Unsecured note payable to Bravo Lighting, related party. Interest accrues monthly at 1% monthly and is payable at maturity on July 31, 2017.   $     $ 130,477  
Note payable to related party. Interest payments due monthly at 2%. The maturity is not defined and is included in current liabilities.           14,500  
Note payable to related party. Interest payments due monthly at 3%. The maturity is not defined and is included in current liabilities.           17,815  
Current Maturities   $     $ 162,792  

 

NOTE 4 – PREPAYMENTS & ADVANCES

 

Prepayments and Advances is comprised of advances paid to employees, prepaid services and fees and prepayments paid to vendors to initiate orders. The prepaid balances are summarized as follows:

 

  December 31,     December 31,  
    2017     2016  
Advances to Employees   $ 4,960     $ 31,503  
Prepaid Services and Fees     8,875       38,137  
Vendor Prepayments     845,442       47,404  
    $ 859,277     $ 117,044  

 

NOTE 5 - PROPERTY PLANT & EQUIPMENT, NET

 

Property Plant and Equipment balances are summarized as follows:

 

  December 31,     December 31,  
    2017     2016  
Computers & Technology Equip   $ 37,366     $ 10,531  
Furniture and Fixtures     24,825       9,369  
Leasehold Improvements     143,215       137,238  
Molds & Tooling     11,421       9,211  
Vehicles     149,028       26,066  
Warehouse Equipment     9,232       7,733  
Software     6,550        
Accumulated depreciation     (156,813 )     (81,208 )
Property plant and equipment, net   $ 224,824     $ 118,940  

 

Depreciation expense totaled $75,605 and $47,760 for the twelve months ending December, 31, 2017 and 2016, respectively.

 

NOTE 6 – INVESTMENT

 

In August 2017, the Company entered into an agreement with Edyza Sensors, Inc., (”Edyza”), wherein the Company became Edyza’s exclusive agricultural partner in the attempt to provide wireless sensors to the cultivation solutions offered by the Company to the cannabis industry. As part of the terms of this agreement, Edyza has assigned the Company all of their rights to two patent pending applications for sensor rods and moisture and salinity measurements, along with any additional patent rights that may arise as a result of this collaboration. Edyza issued the Company a convertible note in the principal amount of $400,000, which is convertible into a 5% interest in Edyza, at our election.

 

 

 

  F- 13  

 

 

NOTE 7 –COST OF PATENTS

 

Costs of patents, which consist of legal costs paid to third parties to establish a patent, are capitalized until such time that the patents are approved and issued or rejected. If approved, capitalized costs are amortized using the straight-line method over the estimated lives of the patents, generally five years. There are no issued patents for the years ended December 31, 2017 and 2016.

 

NOTE 8 – ACCRUED EXPENSES

 

Accrued expenses are summarized as follows:

 

  December 31,     December 31,  
    2017     2016  
Accrued legal fees           55,500  
Accrued operating expenses     153,946        
Accrued stock compensation expense     100,000       2,933  
Accrued wages and related expenses     377,305       97,178  
Accrued sales tax payable     624,864       491,964  
    $ 1,256,115     $ 647,575  

 

NOTE 9 – NOTES PAYABLE AND CURRENT PORTION OF NOTES PAYABLE

 

Unsecured notes payable balances totaled $488,000 and $774,000 at December 31, 2017 and December 31, 2016, respectively. Interest expense incurred on the unsecured notes payable is $216,576 and $218,430 for the years ended December 31, 2017 and 2016, respectively.

 

The following is a summary of notes payable excluding related party notes payable:

 

    December 31,
2017
    December 31,
2016
 
Unsecured note payable. Interest is paid monthly at 2%. Principal due at maturity on September 1, 2017.   $     $ 60,000  
                 
Unsecured, interest-free, note payable. Principal is re-paid monthly with a maturity date of May 31, 2018.     8,000       34,000  
                 
Unsecured note payable. Interest payments due monthly at 1.7%. Note payable revised in May 2017 amending principal due and extending maturity date to December 31, 2018. As part of the private placement offering of the Company's common stock, the individual has converted part of their note into 300,000 common shares of the Company at $1.00 per share.     80,000       380,000  
                 
Unsecured note payable. Interest payments due monthly at 1.5%. Note payable revised in May 2017 amending principal due and extending maturity date to December 31, 2018. As part of the private offering of the Company's common stock, the individual has converted part of their note into 200,000 common shares of the Company at $1.00 per share.     100,000       300,000  
                 
Unsecured note payable. Interest at 1.65% per month is paid twice per month. The note contains a demand re-payment provision that can be executed by individual at any time by providing a one time notice. The Company may re-pay any part or the entire principal sum at any time with penalty and abatement of interest expense from date of early payment. Outstanding Principal due at maturity of March 23, 2019.     300,000        
                 
Total   $ 488,000     $ 774,000  
Less current maturities     (188,000 )     (766,000 )
Long Term Notes Payable   $ 300,000     $ 8,000  

 

 

 

  F- 14  

 

 

NOTE 10 – COMMITMENTS AND CONTINGENCIES

 

The Company leases an office and warehouse in Lafayette, Colorado. The lease ends on August 31, 2018. Future minimum lease payments are $60,000 in 2018. The company expects to enter into a new lease agreement in August 2018. The company entered into a lease agreement with Bravo Lighting a related party, to sublease office space for 12 months commencing in September 2017. Minimum lease payments are $27,000 in 2018. The company leased two cars for the use of its employees in December 2017. The leases end December 2020. The future minimum payments for the car leases is $11,550 in 2018. The following is a schedule showing future minimum lease payments.

 

Year ending   Total Minimum  
December 31,   Lease Payments  
2018   $ 98,550  
2019     11,550  
2020     11,550  
2021      
2022      

 

From time to time, the Company is involved in routine litigation that arises in the ordinary course of business. There are no pending material legal proceedings to which the Company is a party for which management believes the ultimate outcome would have a material adverse effect on the Company’s financial position.

 

NOTE 11 –RISKS AND UNCERTAINTIES

 

Concentration Risk 

 

During the year ended December 31, 2017, two unrelated vendors composed 21% and 13% of total purchases. During the year ended December 31, 2016, two vendors composed 52% and 11%. See note 3 for discussion of related party transactions that represent the 5% of purchases from Bravo Lighting during the year ending December 31, 2017 and 11% during the year ending December 31, 2016.

 

The Company’s primary supplier of lighting represents 0% and 19% of total accounts payable outstanding as of December 31, 2017 and December 31, 2016, respectively. The Company’s primary suppliers of automated fertigation controls represents 16% and 15% of total accounts payable outstanding as of December 30, 2017 and December 31, 2016, respectively. The Company’s primary suppliers of benching represents 24% and 0% of total accounts payable outstanding as of December 30, 2017 and December 31, 2016, respectively.

 

During the years ended December 31, 2017 and 2016, no customer represented more than 10% of total revenue.

 

NOTE 12 STOCK COMPENSATION

 

In June 2017, the Company implemented a stock grant policy to reward and attract employees with common stock. Stock grants are offered as part of the employment offer package or as a reward for performance.


The Company measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award. For employees and directors, the fair value of the award is measured on the grant date and for non-employees, the fair value of the award is generally re-measured on vesting dates and interim financial reporting dates until the service period is complete. The fair value amount is then recognized over the period during which services are required to be provided in exchange for the award, usually the vesting period. The amortized expense is reported on the income statement as stock compensation expense for employee stock grants. Stock compensation expense for the year ended December 31, 2017 was $84,837 based in the vesting schedule of the stock grants. No award has fully vested as of December, 31 2017 and no stock has been issued for the stock grants. Stock granted to non-employees is presented on the income statement in the expense account that related to the service performed. No cash flow affects are anticipated for stock grants.

 

 

  F- 15  

 

 

During the year ended December 31, 2017, the Company granted 310,000 shares of common stock to employees which vests after a period of 1, 2 or 3 years of employment. The fair value of the stock is $310,000 based on the average share price of $1. The following schedule shows stock grant activity for the year ended December 31, 2017.

 

Total grants as of December 31, 2016    
Grants awarded     310,000  
Forfeiture/Cancelled      
Grants vested      
Total Grants awarded and outstanding as of December 31, 2017     310,000  

 

The following table summarizes stock grant vesting periods:

 

Amount of Shares  

Year Ending

December 31,

  205,000   2018
  80,000   2019
  25,000   2020
  310,000    

 

NOTE 13 – SHAREHOLDER’S EQUITY AND MEMBERS' DEFICIT

 

The Company was formed by founders Bradley Nattrass and Octavio Gutierrez on March 20, 2014, as a Colorado limited liability company with equity contributions totaling $100 from each member. In August 2016, when still an LLC, the Company undertook a private offering of member interests wherein the Company received subscriptions of $575,107 in the form of 6,392 member interests to three (3) accredited investors (approximately $90 per member interest).

 

On December 31, 2015 the Company had 100,000 outstanding membership units.

 

On December 31, 2016, the Company issued 8,008 membership units to key employees. On December 31, 2016 the Company issued 1,943 membership units to vendors for services provided. Total outstanding membership units at December 31, 2016 were 116,343.

 

In March 2017, the Company’s authorized capital consisted of 100,000,000 shares of Common Stock, $0.001 par value per share, and 10,000,000 shares of Preferred Stock, par value $0.10 per share.

 

In February 2017 under a 351 Exchange Agreement, the members converted an aggregate of 116,343 membership interests into 22,500,000 shares of Common Stock (193.3936722 to 1). The effective date for the exchange was February 23, 2017.

 

As of December 31, 2017 there were 0 shares of preferred stock issued and outstanding and 25,046,000 shares of common stock issued and outstanding. As of December 31, 2016 there were 116,343 membership units outstanding.

 

 

 

  F- 16  

 

 

NOTE 14 – INCOME TAXES

 

The Tax Cuts and Jobs Acts (the “Act”) was enacted on December 22, 2017. The Act reduces the U.S. federal corporate income tax rate from 35% to 21%. ASC 740, “Income Taxes”, requires that effects of changes in tax rates to be recognized in the period enacted. Recognizing the late enactment of the Act and complexity of accurately accounting for its impact, the Securities and Exchange Commission in SAB 118 provides guidance that allows registrants to provide a reasonable estimate of the Act in their financial statements and adjust the reported impact in a measurement period not to exceed one year. The Company has not completed its accounting for the tax effects of the Act; however, a reasonable estimate was made to measure its tax liabilities based on the rates at which they are expected to reverse in the future as a result of the reduction on the federal tax rate, and the Company has estimated no tax liability as of December 31, 2017 due to operating losses. The Company has adopted the provisions of ASC 740-10-25, which provides recognition criteria and a related measurement model for uncertain tax positions taken or expected to be taken in income tax returns. ASC 740-10-25 requires that a position taken or expected to be taken in a tax return be recognized in the financial statements when it is more likely than not that the position would be sustained upon examination by tax authorities. Tax position that meet the more likely than not threshold are then measured using a probability weighted approach recognizing the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement. Management has filed an extension with the IRS and has not determined if it is more likely or not to recognize a loss carryforward. The Company had no tax positions relating to open income tax returns that were considered to be uncertain.

 

NOTE 15 – REVENUE

 

Revenue is recorded when products ship to the customer or is drop-shipped to the customer direct from the vendor. Revenue is booked to two categories depending on the nature of the equipment. Cultivation equipment, fertigation, inputs and irrigation, substrates, and pesticides are included in cultivation technologies. Light fixtures, lightbulbs and related lighting materials are included in lighting systems. The Company expects to apply ASC 606 using a modified retrospective transition method. The Company does not expect the adoption of ASU 2014-09 to have a material impact on the Company’s financial position or results of operations but will result in additional disclosures regarding revenue recognition policies.

 

  December 31,     December 31,  
    2017     2016  
Cultivation Technologies   $ 7,804,289     $ 2,199,198  
Lighting Systems     4,493,726       4,800,778  
Other Revenue           33,297  
    $ 12,298,015     $ 7,033,273  

 

NOTE 16 – SUBSEQUENT EVENTS

 

In January 2018, the Company adopted a stock options plan to reward and attract employees with common stock. Stock options are offered as part of the employment offer package or as a reward for performance.   The stock option plan authorizes 3,000,000 shares of common stock that vest over a three-year period and expire after a five-year period.

 

In February 2018, the Company entered into an agreement to purchase 5% on a fully diluted basis of Total Growth Holdings for $125,000. This agreement provides the Company with the right to purchase an additional 5% on a fully diluted basis at the same valuation on or before August 31, 2018.

 

 

 

 

  F- 17  

 

 

 

 

 

 

 

4,157,936 Shares of Common Stock

 

 

 

PROSPECTUS

 

 

 

 

 

__________________, 201__

 

 

 

 

 

 

 

 

Until ____________, 20__, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

 

 

 

 

 

 

 

     

 

 

PART II - INFORMATION NOT REQUIRED IN PROSPECTUS

 

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

 

The expenses to be paid by the Registrant are as follows. All amounts, other than the SEC registration fee, are estimates.

 

    Amount to be Paid  
SEC registration fee   $ 518  
Legal fees and expenses   $ 50,000  
Accounting fees and expenses   $ 86,400  
Miscellaneous   $ 1,000  
         
Total   $ 137,918  

 

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

 

Under the Colorado Revised Statutes and our Articles of Incorporation, our directors and officers will have no personal liability to us or our shareholders for monetary damages incurred as the result of the breach or alleged breach by a director or officer of his “duty of care.” This provision does not apply to the directors’: (i) acts or omissions that involve intentional misconduct, fraud or a knowing and culpable violation of law, or (ii) approval of an unlawful dividend, distribution, stock repurchase or redemption. This provision would generally absolve directors of personal liability for negligence in the performance of his duties, including gross negligence.

 

The effect of this provision in our Articles of Incorporation is to eliminate the rights of our Company and our shareholders (through shareholder’s derivative suits on behalf of our Company) to recover monetary damages against a director for breach of his fiduciary duty of care as a director (including breaches resulting from negligent or grossly negligent behavior) except in the situations described in clauses (i) and (ii) above. This provision does not limit nor eliminate the rights of our Company or any shareholder to seek non-monetary relief such as an injunction or rescission in the event of a breach of a director’s duty of care. Section 145 of the Colorado General Corporation Law provides corporations the right to indemnify their directors, officers, employees and agents in accordance with applicable law.

 

Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to directors, officers, or persons controlling the Company pursuant to the foregoing provisions, the Company has been informed that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act of 1933, as amended, and is therefore unenforceable.

 

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

 

In May 2017, we commenced a private offering of our Common Stock wherein we received aggregate subscriptions of $2,546,000 from the sale of 2,546,000 shares, at $1 per share, to 76 investors, including 58 “accredited” investors, as that term is defined under the Securities Act of 1933, as amended. These funds were used to repay debt, expansion of our existing business operations, new investment opportunities and working capital. We relied upon the exemption from registration provided by Regulation D promulgated under the Securities Act of 1933, as amended, to issue these shares. 

 

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

Exhibit

Number

 

 

Description

     
3.1   Articles of Incorporation
3.2   By-Laws
3.3   Specimen Stock Certificate  
5.1   Opinion of Andrew I. Telsey, P.C. re: legality
10.1   Letter Agreement with Edyza, Inc.
10.2   Assignment of Intellectual Property with Edyza, Inc .
10.3    Purchase Agreement with Total Grow Holdings LLC
10.4   Lease Agreement – Lafayette CO property
10.5   Lease with Bravo Lighting LLC
23.1   Consent of Andrew I. Telsey, P.C.
23.2   Consent of BF Borgers CPA PC

 

 

 

 

II- 1

 

 

 

ITEM 17. UNDERTAKINGS

 

The undersigned registrant hereby undertakes to:

 

  (1) File, during any period in which offers or sales are being made, a post-effective amendment to this registration statement to:

 

  (A) Include any Prospectus required by Section 10(a)(3) of the Securities Act of 1933;

 

  (B) Reflect in the Prospectus any facts or events which, individually or together, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of Prospectus filed with the Securities and Exchange Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement;

 

 

  (C) Include any additional or changed material information on the plan of distribution.

 

  (2) For determining liability under the Securities Act of 1933, treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering thereof.

 

  (3) File a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering.

 

  (4) For determining liability of the undersigned registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

 

  (A) Any preliminary Prospectus or Prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424 under the Securities Act of 1933;
  (B) Any free writing Prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
  (C) The portion of any other free writing Prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
  (D) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

 

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the 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, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

 

Each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

 

 

 

 

II- 2

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Act, the registrant has duly caused this amendment to its registration statement to be signed on its behalf by the undersigned on May 15, 2018.

 

  URBAN-GRO, INC.
 

 

 

By:   /s/ Bradley Nattrass

Bradley Nattrass, Chief Executive Officer and President

   

 

 

 

POWER OF ATTORNEY

 

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Bradley Nattrass, Chief Executive Officer, as his true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for him and in his name, place and stead in any and all capacities, in connection with this Registration Statement, including to sign in the name and on behalf of the undersigned, this Registration Statement and any and all amendments thereto, including post-effective amendments and registrations filed pursuant to Rule 462 under the U.S. Securities Act of 1933, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto such attorney-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute, may lawfully do or cause to be done by virtue hereof.

 

Pursuant to the requirements of the Securities Act, the following persons in the capacities and on the dates indicated have signed this Registration Statement:

 

Signature   Title   Date
         

/s/ Bradley Nattrass

Bradley Nattrass

  Director and Principal Executive Officer   May 15, 2018
         

/s/ Octavio Gutierrez

Octavio Gutierrez

  Director and Chief Development Officer   May 15, 2018
         
/s/ George R. Pullar   Director   May 15, 2018
George R. Pullar        

 

 

 

 

 

II- 3

 

Exhibit 3.1

 

 

Document must be filed electronically.

Paper documents are not accepted.

Fees & forms are subject to change.

For more information or to print copies

of filed documents, visit www.sos.state.co.us

 

Colorado Secretary of State

Date and Time: 03/10/2017 07:33 AM

ID Number: 20141178593

Document number: 20171194870
Amount Paid: $100.00

 

 

Articles of Incorporation for a Profit Corporation

filed pursuant to § 7-102-101 and § 7-102-102 of the Colorado Revised Statutes (C.R.S.)

 

1. The domestic entity name for the corporation is

 

Urban-gro, Inc.

 

(Caution : The use of certain terms or abbreviations are restricted by law. Read instructions for more information.)

 

 

2. The Principal office address of the corporation’s initial principal office is:

 

Street address 1751 Panorama Point - Unit E
  (Street number and name)
     

 

  Lafayette CO 80026
  (City) (State) (ZIP/Postal Code)
       
    United States  
  (Province - if applicable) (Country)  

 

 

 

Mailing address  
  (leave blank if same as street address) (Street number and name)
     

 

       
  (City) (State) (ZIP/Postal Code)
       
       
  (Province - if applicable) (Country)  

 

3. The registered agent and registered agent address of the corporation’s initial registered agent are

 

Name
   (if an individual
 
Telsey

Andrew

I
 
    (Last) (First) (Middle) (Suffix)
or          
           
    If an entity          
   (Caution: do not provide both an individual and an entity name      

 

 

Street address 12835 E. Arapahoe Road
  ( (Street number and name)
  Suite 1-803  

 

  Contennial CO 80112
  (City) (State) (ZIP/Postal Code)

 

 

 

 

Mailing address  
  (leave blank if same as street address) (Street number and name)
     

 

       
  (City) (State) (ZIP/Postal Code)

 

 

  1  

 

 

(The following statement is adopted by marking the box.)

 

☒   The person appointed as registererd agent above has consented to being so appointed.

 

4. The true name and mailing address of the incorporator are

 

Name
   (if an individual
 
Nattrass

Bradley

 
 
    (Last) (First) (Middle) (Suffix)
or          
           
    If an entity          
   (Caution: do not provide both an individual and an entity name      

 

 

Street address 1751 Panaroma Point
  ( (Street number and name)
  Unit E  

 

  Lafayette CO 80026
  (City) (State) (ZIP/Postal Code)

 

 

(If the following statement applies, adopt the statement by marking the box and include an attachment)

 

The corporation has one or more additional incorporators and the name and mailing address of each additional incorporator are stated in an attachment.

 

5. The classes of shares and number of shares of each class that the corporation is authorized to issue are as follows:

 

The corporation is authorized to issue ___________ common shares that shall have unlimited voting rights and are entitled to receive the net assets of the corporation upon dissolution

 

Information regarding shares required by section 7-106-101, C.R.S., is included in an attachment.

 

6. (If the following applies, adopt the statement by marking the box and include an attachment)

 

☒ This document contains additional information as provided by law.

 

7. (Caution: Leave blank if the document does not have a delayed effective date. Stating a delayed effective date has significant legal consequences. Read instructions before entering a date.)

 

 

The delayed effective date and, if applicable, time of this document is/are  
  (mm/dd/yyyy hour minute am/pm

 

 

 

Notice:

Causing this document to be delivered to the Secretary of State for filing shall constitute the affirmation or acknowledgment of each individual causing such delivery, under penalties of perjury, that the document is the individual's act and deed, or that the individual in good faith believes the document is the act and deed of the person on whose behalf the individual is causing the document to be delivered for filing, taken in conformity with the requirements of part 3 of article 90 of title 7, C.R.S., the constituent documents, and the organic statutes, and that the individual in good faith believes the facts stated in the document are true and the document complies with the requirements of that Part, the constituent documents, and the organic statutes.

 

This perjury notice applies to each individual who causes this document to be delivered to the Secretary of State, whether or not such individual is named in the document as one who has caused it to be delivered.

 

 

  2  

 

 

 

8. The true name and mailing address of the individual causing the document to be delivered for filing are

 

    Telsey Andrew  I  
    (Last) (First) (Middle) (Suffix)
           
    12835 E. Arapahoe Road
    (Street number and name or Post Office Box information)
     
    Suite I-803      

 

 

  Centennial CO 80112
  (City) (State) (ZIP/Postal Code)
       
       
  (Province - if applicable) (Country)  

 

(If the following applies, adopt the statement by marking the box and include an attachment. )

 

This document contains the true name and mailing address of one or more additional individuals causing the document to be delivered for filing. 

 

Disclaimer:

This form/cover sheet, and any related instructions, are not intended to provide legal, business or tax advice, and are furnished without representation or warranty. While this form/cover sheet is believed to satisfy minimum legal requirements as of its revision date, compliance with applicable law, as the same may be amended from time to time, remains the responsibility of the user of this form/cover sheet. Questions should be addressed to the user’s legal, business or tax advisor(s).

 

 

 

  3  

 

 

ATTACHMENT TO ARTICLES OF INCORPORATION

OF

urban-gro, Inc.

 

I. CAPITAL STOCK:

 

The amount of the total authorized capital stock of the corporation shall be one hundred ten million (110,000,000) shares consisting of One Hundred Million (100,000,000) shares of Common Stock, $0.001 par value per share, and Ten Million (10,000,000) shares of Preferred Stock, par value $0.10 per share, the designations, preferences, limitations and relative rights of the shares of each such class are as follows:

 

  A. Common Shares

 

(a) The rights of holders of the Common Shares to receive dividends or share in the distribution of assets in the event of liquidation, dissolution or winding up of the affairs of the Corporation shall be subject to the preferences, limitations and relative rights of the Preferred Shares fixed in the resolution or resolutions which may be adopted from time to time by the Board of Directors of the corporation providing for the issuance of one or more series of the Preferred Shares.

 

(b) The holders of the Common Shares shall have unlimited voting rights and shall constitute the sole voting group of the corporation, except to the extent any additional voting groups or groups may hereafter be established in accordance with the Colorado Business Corporation Act, and shall be entitled to one vote for each share of Common Shares held by them of record at the time for determining the holders thereof entitled to vote.

 

  B. Preferred Shares

 

The corporation may divide and issue the Preferred Shares into series. Preferred Shares of each series, when issued, shall be designated to distinguish it from the shares of all other series of the class of Preferred Shares. The Board of Directors is hereby expressly vested with authority to fix and determine the relative rights and preferences of the shares of any such series so established to the fullest extent permitted by these Articles of Incorporation and the laws of the State of Colorado in respect to the following:

 

(a) The number of shares to constitute such series, and the distinctive designations thereof;

 

(b) The rate and preference of dividend, if any, the time of payment of dividend, whether dividends are cumulative and the date from which any dividend shall accrue;

 

(c) Whether the shares may be redeemed and, if so, the redemption price and the terms and conditions of redemption;

 

(d) The amount payable upon shares in the event of involuntarily liquidation;

 

(e) The amount payable upon shares in the event of voluntary liquidation; Sinking fund or other provisions, if any, for the redemption or purchase of shares;

 

  (g) The terms and conditions on which shares may be converted, if the shares of any series are issued with the privilege of conversion;

 

  (h) Voting powers, if any; and

 

  (i) Any other relative right and preferences of shares of such series, including, without limitation, any restriction on an increase in the number of shares of any series theretofore authorized and any limitation or restriction of rights or powers to which shares of any further series shall be subject.

 

  

 

 

  4  

 

 

II. OPTIONAL ADDITIONAL PROVISIONS

 

A. The corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation shall be managed under the direction of, a board of directors. The number of directors of the corporation shall be fixed by the bylaws, or if the bylaws fail to fix such a number, then by resolution adopted from time to time by the board of directors, provided that the number of directors shall not be less than one (1).

 

B. Cumulative voting shall not be permitted in the election of directors or otherwise.

 

C. Except as the bylaws adopted by the shareholders may provide for a greater quorum requirement, a majority of the votes entitled to be cast on any matter by each voting group entitled to vote on a matter shall constitute a quorum of that voting group for action on that matter at any meeting of shareholders. Except as bylaws adopted by the shareholders may provide for a greater voting requirement and except as is otherwise provided by the Colorado Business Corporation Act, with respect to action on amendment to these Articles of Incorporation, on a plan of merger or share exchange, on the disposition of substantially all of the property of the corporation, on the granting of consent to the disposition of property by an entity controlled by the corporation, and on the dissolution of the corporation, action on a matter other than the election of directors is approved if a quorum exists and if the votes cast favoring the action exceed the votes cast opposing the action. Any bylaw adding, changing, or deleting a greater quorum or voting requirement for shareholders shall meet the same quorum requirement and be adopted by the same vote required to take action under the quorum and voting requirements then in effect or proposed to be adopted, whichever are greater.

 

D. Any action required or permitted to be taken at a meeting of the shareholders may be taken without a meeting if a written consent (or counterparts thereof) that sets forth the action so taken is signed by shareholders holding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all of      shares entitled to vote on such action were present and voted. Such consent shall have the same force and effect as a unanimous vote of the shareholders and may be stated as such in any document. Action taken under this subsection D is effective as of the date the last writing necessary to effect the action is received by the corporation, unless all of the writing specify a different effective date, in which case such specified date shall be the effective date for such action. If any shareholder revokes his consent as provided for herein prior to what would otherwise be the effective date, the action proposed in the consent shall be invalid.

 

The record date for determining shareholders entitled to take action without a meeting is the date the corporation first receives a writing upon which the action is taken.

 

Any shareholder who has signed a writing describing and consenting to action taken pursuant to this subsection D may revoke such consent by a writing signed by the shareholder describing the action and stating that the shareholder's prior consent thereto is revoked, if such writing is received by the corporation before the effectiveness of the action.

 

E. The following provisions are inserted for the management of the business and for the conduct of the affairs of the corporation, and the same are in furtherance of and not in limitation or exclusion of the powers conferred by law.

 

 

 

  5  

 

 

(a)        Conflicting Interest Transactions . As used in this paragraph, "conflicting interest transactions" means any of the following: (i) a loan or other assistance by the corporation to a director of the corporation or to an entity in which a director of the corporation is a director or officer or has a financial interest; (ii) a guaranty by the corporation of an obligation of a director of the corporation or of an obligation of an entity in which a director of the corporation is a director or officer or has a financial interest; or (iii) a contract or transaction between the corporation and a director of the corporation or between the corporation and an entity in which a director of the corporation is a director or officer or has a financial interest. No conflicting interest transaction shall be void or voidable, be enjoined, be set aside, or give rise to an award of damages or other sanctions in a proceeding by a shareholder or by or in the right of the corporation, solely because the conflicting interest transaction involves a director of the corporation or an entity in which a director of the corporation is a director or officer or has a financial interest, or solely because the director is present at or participates in the meeting of the corporation's board of directors or of the committee of the board of directors which authorizes, approves or ratifies a conflicting interest transaction, or solely because the director's vote is counted for such purpose, if: (a) the material facts as to the director's relationship or interest and as to the conflicting interest transaction are disclosed or are known to the board of directors or the committee, and the board of directors or committee in good faith authorizes, approves or ratifies the conflicting interest transaction by the affirmative vote of a majority of the disinterested directors, even though the disinterested directors are less than quorum; or (b) the material facts as to the director's relationship or interest and as to the conflicting interest transaction are disclosed or are known to the shareholders entitled to vote thereon, and the conflicting interest transaction is specifically authorized, approved or ratified in good faith by a vote of the shareholders; or (c) a conflicting interest transaction is fair as to the corporation as of the time it is authorized, approved or ratified by the board of directors, a committee thereof, or the shareholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the board of directors or of a committee which authorizes, approves or ratifies the conflicting interest transaction.

 

(b)        Loans and Guarantees for the Benefit of Directors . The corporation may lend money to, guarantee any obligation of, or otherwise assist any officer, director, or employee of the corporation or of a subsidiary, whenever, in the judgment of the Board of Directors, such loan, guaranty, or assistance may reasonably be expected to benefit the corporation. The loan, guaranty, or other assistance may be with or without interest and may be unsecured or secured in such manner as the Board of Directors may approve, including, without limitation, a pledge of shares of stock of the corporation. Subject to the provisions of subsection (a) above, nothing in these Articles shall be deemed to deny, limit, or restrict the powers of guaranty or warranty of the corporation at common law or under any statute.

 

(c)        Indemnification .

 

(1) The corporation shall have power to indemnify any person who was or is a party to any proceeding (other than an action by, or in the right of, the corporation), by reason of the fact that he or she 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 liability incurred in connection with such proceeding, including any appeal thereof, if he or she acted in good faith and in a manner he or she 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 or her conduct was unlawful. The termination of any proceeding by judgment, order, settlement, or conviction or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in, or not opposed to, the best interests of the corporation or, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful.

 

 

 

  6  

 

 

(2) The corporation shall have power to indemnify any person, who was or is a party to any proceeding by or in the right of the corporation to procure a judgment in its favor by reason of the fact that the person 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 and amounts paid in settlement not exceeding, in the judgment of the board of directors, the estimated expense of litigating the proceeding to conclusion, actually and reasonably incurred in connection with the defense or settlement of such proceeding, including any appeal thereof. Such indemnification shall be authorized if such person acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the corporation, except that no indemnification shall be made under this subsection in respect of any claim, issue, or matter as to which such person shall have been adjudged to be liable unless, and only to the extent that, the court in which such proceeding was brought, or any other court of competent jurisdiction, shall determine upon application that, despite the adjudication of liability but in view of all circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper.

 

(3) To the extent that a director, officer, employee, or agent of the corporation has been successful on the merits or otherwise in defense of any proceeding referred to in subsection (1) or subsection (2), or in defense of any claim, issue, or matter therein, he or she shall be indemnified against expenses actually and reasonably incurred by him or her in connection therewith.

 

(4) Any indemnification under subsection (1) or subsection (2), unless pursuant to a determination by a court, shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee, or agent is proper in the circumstances because he or she has met the applicable standard of conduct set forth in subsection (1) or subsection (2). Such determination shall be made (i) by the board of directors by a majority vote of a quorum consisting of directors who were not parties to such proceeding; (ii) if such a quorum is not obtainable or, even if obtainable, by majority vote of a committee duly designated by the board of directors (in which directors who are parties may participate) consisting solely of two or more directors not at the time parties to the proceeding; (iii) by independent legal counsel:

 

(5) Evaluation of the reasonableness of expenses and authorization of indemnification shall be made in the same manner as the determination that indemnification is permissible. However, if the determination of permissibility is made by independent legal counsel, persons specified by paragraph (4)(i) or (4)(ii) shall evaluate the reasonableness of expenses and may authorize indemnification.

 

(6) Expenses incurred by an officer or director in defending a civil or criminal proceeding may be paid by the corporation in advance of the final disposition of such proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if he or she is ultimately found not to be entitled to indemnification by the corporation pursuant to this section. Expenses incurred by other employees and agents may be paid in advance upon such terms or conditions that the board of directors deems appropriate.

 

(7) The indemnification and advancement of expenses provided pursuant to this section are not exclusive, and the corporation may make any other or further indemnification or advancement of expenses of any of its directors, officers, employees, or agents, under any bylaw, agreement, vote of shareholders or disinterested directors, or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office. However, indemnification or advancement of expenses shall not be made to or on behalf of any director, officer, employee, or agent if a judgment or other final adjudication establishes that his or her actions, or omissions to act, were material to the cause of action so adjudicated and constitute (a) a violation of the criminal law, unless the director, officer, employee, or agent had reasonable cause to believe his or her conduct was lawful or had no reasonable cause to believe his or her conduct was unlawful; (b) a transaction from which the director, officer, employee, or agent derived an improper personal benefit; (c) in the case of a director, a circumstance under which the liability provisions of the Colorado Business Corporation Act are applicable; or (d) willful misconduct or a conscious disregard for the best interests of the corporation in a proceeding by or in the right of the corporation to procure a judgment in its favor or in a proceeding by or in the right of a shareholder.

 

 

 

  7  

 

 

(8) Indemnification and advancement of expenses as provided in this section shall continue as, unless otherwise provided when authorized or ratified, to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such a person, unless otherwise provided when authorized or ratified.

 

(9) The corporation shall have power to purchase and maintain insurance on behalf of any person who 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 any liability asserted against the person and incurred by him or her in any such capacity or arising out of his or her status as such, whether or not the corporation would have the power to indemnify the person against such liability under the provisions of this section.

 

(d)        Negation of Equitable Interests in Shares or Rights . The corporation shall be entitled to treat the registered holder of any shares of the corporation as the owner thereof for all purposes permitted by the Colorado Business Corporation Act, including without limitation all rights deriving from such shares, and the corporation shall not be bound to recognize any equitable or other claim to, or interest in, such shares or rights deriving from such shares on the part of any other person including without limitation, a purchaser, assignee or transferee of such shares, unless and until such other person becomes the registered holder of such shares or is recognized as such, whether or not the corporation shall have either actual or constructive notice of the claimed interest of such other person.

 

 

 

 

  8  

Exhibit 3.2

 

INDEX TO THE BYLAWS OF

 

Urban-Gro, Inc.

 

   
ARTICLE I - OFFICES 1
SECTION 1.  Offices 1
SECTION 2.  Registered Office 1
   
ARTICLE II - SHAREHOLDERS 1
SECTION 1.  Annual Meeting 1
SECTION 2.  Special Meetings 2
SECTION 3.  Place of Meetings 2
SECTION 4.  Notice of Meeting 2
SECTION 5.  Fixing of Record Date 3
SECTION 6.  Voting Lists 3
SECTION 7.  Recognition Procedure for Beneficial Owners 4
SECTION 8.  Quorum and Manner of Acting 4
SECTION 9.  Proxies 4
SECTION 10.  Voting of Shares 5
SECTION 11.  Corporation's Acceptance of Votes 6
SECTION 12.  Informal Action by Shareholders 7
SECTION 13.  Meetings by Telecommunication 7
   
ARTICLE III - BOARD OF DIRECTORS 7
SECTION 1.  General Powers 7
SECTION 2.  Number, Qualifications and Tenure 7
SECTION 3.  Vacancies 8
SECTION 4.  Regular Meetings 8
SECTION 5.  Special Meetings 8
SECTION 6.  Notice 8
SECTION 7.  Quorum 9
SECTION 8.  Manner of Acting 9
SECTION 9.  Compensation 9
SECTION 10.  Presumption of Assent 9
SECTION 11.  Committees 9
SECTION 12.  Informal Action by Directors 10
SECTION 13.  Telephonic Meetings 10
SECTION 14.  Standard of Conduct 10

 

 

 

  i  

 

 

   
ARTICLE IV - OFFICERS AND AGENTS 11
SECTION 1.  General 11
SECTION 2.  Appointment and Term of Office 11
SECTION 3.  Resignation and Removal 11
SECTION 4.  Vacancies 11
SECTION 5.  Chairman of the Board 12
SECTION 6.  Chief Executive Officer 12
SECTION 7.  President 12
SECTION 8.  Chief Operating Officer 12
SECTION 9.  Vice Presidents 12
SECTION 10.  Secretary 13
SECTION 11.  Treasurer 13
SECTION 12.  Controller 14
SECTION 13.  Standard of Conduct 14
   
ARTICLE V - STOCK 14
SECTION 1.  Certificates 14
SECTION 2.  Consideration for Shares 15
SECTION 3.  Lost Certificates 15
SECTION 4.  Transfer of Shares 15
SECTION 5.  Transfer Agent, Registrars and Paying Agents 16
   
ARTICLE VI - INDEMNIFICATION OF CERTAIN PERSONS 16
SECTION 1.  Indemnification 16
SECTION 2.  Right to Indemnification 17
SECTION 3.  Effect of Termination of Action 17
SECTION 4.  Groups Authorized to Make Indemnification Determination 17
SECTION 5.  Court-Ordered Indemnification 17
SECTION 6.  Advance of Expenses 18
SECTION 7.  Additional Indemnification to Certain Persons Other Than Directors 18
SECTION 8.  Witness Expenses 18
SECTION 9.  Report to Shareholders 18
   
ARTICLE VII - INSURANCE 18
SECTION 1.  Provision of Insurance 18
   
ARTICLE VIII - MISCELLANEOUS 19
SECTION 1.  Seal 19
SECTION 2.  Fiscal Year 19
SECTION 3.  Amendments 19

 

 

 

  ii  

 

 

SECTION 4.  Receipt of Notices by the Corporation 19
SECTION 5.  Gender 19
SECTION 6.  Conflicts 19
SECTION 7.  Definitions 19
   
CERTIFICATE 20

 

 

 

 

 

 

 

 

 

 

  iii  

 

 

BYLAWS

 

OF

 

Urban-Gro, Inc.

 

 

 

ARTICLE I - OFFICES

 

Section 1 . Offices . The principal office of the corporation shall be designated from time to time by the corporation and may be within or outside of Colorado.

 

The corporation may have such other offices, either within or outside of the State of Colorado, as the board of directors may designate or as the business of the corporation may require from time to time.

 

Section 2. Registered Office . The registered office of the corporation, required by the Colorado Business Corporation Act to be maintained in the State of Colorado, may be, but need not be, identical with the principal office in the State of Colorado, and the address of the registered office may be changed from time to time by the board of directors.

 

 

ARTICLE II - SHAREHOLDERS

 

Section 1. Annual Meeting . The annual meeting of the shareholders shall be held during the month of May of each year on a date and at a time fixed by the board of directors of the corporation (or by the president in the absence of action by the board of directors) beginning with the year 2017, for the purpose of electing directors and for the transaction of such other business as may come before the meeting. If the election of directors is not held on the day fixed as provided herein for any annual meeting of the shareholders, or any adjournment thereof, the board of directors shall cause the election to be held at a special meeting of the shareholders as soon thereafter as it may conveniently be held.

 

A shareholder may apply to the district court in the county in Colorado where the corporation's principal office is located or, if the corporation has no principal office in Colorado, to the district court of the county in which the corporation's registered office is located to seek an order that a shareholder meeting be held (i) if an annual meeting was not held within six months after the close of the corporation's most recently ended fiscal year or fifteen months after its last annual meeting, whichever is earlier, or (ii) if the shareholder participated in a proper call of or proper demand for a special meeting and notice of the special meeting was not given within thirty days after the date of the call or the date the last of the demands necessary to require calling of the meeting was received by the corporation pursuant to C.R.S. § 7-107-102(1)(b), or the special meeting was not held in accordance with the notice.

 

Section 2. Special Meetings . Unless otherwise prescribed by statute, special meetings of the shareholders may be called for any purpose by the president or by the board of directors. The president shall call a special meeting of the shareholders if the corporation receives one or more written demands for the meeting, stating the purpose or purposes for which it is to be held, signed and dated by holders of shares representing at least ten percent of all the votes entitled to be cast on any issue proposed to be considered at the meeting.

 

 

 

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Section 3. Place of Meetings . The board of directors may designate any place, either within or outside of the State of Colorado, as the place for any annual meeting or any special meeting called by the board of directors. A waiver of notice signed by all shareholders entitled to vote at a meeting may designate any place, either within or outside the State of Colorado, as the place for such meeting. If no designation is made, or if a special meeting is called other than by the board, the place of meeting shall be the principal office of the corporation.

 

Section 4. Notice of Meeting . Written notice stating the place, date and hour of the meeting shall be given not less than ten nor more than sixty days before the date of the meeting, except that (i) if the number of authorized shares is to be increased, at last thirty days' notice shall be given, or (ii) any other longer notice period is required by the Colorado Business Corporation Act. The secretary shall be required to give such notice only to shareholders entitled to vote at the meeting except as otherwise required by the Colorado Business Corporation Act.

 

Notice of a special meeting shall include a description of the purpose or purposes of the meeting. Notice of an annual meeting need not include a description of the purpose or purposes of the meeting except the purpose or purposes shall be stated with respect to (i) an amendment to the articles of incorporation of the corporation; (ii) a merger or share exchange in which the corporation is a party and, with respect to a share exchange, in which the corporation's shares will be acquired; (iii) a sale, lease, exchange or other disposition, other than in the usual and regular course of business, of all or substantially all of the property of the corporation or of another entity which this corporation controls, in each case with or without the goodwill; (iv) a dissolution of the corporation; (v) restatement of the articles of incorporation; or (vi) any other purpose for which a statement of purpose is required by the Colorado Business Corporation Act. Notice shall be given personally or by mail, private carrier, telegraph, teletype, electronically transmitted facsimile or other form of wire or wireless communication by or at the direction of the president, the secretary, or the officer or persons calling the meeting, to each shareholder of record entitled to vote at such meeting. If mailed and if in a comprehensible form, such notice shall be deemed to be given and effective when deposited in the United States mail, properly addressed to the shareholder at his address as it appears in the corporation's current record of shareholders, with first class postage prepaid. If notice is given other than by mail, and provided that such notice is in a comprehensible form, the notice is given and effective on the date actually received by the shareholder.

 

If requested by the person or persons lawfully calling such meeting, the secretary shall give notice thereof at corporate expense. No notice need be sent to any shareholder if three successive notices mailed to the last known address of such shareholder have been returned as undeliverable until such time as another address for such shareholder is made known to the corporation by such shareholder. In order to be entitled to receive notice of any meeting, a shareholder shall advise the corporation in writing of any change in such shareholders' mailing address as shown on the corporation's books and records.

 

When a meeting is adjourned to another date, time or place, notice need not be given of the new date, time or place if the new date, time or place of such meeting is announced before adjournment at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business which may have been transacted at the original meeting. If the adjournment is for more than 120 days, or if a new record date is fixed for the adjourned meeting, a new notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting as of the new record date.

 

A shareholder may waive notice of a meeting before or after the time and date of the meeting by a writing signed by such shareholder. Such waiver shall be delivered to the corporation for filing with the corporate records, but this delivery and filing shall not be conditions to the effectiveness of the waiver. Further, by attending a meeting either in person or by proxy, a shareholder waives objection to lack of notice or defective notice of the meeting unless the shareholder objects at the beginning of the meeting to the holding of the meeting or the transaction of business at the meeting because of lack of notice or defective notice. By attending the meeting, the shareholder also waives any objection to consideration at the meeting of a particular matter not within the purpose or purposes described in the meeting notice unless the shareholder objects to considering the matter when it is presented.

 

 

 

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Section 5. Fixing of Record Date . For the purpose of determining shareholders entitled to (i) notice of or to vote at any meeting of shareholders or any adjournment thereof, (ii) receive distributions or share dividends, (iii) demand a special meeting, or (iv) make a determination of shareholders for any other proper purpose, the board of directors may fix a future date as the record date for any such determination of shareholders, such date in any case to be not more than seventy days, and, in case of a meeting of shareholders, not less than ten days, prior to the date on which the particular action requiring such determination of shareholders is to be taken. If no record date is fixed by the directors, the record date shall be the day before the notice of the meeting it given to shareholders, or the date on which the resolution of the board of directors providing for a distribution is adopted, as the case may be. When a determination of shareholders entitled to vote at any meeting of shareholders is made as provided in this Section, such determination shall apply to any adjournment thereof unless the board of directors fixes a new record date, which it must do if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting. Unless otherwise specified when the record date is fixed, the time of day for such determination shall be as of the corporation's close of business on the record date.

 

Notwithstanding the above, the record date for determining the shareholders entitled to take action without a meeting or entitled to be given notice of action so taken shall be the date a writing upon which the action is taken is first received by the corporation. The record date for determining shareholders entitled to demand a special meeting shall be the date of the earliest of any of the demands pursuant to which the meeting is called.

 

Section 6. Voting Lists . After a record date is fixed for a shareholder's meeting, the secretary shall make, at the earlier of ten days before such meeting or two business days after notice of the meeting has been given, a complete list of the shareholders entitled to be given notice of such meeting or any adjournment thereof. The list shall be arranged by voting group by class or series of shares, shall be in alphabetical order within each class or series, and shall show the address of and the number of shares of each class or series held by each shareholder. For the period beginning the earlier of ten days prior to the meeting or two business days after notice of the meeting is given and continuing through the meeting and any adjournment thereof, this list shall be kept on file at the principal office of the corporation, or at a place (which shall be identified in the notice) in the city where the meeting will be held. Such list shall be available for inspection on written demand by any shareholder (including for the purpose of this Section 6 any holder of voting trust certificates) or his agent or attorney during regular business hours and during the period available for inspection. The original stock transfer books shall be prima facie evidence as to who are the shareholders entitled to examine such list or transfer books or to vote at any meeting of shareholders.

 

Any shareholder, his agent or attorney may copy the list during regular business hours and during the period it is available for inspection, provided (i) the shareholder has been a shareholder for at least three months immediately preceding the demand or holds at least five percent of all outstanding shares of any class of shares as of the date of the demand, (ii) the demand is made in good faith and for a purpose reasonably related to the demanding shareholder's interest as a shareholder, (iii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect, (iv) the records are directly connected with the described purpose, and (v) the shareholder pays a reasonable charge covering the costs of labor and materials for such copies, not to exceed the estimated cost of production and reproduction.

 

Section 7. Recognition Procedure for Beneficial Owners . The board of directors may adopt by resolution a procedure whereby a shareholder of the corporation may certify in writing to the corporation that all or a portion of the shares registered in the name of such shareholder are held for the account of a specified person or persons. The resolution may set forth (i) the types of nominees to which it applies; (ii) the rights or privileges that the corporation will recognize in a beneficial owner, which may include rights and privileges other than voting; (iii) the form of certification and the information to be contained therein; (iv) if the certification is with respect to a record date, the time within which the certification must be received by the corporation; (v) the period for which the nominee's use of the procedure is effective; and (vi) such other provisions with respect to the procedure as the board deems necessary or desirable. Upon receipt by the corporation of a certificate complying with the procedure established by the board of directors, the person specified in the certification shall be deemed, for the purpose or purposes set forth in the certification, to be the registered holders of the number of shares specified in place of the shareholder making the certification.

 

 

 

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Section 8. Quorum and Manner of Acting . A majority of the votes entitled to be cast on a matter by a voting group represented in person or by proxy shall constitute a quorum of that voting group for action on the matter. If less than a majority of such votes are represented at a meeting, a majority of the votes so represented may adjourn the meeting from time to time without further notice, for a period not to exceed 120 days for any one adjournment. If a quorum is present at such adjourned meeting, any business may be transacted which might have been transacted at the meeting as originally noticed. The shareholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum, unless the meeting is adjourned and a new record date is set for the adjourned meeting.

 

If a quorum exists, action on a matter other than the election of directors by a voting group is approved if the votes cast within the voting group favoring the action exceed the votes cast within the voting group opposing the action, unless the vote of a greater number or voting by classes is required by law or the articles of incorporation.

 

Section 9. Proxies . At all meetings of shareholders, a shareholder may vote by proxy by signing an appointment form or similar writing, either personally or by his duly authorized attorney-in-fact. A shareholder may also appoint a proxy by transmitting or authorizing the transmission of a telegram, teletype, or other electronic transmission providing a written statement of the appointment to the proxy, a proxy solicitor, proxy support service organization, or other person duly authorized by the proxy to receive appointments as agent for the proxy, or to the corporation. The transmitted appointment shall set forth or be transmitted with written evidence from which it can be determined that the shareholder transmitted or authorized the transmission of the appointment. The proxy appointment form or similar writing shall be filed with the secretary of the corporation before or at the time of the meeting. The appointment of a proxy is effective when received by the corporation and is valid for eleven months unless a different period is expressly provided in the appointment form or similar writing.

 

Any complete copy, including an electronically transmitted facsimile, of an appointment of a proxy may be substituted for or used in lieu of the original appointment for any purpose for which the original appointment could be used.

 

Revocation of a proxy does not affect the right of the corporation to accept the proxy's authority unless (i) the corporation had notice that the appointment was coupled with an interest and notice that such interest is extinguished is received by the secretary or other officer or agent authorized to tabulate votes before the proxy exercises his authority under the appointment, or (ii) other notice of the revocation of the appointment is received by the secretary or other officer or agent authorized to tabulate votes before the proxy exercises his authority under the appointment. Other notice of revocation may, in the discretion of the corporation, be deemed to include the appearance at a shareholders' meeting of the shareholder who granted the proxy and his voting in person on any matter subject to a vote at such meeting.

 

The death or incapacity of the shareholder appointing a proxy does not affect the right of the corporation to accept the proxy's authority unless notice of the death or incapacity is received by the secretary or other officer or agent authorized to tabulate votes before the proxy exercises his authority under the appointment.

 

 

 

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The corporation shall not be required to recognize an appointment made irrevocable if it has received a writing revoking the appointment signed by the shareholder (including a shareholder who is a successor to the shareholder who granted the proxy) either personally or by his attorney-in-fact, notwithstanding that the revocation may be a breach of an obligation of the shareholder to another person not to revoke the appointment.

 

Subject to Section 11 and any express limitation on the proxy's authority appearing on the appointment form, the corporation is entitled to accept the proxy's vote or other action as that of the shareholder making the appointment.

 

Section 10. Voting of Shares . Each outstanding share, regardless of class, shall be entitled to one vote, except in the election of directors, and each fractional share shall be entitled to a corresponding fractional vote on each matter submitted to a vote at a meeting of shareholders, except to the extent that the voting rights of the shares of any class or classes are limited or denied by the articles of incorporation as permitted by the Colorado Business Corporation Act. Cumulative voting shall not be permitted in the election of directors or for any other purpose. Each holder of stock shall be entitled to vote in the election of directors and shall have as many votes for each of the shares owned by him as there are directors to be elected and for whose election he has the right to vote.

 

At each election of directors, that number of candidates equaling the number of directors to be elected, having the highest number of votes cast in favor of their election, shall be elected to the board of directors.

 

Except as otherwise ordered by a court of competent jurisdiction upon a finding that the purpose of this Section would not be violated in the circumstances presented to the court, the shares of the corporation are not entitled to be voted if they are owned, directly or indirectly, by a second corporation, domestic or foreign, and the first corporation owns, directly or indirectly, a majority of the shares entitled to vote for directors of the second corporation except to the extent the second corporation holds the shares in a fiduciary capacity.

 

Redeemable shares are not entitled to be voted after notice of redemption is mailed to the holders and a sum sufficient to redeem the shares has been deposited with a bank, trust company or other financial institution under an irrevocable obligation to pay the holders the redemption price on surrender of the shares.

 

Section 11. Corporation's Acceptance of Votes . If the name signed on a vote, consent, waiver, proxy appointment, or proxy appointment revocation corresponds to the name of a shareholder, the corporation, if acting in good faith, is entitled to accept the vote, consent, waiver, proxy appointment or proxy appointment revocation and give it effect as the act of the shareholder. If the name signed on a vote, consent, waiver, proxy appointment or proxy appointment revocation does not correspond to the name of a shareholder, the corporation, if acting in good faith, is nevertheless entitled to accept the vote, consent, waiver, proxy appointment or proxy appointment revocation and to give it effect as the act of the shareholder if:

 

(i)       the shareholder is an entity and the name signed purports to be that of an officer or agent of the entity;

 

(ii)     the name signed purports to be that of an administrator, executor, guardian or conservator representing the shareholder and, if the corporation requests, evidence of fiduciary status acceptable to the corporation has been presented with respect to the vote, consent, waiver, proxy appointment or proxy appointment revocation;

 

(iii)     the name signed purports to be that of a receiver or trustee in bankruptcy of the shareholder and, if the corporation requests, evidence of this status acceptable to the corporation has been presented with respect to the vote, consent, waiver, proxy appointment or proxy appointment revocation;

 

(iv)    the name signed purports to be that of a pledgee, beneficial owner or attorney-in-fact of the shareholder and, if the corporation requests, evidence acceptable to the corporation of the signatory's authority to sign for the shareholder has been presented with respect to the vote, consent, waiver, proxy appointment or proxy appointment revocation;

 

 

 

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(v)     two or more persons are the shareholder as co-tenants or fiduciaries and the name signed purports to be the name of at least one of the co-tenants or fiduciaries, and the person signing appears to be acting on behalf of all the co-tenants or fiduciaries; or

 

(vi)    the acceptance of the vote, consent, waiver, proxy appointment or proxy appointment revocation is otherwise proper under rules established by the corporation that are not inconsistent with this Section 11.

 

The corporation is entitled to reject a vote, consent, waiver, proxy appointment or proxy appointment revocation if the secretary or other officer or agent authorized to tabulate votes, acting in good faith, has reasonable basis for doubt about the validity of the signature on it or about the signatory's authority to sign for the shareholder.

 

Neither the corporation nor its officers nor any agent who accepts or rejects a vote, consent, waiver, proxy appointment or proxy appointment revocation in good faith and in accordance with the standards of this Section is liable for damages for the consequences of the acceptance or rejection.

 

Section 12. Informal Action by Shareholders . Any action required or permitted to be taken at a meeting of the shareholders may be taken without a meeting if a written consent (or counterparts thereof) that sets forth the action so taken is signed by a majority of the shareholders entitled to vote with respect to the subject matter thereof and received by the corporation. Such consent shall have the same force and effect as a vote of the shareholders and may be stated as such in any document. Action taken under this Section 12 is effective as of the date the last writing necessary to effect the action is received by the corporation, unless all of the writing specify a different effective date, in which case such specified date shall be the effective date for such action. If any shareholder revokes his consent as provided for herein prior to what would otherwise be the effective date, the action proposed in the consent shall be invalid. The record date for determining shareholders entitled to take action without a meeting is the date the corporation first receives a writing upon which the action is taken.

 

Any shareholder who has signed a writing describing and consenting to action taken pursuant to this Section 12 may revoke such consent by a writing signed by the shareholder describing the action and stating that the shareholder's prior consent thereto is revoked, if such writing is received by the corporation before the effectiveness of the action.

 

Section 13. Meetings by Telecommunication . Any or all of the shareholders may participate in an annual or special shareholders' meeting by, or the meeting may be conducted through the use of, any means of communication by which all persons participating in the meeting may hear each other during the meeting. A shareholder participating in a meeting by this means is deemed to be present in person at the meeting.

 

 

ARTICLE III - BOARD OF DIRECTORS

 

Section 1. General Powers . All corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation shall be managed under the direction of, its board of directors, except as otherwise provided in the Colorado Business Corporation Act or the articles of incorporation.

 

Section 2. Number, Qualifications and Tenure . The number of directors of the corporation shall be fixed from time to time by the board of directors, but in no instance shall there be less than one director or that number otherwise required by law and no decrease in the number of directors shall have the effect of shortening the term of any incumbent director. A director shall be a natural person who is eighteen years of age or older. A director need not be a resident of the State of Colorado or a shareholder of the corporation.

 

 

 

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Directors shall be elected at each annual meeting of shareholders. Each director shall hold office until the next annual meeting of shareholders following his election and thereafter until his successor shall have been elected and qualified. Directors shall be removed in the manner provided by the Colorado Business Corporation Act. Any director may be removed by the shareholders of the voting group that elected the director, with or without cause, at a meeting called for that purpose. The notice of the meeting shall state that the purpose or one of the purposes of the meeting is removal of the director. A director may be removed only if the number of votes cast in favor of removal exceeds the number of votes cast against removal.

 

Section 3. Vacancies . Any director may resign at any time by giving written notice to the secretary. Such resignation shall take effect at the time the notice is received by the secretary unless the notice specifies a later effective date. Unless otherwise specified in the notice of resignation, the corporation's acceptance of such resignation shall not be necessary to make it effective. Any vacancy on the board of directors may be filled by the affirmative vote of a majority of all the directors remaining in office. If elected by the directors, the director shall hold office until the next annual shareholders' meeting at which directors are elected. If elected by the shareholders, the director shall hold office for the unexpired term of his predecessor in office; except that, if the director's predecessor was elected by the directors to fill a vacancy, the director elected by the shareholders shall hold office for the unexpired term of the last predecessor elected by the shareholders.

 

Section 4. Regular Meetings . A regular meeting of the board of directors shall be held without notice immediately after and at the same place as the annual meeting of shareholders. The board of directors may provide by resolution the time and place, either within or outside the State of Colorado, for the holding of additional regular meetings without other notice.

 

Section 5. Special Meetings . Special meetings of the board of directors may be called by or at the request of the president or any two directors. The person or persons authorized to call special meetings of the board of directors may fix any place, either within or outside the State of Colorado, as the place for holding any special meeting of the board of directors called by them, provided that no meeting shall be called outside the State of Colorado unless a majority of the board of directors has so authorized.

 

Section 6. Notice . Notice of the date, time and place of any special meeting shall be given to each director at least two days prior to the meeting by written notice either personally delivered or mailed to each director at his business address, or by notice transmitted by private courier, telegraph, telex, electronically transmitted facsimile or other form of wire or wireless communication. If mailed, such notice shall be deemed to be given and to be effective on the earlier of (i) five days after such notice is deposited in the United States mail, properly addressed, with first class postage prepaid, or (ii) the date shown on the return receipt, if mailed by registered or certified mail, return receipt requested, provided that the return receipt is signed by the director to whom the notice is addressed. If notice is given by telex, electronically transmitted facsimile or other similar form of wire or wireless communication, such notice shall be deemed to be given and to be effective when sent, and with respect to a telegram, such notice shall be deemed to be given and to be effective when the telegram is delivered to the telegraph company. If a director has designated in writing one or more reasonable addresses or facsimile numbers for delivery of notice to him, notice sent by mail, telegraph, telex, electronically transmitted facsimile or other form of wire or wireless communication shall not be deemed to have been given or to be effective unless sent to such addresses or facsimile numbers, as the case may be.

 

 

 

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A director may waive notice of a meeting before or after the time and date of the meeting by a writing signed by such director. Such waiver shall be delivered to the secretary for filing with the corporate records, but such delivery and filing shall not be conditions to the effectiveness of the waiver. Further, a director's attendance at or participation in a meeting waives any required notice to him of the meeting unless at the beginning of the meeting, or promptly upon his later arrival, the director objects to holding the meeting or transacting business at the meeting because of lack of notice or defective notice and does not thereafter vote for or assent to action taken at the meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the board of directors need be specified in the notice or waiver of notice of such meeting.

 

Section 7. Quorum . A majority of the number of directors fixed by the board of directors pursuant to Article III, Section 2, or, if no number is fixed, a majority of the number in office immediately before the meeting begins, shall constitute a quorum for the transaction of business at any meeting of the board of directors.

 

Section 8. Manner of Acting . The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors.

 

Section 9. Compensation . By resolution of the board of directors, any director may be paid any one or more of the following: his expense, if any, of attendance at meetings, a fixed sum for attendance at each meeting, a stated salary as director, or such other compensation as the corporation and the director may reasonably agree upon. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor.

 

Section 10. Presumption of Assent . A director of the corporation who is present at a meeting of the board of directors or committee of the board of directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken at the meeting unless (i) the director objects at the beginning of the meeting, or promptly upon his arrival, to the holding of the meeting or the transaction of business at the meeting and does not thereafter vote for or assent to any action taken at the meeting; (ii) the director contemporaneously requests that his dissent shall be entered in the minutes of the meeting or unless he or she shall file his or her written dissent or abstention as to any specific action taken be entered in the minutes of the meeting; or (iii) the director causes written notice of his dissent or abstention as to any specific action to be received by the presiding officer of the meeting before its adjournment or by the secretary promptly after the adjournment of the meeting. A director may dissent to a specific action at a meeting while assenting to others. The right to dissent to a specific action taken at a meeting of the board of directors or a committee of the board shall not be available to a director who voted in favor of such action.

 

Section 11. Committees . By resolution adopted by a majority of all the directors in office when the action is taken, the board of directors may designate from among its members an executive committee and one or more other committees, and appoint one or more members of the board of directors to serve on them. To the extent provided in the resolution, each committee shall have all the authority of the board of directors, except that no such committee shall have the authority to (i) authorize distributions; (ii) approve or propose to shareholders actions or proposals required by the Colorado Business Corporation Act to be approved by shareholders; (iii) fill vacancies on the board of directors or any committee thereof; (iv) amend the articles of incorporation; (v) adopt, amend or repeal the Bylaws; (vi) approve a plan of merger not requiring shareholder approval; (vii) authorize or approve the reacquisition of shares unless pursuant to a formula or method prescribed by the board of directors; or (viii) authorize or approve the issuance or sale of shares, or contract for the sale of shares or determine the designations and relative rights, preferences and limitations of a class or series of shares, except that the board of directors may authorize a committee or officer to do so within limits specifically prescribed by the board of directors. The committee shall then have full power within the limits set by the board of directors to adopt any final resolution setting forth all preferences, limitations and relative rights of such class or series and to authorize an amendment to the articles of incorporation stating the preferences, limitations and relative rights of a class or series for filing with the Secretary of State under the Colorado Business Corporation Act.

 

 

 

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Sections 4, 5, 6, 7, 8 or 12 of Article III, which govern meetings, notice, waiver of notice, quorum, voting requirements and action without a meeting of the board of directors, shall apply to committees and their members appointed under this Section 11.

 

Neither the designation of any such committee, the delegation of authority to such committee, nor any action by such committee pursuant to its authority shall alone constitute compliance by any member of the board of directors or a member of the committee in question with his responsibility to conform to the standard of care set forth in Article III, Section 14 of these Bylaws.

 

Section 12. Informal Action by Directors . Any action required or permitted to be taken at a meeting of the directors or any committee designated by the board of directors may be taken without a meeting if a written consent (or counterparts thereof) that sets forth the action so taken is signed by all of the directors or all of the committee members entitled to vote with respect to the action taken. Such consent shall have the same force and effect as a unanimous vote of the directors or committee members and may be stated as such in any document. Unless the consent specifies a different effective time or date, action taken under this Section 12 is effective at the time or date the last director signs a writing describing the action so taken, unless, before such time, any director has revoked his consent by a writing signed by the director and received by the president or the secretary of the corporation.

 

Section 13. Telephonic Meetings . The board of directors may permit any director (or any member of a committee designated by the board) to participate in a regular or special meeting of the board of directors or a committee thereof through the use of any means of communication by which all directors participating in the meeting can hear each other during the meeting. A director participating in a meeting in this manner is deemed to be present in person at the meeting.

 

Section 14. Standard of Conduct . A director shall perform his duties as a director, including without limitation his duties as a member of any committee of the board, in good faith, in a manner he reasonably believes to be in the best interests of the corporation, and with the care an ordinarily prudent person in a like position would exercise under similar circumstances. In performing his duties, a director shall be entitled to rely on information, opinions, reports or statements, including financial statements and other financial data, in each case prepared or presented by (a) one or more officers or employees of the corporation whom the director reasonably believes to be reliable and competent in the matters presented, (b) legal counsel, a public accountant, or another person as to matters the director reasonably believes are within such person's professional or expert competence, or (c) a committee of the board of directors or which the director is not a member if the director reasonably believes the committee merits confidence. However, he shall not be considered to be acting in good faith if he has knowledge concerning the matter in question that would cause such reliance to be unwarranted. A director shall not be liable to the corporation or its shareholders for any action he takes or omits to take as a director if, in connection with such action or omission, he performs his duties in compliance with this Section 14.

 

 

 

 

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ARTICLE IV - OFFICERS AND AGENTS

 

Section 1. General . The officers of the corporation shall consist of, as the board of directors may determine and appoint from time to time, a chief executive officer, president, a chief operating officer, one or more vice presidents, a secretary, a treasurer and a controller, each of whom shall be appointed by the board of directors and shall be a natural person eighteen years of age or older. One person may hold more than one office or may be assigned the duties of one or more offices. The board of directors or an officer or officers so authorized by the board may appoint such other officers, assistant officers, committees and agents, including a chairman of the board, assistant secretaries and assistant treasurers, as they may consider necessary. Except as expressly prescribed by these Bylaws, the board of directors or the officer or officers authorized by the board shall from time to time determine the procedure for appointment of officers, their authority and duties and their compensation, provided that the board of directors may change the authority, duties and compensation of any officer who is not appointed by the board. In its discretion, the board of directors may leave unfilled any office except as may be required by law.

 

Section 2. Appointment and Term of Office . The officers of the corporation to be appointed by the board of directors shall be appointed at each annual meeting of the board held after each annual meeting of the shareholders. If the appointment of officers is not made at such meeting or if an officer or officers are to be appointed by another officer or officers of the corporation, such appointment shall be made as determined by the board of directors or the appointing person or persons. Each officer shall hold office until the first of the following occurs: his successor shall have been duly appointed and qualified, his death, his resignation, or his removal in the manner provided in Section 3.

 

Section 3. Resignation and Removal . An officer may resign at any time by giving written notice of resignation to the chief executive officer, the president, the secretary or other person who appoints such officer. The resignation is effective when the notice is received by the corporation unless the notice specifies a later effective date.

 

Any officer or agent may be removed at any time with or without cause by the board of directors or an officer or officers authorized by the board. Such removal does not affect the contract rights, if any, of the corporation or of the person so removed. The appointment of an officer or agent shall not in itself create contract rights.

 

Section 4. Vacancies . A vacancy in any office, however occurring, may be filled by the board of directors, or by the officer or officers authorized by the board, for the unexpired portion of the officer's term. If an officer resigns and his resignation is made effective at a later date, the board of directors, or officer or officers authorized by the board, may permit the officer to remain in office until the effective date and may fill the pending vacancy before the effective date if the board of directors or officer or officers authorized by the board provide that the successor shall not take office until the effective date. In the alternative, the board of directors, or officer or officers authorized by the board of directors, may remove the officer at any time before the effective date and may fill the resulting vacancy.

 

Section 5. Chairman of the Board . The chairman of the board, if any, shall preside at all meetings of stockholders and of the board of directors and shall have such other authority and perform such other duties as are prescribed by law, by these Bylaws and by the board of directors. The board of directors may designate the chairman of the board as the chief executive officer, in which case he shall have such authority and perform such duties as are prescribed by these Bylaws and the board of directors for the chief executive officer.

 

Section 6. Chief Executive Officer . Unless the Board of Directors appoints a chief executive officer or designates the chairman of the board as the chief executive officer, the president shall be the chief executive officer. The chief executive officer of the corporation shall have, subject to the supervision and direction of the board of directors, general supervision of the business, property and affairs of the Corporation, including the power to appoint and discharge agents and employees, and the powers vested in him by the board of directors, by law or by these Bylaws or which are appropriate and customary for the office of chief executive officer.

 

 

 

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Section 7. President . The president shall have such authority and perform such duties as are prescribed by law, by these Bylaws, by the board of directors and by the chief executive officer (if the president is not the chief executive officer). The president, if there is no chairman of the board, or in the absence or the inability to act of the chairman of the board, shall preside at all meetings of shareholders and all meetings of the board of directors. Unless the board of directors appoints a chief executive officer, the president shall be the chief executive officer, in which case he shall have such authority and perform such duties as are prescribed by these Bylaws and the board of directors for the chief executive officer. Unless otherwise directed by the board of directors, the president shall attend in person or by substitute appointed by him, or shall execute on behalf of the corporation written instruments appointing a proxy or proxies to represent the corporation, at all meetings of the stockholders of any other corporation in which the corporation holds any stock. On behalf of the corporation, the president may in person or by substitute or by proxy execute written waivers of notice and consents with respect to any such meetings. At all such meetings and otherwise, the president, in person or by substitute or proxy, may vote the stock held by the corporation, execute written consents and other instruments with respect to such stock, and exercise any and all rights and powers incident to the ownership of said stock, subject to the instructions, if any, of the board of directors. The president shall have custody of the treasurer's bond, if any. The president shall have such additional authority and duties as are appropriate and customary for the office of president, except as the same may be expanded or limited by the board of directors from time to time.

 

Section 8. Chief Operating Officer . The chief operating officer of the corporation, if any, subject to the supervision and direction of the chief executive officer and the board of directors, shall manage and direct the day-to-day operations of the corporation and shall oversee the implementation of the corporation's business plan and objectives. He shall have such other powers and perform such other duties as may from time to time be prescribed by the board of directors, the chief executive officer or the president.

 

Section 9. Vice Presidents . The vice presidents shall assist the president and shall perform such duties as may be assigned to them by the president or by the board of directors. In the absence of the president, the vice president, if any (or, if more than one, the vice presidents in the order designated by the board of directors, or if the board makes no such designation, then the vice president designated by the president, or if neither the board nor the president make any such designation, the senior vice president as determined by first election to that office) shall have the powers and perform the duties of the president.

 

 

 

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Section 10. Secretary . The secretary shall (i) prepare and maintain as permanent records the minutes of the proceedings of the shareholders and of the board of directors, a record of all actions taken by the shareholders or board of directors without a meeting, a record of all actions taken by a committee of the board of directors in place of the board of directors on behalf of the corporation, and a record of all waivers of notice of meetings of shareholders and of the board of directors or any committee thereof; (ii) see that all notices are duly given in accordance with the provisions of these Bylaws and as required by law; (iii) serve as custodian of the corporate records and of the seal of the corporation and affix the seal to all documents when authorized by the board of directors; (iv) keep at the corporation's registered office or principal place of business a record containing the names and addresses of all shareholders in a form that permits preparation of a list of shareholders arranged by voting group and by class or series of shares within each voting group, that is alphabetical within each class or series and that shows the address of, and the number of shares of each class or series held by, each shareholder, unless such a record shall be kept at the office of the corporation's transfer agent or registrar; (v) maintain at the corporation's principal office the originals or copies of the corporation's articles of incorporation, Bylaws, minutes of all shareholders' meetings and records of all action taken by shareholders without a meeting for the past three years, all written communications within the past three years to shareholders as a group or to the holders of any class or series of shares as a group, a list of the names and business addresses of the current directors and officers, a copy of the corporation's most recent corporate report filed with the Secretary of State, and financial statements showing in reasonable detail the corporation's assets and liabilities and results of operations for the last three years; (vi) have general charge of the stock transfer books of the corporation, unless the corporation has a transfer agent; (vii) authenticate records of the corporation; and (viii) in general, perform all duties incident to the office of secretary and such other duties as from time to time may be assigned to him by the chief executive officer, the president or by the board of directors. Assistant secretaries, if any, shall have the same duties and powers, subject to supervision by the secretary. The directors and/or shareholders may, however, respectively designate a person other than the secretary or assistant secretary to keep the minutes of their respective meetings.

 

Any books, records, or minutes of the corporation may be in written form or in any form capable of being converted into written form within a reasonable time.

 

Section 11. Treasurer . The treasurer shall be the chief financial officer of the corporation, shall have the care and custody of all funds, securities, evidences of indebtedness and other personal property of the corporation and shall deposit the same in accordance with the instructions of the board of directors. Subject to the limits imposed by the board of directors, he shall receive and give receipts and acquittances for money paid in or on account of the corporation, and shall pay out of the corporation's funds on hand all bills, payrolls and other just debts of the corporation of whatever nature upon maturity. He shall perform all other duties incident to the office of treasurer and, upon request of the board, shall make such reports to it as may be required at any time. He shall, if required by the board, give the corporation a bond in such sums and with such sureties as shall be satisfactory to the board, conditioned upon the faithful performance of his duties and for the restoration to the corporation of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation. He shall have such other powers and perform such other duties as may from time to time be prescribed by the board of directors, the chief executive officer or the president. The assistant treasurers, if any, shall have the same powers and duties, subject to the supervision of the treasurer.

 

Section 12. Controller . The controller shall be the principal accounting officer of the corporation. Subject to the supervision of the board of directors, the chief executive officer and the treasurer, the controller shall prescribe and maintain the methods and system of accounting to be followed, keep complete books and records of account as required by the Colorado Business Corporation Act, prepare and file all local, state and federal tax returns, prescribe and maintain an adequate system of internal audit and prepare and furnish to the chief executive officer, the president, the treasurer and the board of directors statements of account showing the financial position of the corporation and the results of its operations.

 

 

 

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Section 13. Standard of Conduct . An officer with discretionary authority shall perform his duties as an officer in good faith, in a manner he reasonably believes to be in the best interests of the corporation, and with the care an ordinarily prudent person in a like position would exercise under similar circumstances. In performing his duties, an officer shall be entitled to rely on information, opinions, reports or statements, including financial statements and other financial data, in each case prepared or presented by (a) one or more officers or employees of the corporation whom the director reasonably believes to be reliable and competent in the matters presented, or (b) legal counsel, a public accountant, or another person as to matters the director reasonably believes are within such person's professional or expert competence. However, he shall not be considered to be acting in good faith if he has knowledge concerning the matter in question that would cause such reliance to be unwarranted. An officer shall not be liable to the corporation or its shareholders for any action he takes or omits to take as an officer if, in connection with such action or omission, he performs his duties in compliance with this Section 13.

 

 

ARTICLE V - STOCK

 

Section 1. Certificates . The board of directors shall be authorized to issue any of its classes of shares with or without certificates. The fact that the shares are not represented by certificates shall have no effect on the rights and obligations of the shareholders. If the shares are represented by certificates, such shares shall be represented by consecutively numbered certificates signed, either manually or by facsimile, in the name of the corporation by the president or one or more vice presidents and the secretary or an assistant secretary. In case any officer who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such officer before such certificate is issued, such certificate may nonetheless be issued by the corporation with the same effect as if he were such officer at the date of its issue. All certificates shall be consecutively numbered, and the names of the owners, the number of shares, and the date of issue shall be entered on the books of the corporation. Each certificate representing shares shall state upon its face:

 

(i)      That the corporation is organized under the laws of the State of Colorado;

 

(ii)     The name of the person to whom issued;

 

(iii)    The number and class of the shares and the designation of the series, if any, that the certificate represents;

 

(iv)    The par value, if any, of each share represented by the certificate;

 

(v)    A summary, on the front or the back, of the designations, preferences, limitations, and relative rights applicable to each class, the variations in preferences, limitations and rights determined for each series, and the authority of the board of directors to determine variations for future classes or series, or in lieu thereof, a conspicuous statement, on the front or the back, that the corporation will furnish to the shareholder, on request in writing and without charge, information concerning the designations, preferences, limitations and relative rights applicable to each class, the variations in preference, limitations, and rights determined for each series, and the authority of the board of directors to determine variations for future classes or series; and

 

(vi)    Any restrictions imposed by the corporation upon the transfer of the shares represented by the certificate.

 

 

 

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If shares are not represented by certificates, within a reasonable time following the issue or transfer of such shares, the corporation shall send the shareholder a complete written statement of all of the information required to be provided to holders of uncertificated shares by the Colorado Business Corporation Act.

 

Section 2. Consideration for Shares . Certificated or uncertificated shares shall not be issued until the shares represented thereby are fully paid. The board of directors may authorize the issuance of shares for consideration consisting of any tangible or intangible property or benefit to the corporation, including cash, promissory notes, services performed or other securities of the corporation. Future services shall not constitute payment or partial payment for shares of the corporation. The promissory note of a subscriber or an affiliate of a subscriber shall not constitute payment or partial payment for shares of the corporation unless the note is negotiable and is secured by collateral, other than the shares being purchased, having a fair market value at least equal to the principal amount of the note. For purposes of this Section 2, "promissory note" means a negotiable instrument on which there is an obligation to pay independent of collateral and does not include a non-resource note.

 

Section 3. Lost Certificates . In case of an alleged loss, destruction or mutilation of a certificate of stock, the board of directors may direct the issuance of a new certificate in lieu thereof upon such terms and conditions in conformity with the law as the board may prescribe. The board of directors may in its discretion require an affidavit of lost certificate and/or a bond in such form and amount and with such surety as it may determine before issuing a new certificate.

 

Section 4. Transfer of Shares . Upon surrender to the corporation or to a transfer agent of the corporation of a certificate of stock duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, and receipt of such documentary stamps as may be required by law and evidence of compliance with all applicable securities laws and other restrictions, the corporation shall issue a new certificate to the person entitled thereto, and cancel the old certificate. Every such transfer of stock shall be entered on the stock books of the corporation which shall be kept at its principal office or by the person and at the place designated by the board of directors.

 

Except as otherwise expressly provided in Article II, Sections 7 and 11, and except for the assertion of dissenters' rights to the extent provided in Article 113 of the Colorado Business Corporation Act, the corporation shall be entitled to treat the registered holder of any shares of the corporation as the owner thereof for all purposes, and the corporation shall not be bound to recognize any equitable or other claim to, or interest in, such shares or rights deriving from such shares on the part of any person other than the registered holder, including without limitation any purchaser, assignee or transferee of such shares or right deriving from such shares, unless and until such other person becomes the registered holder of such shares, whether or not the corporation shall have either actual or constructive notice of the claimed interest of such other person.

 

Section 5. Transfer Agent, Registrars and Paying Agents . The board may at its discretion appoint one or more transfer agents, registrars and agents for making payment upon any class of stock, bond, debenture or other security of the corporation. Such agents and registrars may be located either within or outside the State of Colorado. They shall have such rights and duties and shall be entitled to such compensation as may be agreed.

 

 

ARTICLE VI - INDEMNIFICATION OF CERTAIN PERSONS

 

Section 1. Indemnification . For purposes of this Article VI, a "Proper Person" means any person (including the estate or personal representative of a director) 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, and whether formal or informal, by reason of the fact that he is or was a director, officer, employee, fiduciary or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, partner, trustee, employee, fiduciary or agent of any foreign or domestic profit or nonprofit corporation or of any partnership, joint venture, trust, profit or nonprofit unincorporated association, limited liability company, or other enterprise or employee benefit plan. The corporation shall indemnify any Proper Person against reasonably incurred expenses (including attorneys' fees), judgments, penalties, fines (including any excise tax assessed with respect to an employee benefit plan) and amounts paid in settlement reasonably incurred by him in connection with such action, suit or proceeding if it is determined by the groups set forth in Section 4 of this Article that he conducted himself in good faith and that he reasonably believed (i) in the case of conduct in his official capacity with the corporation, that his conduct was in the corporation's best interest; or (ii) in all other cases (except criminal cases) that his conduct was at least not opposed to the corporation's best interest; or (iii) in the case of any criminal proceeding, that he had no reasonable cause to believe his conduct was unlawful. Official capacity means, when used with respect to a director, the office of director and, when used with respect to any other Proper Person, the office in a corporation held by the officer or the employment, fiduciary or agency relationship undertaken by the employee, fiduciary, or agent on behalf of the corporation. Official capacity does not include service for any other domestic or foreign corporation or other person or employee benefit plan.

 

 

 

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A director's conduct with respect to an employee benefit plan for a purpose the director reasonably believed to be in the best interests of the participants in or beneficiaries of the plan is conduct that satisfies the requirements in subparagraph (ii) of this Section 1. A director's conduct with respect to an employee benefit plan for a purpose that the director did not reasonably believe to be in the interests of the participants in or beneficiaries of the plan shall be deemed not to satisfy the requirements of this Section that he conducted himself in good faith.

 

No indemnification shall be made under this Article VI to a Proper Person with respect to any claim, issue or matter in connection with a proceeding by or in the right of a corporation in which the Proper Person was adjudged liable to the corporation or in connection with any proceeding charging that the Proper Person derived an improper personal benefit, whether or not involving action in an official capacity, in which he was adjudged liable on the basis that he derived an improper personal benefit. Further, indemnification under this Section in connection with a proceeding brought by or in the right of the corporation shall be limited to reasonable expenses, including attorneys' fees, incurred in connection with the proceeding.

 

Section 2. Right to Indemnification . The corporation shall indemnify any Proper Person who was wholly successful, on the merits or otherwise, in defense of any action, suit, or proceeding as to which he was entitled to indemnification under Section 1 of this Article VI against expenses (including attorneys' fees) reasonably incurred by him in connection with the proceeding without the necessity of any action by the corporation other than the determination in good faith that the defense has been wholly successful.

 

Section 3. Effect of Termination of Action . The termination of any action, suit or proceeding by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent shall not of itself create a presumption that the person seeking indemnification did not meet the standards of conduct described in Section 1 of this Article VI. Entry of a judgment by consent as part of a settlement shall not be deemed an adjudication of liability, as described in Section 2 of this Article VI.

 

Section 4. Groups Authorized to Make Indemnification Determination . Except where there is a right to indemnification as set forth in Sections 1 or 2 of this Article or where indemnification is ordered by a court in Section 5, any indemnification shall be made by the corporation only as determined in the specific case by a proper group that indemnification of the Proper Person is permissible under the circumstances because he has met the applicable standards of conduct set forth in Section 1 of this Article. This determination shall be made by the board of directors by a majority vote of those present at a meeting at which a quorum is present, which quorum shall consist of directors not parties to the proceeding ("Quorum"). If a Quorum cannot be obtained, the determination shall be made by a majority vote of a committee of the board of directors designated by the board, which committee shall consist of two or more directors not parties to the proceeding, except that directors who are parties to the proceeding may participate in the designation of directors for the committee. If a Quorum of the board of directors cannot be obtained and the committee cannot be established, or even if a Quorum is obtained or the committee is designated and a majority of the directors constituting such Quorum or committee so directs, the determination shall be made by (i) independent legal counsel selected by a vote of the board of directors or the committee in the manner specified in this Section 4 or, if a Quorum of the full board of directors cannot be obtained and a committee cannot be established, by independent legal counsel selected by a majority vote of the full board (including directors who are parties to the action) or (ii) a vote of the shareholders.

 

 

 

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Authorization of indemnification and advance of expenses shall be made in the same manner as the determination that indemnification or advance of expenses is permissible except that, if the determination that indemnification or advance of expenses is permissible is made by independent legal counsel, authorization of indemnification and advance of expenses shall be made by the body that selected such counsel.

 

Section 5. Court-Ordered Indemnification . Any Proper Person may apply for indemnification to the court conducting the proceeding or to another court of competent jurisdiction for mandatory indemnification under Section 2 of this Article, including indemnification for reasonable expenses incurred to obtain court-ordered indemnification. If a court determines that the Proper Person is entitled to indemnification under Section 2 of this Article, the court shall order indemnification, including the Proper Person's reasonable expenses incurred to obtain court-ordered indemnification. If the court determines that such Proper Person is fairly and reasonably entitled to indemnification in view of all the relevant circumstances, whether or not he met the standards of conduct set forth in Section 1 of this Article or was adjudged liable in the proceeding, the court may order such indemnification as the court deems proper except that if the Proper Person has been adjudged liable, indemnification shall be limited to reasonable expenses incurred in connection with the proceeding and reasonable expenses incurred to obtain court-ordered indemnification.

 

Section 6. Advance of Expenses . Reasonable expenses (including attorneys' fees) incurred in defending an action, suit or proceeding as described in Section 1 may be paid by the corporation to any Proper Person in advance of the final disposition of such action, suit or proceeding upon receipt of (i) a written affirmation of such Proper Person's good faith belief that he has met the standards of conduct prescribed in Section 1 of this Article VI; (ii) a written undertaking, executed personally or on the Proper Person's behalf, to repay such advances if it is ultimately determined that he did not meet the prescribed standards of conduct (the undertaking shall be an unlimited general obligation of the Proper Person but need not be secured and may be accepted without reference to financial ability to make repayment); and (iii) a determination is made by the proper group (as described in Section 4 of this Article VI) that the facts as then known to the group would not preclude indemnification. Determination and authorization of payments shall be made in the same manner specified in Section 4 of this Article VI.

 

Section 7. Additional Indemnification to Certain Persons Other Than Directors . In addition to the indemnification provided to officers, employees, fiduciaries or agents because of their status as Proper Persons under this Article, the corporation may also indemnify and advance expenses to them if they are not directors of the corporation to a greater extent than is provided in these Bylaws, if not inconsistent with public policy, and if provided for by general or specific action of its board of directors or shareholders or by contract.

 

Section 8. Witness Expenses . The Sections of this Article VI do not limit the corporation's authority to pay or reimburse expenses incurred by a director in connection with an appearance as a witness in a proceeding at a time when he has not been made or named as a defendant or respondent in the proceeding.

 

 

 

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Section 9. Report to Shareholders . Any indemnification of or advance of expenses to a director in accordance with this Article VI, if arising out of a proceeding by or on behalf of the corporation, shall be reported in writing to the shareholders with or before the notice of the next shareholders' meeting. If the next shareholder action is taken without a meeting at the instigation of the board of directors, such notice shall be given to the shareholders at or before the time the first shareholder signs a writing consenting to such action.

 

 

ARTICLE VII - INSURANCE

 

Section 1. Provision of Insurance . By action of the board of directors, notwithstanding any interest of the directors in the action, the corporation may purchase and maintain insurance, in such scope and amounts as the board of directors deems appropriate, on behalf of any person who is or was a director, officer, employee, fiduciary or agent of the corporation, or who, while a director, officer, employee, fiduciary or agent of the corporation, is or was serving at the request of the corporation as a director, officer, partner, trustee, employee, fiduciary or agent of any other foreign or domestic profit or nonprofit corporation or any partnership, joint venture, trust, profit or nonprofit unincorporated association, limited liability company, other enterprise or employee benefit plan, against any liability asserted against, or incurred by, him in that capacity or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of Article VI or applicable law. Any such insurance may be procured from any insurance company designated by the board of directors of the corporation, whether such insurance company is formed under the laws of the State of Colorado or any other jurisdiction of the United States or elsewhere, including any insurance company in which the corporation has an equity interest or any other interest, through stock ownership or otherwise.

 

 

ARTICLE VIII - MISCELLANEOUS

 

Section 1. Seal . The board of directors may adopt a corporate seal, which shall be circular in form and shall contain the name of the corporation and the words, "Seal, Colorado."

 

Section 2. Fiscal Year . The fiscal year of the corporation shall be as established by the board of directors.

 

Section 3. Amendments . The board of directors shall have power, to the maximum extent permitted by the Colorado Business Corporation Act, to make, amend and repeal the Bylaws of the corporation at any regular or special meeting of the board unless the shareholders, in making, amending or repealing a particular Bylaw, expressly provide that the directors may not amend or repeal such Bylaw. The shareholders also shall have the power to make, amend or repeal the Bylaws of the corporation at any annual meeting or at any special meeting called for that purpose.

 

Section 4. Receipt of Notices by the Corporation . Notices, shareholder writings consenting to action, and other documents or writings shall be deemed to have been received by the corporation when they are actually received: (1) at the registered office of the corporation in Colorado; (2) at the principal office of the corporation (as that office is designated in the most recent document filed by the corporation with the Secretary of State for Colorado designating a principal office) addressed to the attention of the secretary of the corporation; (3) by the secretary of the corporation wherever the secretary may be found; or (4) by any other person authorized from time to time by the board of directors or the president to receive such writings, wherever such person is found.

 

Section 5. Gender . The masculine gender is used in these Bylaws as a matter of convenience only and shall be interpreted to include the feminine and neuter genders as the circumstances indicate.

 

 

 

  17  

 

 

Section 6. Conflicts . In the event of any irreconcilable conflict between these Bylaws and either the corporation's articles of incorporation or applicable law, the latter shall control.

 

Section 7. Definitions . Except as otherwise specifically provided in these Bylaws, all terms used in these Bylaws shall have the same definition as in the Colorado Business Corporation Act.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  18  

Exhibit 3.3

 

 

     

 

 

u rban-gro-Inc.

CORPORATE STOCK TRANSFER,INC.

TRANSFER FEE: AS REQUIRED

 

The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:

 

                             
    TEN COM       as tenants in common    UNIF GIFT/TRANS MIN ACT –         CUSTODIAN     
    TEN ENT       as tenants by the entireties         (Cust)         (Minor)
    JT TEN       as joint tenants with right of         under Uniform Gifts/Transfers to Minors Act
              survivorship and not as tenants in common     
                    (State)     

 

Additional abbreviations may also be used though not in the above list.

 

 

 

     
PLEASE INSERT SOCIAL SECURITY OR OTHER    
IDENTIFYING NUMBER OF ASSIGNEE    
     

 

 

 

   

 

 

 

 

FOR VALUE RECEIVED, _____________________________________________________________ hereby sell, assign and transfer unto

 

 

 

PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE

 

 

 

 

 

 

 

 

 

                                                                                                                                                                                                              Shares of the Common Stock represented by the within Certificate and do hereby irrevocably constitute and appoint

 

                                                                                                                                                                                                                Attorney to transfer the said shares on the books of the within named Corporation, with full power of substitution in the premises.

 

Dated: ___________20__,

 

    Signature: X  
Signature(s) Guaranteed:        

  Signature: X  

 

THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (Banks, Stockholders,Savings and Loan Associations and Credit Unions) WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.

 

Exhibit 5.1

 

Andrew I. Telsey, P.C.    Attorney at Law

12835 E. Arapahoe Road, Tower One, Penthouse #803, Englewood, Colorado 80112

Telephone: 303/768-9221 • Facsimile: 303/768-9224 • E-Mail: andrew@telseylaw.com

 

 

 

May 15, 2018

 

 

Board of Directors

URBAN-GRO, INC.

 

 

  RE: URBAN-GRO, INC.
    Form S-1 Registration Statement and Related Prospectus

 

Dear Sirs:

 

We have acted as counsel to urban-gro, Inc. (the "Registrant"), a Colorado corporation, in connection with the preparation of the above-referenced S-1 Registration Statement and related Prospectus ("Registration Statement"), relating to the registration of 4,157,936 shares of Common Stock, $.001 par value per share to be offered by the Registrant’s Selling Shareholders (as defined in the Prospectus).  We have examined the Articles of Incorporation and By-laws of the Registrant, and such other documents as we have deemed relevant and material.  Based on the foregoing, and certain representations of the officers, directors and representatives of the Registrant as to factual matters, it is the opinion of this office that:

 

1. The Registrant has been duly organized and is validly existing and in good standing in the State of Colorado, the jurisdiction of its incorporation.

 

2. The aforementioned securities to be registered pursuant to the Registration Statement have been duly and validly authorized by the requisite corporate action in accordance with the general requirements of corporation law.  The aforesaid securities are validly authorized and issued, fully paid and non-assessable in accordance with the general requirements of Colorado corporation law including the statutory provisions, all applicable provisions of the Colorado Constitution and reported judicial decisions interpreting those laws.

 

Yours truly,

 

ANDREW I. TELSEY, P.C.

 

/s/ ANDREW I. TELSEY

Exhibit 10.1

 

LETTER AGREEMENT

 

This Letter Agreement (this “ Agreement ”) is made and entered into as of July __, 2017, by and between Edyza, Inc. (the “ Company ”) and the undersigned investor (“ Investor ”). Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the SAFE (as defined below).

 

WHEREAS, on or after the date hereof, and concurrently with the execution and delivery of this Agreement, the Company is issuing to Investor a Simple Agreement for Future Equity substantially in the form attached hereto as Exhibit A , dated of even date herewith (the “ SAFE ”); and

 

WHEREAS, in connection with entering into the SAFE, Investor desires to have certain additional rights and agreements from the Company (the “ Additional Rights ”) and the Company desires to grant to Investor the Additional Rights set forth in this Agreement;

 

NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement hereby agree as follows:

 

1. Right of First Offer . So long as the SAFE is outstanding, the Company hereby grants to Investor a right of first offer with respect to the sale by the Company of shares of Preferred Stock (the “ Shares ”) in the Equity Financing, in accordance with the following provision:

 

a. The Company shall deliver a notice (the “ RFO Notice ”) to Investor stating (i) its bona fide intention to offer such Shares, (ii) the number of such Shares to be offered, and (iii) the price and terms, if any, upon which it proposes to offer such Shares.

 

b. Within 30 calendar days after delivery of the RFO Notice, Investor may elect to purchase or obtain, at the price and on the terms specified in the RFO Notice, up to that portion of such Shares such that (x) the number of shares of Capital Stock issued and held, or issuable upon conversion and exercise of all convertible or exercisable securities then held, by Investor (including the Shares purchased by Investor in the Equity Financing) divided by (y) the sum of (i) the total number of shares of Capital Stock then outstanding (assuming full conversion and exercise of all convertible or exercisable securities then outstanding, including Shares issued in the Equity Financing) and (ii) shares of Capital Stock issuable to employees, consultants or directors pursuant to a stock option plan, restricted stock plan, or other stock plan approved by the Company’s Board of Directors, in each case following the Equity Financing, equals 5.0%. Such purchase shall be completed at the same closing as that of any third party purchasers or at an additional closing thereunder.

 

2. Notice. Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient upon delivery, when delivered personally or by overnight courier or sent by email or fax (upon customary confirmation of receipt), or forty-eight (48) hours after being deposited in the U.S. mail as certified or registered mail with postage prepaid, addressed to the party to be notified at such party’s address or fax number as set forth in this letter agreement, or as subsequently modified by written notice in accordance with this paragraph.

 

3. Termination. This Agreement shall terminate and have no further force or effect upon the earlier of: (i) the liquidation, dissolution or indefinite cessation of the business operations of the Company; (ii) the execution by the Company of a general assignment for the benefit of creditors or the appointment of a receiver or trustee to take possession of the property and assets of the Company; (iii) the consummation of a transaction or series of related transactions deemed to be a liquidation, dissolution or winding up of the Company pursuant to the Company’s Certificate of Incorporation, or (iv) the final issuance by the Company of its Shares. [1]

 

 

 

 

  1  
 

 

4. Governing Law. This Agreement and all acts and transactions pursuant hereto shall be governed, construed and interpreted in accordance with the laws of the State of Delaware, without giving effect to principles of conflicts of laws.

 

5. Counterparts. This Agreement may be executed in separate counterparts, each of which shall be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed signature page to this Agreement by facsimile shall be as effective as of the delivery of a dully executed counterpart of this Agreement.

 

6. Amendments. Any term of this letter agreement may be amended or waived only with the written consent of the Company and Investor.

 

7. 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.

 

 

 

[ REMAINDER OF PAGE INTENTIONALLY LEFT BLANK ]

 

 

 

 

 

 

 

 

[1] NTD: The SAFE already contains a provision requiring the Company to make Investor a party to a Pro Rata Rights Agreement.

 

 

 

  2  
 

 

The parties have executed this Agreement as of the date first written above.

 

 

 

 

  the company:
   
  Edyza, Inc.
   
   
  By:
    (Signature)

 

  Name: Atul Patel
  Title: President

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  3  
 

 

The parties have executed this Agreement as of the date first written above.

 

 

  INVESTOR:
   
  urban-gro, Inc.
   
   
  By:
    (Signature)

  Name:  
  Title:  

 

 

 

 

 

 

 

 

 

  4  
 

 

EXHIBIT A

 

FORM OF SAFE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  5  

 

Exhibit 10.2

 

INTELLECTUAL PROPERTY PURCHASE AND ASSIGNMENT AGREEMENT

 

This “INTELLECTUAL PROPERTY PURCHASE AND ASSIGNMENT AGREEMENT”, including all Exhibits and Schedules referenced and attached hereto, (together, the “Agreement”) is effective as of the later date of execution below (the “Effective Date”), and is made and entered into by and between:

 

urban-gro, Inc. , a Colorado corporation with its principal offices at 1751 Panorama Point, Unit G, Lafayette, CO 80026 (“urban-gro”, or “Assignee”);

 

Edyza Sensors, Inc. , a Delaware corporation with offices at 4590 MacArthur Blvd., Suite 357, Newport Beach, CA 92660, (“EDYZA”, or “Assignor”).

 

PURPOSE

 

The purpose of this Agreement is to set forth the mutually binding terms and conditions of an agreement between urban-gro and EDYZA with respect to their “Letter of Intent” of March 20, 2017, attached as Exhibit A, regarding the assignment of certain intellectual property (“IP”) rights from EDYZA to urban-gro.

 

Additional terms and conditions concerning the parties’ respective proprietary rights concerning any patent application assignment are further disclosed in the parties’ “Master Distributor & Supplier Agreement” to be executed concurrently (the “Supplier Contract”), concerning the manufacture, use, sale, and/or import into the United States of any goods covered by the patent applications set forth in Schedule A to this Agreement (the “Patent Applications”), provided however that , to the extent that any conflict exists between the terms of this Agreement and the Supplier Contract, the terms of this Agreement shall take precedence.

 

The parties together agree that (a) EDYZA is the owner of all right, title, and interest to the claimed inventions described in the Patent Applications; (b) EDYZA desires to assign the claimed inventions to urban-gro; (c) urban-gro desires to acquire the entire right, title, and interest in and to the claimed inventions; and (d) the assignment of the claimed inventions is made in consideration of, and shall be subject to, the following terms and conditions:

 

1.        Assignment of Claimed Inventions .

 

1.1.        Assignment . Assignor hereby sells, assigns, and transfers to Assignee, the full and exclusive right, title, and interest to the claimed inventions in the United States and its territorial possessions and in all foreign countries and to all Letters Patent or similar legal protection in the United States and its territorial possessions and in any and all foreign countries to be obtained for the invention by the Patent Applications or any continuation, continuation-in-part, divisional, reexamination, reissue and/or any application claiming priority thereof, including any legal equivalent thereof, in a foreign country for the full term or terms for which the same may be granted.

 

Assignor shall, to confirm the assignment of the claimed inventions, execute concurrently with the execution of this Agreement the assignment document attached hereto as Exhibit B, which is incorporated into this Agreement in its entirety, and may be recorded in patent offices, as appropriate.

 

 

 

  1  
 

 

1.2.        Cooperation . Assignor agrees that it will, at Assignee’s sole cost and expense: (a) assist Assignee in the filing and prosecution of any patent application(s) covering the claimed inventions; (b) communicate to Assignee or its representatives any facts known to Assignor respecting the improvements and inventions covered by the Patent Applications; (c) testify in any legal proceedings; (d) sign all lawful papers, execute all divisional, continuation, continuation-in-part, and reissue applications; (e) make all rightful oaths; and (f) take all other reasonable actions to aid Assignee, its successors, assigns and nominees to perfect such right, title, and interest in the claimed inventions in Assignee and to obtain and enforce proper protection for the claimed inventions in all countries, and asserts that it will not execute any agreements inconsistent therewith.

 

1.3.        Further Support . Assignor shall transfer, or cause to be transferred to, Assignee (or its designee or representatives) the complete original files related to the claimed inventions, all documents and files in its possession, custody or control, including those in the possession, custody or control of attorneys or agents of Assignor, that are related to the procurement of any Letters Patent from the relevant government entities and all additional information that Assignee may need to continue prosecution of the claimed inventions.

 

1.4.        License to Assignor . Notwithstanding the assignment of the claimed inventions described above in Section 1.1, pursuant to this Agreement, upon assignment of the claimed inventions to Assignee, Assignee shall be deemed to have granted the following licenses to Assignor as follows:

 

1.4.1.        License per Supplier Contract . For so long as Assignor acts as Assignee’s exclusive supplier of any goods covered by the claimed inventions pursuant to the Supplier Contract, Assignee grants to Assignor an exclusive, limited, revocable right and license to practice the claimed inventions, including any later improvements identified by the Assignee which are necessary to Assignor’s performance of the Supplier contract, in the United States for the purposes of Assignor’s performance under the Supplier Contract. For the avoidance of confusion, the foregoing shall not be construed to limit the Assignee’s ability to license the claimed inventions, including any later improvements, so long as such license does not conflict with the exclusivity granted to Assignor in the Supplier contract.

 

1.4.2.        License to Claimed Invention . Upon execution of this Agreement, Assignee grants to Assignor a limited, revocable, non-exclusive, non-fee bearing, non-transferable and non-assignable right and license (the “License”) to practice the claimed invention, including any later improvements identified by the Assignee, in U.S. Patent Serial No. 15/626,085 for “SENSOR BUS ARCHITECTURE FOR MODULAR SENSOR SYSTEMS” described in Schedule A without restrictions, subject only to Assignor’s prior written consent, such consent not to be unreasonably withheld or delayed.

 

The foregoing License shall be subject to five (5) year terms, and shall expire at the end of any five (5) year term period unless the parties provide mutual written consent and agreement to renew the License prior to the expiration of the five (5) year term then in effect, such consent and agreement not to be unreasonably withheld or delayed.

 

The foregoing License may only be revoked by Assignee in the event that Assignor is in material uncured breach (to the extent that any such breach is capable of cure) of any of the License’s terms, this Agreement, or the Supplier Contract, as the case may be.

 

 

 

 

  2  
 

 

2.        Purchase Consideration . In full consideration of the assignment of the claimed inventions to Assignee under this Agreement, Assignee agrees to:

 

(a)       execute concurrently with this Agreement the proposed Supplier Contract concerning the production and distribution of goods (including those which are subject to the claimed inventions) between Assignor and Assignee;

 

(b)       execute concurrently with this Agreement the proposed “Simple Agreement for Future Equity” (the “SAFE”) for Assignee’s investment in EDYZA; and

 

(c)       make payment under the SAFE in an amount equal to four hundred thousand dollars ($400,000.00 USD) to EDYZA, in accordance with the terms of the SAFE.

 

3.        Representations and Warranties . Assignor hereby represents and warrants that:

 

(a)       Assignor owns full and complete right, title, and interest in and to the claimed inventions and has the full power to assign its entire right, title, and interest in and to the claimed inventions;

 

(b)       Assignor does not have any agreement, license, arrangement, obligation, or understanding, express or implied or by operation of law, with any third party or organization relating to or limiting the ownership of, or right to exercise or transfer, all or any of the claimed inventions and the assignment and transfer of the claimed inventions pursuant to this Agreement will not be in violation of any covenant, agreement or other obligation of Assignor;

 

(c)       Assignor has not performed any acts or made any statements, or failed to perform any acts or make any statements, which would adversely affect either the validity or enforceability of any of the claimed inventions; and

 

(d)       for each of the claimed inventions, and to the best of the Assignor’s knowledge, there have not been and are not currently pending or threatened, and Assignor has no reason to believe there will be, any: (i) liens or other encumbrances; (ii) consent or other settlement agreements; (iii) claims of infringement of the intellectual property rights of any third party or challenges to the inventorship, ownership or the validity of the claimed inventions; or (iv) any administrative proceedings or actions before the United States Patent and Trademark Office.

 

4.        Enforcement .

 

4.1.        No Challenge . Assignor shall not initiate or participate or assist, formally or informally, directly or indirectly, in any challenge, litigation, investigation, reissue, reexamination, cancellation or other opposition in any jurisdiction (each, an “Adverse Proceeding”) to the extent such Adverse Proceeding challenges the scope, enforceability, validity, ownership or other right pertaining to the claimed inventions.

 

4.2.        Reasonable Assistance . Upon the request of Assignee, Assignor shall reasonably cooperate with Assignee, at Assignee’s sole cost and expense, in any investigation, litigation or other proceeding instituted by Assignee after the Effective Date relating to the claimed inventions.

 

 

 

 

  3  
 

 

5.        Confidentiality . The parties acknowledge and agree that the information contained herein shall be kept confidential and shall not, without prior written consent of the parties, be disclosed in any manner whatsoever, in whole or in part, except as necessary to perform under or to enforce the terms and conditions of this Agreement or as may be required by law, including subpoena and court order. However, each party shall each have the right to disclose information to its respective directors, officers, employees, prospective managers, and legal, financial and advertising advisers (collectively, the “Agents”) provided that such Agents shall each be bound to treat said information as confidential.

 

6.        General Terms . The relationship between the parties shall be as independent contractors. Nothing contained in this Agreement shall be deemed to create any association, partnership, employment, joint venture or agency relationship between the parties. Neither party has any right or authority to assume or create any obligations of any kind or to make any representation or warranty on behalf of the other party, whether express or implied, or to bind the other party in any respect whatsoever. This Agreement is binding upon and shall inure to the benefit of the parties hereto and their successors and assigns. To the full extent permitted by law, this Agreement shall be governed by and construed exclusively in accordance with the laws of the State of California, excluding its conflict of law principles. The sole and exclusive jurisdiction for any action relating to this Agreement shall be the state or federal courts in Los Angeles County in the State of California, and the parties consent to such jurisdiction and waive and agree not to plead or claim that any such action or proceeding has been brought in an inconvenient forum. No waiver of any right, remedy, default or breach of this Agreement by a party shall be deemed a waiver of any other right, remedy, default or breach. All amendments and modifications of this Agreement shall be made by written document signed by all parties. If at any time, any provision of this Agreement is or becomes illegal, invalid, or unenforceable, in any respect under the law of any jurisdiction, the legality, validity, or enforceability of the remaining provisions shall in no way be affected or impaired. This Agreement may be executed in counterparts and by electronic mail, and each counterpart shall constitute a valid, binding Agreement upon full execution. This Agreement and the attached exhibit and schedules form the entire agreement between the parties relating to the subject matter of this Agreement and supersede all prior communications, written or oral, between the parties.

 

( rest of page intentionally left blank; signature page to immediately follow )

 

 

 

 

 

 

 

 

 

 

 

 

  4  
 

 

IN WITNESS WHEREOF, EDYZA and urban-gro have caused this Agreement to be signed by their duly authorized representatives.

 

 

Assignor/ EDYZA SENSORS, INC.

 

 

 

 

Signature

 

 

   

Printed Name & Title

 

 

   
Date    
   

Assignee/urban-gro, Inc.

 

 

   

Signature

 

 

   

Printed Name & Title

 

 

    Date

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  5  
 

 

SCHEDULE A

 

PATENT APPLICATIONS

 

 

U.S. Patent Application Serial No. Application Date Title of Application
     
15/626,079 June 17, 2017 Modular sensor architecture for soil and water analysis at various depths frOm the surface
     

15/626,085

June 17, 2017

SENSOR BUS ARCHITECTURE FOR MODULAR SENSOR SYSTEMS

     
62/351,989 June 19, 2016 MODULAR SENSOR ARCHITECTURE FOR SOIL AND WATER ANALYSIS AT VARIOUS DEPTHS FROM THE SURFACE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  6  
 

 

EXHIBIT A

 

LETTER OF INTENT

 

( see attached )

 

 

 

 

 

 

 

 

 

 

  7  
 

 

EXHIBIT B

 

INTELLECTUAL PROPERTY ASSIGNMENT AGREEMENT

 

 

THIS INTELLECTUAL PROPERTY ASSIGNMENT AGREEMENT (the “Agreement”) is dated as of _________________[MONTH] ____ [DAY], 20____ [YEAR], by and between

 

urban-gro, Inc. , a Colorado corporation with its principal offices at 1751 Panorama Point, Unit G, Lafayette, CO 80026 (“Assignee”); and

 

Edyza Sensors, Inc. , a Delaware corporation with offices at 4590 MacArthur Blvd., Suite 357, Newport Beach, CA 92660, (“Assignor”).

 

PURPOSE

 

Assignor and Assignee are parties to a “Intellectual Property Purchase and Assignment Agreement”, dated as of _________________[MONTH] ____ [DAY], 20____ [YEAR] (the “Purchase Agreement”).

 

Pursuant to the Purchase Agreement, Assignor wishes to assign to Assignee, and Assignee wishes to acquire from Assignor, all right, title, and interest in and to the claimed inventions set forth in Schedule 1 (the “Patent Applications”).

 

In consideration of the mutual promises contained in the Purchase Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

 

ASSIGNMENT

 

Assignor hereby sells, assigns, and transfers to Assignee, the full and exclusive right, title, and interest in and to the claimed invention in the United States and its territorial possessions and in all foreign countries and to all Letters Patent or similar legal protection in the United States and its territorial possessions and in any and all foreign countries to be obtained for the invention by the patent applications or any continuation, continuation-in-part, divisional, reexamination, reissue and/or any application claiming priority thereof, including any legal equivalent thereof, in a foreign country for the full term or terms for which the same may be granted.

 

Assignor hereby authorizes and requests the Commissioner of Patents and Trademarks of the United States Patent and Trademark Office and any Official of any country or countries foreign to the United States of America whose duty it is to issue Letters Patent on patent applications as aforesaid, to issue all such Letters Patent for the claimed invention to the Assignee, as the Assignee of the entire right, title, and interest in, to and under the same, for the sole use and benefit of the Assignee in accordance with the terms of this instrument.

 

Assignor hereby covenants with Assignee that no assignment, grant, mortgage, license, or other agreement affecting the rights and property herein conveyed has been made to others by the undersigned and that Assignor has full right to convey the entire right, title, and interest herein sold, assigned, transferred and set over.

 

 

 

  8  
 

 

Assignor hereby further covenants and agrees that the Assignee may apply for foreign Letters Patent on the claimed inventions and claim the benefits of the International Convention, and that Assignor will, at any time, when called upon to do so by the Assignee communicate to the Assignee as the case may be, any facts known to Assignee respecting the claimed inventions, and execute and deliver any and all lawful papers that may be necessary or desirable to perfect the title to the claimed inventions, the Patent Applications and the Letters Patent in the Assignee and that if reissues or reexaminations of the Letters Patent or disclaimers relating thereto, or divisionals, continuations, or continuation-in-parts of the Patent Applications shall hereafter be desired by the Assignee, the Assignee will, at any time, when called upon to do so by the Assignee sign all lawful papers, make all rightful oaths, execute and deliver all such disclaimers and all divisional, continuation, continuation-in-part, reexamination, and reissue applications so desired, and do all lawful acts requisite for the patent applications for such continuations, continuation-in-parts, divisionals, reexaminations, or reissues and the procuring thereof and for the filing of such disclaimers and such patent applications, and generally do everything possible to aid the Assignee to obtain and enforce proper patent protection for the claimed inventions in all countries, at the expense of the Assignee.

 

 

 

 

( rest of page intentionally left blank; signature page to immediately follow )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  9  
 

 

IN WITNESS WHEREOF, Assignor has duly executed this Assignment as of the date set forth above.

 

    Assignor/Edyza Sensors, Inc., by
   

 

 

 

 

    Signature
   

 

 

 

 

    Printed Name & Title

 

 

 

 

 

 

 

 

 

  10  
 

 

SCHEDULE 1

 

PATENT APPLICATIONS

 

U.S. Patent Application Serial No. Application Date Title of Application
     
15/626,079 June 17, 2017 Modular sensor architecture for soil and water analysis at various depths frOm the surface
     

15/626,085

June 17, 2017

SENSOR BUS ARCHITECTURE FOR MODULAR SENSOR SYSTEMS

     
62/351,989 June 19, 2016 MODULAR SENSOR ARCHITECTURE FOR SOIL AND WATER ANALYSIS AT VARIOUS DEPTHS FROM THE SURFACE

 

 

 

 

 

 

 

 

 

  11  

Exhibit 10.3

 

 

 

 

 

 

 

 

 

 

 

MEMBERSHIP INTEREST PURCHASE AGREEMENT

 

 

 

 

 

 

 

 

 

 

 

 

 

     

 

 

TABLE OF CONTENTS

 

 

   
  Page
ARTICLE I PURCHASE AND SALE OF MEMBERSHIP INTERESTS 1
Section 1.1 Sale and Issuance of Membership Interest 1
Section 1.2 Closing; Delivery 1
Section 1.3 Sale of Additional Interests 1
Section 1.4 Use of Proceeds 3
Section 1.5 Defined Terms Used in this Agreement 3
   
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY 4
Section 2.1 Organization, Good Standing, Power and Qualification 4
Section 2.2 Capitalization 5
Section 2.3 Subsidiaries 5
Section 2.4 Authorization 5
Section 2.5 Valid Issuance of Interests 6
Section 2.6 Governmental Consents and Filings 6
Section 2.7 Litigation 6
Section 2.8 Intellectual Property 7
Section 2.9 Compliance with Other Instruments 7
Section 2.10 Agreements; Actions 8
Section 2.11 Certain Transactions 8
Section 2.12 Rights of Registration and Voting Rights 9
Section 2.13 Property 9
Section 2.14 Financial Statements 9
Section 2.15 Changes 9
Section 2.16 Employee Matters 11
Section 2.17 Tax Returns and Payments 12
Section 2.18 Insurance 12
Section 2.19 Employee Agreements 12
Section 2.20 Permits 12
Section 2.21 Corporate Documents 12
Section 2.22 Environmental and Safety Laws 13
Section 2.23 Disclosure 13
   
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PURCHASER 14
Section 3.1 Authorization 14
Section 3.2 Purchase Entirely for Own Account 14
Section 3.3 Disclosure of Information 14
Section 3.4 Restricted Securities 14
Section 3.5 No Public Market 15
Section 3.6 Accredited Investor 15
Section 3.7 No General Solicitation 15
Section 3.8 Principal Place of Business 15
   
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE MEMBERS 15
Section 4.1 Authorization 15
Section 4.2 Litigation 15
Section 4.3 Agreements 15
Section 4.4 Voting Rights 15

 

 

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Section 4.5 Encumbrances 15
Section 4.6 Representations and Warranties 16
   
ARTICLE V COVENANTS 16
Section 5.1 Member Membership Interests 16
Section 5.2 Equity Issuances 16
Section 5.3 Right to Conduct Activities 16
   
ARTICLE VI CONDITIONS TO PURCHASER’S OBLIGATIONS AT CLOSING 16
Section 6.1 Representations and Warranties 16
Section 6.2 Performance 17
Section 6.3 Compliance Certificate 17
Section 6.4 Qualifications 17
Section 6.5 Managers 17
Section 6.6 Indemnification Agreement 17
Section 6.7 Voting Agreement 17
Section 6.8 Commercial Agreement 17
Section 6.9 Amended and Restated Operating Agreement 17
Section 6.10 Secretary’s Certificate 17
Section 6.11 Proceedings and Documents 17
   
ARTICLE VII CONDITIONS OF THE COMPANY’S AND THE MEMBERS’ OBLIGATIONS AT CLOSING  
Section 7.1 Representations and Warranties 18
Section 7.2 Performance 18
Section 7.3 Qualifications 18
Section 7.4 Voting Agreement 18
Section 7.5 Commercial Agreement 18
Section 7.6 Amended and Restated Operating Agreement 18
   
ARTICLE VIII MISCELLANEOUS 18
Section 8.1 Survival of Warranties 18
Section 8.2 Successors and Assigns 18
Section 8.3 Governing Law 18
Section 8.4 Counterparts 18
Section 8.5 Titles and Subtitles 19
Section 8.6 Notices 19
Section 8.7 No Finder’s Fees 19
Section 8.8 Attorneys’ Fees 19
Section 8.9 Amendments and Waivers 19
Section 8.10 Severability 19
Section 8.11 Delays or Omissions 19
Section 8.12 Entire Agreement 20
Section 8.13 Dispute Resolution 20
Section 8.14 No Commitment for Additional Financing 20
Section 8.15 Conflicting Agreements 21

 

 

 

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MEMBERSHIP INTEREST PURCHASE AGREEMENT

 

THIS MEMBERSHIP INTEREST PURCHASE AGREEMENT (this “ Agreement ”), is made as of the 15 day of February, 2018 by and among Total Grow Holdings, LLC, a Delaware limited liability company d/b/a Total Grow Control, LLC (the “ Company ”), urban-gro, Inc., a Colorado corporation ( “ Purchaser ”), and the persons listed as “Members” on the signature pages to this Agreement (each a “ Member ” and together the “ Members ”).

 

The parties hereto hereby agree as follows:

 

ARTICLE I

PURCHASE AND SALE OF MEMBERSHIP INTERESTS

 

Section 1.1 Sale and Issuance of Membership Interest .

 

(a)       Subject to the terms and conditions of this Agreement, Purchaser agrees to purchase at the Closing and the Company agrees to sell and issue to Purchaser at the Closing a five percent (5%) membership interest in the Company on a fully-diluted basis immediately subsequent to the Initial Closing (as defined below) (the “Membership Interests ”), for an aggregate purchase price of $125,000. The Membership Interests issued to Purchaser pursuant to this Agreement (including any Membership Interests issued at the Initial Closing and any other Closing) shall be referred to in this Agreement as the “ Interests .”

 

Section 1.2 Closing; Delivery .

 

(a)         The initial purchase and sale of the Interests shall take place remotely via the exchange of documents and signatures, on the date hereof, or at such other time and place as the Company, the Members and Purchaser mutually agree upon, orally or in writing (which time and place are designated as the “ Initial Closing ”). In the event there is an Option Closing (as defined below), Second Option Closing (as defined below) and/or Purchase Right Closing (as defined below), “ Closing ” shall apply to each such closing unless otherwise specified.

 

(b)        At each Closing, the Purchaser shall receive the Interests being purchased by Purchaser at such Closing against payment of the purchase price therefor by check payable to the Company or by wire transfer to a bank account designated by the Company.

 

Section 1.3 Sale of Additional Interests .

 

(a)       The Company hereby grants to Purchaser the option to purchase from the Company (the “ Option ”) up to an additional five percent (5%) of the outstanding Membership Interests on a fully-diluted basis immediately subsequent to the Option Closing (as defined below) (the “ Option Interests ”) at a purchase price extrapolated based upon a Company pre-money valuation of $3,000,000 (the “ Exercise Price ”). The Purchaser may exercise the Option at any time on or after June 30th, 2018 to and including August 31, 2018 (the “ Exercise Period ”) by delivering written notice thereof to the Company (the “ Exercise Notice ”). The closing of an exercise of the Option (the “ Option Closing ”) shall be within ten (10) business days of receipt of the Exercise Notice by the Company. If Purchaser delivers a Purchase Notice to the Company or if the Exercise Notice is not delivered to the Company during the Exercise Period, the Option shall expire, and be null and void and of no further force or effect. The Option Closing shall be conducted pursuant to the terms and provisions of this Agreement as if it were the Initial Closing, and Purchaser shall deliver the Exercise Price in cash or other immediately available funds to the Company and the Company shall issue the appropriate number of Option Interests to Purchaser.

 

 

 

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(b)         By written notice to Purchaser by the Company prior to the first anniversary of the date of this Agreement (the “ Second Option Notice ”), the Company may grant to Purchaser the option to purchase from the Company (the “ Second Option ”) up to an additional fifteen percent (15%) of the outstanding Membership Interests on a fully-diluted basis immediately subsequent to the Second Option Closing (as defined below) (the “ Second Option Interests ”) at a purchase price extrapolated based upon a Company pre-money valuation of $4,000,000 (the “ Second Exercise Price ”). The Purchaser may exercise the Second Option at any time on or after the first anniversary of the date of this Agreement to and including the date that is 90 days thereafter (the “ Second Exercise Period ”) by delivering written notice thereof to the Company (the “ Second Exercise Notice ”). The closing of an exercise of the Second Option (the “ Second Option Closing ”) shall be within ten (10) business days of receipt of the Second Exercise Notice by the Company. If the Company does not deliver a Second Option Notice, if Purchaser delivers a Second Purchase Notice to the Company or if the Second Exercise Notice is not delivered to the Company during the Second Exercise Period, the Second Option shall expire, and be null and void and of no further force or effect. The Second Option Closing shall be conducted pursuant to the terms and provisions of this Agreement as if it were the Initial Closing, and Purchaser shall deliver the Second Exercise Price in cash or other immediately available funds to the Company and the Company shall issue the appropriate number of Second Option Interests to Purchaser.

 

(c)          Each Member hereby grants to Purchaser the right to purchase from such Member (the “ Purchaser Right ”) all of the outstanding Membership Interests on a fully-diluted basis immediately subsequent to the Purchase Right Closing (as defined below) (the “ Purchase Right Interests ”) at a purchase price extrapolated based upon a Company valuation of $7,500,000 (the “ Purchase Right Exercise Price ”). The Purchaser may exercise the Purchase Right at any time on or after the end of the 15 month anniversary of the date of this Agreement to and including the second anniversary of the date of this Agreement (the “ Purchase Right Exercise Period ”) by delivering written notice thereof to such Member (the “ Purchase Right Exercise Notice ”). The closing of an exercise of the Purchase Right (the “ Purchase Right Closing ”) shall be within ten (10) business days of receipt of the Purchase Right Exercise Notice by such Member. If Purchaser delivers a Purchase Right Exercise Notice to such Member or if the Purchase Right Exercise Notice is not delivered to such Member during the Purchase Right Exercise Period, the Purchase Right shall expire, and be null and void and of no further force or effect. The Purchase Right Closing shall be conducted pursuant to the terms and provisions of this Agreement as if it were the Initial Closing, and Purchaser shall deliver the Purchase Right Exercise Price in cash or other immediately available funds to such Member and such Member shall, and shall cause the Company to on its books, transfer the Purchase Right Interests to Purchaser.

 

 

 

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Section 1.4 Use of Proceeds . The Company shall use the proceeds from the sale of the Interests for program development, product development, additional employees and initial white-labeling of its Eden product to Purchaser’s Soleil brand.

 

Section 1.5 Defined Terms Used in this Agreement . In addition to the terms defined above, the following terms used in this Agreement shall be construed to have the meanings set forth or referenced below.

 

(a)          Affiliate ” means, with respect to any specified Person, any other Person who, directly or indirectly, controls, is controlled by, or is under common control with such Person, including, without limitation, any general partner, manager, member, officer or director of such Person.

 

(b)         Amended and Restated Operating Agreement ” means the Amended and Restated Limited Liability Company Agreement among the Company, its managers, its members, and Purchaser, dated as of the date of the Initial Closing, in the form of Exhibit D attached to this Agreement.

 

(c)         “ Code ” means the Internal Revenue Code of 1986, as amended.

 

(d)         “ Commercial Agreement ” means the Supply Agreement between the Company and Purchaser, dated as of the date of the Initial Closing, in the form of Exhibit A attached to this Agreement.

 

(e)          Company Covered Person ” means, with respect to the Company as an “issuer” for purposes of Rule 506 promulgated under the Securities Act, any Person listed in the first paragraph of Rule 506(d)(1).

 

(f)           Company Intellectual Property ” means all patents, patent applications, trademarks, trademark applications, service marks, service mark applications, tradenames, entity names, copyrights, trade secrets, domain names, mask works, information and proprietary rights and processes, similar or other intellectual property rights, subject matter of any of the foregoing, tangible embodiments of any of the foregoing, licenses in, to and under any of the foregoing, and any and all such cases as are necessary to the Company in the conduct of the Company’s business as now conducted and as presently proposed to be conducted.

 

(g)          Indemnification Agreement ” means the agreement between the Company and the director designated by Purchaser pursuant to the Voting Agreement, dated as of the date of the Initial Closing, in the form of Exhibit B attached to this Agreement.

 

 

 

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(h)          Key Employee ” means any executive-level employee (including vice president-level positions) as well as any employee or consultant who either alone or in concert with others develops, invents, programs or designs any Company Intellectual Property.

 

(i)           Material Adverse Effect ” means a material adverse effect on the business, assets (including intangible assets), liabilities, financial condition, property, prospects or results of operations of the Company.

 

(j)           Operating Agreement ” means the Operating Agreement of the Company effective as of January 4, 2016 by and among the Manager (as defined below) and the Members, as amended.

 

(k)          Person ” means any individual, corporation, partnership, trust, limited liability company, association or other entity.

 

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

 

(m)         Transaction Agreements ” means this Agreement, the Voting Agreement, the Indemnification Agreement and the Commercial Agreement.

 

(n)          Voting Agreement ” means the agreement among the Company, Purchaser and the Members, dated as of the date of the Initial Closing, in the form of Exhibit C attached to this Agreement.

 

ARTICLE II

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

The Company hereby represents and warrants to Purchaser that, except as set forth on the Disclosure Schedule attached as Exhibit E to this Agreement, which exceptions shall be deemed to be part of the representations and warranties made hereunder, the following representations are true and complete as of the Initial Closing, except as otherwise indicated. The Disclosure Schedule shall be arranged in sections corresponding to the numbered and lettered sections and subsections contained in this Section 2, and the disclosures in any section or subsection of the Disclosure Schedule shall qualify other sections and subsections in this Section 2 only to the extent it is readily apparent from a reading of the disclosure that such disclosure is applicable to such other sections and subsections. For purposes of these representations and warranties (other than those in Subsections 2.2, 2.3, 2.4, 2.5, and 2.6), the term the “ Company ” shall include any subsidiaries of the Company, unless otherwise noted herein.

 

Section 2.1 Organization, Good Standing, Power and Qualification . The Company is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite limited liability company power and authority to carry on its business as presently conducted and as proposed to be conducted. 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.

 

 

 

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Section 2.2 Capitalization .

 

(a)          All of the outstanding Membership Interests have been duly authorized, are fully paid and nonassessable and were issued in compliance with all applicable federal and state securities laws.

 

(b)         Section 2.2(b) of the Disclosure Schedule sets forth the capitalization of the Company immediately following the Initial Closing including the issued and outstanding Membership Interests, including, if applicable, vesting schedule and repurchase price and the holder thereof. There are no outstanding options, warrants, rights (including purchase, conversion or preemptive rights and rights of first refusal or similar rights) or agreements, orally or in writing, to purchase or acquire from the Company any equity securities, or any securities convertible into or exchangeable for equity securities of the Company.

 

(c)          The Company has no agreements or documents which contain a provision for acceleration of vesting (or lapse of a repurchase right) or other changes in the vesting provisions or other terms of such agreement or understanding with respect to any of the Company’s equity securities upon the occurrence of any event or combination of events. The Company has no obligation (contingent or otherwise) to purchase or redeem any of its equity securities.

 

(d)         The Company believes in good faith that any “nonqualified deferred compensation plan” (as such term is defined under Section 409A(d)(1) of the Code and the guidance thereunder) under which the Company makes, is obligated to make or promises to make, payments (each, a “ 409A Plan ”) complies in all material respects, in both form and operation, with the requirements of Section 409A of the Code and the guidance thereunder. To the knowledge of the Company, no payment to be made under any 409A Plan is, or will be, subject to the penalties of Section 409A(a)(1) of the Code.

 

(e)          The Company has obtained valid waivers of any rights by other parties to purchase any of the Interests covered by this Agreement.

 

Section 2.3 Subsidiaries . The Company does not currently own or control, directly or indirectly, any interest in any other corporation, partnership, trust, joint venture, limited liability company, association, or other business entity. The Company is not a participant in any joint venture, partnership or similar arrangement.

 

Section 2.4 Authorization . All limited liability company action required to be taken by the Company’s managers (the “ Managers ”) and Members in order to authorize the Company to enter into the Transaction Agreements, and to issue the Interests at the Closing, has been taken or will be taken prior to the Closing. All action on the part of the Managers necessary for the execution and delivery of the Transaction Agreements, the performance of all obligations of the Company under the Transaction Agreements to be performed as of the Closing, and the issuance and delivery of the Interests has been taken or will be taken prior to the Closing. The Transaction Agreements, when executed and delivered by the Company, shall constitute valid and legally binding obligations of the Company, enforceable against the Company in accordance with their respective terms except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, or other laws of general application relating to or affecting the enforcement of creditors’ rights generally, and (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies.

 

Section 2.5 Valid Issuance of Interests .

 

(a)          The Interests, when issued, sold and delivered in accordance with the terms and for the consideration set forth in this Agreement, will be validly issued, fully paid and nonassessable and free of restrictions on transfer other than restrictions on transfer under the Transaction Agreements, applicable state and federal securities laws and liens or encumbrances created by or imposed by Purchaser. Assuming the accuracy of the representations of Purchaser in Section 3 of this Agreement and except for filings pursuant to Regulation D of the Securities Act and applicable state securities laws, which have been made or will be made in a timely manner, the Interests will be issued in compliance with all applicable federal and state securities laws.

 

(b)        No “bad actor” disqualifying event described in Rule 506(d)(1)(i)-(viii) of the Securities Act (a “ Disqualification Event ”) is applicable to the Company or, to the Company’s knowledge, any Company Covered Person, except for a Disqualification Event as to which Rule 506(d)(2)(ii–iv) or (d)(3), is applicable.

 

Section 2.6 Governmental Consents and Filings . Assuming the accuracy of the representations made by Purchaser in Section 3 of this Agreement, no consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority is required on the part of the Company in connection with the consummation of the transactions contemplated by this Agreement, except for filings pursuant to Regulation D of the Securities Act, and applicable state securities laws, which have been made or will be made in a timely manner.

 

Section 2.7 Litigation . There is no claim, action, suit, proceeding, arbitration, complaint, charge or investigation pending or, to the Company’s knowledge, currently threatened (i) against the Company or any Manager, officer, or Key Employee of the Company; (ii) that questions the validity of the Transaction Agreements or the right of the Company to enter into them, or to consummate the transactions contemplated by the Transaction Agreements; or (iii) that would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect. Neither the Company nor, to the Company’s knowledge, any of its Managers, officers, or Key Employees is a party or is named as subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality (in the case of Managers, officers, or Key Employees, such as would affect the Company). There is no action, suit, proceeding or investigation by the Company pending or which the Company intends to initiate. The foregoing includes, without limitation, actions, suits, proceedings or investigations pending or threatened in writing (or any basis therefor known to the Company) involving the prior employment of any of the Company’s employees, their services provided in connection with the Company’s business, any information or techniques allegedly proprietary to any of their former employers or their obligations under any agreements with prior employers.

 

 

 

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Section 2.8 Intellectual Property . The Company owns or possesses sufficient legal rights to all Company Intellectual Property without any known conflict with, or infringement of, the rights of others. No product or service marketed or sold (or proposed to be marketed or sold) by the Company violates or will violate any license or infringes or will infringe any intellectual property rights of any other party. Other than with respect to commercially available software products under standard end-user object code license agreements, there are no outstanding options, licenses, agreements, claims, encumbrances or shared ownership interests of any kind relating to the Company Intellectual Property, nor is the Company bound by or a party to any options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, proprietary rights and processes of any other Person. The Company has not received any communications alleging that the Company has violated, or by conducting its business, would violate any of the patents, trademarks, service marks, tradenames, copyrights, trade secrets, mask works or other proprietary rights or processes of any other Person. The Company has obtained and possesses valid licenses to use all of the software programs present on the computers and other software-enabled electronic devices that it owns or leases or that it has otherwise provided to its employees for their use in connection with the Company’s business. To the Company’s knowledge, it will not be necessary to use any inventions of any of its employees or consultants (or Persons it currently intends to hire) made prior to their employment by the Company. Each employee and consultant has assigned to the Company all intellectual property rights he or she owns that are related to the Company’s business as now conducted and as presently proposed to be conducted. Subsection 2.8 of the Disclosure Schedule lists all Company Intellectual Property. The Company has not embedded any open source, copyleft or community source code in any of its products generally available or in development, including but not limited to any libraries or code licensed under any General Public License, Lesser General Public License or similar license arrangement. For purposes of this Subsection 2.8, the Company shall be deemed to have knowledge of a patent right if the Company has actual knowledge of the patent right or would be found to be on notice of such patent right as determined by reference to United States patent laws.

 

Section 2.9 Compliance with Other Instruments . The Company is not in violation or default (i) of any provisions of its Certificate of Formation (the “ Certificate ”) or the Operating Agreement, (ii) of any instrument, judgment, order, writ or decree, (iii) under any note, indenture or mortgage, or (iv) under any lease, agreement, contract or purchase order to which it is a party or by which it is bound, or (v) of any provision of federal or state statute, rule or regulation applicable to the Company. The execution, delivery and performance of the Transaction Agreements and the consummation of the transactions contemplated by the Transaction Agreements will not result in any such violation or be in conflict with or constitute, with or without the passage of time and giving of notice, either (i) a default under any such provision, instrument, judgment, order, writ, decree, contract or agreement; or (ii) an event which results in the creation of any lien, charge or encumbrance upon any assets of the Company or the suspension, revocation, forfeiture, or nonrenewal of any material permit or license applicable to the Company.

 

 

 

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Section 2.10 Agreements; Actions .

 

(a)         Except for the Transaction Agreements, there are no agreements, understandings, instruments, contracts or proposed transactions to which the Company is a party or by which it is bound that involve (i) obligations (contingent or otherwise) of, or payments to, the Company in excess of $50,000, (ii) the license of any patent, copyright, trademark, trade secret or other proprietary right to or from the Company, (iii) the grant of rights to manufacture, produce, assemble, license, market, or sell its products to any other Person that limit the Company’s exclusive right to develop, manufacture, assemble, distribute, market or sell its products, or (iv) indemnification by the Company with respect to infringements of proprietary rights.

 

(b)        The Company has not (i) declared or paid any dividends, or authorized or made any distribution upon or with respect to any Membership Interests or equity securities, (ii) incurred any indebtedness for money borrowed or incurred any other liabilities individually in excess of $50,000 or in excess of $100,000 in the aggregate, (iii) made any loans or advances to any Person, other than ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise disposed of any of its assets or rights, other than the sale of its inventory in the ordinary course of business. For the purposes of (a) and (b) of this Subsection 2.10, all indebtedness, liabilities, agreements, understandings, instruments, contracts and proposed transactions involving the same Person (including Persons the Company has reason to believe are affiliated with each other) shall be aggregated for the purpose of meeting the individual minimum dollar amounts of such subsection.

 

(c)          The Company is not a guarantor or indemnitor of any indebtedness of any other Person.

 

(d)         The Company has not engaged in the past in any discussion with any representative of any Person regarding (i) a sale or exclusive license of all or substantially all of the Company’s assets, or (ii) any recapitalization, merger, consolidation or other business combination transaction of the Company with or into another Person.

 

Section 2.11 Certain Transactions .

 

(a)          Other than (i) standard employee benefits generally made available to all employees, (ii) standard manager and officer indemnification agreements approved by the Managers, and (iii) the purchase of Membership Interests approved by the Managers, there are no agreements, understandings or proposed transactions between the Company and any of its Managers, Members, officers, consultants or Key Employees, or any Affiliate thereof.

 

(b)         The Company is not indebted, directly or indirectly, to any of its Managers, officers or employees or to their respective spouses or children or to any Affiliate of any of the foregoing, other than in connection with expenses or advances of expenses incurred in the ordinary course of business or employee relocation expenses and for other customary employee benefits made generally available to all employees. None of the Company’s Managers, officers or employees, or any members of their immediate families, or any Affiliate of the foregoing are, directly or indirectly, indebted to the Company or have any (i) material commercial, industrial, banking, consulting, legal, accounting, charitable or familial relationship with any of the Company’s customers, suppliers, service providers, joint venture partners, licensees and competitors, (ii) direct or indirect ownership interest in any firm or corporation with which the Company is affiliated or with which the Company has a business relationship, or any firm or corporation which competes with the Company except that Managers, officers, employees or Members of the Company may own stock in (but not exceeding two percent (2%) of the outstanding capital stock of) publicly traded companies that may compete with the Company; or (iii) financial interest in any contract with the Company.

 

 

 

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Section 2.12 Rights of Registration and Voting Rights . The Company is not under any obligation to register under the Securities Act any of its currently outstanding securities or any securities issuable upon exercise or conversion of its currently outstanding securities. To the Company’s knowledge, except for the Operating Agreement, no Member has entered into any agreements with respect to the voting of equity securities of the Company.

 

Section 2.13 Property . The property and assets that the Company owns are free and clear of all mortgages, deeds of trust, liens, loans and encumbrances, except for statutory liens for the payment of current taxes that are not yet delinquent and encumbrances 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. With respect to the property and assets it leases, the Company is in compliance with such leases and, to its knowledge, holds a valid leasehold interest free of any liens, claims or encumbrances other than those of the lessors of such property or assets. The Company does not own any real property.

 

Section 2.14 Financial Statements . The Company has delivered to each Purchaser its unaudited financial statements for the fiscal years ended December 31, 2017, 2016 and 2015 (including balance sheet, income statement and statement of cash flows) (collectively, the “ Financial Statements ”). The Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“ GAAP ”) applied on a consistent basis throughout the periods indicated, except that the Financial Statements may not contain all footnotes required by GAAP. The Financial Statements fairly present in all material respects the financial condition and operating results of the Company as of the dates, and for the periods, indicated therein. Except as set forth in the Financial Statements, the Company has no material liabilities or obligations, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to December 31, 2017; (ii) obligations under contracts and commitments incurred in the ordinary course of business; and (iii) liabilities and obligations of a type or nature not required under GAAP to be reflected in the Financial Statements, which, in all such cases, individually and in the aggregate would not have a Material Adverse Effect. The Company maintains and will continue to maintain a standard system of accounting established and administered in accordance with GAAP.

 

Section 2.15 Changes . Since date of most recent Financial Statements there has not been:

 

 

 

 

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

 

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

 

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

 

(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 Material Adverse Effect;

 

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

 

(f)          any material change in any compensation arrangement or agreement with any employee, officer, Manager or Member;

 

(g)          any resignation or termination of employment of any Manager, officer or Key Employee of the Company;

 

(h)         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;

 

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

 

(j)          any declaration, setting aside or payment or other distribution in respect of any of the Membership Interests or equity securities, or any direct or indirect redemption, purchase, or other acquisition of any of Membership Interests or equity securities by the Company;

 

(k)          any sale, assignment or transfer of any Company Intellectual Property that could reasonably be expected to result in a Material Adverse Effect;

 

(l)           receipt of notice that there has been a loss of, or material order cancellation by, any major customer of the Company;

 

(m)        to the Company’s knowledge, any other event or condition of any character, other than events affecting the economy or the Company’s industry generally, that could reasonably be expected to result in a Material Adverse Effect; or

 

 

 

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(n)       any arrangement or commitment by the Company to do any of the things described in this Subsection 2.15 .

 

Section 2.16 Employee Matters .

 

(a)          As of the date hereof, the Company employs 4 full-time employees and 4 part-time employees and engages 2 consultants or independent contractors. Section 2.16(a) of the Disclosure Schedule sets forth a detailed description of all compensation, including salary, bonus, severance obligations and deferred compensation paid or payable for each Manager, officer, employee, consultant and independent contractor of the Company who received compensation in excess of $100,000 for the fiscal year ending December 31, 2017.

 

(b)        To the Company’s knowledge, none of its employees is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would materially interfere with such employee’s ability to promote the interest of the Company or that would conflict with the Company’s business. Neither the execution or delivery of the Transaction Agreements, nor the carrying on of the Company’s business by the employees of the Company, nor the conduct of the Company’s business as now conducted and as presently proposed to be conducted, will, to the Company’s knowledge, conflict with or result in a breach of the terms, conditions, or provisions of, or constitute a default under, any contract, covenant or instrument under which any such employee is now obligated.

 

(c)          The Company is not delinquent in payments to any of its employees, consultants, or independent contractors for any wages, salaries, commissions, bonuses, or other direct compensation for any service performed for it to the date hereof or amounts required to be reimbursed to such employees, consultants or independent contractors. The Company has complied in all material respects with all applicable state and federal equal employment opportunity laws and with other laws related to employment, including those related to wages, hours, worker classification and collective bargaining. The Company has withheld and paid to the appropriate governmental entity or is holding for payment not yet due to such governmental entity all amounts required to be withheld from employees of the Company and is not liable for any arrears of wages, taxes, penalties or other sums for failure to comply with any of the foregoing.

 

(d)        To the Company’s knowledge, no Key Employee intends to terminate employment with the Company or is otherwise likely to become unavailable to continue as a Key Employee, nor does the Company have a present intention to terminate the employment of any of the foregoing. The employment of each employee of the Company is terminable at the will of the Company. Except as set forth in Section 2.16(d) of the Disclosure Schedule or as required by law, upon termination of the employment of any such employees, no severance or other payments will become due. Except as set forth in Section 2.16(d) of the Disclosure Schedule, the Company has no policy, practice, plan or program of paying severance pay or any form of severance compensation in connection with the termination of employment services.

 

 

 

 

  10  

 

 

(e)          The Company has not made any representations regarding equity incentives to any Manager, officer, employee, or consultant that are inconsistent with the amounts and terms set forth in the minutes of meetings of the Managers or written consents of the Managers.

 

(f)           Each former Key Employee whose employment was terminated by the Company has entered into an agreement with the Company providing for the full release of any claims against the Company or any related party arising out of such employment.

 

(g)         Section 2.16(g) of the Disclosure Schedule sets forth each employee benefit plan maintained, established or sponsored by the Company, or which the Company participates in or contributes to, which is subject to the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”). The Company has made all required contributions and has no liability to any such employee benefit plan, other than liability for health plan continuation coverage described in Part 6 of Title I(B) of ERISA, and has complied in all material respects with all applicable laws for any such employee benefit plan.

 

Section 2.17 Tax Returns and Payments . There are no federal, state, county, local or foreign taxes due and payable by the Company which have not been timely paid. There are no accrued and unpaid federal, state, country, local or foreign taxes of the Company which are due, whether or not assessed or disputed. There have been no examinations or audits of any tax returns or reports by any applicable federal, state, local or foreign governmental agency. The Company has duly and timely filed all federal, state, county, local and foreign tax returns required to have been filed by it and there are in effect no waivers of applicable statutes of limitations with respect to taxes for any year.

 

Section 2.18 Insurance . The Company has in full force and effect fire and casualty insurance policies with extended coverage, sufficient in amount (subject to reasonable deductions) to allow it to replace any of its properties that might be damaged or destroyed.

 

Section 2.19 Employee Agreements . Each current and former employee, consultant and officer of the Company has executed an agreement with the Company regarding confidentiality and proprietary information substantially in the form or forms delivered to Purchaser (the “ Confidential Information Agreements ”). No current or former Key Employee has excluded works or inventions from his or her assignment of inventions pursuant to such Key Employee’s Confidential Information Agreement. Each current and former Key Employee has executed a non-competition and non-solicitation agreement substantially in the form or forms delivered to Purchaser. The Company is not aware that any of its Key Employees is in violation of any agreement covered by this Subsection 2.19 .

 

Section 2.20 Permits . The Company has all material franchises, permits, licenses and any similar authority necessary for the conduct of its business. The Company is not in default in any material respect under any of such franchises, permits, licenses or other similar authority.

 

Section 2.21 Corporate Documents . The Certificate and Operating Agreement of the Company are in the form provided to Purchaser. The copy of the minute books of the Company provided to Purchaser contains minutes of all meetings of Managers and Members and all actions by written consent without a meeting by the Managers and Members since the date of organization and accurately reflects in all material respects all actions by the Managers and Members with respect to all transactions referred to in such minutes.

 

 

 

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Section 2.22 Environmental and Safety Laws .

 

(a)         The Company is and has been in compliance with all Environmental Laws (as defined below);

 

(b)         there has been no release or threatened release of any pollutant, contaminant or toxic or hazardous material, substance or waste or petroleum or any fraction thereof (each a “ Hazardous Substance ”), on, upon, into or from any site currently or heretofore owned, leased or otherwise used by the Company;

 

(c)          there have been no Hazardous Substances generated by the Company that have been disposed of or come to rest at any site that has been included in any published U.S. federal, state or local “superfund” site list or any other similar list of hazardous or toxic waste sites published by any governmental authority in the United States; and

 

(d)         there are no underground storage tanks located on, no polychlorinated biphenyls (“ PCBs ”) or PCB-containing equipment used or stored on, and no hazardous waste as defined by the Resource Conservation and Recovery Act, as amended, stored on, any site owned or operated by the Company, except for the storage of hazardous waste in compliance with Environmental Laws. The Company has made available to Purchaser true and complete copies of all material environmental records, reports, notifications, certificates of need, permits, pending permit applications, correspondence, engineering studies and environmental studies or assessments. For purposes of this Subsection 2.22, Environmental Laws ” means any law, regulation, or other applicable requirement relating to (a) releases or threatened release of Hazardous Substance; (b) pollution or protection of employee health or safety, public health or the environment; or (c) the manufacture, handling, transport, use, treatment, storage, or disposal of Hazardous Substances.

 

Section 2.23 Disclosure . The Company has made available to Purchaser all the information reasonably available to the Company that Purchaser has requested for deciding whether to acquire the Interests, including certain of the Company’s projections describing its proposed business plan (the “ Business Plan ”). No representation or warranty of the Company contained in this Agreement, as qualified by the Disclosure Schedule, and no certificate furnished or to be furnished to Purchaser at the Closing contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading in light of the circumstances under which they were made. The Business Plan was prepared in good faith; however, the Company does not warrant that it will achieve any results projected in the Business Plan.

 

 

 

 

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ARTICLE III

REPRESENTATIONS AND WARRANTIES OF PURCHASER

 

Purchaser hereby represents and warrants to the Company that:

 

Section 3.1 Authorization . Purchaser has full power and authority to enter into the Transaction Agreements. The Transaction Agreements to which Purchaser is a party, when executed and delivered by Purchaser, will constitute valid and legally binding obligations of Purchaser, enforceable in accordance with their terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and any other laws of general application affecting enforcement of creditors’ rights generally, and (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies.

 

Section 3.2 Purchase Entirely for Own Account . This Agreement is made with Purchaser in reliance upon Purchaser’s representation to the Company, which by Purchaser’s execution of this Agreement, Purchaser hereby confirms, that the Interests to be acquired by Purchaser will be acquired for investment for Purchaser’s own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that Purchaser has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, Purchaser further represents that Purchaser does not presently have any contract, undertaking, agreement or arrangement with any Person to sell, transfer or grant participations to such Person or to any third Person, with respect to any of the Interests. Purchaser has not been formed for the specific purpose of acquiring the Interests.

 

Section 3.3 Disclosure of Information . Purchaser has had an opportunity to discuss the Company’s business, management, financial affairs and the terms and conditions of the offering of the Interests with the Company’s management and has had an opportunity to review the Company’s facilities. The foregoing, however, does not limit or modify the representations and warranties of the Company in Article II of this Agreement or the right of Purchaser to rely thereon.

 

Section 3.4 Restricted Securities . Purchaser understands that the Interests have not been, and will not be, registered under the Securities Act, 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 Purchaser’s representations as expressed herein. Purchaser understands that the Interests are “restricted securities” under applicable U.S. federal and state securities laws and that, pursuant to these laws, Purchaser must hold the Interests indefinitely unless they are registered with the Securities and Exchange Commission and qualified by state authorities, or an exemption from such registration and qualification requirements is available. Purchaser acknowledges that the Company has no obligation to register or qualify the Interests for resale. Purchaser further acknowledges that if an exemption from registration or qualification is available, it may be conditioned on various requirements including, but not limited to, the time and manner of sale, the holding period for the Interests, and on requirements relating to the Company which are outside of Purchaser’s control, and which the Company is under no obligation and may not be able to satisfy.

 

 

 

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Section 3.5 No Public Market . Purchaser understands that no public market now exists for the Interests, and that the Company has made no assurances that a public market will ever exist for the Interests.

 

Section 3.6 Accredited Investor . Purchaser is an accredited investor as defined in Rule 501(a) of Regulation D promulgated under the Securities Act.

 

Section 3.7 No General Solicitation . Neither Purchaser nor any of its officers or directors has either directly or indirectly, including, through a broker or finder (a) engaged in any general solicitation, or (b) published any advertisement in connection with the offer and sale of the Interests.

 

Section 3.8 Principal Place of Business . The office of Purchaser in which its principal place of business is identified is the address of Purchaser set forth on the signature pages hereto.

 

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE MEMBERS

 

Each Member hereby represents and warrants, severally and not jointly, to Purchaser:

 

Section 4.1 Authorization . If the Member is an entity, all action required to be taken by such Member in order to authorize the entry into the Transaction Agreements has been taken or will be taken prior to the Closing. All action on the part of the Member necessary for the execution and delivery of the Transaction Agreements and the performance of all obligations of the Member under the Transaction Agreements to be performed as of the Closing, has been taken or will be taken prior to the Closing. The Transaction Agreements, when executed and delivered by the Member, shall constitute valid and legally binding obligations of the Member, enforceable against the Member in accordance with their respective terms except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, or other laws of general application relating to or affecting the enforcement of creditors’ rights generally, or (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies.

 

Section 4.2 Litigation . There is no action, suit or proceeding, or governmental inquiry or investigation, pending or, to such Member’s knowledge, threatened against such Member, and there is no basis for any such action, suit, proceeding, or governmental inquiry or investigation.

 

Section 4.3 Agreements . Except as contemplated by or disclosed in the Transaction Agreements, such Member is not a party to and has no knowledge of any agreements, written or oral, relating to the acquisition, disposition, registration under the Securities Act, or voting of the securities of the Company.

 

Section 4.4 Voting Rights . Except for the Operating Agreement, such Member has not entered into any agreements with respect to the voting of equity securities of the Company.

 

Section 4.5 Encumbrances . There are no liens, charges, claims or encumbrances with respect to the Membership Interests held by such Member nor are there any outstanding options, warrants, rights (including conversion or preemptive rights and rights of first refusal or similar rights) or agreements, orally or in writing, with respect to such Membership Interests.

 

 

 

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Section 4.6 Representations and Warranties . To the best of such Member’s knowledge, all of the representations and warranties of the Company set forth in Article II are true and complete.

 

ARTICLE V
COVENANTS

 

Section 5.1 Member Membership Interests . Until the later of the expiration of the Purchase Exercise Period or the occurrence of the Purchase Right Closing, no Member shall (a) grant or allow to exist any liens, charges, claims or encumbrances with respect to the Membership Interests held by such Member, (b) grant or allow to exist any options, warrants, rights (including purchase, conversion or preemptive rights and rights of first refusal or similar rights) or agreements, orally or in writing, with respect to the Membership Interests held by such Member, or (c) transfer, sell, pledge or otherwise hypothecate any of the Membership Interests held by such Member or any rights therein or with respect thereto.

 

Section 5.2 Equity Issuances . The Company shall not issue any equity securities or securities convertible into or exercisable for equity securities of the Company or grant any right to acquire equity securities of the Company, until the later of the expiration of the Purchase Exercise Period or the occurrence of the Purchase Right Closing.

 

Section 5.3 Right to Conduct Activities . The Company hereby agrees and acknowledges that Purchaser (together with its affiliates) operates and invests in companies, some of which may be deemed competitive with the Company’s business (as currently conducted or as currently propose to be conducted). The Company hereby agrees that, to the extent permitted under applicable law, Purchaser shall not be liable to the Company for any claim arising out of, or based upon, (i) the business operations of Purchaser or the investment by Purchaser in any entity competitive with the Company, or (ii) actions taken by any manager, officer, employee or other representative of Purchaser to operate the business of Purchaser or assist any such competitive company, whether or not such action was taken as a member of the board of directors of Purchaser or such competitive company or otherwise, and whether or not such action has a detrimental effect on the Company.

 

ARTICLE VI

CONDITIONS TO PURCHASER’S OBLIGATIONS AT CLOSING

 

The obligations of Purchaser to purchase Interests at the Initial Closing or any subsequent Closing are subject to the fulfillment, on or before such Closing, of each of the following conditions, unless otherwise waived:

 

Section 6.1 Representations and Warranties . The representations and warranties of the Company contained in Article II and the representations and warranties of the Members in Article IV shall be true and correct in all respects as of such Closing.

 

 

 

 

  15  

 

 

Section 6.2 Performance . The Company shall have performed and complied with all covenants, agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by the Company on or before such Closing.

 

Section 6.3 Compliance Certificate . The Managers and Members shall deliver to Purchaser at such Closing a certificate certifying that the conditions specified in Subsections 6.1 and 6.2 have been fulfilled.

 

Section 6.4 Qualifications . All authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Membership Interests pursuant to this Agreement shall be obtained and effective as of such Closing.

 

Section 6.5 Managers . As of the Initial Closing, the authorized number of Managers shall be 4, comprised of Derek Oxford, Todd Lewis, Alan Waldheim George Robert Pullar.

 

Section 6.6 Indemnification Agreement . The Company shall have executed and delivered the Indemnification Agreements.

 

Section 6.7 Voting Agreement . The Company and the Members shall have executed and delivered the Voting Agreement.

 

Section 6.8 Commercial Agreement . The Company shall have executed and delivered the Commercial Agreement.

 

Section 6.9 Amended and Restated Operating Agreement . The Company, the Managers and the Members shall have executed and delivered the Amended and Restated Operating Agreement.

 

Section 6.10 Secretary’s Certificate . The Secretary of the Company shall have delivered to Purchaser at the Closing a certificate certifying (i) the Certificate, (ii) the Operating Agreement, and (iii) the resolutions of the Managers approving the Transaction Agreements and the transactions contemplated under the Transaction Agreements.

 

Section 6.11 Proceedings and Documents . All corporate and other proceedings in connection with the transactions contemplated at the Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to Purchaser, and Purchaser (or its counsel) shall have received all such counterpart original and certified or other copies of such documents as reasonably requested. Such documents may include good standing certificates.

 

ARTICLE VII

CONDITIONS OF THE COMPANY’S AND THE MEMBERS’ OBLIGATIONS AT

CLOSING

 

The obligations of the Company to sell Interests to Purchaser at the Initial Closing or any subsequent Closing and the obligations of the Members hereunder are subject to the fulfillment, on or before the Closing, of each of the following conditions, unless otherwise waived:

 

 

 

 

  16  

 

 

Section 7.1 Representations and Warranties . The representations and warranties of Purchaser contained in Article III shall be true and correct in all respects as of such Closing.

 

Section 7.2 Performance . Purchaser shall have performed and complied with all covenants, agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before such Closing.

 

Section 7.3 Qualifications . All authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Interests pursuant to this Agreement shall be obtained and effective as of the Closing.

 

Section 7.4 Voting Agreement . Purchaser shall have executed and delivered the Voting Agreement.

 

Section 7.5 Commercial Agreement . Purchaser shall have executed and delivered the Commercial Agreement.

 

Section 7.6 Amended and Restated Operating Agreement . Purchaser shall have executed and delivered the Amended and Restated Operating Agreement.

 

ARTICLE VIII

MISCELLANEOUS

 

Section 8.1 Survival of Warranties . Unless otherwise set forth in this Agreement, the representations and warranties of the Company, the Members and Purchaser contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and the Closing and shall in no way be affected by any investigation or knowledge of the subject matter thereof made by or on behalf of Purchaser or the Company.

 

Section 8.2 Successors and Assigns . The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and permitted assigns of the parties hereto. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and permitted assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. The Company and the Members may not assign their rights or obligations under this Agreement without the prior written consent of Purchaser, which consent may be withheld in Purchaser’s sole discretion.

 

Section 8.3 Governing Law . This Agreement shall be governed by the internal law of the State of Delaware without regard to the law of conflicts thereof.

 

Section 8.4 Counterparts . This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.

 

 

 

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Section 8.5 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.

 

Section 8.6 Notices . All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given upon the earlier of actual receipt, or (a) personal delivery to the party hereto to be notified, (b) when sent with confirmation of delivery, if sent by electronic mail or facsimile during normal business hours of the recipient, and if not sent during normal business hours, then on the recipient’s next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) business day after deposit with a nationally recognized overnight courier, freight prepaid, specifying next business day delivery, with written verification of receipt. All communications shall be sent to the respective parties hereto at their address as set forth on the signature pages hereto, or to such e-mail address, facsimile number or address as subsequently modified by written notice given in accordance with this Subsection 8.6 .

 

Section 8.7 No Finder’s Fees . Each party hereto represents that it neither is nor will be obligated for any finder’s fee or commission in connection with this transaction. Purchaser agrees to indemnify and to hold harmless the Company from any liability for any commission or compensation in the nature of a finder’s or broker’s fee arising out of this transaction (and the costs and expenses of defending against such liability or asserted liability) for which Purchaser or any of its officers, employees or representatives is responsible. The Company agrees to indemnify and hold harmless Purchaser from any liability for any commission or compensation in the nature of a finder’s or broker’s fee arising out of this transaction (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its officers, Managers, Members, employees or representatives is responsible.

 

Section 8.8 Attorneys’ Fees . If any action at law or in equity is necessary to enforce or interpret the terms of any of the Transaction Agreements, the substantially prevailing party shall be entitled to reasonable attorneys’ fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled.

 

Section 8.9 Amendments and Waivers . Any term of this Agreement may be amended, terminated or waived only with the written consent of the Company, the Members and Purchaser.

 

Section 8.10 Severability . The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision.

 

Section 8.11 Delays or Omissions . No delay or omission to exercise any right, power or remedy accruing to any party under this Agreement, upon any breach or default of any other party under this Agreement, shall impair any such right, power or remedy of such non-breaching or non-defaulting party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party hereto of any breach or default under this Agreement, or any waiver on the part of any party hereto of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any party hereto, shall be cumulative and not alternative.

 

 

 

  18  

 

Section 8.12 Entire Agreement . This Agreement (including the Exhibits and Schedules hereto) and the other Transaction Agreements constitute the full and entire understanding and agreement among the parties hereto with respect to the subject matter hereof, and any other written or oral agreement relating to the subject matter hereof existing among the parties hereto are expressly canceled, including, without limitation, that certain Letter Agreement dated November 20, 2017 between the Company and Purchaser.

 

Section 8.13 Dispute Resolution . The parties hereto (a) hereby irrevocably and unconditionally submit to the jurisdiction of the state courts of Delaware and to the jurisdiction of the federal district courts sitting in the State of Delaware for the purpose of any suit, action or other proceeding arising out of or based upon this Agreement, (b) agree not to commence any suit, action or other proceeding arising out of or based upon this Agreement except in the state courts of Delaware or the federal district courts sitting in the State of Delaware, and (c) hereby waive, and agree not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court.

 

EACH PARTY HERETO HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, THE OTHER TRANSACTION DOCUMENTS, THE SECURITIES OR THE SUBJECT MATTER HEREOF OR THEREOF. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS (INCLUDING NEGLIGENCE), BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THIS SECTION HAS BEEN FULLY DISCUSSED BY EACH OF THE PARTIES HERETO AND THESE PROVISIONS WILL NOT BE SUBJECT TO ANY EXCEPTIONS. EACH PARTY HERETO HEREBY FURTHER WARRANTS AND REPRESENTS THAT SUCH PARTY HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT SUCH PARTY KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.

 

Section 8.14 No Commitment for Additional Financing . The Company acknowledges and agrees that Purchaser has made no representation, undertaking, commitment or agreement to provide or assist the Company in obtaining any financing, investment or other assistance, other than the purchase of the Interests as set forth herein and subject to the conditions set forth herein. In addition, the Company acknowledges and agrees that (i) no statements, whether written or oral, made by Purchaser or its representatives on or after the date of this Agreement shall create an obligation, commitment or agreement to provide or assist the Company in obtaining any financing or investment, (ii) the Company shall not rely on any such statement by Purchaser or its representatives, and (iii) an obligation, commitment or agreement to provide or assist the Company in obtaining any financing or investment may only be created by a written agreement, signed by Purchaser and the Company, setting forth the terms and conditions of such financing or investment and stating that the parties intend for such writing to be a binding obligation or agreement. Purchaser shall have the right, in its sole and absolute discretion, to refuse or decline to participate in any other financing of or investment in the Company, and shall have no obligation to assist or cooperate with the Company in obtaining any financing, investment or other assistance.

 

 

 

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Section 8.15 Conflicting Agreements . If any of the terms and provisions of the Amended and Restated Operating Agreement, on the one hand, and the Transaction Agreements, on the other hand, shall conflict, the terms and provisions of the Transaction Agreement shall control.

 

 

 

 

[Remainder of Page Intentionally Left Blank]

 

 

 

 

 

 

 

 

 

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IN WITNESS WHEREOF, the parties hereto have executed this Membership Interest Purchase Agreement as of the date first written above.

 

  COMPANY:
  TOTAL GROW HOLDINGS, LLC:
   
  By: /s/ Derek E. Oxford
  Derek E. Oxford, Manager
  Address: 221 19 th Ave S
  St Petersburg Fl 33705
   
  MEMBERS:
   
  /s/ Derek E. Oxford
  Derek E. Oxford
  Address: 221 19 th
  Ave S St Petersburg Fl 33705
   
  Todd Lewis
  Todd Lewis
  Address: 40 Steeplechase DR

 

Holland Pa 18966
   
  /s/ Alan Waldheim
  Alan Waldheim
  Address: 1805 San Jose St
  Friendswood, TX 77546
  Jonathan Hoffman Address: PO
  Box 801 Bryn Athyn, PA 19009
   
  PURCHASER:
  urban-gro, Inc.
   

 

By: /s/ Bradley Nattras
  Bradley Nattrass, Chief Executive Officer
  Address: 1750 Panorama Point., Suite G
  Lafayette, CO 80026

 

 

 

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EXHIBITS

 

 

 

Exhibit A- FORM OF COMMERCIAL AGREEMENT
Exhibit B - FORM OF INDEMNIFICATION AGREEMENT
Exhibit C - FORM OF VOTING AGREEMENT
Exhibit D - FORM OF AMENDED AND RESTATED OPERATING AGREEMENT
Exhibit E - DISCLOSURE SCHEDULE

 

 

 

 

 

 

 

  22  

 

 

 

EXHIBIT A

 

FORM OF COMMERCIAL AGREEMENT

 

 

 

 

 

 

 

 

 

 

 

     

 

 

EXHIBIT B

 

FORM OF INDEMNIFICATION AGREEMENT

 

 

 

 

 

 

 

 

 

 

 

   

 

 

EXHIBIT C

 

FORM OF VOTING AGREEMENT

 

 

 

 

 

 

 

 

 

 

  23  

 

 

EXHIBIT D

 

FORM OF AMENDED AND RESTATED OPERATING AGREEMENT

 

 

 

 

 

 

 

 

 

 

 

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EXHIBIT E

 

DISCLOSURE SCHEDULE

 

This Disclosure Schedule is made and given pursuant to Section 2 of the Membership Interest Purchase Agreement, dated as of February 15, 2018 (the “Agreement”), among the Company, the Members and Purchaser. All capitalized terms used but not defined herein shall have the meanings as defined in the Agreement, unless otherwise provided. The section numbers below correspond to the section numbers of the representations and warranties in the Agreement; provided, however, that any information disclosed herein under any section number shall be deemed to be disclosed and incorporated into any other section number under the Agreement where such disclosure would be appropriate and such appropriateness is reasonably apparent from the face of such disclosure. Nothing in this Disclosure Schedule is intended to broaden the scope of any representation or warranty contained in the Agreement or to create any covenant. Inclusion of any item in this Disclosure Schedule (1) does not represent a determination that such item is material or establish a standard of materiality, (2) does not represent a determination that such item did not arise in the ordinary course of business, (3) does not represent a determination that the transactions contemplated by the Agreement require the consent of third parties, and (4) shall not constitute, or be deemed to be, an admission to any third party concerning such item. This Disclosure Schedule includes brief descriptions or summaries of certain agreements and instruments, copies of which are available upon reasonable request. Such descriptions do not purport to be comprehensive, and are qualified in their entirety by reference to the text of the documents described, true and complete copies of which have been provided to Purchaser.

 

Disclosures  
Section Documents / Comments
2.16 Employee Benefits None
2.23 Business Plan None
2.7 Litigation None
2.8 Patents None
2.9 Compliance None
2.10 Agreements, Actions None

 

 

 

     

Exhibit 10.4

 

JW Properties, LLC

BUSINESS LEASE

 

THIS LEASE, made and entered into on this date of July 22nd, 2015, between JW Properties, LLC herein after referred to as "Lessor," and urban - gro, LLC herein after referred to as "Lessee".

 

1       Definition of Terms:

 

Whenever the words "Lessor" and "Lessee" are used in this lease, they shall include Lessor and Lessee and shall apply to persons: men, women, companies, partnerships and corporations.

 

2.            Leased Premises:

 

In consideration of the payment of the rent hereinafter provided, and the keeping and performance of each of the covenants and agreements of the Lease hereinafter set forth, the Lessor has and does hereby lease to the Lessee the following described Premises, situate in the County of Boulder, State of Colorado, to wit:

 

September 1 st 2015 - August 31 st 2018: 7200 square feet located at 1751 Panorama Point Unit F and G - Lafayette, Colorado.

 

Lessor agrees to remodel and prepare the Premises for occupancy by the Lessee as per Lessee's direction, and all cost of such tenant finish shall be amortized over the remaining term of the lease (36 month) and shall be treated as "additional rent."

 

3.            Term of Lease and Minimum Rent:

 

The Term of this lease shall be for 36 months, from September 1st 2015 through August 31 st 2018. Rent shall be payable in advance on the 1st day of each month as follows:

 

Rent shall be payable to JW Properties, LLC at the office address of 1751 Panorama Point Unit A Lafayette, CO 80026, or at such place as the Lessor may designate, from time to time, in writing. The installments of minimum rent are payable without demand, and regardless of any other dispute between Lessor and Lessee. Lessee hereby waives any rights, except as set forth in this Lease to setoff against the installments of minimum rent any claims it may have against Lessor. Concurrently with the execution of this lease, the Lessee has paid to the Lessor, the receipt of which is hereby acknowledged by Lessor, the sum of:

 

· September 1st 2015 - August 31 st 2016: $7000.00
· September 1st 2016 - August 31 st 2017: $7200.00
· September 1 st 2017 - August 31 st 2018 - $7500.00

 

If Lessee obtains possession of the Premises prior to the commencement date of this Lease, all other terms and conditions of this Lease shall apply immediately upon such possession, except for Lessee's obligations for base rent, which shall start on the commencement date.

 

Optional Lease Extension:

 

Lessor grants the Lessee the right to extend for a period of two additional years at $7750 per year. Notification must be provided to Lessor by June 30 th ,2018.

 

 

 

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4.       Security Deposit:

 

(a) Lessee has further agreed to deposit with the Lessor, at the time of execution, the sum of $3000, as a security deposit for the full performance of this lease by Lessee, to be returned to Lessee by the Lessor within Thirty (3o) days after the termination of the Lease, provided Lessee is not in default. Receipt of said security deposit is hereby acknowledged by the Lessor. Lessee shall not be entitled to interest on the security deposit, and Lessor may commingle the security deposit with other funds.

 

(b) In the event Lessee shall default in the performance of any of the terms or provisions or covenants of this business lease, which default shall continue for ten (To) business days after written notice thereof, Lessor, at its option, may apply said security deposit to the extent required to cure such default, but Lessor shall not be required to do so, and at its election, may enforce any remedies available to Lessor under this Lease and applicable law. Lessee agrees in the event said security deposit or any portion thereof is applied by Lessor to cure any default of Lessee under this lease, the Lessee will promptly pay to Lessor an amount sufficient to restore the original security deposit in full, and its failure to do so shall be deemed a default under the terms of this lease.

 

(c) Lessor shall deliver the security deposit to the purchaser of Lessor's interest in the Premises, in the event that all such interest be sold; and thereupon such purchaser shall assume Lessor's responsibility with respect to said deposit, and Lessor shall deliver a written statement of any amounts spent for any purpose from the security deposit and amounts replenished to such security deposit by Lessee, and Lessor shall be released of all further liability for return or accounting of the security deposit.

 

5.       Lessee's General Agreement:

 

For and in consideration of the leasing of the Premises, the Lessee does covenant and agree as follows, to wit: That during the term of the Lease to pay for any of the following expenses incurred after the commencement date of the lease. To pay the rent for the Premises hereinabove provided promptly when due and payable; to pay all assessments for water rents and sewer charges levied against the Premises and all charges for all utilities to the Premises, including heating, cooling and electricity; to pay all charges for telephone; to keep all improvements upon the Premises, including all sewer connections, plumbing, heating and cooling appliances, wiring and glass in good order and repair and to replace same as the need arises at the expense of said Lessee; except as set forth in the next paragraph to order no repairs at the expense of the Lessor, and, at the expiration of this lease, to surrender and deliver up the Premises in as good order and condition as when the same were entered upon, ordinary wear excepted, to use the Premises for no purposes prohibited by the law ordinances of the County of Boulder, or by the law of the United States or the State of Colorado now in force or hereinafter enacted; including compliance with the A.D.A. (Americans with Disabilities Act); and for no improper or questionable purpose whatsoever; to keep the sidewalks in front of and surrounding the Premises free from all litter, dirt, debris, snow, ice, water and obstructions; to keep the Premises clean and in the condition required by the laws, ordinances and regulations of the County of Boulder, and all other political subdivisions having jurisdiction over same; to keep the interior of the Premises such as the windows, floors, walls, doors, showcases and fixtures clean and neat in appearance; to remove all trash and debris which may be found in or around the Premises; to neither permit nor suffer any disorderly conduct, noise or nuisance about the Premises having a tendency to annoy or disturb any persons occupying adjacent Premises, and to commit no waste on the leased Premises; to neither permit nor suffer the Premises, or the walls or floors thereof, to be endangered by overloading; to permit the Lessor to place a For Rent card upon the Premises at any time sixty (6o) days before the end of this lease; to surrender and deliver up the possession of the Premises promptly at the expiration of this lease, or, in case of termination of Lessee's possession under this lease on account of a material breach of this lease which is not cured pursuant to Paragraph 18.

 

Notwithstanding anything in the foregoing paragraph, Lessor shall furnish to the Premises at all times (i) sewer, gas, water and electric service lines in sufficient capacity as is reasonably required for Lessee's Use and (H) sufficient heat, hot and cold water and air conditioning as required for Lessee's Use, except during the making of necessary repairs, for which Lessor will give Lessee prior notice and the repairs shall be completed as promptly as possible without material disruption to Lessee's business. The heat, hot water and air conditioning shall also conform to temperature requirements as established periodically by Lessee or by local, municipal or public governmental authorities. Prior to the Commencement Date, Lessor will separately meter all utilities and Lessee shall pay when due all charges for water, gas, electricity and other utilities it uses at the Premises. Lessor represents and warrants to Lessee that all utilities and any HVAC system servicing the Premises are in good working order, condition and repair as of the Commencement Date, Lessor shall at its sole cost and expense make all repairs to and perform necessary maintenance upon such systems within thirty (3o) after any Lessee's request.

 

 

 

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6.           Failure of Lessee to Maintain Premises:

 

If Lessee refuses or neglects to repair or maintain the Premises as required hereunder, to the reasonable satisfaction of Lessor as soon as reasonably possible after written demand, Lessor may make such repairs without liability, except in the case of gross negligence, to the Lessee for any loss or damage that may accrue to Lessee's merchandise, fixtures or other property, or to Lessee's business by reason thereof, and upon completion thereof, Lessee shall pay Lessor's cost for making such repairs upon presentation of a bill thereof. Lessee shall not be required to make any structural repairs or alterations to the Premises.

 

7.           Indemnity Agreements:

 

The Lessor shall not be liable for any damage to property of the Lessee or of other located on the Premises, nor for the loss of or damage to any property of Lessee or of others by theft or otherwise.

 

8 .           Repairs/Service to the Premises:

 

Lessor shall maintain in good order, condition, replacement and repair, at its own cost and expense, the all structural portions of the Leased Premises, including, without limitation, all utility facilities, pipes, conduits and plumbing systems up to and including connections to the Premises, the sprinkler mains, structural systems, including, without limitation, the roof, roof membrane, roof covering (including interior ceiling of the Premises, if damaged by leakage), exterior walls (excluding glass) and demising walls, floor slab and foundation. If Lessor fails to perform, or cause to be performed, necessary maintenance and/or to restore the Leased Premises to a state of good condition and repair within 10 days after Lessor has received written notice from Lessee of a state of disrepair (or if such repairs cannot reasonably be completed within such 10 day period and Lessor shall fail to begin the repairs within 10 days after Lessee's notice and proceed diligently with the repairs to completion), then Lessee has the right but not the obligation to perform the maintenance and/or repairs and any costs expended by Lessee shall be deducted from the Rent and other amounts due under this Lease. In case of an emergency (including, without limitation, a leaky roof), Lessee shall have the right to immediately undertake any and all necessary repairs, and offset the cost of the repairs against the next occurring payment(s) of Rent or other amounts due under this Lease. Lessee agrees that all other repairs to and maintenance of the Premises, including but not limited to interior walls, doors, and glass, shall be the obligation and responsibility of the Lessee.

 

Lessor agrees to clear parking lot area(s) of snow after/during a winter storm. Parking lot will be plowed when snow accumulation has reached 6 inches and the temperature is forecasted to remain below freezing conditions for more than 24 hours. Snow removal necessity will be determined by the JW Properties personnel during the normal working hours of 8:00 AM to 5:00 PM, Monday through Friday.

 

9.        Right of Entry, Changes and Additions to Buildings:

 

Lessor hereby expressly reserves the right, upon not less than forty-eight hours prior written notice, during normal business hours, to enter onto the Premises for the purpose of inspection, repairs, alterations, improvements and additions to the Premises or the building of which it is a part; Lessor also expressly reserves the right to add extensions or alterations to the existing building. Lessee shall not, however, contract for or make any alterations, additions, extensions or construction of any kind to the Premises, unless expressly approved by the Lessor in writing. Lessee shall pay for all reasonable costs and fees incurred by Lessor in the review of any such proposed alterations, additions or construction. Does this include Lessee finish and is it customary to pay lessor's review costs?

 

10.      Character of Occupancy:

 

The Premises shall be used and occupied only as permitted by City, State, or County codes. Lessor makes no representations or warranties that the Premises herein referred to shall be usable for the purpose intended by the Lessee.

 

11.      Insurance and Risk of Loss:

 

The Lessee further agrees to provide public liability insurance for bodily injury and property damage liability with single limit of not less than $1,000,000.00 per occurrence and aggregate limit, written with a company having Best's key rating of A-X (m), or better and shall name Lessor and its designees under said insurance policy as additional insured. Lessee shall furnish to Lessor a certificate of insurance indicating that said policy is in full force and effect, that Lessor has been named as an additional insured and that said policy will not be canceled unless ten (io) days prior written notice of the proposed cancellation has been given to Lessor.

 

 

 

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Lessee shall assume all risk of loss for all inventory, equipment, furnishings, vehicles and personal property of every description resulting from fire, flood, natural calamity, sprinkler discharge, theft, or other occurrence, and shall indemnify Lessor and hold Lessor harmless for any such loss. Lessor shall not be responsible to Lessee for any loss to inventory, equipment, furnishings, vehicles, equipment, furnishings, vehicles or personal property and Lessee agrees to maintain insurance adequate to cover such loss.

 

12.       Signs:

 

No signs or advertisement shall be placed or printed upon the outer walls, doors, windows, roof or land area of the Premises, which are to be viewed from outside of the Premises, except those signs and locations as the Lessor shall approve in writing prior to installation. Will there be a name on the door?

 

13.       Replacement of Building:

 

In the event the demised Premises or a portion thereof shall become untenantable on account of the damage by fire, act of God, or other casualty, Lessor shall be given the option to correct the deficiency or condition which shall render the Premises untenantable. Within thirty (3o) days after receipt of written notice from Lessee as to the damage to the property, Lessor shall notify Lessee in writing as to whether or not it elects to repair the same. If for any reason, in the opinion of the Lessor, it is not feasible to repair or rebuild the same, then, and in that event, the Lessor shall have the right to terminate this lease. In the event Lessor elects to repair the Premises, it shall have one hundred (loo) days from the date of its notice to Lessee to effect such repairs. During the period from Lessor's receipt of notice from Lessee of damage to the demised Premises until the Premises are restored to their prior condition and possession thereof given to Lessee, the rent shall abate upon the portion of the Premises that is untenantable. Lessor shall not in any case be liable for any loss of profits or income occasioned to Lessee during such period. In the event said repair has not been completed within the period specified, then Lessee may have the option to cancel the lease. If either the Lessee or the Lessor terminates this lease as above provided in this paragraph, any monies due and owing to the Lessor at that date shall be paid by the Lessee to the date that Lessee vacates the Premises, and all further obligations on the part of both parties hereto shall cease and Lessor shall incur no obligation whatsoever from the termination of said lease. Notwithstanding the foregoing, during any period that the damage or destruction is such as to make the Premises unsuitable for Lessee's use or the conduct of its business therein, as determined by Lessee, the Rent and other charges payable by Tenant shall abate until such time as the Premises is suitable for Lessee's use or the conduct of its business therein.

 

14.       Holdover Agreement:

 

If after the expiration of the term of this lease, Lessee shall remain in possession of the demised Premises and continue to pay rent without any express written agreement as to such holding over, then such holding over shall be deemed and taken to be a holding over upon a tenancy from month to month at a monthly rental equivalent of 125% of the current rental hereinabove set forth, such payments to be made as hereinabove provided. In the event of such holding over, all terms of the lease as herein set out are to remain in full force and effect on said month to month basis.

 

15.       Bankruptcy:

 

Neither bankruptcy, insolvency, nor the appointment of a receiver or trustee shall affect this Lease so long as Lessee, its successor or assigns perform Lessee's obligations.

 

16.      A. Estoppel Certificate:

Within ten (10) days after the request by Lessor, Lessee shall deliver to Lessor a written and acknowledged statement certifying that Lessee has accepted possession of the Premises, that this Lease is unmodified and in full force and effect (or if there have been modifications, that the same is in full force and effect as modified and stating the modifications), the commencement date and termination date of the Lease, that Lessor is not in default under the Lease (or, if there is a default, stating specifically the default) and the dates to which the rent and other charges have been paid in advance, if any, and any other reasonable terms contained in the Lease, it being intended that any such statement delivered pursuant to this paragraph may be relied upon by any prospective purchaser or mortgages of the fee of the Premises.

 

 

 

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B.       Subordination:

 

Lessee agrees that this lease is and shall be, at all times, subject and subordinate to the lien of any mortgages which Lessor or its assigns shall make covering the Premises and to any and all advances to be made thereunder and to the interest thereon. Lessee agrees to execute any and all instruments in writing which may be required by Lessor to subordinate Lessee rights to the lien of such mortgage.

 

17.    Financial Statement:

 

Lessee shall at any time and from time to time, upon not less than ten (10) days prior written notice from Lessor, deliver to Lessor a statement in writing certifying the status of this Lease, the dates to which rent and other charges are paid, and setting forth any uncured defaults on the part of the Lessor hereunder. Lessee shall at any time and from time, upon not less than ten (10) days' prior written notice from Lessor deliver to Lessor complete financial statements for Lessee (including a balance sheet accurate within the previous ninety (9o) days and an income statement for at least the past twelve (12) months certified to be accurate by the Lessee; provided that Lessor shall have no right to ask for such financial statements unless Lessor is, in good faith, attempting to sell or obtain financing on the Center, and the potential purchaser or lender has requested financial information on the status of the tenants in the Center. If the obligations of Lessee under this Lease are personally guaranteed by any other party, such other party agrees that he/she/it shall be obligated to provide the same sort of estoppel statement and/or financial statements as required of Lessee in this paragraph.

 

18.    Default of Tenant:

 

The Lessee further covenants and agrees that, if the rent above reserved, or any part thereof, shall be in default, and the failure continues for 10 days after Lessor gives Lessee written notice of the default or in case of a breach of any of the covenants or agreements herein, and the breach or failure continues for a period of 30 days after Lessor provided written Notice to Lessee of the breach; provided that if Lessee cannot cure its breach or failure within a 30 day period, Lessee's breach or failure will not be deemed a default if Lessee begins to cure its breach or failure within the 30 day period and thereafter diligently pursues the cure to completion, then Lessor may terminate Lessee's right to possession under this Lease. If the Lessee shall refuse to surrender and deliver up the possession of the Premises, then and in that event, the Lessor may, without further notice or demand, enter into and upon the Premises, or any part thereof, and take possession thereof and repossess the same as of the Lessor's former estate and expel, remove and put out of possession the Lessee, using such help, assistance and force in so doing as may be needful and proper, without being liable for prosecution or damages therefore, and without prejudice to any remedy allowed by law available in such cases. This paragraph shall be supplemental to paragraph 4-(b). Taking of possession by Lessor, or Lessor's service of an eviction demand shall not constitute an election by Lessor to terminate this Lease, unless expressly so stated in writing. All remedies stated herein are in addition to and cumulative with all other remedies provided by law and equity.

 

19.       Vacating During Term:

 

If the Lessee shall vacate the leased Premises before the end of the term of this lease, as a result of voluntary abandonment, eviction, court order or any other reason, or shall be in material default under any of the terms or provisions of this Lease, the Lessor may at its option and without notice enter the Premises, remove any signs and property of the Lessee there from, and relet the leased Premises or any part thereof as it may see fit without such retaking voiding or terminating this lease, and for the purposes of such reletting, the Lessor is authorized to make any repairs or changes in or to the Premises, at the expense of the Lessee (which shall be payable to the Lessor upon demand), as may be necessary or desirable for the purpose of such reletting, and if a sum shall not be realized from such reletting to equal the monthly rental reserved and stipulated herein to be paid by the Lessee plus all other costs and expenses associated with such default, vacation and/or reletting (including, without limitation, reasonable attorney's fees, the cost of preparing the space for reletting and real estate commission), the Lessee will pay such deficiency each month upon demand therefore, and if suit is filed to collect any monies due from the Lessee under this lease, reasonable attorney's fees shall be assessed as part of the judgment. In addition, if Lessee is in default, Lessor may, at its option, obtain judgment for the rent and other charges past due under this Lease and to become due for the balance of the remaining lease term (in which case, if the Premises is then relet, the monies from the reletting shall be applied to the costs and expenses associated with the default and reletting, and then applied to the judgment). Regardless of any default or termination Lessee's possession, Lessee shall be liable for the full term of this Lease, as originally demised, unless Lessor expressly terminates the Lease in writing or Lessee terminates this Lease as permitted in this Lease.

 

 

 

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20.       Assignment and Subletting:

 

Lessee shall not assign or mortgage this lease in whole or in part, nor sublet all or any part of the leased Premises without the prior written consent of the Lessor, and Lessor agrees that such consent will not be unreasonably withheld. In the event the leased Premises are sublet by the Lessee, or this lease is assigned or mortgaged, the Lessee will remain liable under the terms of this lease for the remaining balance of the lease term, including all modifications and alternations thereof and shall not be released from the performance of any terms, covenants and conditions contained herein. Lessor and any assignee have no obligation to obtain the previous Lessee's approval before making any such modifications or alterations to this lease, and the previous Lessee's obligations shall not be reduced as a result of the failure to obtain its approval. Lessee shall pay all reasonable costs and fees incurred by Lessor in reviewing any such proposed assignment or subletting, regardless of whether the assignment or subletting is eventually consummated. Lessee waives all claims for damages resulting from Lessor's failure to consent to any such assignment or subletting, and Lessee's sole remedy shall be for an action for specific performance in the form of injunctive relief.

 

21.        Lien of Lessor:

 

22.      Surrender of Possession:

 

Lessee agrees to deliver up and surrender to Lessor possession of the Premises, including all plumbing, wiring, sewer connections, lighting fixtures, glass fixtures, walls, ceilings, floors, and appurtenances at the expiration or termination of this lease or any extension hereof, by lapse of time or otherwise, in as good order and condition as when possession was taken by the Lessee, excepting only ordinary wear and tear. If the Lessee shall fail to remove any effects which it is entitled to remove from the Premises upon the termination of this lease, or any extension hereof, for any cause whatsoever, the Lessor, at its option, may remove the same and store or dispose of the said effects, without liability for loss or damage thereto, and Lessee agrees to pay to Lessor on demand any and all expenses incurred in such removal including court costs, reasonable attorney's fees, storage and insurance charges on such effects for any length of time the same shall be in the Lessor's possession; or the Lessor at its option, without notice, may sell such effects, or any of them, at private or public sale and without legal process, for such price or consideration as the Lessor may obtain, and apply the proceeds of such sale upon any amounts due under this lease from the Lessee to the Lessor, and upon the expense incidental to the removing, cleaning the Premises, selling said effects, and other expense, rendering the surplus, if any, to the Lessee, provided, however, in the event the proceeds of such sale or sales are insufficient to reimburse the Lessor, Lessee shall pay such deficiency upon demand.

 

23.         Legal Costs and Expenses:

 

If and only if Lessor prevails, Lessee agrees to pay Lessor for all costs and expenses, including a reasonable attorney's fee, in any court action brought by Lessor to recover any rent due and unpaid under the terms hereof, or for the breach of any of the terms and conditions herein contained, or to recover possession of the Premises.

 

24.         Notices:

 

All notices, demands, requests or other instruments required in this lease to be given by Lessee to Lessor shall be sent by certified or registered mail to Lessor at,1751 Panorama Point, Unit A Lafayette, Colorado 80026. All notices, demands, requests or other instruments required in this lease to be given by Lessor to Lessee shall be sent by certified or registered mail to Lessee at 1751 Panorama Point, Unit F and G.

 

25.         Mechanic's Liens:

 

The right of the Lessee, or any person claiming through or under Lessee, to charge any mechanic or materialman's liens for labor or material upon or against Lessor's interest in the Premises is hereby expressly denied. To the best of its ability Lessee shall not allow any such liens to be filed. If any lien is filed and not discharged within fifteen (15) days of written notice to Lessor, Lessor may fight, settle or pay same, without regard for its validity, and Lessee shall pay all costs, fees and monies expended by Lessor in fighting, settling or paying such lien. Lessee shall not be in default if, within said fifteen (15) days, Lessee posts a bond or other security reasonably satisfactory to Lessor to insure that Lessor will not suffer any loss or damage as a result of such lien.

 

 

 

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26.      Condemnation of Leased Premises:

 

  (a) If the entire premises, at any time during the term of this lease or any extension thereof, shall be taken by the exercise of a power of eminent domain or under threat thereof, this lease shall then terminate as of the date of title vesting in such proceeding, all rentals shall be paid up to that date and Lessee shall have no claim against Lessor nor the condemning authority for the value of the unexpired term of this lease.

 

  (b) In the event of a partial taking of the building or more than 25% of the land area, which leaves the Premises unfit for the normal and proper conduct of the business of the Lessee, then, the Lessee shall have the right to cancel and terminate this lease effective upon the actual partial taking, all rentals shall be paid up to that date, and Lessee shall have no claim against Lessor nor the condemning authority for the value of any unexpired term of this lease. If this lease shall not be canceled as above provided, it shall continue in effect and the rental after such partial taking shall be that part of the rental herein agreed to be paid which the value of the untaken part of the Premises, immediately after the taking, bears to the value of the entire demised Premises immediately before the taking. If the Lessee's continued use of the Premises requires alterations and repairs by reason of a partial taking, the Lessor may elect to terminate this lease within thirty (3o) days, after the actual taking or subject to Lessee's right of termination above provided, which must be exercised in writing within thirty (3o) days after such partial taking, may elect to continue it, in which event the Lessor shall make all necessary alterations and repairs at its expense which are required because of such partial taking. Until such alterations and repairs shall have been completed, an equitable abatement of rent shall be made to Lessee for any portion of the Premises unfit for occupancy and use in the conduct of Lessee's business for the period during which the same is unfit for such occupancy and use.

 

(c) In the event of any condemnation or taking as whether whole or partial, Lessee shall not be entitled to any part of the award paid for said condemnation; Lessor is to receive the full amount of such award, Lessee hereby expressly waiving any right or claim to any part thereof. Although all such damages awarded in the event of any condemnation are to belong to the Lessor, whether such damages are awarded as compensation for diminution in value of the leasehold or to the Premises, Lessee shall have the right to claim and recover from the condemning authority, but not from the Lessor, such compensation as may be separately awarded or recoverable by Lessee in Lessee's own right on account of any and all damage to Lessee's business by reason of the condemnation and for or on account of any cost or loss to which Lessee might be put in removing Lessee's merchandise, furniture, fixtures, leasehold improvements and equipment.

 

27.         Waiver:

 

The waiver by Lessor of any breach of any term, covenant or condition herein contained shall not be deemed to be a waiver of such term, covenant or condition on any subsequent breach of the same or any other term, covenant or condition herein contained. The subsequent acceptance of rent hereunder by Lessor shall not be deemed to be a waiver of any preceding breach by Lessee of any term, covenant or condition of this lease, regardless of Lessor's knowledge of such preceding breach at the time of the acceptance of such rent. No covenant, term or condition of this lease shall be deemed to have been waived by the Lessor, unless such waiver is in writing duly executed by the Lessor.

 

28.      Taxes and Fire and Hazard Insurance:

 

During the full term hereof, or any extension thereof, Lessor shall pay the taxes assessed against the building. The term "taxes" shall mean all real estate taxes, levies and assessments against the building, all personal property taxes, levies and assessments against personal property owned by Lessor and used in the operation or maintenance of the building, and all costs and fees incurred by Lessor in challenging any real estate or personal property taxes, levies and assessments. Lessor shall pay the cost of insurance premiums for the building insurance carried by Lessor for the term of this lease.

 

30.         Lessee's Obligation:

 

If Lessee fails to perform any of its obligations under this Lease, Lessor may (but shall have no obligation to) perform the same for the account and at the expense of Lessee, but only after fifteen days prior written notice to Lessee, or without notice if in Lessor's reasonable opinion an emergency exists. Lessee shall immediately pay to Lessor any costs, fees and expenses incurred by Lessor in performing Lessee's obligations hereunder.

 

 

 

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31.         Environmental Provisions:

 

Lessee shall keep and maintain the Premises in compliance with and shall not cause or permit the premises to be in violation of any federal, state or local laws, ordinances or regulations relating to environmental conditions on, under or about the Premises, including but not limited to, soil and groundwater conditions. Lessee shall not use, generate, manufacture, store or dispose of on, under or about the Premises or transport to or from the Premises any Hazardous Materials. Hazardous Materials are any flammable, explosive, radioactive, toxic or other related materials, including but not limited to "hazardous substances" as defined in the Comprehensive Environmental Response and Liability Act of 1980, 42 U.S.C. 9601 et. seq. Lessee hereby agrees to indemnify Lessor, its officers, directors, agents and employees and hold Lessor, its officers, directors, agents and employees harmless from and against any and all claims, losses, damages, liabilities, fines, penalties, charges, administrative and judicial proceedings (including but no limited to attorney's fees and expenses), arising directly or indirectly, in whole or in part, out of any activity carried on or undertaken on or off the Premises, during the term of the lease and whether by Lessee or any employees, agents, contractors, or subcontractors of Lessee, or by any third persons at any time occupying or present on the Premises, in connection with the handling, treatment, removal, storage, decontamination, cleanup, transport, or disposal of any Hazardous Materials at any time located or present on, under or about the Premises. Lessee shall immediately advise Lessor in writing of (i) any and all enforcement, cleanup, remedial, removal or other governmental or regulatory actions instituted, completed or threatened pursuant to any Hazardous Materials Laws; (ii) all claims made or threatened by any third party against Lessee or the Premises relating to damage, contribution, cost recovery compensation, loss, or injury resulting from any Hazardous Materials; and (iii) Lessee's discover of any occurrence or condition on any real property adjoining or in the vicinity of the Premises that could cause the Premises to be subject to any restrictions on the ownership, occupancy, transferability or use of the Premises under any Laws.

 

32.       Availability of Utilities:

 

Lessor does not warrant or guarantee the continued availability of any or all utility service to the Premises. Except as provided in the following sentence, the interruption, diminution or cessation of such utilities shall not be construed as an actual or constructive eviction of Lessee nor shall Lessee be entitled to any claim for damages or abatement of its obligations under this Lease on account thereof, unless such interruption is caused by Lessor's negligence. Lessor shall have the right to interrupt the utilities, upon reasonable prior notice, as may be necessary for repairs, alterations or maintenance, and if utilities are interrupted by Lessor under this sentence for a period longer than forty-eight hours, Lessee shall be entitled to an equitable reduction in rent and other charges based on the period, after the initial forty-eight hours for which and the extent to which such utilities are interrupted. In such event, abatement and/or equitable reduction shall be Lessee's sole remedy.

 

33.       Lessor's Liability:

 

34.       Late Charges:

 

(Lessee hereby acknowledges that late payment by Lessee to Lessor of rent or other sums hereunder will cause Lessor to incur costs not contemplated by this lease, the exact amount of which will be extremely difficult to ascertain. Accordingly, if any installment of rent or other sums due from Lessee shall not be received by Lessor or Lessor's designee within five (5) days after the date due, then Lessor may charge Lessee a late charge equal to two percent (2%) of such past due amount or the sum of Twenty-five and no/100ths ($25.00) Dollars, whichever is greater. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs that Lessor will incur by reason of a late payment by Lessee. Acceptance of late charges and past due rent by the Lessor shall in no event constitute a waiver of Lessee's previous or subsequent default with respect to timely payment of rent or other sums due, or prevent Lessor from exercising any of the other rights and remedies granted hereunder concerning Lessee's default.

 

35.       Entire Agreement:

 

This Lease constitutes the entire agreement between the parties, and this shall not be modified unless the modification is in writing and signed by both parties. Lessee states that it is not entering into this Lease based on any representations, warranties, promises or other inducements other than those set forth in this Lease.

 

 

 

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36.       Successors and Assigns:

 

The obligations and rights under this lease shall be binding upon and inure to the benefit of the heirs, administrators, executors, successors and assigns of the parties; provided, however, that any assignment or subletting by the Lessee, except to its Affiliate in violation of the terms of this lease shall not vest any rights whatsoever in the assignee or subtenant.

 

37.             Lessor and Lessee shall execute and file with the Department of Revenue, State of Colorado a Memorandum of this Lease within ten (10) days of execution pursuant to Colorado Revised Statutes Section 39-22-604 (7) (c).

 

38.             If any act or omission of Lessor will give Lessee the right, immediately or after lapse of a period of time, to cancel or terminate this Lease, or to abate or offset against the payment of rent, or to claim a partial or total eviction, the Lessee shall not exercise such right until it has given written notice that such act or omission has occurred and until a reasonable period for remedying such act or omission shall have lapsed following the giving of such notice without a remedy being effected.

 

39.             Lessor grants permission for Lessee to sub-lease if it so wishes, as long as Lessor approves the sub-lease tenant.

 

 

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IN WITNESS WHEREOF, this lease is hereby executed the day and year first above written.

 

Lessor: JW Properties, LLC

 

By: Jeff Weiss

 

Signature: /s/ Jeff Weiss

 

Date: 7/23/15 

 

 

 

Lessee: Urgan-gro, LLC.

 

By:  Bradley Nattrass, CEO

 

Signature: /s/ Bradley Nattrass, CEO

 

Date: 07/23/15

 

 

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Exhibit 10.5

 

COMMERCIAL LEASE AGREEMENT

1751 Panorama Point – Unit E

Lafayette, Colorado 80026

urban-gro Inc.

 

THIS COMMERCIAL LEASE AGREEMENT (the “Lease”) is entered into by and between Landlord and Tenant this 1 st day of September, 2017.

 

SECTION I. TERMS AND DEFINITIONS

 

The following terms as used herein shall have the meanings as set forth below:

 

A.                  “Landlord” means Bravo Lighting LLC.

 

B.                  “Tenant” means urban-gro Inc.

 

C.                  “Guarantor” means urban-gro Inc.

 

D.                  “Project” means the building commonly known as 1751 Panorama Point Unit E located in the City of Lafayette, which Project has approximately 662 rentable square feet office space and 2000 of warehouse space.

 

E.                   “Building” means the building at the Project in which the Premises are located, at 1751 Panorama Point Unit E located in the City of Lafayette

 

F.                   “Premises” means the Space located at the address of 1751 Panorama Point Unit E located in the City of Lafayette and consisting of approximately 2662 rentable square feet. The Premises include the common use of other outdoor areas, including parking.

 

G.                  “Term” means the term of this Lease, which is for 1 year, as more particularly described in Section IV below.

 

H.                  “Commencement Date” means September 1st, 2017.

 

I.                    “Monthly Base Rent” is as per the schedule shown below:

 

Years Monthly Base Rent
1 $3,000

 

J.                    “Tenant’s Proportionate Share” means 100%, calculated by dividing the rentable square feet in the Premises by the total rentable square feet in the Project; provided, however, that such percentage shall be subject to reasonable recalculation after any modifications to the amount of rentable square feet in the Premises or the amount of rentable square feet in the Project.

 

K.                  “Permitted Use” means the operation of an agriculture and lighting business and uses necessary or incidental thereto including but not limited to storage of lighting components, electronics, equipment, motors, pesticides, and R&D equipment.

 

L.                   “Landlord’s Address” means 1751 Panorama Point Unit E, Lafayette, CO 80026.

 

M.                 “Tenant’s Address” means: of 1751 Panorama Point Unit G, Lafayette, CO 80026.

 

 

 

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SECTION II. PROPERTY LEASED

 

A.                  Premises . Upon and subject to the terms, covenants and conditions set forth in this Lease, Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the Premises.

 

B.                  Common Areas . Tenant shall have the right, for the benefit of Tenant and its employees, suppliers, shippers, customers and invitees, to the non-exclusive use of all the Common Areas (as defined below).

 

SECTION III. DELIVERY OF POSSESSION

 

On the Commencement Date Landlord will deliver the Premises to Tenant, and Tenant shall accept the same in its “AS IS, WHERE IS” condition.

 

SECTION IV. TERM

 

The Term shall begin on the Commencement Date and end on the last day of the month which is 12 months after the month in which the Commencement Date occurs.

 

SECTION V. MONTHLY RENT

 

Beginning September 1 st 2017, and for the duration of the term, Tenant shall pay to Landlord the Monthly Base Rent and Additional Rent in the amount and monthly installments set forth in Section I(I) above. Such sums shall be payable by Tenant on or before the first day of each month, in advance, at Landlord’s Address, or such other place as Landlord shall designate, without any prior demand therefore and without any abatement, deduction or setoff whatsoever. If the Commencement Date should occur on a day other than the first day of a calendar month, then the rental for such fractional month shall be prorated on a daily basis based upon a thirty (30) day calendar month.

 

SECTION VI. INSURANCE

 

A.                  Tenant’s Insurance . Tenant shall, during the Term hereof, keep in full force and effect the following insurance and annually, on or before the anniversary date of this Lease, provide appropriate insurance certificates to Landlord:

 

(1)                Comprehensive general liability insurance for the benefit of Tenant and Landlord as named insured and additional insured, respectively, against claims for personal injury liability including, without limitation, bodily injury, death or property damage liability and covering (i) the business operated by Tenant and by any subtenant of Tenant on the Premises, (ii) operations of independent contractors engaged by Tenant for construction on or about the Premises, and (iii)  contractual liability, with an aggregate limit not less than $1,000,000.00; such insurance may be furnished under a “primary” policy and an “umbrella” policy, provided that it is primary insurance and not excess over or contributory with any insurance in force for Landlord;

 

(2)                a policy of fire, extended coverage, insuring the personal property, furniture, furnishings and fixtures belonging to Tenant located on the Premises for not less than one hundred percent (100%) of the actual replacement value thereof;

 

(3)                worker’s compensation insurance, with coverage as required by the State in which the Project is located;

 

(4)                such other insurance as Landlord may reasonably determine to be necessary, consistent with standard industry practices.

 

Each insurance policy obtained by Tenant pursuant to this Lease shall contain a clause that the insurer will provide Landlord with at least thirty (30) days prior written notice of any material change, non-renewal or cancellation of the policy and shall be in a form and with a company reasonably satisfactory to Landlord. Except for worker’s compensation insurance, each insurance certificate shall indicate that the insurer waives its rights of subrogation against Landlord. In addition, any insurance policy obtained by Tenant shall be written as primary policies, non-contributing with or in excess of any coverage which Landlord may carry. If Tenant fails to maintain and secure the insurance coverage required under this Section VII(A), then Landlord shall have, in addition to all other remedies provided herein and by law, the right, but not the obligation, to procure and maintain such insurance, the cost of which shall be due and payable to Landlord by Tenant on demand.

 

 

 

 

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If, on account of the failure of Tenant to comply with the provisions of this Section VII(A), Landlord is deemed a co-insurer by its insurance carrier, then any loss or damage which Landlord shall sustain by reason thereof shall be borne by Tenant and shall be immediately paid by Tenant upon receipt of a bill thereof and evidence of such loss.

 

B.                  Landlord’s Insurance . Landlord shall, during the Term hereof, keep in full force and effect the following insurance:

 

(1)                A policy of fire, extended coverage insurance insuring the Building of which the Premises are a part, in an amount at least equal to the full replacement cost thereof; and

 

(2)                such other insurance as Landlord may deem reasonably necessary for the protection of the Premises and the Project.

 

All insurance premiums for Landlord’s insurance shall be included in Common Operating Costs, as described in Section XIII below.

 

C.                  Waiver of Subrogation . Landlord and Tenant each shall obtain from their respective insurers under all policies of insurance required to be carried by such party hereunder or any other insurance actually carried by such party related to the Premises, if any, a waiver of all rights of subrogation which the insurer of one party might have against the other party.

 

SECTION VII. INDEMNITY

 

A.                  Tenant’s Indemnity . Tenant agrees to indemnify, defend (with counsel reasonably satisfactory to Landlord) and hold Landlord and its officers, directors, partners and employees entirely harmless from and against all liabilities, losses, demands, actions, expenses or claims, including attorney’s fees and court costs, for injury to or death of any person or for damages to any property arising out of or in any manner connected with (i) the use, occupancy or enjoyment of the Premises by Tenant or Tenant’s agents, employees, invitees, or contractors (“Tenant’s Agents”) or any work, activity or other things allowed or suffered by Tenant or Tenant’s Agents to be done in or about the Premises, (ii) any breach or default in the performance of any obligation of Tenant under this Lease and (iii) any act or failure to act, whether negligent or otherwise tortious, by Tenant or Tenant’s Agents on or about the Premises, Building or Project. All property of Tenant kept or stored on the Premises or in the building shall be so kept or stored at the risk of Tenant only, and Tenant shall hold Landlord harmless from any claims arising out of damage to the same, including subrogation claims by Tenant’s insurance carriers, unless the damage or loss was caused by the negligent or reckless act or omission of Landlord and/or its representatives or agents. Neither this nor any other indemnification contained in this Lease is limited by the amount of insurance carried by Tenant or required to be carried by Tenant under this Lease.

 

B.                  Landlord’s Indemnity . Landlord agrees to indemnify, defend (with counsel reasonably satisfactory to Tenant) and hold Tenant and its officers, directors, employees, successors and assigns, harmless from and against all liabilities, losses, demands, actions, expenses or claims, including attorney’s fees and court costs, for injury to or death of any person or for damages to any property caused by (i) any breach or default in the performance of any obligation of Landlord under this Lease and (ii) any act or failure to act that constitutes intentional misconduct, recklessness or gross negligence by Landlord or Landlord’s officers, directors, partners or employees on or about the Premises or the Project.

 

 

 

 

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SECTION VIII. USE OF PREMISES

 

A.                  Permitted Uses . Tenant shall use the Premises solely for the Permitted Use. Tenant shall not do or permit anything to be done in or about the Premises which will in any way obstruct or interfere with the rights of other tenants or occupants of the Building or injure or annoy them or use or allow the Premises to be used for any immoral or unlawful purpose, nor shall Tenant cause, maintain or permit any nuisance in, on or about the Premises. Tenant shall not commit or suffer to be committed any waste in or upon the Premises.

 

B.                  Continuous Operation .

 

(1)                From and after the date Tenant initially opens for business in the Premises, except during periods of renovation or remodeling, Tenant shall operate continuously and uninterruptedly during normal business hours usually associated with the Permitted Use, and shall keep the Premises fully staffed with employees and adequately stocked with trade fixtures and operating equipment to service and supply the usual and ordinary requirements of its customers.

 

(2)                Failure of Tenant to do business as herein required shall constitute a default by Tenant hereunder (subject to Tenant’s notice and cure rights set forth herein).

 

C.                  Compliance with Laws . Tenant shall not use the Premises in any way (or permit or suffer anything to be done in or about the Premises) which will conflict with any law, statute, ordinance or governmental rule or regulation) affecting the Project, now in force or which may hereafter be enacted or promulgated including, but not limited to, the provisions of any city or county zoning codes regulating the use of the Premises and any licensing requirements for the selling, serving or furnishing of Tenant’s products. Tenant shall, at its sole cost and expense, promptly comply with (i) all laws, statutes, ordinances, and governmental rules and regulations, now in force or which may hereafter be in force and (ii) all requirements, now in force or which may hereafter be in force, of any board of fire underwriters or other similar body now or hereafter constituted relating to or affecting the condition, use or occupancy of the Premises.

 

D.                  Landlord’s Rules and Regulations . Tenant shall, and Tenant agrees to cause its agents, servants, employees, invitees, and licensees to observe and comply fully and faithfully with any rules and regulations (as the same may be modified, the “Rules”) provided that any such Rules shall not be inconsistent with any other provision of this Lease and shall be reasonable and have general application to all tenants in the Project. Landlord shall not be responsible to Tenant for failure of any other tenant or occupant of the Project to observe or comply with any of the Rules.

 

E.                   Parking . Tenant shall require its employees, agents, suppliers, licensees, vendors and contractors to park in areas and in a manner designated by Landlord.

 

F.                   Tenant Signage . All Tenant signage shall be subject to Landlord’s prior written consent, which consent shall not be unreasonably withheld, delayed or conditioned, and criteria as to size and design materials and location, and shall comply with the sign codes of any governmental or quasi-governmental authority having jurisdiction over the Project. Tenant shall maintain, repair, and replace such signage (and repair any damage to the Building caused by the installation of such signage) as required by Landlord during this Lease. The costs to install said signs shall be borne by Tenant.

 

SECTION IX. SERVICE AND UTILITIES

 

Landlord agrees to pay the full cost of all utilities supplied to the Premises, together with any taxes thereon. Landlord shall be required to pay any increased cost of any utilities and services resulting from any substantial recurrent use of the Premises for such utilities and services or any use beyond what Landlord agrees to furnish or resulting from special electrical, cooling and ventilating needs created in certain areas by telephone equipment, computers and other similar equipment or uses. If the Building is designed for individual tenant operation of the heating, ventilation and cooling system, Landlord agrees to pay the cost of operating such system. .

 

 

 

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SECTION X. TENANT’S TAXES

 

Landlord shall pay before delinquency every tax, assessment, license fee, excise and other charge, however described, which is imposed, levied, assessed or charged by any governmental or quasi-governmental authority having jurisdiction over the Premises and which is payable in respect of the Term upon or on account of (i) Tenant’s operations at, occupancy of, or conduct of business in or from the Premises,

 

SECTION XI. MAINTENANCE AND REPAIRS

 

A.                  Landlord’s Obligations . Landlord shall keep in good condition and repair, at Landlord’s cost and expense, the foundations, exterior walls, structural condition of interior bearing walls, and roof of the Premises. Landlord shall not be required to make any repairs that are the obligation of any other tenant or occupant within the Building or (unless covered by Landlord’s insurance) repairs for damage caused by any negligent or intentional act or omission of Tenant or any person claiming through or under Tenant or any of Tenant’s employees, suppliers, shippers, customers or invitees, in which event Tenant shall repair such damage at its sole cost and expense (unless covered by Landlord’s insurance). Landlord shall not be liable for and there shall be no abatement of rent with respect to, any injury to or interference with Tenant’s business arising from any repair, maintenance, alteration or improvement in and to any portion of the Premises or the Project. Tenant hereby waives and releases its right to make repairs at Landlord’s expense under any law, statute, ordinance, rules and regulations now or hereafter in effect in any jurisdiction in which the Project is located, unless such damage or loss was caused by the negligent or reckless act or omission of Landlord and/or its representatives or agents. Landlord is responsible for all permits and fees arising from construction done to the premises that has occurred or will occur during the course of the lease.

 

B.                  Tenant’s Obligations . Tenant shall make all repairs and replacements as necessary to preserve in good working order and condition the interior of the Premises and certain systems exclusively serving the Premises, including, without limitation, plumbing within the Premises, heating, ventilating and air conditioning systems located within the Premises and installed for the exclusive use of the Premises, electrical and lighting facilities and systems and equipment within the Premises, and all fixtures, interior walls, interior surfaces of exterior walls, ceilings, windows, doors, cabinets, draperies, window coverings, carpeting and other floor coverings, plate glass and skylights located within the Premises. Tenant shall, at its sole cost and expense, make all repairs to the Premises, Building and Project which are required, in the reasonable opinion of Landlord, as a result of any misuse or neglect committed or permitted by Tenant or by any subtenant, agent, employee, or servant of Tenant (unless covered by Landlord’s insurance). In addition, Tenant shall, at its sole cost and expense, repair any damage which is caused by any invitee of Tenant (unless covered by Landlord’s insurance).

 

C.                  Landlord’s Right to Make Repairs . In the event that Tenant fails to maintain the Premises in good and sanitary order, condition and repair as required by this Lease, then, following thirty (30) days prior written notification to Tenant (except in the case of any emergency, in which case no prior notification shall be required), Landlord shall have the right, but not the obligation, to enter the Premises and to do such acts and expend such funds at the expense of Tenant as are required to place the Premises in good and sanitary order, condition and repair. Any amount so expended by Landlord shall be paid by Tenant promptly upon demand. Landlord shall have no liability to Tenant for any loss or damage that may accrue to Tenant’s merchandise, fixtures, equipment, furniture or other property or for any inconvenience or interference with the use of the Premises by Tenant resulting from Landlord’s performance of such maintenance or repair work, except to the extent the same was caused by the gross negligence or willful misconduct of Landlord.

 

D.                  Condition of Premises Upon Surrender . Tenant shall, upon the expiration or earlier termination of the Term, surrender the Premises to Landlord in the same condition as on the date Tenant took possession, broom clean, reasonable wear and tear excepted. All appurtenances, fixtures, improvements, additions and other property attached to or installed in the Premises, whether by Landlord or by or on behalf of Tenant, and whether at Landlord’s expense or Tenant’s expense, shall be and remain the property of Landlord; provided that any business fixtures, furnishings and personal property installed on the Premises that are removable without material damage to the Building or the Premises, whether the property of Tenant or leased by Tenant, shall be and remain the property of Tenant and, at the expiration of the Term, shall be removed by Tenant at Tenant’s sole cost and expense. Tenant shall promptly repair any damage to the Premises or the Building resulting from such removal. Any of Tenant’s property not removed from the Premises prior to the expiration of the Term shall be deemed abandoned, and, at Landlord’s option, either become the property of Landlord or may be removed by Landlord and Tenant shall pay to Landlord the cost of such removal within ten (10) days after delivery of a bill therefore.

 

 

 

 

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SECTION XII. ENTRY BY LANDLORD

 

Landlord reserves and shall at any and all times have the right to enter the Premises at reasonable times, with reasonable prior notice, to inspect the same, to supply any service to be provided by Landlord hereunder, to determine whether Tenant is complying with its obligations hereunder, to exhibit the Premises to prospective purchasers, mortgagees or tenants, and to alter, improve or repair the Premises and any portion of the Building as required or permitted herein, without abatement of rent, provided that the business of Tenant shall not be interfered with unreasonably. The proceeding notwithstanding, Landlord shall have no obligation to advise Tenant prior to entry of the Premises in the event of an emergency. Any entry to the Premises as provided herein shall not be construed or deemed to be a forcible or unlawful entry into, or a detainer of, the Premises, or an eviction, actual or constructive, of Tenant from the Premises, or any portion thereof.

 

SECTION XIII. DESTRUCTION

 

A.                  Minor Insured Damages . In the event the Premises, the Building of which the premises are a part, or any portion thereof, is damaged or destroyed by any casualty that is covered by the insurance maintained by Landlord pursuant to Section VII above, then Landlord shall rebuild and restore the Premises or Building, as the case may be, and repair the damaged portion thereof, provided that (i) the amount of insurance proceeds available to Landlord equals or exceeds the cost of such rebuilding, restoration and repair, (ii) such rebuilding, restoration and repair can be completed within ninety (90) days after the work commences in the reasonable opinion of a registered architect or engineer appointed by Landlord, (iii) the damage or destruction has occurred more than twelve (12) months before the expiration of the Term and (iv) such rebuilding, restoration, or repair is then permitted, under applicable governmental laws, rules and regulations, to be done in such a manner as to return the Premises, or Building, as the case may be, to substantially its condition immediately prior to the damage or destruction, including, without limitation, the same rentable square footage. To the extent that insurance proceeds must be paid to a mortgagee or beneficiary under, or must be applied to reduce any indebtedness secured by, a mortgage or deed of trust encumbering the Premises, or the Building, such proceeds, for the purposes of this Section XVII(A), shall be deemed not available to Landlord unless such mortgagee or beneficiary permits Landlord to use such proceeds for the rebuilding, restoration, and repair of the Premises, or Building. Notwithstanding the foregoing, Landlord shall have no obligation to repair any damage to, or to replace any of, Tenant’s personal property, furnishings, fixtures, equipment or other such property or effects of Tenant.

 

B.                  Major or Uninsured Damage . In the event the Premises, or the Building, or any portion thereof, is damaged or destroyed by any casualty to the extent that Landlord is not obligated under Section XVII(A) above to rebuild or restore the Premises or the Building, as the case may be, or to repair the damaged portion thereof, then Landlord may, at its option, either (i) rebuild or restore the Premises or Building and repair the damaged portions thereof or (ii) terminate this Lease effective as of the date the damage or destruction occurred. If Landlord does not give Tenant written notice within thirty (30) days after the damage or destruction occurs of its election to rebuild or restore the Premises or Building, as the case may be, and repair the damaged portions thereof, Landlord shall be deemed to have elected to terminate this Lease. Notwithstanding the foregoing, if Landlord does not elect to terminate this Lease, Tenant may terminate this Lease upon thirty (30) days prior written notice if either (a) Landlord determines that such repair or restoration cannot be completed within one hundred and eighty (180) days or (b) the damage or destruction occurs within the last twelve (12) months of the Term, unless Tenant’s actions or omissions are the cause of the damage against which Tenant shall indemnify Landlord pursuant to Section VIII above. If Landlord shall not exercise its right to so terminate this Lease, Landlord shall have no obligation to repair any damage to, or to replace any of, Tenant’s personal property, furnishings, fixtures, equipment or other such property or effects of Tenant and Tenant shall promptly repair any damage to, or replace all of Tenant’s personal property, furnishings, fixtures, equipment and other such property or effects of Tenant, unless such damage or loss was caused by the negligent or reckless act or omission of Landlord and/or its representatives or agents.

 

 

 

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C.                  Abatement of Monthly Rent . Notwithstanding anything herein to the contrary, there shall be an abatement of Monthly Rent and all other items payable under this Lease and reimbursement of Additional Rent under Section XIII by reason of damage to or destruction of the Premises or the Building, or any portion thereof, to the extent that either (i) Landlord received insurance proceeds for loss of rental income attributable to the Premises or (ii) the Premises cannot be reasonably used by Tenant for conduct of its business, in which event the Monthly Rent and all other items payable under this Lease shall abate proportionately according to (i) or (ii) above commencing thirty (30) days after the damage to or destruction of the Premises or Building has occurred, and except that, if Landlord or Tenant elects to terminate this Lease as provided in Section XVII(B) above, no obligation shall accrue under this Lease after such termination. Notwithstanding the provisions of this Section XVII, if any such damage is due to the fault or neglect of Tenant, any person claiming through or under Tenant, or any of their employees, suppliers, shippers, customers or invitees, then there shall be no abatement of Monthly Rent and all other items payable under this Lease by reason of such damage, unless and until Landlord is reimbursed for such abatement pursuant to any rental insurance policy that Landlord may, in its sole discretion, elect to carry. Tenant’s right to terminate this Lease in the event of any damage or destruction to the Premises or Building is governed by the terms of this Section XVII.

 

SECTION XIV. CONDEMNATION

 

A.                  Total or Partial Taking . If all or substantially all of the Premises is condemned or taken in any manner for public or quasi-public use, including but not limited to, a conveyance or assignment in lieu of the condemnation or taking, this Lease shall automatically terminate as of the earlier of the date on which actual physical possession is taken by the condemnor or the date of dispossession of Tenant as a result of such condemnation or other taking. If less than all or substantial all of the Premises is so condemned or taken and Tenant is able to successfully continue the conduct of its business and the balance of the Premises, this Lease shall automatically terminate only as to the portion of the Premises so taken as of the earlier of the date on which actual physical possession is taken by the condemnor or the date of dispossession of Tenant as a result of such condemnation or taking. If such portion of the Building is condemned or otherwise taken so as to require, in the reasonable opinion of Landlord, a substantial alteration or reconstruction of the remaining portions thereof, this Lease may be terminated by Landlord, as of the date on which actual physical possession is taken by the condemnor or dispossession of Tenant as a result of such condemnation or taking, by written notice to Tenant within sixty (60) days following notice to Landlord of the date on which such physical possession is taken or dispossession will occur.

 

B.                  Award . Landlord shall be entitled to the entire award in any condemnation proceeding or other proceeding for taking for public or quasi-public use, including, without limitation, any award made for the value of the leasehold estate created by this Lease. No award for any partial or total taking shall be apportioned, and Tenant hereby assigns to Landlord any award that may be made in such condemnation or other taking, together with any and all rights of Tenant now or hereafter arising in or to the same or any part thereof. Although all damages in the event of any condemnation are to belong to Landlord whether such damages are awarded as compensation for diminution in value of the leasehold or to the fee of the Premises, Tenant shall have the right to claim and recover from the condemnor, but not from Landlord, such compensation as may be separately awarded or recoverable by Tenant in Tenant’s own right on account of damages to Tenant’s business by reason of the condemnation and for or on account of any cost or loss to which Tenant might be put in removing Tenant’s merchandise, furniture and other personal property, fixtures, and equipment or for the interruption of or damage to Tenant’s business.

 

C.                  Abatement of Monthly Rent . Notwithstanding anything herein to the contrary, there shall be an abatement of Monthly Rent in the event of a partial condemnation or other taking that does not result in a termination of this Lease as to the entire Premises pursuant to this Section XVIII. In such event, the Monthly Rent and all other rental charges shall abate in proportion to the portion of the Premises taken by such condemnation or other taking. If this Lease is terminated, in whole or in part, pursuant to any of the provisions of this Section XVIII, all rentals and other charges payable by Tenant to Landlord hereunder and attributable to the Premises taken shall be paid up to the date upon which actual physical possession shall be taken by the condemnor. Landlord shall be entitled to retain all of the Security Deposit until such time as this Lease is terminated as to all of the Premises.

 

 

 

 

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SECTION XV. HOLDING OVER

 

Tenant will have no right to remain in possession of all or any part of the Premises after the expiration of the Term. If Tenant remains in possession of all or any party of the Premises after the expiration of the Term, with the express or implied consent of Landlord: (i) such tenancy will be deemed to be periodic tenancy from month-to-month only; (ii) such tenancy will not constitute a renewal or extension of this Lease for any further term; and (ii) such tenancy may be terminated by Landlord upon the earlier of thirty (30) days prior written notice or the earliest date permitted by law. In such event, Monthly Rent will be one hundred twenty percent (120%) of the Monthly Rent in effect as of the last month of the Term, and any other sums due under this Lease will be payable in the amount and at the times specified in this Lease. Such month-to-month tenancy will be subject to every other term, condition, and covenant contained to this Lease. Any holding over without Landlord’s consent shall constitute a default by Tenant and shall entitle Landlord to the remedies set forth herein and otherwise available at law.

 

SECTION XVI. DEFAULT

 

A.                  Tenant’s Default . The failure by Tenant to perform any one or more of the following obligations shall constitute a default hereunder by Tenant:

 

(1)                If Tenant abandons or vacates the Premises for more than thirty (30) days without Landlord’s prior written consent (except in the case of eminent domain or destruction).

 

(2)                If Tenant fails to pay any rent or other charges required to be paid by Tenant under this Lease and such failure continues for five (5) days after Tenant has received written notification of such failure.

 

(3)                If Tenant involuntarily transfers Tenant’s interest in this Lease or voluntarily transfers (attempted or actual) its interest in this Lease, without Landlord’s prior written consent.

 

(4)                If Tenant files a voluntary petition for relief or if a petition against Tenant in a proceeding under the Federal Bankruptcy Laws or other insolvency laws is filed and not withdrawn or dismissed within sixty (60) days thereafter, or if under the provisions of any law providing for reorganization or winding up of corporations, any court of competent jurisdiction assumes jurisdiction, custody or control of Tenant or any substantial part of the Premises or any of Tenant’s personal property located at the Premises and such jurisdiction, custody or control remains in force or unrelinquished, unstayed or unterminated for a period of sixty (60) days.

 

(5)                If in any proceeding or action in which Tenant is a party, a trustee, a receiver, agent or custodian is appointed to take charge of the Premises or any of Tenant’s personal property located at the Premises (or has the authority to do so) for the purpose of enforcing a lien against the Premises or Tenant’s personal property and the same is not discharged within sixty (60) days.

 

(6)                If Tenant fails to promptly and fully perform any other covenant, condition or agreement contained in this Lease and such failure continues for thirty (30) days after written notice thereof from Landlord to Tenant; provided that, if the failure cannot reasonably be cured within thirty (30) days, so long as Tenant commences the cure within thirty (30) days and thereafter prosecutes the same to conclusion, such long period (not to exceed one hundred twenty (120) days as shall reasonably be required for such cure.

 

 

 

 

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B.                  Remedies of Landlord . Upon the occurrence of a default by Tenant that is not cured by Tenant within the cure period specified above, Landlord shall have the following rights and remedies in addition to all other rights and remedies available to Landlord at law or in equity:

 

(1)                The rights and remedies to recover from Tenant upon termination of the Lease:

 

(a)                 The worth at the time of award of the unpaid rent which had been earned at the time of termination;

 

(b)                The worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Landlord could reasonably have avoided;

 

(c)                 The worth at the time of award of the amount, if any, by which the unpaid rent for the balance of the Term after the time of award exceeds the fair rental value of the Premises; and

 

(2)                The rights and remedies which allow Landlord to continue this Lease in effect and to enforce all of its rights and remedies under this Lease, including the right to recover rent and any other additional monetary charges as they become due, for as long as Landlord does not terminate Tenant’s right to possession less the amount thereof Landlord did recover or with reasonable diligence could have recovered by reletting the Premises. Acts of maintenance or preservation, efforts to relet the Premises or the appointment of a receiver upon Landlord’s initiative to protect its interest under this Lease shall not constitute a termination of Tenant’s right to possession.

 

(3)                The right to terminate this Lease by giving notice to Tenant in accordance with applicable law.

 

(4)                The right and power to enter the Premises and remove therefrom all persons and property, to store such property in a public warehouse or elsewhere at the cost of and for the account of Tenant. Landlord may from time to time sublet the Premises or any part thereof for such term or terms (which may extend beyond the Term) and at such rent and such other terms as Landlord in its sole discretion may deem advisable, with the right to make alterations in and repairs to the Premises. Upon each such subletting, Tenant shall be immediately liable for payment to Landlord of the cost of such subletting and such alterations and repairs incurred by Landlord, if any. Any amounts received by Landlord from such subletting shall be applied first toward the cost of any alterations or repairs made to the Premises in connection with such subletting; second, to payment of Monthly Rent, Tenant’s Proportionate Share of Common Operating Costs, and other monetary obligations due and unpaid hereunder, and the residue, if any, shall be held by Landlord and applied in payment of future Monthly Rent, Tenant’s Proportionate Share of Common Operating Costs, and other monetary obligations as the same become due hereunder. If Tenant has been credited with any rent to be received by such subletting and such rent shall not be promptly paid to Landlord by the subtenant(s), or if such rentals received from such subletting during any month are less than those paid to Landlord by the subtenant, or if such rentals received from such subletting during any month are less than those to be paid during that month by Tenant hereunder, Tenant shall pay any such deficiency to Landlord. Such deficiency shall be calculated and paid monthly. No taking possession of the Premises by Landlord, under this Section XXI(B)(4), shall be construed as an election on Landlord’s part to terminate this Lease unless written notice of such intention is given to Tenant. Notwithstanding any such subletting without termination, Landlord may at any time thereafter elect to terminate this Lease for such previous breach.

 

(5)                Notwithstanding anything herein contained to the contrary, if Tenant shall be in default in the performance of any of the terms or provisions of this Lease and if Landlord shall give to Tenant notice in writing of such default specifying the nature thereof, and if Tenant shall fail to cure such default within the time herein provided or immediately if such default requires emergency action, Landlord may, in addition to its other legal and equitable remedies, cure such default for the account of and at the cost and expense of Tenant, and the sums so expended by Landlord, including reasonable legal fees, shall be deemed to be additional rent and shall be paid by Tenant on the day when rent shall next become due and payable.

 

C.                  Remedies Cumulative . No reference to nor exercise of any specific right or remedy by Landlord shall prejudice or preclude Landlord from exercising or invoking any other remedy in respect thereof, whether allowed at law or in equity or expressly provided for herein, except to the extent, if any, expressly limited by the provisions of this Lease. No such remedy shall be exclusive or dependent upon any other such remedy, but either party may from time to time exercise any one (1) or more of such remedies independently or in combination. No provision of this Lease shall limit or prejudice the right of Landlord to prove and obtain, as damages by reason of any termination of this Lease, an amount equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which, such damages are to be proved, regardless of whether such amount is greater, equal to, or less than any amounts that may be referred to in this Section XXI.

 

 

 

 

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D.                  Landlord’s Default . If Landlord fails to promptly and fully perform any of its covenants, conditions or agreements contained in this Lease and such failure continues for thirty (30) days after written notice thereof from Tenant to Landlord, such failure shall constitute a default hereunder by Landlord.

 

E.                   Tenant’s Remedies . Upon the occurrence of a default by Landlord that is not cured by Landlord within the cure period specified above, Tenant shall have, as its sole and exclusive remedies, the right to sue Landlord for damages and/or for termination of this Lease.

 

SECTION XVII. LATE PAYMENTS

 

A.                  Late Charges . Monthly Rent and Tenant’s Proportionate Share of the Common Operating Costs are due on the 1 st day of the month. If any payment is delinquent for four (4) days or more, Tenant, at Landlord’s option, may be charged a $5.00/day fee until the outstanding balance is paid in full. In addition to the foregoing, a returned check charge of $25.00 will be assessed for all rent payments returned for any reason. In the event of a returned check, Landlord may require Tenant to pay future rent payments by certified funds, cashier’s check, or money order. Landlord is under no obligation to accept two party checks or partial payments. Tenant shall not withhold rent for any reason.

 

B.                  Interest on Late Payments . At Landlord’s option, any amount due from Tenant to Landlord which is not paid when due shall bear interest at the lesser of four percent (4%) above the Prime Rate being quoted by The Wall Street Journal or the maximum rate permitted by law from the date such payment is due until paid, except that amounts spent by Landlord on behalf of Tenant shall bear interest at such rate from the date Landlord gives Tenant written notice of such disbursement by Landlord.

 

C.                  No Waiver . Neither assessment nor acceptance of any late charge or interest by Landlord shall constitute a waiver of Tenant’s default (if any) with respect to such overdue amount, nor prevent Landlord from exercising any of its other rights and remedies under this Lease. Nothing contained in this Section XXIV shall be deemed to condone, authorize, sanction or grant to Tenant an option for the late payment of rent, additional rent or other sums due hereunder, and Tenant shall be deemed in default with regard to any such payments should the same not be made by the date on which they are due.

 

SECTION XVIII. RELEASE AND PARTY IN INTEREST

 

Tenant agrees that in the event Tenant shall have any claim against Landlord under this Lease arising out of the subject matter of this Lease, Tenant’s sole recourse shall be against Landlord’s interest in the Project and Tenant further hereby waives any and all right to assert any claim against or obtain any damages from, for any reason whatsoever, the directors, officers and partners of Landlord.

 

SECTION XIX. NOTICES

 

Any notice, demand, approval, consent, bill, statement or other communication required or desired to be given under this Lease in writing shall be directed to Tenant at Tenant’s Address or to Landlord at Landlord’s Address and shall be personally served or given by mail. If such notice is mailed, the same shall be deemed to have been given when three (3) days have elapsed from the date of the deposit into the United States Mail, certified and postage prepaid.

 

SECTION XX. QUIET ENJOYMENT

 

Upon payment by Tenant of the rents herein provided, and upon the observance and performance of all the covenants, terms and conditions on Tenant’s part to be observed and performed, Landlord shall warrant and defend Tenant against all Persons claiming under, by or through Landlord, in the quiet enjoyment and possession of the Premises during the Term.

 

 

 

 

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SECTION XXI. Miscellaneous

 

A.                  No Offer . This Lease is submitted to Tenant and the understanding that will not be considered an offer and will not bind Landlord in any way until (i) Tenant has dually executed and delivered duplicate originals to Landlord and (ii) Landlord has executed and delivered one of such originals to Tenant.

 

B.                  No Construction against Drafting Party . Landlord and Tenant acknowledge that each of them and their counsel have had an opportunity to review this Lease and that this Lease will not be construed against Landlord merely because Landlord’s counsel had prepared it.

 

C.                  Section Headings . The section headings used in this Lease are for the purposes of convenience only. They shall not be construed to limit or to extend the meaning of any part of this Lease.

 

D.                  Incorporation of Prior Agreements; Amendments . This Lease contains all agreements of Landlord and Tenant with respect to any matter mentioned, or dealt with, herein. No prior agreement or understanding pertaining to any such matter shall be binding upon Landlord. Any amendments to or modifications of this Lease shall be in writing, signed by the parties hereto, and neither Landlord nor Tenant shall be liable for any oral or implied agreements.

 

E.                   No Waiver . The waiver by Landlord or Tenant of any agreement, condition, or provision contained in this Lease will not be deemed to be a waiver of any subsequent breach of the same or any other agreement, condition, or provisions contained in this Lease, nor will any custom or practice that may grow up between the parties in the administration of the terms of this Lease be construed to waive or lesson the right of Landlord or Tenant to insist upon the performance by the other in strict accordance with the terms of this Lease. The subsequent acceptance of rent by Landlord will not be deemed to be a waiver of any preceding breach by Tenant of any agreement, condition, or provision of this Lease, other than the failure of Tenant to pay the particular rent so accepted, regardless of Landlord’s knowledge of such preceding breach at the time of acceptance of such rent.

 

F.                   Time of the Essence . Time is of the essence in the performance of each provision of this Lease.

 

G.                  Severability . If any term or provision of this Lease or the application thereof to any person or circumstances shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Lease shall be valid and be enforced to the fullest extent permitted by law.

 

H.                  Litigation . In the event of litigation arising under this Lease the party, if any, prevailing on the more substantial part of its claims and defense, shall be entitled to recover all costs and expenses associated therewith, including, but not limited to, reasonable attorney fees.

 

I.                     Waiver of Jury Trial . Landlord and Tenant by both hereby waive their respective rights to trial by jury in any action, proceeding, or counterclaim brought by either of the parties to this Lease against the other on any matters whatsoever arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant, Tenant’s use or occupancy of the Premises, or any other claims (including without limitation claims for personal injury or property damage), and any emergency statutory or any other statutory remedy.

 

J.                    Governing Law . This Lease will be governed by and construed pursuant to the laws of Colorado.

 

K.                  Counterparts . This Lease may be executed in several duplicate counterparts, each of which shall be deemed an original of this Lease for all purposes.

 

 

 

 

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IN WITNESS WHEREOF, Landlord and Tenant have executed this Commercial Lease Agreement as of the date first above written.

 

  LANDLORD: Bravo Lighting LLC.  
         
    By: /s/ Octavio Gutierrez  
    Name: Octavio Gutierrez  
    Its: Manager  
         
         
  TENANT: urban-gro Inc.  
         
    By: /s/ Bradley Nattrass  
    Name: Bradley Nattrass  
         

 

 

 

 

 

 

 

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Exhibit 23.1

 

Andrew I . Telsey, P . C .    Attorney at Law

12835 E. Arapahoe Road, Tower One, Penthouse #803, Englewood, Colorado 80112

Telephone: 303/768-9221 • Facsimile: 303/768-9224 • E-Mail: andrew@telseylaw.com

 

 

 

May 15, 2018

 

 

Board of Directors

URBAN-GRO, INC.

 

RE: URBAN-GRO, INC.
Form S-1 Registration Statement and related Prospectus

 

Dear Sirs:

 

We hereby consent to the use of the opinion of this firm as Exhibit 5.1 to the Registration Statement of the Registrant, and further consent to the reference to our name in such Registration Statement and related Prospectus.

 

Yours truly,

 

ANDREW I. TELSEY, P.C.

 

/s/Andrew I. Telsey, P.C .

Exhibit 23.2

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

 

 

We hereby consent to the incorporation in this Registration Statement on Form S-1 of our report dated May 15, 2018, relating to the financial statements of urban-gro, Inc. as of December 31, 2017 and 2016 and to all references to our firm included in this Registration Statement.

 

 

 

 

/S/ B F Borgers CPA PC

 

Certified Public Accountants

Lakewood, Colorado

May 15, 2018