UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10

 

GENERAL FORM FOR REGISTRATION OF SECURITIES

Pursuant to Section 12(b) or (g) of The Securities Exchange Act of 1934

 

THE CHRON ORGANIZATION, INC.

(Exact name of registrant as specified in its charter)

 

Nevada 20-8881686
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

 

5851 Legacy Circle, Suite 600, Plano TX 75024
(Address of principal executive offices) (Zip Code)

 

Registrant’s telephone number, including area code (469) 626-5275 Securities to be registered pursuant to Section 12(b) of the Act:

 

Title of each class
to be so registered
  Name of each exchange on which
each class is to be registered
     

 

Securities to be registered pursuant to Section 12(g) of the Act:

 

Class A Common Stock, $0.001 par value per share

 

(Title of Class)

 

 

(Title of Class)

 

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

 

Large accelerated filer [  ] Accelerated filer [  ]
   
Non-accelerated filer [  ] (Do not check if a smaller reporting company) Smaller reporting company [X]

 

Indicate by check mark whether the registrant is an “emerging growth company” as defined in Section 2(a) of the Securities Act and Section 3(a) of the Exchange Act. Yes [X] No [  ]

 

Indicate by check mark whether 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 and Section 13(a) of the Exchange Act. [  ]

 

 

 

     
     

 

Table of Contents

 

TABLE OF CONTENTS

 

    Page
     
Forward Looking Statements 3
Item 1. Business 4
Item 2A. Risk Factors 10
Item 2. Financial Information 11
Item 3. Properties 14
Item 4. Security Ownership of Certain Beneficial Owners and Managemen 14
Item 5. Directors and Executive Officers 15
Item 6. Executive Compensation 17
Item 7. Certain Relationships and Related Transactions, and Director Independence 18
Item 8. Legal Proceedings 19
Item 9. Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters 19
Item 10. Recent Sales of Unregistered Securities 20
Item 11. Description of Registrant’s Securities to be Registered 21
Item 12. Indemnification of Directors and Officers 24
Item 13. Financial Statements and Supplementary Data 25
Item 14. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 25
Item 15. Financial Statements and Exhibits 26
   
  Signatures 27

 

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FORWARD LOOKING STATEMENTS

 

This report contains forward-looking statements. The Securities and Exchange Commission encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. This report and other written and oral statements that we make from time to time contain such forward-looking statements that set out anticipated results based on management’s plans and assumptions regarding future events or performance. We have tried, wherever possible, to identify such statements by using words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “will” and similar expressions in connection with any discussion of future operating or financial performance. In particular, these include statements relating to future actions, future performance or results of current and anticipated sales efforts, expenses and financial results.

 

We caution that the factors described herein and other factors could cause our actual results of operations and financial condition to differ materially from those expressed in any forward-looking statements we make and that investors should not place undue reliance on any such forward-looking statements. Further, any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. New factors emerge from time to time, and it is not possible for us to predict all of such factors. Further, we cannot assess the impact of each such factor on our results of operations or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

 

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INFORMATION REQUIRED IN REGISTRATION STATEMENT

 

Item 1. Business.

 

DESCRIPTION OF BUSINESS

 

Our Corporate History

 

We were incorporated in Nevada on May 28, 1999 as Paragon Polaris Strategies.com, Inc. In May 2010, we merged with Texas Hill Country Barbecue, Inc., and on June 2, 2010, changed our name to Texas Hill Country Barbecue, Inc. On August 21, 2010, we filed our Initial Company Information and Disclosure Statement with the OTC Markets, changed our name to Texas Hill Country Barbecue, Inc. and our stock-trading symbol to “THCB”. In March 2013, we changed our name to South American Properties with the new stock symbol of “SAMP”. In October 2014, we changed our name to USA Restaurant Funding, Inc. and our trading symbol to “USAR.” Effective on March 24, 2016, we changed our name to The Chron Organization, Inc. and our stock trading symbol to “CHRO”. We are now engaged in the business of selling retail smart home technologies with plans to sell electric energy to retail customers in Texas.

 

Business Overview

 

Our business model is built around the philosophy that smart home services such as automation and video safety, the Internet of Things (IoT), energy conservation, and overall responsible decision making that supports sustainability are burgeoning trends. Combined, these are creating two megatrends known as the “Internet of Everything” and the “Smart Home”. Towards making our claim in this emerging industry, we have built a “Smart Services” platform and “Retail Energy Platform” that combined will allow us to provide a unique suite of products and services to both residential and commercial customers. Currently, we are engaged in the business of (i) selling retail smart home technology, controls and monitoring services, (ii) commercial energy conservation equipment, LED lighting and lighting controls, and (iii) residential and commercial energy utility services.

 

As part of our smart home technology offering, we provide home automation, controls, security, video, and energy conservation services to homeowners through our wholly owned subsidiary, Zen Technologies, Inc. (“Zen”). We provide eight core product packages, designed to accommodate a range of home configurations from the one-bedroom townhome all the way up to the 6,000-square foot single-family home. The basis for our core product offering is to, at a minimum, automate the customers’ lights, locks, and thermostats; from here, the customer can add video options, or other technologies for entertainment or comfort (e.g. smart doorbell, automated blinds or smart water sprinkler systems). For our business-to-business sector, we offer a Zero Cost Program™. This is a turnkey solution that will upgrade older, inefficient equipment and lighting controls at no up-front cost to our client with the cost of the Program paid for out of the savings it creates. In our retail energy sector, through a Texas PUC approved and licensed “Retail Electric Provider” or “REP”, we will target our base of customers in both our smart home technology and commercial sectors.

 

We believe that the combination of our smart controls technologies and energy conservation products, coupled with the ability to provide retail energy services, provides us with a significant advantage over our competitors. Furthermore, this combination allows us to provide a very unique value proposition to the customer.

 

Business Strategy & Roadmap

 

The following sets forth the Company’s three-phase deployment plan:

 

Phase I: 6-12 Months (From Official Launch of Zen Technologies Brand - September 2016))

 

The Company has executed its soft launch by leveraging white label technologies from strategic vendors and implementing a proprietary blend and product offering using the same. It has established its brand and mission and is mastering order processing via its customized proprietary e-commerce platform: zenhomeservices.com and livewithzen.com. The Company has also begun targeting business customers (commercial, industrial, and municipal) through its innovative Zero-Cost Program TM rollout, wherein it has several noteworthy clients already under engagement.

 

Phase II: 12-24 Months

 

The Company plans to deploy its energy offering, converging its services to become seamless in its integration of Smart Home technology and green energy services. The Company expects to launch new sales channels toward dominating the markets. In addition to homeowners and apartment dwellers, the Company plans to target business accounts (commercial, industrial, and municipal).

 

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Phase III: >24 Months

 

The Company plans to deploy a proprietary Zen IoT (Internet of Things)/Automation platform that will be designed to feature one of a kind and/or first of its kind features and services designed to facilitate our customers’ lives. This platform is expected to create a considerable base of intellectual property for the Company while also significantly reducing our cost to serve each customer with respect to the monthly service fee. We plan to establish credibility, notoriety, and a strong lobbying position in the industry. The Company will also create innovative benchmarking metrics for mass adoption of its products and services. Additionally, the Company will focus on the unique value proposition of its offerings: automation/lifestyle, protection/security, energy efficiency, water conservation, and cost-efficient social responsibility.

 

Zen Technologies, Inc.

 

Zen is currently in the soft launch stage of rolling out our products and services; meaning that we are up and operational, however, still picking and choosing our customers, clients, and marketing channels. Zen is a 21st century home services company whose mission is to bring all the benefits of the “Smart Home” to millions of homeowners across the United States; including smart controls and innovative energy products and services to business customers. Zen provides eight different Smart Home packages that cover all dwelling/living scenarios including apartments and up to 6,000 square foot single-family homes. These packages enable a homeowner to automate their lights, locks, and thermostats. These also include video solutions, security, monitoring, and an application that can accommodate all smart home appliances (washers, dryers, dish washers, refrigerators, coffee makers, blinds, water sprinkler systems and entertainment systems) that may be added at the time of purchase or at a later date. Zen combines our exclusive and customizable product solutions with green energy services, which allows our consumers to save money on their monthly energy costs while reducing their long-term carbon footprint. Today, Zen supports approximately 50 different stock keeping units (SKUs), however, the Company plans to expand that number to nearly a thousand over the next 12-18 months. In that spirit, a very recent and noteworthy development was Zen’s approval to become a Bose™ distributor.

 

Additionally, with Zen’s Zero Cost Program™, the Company has entered into the commercial side of the industry with the ability to upgrade its customers with the latest energy saving equipment and controls at no upfront cost to them. This line of equipment and services includes, but is not limited to, LED lighting, weatherization services, motor controllers, EC motor controllers, HVAC accessories, smart devices and controls, solar, geo-thermal generation, oxidized water solutions, energy capacitors and energy storage devices.

 

The Smart Home Market

 

We believe that based on the benefits of our products and their affordability,   the time is ripe for consumers to adopt this wave of home automation. Smart home solutions and related technologies are increasingly becoming mainstream by allowing customers to control and dial up most everything in their home, from remotely turning on and off lights, switches and appliances, adjusting and setting the thermostat, to seeing who’s at the front door or reviewing video footage of what happened in the living room a few hours earlier, and so much more.

 

Consumer Confidence & Maturation

 

According to a report by iControl Networks 1   , the Smart Home Market is projected to grow into a $121.73 billion a year industry by 2022, and the typical family home will consist of 500 smart devices by that same year. The report further noted it would be the automation of lights, locks, and thermostats (energy usage), and video monitoring playing a cornerstone role in the bridge to mainstream consumerism. Some key statistics show that:

 

70% are excited about the potential cost savings from energy efficiency and monitoring
48% are excited about the convenience in programming home settings and maintenance
47% are excited about the potential to help the environment with greater energy efficiency

 

Smart Home Product Offerings

 

Historically, the ability to have a Smart Home (automated controls for lights, locks and thermostats – combined with entertainment systems), was a luxury only affordable to the affluent. According to our research , we have estimated the average entry price for a system at $150,000. However, thanks to advances in technology, standardization in data protocols, bandwidth abundance, and consumer demand, the overall ability for the average homeowner to enjoy a Smart Home has become a reality today. Herein lies the Zen mission – to make the Smart Home a reality for the masses .

 

1 https://www.icontrol.com/wp-content/uploads/2015/06/Smart_Home_Report_2015.pdf

 

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Zen’s product packages, which cover a range of dwelling types and living scenarios, are designed to allow homeowners to automate their lights, locks, and thermostats among other compatible devices. It should be noted that by design, all of our product packages can be viewed as a “starting point”. Customers can add items on an a-la-carte basis, such as extra video cameras, blinds, extra sensors, entertainment options (TV, entertainment centers, sound systems), appliances (washers, dryers, refrigerators, coffee makers), intercom systems, and many other technology options. As an example, we’ve included an image of the Zen Smart Pro Home Automation & Security Kit. This is one of our eight different packages and is ideal for homes up to 2,500 square feet.

 

Zen Smart Pro

 

 

Zero-Cost Program   ™ For Commercial, Industrial and Municipal Customers

 

The Zero-Cost Program™ is a turnkey solution that will upgrade older, inefficient equipment and lighting controls at no up-front cost to our client and future service fees are effectively paid for out of the savings it creates.

 

The process for the Program starts with a site survey to determine the current equipment and operating environment of the prospective customer. Once a survey is complete, Zen creates a proposal detailing the solutions needed in order to maximize savings out of that individual business. Every business is different and solutions are tailored for each business. Upon approval from the customer, Zen will install the upgrades, controls and components that power the customer’s business, enabling it to be more energy-efficient. The savings is expected to range anywhere between 15% and as much as 60%.

 

The Zero-Cost Program works through a “Services Agreement”. This means that our clients will have no initial upfront costs. This Services Agreement carries a full warranty for the term of the initial agreement. The business are expected to begin saving money immediately from lower energy consumption. Through the Services Agreement, Zen will finance the equipment and installation for all the chosen upgraded technologies and conservation solutions, which are billable in a separate invoice over the term of the agreement.

 

Over the first quarter of 2017, Zen has created a pipeline of commercial prospects and has acquired eight commercial clients, representing approximately 400 different actual locations where site surveys are being scheduled. These include convenience stores, gas stations, hotels, and schools, several with the initial phase of installations already underway while we are seeking credit approval from some. For example, one of our clients owns a chain of over 50 convenience stores (with gas stations). Zen also has an open agreement with The Oklahoma Groceries Association representing over 1,800 locations to offer this Program to its members. Additionally, Zen has partnered with one of the largest suppliers of equipment and services in the hotel industry, which itself owns over 300 hotels and represents thousands of locations nationwide. We are currently in the planning stages of a joint marketing relationship with this particular organization.

 

Marketing

 

The Company plans to utilize several distribution channels for our product offerings including, but not limited to, the following:

 

Company Branded & Affiliate Internet Marketing: This encompasses our own Internet marketing efforts, as well as working with third party websites that provide utility connection services to new homeowners or families moving into a new city.
   
Referral Partner Network: Also, known as an “Agent Network”, is a network of independent contractors who serve as referral sources for our products and services in exchange for an ongoing commission fee. This model has been the source of most all of our “Zero-Cost” customers and prospects to date.
   
Network Marketing Channels: Also referred to as “Multi-Level-Marketing” or “Direct Sales Organizations”, these consist of groups of independent contractors who market and serve as distributors for similar or related products and services. We are currently engaged in discussions with several different Network Marketing entities for the purposes of entering into a joint marketing/client vendor relationship.

 

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Homebuilders: It is common for homebuilders to work with home alarm companies as they develop and begin to market homes. While we are still in the early stages, we believe that his trend is being replaced by working with Smart Home companies instead of traditional home alarm companies. We are in early stage discussions with these types of companies today and expect to establish our first relationship sometime in the latter part of 2017.
   
Door-to-Door Teams: These are traditional marketing channels that are used by other industries such as cable, internet, pesticide, energy, and/or home alarm services companies. While this model requires a considerable capital commitment, it can be very effective and methodical. We plan on launching such channels sometime in 2018.

 

Operations

 

Chairman, Mr. Byron Young and CEO and President, Mr. Alex Rodriguez, two renowned entrepreneurs with a proven track record of building hyper-growth companies, lead our management team. Together, they represent a combined 40 years of experience in the deregulated services industries (telecommunications, wireless, internet services, electricity and natural gas retail services). Under this executive leadership duo, we’ve begun to build a management team comprising senior management members who represent an additional 50 years of cumulative experience in the home alarm, home automation, and home entertainment industries.

 

We’ve developed a fully customized, internal enterprise resource planning (ERP) system (“Zen Plus”) that is designed to allow us to accommodate thousands of customer enrollments from a myriad of marketing channels, on a national basis. Zen Plus allows the Company to automate and manage, in real time, customers’ needs from point of sale through logistics and installation, and all the way through the renewal process at the end of the three or five-year service term. We believe that this operational infrastructure will allow us to deliver a consistent, quality customer experience.

 

Furthermore, our fully integrated customer experience allows our sales representatives, customer service representatives and installation technicians to work closely together to provide the customer with an integrated process from contract origination to daily use. We believe that our customer service representatives deliver a quality customer service experience that enhances our brand and improves customer satisfaction. Customer service representatives will generally resolve most maintenance and service related questions over the telephone or through remote-access to the customer’s system.

 

Field Service Operations

 

We’ve created a network of professional third-party field service technicians (“FSTs”) throughout the United States, who reside in their service territories, to provide prompt service to our residential and commercial customers. FSTs undergo comprehensive training on our products and service packages. FSTs are also trained and equipped to handle everything from installation to general day-to-day maintenance or services issues that may come up. Many of our FST’s are independent contractors or third party service organizations whom provide outsourced service personnel for several service providers such as cable or alarm companies.

 

We do not maintain a costly physical warehouse, retail or office locations for our FSTs. Instead, we provide FSTs with adequate supplies of products and materials. Field service inventories are replenished by shipments that are processed through the Zen Plus platform and made from our strategic suppliers straight to the customer’s location. The Zen Plus platform is fully integrated with all of our various trading partners, such as monitoring stations, infrastructure providers, ordering systems, and logistical and shipment systems. Moreover, it provides a user interface and/or log-in capabilities for Zen employees, Zen FST’s, and even for customers, wherein they can make payments, research past billing history or make ad-hoc product purchases. The Zen Plus platform also schedules appointments, routes technicians, and follows up with customers to ensure that every service was performed to their satisfaction.

 

Customer Service and Alarm Monitoring

 

Our customer service center is in Dallas, Texas and is staffed with our employees.  Hours of operation are Mon - Fri from 9:00 am to 6:00 pm Central Standard Time. We have contracted with a third-party for monitoring facilities that are open 24 hours a day, 7 days a week, and 365 days a year. All employees who work in our customer service department undergo training on regulatory requirements, general corporate, product and technical training and billing related issues. Customer service representatives are required to pass background checks and, depending upon their job function, may require licensing by certain state jurisdictions.

 

Key Systems

 

As previously stated above, we have developed our own customized ERP/CRM software platform, which we implemented in August of 2016. This operating platform is an integrated enterprise resource planning and a customer relationship management and billing system, which we’ve aptly named “Zen Plus”. The Zen Plus system is based on a well-established enterprise-scale cloud solution. We believe that the Zen Plus system will be able to scale with our business, providing the flexibility to accommodate the multiple customer support and billing models resulting from the anticipated expansion in our product and service packages over time. It also allows for operational efficiency by not requiring the entry of data multiple times and improving data accuracy.

 

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Billing

 

Customers can enroll through any of our various enrollment websites or by an inbound telesales call into our call center to make their initial order; these orders are paid for electronically either via ACH or credit card. After the initial enrollment process, customers are then billed each month for our monitoring service. This is done electronically through ACH or credit card details each customer provided during their enrollment process, all of which is managed through and by the Zen Plus platform.

 

Competition and Competitive Landscape

 

We believe that the Smart Home industry is disparate and fragmented because of its infancy. To date, there are only a handful of players in the industry that would be considered full-fledged Smart Home Services providers – most of them brand new companies with very little market share. Today, the segment is getting growth from three different types of companies. The first types are traditional home alarm companies; these are longstanding companies that have built legacy businesses out of fear-based marketing tactics in order to sell alarm systems. They are working diligently on pivoting their business models. The second types are hardware manufacturers; these are companies that create some type of hardware and/or line of hardware that can be used and implemented by the user in his/her home. Most these companies sell under the Do-It-Yourself (“DIY”) model; examples include notification devices, cameras, or thermostats. The third type typically encompass local or regional companies (small businesses) that focus on providing low voltage hardwire services while selling high-end entertainment systems.

 

We believe that the only true player in home automation has been industry giant, Crestron Electronics (“Crestron”). This company meets all of the requirements to qualify as a true smart home product line. However, Crestron operates in a niche market of high net worth individuals or families, with product offerings not affordable to the masses. According to most industry experts, the entry-level price for a Crestron system is in the $150,000 range. These types of systems rule out the masses, which is Zen’s target audience – from $100,000- townhomes up to $2,000,000 single-family homes.

 

To further contrast against the industry at large, Zen is positioned as a modern technology and utility company making the Smart Home a reality for the masses by offering affordable home automation, security, and energy conservation/management products and services. Like the bigger, more established players, Zen also offers traditional security services, with a deliberate focus on a customizable turnkey solution for small to medium-sized businesses.

 

Zen Energy, Inc. (Wholly-Owned Subsidiary)

 

Background on Energy Industry and Deregulation

 

Until the 1980s, generation, transmission, distribution and sales/marketing or supply of electricity and natural gas in the United States were conducted by local publicly-funded monopolies. In the 1980s and 1990s, state legislatures began passing laws designed to create competitive retail sales and supply in the natural gas markets. Electricity deregulation in the United States followed approximately a decade later with 24 states  that allow the resale of electricity in one form or another.

 

Electricity Industry Overview

 

There are three primary components of the electricity industry:

 

Generation: Electricity is most often generated at a power plant or station. The industry employs a variety of technologies to generate electricity such as traditional thermal (coal, natural gas, and oil), nuclear power, as well as renewable resources, including wind, water, sunlight, biofuels, and wood waste. Historically, government and private investor-owned utility companies controlled the electricity generation component.

 

Transmission & Distribution: Following the generation of electricity, high voltage transmission lines carry the electricity throughout the power system to electrical substations. In many markets, Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs) manage the electricity flows, maintain reliability, and administer transmission access for the electric transmission grid in a defined region. RTOs and ISOs coordinate and monitor communications among the generator, distributor and Energy Retailer. Additionally, RTOs and ISOs manage the real-time electricity supply and demand. The transmission system is regulated by FERC.

 

Once the electricity has been transmitted through the high voltage power grid, Local Distribution Company’s (LDCs) direct the electricity from the high voltage transmission systems to lower voltage distribution networks, which ultimately connect the ‘‘last mile’’ to the customer. These networks are comprised of lines of various voltage levels, substations, transformers, and meters. These lines are regulated by state public utility commissions and managed by the LDCs.

 

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Retail Sales of Energy (Customer Service & Billing): In states that have authorized deregulation or retail competition, Energy Retailers (also referred to as “Retail Energy Providers”) market and sell electricity to end-users, providing customers with alternatives to purchasing their electricity from their LDC. Energy Retailers typically do not generate electricity and instead buy wholesale electricity from a variety of sources, including, but not limited to, directly from a generation facility, from financial institutions, from the ISOs and RTOs, or from energy companies that actively trade power. Energy Retailers then resell the electricity to end-user customers at unregulated rates, earning the difference between the delivered wholesale price and the end-user price.

 

Retail Electricity Market

 

The retail electricity market can be categorized into two main customer segments: (i) residential and small business, and (ii) large commercial and industrial. Energy Retailers operate in the retail electricity market by providing a variety of renewable, fixed and variable rate electricity contracts to customers for varying periods of time. In general, large commercial and industrial customers are serviced by fixed price contracts for up to five years. By contrast, residential and small-to-medium size commercial customers are typically serviced by short-term month-to-month variable price contracts or fixed term, fixed price contracts for up to one or two years. Some Energy Retailers focus only on one customer segment (e.g. residential), while others focus on the full spectrum of customers.

 

In many cases (dependent by state), Energy Retailers may use the LDC to invoice and collect from customers for energy supply and other costs. Under arrangements entered into between the Energy Retailers and the LDCs, LDCs remain responsible for the delivery of the electricity from the ISO or RTO to the customer’s residence or place of business. This ensures reliability to the markets.

 

Competitive Landscape

 

The deregulation of the electricity industry is a practice that has been occurring since the 1990’s. However, because of the complex nature and various aspects of the energy industry, the pace has been slow. The reason behind this is that the deregulation of the energy industry happens upon two, in some cases, three different frameworks. First, you have the wholesale aspects of the energy industry, which include the building of, owning and managing independent power plants or power trading companies. Secondly, you have the retail aspect of deregulation. In some cases, these happen at a federal level, however, in most cases of the retail aspects of deregulation, this must occur on a state-by-state basis, as it is largely a legislative action. The legislative action must then be followed up and supported by the respective Independent System Operator (ISO), in other words “the grid” in that geographic area.

 

As it pertains to Zen Energy, we plan to enter into and expand into all deregulated energy markets, however, today, we are exclusively concerned with and focused on the retail electric industry in the state of Texas, otherwise known as the ERCOT (Electric Reliability Council of Texas) market.  The deregulation of Texas has been considered by many industry insiders and policy makers as the “poster child for deregulation”, as cited by ABACCUS Report in the Albany Times when reporting that the state of “New York ranked 2 nd best for electricity competition”, after the Texas market taking 1 st place 2 . This is mostly because it has been very successful; it has been an economic stimulus and has fostered competition. Texans pay among the lowest electricity rates in the nation and the age of innovative products in electricity is now showing early signs of potential success. This latter aspect is where Zen Energy plans to differentiate itself from the rest of the market.

 

As of the time of this filing, there are well over 100 entities that are licensed as a Retail Electric Provider in the state of Texas. However, only approximately 60 of these are operational and of these 60, some are focused only on commercial customers, some only on residential, and a few equally on both of these customer demographics. Moreover, of the 60 operational Retail Energy Providers, it is safe to assume that only approximately 15 to 20 are relevant; by this, we mean any Retain Energy Provider that is serving over 10,000 customers.

 

Since 2009 and the constant of low natural gas prices, most markets, including Texas, have experienced a very low cost of goods sold. This has brought most Retail Energy Providers into a margin game where they are paying very little attention to the actual value they could bring to their customers. Very few are focused on their value and even fewer are focused on being different. Most of the differentiation in the market is around who can write their contracts more creatively to fool their customers.

 

Conversely, Zen Energy is entering the market differently with most of our focus on our differentiation and the value we plan to bring to customers. Zen Energy’s plans are different in the following ways:

 

Smart Home Offering: Texas and its consumers have spent a fortune building out a mass smart meter infrastructure that is uniform throughout the entire deregulated territory; however, there is very little to show for this massive investment in the way of product innovation. Zen Energy plans to bring an entire portfolio of Smart Home solutions, thereby making it the first and only company in the industry that can control lighting, air conditioning, major appliances, and the electricity meter. No other Energy Retailer offers this capability.

 

2. See New York Ranks 2 nd -best for electricity competition ( https://www.plymouthenergy.com/new-york-ranks-2nd-best-for-electricity-competition/), Texas Competitive Model Spreads to Pennsylvania and Illinois ( http://www.powermag.com/texas-competitive-model-spreads-to-pennsylvania-and-illinois/) and Growing competitive electricity could make Pennsylvania the next Texas (https://electricityrates.com/growing-competitive-electricity-could-make-pennsylvania-the-next-texas/ ).

 

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Time of Use Products (TOU) and Renewable Focused: Zen Energy plans to offer a fully integrated TOU electricity product to work in conjunction with its smart home solutions to completely integrate a consumer’s behavior with their energy usage. A TOU product offers a variable price throughout the day so that consumers can adjust their behavior to coincide with lower energy prices. Additionally, Zen Energy plans to purchase primarily from renewable sources, so consumers can be assured to know they are doing their part in contributing to a cleaner environment and more sustainable lifestyle.
   
Demand Response: This term essentially means the ability to turn off (or power down) energy-consuming devices during peak times when energy prices are at their highest. In the Texas market place, energy prices change every 15 minutes throughout the day. During the peak season, it’s not uncommon for prices to increase 10, 50, or even 100-fold during super peak hours. Zen Energy will have the opportunity to offer customers on-demand, demand-response options that will allow customers to participate in revenue share opportunities.

 

Energy Business Operations

 

The Company will take advantage of synergies between Zen Technologies and Zen Energy, customer services, marketing, and most all back-office functions would be considered shared services between the companies. The most important functions that require subject matter experts include customer provisioning and energy risk management (procurement, margin control, forecasting, and wholesale settlements). For these two areas, the Company has begun the hiring process for the appropriate managers and executives.

 

Entry into the Energy Marketplace

 

The Company is in the final stages of completing its acquisition of a Texas-based licensed Retail Electric Provider . On January 20, 2017, the Company’s wholly owned subsidiary, Zen Energy, entered into an agreement to acquire 80%  of Enertrade Electric, LLC, (“Enertrade”) a Texas licensed Retail Energy Provider from its members (the “Sellers”). Conditions precedent to closing the transaction include, but are not limited to, (i) the Sellers obtaining all material consents, approvals, permits, authorization from, notifications to, and filings with any governmental entities including, without limitations, the Texas Public Utilities Commission (PUCT) and (ii) all approvals, consents and waivers shall have been obtained from Enertrade’ s wholesale supplier.

 

The purchase price for the interest in Enertrade is $1,500,000 with the initial payment of $500,000 at closing (subject to certain adjustments that may increase or decrease the initial amount) and a $1,000,000 promissory note without interest (subject to be adjusted downward for any increase in the initial payment) and payable in two equal installments, the first of which is due 90 days from the closing date and the second due 180 days from the closing date. The Company was obligated to close this transaction no later than March 21, 2017. Although the Company did not close by this date, the parties have continued to pursue obtaining the required consents in cooperation with Enertrade and the Sellers and have an oral understanding with such parties to extend the closing date while pursuing such consents.

 

As partial consideration for the Sellers’ retention of an interest in Enertrade, the Sellers or their principals agreed to enter into a services agreement pursuant to which the Sellers shall be obligated to present to the Company all opportunities to provide retail electricity and electric services to residential and commercial consumers within the Republic of Mexico as and when such opportunities arise and pursuant to which the Company will agree to purchase electricity supply to service such Republic of Mexico business opportunities accepted by the Company subject to credit terms established by its supplier.

 

Employees

 

As of the date of this filing, we had approximately ten full-time employees, excluding our installation technicians, sales representatives, contract IT developers and certain other support professionals. None of our employees are currently represented by labor unions or trade councils. We believe that we generally have good relationships with our employees. Most our employees are located in the Dallas/Ft. Worth metropolitan area. We maintain a satisfactory working relationship with our employees and have not experienced any labor disputes.

 

Legal Proceedings

 

From time to time, we are involved in various claims and legal actions arising in the ordinary course of business. There are no legal proceedings currently pending against us that we believe would have a material effect on our business, financial position or results of operations, and, to the best of our knowledge, there are no such legal proceedings contemplated or threatened.

 

Item 1A. Risk Factors.

 

Not applicable for a smaller reporting company.

 

  - 10 -  
     

 

Item 2. Financial Information.

 

The Company’s discussion and analysis provides an overview of the Company’s financial activities primarily for the year ended December 31, 2016 since its activities in the restaurant business were discontinued and written off as of December 31, 2015. Since this information is designed to focus on the current year’s activities, resulting changes, and currently known facts, it should be read in conjunction with the audited consolidated financial statements of the Company included in pages F-1 through F-[  ] of this Registration Statement on Form 10 .

 

Balance Sheet   Year Ended December 31  
    2016     2015  
    (Audited)  
Assets    
Cash   $ 51,710     $ -  
Prepaid and other assets     40,750       -  
Total Current assets     92,460       -  
                 
Fixed assets - software       66,710       -  
Total assets   $ 159,170     $ -  
                 
Liabilities                
Accounts payable and accrued expenses   $ 358,594     $ 7,298  
Subscription liability     75,000       -  
Note payable     188,342       132,923  
Total current liabilities     621,936       140,221  
                 
Long term notes payable     233,836       -  
Total liabilities     855,772       140,221  
                 
Shareholders’ Deficit                
Mezzanine equity     494,123     $ 185,500  
Class A Common stock par value $.001, 1,000,000,000 shares authorized 853,262,525 and 540,552,127, respectively issued and outstanding     853,262       540.552  
Class B Common stock par value $.001, 10,000,000 shares authorized,10,000,000 and 0, issued and outstanding respectively     10,000       -  
Additional paid-in capital (deficit)     274,903       (309,121 )
Accumulated deficit     (2,328,890 )     (557,152 )
Total shareholders’ deficit     (1,190,725 )     (140,221 )
Total Liabilities and Shareholders’ Deficit   $ 159,170     $ -  

 

Statement of Operations   Year Ended December 31  
    2016     2015  
    (Audited)        
Continuing Operations                
Revenue   $ 5,051       $  
Cost of goods sold     20,431          
Net Revenue (Loss)     (15,380 )      
Operating Expenses                
Selling, General and administrative expenses     1,522,183       62,546  
Total Operating Expenses     1,522,183       62,546  
Operating Loss     (1,537,563 )     (62,546 )
                 
Interest Expense     (234,175 )     (68,718 )
Loss from Continuing Operations     (1,771,738 )     (131,264 )
                 
Loss from Discontinued Operations     -       (184,592 )
Net Loss   $ (1,771,738 )     $ (315,856 )

 

  - 11 -  
     

 

The Company has accounted for discontinued operations prior to January 1, 2016 under Accounting Standards Update No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity . Under this guidance, a discontinued operation is defined as a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. In November 2015, the Company has exited the restaurant industry and has shifted its strategy to home automation and energy conservation services. Management believes this adequately qualifies as a strategic shift under Update No. 2014-08. As of December 31, 2015, the Company has not generated any revenue from its new services. A reconciliation of amounts included in the statements of operations for the year ended December 31, 2015 as follows:

 

    2015  
Revenue   $ 20,100  
Selling general and administrative expenses     (201,161 )
Other Expenses     (3,531 )
Loss from continued operations   $ (184,592 )

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Certain portions of the statement of operations for the year ended December 31, 2015 have been classified as discontinued operations and therefore are not comparable. Comparative information for continuing operations for 2016 as compared to 2015 follows:

 

Year Ended December 31, 2016 Compared to Year Ended December 31, 2015

 

Certain portions of the statement of operations for the year ended December 31, 2015 have been classified as discontinued operations and therefore are not comparable. Comparative information for continued operations for 2016 as compared to 2015 follows:

 

Operations

 

The Company reported a net loss of $1,771,738 and $315,856 for the twelve months ended December 31, 2016 and 2015, respectively, a loss from continuing operations of $1,537,563 and 62,546 for the same periods and an accumulated deficit of $2,328,890 and $557,152 for the twelve months ended December 31, 2016 and 2015, respectively. The increase in net loss is primarily a result of factors noted below. At December 31, 2016 and 2015, the Company had a working capital deficit of $529,476 and $140,221 respectively, and negative cash flow from continuing operating activity of $1,205,814 and $62,546, respectively, for the twelve months ended December 31, 2016 and 2015.

 

For the year ended December 31, 2016, the Company reported $5,051 in revenue with cost of sales of $20,431 for a gross loss of $15,380 as compared to nil for the year ended December 31, 2015. The increase is primarily a result of the Company’s soft launch of its products during the fourth quarter of 2016.

 

Selling, general and administrative expenses were $ 1,522,183 in 2016 as compared to $62,546 in 2015 for an increase of $1,459,637. This increase is a result of our efforts to launch our current business and consisted primarily of increases in salary and wages of $876,691, legal and professional expense of $138,726, Advertising and promotions of $148,236, travel and entertainment of $74,026 and other expenses totaling $222,715.

 

Liquidity and Capital Resources

 

Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. We had a working capital deficit of $529,476 and $51,710 of cash as of December 31, 2016.

 

Net cash flow used in operating activities was $1,205,814 for the year ended December 31, 2016 as compared to $62,546 for the year ended December 31, 2015, an increase of $1,143,268. The increase is primarily a result of the launch of our current business.

 

Net cash flow used in investing activities was $66,710 for the year ended December 31, 2016 as compared to nil for the year ended December 31, 2015. During the year ended December 31, 2015, the $66,710 was used to develop software.

 

Net cash provided by financing activities was $1,324,234 for the year ended December 31, 2016 as compared to $247,138 for the year ended December 31, 2015. During the year ended December 31, 2016, we received $687,234 from the sale of common stock, $75,000 for subscription for common stock that had yet to be issued and $562,000 from the sale of convertible promissory notes.. During the year ended December 31, 2015, we received net proceeds of $247,138 from the sale of convertible promissory notes.

 

Our primary source of liquidity has been proceeds from the issuance of debt securities and sales of common stock. During the twelve months ended December 31, 2016, the Company issued 2,368,300 shares of its Class A common stock to providers of professional services to the Company, in lieu of the payment of cash for such services. The value of the transactions total approximately $42,500. During the same period, the Company has issued 282,753,210 shares and $687,234. Additionally, during 2016, the Company sold convertible promissory notes totaling $562,000.

 

  - 12 -  
     

 

Subsequent to year end, the Company sold 14,333,334 shares of its restricted Class A common stock for $65,000 in a private placement subject to Rule 144. Additionally, on March 17, 2017, the Company entered into a Securities Purchase Agreement containing convertible promissory notes (the “Notes”) and Warrants. The aggregate principal amount of the Notes is $165,000 to be taken down in two $82,500 tranches of which the Company has taken down the first tranche. The notes are convertible at a price equal to the lower of $.03 per share or 60% of the lowest closing price for the Company’s Common Stock on the Trading Market for the 20 Trading Days prior to the conversion. Additionally, upon funding of each tranche, three year warrants for 500,000 shares of the Company’s restricted Class A common stock shall be granted with an exercise price of $0.03 and $0.05 respectively. 

 

Cash Requirements

 

Our management does not believe that our current capital resources will be adequate to continue operating our company and maintaining our business strategy for more than 12 months. Accordingly, we will have to raise additional capital in the near future to meet our working capital requirements. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, if and when it is needed, we will be forced to scale down or perhaps even cease the operation of our business.

 

Going Concern

 

The accompanying audited financial statements for the twelve months ended December 31, 2016 and 2015 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company reported a net loss of $1,771,738 and $315,856 for the twelve months ended December 31, 2016 and 2015, respectively, and an accumulated deficit of $2,328,890 and $557,152 for the twelve months ended December 31, 2016 and 2015, respectively. At December 31, 2016 and 2015, the Company had a working capital deficit of $529,476 and $140,221 respectively, and negative cash flow from continuing operating activity of $1,205,814 and $62,546, respectively, for the twelve months ended December 31, 2016 and 2015.

 

The Company’s revenue from operations is not sufficient to meet its working capital needs and will be dependent on funds raised to satisfy its ongoing capital requirements for at least the next 12 months. The Company will require additional financing in order to execute its operating plan and continue as a going concern. The Company cannot predict whether this additional financing will be in the form of equity or debt, or be in another form. The Company may not be able to obtain the necessary additional capital on a timely basis, on acceptable terms, or at all.

 

In any of these events, the Company may be unable to implement its current plans for expansion or respond to competitive pressures, any of these circumstances would have a material adverse effect on its business, prospects, financial condition and results of operations.

 

Critical Accounting Policies

 

We have identified the following policies below as critical to its business and results of operations. Our reported results are impacted by the application of the following accounting policies, certain of which require management to make subjective or complex judgments. These judgments involve making estimates about the effect of matters that are inherently uncertain and may significantly impact quarterly or annual results of operations. For all of these policies, management cautions that future events rarely develop exactly as expected, and the best estimates routinely require adjustment. Specific risks associated with these critical accounting policies are described in the following paragraphs.

 

Use of Estimates – The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of sales and expenses during the reporting periods. Key estimates in the accompanying financial statements include, among others, revenue recognition, allowances for doubtful accounts, valuation of long-lived assets, and deferred income tax asset valuation allowances.

 

The financial statements are presented on the basis of the Company’s ability to continue as a going concern. Other than continued current involvement, some transactions prior to December 31, 2015 have been reclassified as discontinued operations in these financial statements. See further information in Note 7. Discontinued Operations .

 

Cash and Cash Equivalents – The Company considers all highly-liquid investments with a maturity of three months or less, when purchased, to be cash equivalents. Cash on-hand at December 31, 2016 were $51,710. There were no cash equivalents on-hand at December 31, 2015.

 

  - 13 -  
     

 

Revenue Recognition - The Company recognizes sales, which include shipping fees where applicable, net of estimated returns, at the time the customer takes possession of merchandise or receives services. When the Company collects payments from customers prior to the transfer of ownership of merchandise or the performance of services, the amounts received are generally recorded as deferred sales, included in other current liabilities on the consolidated balance sheets, until the sale or service is completed. The Company reserves for estimated sales returns based on historical trends in merchandise returns, net of the estimated net realizable value of merchandise inventories to be returned and any estimated disposition costs. Amounts collected from members, which under common trade practices are referred to as sales taxes, are recorded on a net basis.

 

Software Development Costs – The Company capitalizes certain expenditures to the development of its software application. Capitalization begins when technological feasibility is established. Capitalized costs are amortized using the straight-line method over the estimated useful life of the developed product.

 

Beneficial Conversion Feature - The Company accounts for convertible notes payable in accordance with the guidelines established by the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 470-20, Debt with Conversion and Other Options, Emerging Issues Task Force (“EITF”) 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios, and EITF 00-27, Application of Issue No 98-5 To Certain Convertible Instruments. The Beneficial Conversion Feature (“BCF”) of a convertible note is normally characterized as the convertible portion or feature of certain notes payable that provide a rate of conversion that is below market value or in-the-money when issued. The Company records a BCF related to the issuance of a convertible note when issued and records the estimated fair value of any warrants issued with those convertible notes. Beneficial conversion features that are contingent upon the occurrence of a future event are recorded when the contingency is resolved.

 

The BCF of a convertible note is measured by allocating a portion of the note’s proceeds to the warrants, if applicable, and as a discount on the carrying amount of the convertible note equal to the intrinsic value of the conversion feature, both of which are credited to additional paid-in-capital. The value of the proceeds received from a convertible note is then allocated between the conversion features and warrants and the debt on an allocated fair value basis. The allocated fair value is recorded in the financial statements as a debt discount (premium) from the face amount of the note and such discount is amortized over the expected term of the convertible note (or to the conversion date of the note, if sooner) and is charged to interest expense.

 

Recent Accounting Pronouncements

 

We implemented all new accounting standards that are in effect and that may impact its consolidated financial statements. We do not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on the consolidated financial position or results of operations.

 

Off-Balance Sheet Arrangements

 

As of December 31, 2016, we did not have 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 that are material to investors. The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have any obligation arising under a guarantee contract, derivative instrument or variable interest or a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.

 

Item 3. Properties.

 

The Company leases approximately 8,000 square feet of office space under a sublease arrangement on a month to month basis. Rent for this space is $12,000 per month which includes furniture and communications equipment.

 

Item 4. Security Ownership of Certain Beneficial Owners and Management.

 

The following table sets forth information about the beneficial ownership of our Class A Common Stock and Class B Common Stock as of April 7, 2017, by (i) each person known by us to be the beneficial owner of more than 5% of our outstanding capital stock, (ii) each director and each of our named executive officers and (iii) all executive officers and directors as a group.

 

Unless otherwise noted below, the address for each beneficial owner listed on the table is in care of The Chron Organization, Inc., 15505 Long Vista Drive, Suite 250, Austin, Texas 78728. We have determined beneficial ownership in accordance with the rules of the SEC. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in the tables below have sole voting and investment power with respect to all shares of capital stock that they beneficially own, subject to applicable community property laws.

 

  - 14 -  
     

 

In computing the number of shares of Class A Common Stock  beneficially owned by a person and the percentage ownership of that person, we deemed outstanding shares of Class A Common Stock subject to options or issuable upon conversion of preferred stock held by that person that are currently exercisable or exercisable within 60 days of April 7, 2017. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person.

 

Name and Address of Beneficial Owner   Class A Common Stock Beneficial Ownership     Percent of Class (1)     Class B Common Stock Beneficial Ownership     Percent of Class (2)  
Named Executive Officers and Directors:                                
Byron T. Young (3)     237,152,650       24.9 %     5,000,000       50.0 %
Alex Rodriguez (4)     140,000,000       16.3 %     5,000,000       50.0 %
                              -  
All executive officers and directors as a group (two people)     280,652,650       32.7 %             100.0 %
                                 
Other 5% Stockholders:                                
United My Funds, LLC (5)     100,000,000       11.7 %     -       -  

 

* Less than 1%.

 

  (1) Calculated on the basis of 853,262,127 issued and outstanding shares of Class A Common Stock as of April 7, 2017. Share amount excludes shares which Mr. Young has a right to acquire. See Note 3 below. Holders of our Class A Common Stock are entitled to one vote per share.
  (2) Calculated on the basis of 10,000,000 issued and outstanding shares of Class B Common Stock as of April 7, 2017. Holders of our Class B Common Stock are entitled to 100 votes per share.
  (3) Shares consist of 140,652,650 shares owned, 64,333,333 shares issuable upon conversion of promissory notes and 32,166,667 issuable upon exercise of warrants. Calculation of percent are based upon 949,762,127 shares which include the convertible and warrant shares. Shares are owned by various partnerships, retirement accounts and personal account of Mr. Young who beneficial owns such shares. Mr. Young’s address is 4200 South Freeway, #408, Ft. Worth, TX 76115.
  (4) Shares are owned by NAUP Investments, LLC which is an entity owned or controlled by Mr. Rodriguez who is deemed the beneficial owner of such shares. NAUP Investments, LLC’s address is 1861 Brown Blvd, Ste. 217-703, Arlington, TX 76006.
  (5) United My Funds, LLC is an entity owned or controlled by James Yoo. Its address is 2600 Royal Lane #215, Dallas, TX 75229.

 

Item 5. Directors and Executive Officers.

 

The following table sets forth the names, positions and ages of our directors and executive officers as of the date of this Registration Statement. Each director is elected at our annual meeting of shareholders and holds office for three years, or until his successor is elected and qualified. Officers are elected by our board of directors and their terms of office are at the discretion of our board.

 

Name   Age   Position
Alex Rodriguez   42   President, Chief Executive Officer, Chief Financial Officer & Director
Byron T. Young   42   Chairman of the Board & Treasurer

 

Alex Rodriguez has served as our President, Chief Executive Officer, Secretary and as a member of our board of directors since December 2015. Mr. Rodriguez has 15 years of energy experience and a total of 20 years of business experience at the C-Level across the energy, telecom and information technology industries. Mr. Rodriguez is a business development and marketing executive that has successfully launched five different companies that were collectively responsible for nearly $6 billion in sales revenue over the course of his career in the energy industry. This experience includes, but is not limited to the following private companies SYNRG Marketing (Chief Business Officers & Partner) and Utility Choice Electric (VP of Sales & Marketing) from 2001 through 2003, AmPro Energy (VP if Business Development) from 2003 through 2004, Stream Energy and Ignite (Founder & Managing Partner) from 2004 through end of 2009. In August 2004, Mr. Rodriguez co-founded and served as Managing Partner of Stream Energy, a fast-growing retail energy provider that provided electricity and natural gas services to approximately 400,000 customers and grossed over $2 billion within the first four years of operation. Upon his exit from Stream Energy in late 2009, Mr. Rodriguez founded and still serves as Chairman of NAUP Capital, LP (today known as NAUP Investments, LLC), which is an energy holding company and venture development firm with holdings in energy, solar, energy brokerage and energy software related entities. In his position at NAUP, Mr. Rodriguez founded and grew several companies. Diversegy LLC and EPIQ Energy, LLC were among these NAUP projects. Rodriguez served as CEO for these companies and was successful in selling both of these companies to an NYSE publicly traded energy company (Genie Energy) in December of 2013.

 

  - 15 -  
     

 

Diversegy LLC is a national energy brokerage company that advises commercial, industrial and municipal customers regarding their natural gas and power needs. The board of directors believes that Mr. Rodriguez’s experience in business development and successful growth and sales in the energy industry, as well as his understanding of energy sector business operations, will be valuable in executing our business strategy.

 

Byron T. Young has served as our Treasurer and as our Chairman of the Board since December 2015. As the Company’s Chairman, Mr. Young oversees the Company’s vision, growth, strategies and expansion efforts. He has over 20 years of entrepreneurial experience founding several technology-based companies and leading them through an exit strategy and/or into profitable growth stages. His experience encompasses the telecommunications, wireless, software and energy industries. In the early 1990s, Mr. Young founded several paging services companies that operated profitably through the peak of the paging services space. This led him to found a Competitive Local Exchange Carrier (C-LEC) in 2001 under the name of Extel Enterprises, which was ultimately sold to publicly traded Usurf America, Inc. in 2004. Shortly thereafter, Mr. Young founded a Retail Energy Provider in 2005 under the name Young Energy, LLC, which provides electricity and natural gas services to residential and commercial customers in Texas and where Mr. Young currently serves as a senior advisor and board member. Most recently, in 2010, Mr. Young founded Assist Wireless, a wireless communication company providing prepaid cellular voice and data as well as government subsidized lifeline services to over 130,000 customers across four states. He currently serves as CEO of Assist Wireless. The board of directors believes that Mr. Young’s experience founding and operating technology-based companies provides him with an intimate knowledge of our day-to-day operations, business and competitive environment, as well as our opportunities, challenges and risks.

 

Involvement in Certain Legal Proceedings

 

None of our directors, executive officers, significant employees or control persons has been involved in any legal proceeding listed in Item 401(f) of Regulation S-K in the past 10 years.

 

Corporate Governance

 

Our board of directors has not established any committees, including an audit committee, a compensation committee or a nominating committee, or any committee performing a similar function. The functions of those committees are being undertaken by our board. Because we do not have any independent directors, our board believes that the establishment of committees of our board would not provide any benefits to our company and could be considered more form than substance.

 

We do not have a policy regarding the consideration of any director candidates that may be recommended by our stockholders, including the minimum qualifications for director candidates, nor has our officers and directors established a process for identifying and evaluating director nominees. We have not adopted a policy regarding the handling of any potential recommendation of director candidates by our stockholders, including the procedures to be followed. Our officers and directors have not considered or adopted any of these policies as we have never received a recommendation from any stockholder for any candidate to serve on our board of directors.

 

Given our relative size and lack of directors’ and officers’ insurance coverage, we do not anticipate that any of our stockholders will make such a recommendation in the near future. While there have been no nominations of additional directors proposed, in the event such a proposal is made, all current members of our board will participate in the consideration of director nominees.

 

As with most small, early stage companies until such time as we further develop our business, achieve a stronger revenue base and have sufficient working capital to purchase directors’ and officers’ insurance, we do not have any immediate prospects to attract independent directors. When we are able to expand our board to include one or more independent directors, we intend to establish an audit committee of our board of directors. It is our intention that one or more of these independent directors will also qualify as an audit committee financial expert. Our securities are not quoted on an exchange that has requirements that a majority of our board members be independent and we are not currently otherwise subject to any law, rule or regulation requiring that all or any portion of our board of directors include “independent” directors, nor are we required to establish or maintain an audit committee or other committee of our board.

 

Code of Ethics

 

We expect that we will adopt a code of business conduct and ethics that applies to all of our employees, officers and directors, including those officers responsible for financial reporting. Once adopted, we will make the code of business conduct and ethics available on our website at www.chronorganization.com . We intend to post any amendments to the code, or any waivers of its requirements, on our website.

 

  - 16 -  
     

 

Board Structure

 

Our Board has not chosen to separate the positions of Chief Executive Officer and Chairman of the Board in recognition of the fact that our operations are sufficiently limited that such separation would not serve any useful purpose.

 

Role of Board in Risk Oversight Process

 

Management is responsible for the day-to-day management of risk and for identifying our risk exposures and communicating such exposures to our board. Our board is responsible for designing, implementing and overseeing our risk management processes. The board does not have a standing risk management committee, but administers this function directly through the board as a whole. The whole board considers strategic risks and opportunities and receives reports from its officers regarding risk oversight in their areas of responsibility as necessary. We believe our board’s leadership structure facilitates the division of risk management oversight responsibilities and enhances the board’s efficiency in fulfilling its oversight function with respect to different areas of our business risks and our risk mitigation practices.

 

Communications with the Board of Directors

 

Stockholders with questions about the Company are encouraged to contact the Company by sending communications to the attention of the Chief Executive Officer at 15505 Long Vista Drive, Suite 250, Austin, Texas 78728. If stockholders feel that their questions have not been sufficiently addressed through communications with the Chief Executive Officer, they may communicate with the Board of Directors by sending their communications to the Board of Directors, c/o the Chief Executive Officer at the same address.

 

Director Compensation

 

Historically, our non-employee directors have not received compensation for their service outside the compensation set forth in the Summary Compensation Table below, but we may compensate our directors for their service in the future. We reimburse our non-employee directors for reasonable travel expenses incurred in attending board and committee meetings. We also intend to allow our non-employee directors to participate in any equity compensation plans that we adopt in the future.

 

Item 6. Executive Compensation.

 

EXECUTIVE COMPENSATION

 

The following table summarizes all compensation recorded by us in the past two fiscal years for:

 

  our principal executive officer or other individual serving in a similar capacity,
     
  our two most highly compensated executive officers other than our principal executive officer who were serving as executive officers at December 31, 2015 whose compensation exceed $100,000, and
     
  up to two additional individuals for whom disclosure would have been required but for the fact that the individual was not serving as an executive officer at December 31, 2016.

 

For definitional purposes, these individuals are sometimes referred to as the “named executive officers.”

 

2016 Summary Compensation Table

 

Name and Principal Position   Fiscal Year Ended     Salary ($)     Bonus  ($)     Stock Awards ($)     Option Awards ($)     All Other Compensation ($)     Total ($)  
Alejandro Rodriguez (1)     12/31/2016       180,000       -       -       -       -       180,000  
Byron T. Young (2)     12/31/2016       102,000       -       -       -       -       102,000  
      12/31/2015       -       -       -       -       -       -  

 

  (1) Mr. Rodriguez was appointed as a Director and our President on November 23, 2015 and as our Chief Executive Officer on February 4, 2016 in addition to the offices he previously held.
     
  (2) Mr. Young was appointed as Chairman of the Board, Chief Executive Officer, Secretary and Treasurer of the Company on November 18, 2015 and on February 4, 2016 relinquished his role as Chief Executive Officer upon the appointment of Mr. Rodriguez to such position.

 

  - 17 -  
     

 

Executive Employment Agreements

 

The Company has an oral agreement with Mr. Rodriguez pursuant to which he receives a salary of $180,000 per year for his services as our President, Chief Executive Officer and Chief Financial Officer. During the twelve months ended December 31, 2016, Mr. Rodriguez was paid $160,000 and has accrued the balance of $20,000.

 

Mr. Young currently receives $102,000 per year as compensation for his services as Chairman of the Board. Mr. Young has not been paid and has accrued the balance.

 

Neither of Messrs. Rodriguez or Young received a salary or any other compensation for the years ended December 31, 2014 and 2015.

 

Historically, our directors that are employees of the Company have not received compensation for their service as directors. The Company may adopt a policy to compensate independent members of our board in the future.

 

Outstanding Equity Awards At Fiscal Year End

 

None.

 

Item 7. Certain Relationships and Related Transactions, and Director Independence.

 

Stock Purchases

 

On February 1, 2016, the Company entered into a Stock Purchase Agreement with Mr. Alex Rodriguez, its President, Chief Executive Officer, Chief Financial Officer and director pursuant to which Mr. Rodriguez purchased 2,000,000 of the Company’s shares of the Company’s Class B Common Stock in exchange for $6,000. On February 1, 2016, the Company also entered into a Stock Purchase Agreement with Mr. Byron Young, its Chairman, pursuant to which Mr. Young purchased 2,000,000 of the Company’s shares of Class B Common Stock in exchange for $6,000.

 

On June 30, 2016, the Company entered into a Stock Purchase Agreement with Mr. Rodriguez pursuant to which Mr. Rodriguez purchased 3,000,000 shares of the Company’s Class B Common Stock for $9,000. On June 30, 2016, the Company also entered into a Stock Purchase Agreement with Mr. Young pursuant to which he purchased 3,000,000 shares of the Class B Common Stock for $9,000.

 

On July 1, 2016, the Company exchanged 165,000,000 shares of the Company’s unregistered shares of common stock for 100% of the outstanding common stock of Chron Energy, Inc. (“CEI”), a Nevada corporation to related parties in which Alex Rodriguez had a 50% beneficial interest.

 

Loan from Chairman

 

On November 20, 2015, the Company issued a convertible secured promissory note in the amount of up to $200,000 of which $193,000 in loan advances have been made by Mr. Young to the Company. Interest on the amount outstanding under the note accrues at an annual rate equal to the lesser of 2.0% or the highest lawful rate, as defined in the note. The outstanding principal amount and all accrued and unpaid interest shall be due and payable on December 31, 2016 . Through an amendment to the note, the due date has been extended to April 1, 2017.

 

The note may be prepaid in whole or in part without premium or penalty to the extent that Mr. Young has not exercised his conversion rights.

 

Upon an event of default, Mr. Young may declare all amounts due under the note due and payable without the need to give notice or demand. Events of default under the note include the failure to pay any amount due under the note and a failure to remedy the nonpayment within five calendar days and the bankruptcy, liquidation, reorganization, dissolution, winding up or other similar event of the Company. From and after the occurrence of an event of default, amounts due under the note shall bear interest at a rate per annum equal to the lesser of 18% or the highest lawful rate, payable on demand.

 

Mr. Young has the option at any time and from time to time to convert all or a portion of the outstanding principal amount and accrued interest under the note into shares of the Company’s Class A Common Stock at a conversion price of $0.003, subject to adjustment in the event of any stock dividend, stock split, combination and reclassification of our Common Stock.

 

The note may be transferred upon prior written notice to the Company to ensure compliance with applicable federal and state securities laws.

 

  - 18 -  
     

 

In further consideration for the $200,000 loan to the Company, the Company issued Mr. Young a warrant to purchase 32,166,667 shares of its Class A Common Stock that may be exercised in whole or in part at any time and from time to time until the last calendar day of the month in which the fifth anniversary of the issuance date occurs.

 

The exercise price of the warrant is the greater of (i) $0.05 or (ii) 200% of the conversion price per share of Common Stock as defined in the convertible promissory note. If the market price of one share of Common Stock is greater than the exercise price, Mr. Young may elect a cashless exercise pursuant to the terms set forth in the warrant.

 

The exercise price and the number of shares of Common Stock purchasable upon the exercise of the warrant are subject to adjustment upon the occurrence of specific events, including stock dividends, stock splits, combinations and reclassifications of our Common Stock, as well as the issuance of options or other rights to purchase Common Stock at a price less than the exercise price of the warrant.

 

Subject to applicable laws, the warrant may be transferred at Mr. Young’s option in compliance with applicable federal and state securities laws.

 

Policy Regarding Transactions with Related Persons

 

We do not have a formal, written policy for the review, approval or ratification of transactions between us and any director or executive officer, nominee for director, 5% stockholder or member of the immediate family of any such person that are required to be disclosed under Item 404(a) of Regulation S-K. However, our policy is that any activities, investments or associations of a director or officer that create, or would appear to create, a conflict between the personal interests of such person and our interests must be assessed by our Chief Executive Officer and must be at arms’ length.

 

Item 8. Legal Proceedings.

 

None

 

Item 9. Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters.

 

Our Class A common stock is currently quoted on the OTC Pink tier of the OTC Markets Group under the symbol “CHRO”. The OTC Market is a computer network that provides information on current “bids” and “asks”, as well as volume information.

 

The following table sets forth the range of high and low closing bid quotations for our common stock for each of the periods indicated as reported by the OTC Markets. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

 

2015   Low     High  
Jan 1 - Mar 31     0.0005       0.0026  
Apr 1 - Jun 30     0.0005       0.0013  
July 1 - Sep 30     0.0004       0.0007  
Aug 1 - Dec 31     0.0001       0.0038  
2016                
Jan 1 - Mar 31     0.0020       0.0391  
Apr 1 - Jun 30     0.0248       0.0550  
July 1 - Sep 30     0.0201       0.0403  
Aug 1 - Dec 31     0.0225       0.0300  

 

Holders of Common Stock

 

As of April 7, 2017, 853,262,525 shares of our Class A Common Stock were issued and outstanding and held by approximately 1,191 holders of record. As of this same date, 10,000,000 shares of our Class B Common Stock were issued and outstanding and held by approximately two holders of record. We have not issued any shares of Preferred Stock.

 

  - 19 -  
     

 

The following table sets forth the number of shares of Class A Common Stock subject to outstanding warrants and underlying a convertible promissory notes.

 

    December 31 2016     December 31 2015  
Convertible promissory notes   $ 25,000,000     $ 20,000,000  
Related party convertible promissory notes     64,333,333       43,666,667  
Related Party Warrants     32,166,667       21,833,333  
Warrants     10,000,000        
Dilutive shares outstanding   $ 131,500,000     $ 85,500,000  

 

The Company has not paid a dividend to holders of its Common Stock. We currently intend to retain any earnings to finance growth and development of our business and do not anticipate paying cash dividends in the near future.

 

Dividends

 

We have never declared or paid dividends on our common stock. Moreover, we currently intend to retain any future earnings for use in our business and, therefore, do not anticipate paying any dividends on our common stock in the foreseeable future.

 

Item 10. Recent Sales of Unregistered Securities.

 

During the three years ended December 31, 2016, the Company issued shares as follows:

 

On November 20, 2015, the Company issued a convertible secured promissory note in the amount up to $200,000 of which $193,000 in loan advances have been made by Mr. Young to the Company. Interest on the amount outstanding under the note accrues at an annual rate equal to the lesser of 2.0% or the highest lawful rate, as defined in the note. The outstanding principal amount and all accrued and unpaid interest shall be due and payable on December 31, 2016. Through an amendment to the note, the due date has been extended to April 1, 2017. As of December 31, 2016, the outstanding principal and accrued interest due totals $196,386.

 

The holder of the note has the option at any time and from time to time to convert all or a portion of the outstanding principal amount and accrued interest under the note into shares of the Company’s Class A Common Stock at a conversion price of $0.003, subject to adjustment in the event of any stock dividend, stock split, combination and reclassification of our Common Stock

 

As of December 31, 2016, warrants to purchase 32,166,667 shares of Class A Common Stock was issued and outstanding. The warrants were issued in connection with the related party convertible promissory notes and are exercisable in whole or in part at any time and from time to time until the last calendar day of the month in which the fifth anniversary of the issuance date occurs.

 

On September 6, 2016, the Company issued a Convertible Promissory Note totaling $300,000 to a third-party (the “September 2016 Convertible Promissory Note”). The September 2016 Convertible Promissory Note matures on September 5, 2018, and accrues interest at a rate of 10% per annum. As of December 31, 2016, the outstanding principal and accrued interest balance was $300,000 and $9,945, respectively.

 

On November 25, 2016, the Company issued two Convertible Promissory Notes totaling $200,000 to third-parties (the “November 2016 Convertible Promissory Notes”). The November 2016 Convertible Promissory Notes mature on November 24, 2017, and accrues interest at a rate of 10% per annum. As of December 31, 2016, the outstanding principal and accrued interest balance was $200,000 and $2,027, respectively.

 

On February 1, 2016, the Company entered into a Stock Purchase Agreement with Mr. Alex Rodriguez, its President, Chief Executive Officer, Chief Financial Officer and director pursuant to which Mr. Rodriguez purchased 2,000,000 of the Company’s shares of the Company’s Class B Common Stock in exchange for $6,000. On February 1, 2016, the Company also entered into a Stock Purchase Agreement with Mr. Byron Young, its Chairman, pursuant to which Mr. Young purchased 2,000,000 of the Company’s shares of Class B Common Stock in exchange for $6,000.

 

On June 30, 2016, the Company entered into a Stock Purchase Agreement with Mr. Rodriguez pursuant to which Mr. Rodriguez purchased 3,000,000 shares of the Company’s Class B Common Stock for $9,000. On June 30, 2016, the Company also entered into a Stock Purchase Agreement with Mr. Young pursuant to which he purchased 3,000,000 shares of the Class B Common Stock for $9,000.

 

On July 1, 2016, the Company exchanged 165,000,000 shares of the Company’s unregistered shares of Class A Common Stock for 100% of the outstanding common stock of Chron Energy, Inc. (“CEI”), a Nevada corporation to related parties in which Alex Rodriguez had a 50% beneficial interest.

 

  - 20 -  
     

 

Issuances of Class A Common Stock, par value $0.001:  

 

  During the year ended December 31, 2015, the Company issued 398,184,100 shares upon conversion of $63,028 of convertible notes.
     
  During the year ended December 31, 2016, the Company issued 286,798,255 shares on conversion of $122,500 of convertible notes.
     
  During the year ended December 31, 2016, the Company issued 2,368,300 shares for services valued at $42,500.
     
  During the year ended December 31, 2016, the Company issued 2,368,300 shares for cash consideration totaling $762,234.

 

Issuances of Class B Common Stock, par value $0.001:

 

  During the year ended December 31, 2016, the Company issued 10,000,000 shares to related parties for cash consideration totaling $30,000.

 

Subsequent to December 31, 2016 the Company issued the following:

`

Issuances of Class A Common Stock, par value $0.001:

 

  Subsequent to December 31, 2016, the company received $65,000 in stock subscriptions for the for the issuance of 4,333,334 shares of Class A Common Stock.

 

The shares of Class A Common Stock, Class B Common Stock, convertible notes and warrants issued by the Company were issued in reliance upon the exemption from securities registration afforded by the provisions of Section 4(a)(2) of the Securities Act of 1933, as amended, (“Securities Act”).

 

The Class A Common Stock issued in connection with the conversion of a convertible note were issued in reliance upon the exemption from securities registration afforded by the provisions of Section 3(a)(9) of the Securities Act.

 

Item 11. Description of Registrants Securities Registered.

 

At December 31, 2016, the Company’s Amended and Restated Articles of Incorporation authorize 1,510,000,000 shares for issuance, each with a par value of $0.001 per share, as follows: 1,000,000,000 shares of Class A Common Stock, 10,000,000 shares of Class B Common Stock and 500,000,000 shares of Preferred Stock. As of December 20, 2016, 851,342,649 shares of our Class A Common Stock and 10,000,000 shares of our Class B Common Stock were issued and outstanding. There are no shares of Preferred Stock outstanding.

 

Effective March 2, 2017, the Company amended its Amended and Restated Articles of Incorporation as follows.

 

Article Five was amended to set the aggregate number of shares which the Corporation shall have the authority to issue at 1,500,000,000 shares, of which 1,450,000,000 shares shall be Class A Common Stock, par value $.001 per share (the “Class A Common Stock”), 10,000,000 shares shall be Class B Common Stock, par value $.001 per share (the “Class B Common Stock”) and 40,000,000 shares shall be Preferred Stock, par value $.001 per share (the “Preferred Stock”) of which, 2,000,000 shares are designated as “Series A Preferred Stock”. The rights, preferences and restrictions for the Series A Preferred Stock are set forth in the new Article Five, Section C which includes the following:

 

1. DESIGNATION OF SERIES. (a) There shall be a series of the Preferred Stock of the Corporation which shall be designated as the “Series A Preferred Stock,” $0.001 par value, and the number of shares constituting such series shall be Two million (2,000,000). Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, however, that no decrease shall reduce the number of shares of Series A Preferred Stock to a number less than that of the shares then outstanding.
   
2. DIVIDENDS. The holders of Series A Preferred Stock shall not be entitled to receive dividends paid on the Common Stock.
   
3. LIQUIDATION PREFERENCE. The holders of Series A Preferred Stock shall not be entitled to any liquidation preference.
   
4. VOTING. Except as otherwise expressly set forth herein or as required by law, the holders of the Series A Preferred Stock shall not entitle the holders thereof to vote on any matter submitted for shareholder action, and the consent of the holders thereof shall not be required for the taking of any corporate action.

 

  - 21 -  
     

 

5. CONVERSION RIGHTS. The holders of the shares of Series A Preferred Stock shall have the right to convert the Series A Preferred Stock into Class A Common Stock at the rate of ten (10) common shares for each preferred share (10-1 conversion rate) (the “Conversion Right”). The holder of the Series A Preferred Stock shall be entitled to exercise the Conversion Right one year from purchase date of the Series A Preferred Stock.
   
6. REDEMPTION RIGHTS; REDEMPTION. To the extent not prohibited by law, all or a portion of the then-outstanding shares of Series A Preferred Stock may be redeemed by the Corporation for a period of one year from the date of issuance at an amount equal to one hundred thirty percent (130%) of the original issue price.

 

Article Seven was amended by deleting the existing Article Seven and adding a new Article 7 as follows:

 

Rights of Holders of Common Stock. The following rights, powers, privileges and restrictions, qualifications, and limitations apply to the Common Stock.

 

(a) General . The voting, dividend and liquidation rights of the holders of the Common Stock are subject to and qualified by the rights, powers and privileges of the holders of the Series A Preferred Stock.

 

(b) Voting . The holders of the Class A Common Stock are entitled to one vote for each share of Class A Common Stock held at all meetings of stockholders (and written actions in lieu of meetings) and the holders of the Class B Common Stock are entitled to 200 votes for each share of Class B Common Stock held at all meetings of stockholders (and written actions in lieu of meetings). Unless required by law, there shall be no cumulative voting. The number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by (in addition to any vote of the holders of one or more series of Series A Preferred Stock that may be authorized by the Board) the affirmative vote of the holders of shares of capital stock of the Corporation representing a majority of the votes represented by all outstanding shares of capital stock of the Corporation entitled to vote. Further, holders of the Common Stock shall have no right to vote on the designations, preferences, limitations and relative or other rights of the Series A Preferred Stock or any series thereof (collectively, the “Preferences”), or on any amendment, alteration or repeal of the Preferences or the Series A Preferred Stock, at any time, whether before or after the issuance thereof.

 

Convertible Secured Promissory Notes and Warrants

 

Related Party Convertible Promissory Note

 

On November 20, 2015, the Company issued a convertible secured promissory note in the amount up to $200,000 of which $193,000 in loan advances have been made by Mr. Young to the Company. Interest on the amount outstanding under the note accrues at an annual rate equal to the lesser of 2.0% or the highest lawful rate, as defined in the note. The outstanding principal amount and all accrued and unpaid interest shall be due and payable on December 31, 2016. Through an amendment to the note, the due date has been extended to April 1, 2017. As of December 31, 2016, the outstanding principal and accrued interest due totals $196,386.

 

The note may be prepaid in whole or in part without premium or penalty to the extent that the payee has not exercised its conversion rights.

 

Upon an event of default, the payee may declare all amounts due under the note due and payable without the need to give notice or demand. Events of default under the note include the failure to pay any amount due under the note and a failure to remedy the nonpayment within five calendar days and the bankruptcy, liquidation, reorganization, dissolution, winding up or other similar event of the Company. From and after the occurrence of an event of default, amounts due under the note shall bear interest at a rate per annum equal to the lesser of 18% or the highest lawful rate, payable on demand.

 

The holder of the note has the option at any time and from time to time to convert all or a portion of the outstanding principal amount and accrued interest under the note into shares of the Company’s Class A Common Stock at a conversion price of $0.003, subject to adjustment in the event of any stock dividend, stock split, combination and reclassification of our Class A Common Stock.

 

The note may be transferred upon prior written notice to the Company to ensure compliance with applicable federal and state securities laws.

 

Related Party Warrants

 

As of December 31, 2016, warrants to purchase 32,166,667 shares of Class A Common Stock was issued and outstanding. The warrants were issued in connection with the related party convertible promissory notes and are exercisable in whole or in part at any time and from time to time until the last calendar day of the month in which the fifth anniversary of the issuance date occurs.

 

  - 22 -  
     

 

The exercise price of the warrants is $0.03. If the market price of one share of Class A Common Stock is greater than the exercise price, the holder of the warrant may elect a cashless exercise pursuant to the terms set forth in the warrant.

 

The exercise price and the number of shares of Class A Common Stock purchasable upon the exercise of the warrant are subject to adjustment upon the occurrence of specific events, including stock dividends, stock splits, combinations and reclassifications of our Common Stock, as well as the issuance of options or other rights to purchase Class A Common Stock at a price less than the exercise price of the warrant.

 

Subject to applicable laws, the warrant may be transferred at the option of the holder in compliance with applicable federal and state securities laws.

 

September 6, 2016 Convertible Promissory Note

 

On September 6, 2016, the Company issued a Convertible Promissory Note totaling $300,000 to a third-party (the “September 2016 Convertible Promissory Note”). The September 2016 Convertible Promissory Note matures on September 5, 2018, and accrues interest at a rate of 10% per annum. As of December 31, 2016, the outstanding principal and accrued interest balance was $300,000 and $9,945, respectively.

 

The Holder of the Convertible Promissory Note has the right to convert all or any part of the outstanding principal and accrued interest to shares of common stock of the Company. The Convertible Promissory Note can be converted by the Holder in part from time to time after the issuance date by submitting notice of conversion. The September 2016 Convertible Promissory Note is convertible at the option of the Holder into that number of shares of the Company’s common stock determined by dividing such principal amount and accrued interest by the Conversion Rate. The Conversion Rate is defined as seventy percent (70%) of the volume weighted average price over the prior ten (10) day trading period from the date of notice of conversion, but in no event shall the Conversion price be less than $0.02.

 

In connection with the September 2016 Convertible Promissory Note, the Holder was issued 6,000,000 warrants to purchase shares of Class A Common Stock exercisable at $0.05 expiring in September 2019.

 

September 6, 2016 Convertible Promissory Notes

 

On November 25, 2016, the Company issued two Convertible Promissory Notes totaling $200,000 to third-parties (the “November 2016 Convertible Promissory Notes”). The November 2016 Convertible Promissory Notes mature on November 24, 2017, and accrues interest at a rate of 10% per annum. As of December 31, 2016, the outstanding principal and accrued interest balance was $200,000 and $2,027, respectively.

 

The Holder of the Convertible Promissory Note has the right to convert all or any part of the outstanding principal and accrued interest to shares of common stock of the Company. The Convertible Promissory Note can be converted by the Holder in part from time to time after the issuance date by submitting notice of conversion. The November 2016 Convertible Promissory Notes are convertible at the option of the Holder into that number of shares of the Company’s common stock determined by dividing such principal amount and accrued interest by the Conversion Rate. The Conversion Rate is defined as seventy percent (70%) of the volume weighted average price over the prior ten (10) day trading period from the date of notice of conversion, but in no event, shall the Conversion price be less than $0.02.

 

In connection with the November 2016 Convertible Promissory Notes, the Holders were issued 4,000,000 warrants to purchase shares of Class A Common Stock exercisable at $0.05 expiring in November 2019.

 

Anti-Takeover Effects of Various Provisions of Nevada Law and Our Amended and Restated Articles of Incorporation

 

Provisions of the Nevada Revised Statutes (“NRS”) and our Amended and Restated Articles of Incorporation and Amended and Restated Bylaws could make it more difficult to acquire us by means of a tender offer, a proxy contest or otherwise, or to remove incumbent officers and directors. These provisions, summarized below, would be expected to discourage certain types of coercive takeover practices and takeover bids our board of directors may consider inadequate and to encourage persons seeking to acquire control of us to first negotiate with us. We believe that the benefits of increased protection of our ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us will outweigh the disadvantages of discouraging takeover or acquisition proposals because, among other things, negotiation of these proposals could result in an improvement of their terms.

 

  - 23 -  
     

 

Blank Check Preferred Stock

 

Our Amended and Restated Articles of Incorporation provide for the authority to issue up to 40,000,000 shares of “blank check” Preferred Stock, of which 2,000,000 have been designated as Series A Preferred Stock as described above. The balance of the Preferred Stock, which if issued, could make it more difficult and could discourage a third party from acquiring us.

 

Prohibition on Cumulative Voting

 

Our Amended and Restated Articles of Incorporation prohibit cumulative voting in the election of directors.

 

Removal of Directors

 

Our Amended and Restated Bylaws provide that a director may only be removed from office for cause by a vote of the majority of shares entitled to vote at a meeting of the shareholders held for the purpose of removing a director.

 

Authorized but Unissued Shares

 

Our authorized but unissued shares of Common Stock and Preferred Stock are available for future issuance without shareholder approval. The existence of authorized but unissued shares of Common Stock and Preferred Stock could render more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.

 

Interested Stockholder Statute

 

We are subject to Nevada’s Combination with Interested Stockholders Statute (NRS Law Sections

78.411 and 78.444) which prohibits an “interested stockholder” from entering into a “combination” with the Company, unless certain conditions are met. An “interested stockholder” is a person who, together with affiliates and associates, beneficially owns (or within the prior two years, did beneficially own) 10% or more of the Company’s capital stock entitled to vote.

 

Limitations on Liability and Indemnification of Officers and Directors

 

NRS limits or eliminates the personal liability of directors to corporations and their stockholders for monetary damages for breaches of directors’ fiduciary duties as directors. Our Amended and Restated Articles of Incorporation include provisions that require the Company to indemnify, to the fullest extent allowable under the NRS, our directors or officers against monetary damages for actions taken as a director or officer of our company, or for serving at our request as a director or officer or another position at another corporation or enterprise, as the case may be. Our Amended and Restated Articles of Incorporation also provide that we must indemnify and advance reasonable expenses to our directors and officers, subject to our receipt of an undertaking from the indemnified party as may be required under the NRS. We are also expressly authorized to carry directors’ and officers’ insurance to protect our company, our directors, officers and certain employees for some liabilities.

 

The limitation of liability and indemnification provisions under the NRS and in our Amended and Restated Articles of Incorporation may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duties. These provisions may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. However, these provisions do not limit or eliminate our rights, or those of any stockholder, to seek non-monetary relief such as injunction or rescission in the event of a breach of a director’s fiduciary duties. Moreover, the provisions do not alter the liability of directors under the federal securities laws.

 

Transfer Agent and Registrar

 

The registrar and transfer agent for our Common Stock is Securities Transfer Agent Corp located at 2591 Dallas Parkway, Suite 102, Frisco, Texas 75034, (466) 633-0101.

 

Item 12. Indemnification of Directors and Officers.

 

Subsection 1 of Section 78.7502 of the NRS empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (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 or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding if he or she (i) is not liable pursuant to Section 78.138 of the NRS or (ii) acted 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, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. Section 78.138 of the NRS provides that, with certain exceptions, a director or officer is not individually liable to the corporation or its stockholders or creditors for any damages as a result of any act or failure to act in his or her capacity as a director or officer unless it is proven that (i) his or her act or failure to act constituted a breach of his or her fiduciary duties as a director or officer, and (ii) his or her breach of those duties involved intentional misconduct, fraud or a knowing violation of law.

 

  - 24 -  
     

 

Subsection 2 of Section 78.7502 empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person acted in any of the capacities set forth above against expenses, including amounts paid in settlement and attorneys’ fees actually and reasonably incurred by him or her in connection with the defense or settlement of such action or suit if he or she (i) is not liable pursuant to Section 78.138 of the NRS, or (ii) acted in good faith and in a manner which he or she reasonably believes to be in or not opposed to the best interests of the corporation, except that no indemnification may be made in respect of any claim, issue or matter as to which such person shall have been adjudged by a court of competent jurisdiction to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that the court in which such action or suit was brought or other court of competent jurisdiction determines that, in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper.

 

Section 78.7502 further provides that to the extent that a director, officer, employee or agent of a corporation has been successful in the defense of any action, suit or proceeding referred to in subsections (1) and (2), or in the defense of any claim, issue or matter therein, he or she shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by him or her in connection with the defense. Subsection 3 of Section 78.751 of the NRS provides that the indemnification provided for by Section 78.7502 does not exclude any other rights to which the indemnified party may be entitled (except that indemnification will generally not be available to a director or officer if a final adjudication establishes that his or her acts or omissions involved intentional misconduct, fraud or a knowing violation of the law and was material to the cause of action) and that the indemnification shall continue for directors, officers, employees or agents who have ceased to hold such positions, and inures to the benefit of their heirs, executors and administrators.

 

Section 78.752 of the NRS empowers the corporation to purchase and maintain insurance or make other financial arrangements on behalf of a 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 or other enterprise, for any liability asserted against him or her and expenses incurred by him or her in any such capacity or arising out of his or her status as such whether or not the corporation has the power to indemnify him or her against such liabilities or expenses. We maintain a customary directors’ and officers’ liability insurance policy.

 

Our Amended and Restated Articles of Incorporation provide that the Company shall, to the fullest extent permitted by law, indemnify any person who was, is, or is threatened to be made a defendant or respondent to any threatened, pending or completed action, suit or proceeding and any investigation that could lead to such action, suit or proceeding, because such person is or was a director or officer of the Company, or, while a director or officer, is or was serving at the request of the Company as a director, officer, partner or other agent of another corporation or other entity, against any judgments, penalties, fines, settlements and reasonable expenses (including attorneys’ fees) actually incurred by such person in connection with such action, suit or proceeding. In addition, the Company is authorized to advance such reasonable expenses to such person for such actions.

 

Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the “Securities Act”), may be permitted to our directors, officers or control persons pursuant to the foregoing provisions, we have been informed 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.

 

Item 13. Financial Statements and Supplementary Data.

 

The audited consolidated financial statements of the Company are included in pages F-1 through F-[13] of this registration statement on Form 10.

 

Item 14. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

 

None

 

  - 25 -  
     

 

Item 15. Financial Statements and Exhibits.

 

(a) (a) The following financial statements are filed as part of this registration statement on Form 10 and incorporated herein by reference:

 

Report of Independent Registered Public Accounting Firm F-2
 
Consolidated Balance Sheets as of December 31, 2016 and 2015

F-3

   
Consolidated Statements of Operations for the Years Ended December 31, 2016 and 2015 F-4
   
Consolidated Statement of Shareholders’ Deficit for the Two Years Ended December 31, 2016

F-5

   
Consolidated Statements of Cash Flows for the Years Ended December 31, 2016 and 2015

F-6

   
Notes to Consolidated Financial Statements

F-7

 

(b) Exhibits:

 

Exhibit No.   Description
     
2.1   Agreement and Plan of Merger among The Chron Organization, Inc. and Chron Energy, Inc. dated as of April 1, 2016.
     
3.1   Amended and Restated Articles of Incorporation filed with the Nevada Secretary of State on February 11, 2016.
     
3.2   Certificate of Amendment to Amended and Restated Articles of Incorporation filed with the Nevada Secretary of State on March 2, 2017.
     
3.3   Amended and Restated Bylaws effective as of February 1, 2016.
     
4.1   10% Original Issue Discount Convertible Debenture dated March 17, 2017 issued by The Chron Organization, Inc. to Bellridge Capital LLC.
     
4.2   Common Stock Purchase Warrant dated March 17, 2017 issued by The Chron Organization, Inc. to Bellridge Capital LLC.
     
10.1   Form of Securities Purchase Agreement for Convertible Note and Warrants.
     
10.2   Equity Interest Purchase Agreement among Zen Energy, Inc., Luccirelli & Gomez, LLC, TCN Holdings, LLC, Genaro Gomez Castanares and Donnie Goodwin dated as of January 20, 2017.
     
10.3   Securities Purchase Agreement among The Chron Organization, Inc. and certain investors dated March 17, 2017.
     
21.1   List of Subsidiaries.

 

  - 26 -  
     

 

SIGNATURES

 

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.

 

THE CHRON ORGANIZATION, INC.  
     
By:    
  Alex Rodriguez, President, CEO and Director  
     
Date: April 21, 2017  
     
By:    
  Byron T. Young, Chairman of the Board, Treasurer  
     
Date: April 21, 2017  

 

  - 27 -  
     

 

THE CHRON ORGANIZATION, INC.

 

CONSOLIDATED FINANCIAL STATEMENTS AND NOTES

 

For the twelve months ended December 31, 2016 and 2015

 

  - 28 -  
     

 

THE CHRON ORGANIZATION, INC.

 

CONSOLIDATED FINANCIAL STATEMENTS

 

For the twelve months ended December 31, 2016 and 2015

 

Table of Contents

 

Table of Contents F-1
   
Report of Independent Registered Public Accounting Firm F-2
   
Audited Financial Statements  
   
Consolidated Balance Sheets F-3
   
Consolidated Statements of Operations F-4
   
Consolidated Statements of Changes in Shareholders’ Deficit F-5
   
Consolidated Statements of Cash Flows F-6
   
Notes to Consolidated Financial Statements F-7

 

F- 1
     

 

Montgomery Coscia Greilich LLP

 

972.748.0300 p

972.748.0700 f

 

INDEPENDENT AUDITOR’S REPORT

 

To the Board of Directors of

The Chron Organization, Inc.:

 

We have audited the accompanying consolidated financial statements of The Chron Organization, Inc. (the “Company”), which comprise the consolidated balance sheets as of December 31, 2016 and 2015, and the related consolidated statements of operations and changes in members’ equity, and cash flows for the year ended, and the related notes to the financial statements.

 

Management’s Responsibility for the Financial Statement

 

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the financial statement that is free from material misstatement, whether due to fraud or error.

 

Auditor’s Responsibility

 

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statement in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

Opinion

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Chron Organization, Inc. as of December 31, 2016 and 2015, and the result of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

 

 

Montgomery Coscia Greilich LLP

Plano, Texas

April 12, 2017

 

 

2500 Dallas Parkway, Suite 300 Plano, Texas 75093

300 Throckmorton Street, Suite 520

Fort Worth, Texas 76102

2901 Via Fortuna, Building 6, Suite 550

Austin, Texas 78746

 

F- 2
     

 

THE CHRON ORGANIZATION, INC.

BALANCE SHEETS

 

    December 31, 2016     December 31, 2015  
ASSETS                
Current Assets                
Cash and cash equivalents   $ 51,710     $ -  
Other assets     12,000       -  
Prepaid expenses     28,750       -  
Total current assets     92,460       -  
                 
Fixed Assets                
Software     66,710       -  
Total fixed assets     66,710       -  
Total assets   $ 159,170     $ -  
                 
LIABILITIES & SHAREHOLDERS' DEFICIT                
Liabilities                
Current Liabilities                
Accounts payable   $ 111,207     $ -  
Accrued interest     20,382       7,298  
Accrued payroll     212,000          
Other current liabilities     15,005       -  
Note payable     -       68,000  
Subscription liabilities     75,000          
Related party convertible promissory note, net     188,342       10,423  
Convertible promissory note, net     -       54,500  
Total current liabilities     621,936       140,221  
Long-term Liabilities                
Convertible promissory note, net     233,836       -  
Total long-term liabilities     233,836       -  
Total Liabilities     855,772       140,221  
Mezzanine Equity                
Beneficial conversion feature     413,231       160,109  
Warrants     80,892       25,391  
Total Mezzanine equity     494,123       185,500  
Shareholders' deficit                
Class A Common stock par value $.001, 1,000,000,000 shares authorized, 853,262,525 and 540,552,127, respectively issued and outstanding     853,262       540,552  
Class B Common stock par value $.001, 10,000,000 shares authorized, 10,000,000 and 0, issued and outstanding respectively     10,000       -  
Additional paid-in capital (deficit)     274,903       (309,121 )
Accumulated deficit     (2,328,890 )     (557,152 )
Total shareholders' deficit     (1,190,725 )     (325,721 )
TOTAL LIABILITIES & SHAREHOLDERS' DEFICIT   $ 159,170     $ -  

 

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

 

F- 3
     

 

THE CHRON ORGANIZATION, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

 

    Twelve Months Ended     Twelve Months Ended  
    December 31, 2016     December 31, 2015  
             
Continuing Operations                
Revenue   $ 5,051     $ -  
                 
Cost of goods sold     20,431       -  
                 
Gross profit     (15,380 )     -  
                 
Operating expenses                
Selling, general and administrative expenses     1,522,183       62,546  
Total Operating Expense     1,522,183       62,546  
Operating loss     (1,537,563 )     (62,546 )
                 
Other expense                
Interest expense     (234,175 )     (68,718 )
Loss from continued operations     (1,771,738 )     (131,264 )
                 
Loss from discontinued operations     -       (184,592 )
                 
Net loss   $ (1,771,738 )   $ (315,856 )
                 
Per share information:                
Basic and diluted losses from discontinued operations per common share   $ (0.00 )   $ (0.00 )
                 
Basic and diluted losses from continuing operations per common share   $ (0.00 )   $ (0.00 )
                 
Weighted average shares outstanding - basic     605,975,340       450,043,140  
                 
Weighted average shares outstanding - diluted     727,142,007       535,543,140  

 

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

 

F- 4
     

 

THE CHRON ORGANIZATION, INC.

CONSOLIDATED STATEMENTS OF CHANGE IN SHAREHOLDERS’ DEFICIT

 

    Class A Common Stock     Class B Common Stock     Accumulated     Additional Paid-in        
    Shares     Amount     Shares     Amount     Deficit     Capital     Total  
                                           
December 31, 2014     142,368,027     $ 142,368       -     $ -     $ (241,296 )   $ 26,035     $ (72,893 )
                                                         
Net Loss     -       -       -       -       (315,856 )     -       (315,856 )
                                                         
Conversion of notes payable     398,184,100       398,184       -       -       -       (335,156 )     63,028  
                                                         
December 31, 2015     540,552,127     $ 540,552       -     $ -     $ (557,152 )   $ (309,121 )   $ (325,721 )
                                                         
Net Loss     -       -       -       -       (1,771,738 )     -       (1,771,738 )
                                                         
Common stock issued for service     2,368,300       2,368       -       -       -       40,132       42,500  
                                                         
Conversion of notes payable     27,588,888       27,589       -       -       -       149,411       177,000  
                                                         
Stock issued     282,753,210       282,753       10,000,000       10,000       -       394,481       687,234  
                                                         
December 31, 2016     853,262,525     $ 853,262       10,000,000     $ 10,000     $ (2,328,890 )   $ 274,903     $ (1,190,725 )

 

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

 

F- 5
     

 

THE CHRON ORGANIZATION INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

    December 31, 2016     December 31, 2015  
             
OPERATING ACTIVITIES                
Net Loss   $ (1,771,738 )   $ (131,264 )
Adjustments to reconcile net loss to net                
Cash used in operating activities                
Amortization of debt discount     212,877       64,923  
Changes in operating assets and liabilities                
Prepaid expenses and other assets     (40,750 )     -  
Accounts payable and other current liabilities     126,212       -  
Accrued interest     13,085       -  
Accrued payroll     212,000       3,795  
Services paid in stock     42,500       -  
Net cash used in provided in operating activities     (1,205,814 )     (62,546 )
                 
INVESTING ACTIVITIES                
Software     (66,710 )     -  
Net cash used in investing activities     (66,710 )     -  
                 
FINANCING ACTIVITIES                
Proceeds from issuance of stock     687,234       -  
Proceeds from subscription issuance     75,000          
Proceeds from notes payable     -       61,638  
Proceeds from convertible promissory notes     500,000       54,500  
Proceeds from related party convertible promissory notes and warrants     62,000       131,000  
Net cash provided by financing activities     1,324,234       247,138  
                 
CASHFLOWS FROM DISCONTINUED OPERATIONS                
Net loss from discontinued operations     -       (184,592 )
                 
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD   $ -     $ -  
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD   $ 51,710     $ -  
                 
Supplemental disclosure of non cash transactions                
Conversion of notes payable to common stock   $ 122,500     $ 63,028  
                 
Cash paid for interest expense   $ 1,179     $ -  

 

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

.

F- 6
     

 

THE CHRON ORGANIZATION, INC.

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

DECEMBER 31, 2016 AND 2015

 

1. Organization – Nature of Operations

 

The Chron Organization, Inc. (the “Company” or “CHRO”) was incorporated under the laws of the State of Nevada on July 28, 1999. On March 24, 2016 FINRA (Financial Industry Regulatory Authority, Inc.) approved the name and CUSIP change from USA Restaurant Funding, Inc. to The Chron Organization, Inc. (OTC PINK: CHRO). The Company amended its Articles of Incorporation to change its name to “The Chron Organization, Inc.”, to reflect the change in direction of the Company’s business to smart home technologies and the next generation in energy utility services.

 

While the FINRA-registered name prior to March 24, 2016 and other registrations may imply and continue to imply an association with the restaurant industry, the Company has no plans or intentions to develop any business within that industry. Further, the entirety of the management team formally associated with the restaurant industry have resigned and new management has been brought in to transition the Company into a different industry entirely.

 

During the twelve months ended December 31, 2016 the Company formed a wholly owned subsidiary, Zen Technologies, Inc. The Company intends to provide home automation and energy conservation services to home owners through Zen Technologies, Inc. The services will include but are not limited to security, monitoring, and automation control that will enable the customer base to run a safe and efficient home. In addition to these services the Company will also provide electricity needs to its customer base through its retail electricity provider subsidiary.

 

2. Summary of Significant Accounting Policies

 

Principals of Consolidation – The accompanying consolidated financial statements include the accounts of The Chron Organization, Inc. and its wholly owned subsidiary Zen Technologies, Inc. All significant intercompany transactions and balances have been eliminated.

 

Use of Estimates – The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of sales and expenses during the reporting periods. Key estimates in the accompanying financial statements include, among others, revenue recognition, allowances for doubtful accounts, valuation of long-lived assets, and deferred income tax asset valuation allowances.

 

The financial statements are presented on the basis of the Company’s ability to continue as a going concern. Other than continued current involvement, some transactions prior to December 31, 2015 have been reclassified as discontinued operations in these financial statements. See further information in Note 7. Discontinued Operations .

 

Cash and Cash Equivalents – The Company considers all highly-liquid investments with a maturity of three months or less, when purchased, to be cash equivalents.

 

Prepaid Expenses – As of December 31, 2016 prepaid expenses totaled $40,750. The balance of prepaid expenses as of December 31, 2016, consists of business insurance and rent related expenses. There were no prepaid expenses at December 31, 2015.

 

Fair Value of Financial Instruments - The Company calculates the fair value of its assets and liabilities which qualify as financial instruments and includes this information in the notes to consolidated financial statements when the fair value is different than the carrying value of those financial instruments. The estimated fair value of accounts receivable, prepaid and other current assets, and accounts payable and accrued expenses approximate the carrying amounts due to the relatively short maturity of these instruments. As stated above, the Company has discontinued its restaurant activities and as such has determined that the restaurant related assets have no future value and therefore have been written off at December 31, 2015. The carrying value of short- and long-term debt also approximates fair value since these instruments bear market rates of interest. None of these instruments are held for trading purposes.

 

F- 7
     

 

 

Basic and Diluted Net Loss per Common Stock – Basic net loss per common share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents. In periods when losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive. The dilutive shares outstanding at December 31, 2016 and 2015 are as follows:

 

    December 31, 2016     December 31, 2015  
             
Convertible promissory notes     22,924,901       20,000,000  
Related party convertible promissory notes     64,333,333       43,666,667  
Related Party Warrants     32,166,667       21,833,333  
Warrants     10,000,000       -  
Diluted shares outstanding     129,424,901       85,500,000  

 

Income Taxes – The Company estimates its current tax position together with its future tax consequences attributable to temporary differences resulting from differing treatment of items, such as depreciation and other reserves for tax and accounting purposes. These temporary differences result in deferred tax assets and liabilities. Management must then assess the likelihood that its deferred tax assets will be recovered from future taxable income, prior year carryback, or future reversals of existing taxable temporary differences. To the extent management believes that recovery is unlikely, management establishes a valuation allowance against these deferred tax assets. Significant judgment is required in determining the Company’s provision for income taxes, its deferred tax assets and liabilities, and any valuation allowance recorded against its deferred tax assets. At December 31, 2016 and 2015, the Company has recorded a full valuation allowance against its net deferred tax assets due to the uncertainty these assets will be used in the future.

 

Revenue Recognition - The Company recognizes sales, which include shipping fees where applicable, net of estimated returns, at the time the customer takes possession of merchandise or receives services. When the Company collects payments from customers prior to the transfer of ownership of merchandise or the performance of services, the amounts received are generally recorded as deferred sales, included in other current liabilities on the consolidated balance sheets, until the sale or service is completed. The Company reserves for estimated sales returns based on historical trends in merchandise returns, net of the estimated net realizable value of merchandise inventories to be returned and any estimated disposition costs. Amounts collected from members, which under common trade practices are referred to as sales taxes, are recorded on a net basis.

 

Software Development Costs – The Company capitalizes certain expenditures to the development of its software application. Capitalization begins when technological feasibility is established. Capitalized costs are amortized using the straight-line method over the estimated useful life of the developed product.

 

Beneficial Conversion Feature - The Company accounts for convertible notes payable in accordance with the guidelines established by the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 470-20, Debt with Conversion and Other Options, Emerging Issues Task Force (“EITF”) 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios, and EITF 00-27, Application of Issue No 98-5 To Certain Convertible Instruments. The Beneficial Conversion Feature (“BCF”) of a convertible note is normally characterized as the convertible portion or feature of certain notes payable that provide a rate of conversion that is below market value or in-the-money when issued. The Company records a BCF related to the issuance of a convertible note when issued and records the estimated fair value of any warrants issued with those convertible notes. Beneficial conversion features that are contingent upon the occurrence of a future event are recorded when the contingency is resolved.

 

The BCF of a convertible note is measured by allocating a portion of the note’s proceeds to the warrants, if applicable, and as a discount on the carrying amount of the convertible note equal to the intrinsic value of the conversion feature, both of which are credited to mezzanine equity. The value of the proceeds received from a convertible note is then allocated between the conversion features and warrants and the debt on an allocated fair value basis. The allocated fair value is recorded in the financial statements as a debt discount (premium) from the face amount of the note and such discount is amortized over the expected term of the convertible note (or to the conversion date of the note, if sooner) and is charged to interest expense.

 

F- 8
     

 

 

Classification - . Pursuant to ASC 480-10-S99-3A, the SEC finds that a BCF should be separated from a convertible instrument and recorded in additional paid-in capital. However, Company’s filing with the SEC should present BCF as mezzanine equity in order to distinguish them from permanent equity. The balance sheet reflects the redeemable equity instruments as mezzanine equity separate from permanent equity.

 

3. Going Concern

 

The Company’s financial statements for the twelve months ended December 31, 2016 and 2015 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company reported a net loss of $1,771,738 and $315,856 for the twelve months ended December 31, 2016 and 2015, respectively, and an accumulated deficit of $2,328,890 and $557,152 for the twelve months ended December 31, 2016 and 2015, respectively. At December 31, 2016 and 2015, the Company had a working capital deficit of $529,476 and $140,221 respectively, and negative cash flow from continuing operating activity of $1,205,814 and $62,546, respectively, for the twelve months ended December 31, 2016 and 2015.

 

The Company’s ability to continue as a going concern may be dependent on the success of management’s plan. The financial statements do not include any adjustments relating to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

During the 2016 fiscal year, the Company intends to continue its efforts to raise funds to support its efforts through the sale of equity and/or debt securities. During the twelve months ended December 31, 2016, the Company has raised $687,234 from sales of its common stock.

 

To the extent the Company’s operations are not sufficient to fund the Company’s capital requirements, the Company may attempt to enter into a revolving loan agreement with financial institutions or attempt to raise capital through the sale of additional capital stock or through the issuance of debt. At the present time, the Company does not have a revolving loan agreement with any financial institution.

 

4. Notes Payable

 

Line of Credit

 

On November 13, 2014, the Company entered into an unsecured line of credit (the “Line of Credit”) with a third-party for up to $68,000. The Line of Credit carried an interest rate of 3% per annum. In the event of a default under the Line of Credit, the interest rate on the Line of Credit would increase to the lower of 12% per annum or the maximum amount allowed by law. During the twelve months ended December 31, 2016, the Company settled the note payable in the amount of $68,000 with the issuance of 7,588,888 shares of the Company’s common stock, par value $0.001 per share. With the issuance of the shares, the Company was released of all existing and potential claims.

 

5. Related Party Convertible Promissory Note

 

As of December 31, 2016 and 2015, the Company had an outstanding related party convertible promissory note of $193,000 and $131,000, respectively, with a maximum availability of $200,000 (the “Related Party Convertible Promissory Notes”). See Note 8. Related Party Transactions.

 

On November 20, 2015, the Company issued a Convertible Promissory Note to a related party (the “Related Party Convertible Promissory Note”). The Related Party Convertible Promissory Note accrues interest at a rate of 2% per annum. The principal balance and accrued interest under the Related Party Convertible Promissory Note at December 31, 2016 and 2015 was $193,000 and $131,000, and $3,358 and $264, respectively, and is due on April 30, 2017.

 

F- 9
     

 

 

The Holder of the Related Party Convertible Promissory Note has the right to convert all or any part of the outstanding principal and accrued interest to shares of common stock of the Company. The Related Party Convertible Promissory Note can be converted by the Holder in part from time to time after the issuance date by submitting notice of conversion. The November 2015 Convertible Promissory Note is convertible at a $0.003 per share conversion price.

 

The Related Party Convertible Promissory Note contained a beneficial conversion feature which resulted in a debt discount of $155,650 which was recorded as a reduction in carrying value of the Related Party Convertible Promissory Note and offset in mezzanine equity during the twelve months ended December 31, 2016 and 2015. During the twelve months ended December 31, 2016 and 2015 a charge to debt discount in the amount of $143,011 and $10,423, respectively and was expensed as interest expense. At December 31, 2016 and 2015, the debt discount was $1,986 and $95,186, respectively.

 

In connection with the Related Party Convertible Promissory Note, the Holder was issued a total of 32,166,667 warrants exercisable at $0.05 expiring in November 2020 (the “Warrants”). The Company determined the fair value of the warrants which resulted in a debt discount of $37,366 which was recorded as a reduction in carrying value of the Related Party Convertible Promissory Note and offset in mezzanine equity during the twelve months ended December 31, 2016 and 2015. During the twelve months ended December 31, 2016 a charge to debt discount in the amount of 34,695 and was expensed through interest expense. The balance at December 31, 2016 and 2015 was $2,671, and $25,391, respectively.

 

Related Party Convertible Promissory Note Summary

 

The fair value of the embedded beneficial conversion features and the fair value of the warrants underlying the Related Party Convertible Promissory Notes were calculated pursuant to the Black-Scholes Model. The following table summarizes the carrying value of the Convertible Promissory Notes as of December 31, 2016 and December 31, 2015:

 

    December 31, 2016     December 31, 2015  
             
Related Party 2015 Convertible Promissory Note   $ 193,000     $ 131,000  
Less: debt discount     (1,986 )     (95,186 )
Warrants     (2,672 )     (25,391 )
Total net carrying value   $ 188,342     $ 10,423  

 

6. Convertible Promissory Notes

 

On January 8, 2015, the prior management team of the Company issued a Convertible Promissory Note totaling $54,500 to a third-party (the “January 2015 Convertible Promissory Note”). The January 2015 Convertible Promissory Note matured on January 8, 2016, and accrued interest at a rate of 8% per annum. As of December 31, 2016 and 2015, the outstanding balance was $0 and $54,500, respectively.

 

During the twelve months ended December 31, 2016, the Company settled the January 2015 Convertible Promissory Note. The Holder of the January 2015 Convertible Promissory Note was issued 20,000,000 shares of the Company’s common stock, par value $0.001 per share in full settlement of the company’s obligations

 

On September 6, 2016, the Company issued a Convertible Promissory Note totaling $300,000 to a third-party (the “September 2016 Convertible Promissory Note”). The September 2016 Convertible Promissory Note matures on September 5, 2018, and accrues interest at a rate of 10% per annum. As of December 31, 2016, the outstanding principal and accrued interest balance was $300,000 and $14,795, respectively.

 

The Holder of the Convertible Promissory Note has the right to convert all or any part of the outstanding principal and accrued interest to shares of common stock of the Company. The Convertible Promissory Note can be converted by the Holder in part from time to time after the issuance date by submitting notice of conversion. The September 2016 Convertible Promissory Note is convertible at the option of the Holder into that number of shares of the Company’s common stock determined by dividing such principal amount and accrued interest by the Conversion Rate. The Conversion Rate is defined as seventy percent (70%) of the volume weighted average price over the prior ten (10) day trading period from the date of notice of conversion, but in no event shall the Conversion price be less than $0.02.

 

F- 10
     

 

 

The September 2016 Convertible Promissory Note contained a beneficial conversion feature which resulted in a debt discount of $158,688 which was recorded as a reduction in carrying value of the September 2016 Convertible Promissory Note and offset in mezzanine equity during the twelve months ended December 31, 2016. A charge to debt discount in the amount of $25,621 was expensed through interest expense. At December 31, 2016, the debt discount was $133,067.

 

In connection with the September 2016 Convertible Promissory Note, the Holder was issued 6,000,000 warrants exercisable at $0.05 expiring in September 2018 (the “Warrants”). The Company determined the fair value of the warrants which resulted in a debt discount of $30,117, recorded as a reduction to the carrying value of the September 2016 Convertible Promissory Note and offset in mezzanine equity and is being amortized over the life of the warrants. The balance of the fair value of the warrants at December 31, 2016 was $25,254.

 

On November 25, 2016, the Company issued two Convertible Promissory Notes totaling $200,000 to third-parties (the “November 2016 Convertible Promissory Notes”). The November 2016 Convertible Promissory Notes mature on November 24, 2017, and accrues interest at a rate of 10% per annum. As of December 31, 2016, the outstanding principal and accrued interest balance was $200,000 and $1,644, respectively.

 

The Holder of the November 2016 Convertible Promissory Notes have the right to convert all or any part of the outstanding principal and accrued interest to shares of common stock of the Company. The November 2016 Convertible Promissory Notes can be converted by the Holder in part from time to time after the issuance date by submitting notice of conversion. The November 2016 Convertible Promissory Notes are convertible at the option of the Holder into that number of shares of the Company’s common stock determined by dividing such principal amount and accrued interest by the Conversion Rate. The Conversion Rate is defined as seventy percent (70%) of the volume weighted average price over the prior ten (10) day trading period from the date of notice of conversion, but in no event shall the Conversion price be less than $0.02.

 

The November 2016 Convertible Promissory Notes contained a beneficial conversion feature which resulted in a debt discount of $99,123 which was recorded as a reduction in carrying value of the November 2016 Convertible Promissory Notes and offset in additional mezzanine equity during the twelve months ended December 31, 2016. A charge to debt discount in the amount of $4,130 was expensed through interest expense. At December 31, 2016, the debt discount was $94,993.

 

In connection with the November 2016 Convertible Promissory Notes, the Holders were issued 4,000,000 warrants exercisable at $0.05 expiring in November 2019 (the “Warrants”). The Company determined the fair value of the warrants which resulted in a debt discount of $13,409, recorded as a reduction to the carrying value of the November 2016 Convertible Promissory Note and offset in mezzanine equity and is being amortized over the life of the warrants. The balance of the fair value of the warrants at December 31, 2016 was $12,850.

 

Convertible Promissory Note Summary

 

The fair value of the embedded beneficial conversion features and the fair value of the warrants underlying the Convertible Promissory Notes were calculated pursuant to the Black-Scholes Model. The following table summarizes the carrying value of the Convertible Promissory Note as of December 31, 2016:

 

    December 31, 2016  
       
Convertible Promissory Note   $ 500,000  
Less: debt discount     (228,059 )
Warrants     (38,105 )
Total net carrying value   $ 233,836  

 

7. Income Taxes

 

No provision for federal income taxes has been recognized for the twelve months ended December 31, 2016 and 2015, as the Company has a net operating loss carry forward for income tax purposes available in each period. Additionally, it is uncertain if the Company will have taxable income in the future so a valuation allowance has been established for the full value of net tax assets. The deferred tax asset consists of net operating loss carry forwards and the Company has no deferred tax liabilities.

 

F- 11
     

 

 

At December 31, 2016 and 2015, the Company has net operating loss carry forwards of $713,387 and $189,432, respectively for federal income tax purposes. This net operating loss carry forwards may be carried forward in varying amounts until 2036 and may be limited in their use due to significant changes in the Company’s ownership.

 

    December 31, 2016     December 31, 2015  
             
Net operating loss carryforwards   $ 713,387     $ 189,432  
Less: valuation allowance     (713,387 )     (189,432 )
Net deferred tax asset   $ -     $ -  

 

The Company has valued its net deferred tax asset at zero with a valuation allowance due to the substantial doubt taxable income will be generated in the future to utilize the deferred tax asset.

 

8. Related Party Transactions

 

During the twelve months ended December 31, 2016, the Company issued the Chairman of the Board a convertible promissory note, (the “Related Party Convertible Promissory Note”) in an amount up to $200,000 along with 32,166,667 warrants. The note accrues interest at 2% per annum. The issuance of the financial instruments was made in the ordinary course of business, and were given fair market treatment. The Related Party Convertible Promissory Note matures on April 30, 2017. See Note 5. Related Party Convertible Promissory Note.

 

Additionally, the Company merged with a company controlled by related parties. See Note 10. Merger.

 

9. Discontinued Operations

 

The Company has accounted for discontinued operations prior to January 1, 2016 under Accounting Standards Update No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity . Under this guidance, a discontinued operation is defined as a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. As described in Note 1. the Company has exited the restaurant industry and has shifted its strategy to home automation and energy conservation services. Management believes this adequately qualifies as a strategic shift under Update No. 2014-08. As of December 31, 2015, the Company had not generated any revenue from its new services. A reconciliation of amounts included in the statements of operations for the years ended December 31, 2015 as follows:

 

Revenue   $ 20,100  
Selling general and administrative expenses     (201,161 )
Other Expenses     (3,531 )
Loss from continued operations   $ (184,592 )

 

10. Merger

 

On July 1, 2016, the Company exchanged 165,000,000 shares of the Company’s unregistered shares of common stock for 100% of the outstanding common stock of Chron Energy, Inc. (“CEI”), a Nevada corporation to related parties (consisting of the company’s Chief Compliance Officer and an LLC managed by the Company’s President). CEI possessed intellectual property and strategic relationships (the “Assets”) that are integral to the Company’s entrance into the home automation and retail electric provider markets. Generally, the total acquisition consideration price would be allocated to the assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase price over the total of estimated fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed would then be recognized as goodwill. CEI had no liabilities and the Assets had no carrying value on the books. Since the acquisition was with related parties, no increase in the carrying value of the Assets or goodwill can be realized on the books of the Company.

 

There was no change of control of the Company as a result of the Merger. See Note 8 . Related Party Transitions .

 

F- 12
     

 

 

11. Shareholder Equity

 

On February 11, 2016, the Company amended and restated its Articles of Incorporation. The Company was authorized to issue two classes of stock to be designated, respectively “Common Stock” and “Preferred Stock.” The total number of shares which the Company is authorized to issue is one billion five hundred ten million (1,510,000,000) shares each with a par value of $0.001 per share. One billion (1,000,000,000) shares shall be Class A Common Stock, ten million (10,000,000) shares shall be Class B Common Stock, and five hundred million (500,000,000) shares shall be Preferred Stock. As of December 31, 2016, there are 853,262,525 Class A Common Stock shares issued, ten million (10,000,000) Class B Common Stock shares issued, and there has been no issuance of Preferred Stock. Each share of Class A Common Stock shall have one vote and each share of Class B Stock shall have 200 votes. The votes of Class A and Class B Common Stock shall vote together as a single class.

 

Issuances of Class A Common Stock, par value $0.001:

 

During the twelve months ended December 31, 2016, the Company issued 2,368,300 shares to providers of professional services to the Company, in lieu of the payment of cash for such services. The value of the transactions total approximately $42,500.

 

During the twelve months ended December 31, 2016, the Company has issued 282,753,210 shares for cash considerations totaling $687,234.

 

Issuances of Class B Common Stock, par value $0.001:

 

During the twelve months ended December 31, 2016, the Company issued 10,000,000 shares to related parties for cash considerations totaling $30,000.

 

12. Contingencies

 

In the ordinary course of conducting its business, the Company may be subject to loss contingencies including possible disputes and lawsuits. Management believes that any outcome of such contingences will not have a material impact on the Company’s financial position or results of future operations.

 

13. Subsequent Events

 

Amended and Restated Articles of Incorporation

 

Effective March 2, 2017, the Company amended Articles Five and Seven of the corporation’s Amended and Restated Articles of Incorporation.

 

Article Five was amended to set the aggregate number of shares which the Corporation shall have the authority to issue at 1,500,000,000 shares, of which 1,450,000,000 shares shall be Class A Common Stock, par value $.001 per share (the “Class A Common Stock”), 10,000,000 shares shall be Class B Common Stock, par value $.001 per share (the “Class B Common Stock”) and 40,000,000 shares shall be Preferred Stock, par value $.001 per share (the “Preferred Stock”) of which, 2,000,000 shares are designated as “Series A Preferred Stock”. The rights, preferences and restrictions for the Series A Preferred Stock are set forth in the new Article Five, Section C which includes the following:

 

  1. DESIGNATION OF SERIES. (a) There shall be a series of the Preferred Stock of the Corporation which shall be designated as the “Series A Preferred Stock,” $0.001 par value, and the number of shares constituting such series shall be Two million (2,000,000). Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, however, that no decrease shall reduce the number of shares of Series A Preferred Stock to a number less than that of the shares then outstanding. The Series A Preferred Stock shall have the rights, preferences, restrictions and other terms relating to such series of preferred stock as set forth in the Certificate of Designation of Preferences, Rights and Limitations of Series A Preferred Stock attached hereto as Exhibit A and incorporated herein by reference.  
       
  2. DIVIDENDS. The holders of Series A Preferred Stock shall not be entitled to receive dividends paid on the Common Stock.  

 

F- 13
     

 

 

  3. LIQUIDATION PREFERENCE. The holders of Series A Preferred Stock shall not be entitled to any liquidation preference.  
       
  4. VOTING. Except as otherwise expressly set forth herein or as required by law, the holders of the Series A Preferred Stock shall not entitle the holders thereof to vote on any matter submitted for shareholder action, and the consent of the holders thereof shall not be required for the taking of any corporate action.  
       
  5. CONVERSION RIGHTS. The holders of the shares of Series A Preferred Stock shall have the right to convert the Series A Preferred Stock into Class A Common Stock at the rate of ten (10) common shares for each preferred share (10-1 conversion rate) (the “Conversion Right”). The holder of the Series A Preferred Stock shall be entitled to exercise the Conversion Right one year from purchase date of the Series A Preferred Stock.  
       
  6. REDEMPTION RIGHTS; REDEMPTION. To the extent not prohibited by law, all or a portion of the then-outstanding shares of Series A Preferred Stock may be redeemed by the Corporation for a period of one year from the date of issuance at an amount equal to one hundred thirty percent (130%) of the original issue price.  

 

Article Seven was amended by deleting the existing Article Seven and adding a new Article 7 as follows:

 

Rights of Holders of Common Stock. The following rights, powers, privileges and restrictions, qualifications, and limitations apply to the Common Stock.

 

(a) General . The voting, dividend and liquidation rights of the holders of the Common Stock are subject to and qualified by the rights, powers and privileges of the holders of the Series A Preferred Stock.

 

(b) Voting . The holders of the Class A Common Stock are entitled to one vote for each share of Class A Common Stock held at all meetings of stockholders (and written actions in lieu of meetings) and the holders of the Class B Common Stock are entitled to 200 votes for each share of Class B Common Stock held at all meetings of stockholders (and written actions in lieu of meetings). Unless required by law, there shall be no cumulative voting. The number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by (in addition to any vote of the holders of one or more series of Series A Preferred Stock that may be authorized by the Board) the affirmative vote of the holders of shares of capital stock of the Corporation representing a majority of the votes represented by all outstanding shares of capital stock of the Corporation entitled to vote. Further, holders of the Common Stock shall have no right to vote on the designations, preferences, limitations and relative or other rights of the Series A Preferred Stock or any series thereof (collectively, the “Preferences”), or on any amendment, alteration or repeal of the Preferences or the Series A Preferred Stock, at any time, whether before or after the issuance thereof.

 

Retail Electric Provider Acquisition

 

The Company entered into an agreement on January 20, 2017 to acquire eighty percent (80%) of Enertrade Electric, LLC, a Texas licensed Retail Energy Provider (“REP”) engaged in the business of providing retail electricity and electric services to residential and commercial consumers within the State of Texas. The purchase price totals $1,500,000 with the initial payment of $500,000 at closing (subject to certain adjustments that may increase or decrease the initial amount) and a $1,000,000 promissory note without interest (subject to adjusted downward for any increase in the initial payment) and payable in two equal installments, the first of which is due ninety (90) days from the closing date and the second due one hundred and eighty (180) days from the closing date. Conditions precedent to closing the transaction include, but not limited to, (i) the Sellers obtaining all material consents, approvals, permits, authorization from, notifications to and filings with any Governmental Entities including, without limitations, the Texas Public Utilities Commission and (ii) all approvals, consents and waivers shall have been obtained from the REP’s primary supplier. On March 27, 2017, the Company received the approval of the Texas Public Utilities Commission.

 

Securities Purchase Agreement

 

On March 17, 2017, the Company entered into a Securities Purchase Agreement containing convertible promissory notes (the “Notes”) and “Warrants.”

 

The aggregate principal amount of the Notes is $165,000 to be taken down in two $82,500 tranches. The Notes are due one year from issuance, have an original issue discount of 10%, an annual interest rate of 12%, a prepayment penalty of 20% if paid prior to the maturity date and are convertible into shares of common stock of the Company with a “Conversion Price” equal to the lower of $.03 per share or 60% of the lowest closing price for the Company’s Common Stock on the Trading Market for the 20 Trading Days prior to the conversion, provided however the Conversion Price shall not be lower than $.001 per share.

 

The aggregate number of shares of common stock of the Company issuable upon the exercise of the Warrants is 1,000,000 shares. The Warrants are to be issued in two 500,000 tranches in connection with the Notes, are exercisable at any time on or after the six-month anniversary of the issue date and on or prior to the anniversary of the issue date and have an “Exercise Price” of $0.03 for the first 500,000 tranche shares and $0.05 for the second 500,000 tranche. The Warrants are exercisable for (i) cash or (ii) cashless by exchange of all or some of the Warrant for shares of Common Stock equal to the value of the amount of the Warrant being exchanged on the date of exchange.

 

Sale of Common Stock

 

Subsequent to the year ended December 31,2016, the Company sold a total of 4,333,334 shares of its restricted Class A Common Stock for $65,000 in private placements subject to Rule 144.

 

F- 14
     

 

AGREEMENT AND PLAN OF MERGER

 

This Agreement and Plan of Merger (“Agreement”), is made and entered into this 1 st day of April 2016, by and among The Chron Organization, Inc., a Nevada Corporation (“CHRON”) and Chron Energy, Inc., a Nevada Corporation (“CEI”). CHRON and CEI are hereinafter sometimes collectively referred to as the “Parties.”

 

RECITALS:

 

A. CHRON desires to acquire the business of CEI through a merger of CEI with and into CHRON (the “Merger”), with CHRON as the surviving corporation of the Merger.

 

B. It is the intention of the parties hereto that: (i) the Merger shall qualify as a tax free reorganization under Section 368 of the Internal Revenue Code of 1986, as amended, and related sections thereunder; and the parties intend this Agreement to qualify as a “plan of reorganization” within the meaning of Treasury Regulation Sections 1.368-2(g) and 1.368-3(a), and (ii) the Merger shall qualify as a transaction in securities exempt from registration or qualification under the Securities Act of 1933, as amended, and under the applicable securities laws of each state or jurisdiction where the CHRON Security Holders reside.

 

C. The board of directors of each of CHRON, and CEI and the CHRON Security Holders each deem it to be in the best interests of CHRON and CEI and their respective shareholders to consummate the Merger, as a result of which CEI shall be merged with and into CHRON.

 

NOW, THEREFORE, in consideration of the mutual covenants, agreements, representations and warranties contained in this Agreement, the parties hereto agree as follows:

 

CERTAIN DEFINITIONS

 

As used in this Agreement, the following terms shall have the meanings set forth below:

 

“Applicable Law” means any domestic or foreign law, statute, regulation, rule, policy, guideline or ordinance applicable to the businesses of the Parties, the Merger and/or the Parties.

 

“Articles of Merger” shall mean the certificate of merger of CEI with and into CHRON pursuant to the Nevada Revised Statutes.

 

“Business Day” shall mean any day, excluding Saturday or Sunday or any other day on which national banks located in Nevada shall be closed for business.

 

“dollar” and “$” means lawful money of the United States.

 

“Effective Time” shall have the meaning set forth in Section 1.2(a).

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

“GAAP” means generally accepted accounting principles in the United States of America as promulgated by the American Institute of Certified Public Accountants and the Financial Accounting Standards Board or any successor Institutes concerning the treatment of any accounting matter.

 

Merger Agreement   Page 1 of 21
     

 

“Knowledge” means the knowledge of the officers or other senior management of a Person after reasonable inquiry.

 

“Lien” means, with respect to any property or asset, any mortgage, lien, pledge, charge, security interest, encumbrance or other adverse claim of any kind in respect of such property or asset.

 

“Material Adverse Effect” with respect to any entity or group of entities means any event, change or effect that has or would have a materially adverse effect on the financial condition, business or results of operations of such entity or group of entities, taken as a consolidated whole.

 

“Merger Shares” shall mean that number of shares of CHRON Common Stock to be issued to the CEI Security Holders and others on the Closing Date and as at the Effective Time of the Merger.

 

“NRS” means the Nevada Revised Statutes.

 

“Person” means any individual, corporation, partnership, trust or unincorporated organization or a government or any agency or political subdivision thereof.

 

“CEI Principal Executive Officer” shall mean the President or CEO of CEI.

 

“CEI Securities” means, as at the date in question, all of the issued and outstanding shares of common stock of CEI.

 

“CEI Security Holders” means the collective reference to all of the record holders of the CEI Securities at the Effective Time of the Merger, including the CEI Principal Executive Officers.

 

“CHRON Common Stock” shall mean the shares of common stock of CHRON, $.0001 par value per share.

 

“CHRON Fully-Diluted Common Stock” means, as at the time in question, the maximum number shares of CHRON Common Stock that are issued and outstanding, after giving effect to: (a) the issuance of all of the Merger Shares, as defined below; and (b) the issuance of any other shares of CHRON Common Stock that are issuable upon conversion of any CHRON notes or shares of CHRON Preferred Stock, or upon the exercise of options, warrants or other rights to purchase shares of CHRON capital stock, but only to the extent that such securities are (i) outstanding as at the Effective Time of the Merger, or (ii) issued subsequent to the Effective Time of the Merger.

 

“CHRON Security Holders” means the collective reference to all of the record holders of CHRON Common Stock immediately prior to the Effective Time of the Merger.

 

“Surviving Entity” shall mean CHRON as the surviving corporation in the Merger as provided in Section 1.1.

 

“Stock Plan” shall mean the CEI Stock Ownership Plan.

 

Merger Agreement   Page 2 of 21
     

 

“Tax” (and, with correlative meaning, “Taxes” and “Taxable”) means:

 

(i) any income, alternative or add-on minimum tax, gross receipts tax, sales tax, use tax, ad valorem tax, transfer tax, franchise tax, profits tax, license tax, withholding tax, payroll tax, employment tax, excise tax, severance tax, stamp tax, occupation tax, property tax, environmental or windfall profit tax, custom, duty or other tax, impost, levy, governmental fee or other like assessment or charge of any kind whatsoever together with any interest or any penalty, addition to tax or additional amount imposed with respect thereto by any governmental or Tax authority responsible for the imposition of any such tax (domestic or foreign), and

 

(ii) any responsibility for the payment of any amounts of the type described in clause (i) above as a result of being a member of an affiliated, consolidated, combined or unitary group for any Taxable period, and

 

(iii) any responsibility for the payment of any amounts of the type described in clauses (i) or (ii) above as a result of any express or implied obligation to indemnify any other person.

 

“Tax Return” means any return, declaration, form, claim for refund or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

 

THE MERGER

 

SECTION 1. THE MERGER: EFFECTIVE TIME .

 

1.1 The Merger . At the Effective Time and subject to and upon the terms and conditions of this Agreement, CEI shall merge with and into CHRON in accordance with the provisions of the NRS, the separate corporate existence of CEI shall cease and CHRON shall continue as the Surviving Entity. The Merger shall have all the effects provided for a merger under the NRS. The Surviving Entity may, at any time after the Effective Time, take any action, including executing and delivering any certificates, instruments and documents as shall be reasonably determined by the Board of Directors of the Surviving Corporation to be necessary and appropriate, in the name and on behalf of any of the Parties in order to carry out and effectuate the transactions contemplated by this Agreement.

 

1.2 Merger Shares.

 

(a) At the Effective Time (i) the CEI Security Holders shall receive one hundred sixty-five million (165,000,000) shares of CHRON Common Stock (the “Merger Shares”) representing a 500,000 – 1 conversion rate and are to be issued to the CEI Security Holders in the amounts listed in Schedule A hereto and (ii) ninety-five million (95.000,000) shares of CHRON shall be reserved for the exercise of Stock Options previously granted under the CEI Stock Plan. The Effective Time of the Merger shall occur upon the filing of the Articles of Merger executed in accordance with the applicable provisions of the NRS with the Secretary of State of Nevada, or at such later time as may be agreed to by CHRON and CEI and specified in the Certificate of Merger subject to the satisfaction or waiver of each of the conditions set forth in Section 4. The date on which the Effective Time occurs is referred to as the “Effective Date.” Provided that this Agreement has not been terminated, the Parties will cause the Articles of Merger to be filed on the Closing Date, as hereafter defined in Section 1.3.

 

Merger Agreement   Page 3 of 21
     

 

(b) Upon the terms and subject to the conditions set forth in this Agreement and in accordance with the NRS, at the Effective Time, all CEI Securities shall be converted into the right to receive the Merger Shares to be issued by CHRON.

 

(c) Exchange. At or within thirty (30) days after the Effective Date, CHRON shall deliver certificates evidencing the Merger Shares. The Merger Shares issued at the Effective Time of the Merger shall be registered in the names of the CEI Security Holders.

 

(d) All CEI Securities shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and each holder of a certificate representing any such CEI Securities shall cease to have any rights with respect thereto, except the right to receive the Merger Shares to be issued pursuant to this Section 1.2(a) (fractional shares may be issued rounded to the hundredth decimal point) upon the surrender of such certificate in accordance with Section 1.8, without interest.

 

(e) Notwithstanding the foregoing, the total number of outstanding CHRON Common Stock subsequent to the Closing of the transaction shall be no more than nine hundred million (900,000,000) shares of CHRON Common Stock.

 

1.3 Closing.

 

The closing of the Merger (the “Closing”) will take place at a date, location and time agreed upon between CHRON and CEI, within one (1) Business Day following the satisfaction or waiver of the conditions precedent set forth in Section 4 or at such other date as CHRON, and CEI shall agree (the “Closing Date”).

 

1.4 Effect of the Merger.

 

At the Effective Time, all the properties, rights, privileges, powers and franchises of CEI shall vest in CHRON, and all debts, liabilities and duties of CEI shall become the debts, liabilities and duties of CHRON without further act or deed, and all claims, demands, property and every other interest shall be as of the Effective Time the property of the Surviving Entity to the same extent as previously owned or held by CEI. As a result of and after the Merger, the CEI Security Holders immediately prior to the Effective Time shall cease to hold any CEI Securities but shall instead have the rights specified in Section 1.2 above.

 

1.5 Certificate of Incorporation and Bylaws; Directors and Officers . Prior to the Effective Time of the Merger:

 

(a) The Certificate of Incorporation of CHRON is made a part hereof and shall be the Certificate of Incorporation of CHRON following the Merger. The Bylaws of CHRON are made a part hereof and shall be the Bylaws of CHRON following the Merger.

 

(b) The initial board of directors of CHRON subsequent to the Merger shall consist of the individuals set forth on Exhibit 1.5A attached hereto, and such persons shall continue to serve as directors of CHRON until their successors have been duly nominated, elected or appointed as provided under CHRON’s Bylaws as may subsequently be amended in accordance with the provisions thereof. The persons serving as officers of CHRON subsequent to the Merger shall be as set forth on Exhibit 1.5B attached hereto, and such persons shall hold the offices set forth opposite their names in CHRON until such time as their successors have been duly appointed and qualified as provided under CHRON’s Bylaws as may subsequently be amended in accordance with the provisions thereof.

 

Merger Agreement   Page 4 of 21
     

 

1.6 Further Actions .

 

(a) If, at any time after the Effective Time, CHRON considers or is advised that any deeds, bills of sale, assignments, assurances or any other actions or things are necessary or desirable to vest, perfect or confirm (of record or otherwise) in CHRON its right, title or interest in, to or under any of the rights, properties, or assets of CEI, or otherwise to carry out the intent and purposes of this Agreement, the officers and directors of CHRON will be authorized to execute and deliver, in the name and on behalf of each of CEI and CHRON, all such deeds, bills of sale, assignments and assurances and to take and do, in the name and on behalf of each of CEI and CHRON, all such other actions and things as the Board of Directors of CHRON may determine to be necessary or desirable to vest, perfect or confirm any and all right, title and interest in, to and under such rights, properties or assets in CHRON or otherwise to carry out the intent and purposes of this Agreement.

 

1.7 Restrictions On Resale

 

The Merger Shares . The Merger Shares will not be registered under the Securities Act, or the securities laws of any state, and cannot be transferred, hypothecated, sold or otherwise disposed of until: (i) a registration statement with respect to such securities is declared effective under the Securities Act, or (ii) CHRON receives an opinion of counsel for the stockholder, reasonably satisfactory to counsel for CHRON, that an exemption from the registration requirements of the Securities Act is available.

 

The certificates representing the Merger Shares to be issued on the Effective Date pursuant to this Agreement shall contain a legend substantially as follows:

 

“THE SECURITIES WHICH ARE REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNTIL A REGISTRATION STATEMENT WITH RESPECT THERETO IS DECLARED EFFECTIVE UNDER SUCH ACT.”

 

1.8 Exchange of Certificates .

 

(a) After the Effective Time and pursuant to a customary letter of transmittal or other instructional form provided by the Exchange Agent to the CEI Security Holders, the CEI Security Holders shall be required to surrender all their CEI Securities to the Exchange Agent, and the CEI Security Holders shall be entitled upon such surrender to receive in exchange therefor certificates representing the number of Merger Shares into which the CEI Securities theretofore represented by the stock transfer forms so surrendered shall have been exchanged pursuant to this Agreement. Until so surrendered, each outstanding certificate, which, prior to the Effective Time, represented CEI Securities, shall be deemed for all corporate purpose, subject to the further provisions of this Article I, to evidence the ownership of the number of Merger Shares for which such CEI Securities have been so exchanged. No dividend payable to holders of Merger Shares of record as of any Date subsequent to the Effective Time shall be paid to the owner of any certificate which, prior to the Effective Time, represented CEI Securities, until such certificate or certificates representing all the relevant CEI Securities, together with a stock transfer form, are surrendered as provided in this Article I or pursuant to letters of transmittal or other instructions with respect to lost certificates provided by the Exchange Agent.

 

Merger Agreement   Page 5 of 21
     

 

(b) All Merger Shares for which the CEI Securities shall have been exchanged pursuant to this Article I shall be deemed to have been issued in full satisfaction of all rights pertaining to the CEI Securities.

 

(c) On the Effective Date, the stock transfer book of CEI shall be deemed to be closed and no transfer of CEI Securities shall thereafter be recorded thereon.

 

(d) If any registered certificate for CEI Securities shall have been lost, stolen or destroyed, the Surviving Entity, upon the making of an affidavit of that fact by the Person claiming such certificate to be lost, stolen or destroyed shall issue the Merger Shares represented by such certificate to the persons legally entitled thereto.

 

SECTION 2. REPRESENTATIONS AND WARRANTIES OF CEI

 

CEI hereby represents and warrants as follows:

 

2.1 Organization and Good Standing: Ownership of Shares. CEI is a corporation duly organized and validly existing under the laws of the State of Nevada. There are no outstanding subscriptions, rights, options, warrants or other agreements obligating CEI to issue, sell or transfer any stock or other securities of CEI.

 

2.2 Corporate Authority. CEI has the corporate power to enter into this Agreement and to perform its respective obligations hereunder. The execution and delivery of this Agreement and the consummation of the transaction contemplated hereby have been duly authorized by the Board of Directors of CEI. The execution and performance of this Agreement will not violate or conflict with any provision of the respective Articles of Incorporation or bylaws of CEI.

 

2.3 Intangible Assets. CEI has full title and interest in all intellectual property material to the business of CEI (the “Intangible Assets”). CEI holds all rights, title and interest in all the Intangible Assets owned by it free and clear of all liens, pledges, mortgages, security interests, conditional sales contracts or any other encumbrances.

 

2.4 Capitalization. The issued and outstanding shares of common stock of CEI consists of 330 shares of no par value common stock as of April 1, 2016.

 

SECTION 3. REPRESENTATIONS AND WARRANTIES OF CHRON

 

CHRON hereby represents and warrants as follows:

 

3.1 Organization and Good Standing. CHRON is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada. CHRON has the corporate power to own its own property and to carry on its business as now being conducted and is duly qualified to do business in any jurisdiction where so required except where the failure to so qualify would have no material negative impact.

 

Merger Agreement   Page 6 of 21
     

 

3.2 Corporate Authority. CHRON has the corporate power to enter into this Agreement and to perform their respective obligations hereunder. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by the directors and shareholders of CHRON as required by Nevada law. The execution and performance of this Agreement will not violate or conflict with any provision of the respective Articles of Incorporation or Bylaws of CHRON.

 

3.3 Capitalization.

 

(a) As of the date of this Agreement, CHRON is authorized to issue 1,000,000,000 shares of CHRON Common Stock, $.0001 par value per share, 10,000,000 CHRON Class A Common Stock, and 500,000,000 shares of CHRON Preferred Stock, $.00001 par value per share, of which approximately (i) 560,555,127 shares of CHRON Common Stock (ii) 4,000,000 shares of Chron Class A Common Stock and (iii) no shares of CHRON Preferred Stock are issued and outstanding.

 

(b) There are no options, warrants, calls, conversion rights, commitments or agreements or any character (whether oral, written, express or implied) to which CHRON is a party or by which CHRON may be bound that do or may obligate CHRON to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of CHRON Securities or that do or may obligate CHRON to grant, extend or enter into any such option, warrant, call, conversion right, commitment or agreement other than those set forth in Exhibit 3.3(b). There are no outstanding agreements, contracts, obligations, promises, commitments, indentures, plans, instruments, arrangements, undertakings or understandings (whether oral, written, express or implied) to which CHRON is a party or is bound or which affects or relates to the voting, issuance, purchase, redemption, repurchase or transfer of any CHRON Securities other than those set forth in Exhibit 3.3(b). Other than as provided in this Agreement, CHRON has not, and prior to the Effective Time shall not, become party to or subject to any contract or obligation wherein any person has a right or option to purchase or acquire any rights in any additional CHRON Securities. None of the outstanding CHRON Securities was issued in violation of any law, rule or regulation, including, without limitation, state and federal securities laws. CHRON does not own, and does not have any contract to acquire, any equity securities or other securities of any person or entity (including any subsidiary) or any direct or indirect equity or ownership interest in any other business.

 

(c) At the Closing, the Merger Shares to be issued and delivered to the CEI Security Holders hereunder will when so issued and delivered, constitute valid and legally issued shares of CHRON Common and Preferred Stock, fully paid and non-assessable.

 

3.4 Compliance with Laws. CHRON has complied with all federal, State, county and local laws, ordinances, regulations, inspections, orders, judgments, injunctions, awards or decrees applicable to it or its business, which, if not complied with, would materially and adversely affect the business of CHRON or the trading market for the CHRON Common Stock, and CHRON has complied with all provisions for registration under the Securities Act of 1933 and all applicable blue sky laws in connection with its public stock offering and there are no outstanding, pending or threatened stop orders or other actions or investigations relating thereto.

 

3.5 Actions and Proceedings. CHRON is not a party to any pending litigation or, to its knowledge, any governmental proceedings that are threatened against CHRON other than those set forth in Exhibit 3.5.

 

Merger Agreement   Page 7 of 21
     

 

3.6 Access to Records; Financial Statements.

 

(a) The corporate financial records, minute books, and other documents and records of CHRON have been made available to CEI prior to the Closing hereof.

 

(b) The financial statements made available or delivered to CEI fairly represent the financial position of CHRON as of the dates set forth therein, and there have been no material adverse change in CHRON’s financial condition, business, property or assets since the last statement date. Such financial statements, including any related schedules and notes thereto (the “Financial Statements”), have been prepared in accordance with GAAP consistently applied throughout the period or periods in question (except as specifically disclosed therein) and show all liabilities, direct or contingent, of CHRON required to be shown in accordance with GAAP consistently applied throughout the period or periods in question (except as specifically disclosed therein) and fairly present the financial position and the results of CHRON for the periods indicated therein.

 

3.7 No Breach. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby will not:

 

(a) violate any provision of the Certificate of Incorporation or Bylaws of CHRON;

 

(b) violate, conflict with or result in the breach of any of the terms of, result in a material modification of, otherwise give any other contracting party the right to terminate, or constitute (or with notice or lapse of time or both constitute) a default under, any contract or other agreement to which CHRON is a party or by or to which it or any of its assets or properties may be bound or subject;

 

(c) violate any order, judgment, injunction, award or decree of any court, arbitrator or governmental or regulatory body against, or binding upon, CHRON or upon the securities, properties or business to CHRON; or

 

(d) violate any statute, law or regulation of any jurisdiction applicable to the transactions contemplated herein.

 

3.8 Authority to Execute and Perform Agreements. CHRON has the full legal right and power and all authority and approval required to enter into, execute and deliver this Agreement and to perform fully its obligations hereunder. This Agreement has been duly executed and delivered and is the valid and binding obligation of CHRON enforceable in accordance with its Terms, except as may be limited by bankruptcy, moratorium, insolvency or other similar laws generally affecting the enforcement of creditors’ rights. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby and the performance by CHRON of this Agreement, in accordance with its respective Terms and conditions will not:

 

(a) require the approval or consent of any governmental or regulatory body or the approval or consent of any other person;

 

(b) conflict with or result in any breach or violation of any of the Terms and conditions of, or constitute (or with any notice or lapse of time or both would constitute) a default under, any order, judgment or decree applicable to CHRON, or any instrument, contract or other agreement to which CHRON is a party or by or to which CHRON is bound or subject; or

 

(c) result in the creation of any lien or other encumbrance on the assets or properties of CHRON.

 

Merger Agreement   Page 8 of 21
     

 

3.9 Full Disclosure. No representation or warranty by CHRON in this Agreement or in any document or schedule to be delivered by them pursuant hereto, and no written Statement, certificate or instrument furnished or to be furnished by CHRON pursuant hereto or in connection with the negotiation, execution or performance of this Agreement contains or will contain any untrue Statement of a material fact or omits or will omit to State any fact necessary to make any Statement herein or therein not materially misleading or necessary to complete and correct presentation of all material aspects of the business of CHRON.

 

3.10 Absence of Undisclosed Liabilities . Except as and to the extent reflected or reserved against in the Financial Statements, CHRON does not have any liabilities, debts or obligations, whether absolute, accrued, contingent, unliquidated or otherwise and whether due or to become due (including without limitation any liability for breach of contract, breach of warranty, torts, infringements, claims or lawsuits), arising out of any transaction entered into on or prior to the Effective Time, other than contractual obligations incurred in the ordinary course of business not required to be disclosed in accordance with GAAP.

 

3.11 Subsidiaries . Exhibit 3.11 sets forth for each subsidiary of CHRON (i) its name and jurisdiction of organization, (ii) its form of organization and capital structure, and (iii) the capital stock or membership or other equity interests held by CHRON in such subsidiary. CHRON holds of record and owns beneficially all of the outstanding shares of capital stock or other equity or ownership interests in each of its subsidiaries, free and clear of any restrictions on transfer (other than restrictions under the Securities Act and state securities laws), taxes, liens, options, warrants, purchase rights, contracts, commitments, equities, claims, and demands of any nature whatsoever. There are no outstanding or authorized rights, contracts, arrangements or understandings that could require CHRON or any of its subsidiaries to sell, transfer, or otherwise dispose of any equity or ownership interest in any of its subsidiaries or that could require any subsidiary of CHRON to issue, sell, or otherwise cause to become outstanding any of its own shares of capital stock or membership or other equity or ownership interests or any shares of capital stock or membership or other equity or ownership interests in any other subsidiary. There are no (i) authorized or outstanding stock appreciation, phantom stock, profit participation, or similar rights with respect to or redeemable equity of, any subsidiary of CHRON or (ii) voting trusts, proxies, or other agreements or understandings with respect to the voting of any capital stock, membership interest or other equity or ownership interests of any such subsidiary. CHRON does not control directly or indirectly and does not have any direct or indirect equity participation or other investment in any Person which is not a subsidiary.

 

SECTION 4. CONDITIONS PRECEDENT

 

4.1 Conditions Precedent to the Obligation of CHRON. All obligations of CHRON under this Agreement are subject to the fulfillment, prior to or as of the Closing Date, as indicated below, of each of the following conditions (anyone of which may be waived at Closing by CEI):

 

(a) The representations and warranties by or on behalf of CHRON contained in this Agreement or in any certificate or document delivered pursuant to the provisions hereof shall be true in all material respects at and as of Closing Date as though such representations and warranties were made at and as of such time.

 

Merger Agreement   Page 9 of 21
     

 

(b) CHRON shall have performed and complied in all material respects, with all covenants, agreements, and conditions set forth in, and shall have executed and delivered all documents required by this Agreement to be performed or complied with or executed and delivered by them prior to or at the Closing.

 

(c) On the Closing Date, an executive officer of CHRON shall have delivered to CEI a certificate, duly executed by such Person and certifying, that to the best of such Person’s knowledge and belief, the representations and warranties of CHRON set forth in this Agreement are true and correct in all material respects.

 

(d) On or before the Closing, the Board of Directors and the shareholders of CHRON shall have approved, in accordance with applicable law, the execution, delivery and performance of this Agreement and the consummation of the transaction contemplated herein and authorized all of the necessary and proper action to enable CHRON to comply with the terms of the Agreement

 

(e) The Merger shall be permitted by applicable law and CHRON shall have sufficient shares of CHRON Common Stock authorized to complete the Merger.

 

(f) At the Closing, all instruments and documents delivered to CEI and the CEI Security Holders pursuant to provisions hereof shall be reasonably satisfactory to legal counsel for CEI.

 

(g) The Merger Shares to be issued to the Shareholders of CEI at Closing will be validly issued, non-assessable and fully paid under the NRS and will be issued in a non-public offering and exempt merger transaction in compliance with all federal and State securities laws, bearing a restrictive legend, as is more fully set forth herein.

 

4.2 Conditions Precedent to the Obligations of CEI. All obligations of CEI under this Agreement are subject to the fulfillment, prior to or at Closing, of each of the following conditions (anyone of which may be waived at Closing by CHRON):

 

(a) The representations and warranties by CEI contained in this Agreement or in any certificate or document delivered pursuant to the provisions hereof shall be true in all material respects at and as of the Closing as though such representations and warranties were made at and as of such time;

 

(b) CEI and the CEI Security Holders shall have performed and complied with, in all material respects, with all covenants, agreements, and conditions set forth in, and shall have executed and delivered all documents required by this Agreement to be performed or complied or executed and delivered by them prior to or at the Closing;

 

(c) On the Closing Date, one of the CEI principal executive officers shall have delivered to CHRON a certificate, duly executed by such Person and certifying, that to such Person’s knowledge and belief, the representations and warranties of CEI set forth in this Agreement are true and correct in all material respects.

 

(d) The holders of a majority of the issued and outstanding shares of CEI common stock shall have approved, ratified and confirmed this Agreement, the Merger and all of the transactions contemplated hereby, all in accordance with applicable Nevada law.

 

Merger Agreement   Page 10 of 21
     

 

SECTION 5. COVENANTS

 

5.1 Corporate Examinations and Investigations. Prior to the Closing Date, the parties acknowledge that they have been entitled, through their employees and representatives, to make such investigation of the assets, properties, business and operations, books, records and financial condition of the other as they each may reasonably require. No investigations, by a party hereto shall, however, diminish or waive any of the representations, warranties, covenants or agreements of the party under this Agreement.

 

5.2 Further Assurances. The parties shall execute such documents and other papers and take such further actions as may be reasonably required or desirable to carry out the provisions hereof and the transactions contemplated hereby. Each such party shall use its commercially reasonable efforts to fulfill or obtain the fulfillment of the conditions to the Closing, including, without limitation, the execution and delivery of any documents or other papers, the execution and delivery of which are necessary or appropriate to the Closing.

 

5.3 Confidentiality. In the event the transactions contemplated by this Agreement are not consummated, CHRON, and CEI and the respective party’s principal executive officers agree to keep confidential any information disclosed to each other in connection therewith for a period of three (3) years from the date hereof; provided, however, such obligation shall not apply to information which:

 

(i) at the time of the disclosure was public knowledge;

 

(ii) is required to be disclosed publicly pursuant to any applicable Federal or State securities laws;

 

(iii) after the time of disclosure becomes public knowledge (except due to the action of the receiving party);

 

(iv) the receiving party had within its possession at the time of disclosure; or

 

(v) is ordered disclosed by a Court of proper jurisdiction.

 

5.4 Stock Certificates. Within thirty (30) days of the Closing the CEI Security Holders shall have delivered the certificates representing the CEI Securities duly endorsed (or with executed stock powers). Further, within thirty (30) days of such Closing, CHRON shall issue to the CEI Security Holders the Merger Shares.

 

5.5 Filing of Certificate of Merger . The Articles of Merger shall have been filed in the office of the Secretary of State for the State of Nevada.

 

5.6 Indemnification of Officers and Directors. It is the intention of the Parties that CHRON and CEI shall indemnify its officers and directors to the fullest extent permitted by law, as applicable. In such connection, the Parties agree not to amend the Certificates of incorporation or Bylaws of either CHRON or CEI if such amendment shall have the effect of reducing, terminating or otherwise adversely affecting the indemnification rights and privileges applicable to officers and directors of each of CHRON and CEI, as the same are in effect immediately prior to the Effective Time of the Merger.

 

Merger Agreement   Page 11 of 21
     

 

SECTION 6. SURVIVAL OF REPRESENTATIONS AND WARRANTIES

 

Notwithstanding any right of either party to investigate the affairs of the other party and its Shareholders, each party has the right to rely fully upon representations, warranties, covenants and agreements of the other party and its Shareholders contained in this Agreement or in any document delivered to one by the other or any of their representatives, in connection with the transactions contemplated by this Agreement. All such representations, warranties, covenants and agreements shall survive the execution and delivery hereof and the closing hereunder for three (3) years following the Closing.

 

SECTION 7. DOCUMENTS AT CLOSING AND THE CLOSING

 

7.1 Documents at Closing. At the Closing, the following transactions shall occur, all of such transactions being deemed to occur simultaneously:

 

(a) CEI will deliver, or will cause to be delivered, to CHRON the following:

 

(i) a certificate executed by the President or Secretary of CEI to the effect that all representations and warranties made by CEI under this Agreement are true and correct as of the Closing, the same as though originally given to CHRON on said Date;

 

(ii) a certificate from the State of Nevada dated at or about the Closing to the effect that CEI is validly existing under the laws of said State;

 

(iii) Common stock certificates representing those shares of CEI to be exchanged for the Merger Shares.

 

(iv) all other items, the delivery of which is a condition precedent to the obligations of CEI, as set forth in Section 4.

 

(b) CHRON will deliver or cause to be delivered to CEI and the CEI Security Holders:

 

(i) a certificate from CHRON executed by the President or Secretary of CHRON, to the effect that all representations and warranties of CHRON made under this Agreement are true and correct as of the Closing, the same as though originally given to CEI on said Date;

 

(ii) certified copies of resolutions by CHRON Board of Directors and shareholders authorizing this transaction;

 

(iii) certificates from the Nevada Secretary of State dated at or about the Closing Date that CHRON are in good standing under the laws of said State;

 

(iv) the legal opinion required in Section 4; and

 

(v) all other items, the delivery of which is a condition precedent to the obligations of CHRON, as set forth in Section 4 hereof.

 

Merger Agreement   Page 12 of 21
     

 

SECTION 8. MISCELLANEOUS

 

8.1 Waivers. The waiver of a breach of this Agreement or the failure of any party hereto to exercise any right under this Agreement shall in no way constitute waiver as to future breach whether similar or dissimilar in nature or as to the exercise of any further right under this Agreement.

 

8.2 Amendment. This Agreement may be amended or modified only by an instrument of equal formality signed by the parties or the duly authorized representatives of the respective parties.

 

8.3 Assignment. This Agreement is not assignable except by operation of law.

 

8.4 Notice. Until otherwise specified in writing, the mailing addresses and fax numbers of the parties of this Agreement shall be as follows:

 

To: CHRON: To be provided

 

To: CEI: To be provided

 

Any notice or Statement given under this Agreement shall be deemed to have been given if sent by registered mail addressed to the other party at the address indicated above or at such other address which shall have been furnished in writing to the addressor.

 

8.5 Governing Law. This Agreement shall be construed, and the legal relations between the parties determined, in accordance with the laws of the State of Nevada, thereby precluding any choice of law rules which may direct the application of the laws of any other jurisdiction.

 

8.6 Arbitration . The parties hereby agree that any dispute or cause of action arising under this Agreement shall be settled by arbitration conducted by one arbitrator. The arbitrator shall be acceptable to both CEI and CHRON. If an arbitrator cannot be agreed upon as provided in the preceding sentence, an arbitrator will be appointed. The arbitrator shall set a limited time period and establish procedures designed to reduce the cost and time for discovery while allowing the parties an opportunity, adequate in the sole judgment of the arbitrator, to discover relevant information from the opposing parties about the subject matter of the dispute The arbitrator shall rule upon motions to compel or limit discovery and shall have the authority to impose sanctions, including attorneys’ fees and costs, to the same extent as a court of competent law or equity, should the arbitrator determine that discovery was sought without substantial justification or that discovery was refused or objected to without substantial justification. The decision of the arbitrator shall be written, shall be in accordance with applicable law and with this Agreement, and shall be supported by written findings of fact and conclusion of law which shall set forth the basis for the decision of the arbitrator. Any such arbitration shall be held exclusively in Clark County, Nevada.

 

8.7 Publicity. No publicity release or announcement concerning this Agreement or the transactions contemplated hereby shall be issued by either party hereto at any time from the signing hereof without advance approval in writing of the form and substance by the other party.

 

8.8 Entire Agreement. This Agreement (including the Exhibits and Schedules to be attached hereto) and the collateral agreements executed in connection with the consummation of the transactions contemplated herein contain the entire agreement among the parties with respect to the transactions contemplated hereby, and supersedes all prior agreements, written or oral, with respect hereof.

 

Merger Agreement   Page 13 of 21
     

 

8.9 Headings. The headings in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement.

 

8.10 Severability of Provisions. The invalidity or unenforceability of any term, phrase, clause, paragraph, restriction, covenant, agreement or provision of this Agreement shall in no way affect the validity or enforcement of any other provision or any part thereof.

 

8.11 Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed, shall constitute an original copy hereof, but all of which together shall consider but one and the same document.

 

8.12 Binding Effect. This Agreement shall be binding upon the parties hereto and inure to the benefit of the parties, their respective heirs, administrators, executors, successors and assigns.

 

8.13 Press Releases . The parties will mutually agree as to the wording and timing of any informational releases concerning this transaction prior to and through Closing.

 

SECTION 9. TERMINATION .

 

9.1 This Agreement may be terminated, and the Merger contemplated by this Agreement may be abandoned, at any time prior to the Effective Time, notwithstanding the adoption of this Agreement and the approval of the Merger by the shareholders of either party:

 

(i) by mutual written consent duly authorized by the Board of Directors of CHRON and by the Board of Directors of CEI;

 

(ii) by either party if the Merger has not been consummated by April 15, 2014, except that the right to terminate this Agreement under this Section 9.1(ii) shall not be available to any party whose willful failure to perform any material obligation or to fulfill any material condition under this Agreement has been the proximate cause of, or resulted in, the failure of the Effective Time to occur on or before that date;

 

(iii) By either party if a court of competent jurisdiction or an administrative, governmental, or regulatory authority has issued a final nonappealable order, decree, or ruling, or taken any other action, having the effect of permanently restraining, enjoining, or otherwise prohibiting the Merger;

 

(iv) By CHRON if (A) CHRON is not in material breach of its respective obligations under this Agreement and (B) there has been (1) a material breach by CEI of any of its representations and warranties under this Agreement such that the conditions in Section 4.1 can not be satisfied or (2) a material failure by CEI to perform any of its obligations under this Agreement such that the conditions in Section 4.1 cannot be satisfied, and, in both case (1) and case (2), the breach or failure cannot be cured by CEI within 30 calendar days following receipt by CEI of notice of the breach;

 

(v) By CEI if (A) CEI is not in material breach of its obligations under this Agreement and (B) there has been (1) a material breach by CHRON of any of its representations and warranties under this Agreement such that the conditions in Section 4.2 shall not be satisfied or (2) a material failure by CHRON to perform any of its obligations under this Agreement such that the conditions in Section 4.2 shall not be satisfied, and, in both case (1) and case (2), the breach or failure cannot be cured by CHRON within 30 calendar days following receipt by CHRON of notice of the breach; and

 

Merger Agreement   Page 14 of 21
     

 

(vi) By either party, such party not then being in breach of the Agreement, if any Exhibit, Schedule or attachment appended hereto subsequent to the date of the Agreement or any amendment to any Exhibit, Schedule or attachment hereto made subsequent to the date of the Agreement shall materially adversely affect the economics, financial or business considerations of the transactions contemplated under this Agreement as determined by the receiving party.

 

9.2 In the event of termination of this Agreement as provided in this Section 9, the terminating party shall provide written notice of such termination to the other party and the provisions of this Agreement shall forthwith become void. Notwithstanding the foregoing, the event of termination of this Agreement by any party hereto, nothing herein shall limit the remedies at law or in equity of any party with respect to any breaches hereof by any other party.

 

SECTION 10. INDEMNIFICATION BY INDEMNITOR .

 

10.1 Indemnification . All statements of fact contained in any written statement, certificate, schedule, exhibit, or other document delivered to CEI by or on behalf of CHRON pursuant to Section 3 of this Agreement shall be deemed representations and warranties of Indemnitor hereunder. Indemnitor shall indemnify, defend and save and hold CEI and the Surviving Entity, and the respective officers, directors, employees, agents, shareholders, assigns and successors, and the affiliates of the foregoing persons and entities (“Indemnified Persons”), harmless from and against and in respect of, and shall pay to Indemnified Persons the amount of, any and all claims, demands, lawsuits, actions, causes of actions, administrative proceedings (including informal proceedings), losses, diminution in value, assessments, costs, damages, punitive damages, judgments, liabilities or expenses (including, but not limited to, interest, penalties, costs of preparation and investigation, and the reasonable fees, disbursements and expenses of attorneys, accountants and other professional advisors) of every kind, nature and description, whether or not involving a third party claim (collectively the “Losses”) that arise or result from or relate to, directly or indirectly:

 

(i) any material inaccuracy in any representation or document delivered under or pursuant to this Agreement or the material breach of any representation, warranty or covenant made by CHRON in or pursuant to this Agreement or any certificate, document, or instrument delivered by or on behalf of CHRON pursuant to this Agreement;

 

(ii) any misrepresentations in or omission from any schedule, exhibit or any other attachment to this Agreement delivered by or on behalf of CHRON pursuant to this Agreement;

 

(iii) any failure by CHRON to duly perform or observe any term, provision, covenant, or agreement in this Agreement to be performed or observed on the part of CHRON for periods prior to the Effective Time;

 

(iv) acts or omissions in connection with business activities conducted or to be conducted by CHRON, including, without limitation, the sale of goods or provision of services, prior to the Effective Time;

 

(v) any action, suit, investigation, proceeding, demand, assessment, audit, judgment and claim, including any employment-related claim relating to the time period on or prior to the Effective Time, even though such claims may not come to light until after the Effective Time; or

 

Merger Agreement   Page 15 of 21
     

 

(vi) any Losses, including Tax-related or otherwise, relating to the distribution to the CHRON Security Holders of the shares of Trebor Resource Management Group Inc., which was a subsidiary of CHRON.

 

10.2 Procedures . The Indemnified Persons shall give Indemnitor prompt written notice of any written claim, demand, assessment, action, suit or proceeding to which the indemnity set forth in this Section 10 applies (the “Indemnification Notice”). If the document evidencing such claim or demand is a court pleading, the Indemnified Persons shall give such notice within ten (10) days of receipt of such plead ing, otherwise, the Indemnified Persons shall give such notice within thirty (30) days of the date it receives written notice of such claim. Failure to give timely notice, including the Indemnification Notice, of a matter which may give rise to an indemnification claim shall not affect the rights of the Indemnified Persons to collect such Losses from Indemnitor so long as such failure to so notify does not materially adversely affect the Indemnitor’s ability to defend such Losses against a third party.

 

IN WITNESS WHEREOF, the parties have executed this agreement on the date first above written.

 

The Chron Organization, Inc.  
     
By: /s/Byron Young  
Name: Byron Young  
Its: Chairman and Treasurer  
     
Chron Energy, Inc.  
     
By: /s/Alex Rodriguez  
Name: Alex Rodriguez  
Its: President  

 

Merger Agreement   Page 16 of 21
     

 

SCHEDULE A

 

Common Shares to be Issued

 

Chron Energy, Inc.   Chron Common Shares  
Security Holder   Securities Owned   to be Issued  
           
NAUP Investments, LLC or his assigns   280     140,000,000  
             
Douglas O. McKinnon, or his assigns   50     25,000,00  

 

Merger Agreement   Page 17 of 21
     

 

Exhibits 1.5(a) & 1.5(b)

 

Directors and Officers

 

The following Directors and O fficers shall serve as follows:

 

Directors:

 

Effective with the Closing, Alex Rodriguez and Byron Young shall serve as Directors until the next annual meeting of shareholders and until his/her successor shall have been elected and qualified. Additionally, Mr. Young shall serve as Chairman during his tenure as a Director.

 

Officers:

 

Effective with the Closing, the following shall serve in his/her respective capacity and shall serve until the next annual meeting of Board of Director and until his/her successor shall have been elected and qualified:

 

  Alex Rodriguez CEO and President  

 

Merger Agreement   Page 18 of 21
     

 

Exhibit 3.3(b)

 

None

 

Merger Agreement   Page 19 of 21
     

 

Exhibit 3.5

 

The Company has filed suit in Tarrant County against Kenneth Dougherty that discovery be conducted to determine the status of (i) that certain promissory in the amount of $62,563.00 and related litigation and settlement thereof; (ii) certain claims to stock of the Company held/or were held by Jason Ford, Susan Ford, Bootleg Barbeque, Lisa Ford, William J. Ford II, Trustee, William J. Ford II and Texas Hill Country Barbeque; and (iii) the whereabouts of the prior books and records of the Company.

 

Management of the Company do not believe that the above suit will have any material adverse financial effect on the Company.

 

Merger Agreement   Page 20 of 21
     

 

Exhibit 3.11

 

Subsidiaries

 

Chron Home Services, Inc. a Texas Corporation, 100% owned

 

Merger Agreement   Page 21 of 21
     

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES, UNLESS OTHERWISE PROHIBITED BY FEDERAL OR STATE SECURITIES LAWS.

 

Original Issue Date: March 17, 2017

 

$82,500

 

10% ORIGINAL ISSUE DISCOUNT

CONVERTIBLE DEBENTURE

DUE March 17, 2018

 

FOR VALUE RECEIVED, The Chron Organization, a Nevada corporation (the “ Company ”) promises to pay to Bellridge Capital, LLC or its registered assigns (the “ Holder ”), or shall have paid pursuant to the terms hereunder, the principal sum of $82,500 on or before March 17, 2018 (the “ Maturity Date ”) or such earlier date as this 10.00% Original Issued Discount Convertible Debenture (the “ Debenture ”) is required or permitted to be repaid as provided hereunder, and to pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Debenture in accordance with the provisions hereof. This Debenture is subject to the following additional provisions:

 

Section 1 . Definitions . For the purposes hereof, in addition to the terms defined elsewhere in this Debenture, (a) capitalized terms not otherwise defined herein shall have the meanings set forth in the Purchase Agreement (as defined below) and (b) the following terms shall have the following meanings:

 

Alternate Consideration ” shall have the meaning set forth in Section 5(e).

 

Bankruptcy Event ” means any of the following events: (a) the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or any Significant Subsidiary thereof, (b) there is commenced against the Company or any Significant Subsidiary thereof any such case or proceeding that is not dismissed within 60 days after commencement, (c) the Company or any Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered, (d) the Company or any Significant Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 60 calendar days after such appointment, (e) the Company or any Significant Subsidiary thereof makes a general assignment for the benefit of creditors, (f) the Company or any Significant Subsidiary thereof calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts or (g) the Company or any Significant Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.

 

 
 

 

Base Conversion Price ” shall have the meaning set forth in Section 5(b).

 

Beneficial Ownership Limitation ” shall have the meaning set forth in Section 4(d).

 

Buy-In ” shall have the meaning set forth in Section 4(c)(v).

 

Change of Control Transaction ” means the occurrence after the date hereof of any of (a) an acquisition after the date hereof by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of 50% of the voting securities of the Company (other than by means of conversion or exercise of the Debentures and the Securities issued together with the Debentures), (b) the Company merges into or consolidates with any other Person, or any Person merges into or consolidates with the Company and, after giving effect to such transaction, the stockholders of the Company immediately prior to such transaction own less than 50% of the aggregate voting power of the Company or the successor entity of such transaction, (c) the Company sells or transfers all or substantially all of its assets to another Person and the stockholders of the Company immediately prior to such transaction own less than 50% of the aggregate voting power of the acquiring entity immediately after the transaction, or (d) the execution by the Company of an agreement to which the Company is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (c) above.

 

Conversion ” shall have the meaning ascribed to such term in Section 4.

 

Conversion Date ” shall have the meaning set forth in Section 4(a).

 

Conversion Price ” shall have the meaning set forth in Section 4(b).

 

Conversion Schedule ” means the Conversion Schedule in the form of Schedule 1 attached hereto.

 

Conversion Shares ” means, collectively, the shares of Common Stock issuable upon conversion of this Debenture in accordance with the terms hereof.

 

Debenture Register ” shall have the meaning set forth in Section 2(b).

 

Default Conversion Price ” means 55% of the lowest traded price during the 20 Trading Day-period immediately prior to the applicable Conversion Date.

 

DTC ” means the Depository Trust Company.

 

DWAC ” means Deposit Withdrawal at Custodian as defined by the DTC.

 

Event of Default ” shall have the meaning set forth in Section 6(a).

 

Fundamental Transaction ” shall have the meaning set forth in Section 5(e).

 

 
 

 

Mandatory Default Amount ” means the payment of 130% of the outstanding principal amount of this Debenture and accrued and unpaid interest hereon, in addition to the payment of all other amounts, costs, expenses and liquidated damages due in respect of this Debenture.

 

New York Courts ” shall have the meaning set forth in Section 8(e).

 

Notice of Conversion ” shall have the meaning set forth in Section 4(a).

 

Original Issue Date ” means the date of the first issuance of the Debentures, regardless of any transfers of the Debentures and regardless of the number of instruments which may be issued to evidence the Debenture.

 

Purchase Agreement ” means the Securities Purchase Agreement, dated as of March 17, 2017 among the Company and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.

 

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

 

Share Delivery Date ” shall have the meaning set forth in Section 4(c)(ii).

 

Successor Entity ” shall have the meaning set forth in Section 5(e).

 

Section 2 . Prepayment and Interest .

 

a) Payment of Interest . The Company shall pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Debenture at the rate of 12% per annum, which will be due and payable on the sooner to occur of (i) Maturity Date (ii) except as otherwise set forth in this Debenture or (iii) upon conversion of the Debenture. In addition to the interest payable under this Section 2(a), this Debenture was issued for an original issue discount of 10% of the principal amount.

 

b) Interest Calculations . Subject to Section 2(a), interest shall be calculated on the basis of a 365 day year, consisting of twelve calendar day periods, and shall accrue daily commencing on the Original Issue Date until payment in full of the outstanding principal, together with all accrued and unpaid interest, liquidated damages and other amounts which may become due hereunder, has been made. Interest hereunder will be paid to the Person in whose name this Debenture is registered on the records of the Company regarding registration and transfers of this Debenture (the “ Debenture Register ”).

 

c) Reserved .

 

d) Prepayment . At any time prior to the Maturity Date, upon ten (10) days written notice to the Holder, the Company may prepay any portion of the principal amount of this Debenture and any accrued and unpaid interest. If the Company exercises its right to prepay any portion of the Debenture, the Company shall make payment to the Holder of an amount in cash equal to the sum of the then outstanding principal amount of this Debenture being prepaid, accrued interest thereon and any other amounts due under the Debenture multiplied by 120%. The Holder may continue to convert the Debenture from the date notice of the prepayment is given until the date of the prepayment.

 

 
 

 

Section 3. Registration of Transfers and Exchanges .

 

a) Different Denominations . This Debenture is exchangeable for an equal aggregate principal amount of Debentures of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be payable for such registration of transfer or exchange.

 

b) Investment Representations . This Debenture has been issued subject to certain investment representations of the original Holder set forth in the Purchase Agreement and may be transferred or exchanged only in compliance with the Purchase Agreement and applicable federal and state securities laws and regulations.

 

c) Reliance on Debenture Register . Prior to due presentment for transfer to the Company of this Debenture, the Company and any agent of the Company may treat the Person in whose name this Debenture is duly registered on the Debenture Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Debenture is overdue, and neither the Company nor any such agent shall be affected by notice to the contrary.

 

Section 4. Conversion .

 

a) Voluntary Conversion . Beginning on the date hereof and until this Debenture is no longer outstanding, subject to the limitations set forth in Section 4(d), this Debenture (including principal and accrued but unpaid interest on any principal being converted, if any) shall be convertible, in whole or in part, into shares of Common Stock at the option of the Holder, at any time and from time to time (subject to the conversion limitations set forth in Section 4(d) hereof). The Holder shall effect conversions by delivering to the Company a Notice of Conversion, the form of which is attached hereto as Annex A (each, a “ Notice of Conversion ”), specifying therein the principal amount (and any accrued interest) of this Debenture to be converted and the date on which such conversion shall be effected (such date, the “ Conversion Date ”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder. No ink-original Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required by the Company. To effect conversions hereunder, the Holder shall not be required to physically surrender this Debenture to the Company unless the entire principal amount of this Debenture, plus all accrued and unpaid interest thereon, has been so converted. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Debenture (and accrued interest thereon, if applicable) in an amount equal to the applicable conversion. The Holder and the Company shall maintain records showing the principal amount(s) converted and the date of such conversion(s). The Company may deliver an objection to any Notice of Conversion within one (1) Business Day of delivery of such Notice of Conversion. In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder, and any assignee by acceptance of this Debenture, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Debenture, the unpaid and unconverted principal amount of this Debenture may be less than the amount stated on the face hereof.

 

b) Conversion Price . The conversion price in effect on any Conversion Date, subject to adjustment herein, shall be equal to the lower of $.03 per share or 60% of the lowest closing price for the Company’s Common Stock on the Trading Market for the 20 Trading Days prior to the conversion; provided that or if the shares of Common Stock are not traded on a Trading Market but is quoted on the OTCPink, then 60% of the lowest closing price for the Company’s Common Stock on the Trading Market for the 20 Trading Days prior to the conversion and if the Common Stock is not traded on a Trading Market 60% of the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchaser and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company. Provided however the Conversion Price shall not be lower than $.001 per share subject to adjustment as provided in Section 5.

 

 
 

 

c) Mechanics of Conversion .

 

i. Conversion Shares Issuable Upon Conversion of Principal Amount . The number of Conversion Shares issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Debenture to be converted by (y) the Conversion Price.

 

ii. Delivery of Certificate Upon Conversion . Not later than three (3) Trading Days after each Conversion Date (the “ Share Delivery Date ”), the Company shall deliver, or cause to be delivered, to the Holder a certificate or certificates representing the Conversion Shares which, on or after the date on which such Conversion Shares are eligible to be sold under Rule 144 without the need for current public information and the Company has received an opinion of counsel to such effect reasonably acceptable to the Company, shall be free of restrictive legends and trading restrictions (other than those which may then be required by the Purchase Agreement) representing the number of Conversion Shares being acquired upon the conversion of this Debenture. All certificate or certificates required to be delivered by the Company under this Section 4(c) shall be delivered electronically through the Depository Trust Company or another established clearing corporation performing similar functions. If the Conversion Date is prior to the date on which such Conversion Shares are eligible to be sold under Rule 144 without the need for current public information, the Conversion Shares shall bear a restrictive legend in substantially the following form, as appropriate:

 

“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES, UNLESS OTHERWISE PROHIBITED BY FEDERAL OR STATE SECURITIES LAWS.”

 

Notwithstanding the foregoing, commencing on such date that the Conversion Shares are eligible for sale under Rule 144 subject to current public information requirements, the Company shall obtain at its cost a legal opinion to allow for such sales under Rule 144.

 

iii. Failure to Deliver Certificates . If, in the case of any Notice of Conversion, such certificate or certificates are not delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to the Company at any time on or before its receipt of such certificate or certificates, to rescind such Conversion, in which event the Company shall promptly return to the Holder any original Debenture delivered to the Company and the Holder shall promptly return to the Company the Common Stock certificates issued to such Holder pursuant to the rescinded Conversion Notice.

 

 
 

 

iv. Obligation Absolute; Partial Liquidated Damages . The Company’s obligations to issue and deliver the Conversion Shares upon conversion of this Debenture in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of such Conversion Shares (but subject to Section 4(e) of this Debenture); provided , however , that such delivery shall not operate as a waiver by the Company of any such action the Company may have against the Holder. In the event the Holder of this Debenture shall elect to convert any or all of the outstanding principal amount hereof, the Company may not refuse conversion based on any claim that the Holder or anyone associated or affiliated with the Holder has been engaged in any violation of law, agreement or for any other reason (except as otherwise provided in the Transaction Documents), unless an injunction from a court, on notice to Holder, restraining and or enjoining conversion of all or part of this Debenture shall have been sought and obtained, and the Company posts a surety bond for the benefit of the Holder which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to the Holder to the extent it obtains judgment. In the absence of such injunction, the Company shall issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion. If the Company fails for any reason to deliver to the Holder such certificate or certificates pursuant to Section 4(c)(ii) by the Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of principal amount being converted, $10 per Trading Day (increasing to $20 per Trading Day on the fifth (5 th ) Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Share Delivery Date until such certificates are delivered or Holder rescinds such conversion. Nothing herein shall limit a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 6 hereof for the Company’s failure to deliver Conversion Shares within the period specified herein and the Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.

 

v. Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Conversion . In addition to any other rights available to the Holder, if the Company fails for any reason to deliver to the Holder such certificate or certificates by the Share Delivery Date pursuant to Section 4(c)(ii), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “ Buy-In ”), then the Company shall (A) pay in cash to the Holder (in addition to any other remedies available to or elected by the Holder) the amount, if any, by which (x) the Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that the Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this Debenture in a principal amount equal to the principal amount of the attempted conversion (in which case such conversion shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued if the Company had timely complied with its delivery requirements under Section 4(c)(ii). For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of this Debenture with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon conversion of this Debenture as required pursuant to the terms hereof.

 

 
 

 

vi. Reservation of Shares Issuable Upon Conversion . The Company covenants that, following filing of the Authorized Shares Amendment, it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock a number of shares of Common Stock at least equal to 300% of the Required Minimum for the sole purpose of issuance upon conversion of this Debenture and payment of interest on this Debenture, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder, not less than such aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 5) upon the conversion of the then outstanding principal amount of this Debenture and payment of interest hereunder. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable.

 

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

 

viii. Transfer Taxes and Expenses . The issuance of certificates for shares of the Common Stock on conversion of this Debenture shall be made without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates, provided that, the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holder of this Debenture so converted and the Company shall not be required to issue or deliver such certificates unless or until the Person or Persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Conversion.

 

 
 

 

d) Holder’s Conversion Limitations .

 

i. Reserved.

 

ii. The Company shall not effect any conversion of this Debenture, and a Holder shall not have the right to convert any portion of this Debenture, to the extent that after giving effect to the conversion set forth on the applicable Notice of Conversion, the Holder (together with the Holder’s Affiliates, and any Persons acting as a group together with the Holder or any of the Holder’s Affiliates) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of this Debenture with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) conversion of the remaining, unconverted principal amount of this Debenture beneficially owned by the Holder or any of its Affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates. Except as set forth in the preceding sentence, for purposes of this Section 4(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. To the extent that the limitation contained in this Section 4(d) applies, the determination of whether this Debenture is convertible (in relation to other securities owned by the Holder together with any Affiliates) and of which principal amount of this Debenture is convertible shall be in the sole discretion of the Holder, and the submission of a Notice of Conversion shall be deemed to be the Holder’s determination of whether this Debenture may be converted (in relation to other securities owned by the Holder together with any Affiliates) and which principal amount of this Debenture is convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance with this restriction, the Holder will be deemed to represent to the Company each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 4(d), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public announcement by the Company, or (iii) a more recent written notice by the Company or the Company’s transfer agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Debenture, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “ Beneficial Ownership Limitation ” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Debenture held by the Holder. The Holder, upon not less than 61 days’ prior notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 4(d), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of this Debenture held by the Holder and the Beneficial Ownership Limitation provisions of this Section 4(d) shall continue to apply. Any such increase or decrease will not be effective until the 61 st day after such notice is delivered to the Company. The Beneficial Ownership Limitation provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 4(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Debenture.

 

 
 

 

Section 5 . Certain Adjustments .

 

a) Stock Dividends and Stock Splits . If the Company, at any time while this Debenture is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon conversion of, or payment of interest on, the Debentures), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Company) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

b) Subsequent Equity Sales. If at any time while this Debenture is outstanding, other than in connection with an Exempt Issuance the Company or any Subsidiary, as applicable, sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock at an effective price per share that is lower than the then Conversion Price (such lower price, the “ Base Conversion Price ” and such issuances, collectively, a “ Dilutive Issuance ”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is lower than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price on such date of the Dilutive Issuance), then the Conversion Price shall be reduced to equal the Base Conversion Price. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued. Notwithstanding the foregoing, no adjustment will be made under this Section 5(b) in respect of an Exempt Issuance. The Company shall notify the Holder in writing, no later than the Trading Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 5(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “ Dilutive Issuance Notice ”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 5(b), upon the occurrence of any Dilutive Issuance, the Holder will be entitled to receive a number of Conversion Shares based upon the Base Conversion Price on or after the date of such Dilutive Issuance, regardless of whether the Holder accurately refers to the Base Conversion Price. For avoidance of doubt in the event of an issuance of securities (including convertible promissory notes, debentures, warrants or like securities), involving multiple tranches or other multiple closings the anti-dilution adjustment shall be calculated as if all of the securities were issued at the first closing for such sale.

 

 
 

 

c) Subsequent Rights Offerings . If at any time the Company grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “ Purchase Rights ”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Debenture (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

d) Reserved.

 

e) Fundamental Transaction . If, at any time while this Debenture is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “ Fundamental Transaction ”), then, upon any subsequent conversion of this Debenture, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction (without regard to any limitation in Section 4(d) on the conversion of this Debenture), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “ Alternate Consideration ”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Debenture is convertible immediately prior to such Fundamental Transaction (without regard to any limitation in Section 4(d) on the conversion of this Debenture). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one (1) share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Debenture following such Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “ Successor Entity ”) to assume in writing all of the obligations of the Company under this Debenture and the other Transaction Documents in accordance with the provisions of this Section 5(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the holder of this Debenture, deliver to the Holder in exchange for this Debenture a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Debenture which is convertible for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon conversion of this Debenture (without regard to any limitations on the conversion of this Debenture) prior to such Fundamental Transaction, and with a conversion price which applies the conversion price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such conversion price being for the purpose of protecting the economic value of this Debenture immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Debenture and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Debenture and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.

 

 
 

 

f) Calculations . All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Company) issued and outstanding.

 

g) Notice to the Holder .

 

i. Adjustment to Conversion Price . Whenever the Conversion Price is adjusted pursuant to any provision of this Section 5, the Company shall promptly deliver to the Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

 

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

 

 
 

 

Section 6 . Events of Default .

 

a) “ Event of Default ” means, wherever used herein, any of the following events (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):

 

i. any default in the payment of (A) the principal amount of any Debenture or (B) interest, liquidated damages and other amounts owing to the Holder on the Debenture, as and when the same shall become due and payable (whether on a Conversion Date or by acceleration or otherwise) which default, solely in the case of an interest payment or other default under clause (B) above, is not cured within 3 Trading Days;

 

ii. the Company shall fail to observe or perform any other material covenant or agreement contained in the Debenture (other than a breach by the Company of its obligations to deliver shares of Common Stock to the Holder upon conversion, which breach is addressed in clause (ix) below) which failure is not cured, if possible to cure, within the earlier to occur of (A) 5 Trading Days after notice of such failure sent by the Holder or by any other Holder to the Company and (B) five Trading Days after the Company has become or should have become aware of such failure;

 

iii. a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under (A) any of the Transaction Documents or (B) any other material agreement, lease, document or instrument to which the Company or any Subsidiary is obligated (and not covered by clause (vi) below);

 

iv. any representation or warranty made in this Debenture, any other Transaction Documents, any written statement pursuant hereto or thereto or any other report, financial statement or certificate made or delivered to the Holder shall be untrue or incorrect in any material respect as of the date when made or deemed made;

 

v. the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) shall be subject to a Bankruptcy Event;

 

 
 

 

vi. the Company or any Subsidiary shall default (subject to any grace or cure period provided in the applicable agreement, contract document or instrument) on any of its obligations under any mortgage, credit agreement or other facility, promissory note, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater than $5,000, whether such indebtedness now exists or shall hereafter be created and (b) results in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable;

 

vii. the Common Stock shall not be eligible for listing or quotation for trading on a Trading Market and shall not be eligible to resume listing or quotation for trading thereon within five Trading Days or the transfer of shares of Common Stock through DTC is no longer available or “chilled”;

 

viii. the Company shall be a party to any Change of Control Transaction or Fundamental Transaction or shall agree to sell or dispose of all or in excess of 50% of its assets in one transaction or a series of related transactions (whether or not such sale would constitute a Change of Control Transaction);

 

ix. the Company shall fail for any reason to deliver certificates to the Holder prior to the third Trading Day after a Conversion Date pursuant to Section 4(c) or the Company shall provide at any time notice to the Holder, including by way of public announcement, of the Company’s intention to not honor requests for conversions of the Debenture in accordance with the terms hereof;

 

x. the Company fails to file with the Commission any required reports under Section 13 or 15(d) of the Exchange Act such that it is not in compliance with Rule 144(c)(1) (or Rule 144(i)(2), if applicable);

 

xi. the Company fails to honor requests for conversions of the Debenture in accordance with the terms of the Debenture;

 

xii. if the Company or any Significant Subsidiary shall: (i) apply for or consent to the appointment of a receiver, trustee, custodian or liquidator of it or any of its properties, (ii) admit in writing its inability to pay its debts as they mature, (iii) make a general assignment for the benefit of creditors, (iv) be adjudicated bankrupt or insolvent or be the subject of an order for relief under Title 11 of the United States Code or any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or liquidation law or statute of any other jurisdiction or foreign country, or (v) file a voluntary petition in bankruptcy, or a petition or an answer seeking reorganization or an arrangement with creditors or to take advantage or any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or liquidation law or statute, or an answer admitting the material allegations of a petition filed against it in any proceeding under any such law, or (vi) take or permit to be taken any action in furtherance of or for the purpose of effecting any of the foregoing;

 

xiii. if any order, judgment or decree shall be entered, without the application, approval or consent of the Company or any Significant Subsidiary, by any court of competent jurisdiction, approving a petition seeking liquidation or reorganization of the Company or any Subsidiary, or appointing a receiver, trustee, custodian or liquidator of the Company or any Subsidiary, or of all or any substantial part of its assets, and such order, judgment or decree shall continue unstayed and in effect for any period of sixty (60) days;

 

 
 

 

xiv. the occurrence of any levy upon or seizure or attachment of, or any uninsured loss of or damage to, any property of the Company or any Subsidiary having an aggregate fair value or repair cost in excess of $20,000, and any such levy, seizure or attachment shall not be set aside, bonded or discharged within thirty (30) days after the date thereof;

 

xv. the Company shall fail to maintain sufficient reserved shares as required by the Purchase Agreement;

 

xvi. any monetary judgment, writ or similar final process shall be entered or filed against the Company, any subsidiary or any of their respective property or other assets for more than $10,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of 45 calendar days;

 

xvii. the Company fails to honor request for exercise of the Warrants issued pursuant to the Purchase Agreement as required by the Warrant and/or fails to deliver certificate to the Holder prior to the third Trading Day after an exercise of the Warrant;

 

xviii. If 90 days from March 16, 2016, the Company has not registered its Common Stock under Section 12(b) or 12(g) of the Exchange Act;

 

ix. If after 90 days from March 16, 2017, the Company has not timely filed (or obtained extensions in respect theretof and filed within the applicable grace period) all reports and other filings required to be filed by the Company pursuant to the Exchange Act.

 

b) Remedies Upon Event of Default . If any Event of Default occurs, then the outstanding principal amount of this Debenture, plus accrued but unpaid interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder’s election by notice in writing to Company, immediately due and payable in cash at the Mandatory Default Amount. After the occurrence of any Event of Default that results in the eventual acceleration of this Debenture, the interest rate on this Debenture shall accrue at an interest rate equal to 10% in excess of the Interest Rate. Upon the payment in full of the Mandatory Default Amount, the Holder shall promptly surrender this Debenture to or as directed by the Company. In connection with such acceleration described herein, the Holder need not provide, and the Company hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder of the Debenture until such time, if any, as the Holder receives full payment pursuant to this Section 6(b). No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

 

Section 7. N egative Covenants . As long as any portion of this Note remains outstanding, unless the holders of a majority in principal amount of the then outstanding Notes shall have otherwise given prior written consent, the Company shall not, and shall not permit any of the Subsidiaries to, directly or indirectly:

 

a) amend its charter documents, including, without limitation, its certificate of incorporation and bylaws, in any manner that materially and adversely affects any rights of the Holder, repay, repurchase or offer to repay, repurchase or otherwise acquire more than a deminimis number of shares of its Common Stock or Common Stock Equivalents other than as to the Conversion Shares or Warrant Shares as permitted or required under the Transaction Documents;

 

 
 

 

b) repay, repurchase or offer to repay, repurchase other than the Notes if on a pro-rata basis, other than regularly scheduled principal and interest payments as such terms are in effect as of the Original Issue Date, provided that such payments shall not be permitted if, at such time, or after giving effect to such payment, any Event of Default exist or occur provided , however , this covenant shall not apply with respect to the exercise of any Holder’s conversion under Section 4;

 

c) other than pursuant to an Exempt Issuance, pay cash dividends or distributions on any equity securities of the Company;

 

d) enter into any transaction with any Affiliate of the Company which would be required to be disclosed in any public filing with the SEC assuming that the Company is subject to the Securities Act or the Exchange Act, unless such transaction is made on an arm’s-length basis; or

 

e) enter into any agreement with respect to any of the foregoing.

 

Section 8 . Miscellaneous .

 

a) Notices . Any and all notices or other communications or deliveries to be provided by the Holder hereunder, , shall be in writing and delivered as set forth in the Purchase Agreement, provided any payment due under the is Debenture which are not otherwise addressed in this Debenture shall be made pursuant to payment instructions provided by the Holder to the Company..

 

b) Absolute Obligation . Except as expressly provided herein, no provision of this Debenture shall alter or impair the obligation of the Company to pay the principal of, liquidated damages and accrued interest, as applicable, on this Debenture at the time, place, and rate, and in the coin or currency, herein prescribed. This Debenture is a direct debt obligation of the Company.

 

c) Assignment/Transferability . The Holder may assign or sell a portion or all of this Debenture.

 

d) Lost or Mutilated Debenture . If this Debenture shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Debenture, or in lieu of or in substitution for a lost, stolen or destroyed Debenture, a new Debenture for the principal amount of this Debenture so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such Debenture, and of the ownership hereof, reasonably satisfactory to the Company.

 

e) Governing Law . All questions concerning the construction, validity, enforcement and interpretation of this Debenture shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflict of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “ New York Courts ”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Debenture and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by applicable law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Debenture or the transactions contemplated hereby. If any party shall commence an action or proceeding to enforce any provisions of this Debenture, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorney’s fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.

 

 
 

 

f) Waiver . Any waiver by the Company or the Holder of a breach of any provision of this Debenture shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Debenture. The failure of the Company or the Holder to insist upon strict adherence to any term of this Debenture on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Debenture on any other occasion. Any waiver by the Company or the Holder must be in writing.

 

g) Severability . If any provision of this Debenture is invalid, illegal or unenforceable, the balance of this Debenture shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or interest on this Debenture as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Debenture, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.

 

h) Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief. The remedies provided in this Debenture shall be cumulative and in addition to all other remedies available under this Debenture and any of the other Transaction Documents at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Holder’s right to pursue actual and consequential damages for any failure by the Company to comply with the terms of this Debenture. The Company covenants to the Holder that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any such breach or any such threatened breach, without the necessity of showing economic loss and without any bond or other security being required. The Company shall provide all information and documentation to the Holder that is requested by the Holder to enable the Holder to confirm the Company’s compliance with the terms and conditions of this Debenture.

 

i) Next Business Day . Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

 

j) Headings . The headings contained herein are for convenience only, do not constitute a part of this Debenture and shall not be deemed to limit or affect any of the provisions hereof.

 

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

 

(Signature Pages Follow)

 

 
 

 

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

 

THE CHRON ORGANIZATION, INC.  
     
By: /s/Alex Rodriguez  
Name: Alex Rodriguez:  
Title: CEO    

 

[Convertible Debenture Signature Page]

 

 
 

 

ANNEX A

 

NOTICE OF CONVERSION

 

The undersigned hereby elects to convert principal under the Original Issue Discount Convertible Debenture due March 17, 2018 of The Chron Organization, Inc.., a Nevada corporation (the “ Company ”), into shares of common stock (the “ Common Stock ”), of the Company according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

 

By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not exceed the amounts specified under Section 4 of this Debenture, as determined in accordance with Section 13(d) of the Exchange Act.

 

The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock.

 

Conversion calculations:

 

Date to Effect Conversion:

 

Principal Amount of Debenture to be Converted:

 

Conversion Price:

 

Number of shares of Common Stock to be issued:

 

Signature:
   
  Name:
   
  DWAC Instructions:
   
  Broker No: ___________________
  Account No: __________________

 

 
 

 

Schedule 1

 

CONVERSION SCHEDULE

 

This Original Issue Discount Convertible Debenture due on March 17, 2018 in the original principal amount of $82,500 is issued by The Chron Organization, a Nevada corporation. This Conversion Schedule reflects conversions made under Section 4 of the above referenced Debenture.

 

Dated:

 

Date of Conversion

(or for first entry, Original Issue Date)

Amount of Conversion Aggregate Principal Amount Remaining Subsequent to Conversion (or Original Principal Amount) Company Attest
       
       
       
       
       
       
       

 

 
 

 

NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

COMMON STOCK PURCHASE WARRANT

 

THE CHRON ORGANIZATION, INC.

 

   Warrant No. A-01 Issue Date: March 17, 2017

 

THIS COMMON STOCK PURCHASE WARRANT (the “ Warrant ”) certifies that, for value received, Bellridge Capital, LLC (the “ Holder ”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the six month anniversary of the date hereof (the “ Initial Exercise Date ”) and on or prior to the close of business on the three anniversary of the issue date of this Warrant (the “ Termination Date ”) but not thereafter, to subscribe for and purchase from The ChronOrganization, Inc., a Nevada corporation (the “ Company ”), up to 500,000 shares (the “ Warrant Shares ”) of Common Stock. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

 

Section 1 . Definitions . For the purposes hereof, in addition to the terms defined elsewhere in this Warrant, (a) capitalized terms not otherwise defined herein shall have the meanings set forth in the Purchase Agreement and (b) the following terms shall have the following meanings:

 

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

 

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

 

Fair Market Value ” of one share of Common Stock as of a particular date shall mean: (i) if traded on a National Securities Exchange, the VWAP (as defined below) of the Common Stock of the Company on such exchange over the five (5) Trading Days ending immediately prior to the applicable date of valuation; (ii) if quoted on the OTCQB or the OTCPink or its successor, the average VWAP over the thirty (30) Trading Days ending immediately prior to the applicable date of valuation; and (iii) if neither (i) nor (ii) applies, the Fair Market Value shall be the value thereof, as agreed upon by the Company and the Holder; provided, however, that if the Company and the Holder cannot agree on such value, such value shall be determined by an independent valuation firm experienced in valuing businesses such as the Company and jointly selected in good faith by the Company and the Holder. Fees and expenses of the valuation firm shall be paid for by the Company.

 

  1

 

 

'“ National Securities Exchange ” means the following markets or exchanges on which the Common Stock may be listed or quoted for trading on the date in question: the NYSE MKT, LLC, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange.

 

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

 

Purchase Agreement ” means, collectively, the Securities Purchase Agreement, dated as of March 15, 2017, between the Company and the original Holder, as amended, modified or supplemented from time to time in accordance with its terms.

 

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

 

Trading Day ” means a day on which the New York Stock Exchange is open for business.

 

Trading Market ” means the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE AMEX LLC, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, the OTCQB or the OTCPink.

 

Transaction Documents ” shall have the meaning set forth in the Purchase Agreement.

 

VWAP ” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a National Securities Exchange, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the trading market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. New York City time to 4:02 p.m. New York City time); (b) if the Common Stock is quoted on any one or more of the OTC Bulletin Board, or the other OTC markets, including the OTCQX, OTCQB and OTCPink, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTC Markets, including the OTCQX, OTCQB and the OTCPink; or (cd) in all other cases, the Fair Market Value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Subscribers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company; provided that in each case where Bloomberg L.P. data is being relied upon, Holder shall provide to the Company a copy of such information for the Company’s records.

 

  2

 

 

Section 2. Exercise

 

a) Exercise of Warrant .

 

i. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly executed notice of exercise (“ Notice of Exercise ”) form attached hereto as Exhibit A ; and, within three (3) Trading Days of the date said Notice of Exercise is delivered to the Company, the Company shall have received payment of the aggregate Exercise Price of the shares thereby purchased by wire transfer or cashier’s check drawn on a United States bank. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. In the event of any dispute or discrepancy, the records of the Company shall be controlling and determinative in the absence of manifest error.

 

ii. If at any time after six (6) months from the Initial Exercise Date, in lieu of the payment methods set forth in Section 2(a)(i) above, the Holder may elect to exchange all or some of this Warrant for shares of Common Stock equal to the value of the amount of the Warrant being exchanged on the date of exchange. If Holder elects to exchange this Warrant as provided in this Section 2(a)(ii) , Holder shall tender to the Company the Warrant for the amount being exchanged, along with written notice of Holder’s election to exchange some or all of the Warrant, and the Company shall issue to Holder the number of shares of the Common Stock computed using the following formula:

 

X = Y (A-B)
  A

 

  Where: X =

the number of shares of Common Stock to be issued to Holder.

       
    Y = the number of shares of Common Stock purchasable under the amount of the Warrant being exchanged (as adjusted to the date of such calculation).
       
    A = the Fair Market Value of one share of the Common Stock on the date that the notice of exercise is received by the Company.
       
    B = Exercise Price (as adjusted to the date of such calculation).

 

b)        Exercise Price . The exercise price per share of the Common Stock under this Warrant shall be $.03 [SECOND WARRANT EXERCISE PRICE IS $.05], subject to adjustment hereunder (the “ Exercise Price ”).

 

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c)        Exercise Limitations . Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise, the Holder (together with the Holder’s affiliates, and any other person or entity acting as a group together with the Holder or any of the Holder’s affiliates), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of this Section, beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. Holder is solely responsible for any schedules required to be filed in accordance therewith. The Company shall have no obligation to verify or confirm the accuracy of such filings. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “ Beneficial Ownership Limitation ” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of Warrant Shares issuable upon exercise of this Warrant. The Holder, upon not less than 61 days’ prior notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(c), provided that the Beneficial Ownership Limitation may not exceed 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of Warrant Shares upon exercise of this Warrant held by the Holder and the provisions of this Section 2(c) shall continue to apply, unless the Holder upon not less than 61 days’ prior notice to the Company determines to waive the Beneficial Ownerhship Limitation requirements described in this Section 2(c) in its entirety. Any such increase or decrease will not be effective until the 61 st day after such notice is delivered to the Company. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.

 

d)        Mechanics of Exercise .

 

i.        Delivery of Certificates Upon Exercise . Certificates for shares purchased hereunder shall be transmitted by the Company’s transfer agent (the “ Transfer Agent ”) to the Holder by crediting the account of the Holder’s prime broker with the Depository Trust Company through its Deposit Withdrawal Agent Commission (“ DWAC ”) system if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the resale of the Warrant Shares by the Holder or (B) the shares are eligible for resale without volume or manner-of-sale limitations pursuant to Rule 144, and otherwise by physical delivery of certificates to the address specified by the Holder in the Notice of Exercise within four (4) Trading Days from the delivery to the Company of the Notice of Exercise Form, surrender of this Warrant (if required) and payment of the aggregate Exercise Price as set forth above (the “ Warrant Share Delivery Date ”). This Warrant shall be deemed to have been exercised on the date the Exercise Price is received by the Company. The Warrant Shares shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised by payment to the Company of the Exercise Price and all taxes required to be paid by the Holder, if any, pursuant to Section 2(e)(vi) prior to the issuance of such shares, have been paid.

 

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

 

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

 

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

 

v.        Charges, Taxes and Expenses . Issuance of certificates for Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided , however , that in the event certificates for Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the assignment form (“ Assignment Form ”) attached hereto as Exhibit B duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. Without limiting the generality of the forgoing the Holder may assign all or part of this Warrant and the Company agrees to honor such assignment.

 

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

 

Section 3 . Subsequent Equity Sales . Other than in connectioni with an Exepmpt Issuance, if the Company or any Subsidiary thereof, as applicable, at any time while this Warrant is outstanding, shall sell or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock, at an effective price per share less than the then Exercise Price (such lower price, the “ Base Share Price ” and such issuances collectively, a “ Dilutive Issuance ”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share which is less than the Exercise Price, such issuance shall be deemed to have occurred for less than the Exercise Price on such date of the Dilutive Issuance), then, the Exercise Price shall be reduced and only reduced to equal the Base Share Price and the number of Warrant Shares issuable hereunder shall be increased such that the aggregate Exercise Price payable hereunder, after taking into account the decrease in the Exercise Price, shall be equal to the aggregate Exercise Price prior to such adjustment. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued. Notwithstanding the foregoing, no adjustments shall be made, paid or issued under this Section in respect of an Exempt Issuance. The Company shall notify the Holder, in writing, no later than the Trading Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “ Dilutive Issuance Notice ”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section, upon the occurrence of any Dilutive Issuance, after the date of such Dilutive Issuance the Holder is entitled to receive a number of Warrant Shares based upon the Base Share Price regardless of whether the Holder accurately refers to the Base Share Price in the Notice of Exercise. For avoidance of doubt in the event of an issuance of securities (including convertible promissory notes, debentures, warrants or like securities), involving multiple tranches or other multiple closings the anti-dilution adjustment shall be calculated as if all of the securities were issued at the first closing for such sale.

 

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Section 4 . Certain Adjustments .

 

a)        Stock Dividends and Splits . If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise make a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any Warrant Shares issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 4(a) shall become effective immediately after the record date for the determination of shareholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

b)         Pro Rata Distributions . If the Company, at any time while this Warrant is outstanding, shall distribute to all holders of Common Stock (and not to the Holder) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to subscribe for or purchase any security other than the Common Stock, then in each such case the Exercise Price shall be adjusted by multiplying the Exercise Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the VWAP determined as of the record date mentioned above, and of which the numerator shall be such VWAP on such record date less than the per share Fair Market Value at such record date of the portion of such assets or evidence of indebtedness or rights or warrants so distributed applicable to one outstanding share of the Common Stock as determined by the Board of Directors in good faith. In either case the adjustments shall be described in a statement provided to the Holder of the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.

 

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c)        Fundamental Transaction . If, at any time while this Warrant is outstanding, (i) the Company effects any merger or consolidation of the Company into another Person, (ii) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (each “ Fundamental Transaction ”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “ Alternate Consideration ”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction. For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new warrant consistent with the foregoing provisions and evidencing the Holder’s right to exercise such warrant into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section 4(c) and insuring that this Warrant (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.

 

d) Calculations . All calculations under this Section 4 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 4, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.

 

e)        Notice to Holder .

 

i.        Adjustment to Exercise Price . Whenever the Exercise Price is adjusted pursuant to any provision of this Section 4, the Company shall promptly mail to the Holder a notice setting forth the Exercise Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

 

ii.        Notice to Allow Exercise by Holder . If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any shareholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be mailed to the Holder at its last address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice. The Holder is entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice.

 

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Section 5 . Transfer of Warrant .

 

a)        Transferability . Subject to compliance with any applicable securities laws and the conditions set forth in Section 5(d) herein and to the provisions of the Purchase Agreement, this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. The Warrant, if properly assigned, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

 

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

 

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

 

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d)        Transfer Restrictions . If , at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be either (i) registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws or (ii) eligible for resale without volume or manner-of-sale restrictions pursuant to Rule 144, the Company may require, as a condition of allowing such transfer, that the Holder or transferee of this Warrant, as the case may be, comply with the provisions of the Purchase Agreement.

 

Section 6 . Miscellaneous .

 

a)        No Rights as Shareholder Until Exercise . This Warrant does not entitle the Holder to any voting rights or other rights as a shareholder of the Company prior to the exercise hereof.

 

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

 

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

 

d)        Authorized Shares .

 

The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock one hundred (100%) of the number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. In case such amount of Common Stock is insufficient at any time, the Company shall call and hold a special meeting to increase the number of authorized shares of common stock. Management of the Company shall recommend to shareholders to vote in favor of increasing the number of authorized shares of common stock.

 

The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the National Securities Exchange upon which the Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).

 

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

 

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

 

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

 

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

 

g)        Nonwaiver and Expenses . No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice Holder’s rights, powers or remedies, notwithstanding the fact that all rights hereunder terminate on the Termination Date. If the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

 

h)        Notices . Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement.

 

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

 

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

 

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

 

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

 

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

 

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

 

[Signature Page Follows.]

 

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

 

the chron organization, inc.  
                                  
By: /s/ Alex Rodriguez  
Name: Alex Rodriguez  
Title: CEO  

 

 

 

 

EXHIBIT A

 

NOTICE OF EXERCISE

 

TO: The Chron Organization, Inc.

 

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

 

(2)       Please issue a certificate or certificates representing said Warrant Shares in the name of the undersigned or in such other name as is specified below:

 

_______________________________       

 

The Warrant Shares shall be delivered to the following DWAC Account Number or by physical delivery of a certificate to:

 

_______________________________

 

_______________________________

 

_______________________________

 

(3) Accredited Investor . The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended.

 

[SIGNATURE OF HOLDER]

 

Name of Investing Entity:  
   
   
Signature of Authorized Signatory of Investing Entity :  
   
   
Name of Authorized Signatory:  
   
   
Title of Authorized Signatory:  
   
   
Date:  
   

 

 

 

 

EXHIBIT B

 

ASSIGNMENT FORM

 

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

 

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

 

_______________________________________________ whose address is

 

____________________________________________________________ .

 

_______________________________________________________________

 

Dated: ______________, _______

 

Holder’s Signature: ____________________________

 

Holder’s Address: ____________________________

 

_____________________________

 

Signature Guaranteed: ___________________________________________

 

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

 

 

 

 

 

FORM OF

 

SECURITIES PURCHASE AGREEMENT

 

This SECURITIES PURCHASE AGREEMENT (this “Agreement”), dated as of _______ ___, 2016, is entered into by and between The Chron Organization, Inc. (OTCPk: CHRO), a Nevada corporation, (“Chron” or the “Company”), and ________________ (the “Buyer”).

 

A. The Company and the Buyer are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by the rules and regulations as promulgated by the United States Securities and Exchange Commission (the “ SEC ”) under the Securities Act of 1933, as amended (the “ 1933 Act ”).

 

B. Upon the terms and conditions stated in this Agreement, the Buyer desires to purchase and the Company desires to issue and sell, upon the terms and conditions set forth in this Agreement (i) a Convertible Note, in the form attached hereto as Exhibit A , in the principal amount of up to $____________ (the “ Note ”), convertible into shares of common stock, $0.001 par value per shares of common stock of the Company (“ Common Stock ”) (ii) and a two-year share purchase warrant entitling the Buyer to acquire shares of Common Stock in the form attached hereto as Exhibit B (the “ Warrant ”).

 

NOW THEREFORE , the Company and the Buyer hereby agree as follows:

 

1. Purchase and Sale . On the Closing Date (as defined below), the Company shall issue and sell to the Buyer and the Buyer agrees to purchase from the Company (i) the Note and (ii) the Warrant.

 

1.1. Form of Payment . On the Closing Date, (i) the Buyer shall pay the purchase price of $___________ (the “ Purchase Price ”) for the Note and Warrant by wire transfer of immediately available funds to an account designated by the Company, in accordance with the Company’s written wiring instructions and (ii) the Company shall deliver the Note and Warrant to the Buyer.

 

1.2. Closing Date . The date and time of the issuance and sale of the Note, Warrant and Security Agreement pursuant to this Agreement (the “ Closing Date ”) shall be on or about _______, 2016, or such other mutually agreed upon time. The closing of the transactions contemplated by this Agreement (the “ Closing ”) shall occur on the Closing Date at such location as may be agreed to by the parties.

 

2. Buyer Representations, Warranties, Etc.; Access to Information; Independent Investigation .

 

The Buyer r e p re s e nts a nd w a r r a nts to, a nd c ov e n a nts a nd a g re e s w i t h, the Compa n y a s follows:

 

2.1. W i t hout l i m i t ing Buyer s ri g ht to s e ll the Sec u r i t ies pursu a nt to a n e f f e c t i ve re g is t r a t i on sta t e ment or othe r wise in c omp l ian c e with t h e 1933 A c t, t h e Buyer is pur c h a si n g the se c u r i t i e s for i t s own a cc ount for investm e nt on l y a nd n o t with a view tow a rds the publ i c s a l e or dis t ribution the re of a nd not wi t h a vi e w to o r for s a le i n c onn e c t i on with a ny dis t ribution the re o f .

 

2.2. The Buyer is (i) a n “a c c r e dit e d investor” a s that te r m is d e fin e d in Rule 501 of the G e n e r a l Rules a nd R e g ulations und e r the 1933 A c t b y r e ason of Rule 501( a ) ( 3 ) , (ii) e x p e ri e nc e d in mak i ng in v e stm e nts of t h e k i nd d e s c ri b e d in this A gr ee ment a nd the other Transaction Do c uments, (iii) a ble, b y r e a son of the busin e ss a nd fin a n c ial e x p e ri e nce of its o f fi ce rs (if a n e nti t y ) a nd p r o f e ssion a l a dvisors ( w ho a re n ot a ffiliat e d with or c ompens a ted in a n y w a y b y the Compa n y or a n y o f its A f filiat e s or s e lling a g e nts ) , to p r ote c t its own int e r e sts in c onn ec tion with the Tr a nsa c tions d e scribed in this A g re e ment, a n d the r e lat e d d o c ument s , a nd to e v a lua t e the me r its a nd risks of a n i n v e stm e nt in the Se c u r iti e s, a nd (iv) a ble to a f f o rd the e ntire loss o f its investm e nt in the Se c u r ities.

 

 
 

 

2.3. The Buyer und e rst a n ds that the S ec u r i t ies a re b e ing o f f e r e d a nd sold to it in r e l i a n c e on s p ec ific e x e mp t ions f r om the re g is t r a t i on r e quir e ments o f the 1933 A c t a nd sta t e s ec u r i t ies la w s a nd that the Compa n y is r e l y i ng upon t h e truth a nd acc u r a c y o f, a nd the Buyer s c omp l ian c e with, the r e p re s e ntations, w a r ra nt i e s, a g r ee ments, ac knowl e d g ments a nd und e rst a ndi n g s of the Buyer s e t f o rth h e r e in in o r d e r to d e te r m i ne t he a v a i l a b i l i t y of such e x e mp t ions and the e l i g ib i l i t y of t h e Buyer to ac quire the S e c u r i t ies.

 

2.4. The Buyer a nd i t s a dvisors, if a n y , h a v e b ee n fu r nished with or h a ve b ee n g iven a cce ss to a l l mat e ri a ls r e lati n g to t he busin e ss, fin a n c e s a nd op e r a t i ons of t h e Compa n y a nd mat e ri a ls r e lating to the o f f e r a nd s a le of the Se c u r i t ies whi c h h a ve b ee n r e q u e sted b y t h e Buyer , includ i ng tho s e set fo r th on an y a nn e x a t t ac h e d h e r e to. The Buyer a nd i t s a dvisors, if a n y , h a ve b ee n a f fo r d e d t h e oppo r t uni t y to a sk qu e st i ons of the Compa n y a nd i t s man a g e ment a nd h a ve r e ce i v e d c omp l e t e a nd s a t i sf ac to r y a ns w e rs t o a n y s u c h inqu i ri e s .

 

2.5. The Buyer un d e rst a n ds that i t s investm e nt in the S ec u r i t ies invo l v e s a hi g h d e g r e e o f r isk.

 

2.6. The Buyer h e r e b y re p re s e nts that, in c onn e c t ion with i t s pur c h a se of the S ec u r i t ies, it h a s not r e l i e d on a n y stat e ment or r e p re s e ntation b y the Compa n y or a n y o f i t s o f fi ce rs, di r ec tors a nd e mp l o y e e s or a n y of t h e ir r e sp e c t i ve a t t o r ne y s or a g e nts, e x ce pt a s spe c ific a l l y set f o rth h e re in.

 

2.7. The Buyer und e rst a n ds that no United S tat e s f e d e r a l or sta t e a g e n c y o r a n y other g o v e rnm e nt or g o v e rnm e ntal a g e n c y h a s p a ssed on o r made a n y r ec om m e n d a t i on or e ndors e ment of the S e c u r i t ies.