Mr. Jeffrey Allison reports
HTC EXTRACTION SYSTEMS ANNOUNCES COMPLETION OF SALE OF KASE FARMA INC.,
AND PARTIAL SETTLEMENT OF SUBSIDIARY DEBT.
Further to its Dec. 31, 2021, and Jan. 7, 2022, news releases, HTC Purenergy Inc. (doing business as HTC Extraction Systems) has entered into an option agreement, pursuant to which it
will sell its rights under the Kase Farma Inc. asset sale agreement to an arm's-length party, for the total consideration of $60,000.
On or about July 25, 2019, HTC signed an undertaking to the TSX Venture Exchange that the company will obtain prior TSX-V acceptance of its involvement with any cannabis-related
activities outside of the cannabis-related business that is accepted for listing on the TSX-V, and/or the
business of the production, sale and distribution of cannabis in Canada, pursuant to one or more licences
issued by Health Canada and any applicable provinces of Canada, including any investment
in another entity that performs business outside of these activities.
On Dec. 31, 2021, subject to TSX Venture Exchange approval, HTC entered into
the sale agreement, to sell certain assets owned by its California-based, wholly owned subsidiary, Kase
Farma, which conducts the business of cannabidiol extraction to Starling Brands Inc., a private company that is leading extraction and formulation of medical, wellness and
recreational hemp/cannabis products in California. As Starling performs business outside of the activities,
the parties agreed that, upon the delisting of the company's common shares from the TSX-V or TSX-V
approval of delisting, the purchase price under the sale agreement shall be paid by the issuance of
five million Class A common shares of Starling. In 2022, the company submitted
an application to the Canadian Securities Exchange (the CSE) to list HTC's common shares. The issuer does not intend to pursue this listing and no longer expects to voluntarily delist the
HTC shares from trading on the TSX-V.
In order to complete the sale agreement, and further subject to TSX-V approval, HTC entered into the
option agreement, pursuant to which HTC will sell its right to the Starling shares in exchange for the
consideration, payable to HTC in cash. This will allow HTC to continue trading on the TSX-V and will
give the company the necessary working capital to finance operations. The hemp/cannabis sphere faces both
industry-specific and broader economic challenges.
Looking at the hemp/cannabis industry in particular, increasing competition from non-cannabis
companies entering into the space is a major concern, as is the shifting landscape among start-up
hemp/cannabis firms that are jockeying for market share. The complex legal landscape in the United States also
makes doing business difficult for hemp/cannabis companies. More broadly, rampant inflation has
increased many costs for hemp/cannabis companies, and interest rate hikes may have made it more
difficult for those companies to secure capital. Fears of a recession could decrease consumer spending on
perceived non-essential items, potentially including hemp/cannabis products, which negatively affects the
value of hemp/cannabis.
KF Hemp Corp. (HempCo), HTC's wholly owned subsidiary, is indebted to KF Kambeitz Farms Inc.
(Farms), in the amount of $4,206,660. HempCo and Farms entered into a shareholder loan agreement
dated Nov. 30, 2018, as amended, pursuant to which Farms
agreed to advance certain moneys to HempCo, to facilitate the production of hemp and, among other
permitted uses, the equipment and facilities buildout required for the drying and extracting of the 2019 hemp
crop. HempCo granted a general security position to Farms to secure the indebtedness and Farms has
completed a registration in the Saskatchewan Personal Property Registry, taking an interest over all of
HempCo's present and after-acquired property.
HempCo has recently communicated to Farms, an arm's-length creditor and secured party, that it is unable
to settle the indebtedness under the loan agreement when due. As a result, on May 15,
2023, HempCo and Farms into a partial debt settlement agreement,
pursuant to which HempCo will settle $1.2-million of its indebtedness under the loan agreement by
transferring the right, title and interest to all of the hemp-related property and assets of HempCo to
Farms, effective Dec. 31, 2022, with the balance of the indebtedness to be payable in full on Oct. 31, 2025. This transaction has been approved by the shareholder of HempCo.
We seek Safe Harbor.
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