KOTA Longboards LLC Offering Document PDF

OFFERING MEMORANDUM PART II OF OFFERING STATEMENT (EXHIBIT A TO FORM C) KOTA Longboards LLC 1400 South Lipan Street Denver, CO 80223 http://www.kotalongboards.c...

OFFERING MEMORANDUM PART II OF OFFERING STATEMENT (EXHIBIT A TO FORM C) KOTA Longboards LLC 1400 South Lipan Street Denver, CO 80223 http://www.kotalongboards.com 3125 units of Non-Voting Membership Units A crowdfunding investment involves risk. You should not invest any funds in this offering unless you can afford to lose your entire investment. In making an investment decision, investors must rely on their own examination of the issuer and the terms of the offering, including the merits and risks involved. These securities have not been recommended or approved by any federal or state securities commission or regulatory authority. Furthermore, these authorities have not passed upon the accuracy or adequacy of this document. The U.S. Securities and Exchange Commission does not pass upon the merits of any securities offered or the terms of the offering, nor does it pass upon the accuracy or completeness of any offering document or literature. These securities are offered under an exemption from registration; however, the U.S. Securities and Exchange Commission has not made an independent determination that these securities are exempt from registration.  THE OFFERING Maximum 33,437 shares* of Non-Voting Membership Units ($106,998.40) *Maximum subject to adjustment for bonus units. See 10% Bonus below Minimum 3,125 shares of Non-Voting Membership Units ($10,000) Company KOTA Longboards LLC Corporate Address 1400 S. Lipan St., Denver, Colorado 80223 Description of Business Manufacture, sales and distribution of longboard skateboards, electric longboards and branded merchandise. Type of Security Offered Non-Voting Membership Units Purchase Price of Security $3.20 Offered Minimum Investment $400 Amount (per investor) EQUITY INVESTMENT | Minimum $400 investment $3.20/unit│When you invest you are betting the company’s future value will exceed $3.0M. INVESTMENT PERKS* All Investment Levels will receive: A KOTA Membership Unit Certificate and a KOTA Coffee mug Early Bird access to specials on new KOTA products. Option to become a KOTA Affiliate and receive a dividend for sales of KOTA products (5% of net revenue). Invest $400 and receive the option to get a Personal Coupon Code allowing you to receive a free KOTA electric longboard by directing friends to purchase products on the KOTA website (15 sales over $300). Invest $1,000 and receive the option to get a Personal Coupon Code allowing you to receive a free KOTA electric longboard by directing friends to purchase products on the KOTA website (10 sales over $300). Invest $10,000 and receive and receive the option to get a Personal Coupon Code allowing you to receive a free KOTA electric longboard by directing friends to purchase products on the KOTA website (5 sales over $300). Invest $15,000 and receive a sponsored trip to KOTA in Denver, CO ($1,000 max) to meet KOTA's Founders, your own KOTA Longboard and longboard lessons from KOTA Escadrille team riders. You also have the option to get a Personal Coupon Code allowing you to receive a free KOTA electric longboard by directing friends to purchase products on the KOTA website (5 sales over $300). *All perks occur after the offering is completed. The 10% Bonus for StartEngine Shareholders KOTA will offer 10% additional bonus units for all investments that are committed by StartEngine Crowdfunding Inc. shareholders (with ≥ $1,000 invested in the StartEngine Reg A+ campaign) within 24 hours of this offering going live. StartEngine shareholders who have invested $1,000+ in the StartEngine Reg A+ campaign will receive a 10% bonus on this offering within a 24-hour window of their campaign launch date. This means you will receive a bonus for any units you purchase. For example, if you buy 100 Non-Voting Membership Units at $3.20 / unit, you will receive 10 bonus Non-Voting Membership Units , meaning you'll own 110 Non-Voting Membership Units for $320. Fractional units will not be distributed and unit bonuses will be determined by rounding down to the nearest whole units. This 10% Bonus is only valid for one year from the time StartEngine Crowdfunding Inc. investors receive their countersigned StartEngine Crowdfunding Inc. subscription agreement. Multiple Closings If we reach the target offering amount prior to the offering deadline, we may conduct the first of multiple closings of the offering early, if we provide notice about the new offering deadline at least five business days prior (absent a material change that would require an extension of the offering and reconfirmation of the investment commitment). THE COMPANY AND ITS BUSINESS The company's business Description of Business KOTA Longboards LLC is a manufacturer and distributor of longboard skateboards, electric skateboards and branded products. We deliver high quality, high performance longboard skateboards and eBoards to the mainstream action sports market. Sales, Supply Chain, & Customer Base KOTA currently has three market channels, Direct Sales, CoBrands and Specialty Retail. Direct sales occur through the KOTA website, www.kotalongboards.com, email, phone calls or drop ins. KOTA has a large group of CoBrand clients ranging from Anheuser Busch (promotional product), Oakley (retail), Vail Resorts (employee rewards) and many others. Order volume from CoBrand partners ebbs and flows with their needs, marketing and brand strategies or promotional programs. KOTA sells to independently owned specialty retailers on a small scale. In late summer 2017 Scheels (big box specialty retailer) began selling KOTA products. Today we are in 7 of 27 Scheels locations. We're currently in dialogue with other big box specialty retailers. Competition There are a number of longboard skateboard manufacturers such as Sector 9, Arbor, Loaded, LandYachtz, etc. However, these companies primarily target a younger, skate shop demographic. Their sales are primarily online through web distributors such as Amazon, or local skate shops. In large part, KOTA doesn't compete directly with these companies as our demographic is much broader. KOTA is competing for consumer dollars that would otherwise be spent on a mountain bike, road bike, skis, snowboard, SUP, etc. Electric skateboard competitors are companies such as Boosted Boards, Evolve, Inboard and others. KOTA does compete directly with these companies. KOTA sales are mostly direct although Scheels does carry KOTA electrics. Our research indicates our eBoard competitor's sales are mostly direct or through online distributors. Liabilities and Litigation KOTA carries a significant amount of product liability insurance. No claims have been made to date. Neither KOTA or its Founders have ever been involved in litigation of any kind. For liabilities of the company, see the financial section below. The team Officers and directors Mike Maloney Manager, Founder and CEO Mike Maloney Mike, our Founder and visionary of the KOTA brand, is a former Navy F-14 pilot and TOPGUN graduate. He's lived and breathed the Knights Of The Air code as a carrier aviator from Kuwait to Iraq to Somalia. He started KOTA with Nikki back in 2012 and has been managing overall operations, sales and capital raises for the company full time since the 'driveway' days 6 years ago. Mike has career-long experience in mission critical leadership, planning and execution. He's the former President/CEO of a Denver-based clean energy technology company spun out from CH2M HILL. Previously, Mike established and managed CH2M HILL’s technology investment portfolio where he led many diverse technology efforts, building product and process technologies into functioning businesses. Mike's responsibilities included managing the Intellectual Property for this 27,000 employee firm. Mike’s expertise bridges both early stage product commercialization and growth opportunities for product adoption in new and emerging markets. Mike is a former United Airlines Captain and has held several voluntary roles in the non-profit community including Chairman of St. Anthony Health Foundation and Flight For Life. He holds a BS Mechanical Engineering from the University of Colorado and a MS Finance from the University of Denver. Mike's an avid downhill skier, roadbiker, woodworker and family man, riding KOTA longboards daily with his kids. Number of Employees: 4 Related party transactions At the end of 2017 the Company had two outstanding notes. The first was the remaining balance of a 401k note from Mr. Maloney ($12,000 remaining, 12.75%, maturing in March, 2019). The second was a SBA note ($73,000 remaining, 5.75%, maturing in June 2024). In June, 2018 the debt was re-structured as a note to Nicole Maloney for $81,723.36 at 5.75%, maturing in May, 2023. RISK FACTORS These are the principal risks that related to the company and its business: Our intellectual property could be unenforceable or ineffective. One of KOTA's most valuable assets is its intellectual property. We currently maintain formalized Trade Secrets as well as trademarks, a number of copyrights and Internet domain names. We believe the most valuable component of our intellectual property portfolio are our Trade Secrets and that much of KOTA's current value depends on the strength of these Trade Secrets. KOTA prefers Trade Secrets to patents at this time, however, we intent to file patent applications to strengthen our intellectual property portfolio as we discover new technologies related to skate, electric skate and related products. We have potential competitors who may be better positioned than KOTA to take the majority of the market We compete with larger, better capitalized and more established companies who currently have products on the markets and/or various respective product development programs. They may have much better financial means and marketing/sales and human resources than KOTA. They may succeed in developing and marketing competing equivalent products or superior products than those offered by KOTA. There can be no assurance that competitors will not render our technology or products obsolete or that any products developed by KOTA will be preferred to any existing or newly developed technologies. It should further be assumed that that competition will intensify as KOTA's products influence the broader market. KOTA is still a start-up and is not profitable yet. KOTA's revenue is highly dependent on direct consumer sales, sales to retailers and co-brands with major corporations. Global and/or national economic disruptions such as a recession, terrorist attack, natural disaster, etc. may severely impact KOTA's ability to achieve and sustain profitability. KOTA may require additional funding to achieve sustainable profitability. KOTA is not profitable at the time of this financing. A portion of the capital raised will be allocated to cover operating costs and a portion of the capital will be allocated to marketing in order to increase sales volume. There is no guarantee that the amount of capital raised will be enough to get KOTA to cash flow and/or profitability. Future capital rounds may be required if the company does not achieve sustainable profitability with this capital raise. At this time there is no re-sale market for KOTA securities (no liquidity). The Company may never receive a future equity financing or elect to convert the Securities upon such future financing. In addition, the Company may never undergo a liquidity event such as a sale of the Company or an IPO. If neither the conversion of the Securities nor a liquidity event occurs, the Purchasers could be left holding the Securities in perpetuity. The Securities have numerous transfer restrictions and will likely be highly illiquid, with no secondary market on which to sell them. The Securities are not equity interests, have no ownership rights, have no rights to the Company’s assets or profits and have no voting rights or ability to direct the Company or its actions. KOTA's financial review includes a going concern note. The Company’s ability to continue as a going concern in the next twelve months following the date the financial statements were available to be issued is dependent upon its ability to obtain capital financing from investors sufficient to meet current and future obligations and deploy such capital to produce profitable operating results. Differences between the Financial Review and KOTA's cash accounting statements. The Financial Review that was completed was done on an accrual accounting basis. It differs materially from the cash accounting statements generated by KOTA. Revenue from KOTA's cash accounting statements is generated by the issuance of invoices and their subsequent cancellation as funds are received and deposited. Management believes that KOTA's cash accounting statements accurately reflect the cash that flows through the Company and correctly states KOTA's year-to-year revenue growth. KOTA's business projections are only estimates. Projections provided by KOTA, while based upon existing or expected relationships, are wholly speculative.  KOTA does not warrant and makes no assurances or guarantees that projections will be realized either in timing, magnitude or duration. Actual events will influence management's financial decisions regarding allocation of monies raised in this offering. Adverse market events could impact KOTA's viability. KOTA's revenue is highly dependent on direct consumer sales, sales to retailers and co-brands with major corporations. Global and/or national economic disruptions such as a recession, terrorist attack, natural disaster, etc. may severely impact KOTA's ability to achieve and sustain profitability. Stability of supply chain. Our relationships with suppliers are materially important and any change to our current relationships could adversely affect the Company's ability to produce and deliver products to the marketplace. Product Liability KOTA maintains a significant amount of product liability insurance. While no claims have been made or currently exists against the company, KOTA is at risk of product liability suits being levied. Such suits could have a materially negative impact on the future viability of KOTA. Loss of corporate knowledge. At this time, KOTA is managed by a small group of executives and production staff representing significant corporate knowledge, production process knowledge and intellectual property. Incapacitation, loss or death of any current staff member may negatively impact KOTA's operations, materially affecting the viability of the company. OWNERSHIP AND CAPITAL STRUCTURE; RIGHTS OF THE SECURITIES Ownership Michael P. Maloney, 49.0% ownership, KOTA Membership Units Classes of securities KOTA Membership Units: 965,734 Voting Rights: The holders of KOTA Membership Units are entitled to one vote for each share held of record on all matters submitted to a vote of the shareholders. Rights to Receive Liquidation Distributions In the event of our liquidation, dissolution, or winding up, holders of KOTA Membership Units are entitled to share ratably in all of our assets remaining after payment of liabilities. Rights and Preferences The rights, preferences and privileges of the holders of the KOTA Membership Units are subject to and may be adversely affected by the rights of the holders of any prior series and any future offering of units.  The Company will distribute K-1s to all members in accordance with the terms of the Operating Agreement and as required by law. Non-Voting Membership Units: 0 Voting Rights The holders of Non-Voting Membership Units are not entitled to vote on any matter except as required under applicable law. Rights to Receive Liquidation Distributions In the event of our liquidation, dissolution, or winding up, holders of Non- Voting Membership Units are entitled to share ratably in all of our assets remaining after payment of liabilities. Rights and Preferences The rights, preferences and privileges of the holders of the Non-Voting Membership Units are subject to and may be adversely affected by the rights of the holders of any prior series and any future offering of Units. The Company will distribute K-1s to all members in accordance with the terms of the Operating Agreement and as required by law. What it means to be a Minority Holder As a minority holder of KOTA Non-Voting Membership Units, you will have limited ability, if all, to influence our policies or any other corporate matter, including the election of advisors or directors, changes to KOTA's governance documents, future offerings, or transactions with related parties. Dilution Investors should understand the potential for dilution. Each Investor's stake in KOTA could be diluted due to KOTA issuing additional units. In other words, when KOTA issues more units in any subsequent capital raise, the percentage of KOTA that you own will decrease even though the value of KOTA may increase. You will own a smaller piece of a larger company. This increase in number of units outstanding could result from a subsequent offering (such as another crowdfunding round or angel investment). If we decide to issue more units an Investor could experience dilution with the total percentage an investor owns being less than before. The type of dilution that hurts early-stage investors mostly occurs when the company sells more units in a "down round," meaning at a lower valuation than in earlier offerings. If you are making an investment expecting to own a certain percentage of KOTA or expecting each units to hold a certain amount of value, it is important to realize how the value of those units can decrease by actions taken by KOTA. Dilution can make drastic changes to the value of each unit, ownership percentage, voting control, and earnings per unit. Transferability of securities For a year, the securities can only be resold: In an IPO; To the company; To an accredited investor; and To a member of the family of the purchaser or the equivalent, to a trust controlled by the purchaser, to a trust created for the benefit of a member of the family of the purchaser or the equivalent, or in connection with the death or divorce of the purchaser or other similar circumstance. FINANCIAL STATEMENTS AND FINANCIAL CONDITION; MATERIAL INDEBTEDNESS Financial Statements Our financial statements can be found attached to this document. The financial review covers the period ending in 2017-12-31. Financial Condition Results of Operation KOTA has sold product and generated revenue since our founding in 2012. Revenue grew at an average of 99% year-over-year for our first 3 years (2012-2015). In 2016 the lease on our initial factory expired. A new owner of that property wanted triple our rent so staying was not an option. We were forced to move to a new location in 2016 which had a significant (negative) impact on revenue. As a result, 2016 revenue declined by 29% and we incurred additional costs related to the move, some of which were financed by an SBA loan. We did not restore full operational functionality until 2Q 2017 (spray booth functional and certified), however, our revenue rebounded with 32% growth. During 2017 we also cut our burn rate by 21% from 2016, returning a large degree of operational efficiency. During 2017 we paid off the lease on our Joos hot press and purchased the unit. We now own all of our manufacturing equipment outright. Other than some additional small tooling, KOTA is fully scalable with our current equipment. Financial Milestones Now that KOTA is in a new and scalable factory location, we believe we can return to 100% or greater revenue growth if fully capitalized in this financing round. KOTA's market has matured with more clarity, our website (major upgrade in late 2015) is fully functional, and we've established relationships with larger CoBrand partners and specialty big-box retail. KOTA has the equipment and processes in place to scale rapidly. As sales volume grows we will need more production labor and the ability to expand our WIP inventory. Production personnel training time is short. Historically we've been able to scale production labor nearly concurrent with sales growth. We believe this approach is adequate for the near term. We anticipate that marketing spend will be the most significant increase to overhead post-capitalization. Management believes that all major components are in place for significant growth. We believe KOTA's revenue growth going forward will be highly correlated to our marketing budget and activities. Future management needs of the company to scale would include the addition of a contract or part-time CFO and increased hours allocated to general ledger/bookeeping. We may also desire to hire a full time marketing or digital marketing lead. KOTA needs to slightly more than double our revenue to achieve cash flow in the near term. We believe that, fully capitalized for aggressive marketing combined with the impact of our electric boards on gross profit, KOTA can achieve or come close to cash flow within 12-18 months. Timeframe is dependent upon the timing of capitalization and our ability to increase marketing activities as it relates to the summer and Christmas selling seasons. Sustainable profitability with additional management positions filled and a sustained, meaningful marketing budget will require additional revenue growth. Liquidity and Capital Resources The company is currently generating operating losses and requires the continued infusion of new capital to continue business operations. The intent of this offering is to capitalize the company to achieve cash flow in the near term. KOTA's operation is intentionally lean. At such time that the company achieves cash flow, we expect to have additional clarity regarding the effectiveness of marketing activities on our various product lines and channels to market. Additional capital may be required to further grow the company, fund additional product development, increase KOTA's non-production product lines (i.e., apparel) and/or establish international distribution. Additional capital raises may be required, however, options to finance the company may include resources other than the sale of equity. Management does anticipate leveraging other non-equity crowdfunding campaigns to raise capital for product line expansion. Indebtedness At the end of 2017 the Company had two outstanding notes. The first was the remaining balance of a 401k note from Mr. Maloney ($12,000 remaining, 12.75%, maturing in March, 2019). The second was a SBA note ($73,000 remaining, 5.75%, maturing in June 2024). In June, 2018 the debt was re-structured as a note to Nicole Maloney for $81,723.36 at 5.75%, maturing in May, 2023. The Company also carries approximately $65,000 in credit card balances. As sales volume increases, Management plans to pay down these balances as aggressively as possible. Loan Payable In June of 2018 the Mr. Maloney personally paid off the loan balances to the SBA and the Maloney 401k note and re-structured that debt into a note payable to Nicole Maloney. The loan bears interest at 5.75% with a term of 5 years and matures in May 2023. The loan requires payments of $1,570 per month. It is collateralized by substantially all assets of the Company. Future minimum principal payments on this loan is as follows as of June, 2018: 2018: $ 10,815 2019: $ 15,164 2020: $ 16,059 2021: $ 17,007 2022: $ 18,011 2023: $ 4,667 Total: $ 81,723 Recent offerings of securities 2013-02-15, Regulation D, 125000 KOTA Membership Units. Use of proceeds: Labelled under cap table as KOTA Seed Round. Use of capital was to move into our first factory, obtain larger scale manufacturing equipment and establish commercial operations. 2014-09-15, Regulation D, 139118 KOTA Membership Units. Use of proceeds: Labelled under cap table as KOTA Series A. Capital for expansion and growth. 2015-07-27, Regulation D, 109170 KOTA Membership Units. Use of proceeds: Labelled under cap table as KOTA Series B. Capital for expansion and growth. 2016-06-15, Regulation D, 160698 KOTA Membership Units. Use of proceeds: Labelled under cap table as KOTA Series C. Capital for factory move, re- establishment of operations, tooling for scale-up and hiring of a full-time Production Manager. 2017-09-15, Regulation D, 34408 KOTA Membership Units. Use of proceeds: Labelled under cap table as KOTA Cash Call. Capital to cover operations and overhead. Valuation $3,090,348.80 KOTA has had sales and generated revenue since our founding in 2012. KOTA's revenue has increase every year except 2016 when sales were negatively impacted by our factory relocation. KOTA now has three channels to market, all of which are growing, a scalable factory, established manufacturing processes, a growing portfolio of intellectual property and a maturing brand. We also own all of our major equipment outright. We believe that KOTA can achieve revenue of $2-5M over the next 4 years. The valuation reflects both the tangible and intangible assets of the Company and our expected ability to grow revenue in the near term if fully capitalized. It is solely the opinion of the Company as to what would be fair market value and we have not undertaken any efforts to have a third party produce an independent valuation. USE OF PROCEEDS Offering Amount Offering Amount Sold Sold Total Proceeds: $10,000 $106,998 Less: Offering Expenses StartEngine Fees (6% total $600 $6420 fee) Net Proceeds $9,400 $100578 Use of Net Proceeds: R& D & Production $10,578 Marketing $30,000 Working Capital $9,400 $6,0000 Equipment Purchases 0 0 Factory Improvements 0 0 Total Use of Net Proceeds $9,400 $100,578 We are seeking to raise a minimum of $10,000 (target amount) and up to $106,998 (overallotment amount) in this offering through Regulation Crowdfunding. If we manage to raise our overallotment amount of $100,000, we believe the amount will last us at least 24 months and plan to use the net proceeds of approximately $100,578 over the course of that time as follows: Marketing ($30,000 over 3+ months) Working Capital including additional management staffing ($60,000) R&D primarily of electric board systems ($10,578) Irregular Use of Proceeds The Company might incur Irregular Use of Proceeds that may include but are not limited to the following over $10,000: (a) additional R&D to expand current product lines or establish additional product lines. (b) additional equipment purchases such as a larger air compressor and/or a CNC machine to enable us to automate board shaping, produce POP displays and create new products for sale. (c) factory space improvements. REGULATORY INFORMATION Disqualification No disqualifying event has been recorded in respect to KOTA, its officers or directors. Compliance failure KOTA has not previously failed to comply with Regulation CF. Annual Report The company will make annual reports available to KOTA Members via the KOTA website at www.kotalongboards.com/contact/. KOTA annual reports available within 120 days of the end of KOTA's most recent fiscal year. EXHIBIT B TO FORM C FINANCIAL STATEMENTS AND INDEPENDENT ACCOUNTANT'S REVIEW FOR KOTA Longboards LLC [See attached]  KOTA Longboards, LLC A Colorado Limited Liability Company Financial Statements (Unaudited) and Independent Accountant’s Review Report December 31, 2017 and 2016 KOTA Longboards, LLC TABLE OF CONTENTS Page Independent Accountant’s Review Report 1 Financial Statements as of December 31, 2017 and 2016 and for the years then ended Balance Sheets 2 Statements of Operations 3 Statements of Changes in Members’ Equity (Deficit) 4 Statements of Cash Flows 5 Notes to Financial Statements 6–11 To the Members of KOTA Longboards, LLC Denver, Colorado INDEPENDENT ACCOUNTANT’S REVIEW REPORT We have reviewed the accompanying financial statements of KOTA Longboards, LLC (the “Company”), which comprise the balance sheets as of December 31, 2017 and 2016, and the related statements of operations, changes in members’ equity (deficit), and cash flows for the years then ended, and the related notes to the financial statements. A review includes primarily applying analytical procedures to management's financial data and making inquiries of company management. A review is substantially less in scope than an audit, the objective of which is the expression of an opinion regarding the financial statements as a whole. Accordingly, we do not express such an opinion. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America; this includes design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement whether due to fraud or error. Accountant’s Responsibility Our responsibility is to conduct the review in accordance with Statements on Standards for Accounting and Review Services promulgated by the Accounting and Review Services Committee of the AICPA. Those standards require us to perform procedures to obtain limited assurance as a basis for reporting whether we are aware of any material modifications that should be made to the financial statements for them to be in accordance with accounting principles generally accepted in the United States of America. We believe that the results of our procedures provide a reasonable basis for our conclusion. Accountant’s Conclusion Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with accounting principles generally accepted in the United States of America. Going Concern As discussed in Note 3, certain conditions indicate that the Company may be unable to continue as a going concern. The accompanying financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern. Artesian CPA, LLC Denver, Colorado DATE Artesian CPA, LLC 1624 Market Street, Suite 202 | Denver, CO 80202 p: 877.968.3330 f: 720.634.0905 [email protected] | www.ArtesianCPA.com KOTA LONGBOARDS, LLC BALANCE SHEETS (UNAUDITED) As of December 31, 2017 and 2016 2017 2016 ASSETS Current Assets: Cash and cash equivalents $ 1,014 $ 26,011 Inventory 28,557 11,577 Other current assets 1,525 828 Total Current Assets 31,096 38,416 Non-Current Assets: Property and equipment, net 26,477 36,332 Deposits 16,850 13,000 Total Non-Current Assets 43,327 49,332 TOTAL ASSETS $ 74,423 $ 87,748 LIABILITIES AND MEMBERS' EQUITY (DEFICIT) Liabilities: Current Liabilities: Accounts payable $ 68,832 $ 62,742 Accrued expenses 3,579 4,296 Deferred revenues 4,000 - Other liabilities 1,000 - Lease payable - 3,760 Short-term note payable 667 6,500 Notes payable - related party, current portion 10,749 10,303 Loans payable, current portion 8,754 6,792 Total Current Liabilities 97,581 94,393 Long-Term Liabilities: Notes payable - related party, net of current portion 1,909 13,508 Loans payable, net of current portion 66,449 15,589 Total Long-Term Liabilities 68,358 29,097 Total Liabilities 165,939 123,490 Members' Equity (Deficit): (91,516) (35,742) TOTAL LIABILITIES AND MEMBERS' EQUITY (DEFICIT) $ 74,423 $ 87,748 See Independent Accountant’s Review Report and accompanying notes, which are an integral part of these financial statements. -2- KOTA LONGBOARDS, LLC STATEMENTS OF OPERATIONS (UNAUDITED) For the years ended December 31, 2017 and 2016 2017 2016 Net revenues $ 199,314 $ 154,644 Costs of net revenues (235,253) (253,403) Gross profit/(loss) (35,939) (98,759) Operating Expenses: General & administrative 171,898 205,416 Sales & marketing 53,001 60,408 Total Operating Expenses 224,899 265,824 Loss from operations (260,838) (364,583) Other Income/(Expense): Other Income 11,550 16,735 Interest expense (14,265) (11,339) Interest income 1 17 Total Other Income/(Expense) (2,714) 5,413 Provision for income taxes - - Net Loss $ (263,552) $ (359,170) See Independent Accountant’s Review Report and accompanying notes, which are an integral part of these financial statements. -3- KOTA LONGBOARDS, LLC STATEMENTS OF CHANGES IN MEMBERS’ EQUITY (DEFICIT) (UNAUDITED) For the years ended December 31, 2017 and 2016 Members' Equity (Deficit) Balance at January 1, 2016 $ 163,428 Capital contributions 160,000 Net loss (359,170) Balance at December 31, 2016 $ (35,742) Capital contributions $ 207,778 Net loss (263,552) Balance at December 31, 2017 $ (91,516) See Independent Accountant’s Review Report and accompanying notes, which are an integral part of these financial statements. -4- KOTA LONGBOARDS, LLC STATEMENTS OF CASH FLOWS (UNAUDITED) For the years ended December 31, 2017 and 2016 2017 2016 Cash Flows From Operating Activities Net Loss $ (263,552) $ (359,170) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 9,855 10,773 Changes in operating assets and liabilities: (Increase)/Decrease in other current assets (697) 869 (Increase)/Decrease in inventory (16,980) 24,813 (Increase)/Decrease in deposits (3,850) (6,750) Increase/(Decrease) in accounts payable 6,090 41,616 Increase/(Decrease) in accrued expenses (716) 1,612 Increase/(Decrease) in other liabilities 1,000 - Increase/(Decrease) in deferred revenues 4,000 - Net Cash Used In Operating Activities (264,850) (286,237) Cash Flows From Financing Activities Proceeds from issuance of loans payable 58,832 22,381 Principal payments on loans payable (6,011) - Repayments on note payable - related party (11,153) (9,878) Principal payments on lease payable (3,760) (5,171) Proceeds from short-term loan - 6,500 Repayment of short-term loan (5,833) - Capital contributions 207,778 160,000 Net Cash Provided By Financing Activities 239,853 173,832 Net Change In Cash (24,997) (112,405) Cash at Beginning of Period 26,011 138,416 Cash at End of Period $ 1,014 $ 26,011 Supplemental Disclosure of Cash Flow Information Cash paid for interest $ 14,265 $ 11,339 Cash paid for income taxes $ - $ - See Independent Accountant’s Review Report and accompanying notes, which are an integral part of these financial statements. -5- KOTA LONGBOARDS, LLC NOTES TO FINANCIAL STATEMENTS (UNAUDITED) As of December 31, 2017 and 2016 and for the years then ended NOTE 1: NATURE OF OPERATIONS KOTA Longboards, LLC (the “Company”), is a limited liability company organized May 17, 2012 under the laws of Colorado. The Company manufactures and sells premium longboard skateboards and apparel. NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (GAAP). The Company has adopted the calendar year as its basis of reporting. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Cash Equivalents For the purpose of the statement of cash flows, cash equivalents include time deposits, certificate of deposits, and all highly liquid debt instruments with original maturities of three months or less. Inventory Inventory is stated at the lower of cost or market and accounted for using the specific identification method. The Company evaluates its inventory for impairment and obsolescence based on future demand, market conditions, sales history, changes in product demand, regional economic conditions, and historical experience. When the estimated inventory market value is less than its carrying value, the carrying value is adjusted to market value and the resulting impairment is charged to costs of goods sold in the statement of operations. Inventory balances as of December 31, 2017 and 2016 are as follows 2017 2016 Raw materials $19,230 $11,577 Work-in-progress 4,210 - Finished goods 5,426 - Total inventory $28,866 $11,577 Property and Equipment The Company has a policy to capitalize expenditures with useful lives in excess of one year and costs exceeding $1,000 as property and equipment and depreciates such assets on a straight-line basis over estimated useful lives (currently 3-7 years). See accompanying Independent Accountant’s Review Report -6- KOTA LONGBOARDS, LLC NOTES TO FINANCIAL STATEMENTS (UNAUDITED) As of December 31, 2017 and 2016 and for the years then ended Management periodically evaluates assets for impairment and writes off capitalized costs as necessary. As of December 31, 2017 and 2016, no property and equipment or intangible assets have been impaired. As of December 31, 2017 and 2016, property and equipment consisted of the following: 2017 2016 Leasehold improvements $ 13,213 $ 13,213 Equipment 40,434 40,434 Software 5,463 5,463 Office equipment 4,660 4,660 Total property and equipment 63,770 63,770 Less: Accumulated depreciation (37,293) (27,439) Property and equipment, net $ 26,477 $ 36,331 Depreciation expense totaled $9,855 and $10,773 for the years ended December 31, 2017 and 2016, respectively. Fair Value of Financial Instruments Financial Accounting Standards Board (“FASB”) guidance specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows: Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as exchange-traded instruments and listed equities. Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (e.g., quoted prices of similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active). Level 3 - Unobservable inputs for the asset or liability. Financial instruments are considered Level 3 when their fair values are determined using pricing models, discounted cash flows or similar techniques and at least one significant model assumption or input is unobservable. The carrying amounts reported in the balance sheets approximate their fair value. See accompanying Independent Accountant’s Review Report -7- KOTA LONGBOARDS, LLC NOTES TO FINANCIAL STATEMENTS (UNAUDITED) As of December 31, 2017 and 2016 and for the years then ended Concentrations of Credit Risk The Company’s financial instruments that are exposed to concentrations of credit risk consist of its cash. The Company will place its cash and cash equivalents with financial institutions of high credit- worthiness and has a policy to not carry a balance in excess of FDIC insurance limits. The Company’s management plans to assess the financial strength and credit worthiness of any parties to which it extends funds, and as such, it believes that any associated credit risk exposures are limited. As of December 31, 2017 and 2016, the Company held no funds in excess of FDIC insurance limits. Revenue Recognition The Company recognizes revenue when: (1) persuasive evidence exists of an arrangement with the customer reflecting the terms and conditions under which products or services will be provided; (2) delivery has occurred or services have been provided; (3) the fee is fixed or determinable; and (4) collection is reasonably assured. The Company includes merchant fees in costs of goods sold. The Company records cash received in advance of revenue recognition as deferred revenue. Costs of Net Revenues Costs of net revenues include the cost of trainers and inventory sold throughout the year, merchant fees, insurance, rent, utilities and depreciation on equipment. Income Taxes The Company is a limited liability company treated as a partnership for federal and state income tax purposes with all income tax liabilities and/or benefits of the Company being passed through to the members. As such, no recognition of federal or state income taxes for the Company have been provided for in the accompanying financial statements. NOTE 3: GOING CONCERN The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred net losses of $263,552 and $359,170 for the years ended December 31, 2017 and 2016, respectively, has been generated profits, has current liabilities exceeding current assets by $66,485 as of December 31, 2017, and the Company has severe liquidity issues with just $1,014 as of December 31, 2017. The Company’s ability to continue as a going concern in the next twelve months following the date the financial statements were available to be issued is dependent upon its ability to obtain capital financing from investors sufficient to meet current and future obligations and deploy such capital to produce profitable operating results. Management has evaluated these conditions and plans to generate revenues and raise capital from outside investors to satisfy its capital needs. No assurance can be given that the Company will be successful in these efforts. These factors, among others, raise substantial doubt about the ability of the Company to continue as a going concern for a reasonable period of time. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. See accompanying Independent Accountant’s Review Report -8- KOTA LONGBOARDS, LLC NOTES TO FINANCIAL STATEMENTS (UNAUDITED) As of December 31, 2017 and 2016 and for the years then ended NOTE 4: LOANS PAYABLE Capital Lease In 2014, the Company financed an equipment purchase under a capital lease arrangement for $15,000, with imputed interest of 10.7%. The lease required monthly payments of $489 for its 36 month term. The balance due under this lease as of December 31, 2016 was $3,680, and was repaid on schedule in 2017. Interest expense on this lease for the years ended December 31, 2017 and 2016 was $707 and $153, respectively. Loan Payable In November, 2016, the Company entered into a 10-year loan agreement with a bank. A total of $22,381 was drawn upon this loan as of December 31, 2016. An additional $58,832 was drawn on the loan during the year ended December 31, 2017. The loan bears interest at 5.75% initially, subject to adjustment to WSJ Prime plus 2.25% after five years. The loan has a term of 10 years and matures in November 2026. The loan requires payments of $1,041 per month after interest only payments for the first 3 months. It is collateralized by substantially all assets of the Company and has an SBA guarantee on 85% of the loan balance. The outstanding balance as of December 31, 2017 and 2016 was $75,203 and $22,381, respectively. Interest expense on this loan totaled $3,862 and $107 for the years ended December 31, 2017 and 2016, respectively. Future minimum principal payments on this loan is as follows as of December 31, 2017: 2018 $ 8,754 2019 8,903 2020 9,429 2021 9,986 2022 10,575 Thereafter 27,556 Total $ 75,203 NOTE 5: MEMBERS’ EQUITY The Company denotes its membership interests in membership units. During 2016, the Company issued 69,869 membership units for total capital contributions of $160,000. During 2017, the Company issued 207,778 membership units for total capital contributions of $207,778. As of December 31, 2017 and 2016, the Company had 932,198 and 840,497 membership units issued and outstanding, respectively. The debts, obligations, and liabilities of the Company, whether arising in contract, tort, or otherwise, are solely the debts, obligations, and liabilities of the Company, and no member of the Company is obligated personally for any such debt, obligation, or liability. See accompanying Independent Accountant’s Review Report -9- KOTA LONGBOARDS, LLC NOTES TO FINANCIAL STATEMENTS (UNAUDITED) As of December 31, 2017 and 2016 and for the years then ended NOTE 6: RELATED PARTY TRANSACTIONS Related Party Loan Payable In June 2014, the Company’s CEO and managing member loaned the Company $50,000 under a loan agreement with a five-year term, bearing interest at 12.75%, and requiring quarterly payments of $2,788. As of December 31, 2017 and 2016, $12,658 and $23,811, respectively, was outstanding under this loan obligation. Future principal payments due on the loan total $10,749 for 2018 and $1,909 for 2019. Interest expense on this loan for the years ended December 31, 2017 and 2016 was $849 and $1,276, respectively. NOTE 7: LEASE OBLIGATIONS In August 2016, the Company entered into a lease agreement for manufacturing space. The lease term is from September 1, 2016 to September 30, 2019. Monthly lease obligations under the lease ranged are $3,850 per month. Rent expense for the years ended December 31, 2017 and 2016 totaled $44,200 and $43,825, respectively. Future rent obligations under this lease agreement are $46,200 for 2018 and $34,650 for 2019. NOTE 8: RECENT ACCOUNTING PRONOUNCEMENTS In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory, which requires entities to compare the cost of inventory to only one measure, its net realizable value, and not the three measures required by Topic 330. This ASU is effective for fiscal reporting periods beginning after December 15, 2016, but earlier application is permitted. The Company has elected to early adopt the ASU and has applied the provisions of the ASU to these financial statements. In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers" (Topic 606). This ASU supersedes the previous revenue recognition requirements in ASC Topic 605—Revenue Recognition and most industry-specific guidance throughout the ASC. The core principle within this ASU is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration expected to be received for those goods or services. In August 2015, the FASB issued ASU 2015-14, "Revenue from Contracts with Customers", which deferred the effective date for ASU 2014-09 by one year to fiscal years beginning after December 15, 2017, while providing the option to early adopt for fiscal years beginning after December 15, 2016. Transition methods under ASU 2014-09 must be through either (i) retrospective application to each prior reporting period presented, or (ii) retrospective application with a cumulative effect adjustment at the date of initial application. We are continuing to evaluate the impact of this new standard on our financial reporting and disclosures, including but not limited to a review of accounting policies, internal controls and processes. We expect to complete our evaluation in the second half of 2017 and intend to adopt the new standard effective January 1, 2018. In February 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842). This ASU requires a lessee to recognize a right-of-use asset and a lease liability under most operating leases in its balance sheet. The ASU is effective for annual and interim periods beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. We are continuing to evaluate the impact of this new standard on our financial reporting and disclosures. See accompanying Independent Accountant’s Review Report -10- KOTA LONGBOARDS, LLC NOTES TO FINANCIAL STATEMENTS (UNAUDITED) As of December 31, 2017 and 2016 and for the years then ended In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows" (Topic 230). This ASU is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. This ASU is effective for financial statements issued for fiscal years beginning after December 15, 2017. We do not believe the adoption of ASU 2016-15 will have a material impact on our financial position, results of operations or cash flows. Management does not believe that any recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances. NOTE 9: COMMITMENTS, CONTINGENCIES, AND CONCENTRATIONS The Company may be subject to pending legal proceedings and regulatory actions in the ordinary course of business. The results of such proceedings cannot be predicted with certainty, but the Company does not anticipate that the final outcome, if any, arising out of any such matter will have a material adverse effect on its business, financial condition or results of operations. NOTE 10: SUBSEQUENT EVENTS Management’s Evaluation The Company has evaluated subsequent events through March 9, 2018, the date the financial statements were available to be issued. Based on the evaluation, no additional material events were identified which require adjustment or disclosure. See accompanying Independent Accountant’s Review Report -11- EXHIBIT C TO FORM C PROFILE SCREENSHOTS [See attached] VIDEO TRANSCRIPT (Exhibit D) Video 1 We started KOTA because we recognized the time was right for longboard skate to become a mainstream lifestyle activity. We asked ourselves, “Why don’t active lifestyle folks skate?” It came down to something pretty simple - the right product and the right brand just didn’t exist in the marketplace. KOTA started in our driveway in Denver, Colorado and has grown into an 8,000 square foot factory capable of producing over 20,000 boards per year. We aren’t just taking an existing product and making it better, we’re making the RIGHT product for a vastly larger market. Our family of clients represent a growing segment of the active lifestyle, surf – ski - fitness and outdoor lifestyle sectors that are adopting longboarding as a part of their daily activity. KOTA boards are built for rider control and energy management through carve and traverse street surfing. Our clients get a surfing or skiing experience on pavement that’s physically invigorating and mentally relaxing. All with confidence that theyare the master of their ride. Innovation is our mission, performance is our passion and style - always style - is a staple of every KOTA product. We’ve developed the industry’s first clear, non-porous grip finish. KOTAgrip stays grippy even when riding in rain or wet conditions and will last the lifetime of the board. Our KOTA simulator is an invaluable training tool and interactive point of purchase display for retailers and cobrand partners. And now we’ve entered the growing electric board market by introducing the KOTA Spitfire Mk V. KOTA is the onlycompany who can offer a high performance ride, choice of board shape with any KOTA graphic on the top of your eBoard featuring best-in-class battery, motor and components. With KOTA, the eBoard market finally has the complete package combining body, chassis, suspension and motor into the Ferrari of eBoards. KOTA is on track to exceed $1 million in cumulative sales in 2018. Our market has expanded to co-branding with major brands such as Anheuser Busch, Sage Hospitality, Oakley, Subaru, Vail Resorts, Dewey Weber Surfboards, and many more. In the fall of 2017 we established a retail relationship with Scheels and are expanding into more stores this spring. The co-brand and retail relationships we have today make it likely we’ll more than double our sales this year. KOTA is at a tipping point and we need capital to finance the growth, increase our marketing activities and continue with performance and style innovations on our drive to profitability. With your investment in KOTA, you’ll be a part of one of the most exciting U.S. manufacturing startups - and owner of a rapidly emerging aspirational lifestyle brand with the most innovative product line in the skate market. You’ll also have early bird access to future KOTA innovations and new products – and the opportunity to get a free KOTA Spitfire Mk V of your own.  Invest in KOTA and join us in creating a truly special brand. KOTA Longboards. Investment Opportunity on Start Engine. Video 2 Kota Longboards: Knights of Spitfire All men dream, but not equally. Those who dream by night in the dusty recesses of their minds wake up in the day to find it was vanity. But the dreamers of the day are dangerous men, for they may act their dreams with open eyes to make it possible. KOTA, Knights of the Air. Honor, courage, freedom, expressing the essence of the KOTA brand. It's more than a name. It's a belief, a code of conduct, a commitment that defines the KOTA community. It is infused into every KOTA product. Whether you're new to KOTA or you've been around the company for a while, you know there's something special about this brand and our product. Every KOTA longboard is engineered for performance and comfort. Camber packs your ride with energy. Concave adds turning responsiveness. Our exclusive clear finish grips shoes and feet without grip tape. The result is a carving ride like no other longboard. At KOTA, what inspires us is you, because we believe you're all fighter pilots, race car drivers, adventurers and explores. KOTA longboards. Handcrafted in Denver, Colorado. It's your life. Carve it. Video 3 [written text] Style, Performance, Power. Spitfire MkV Kota Electric. Spitfire MkV Kota Electric. Kota Knights of the Air. Handcrafted in Denver, Colorado. Video 4 [written text] Spitfire MkV Kota Electric. Performance, Style and Power. Featuring KOTAgrip clear grip finish. Never any grip tape required on a Kota. Range 15-17 miles. Top Speed 22-25 mph. Re-charge time 90 minutes. Only KOTA gives you your choice of graphic design on your electric board. Perfect for the urban lifestyle. Recreation, fitness, and fun or getting where you need to go! The Kota Spitfire MkV. Video 5 [written text] Kota on the move! [music plays] Kota Ruby Hill. Kota Longboards 1400 S. Lipan Street Denver, Colorado STARTENGINE SUBSCRIPTION PROCESS (Exhibit E) Platform Compensation As compensation for the services provided by StartEngine Capital, the issuer is required to pay to StartEngine Capital a fee consisting of a 6-8% (six to eight percent) commission based on the dollar amount of securities sold in the Offering and paid upon disbursement of funds from escrow at the time of a closing. The commission is paid in cash and in securities of the Issuer identical to those offered to the public in the Offering at the sole discretion of StartEngine Capital. Additionally, the issuer must reimburse certain expenses related to the Offering. The securities issued to StartEngine Capital, if any, will be of the same class and have the same terms, conditions and rights as the securities being offered and sold by the issuer on StartEngine Capital’s website. Information Regarding Length of Time of Offering Investment Cancellations: Investors will have up to 48 hours prior to the end of the offering period to change their minds and cancel their investment commitments for any reason. Once within 48 hours of ending, investors will not be able to cancel for any reason, even if they make a commitment during this period. Material Changes: Material changes to an offering include but are not limited to: A change in minimum offering amount, change in security price, change in management, material change to financial information, etc. If an issuer makes a material change to the offering terms or other information disclosed, including a change to the offering deadline, investors will be given five business days to reconfirm their investment commitment. If investors do not reconfirm, their investment will be cancelled and the funds will be returned. Hitting The Target Goal Early & Oversubscriptions StartEngine Capital will notify investors by email when the target offering amount has hit 25%, 50% and 100% of the funding goal. If the issuer hits its goal early, and the minimum offering period of 21 days has been met, the issuer can create a new target deadline at least 5 business days out. Investors will be notified of the new target deadline via email and will then have the opportunity to cancel up to 48 hours before new deadline. Oversubscriptions: We require all issuers to accept oversubscriptions. This may not be possible if: 1) it vaults an issuer into a different category for financial statement requirements (and they do not have the requisite financial statements); or 2) they reach $1.07M in investments. In the event of an oversubscription, shares will be allocated at the discretion of the issuer. If the sum of the investment commitments does not equal or exceed the target offering amount at the offering deadline, no securities will be sold in the offering, investment commitments will be cancelled and committed funds will be returned. If a StartEngine issuer reaches its target offering amount prior to the deadline, it may conduct an initial closing of the offering early if they provide notice of the new offering deadline at least five business days prior to the new offering deadline (absent a material change that would require an extension of the offering and reconfirmation of the investment commitment). StartEngine will notify investors when the issuer meets its  target offering amount. Thereafter, the issuer may conduct additional closings until the offering deadline. Minimum and Maximum Investment Amounts In order to invest, to commit to an investment or to communicate on our platform, users must open an account on StartEngine Capital and provide certain personal and non- personal information including information related to income, net worth, and other investments. Investor Limitations: Investors are limited in how much they can invest on all crowdfunding offerings during any 12-month period. The limitation on how much they can invest depends on their net worth (excluding the value of their primary residence) and annual income. If either their annual income or net worth is less than $107,000, then during any 12-month period, they can invest up to the greater of either $2,200 or 5% of the lesser of their annual income or net worth. If both their annual income and net worth are equal to or more than $107,000, then during any 12-month period, they can invest up to 10% of annual income or net worth, whichever is less, but their investments cannot exceed $107,000. EXHIBIT F TO FORM C ADDITIONAL CORPORATE DOCUMENTS  KOTA Longboards® Operating Agreement AMENDED AND RESTATED OPERATING AGREEMENT OF KOTA LONGBOARDS, LLC This Amended and Restated Operating Agreement of KOTA LONGBOARDS, LLC (this “Agreement”) is made and entered into as of March 12, 2015, by and among KOTA Longboards, LLC (the “Company”) and the undersigned members (individually as a “Member” or collectively as the “Members”). ARTICLE I ORGANIZATION 1.1 Continuation of Limited Liability Company. The Parties to this Agreement hereby agree to continue the Company as a limited liability company formed pursuant to the Articles of Organization filed with the Office of the Secretary of State of Colorado on May 17, 2012, pursuant to the provisions of the Act, and in accordance with the further terms and provisions of this Agreement. The Operating Agreement of the Company was entered into between the Company and the Founders as of August 1, 2012, (the “Original Operating Agreement”). The Original Operating Agreement is amended and restated by this Agreement. It is the express intention of the Members that the terms of this Agreement shall govern, except to the extent such terms are expressly prohibited or ineffective under the Act, even when inconsistent with or different from the provisions of the Act or any other law or rule. To the extent any provision of this Agreement is prohibited or ineffective under the Act, this Agreement shall be considered amended only to the extent necessary in order to make this Agreement effective under the Act. In the event the Act is subsequently amended or interpreted in such a way to make valid any provision of this Agreement that was formerly invalid, such provision shall be considered to be valid from the effective date of such amendment or interpretation. 1.2 Name. The name of the Company shall be KOTA LONGBOARDS, LLC. 1.3 Principal Office and Place of Business. The principal office and principal place of business of the Company shall be 2360 S. Monroe St., Denver, Colorado 80210. 1.4 Effective Date and Term of the Company. The effectiveness of this Agreement shall commence on March 12, 2015. The Company shall continue indefinitely unless earlier dissolved as provided in this Agreement. 1.5 Title to Property. Title to all property, real or personal, acquired by the Company shall be acquired, held, and conveyed in the name of the Company, unless the Members by a Member Consent otherwise agree. 1.6 Members. The Company shall consist of those initial Members party hereto and those additional and substituted Members admitted pursuant to Section 7.2(l) and Article X. Schedule A shall be amended from time to time to reflect the admission of any Member or the removal, withdrawal, expulsion, retirement or death of any Member. Page 1  KOTA Longboards® Operating Agreement ARTICLE II DEFINITIONS 2.1 Defined Terms. Defined terms used in this Agreement shall, unless the context otherwise requires, have the meanings specified below. Certain additional defined terms are set forth elsewhere in this Agreement. Unless the context requires otherwise, the singular shall include the plural and the masculine gender shall include the feminine and neuter, and vice versa, and “Article” and “Section” references are references to the Articles and Sections of this Agreement. (a) “Act” means the Colorado Limited Liability Company Act, as amended (Title 7, Article 80, Colorado Revised Statutes). (b) “Affiliate” means any other Person which is, directly or indirectly, through one or more intermediaries, Controlling, Controlled by, or under common Control with the Company. (c) “Agreement” means this Agreement (including any and all Exhibits and Schedules hereto), as it may be amended, supplemented, or restated from time to time. (d) “Assign,” “Assigned,” or “Assignment” means, with respect to any Company Interest, or any part thereof, a foreclosure or attachment or to offer, sell, assign, transfer, exchange, give, bequeath, pledge, encumber, hypothecate, or otherwise dispose of, whether voluntarily, involuntarily, or by operation of law. An Assignment shall include the transfer of Control in any Person. (e) “Assignee” means a Person to whom an interest in any Company Interest has been Assigned in a manner permitted under this Agreement. (f) “Bankrupt” or “Bankruptcy” as to any Person means the filing of a petition for relief as to any such Person as debtor or bankrupt under the Bankruptcy Code or like provision of law (except if such petition is contested by such Person and has been dismissed within one hundred twenty (120) days); insolvency of such Person which is finally determined by a court proceeding; filing by such Person of a petition or application to accomplish the same or for the appointment of a receiver or a trustee for such Person or a substantial part of its assets; or commencement of any proceedings relating to such Person under any other reorganization, arrangement, insolvency, adjustment of debt, or liquidation law of any jurisdiction, whether now in existence or hereinafter in effect, either by such Person or by another, provided that if such proceeding is commenced by another, such Person indicates its approval of such proceeding, consents thereby or acquiesces therein, or such proceeding is contested by such Person and has not been finally dismissed within one hundred twenty (120) days. (g) “Bankruptcy Code” means Title 11 of the United States Code. (h) “Business Day” means all days of the week excluding Saturday, Sunday, and holidays recognized by the State of Colorado. (i) “Capital Account” means the capital account maintained for each Member pursuant to Section 5.4 of this Agreement and Schedule B attached hereto. Page 2  KOTA Longboards® Operating Agreement (j) “Capital Contribution” means any cash or property (valued, for this purpose, at its agreed upon value on the date of contribution as determined by Member Consent) contributed to the Company by a Member and includes any Additional Capital Contribution. (k) “Cash Flow” means, for any period, all gross cash proceeds of the Company less the portion thereof used to pay or establish reserves for all expenses of the Company, Debt Service, capital improvements, replacements, and contingencies, all as determined by the Manager and approved by a Member Consent. “Cash Flow” shall not be reduced by depreciation, amortization, cost recovery deductions, or similar allowances, but shall be increased by any reductions of reserves previously established by the first sentence of this definition. (l) “Code” means the Internal Revenue Code of 1986, as amended and in effect from time to time (including any corresponding provisions of succeeding law). (m) “Company Expenses” means all reasonable third-party expenses or obligations (including debt obligations) of the Company incurred by the Manager in connection with this Agreement. (n) “Company Interest” means the interest of a Member in the Company, whether held by such Member or an immediate or subsequent Assignee thereof, including, without limitation, such Member’s right (a) to a share of Company allocations and distributions (including in kind distributions), (b) to vote, consent, or withhold consent with respect to any Company matters, and (c) to participate in the management of the business and affairs of the Company in accordance with this Agreement. (o) “Controlling,” “Controlled,” and “Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise. (p) “Deficit Capital Account” shall mean with respect to any Member, the deficit balance, if any, in such Member’s Capital Account as of the end of the Company’s taxable year, after giving effect to the following adjustments: (1) Credit to such Capital Account (i) any amount which such Member is obligated to restore, under Section 1.704-1(b)(2)(ii)(c) of the Treasury Regulations, including, but not limited to, the unpaid principal balance of any promissory note (of which the Member is the maker) contributed to the Company by the Member (other than a promissory note that is readily tradable on an established securities market), (ii) the amount of such Member’s share of Company minimum gain (as determined in accordance with Sections 1.704-2(g)(1) and (g)(3) of the Treasury Regulations), and (iii) the amount of such Member’s share of partner nonrecourse debt minimum gain (as determined under Section 1.704-2(i)(5) of the Treasury Regulations); and (2) Debit to such Capital Account the items described in Sections 1.704- 1(b)(2)(ii)(d)(4), (5), and (6) of the Treasury Regulations. The foregoing definition of “Deficit Capital Account” is intended to comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Treasury Regulations and shall be interpreted consistently therewith. Page 3  KOTA Longboards® Operating Agreement (q) “Disposition” means the sale, exchange, extinguishment, cancellation, retirement, repayment, redemption, termination, lapse, transfer or other disposition of all or any portion of, Company assets. (r) “Distributions” means, for any Member as of any date, the cumulative amount of cash and the fair market value (as agreed to by Member Consent) of any other property distributed to such Member pursuant to Sections 6.2 and 12.4 hereof as of such date, reduced by any liabilities assumed by such Member in connection with such distribution or secured by any Company property distributed to such Member. (s) “Economic Interest” means the interest of a Member solely to a share of Company allocations and distributions in accordance with this Agreement and does not include any rights described in (b) or (c) of the definition of Company Interest set forth above. (t) “Fiscal Year” means the Company’s annual accounting period established pursuant to Section 4.6 hereof. (u) “Founders” means, individually or collectively, Michael P. Maloney. (v) “IRS” means the Internal Revenue Service. (w) “Manager” means Michael P. Maloney, or any successor Manager elected by a Member Consent. (x) “Member Consent” means the consent and/or vote or approval of those Members, not in default under this Agreement at the time such consent or vote is required, holding at least two-thirds (2/3) of the Company Interests of the Members entitled to vote on the matter. (y) “Members” means, individually or collectively, the Founders and Preferred Members, and any other Substituted Members. (z) “Person” means an individual or a corporation, partnership, trust, limited liability company, unincorporated organization, association, or other entity. (aa) “Preferred Members” means, individually or collectively, Members who made a cash contribution to the Company up to the date of execution of this Amended and Restated Operating Agreement dated March 12, 2015, excluding In Kind distributions, or such Assignee of such Preferred Member’s Company Interest. (ab) “Profits” or “Losses” means, respectively, the income or loss of the Company for each Fiscal Year of the Company, as determined for federal income tax purposes (including each item of Company income, gain, loss, or deduction which is separately stated or otherwise not included in computing taxable income and loss and including gains or losses on Dispositions), with the following adjustments: (a) any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Profits or Losses shall be added thereto; and (b) any expenditures of the Company described in Code Section 705(a)(2)(3) or treated as Code Section 705(a)(2)(B) expenditures pursuant to Section 1.704-1(b)(2)(iv)(i) of the Treasury Regulations and not otherwise taken into account in computing Profits or Losses shall be subtracted therefrom. (ac) “Substituted Member” means any Assignee of a Company Interest admitted as a Member under Article X hereof. Page 4  KOTA Longboards® Operating Agreement (ad) “Supermajority” means an aggregate 60% of outstanding units. (ae) “Treasury Regulations” means the income tax regulations promulgated under the Code as final, temporary, or proposed regulations, as amended, supplemented, or modified from time to time (including corresponding provisions of succeeding regulations). (af) “Withdrawal” means a voluntary or involuntary withdrawal of a Member under the Act. ARTICLE III PURPOSES AND AUTHORITY OF THE COMPANY 3.1 Principal Purpose. The principal purpose of the Company is to engage in the design, manufacture and sale of longboards and other equipment as determined by the Directors. The Company may also, in the discretion of the Directors, engage in any other business or activity permitted by Colorado law. 3.2 General Authority. The Company shall have and exercise any and all powers necessary, incidental, or desirable to accomplish the foregoing purposes and business, to the extent the same may be legally exercised by limited liability companies under the Act. The Company shall carry out its business and exercise its powers pursuant to the arrangements set forth in the Articles of Organization and this Agreement. ARTICLE IV GENERAL ACCOUNTING MATTERS; BOOKS AND RECORDS 4.1 Books of Account. True and proper books, records, reports and accounts of the Company shall be maintained by the Company at all times in accordance with generally accepted accounting principles consistently applied. All transactions of the Company shall be entered fully and accurately on the books and records of the Company. 4.2 Location of Books and Records. The books and records of the Company shall be kept at the Company’s principal place of business. Such books and records shall include: (a) a current list of the full name and last known mailing address of each past and present Member set forth in alphabetical order; (b) a copy of the Articles of Organization and all amendments thereto, together with executed copies of any powers of attorney pursuant to which any amendment has been executed; (c) copies of the Company’s federal, state, and local income tax returns and reports, if any, for the three most recent years; (d) copies of this Agreement and any amendments thereto; (e) the accounting books and records and copies of the financial statements of the Company for the three most recent years; (f) minutes of every annual and special meeting of the Members and of any meeting ordered pursuant to the Act; (g) copies of any and all written consents of the Members obtained pursuant to this Agreement or the Act or other documents evidencing a Member Consent; (h) all other documents and records pertaining to the Company; and (i) any and all other documents and records required to be maintained by the Company pursuant to the Act. In addition to the documents and Page 5  KOTA Longboards® Operating Agreement records described above, the Company shall also prepare and update, and the Members shall certify as accurate, a statement describing (1) the amount of cash and a description and statement of the agreed value (determined by a Member Consent) of property or services contributed to the Company by each Member, and which each Member has agreed to contribute in the future; (2) the times at which or events on the happening of which any Additional Capital Contributions agreed to be made by each Member are to be made; (3) if agreed upon, the time at which or events on the happening of which a Member may terminate such Member’s membership in the Company and the amount of, or the method of determining, the distribution to which such Member may be entitled respecting such Member’s membership interest and the terms and conditions of the termination and distribution; and (4) any right of a Member to receive distributions which include any return of all or part of such Member’s contribution. 4.3 Inspection of Records. All books, records, reports and accounts of the Company shall be open to inspection by any Member or such Member’s duly authorized representative on reasonable notice and at any reasonable time during business hours, and each Member or representative shall have the further right to make copies thereof, so long as such inspection or duplication does not materially interfere with the duties of any Company employee or agent. The cost of copying shall be borne by the Member. The Member also has the right to obtain from the Company upon written request: (a) true and full information regarding the state of the business and financial condition of the Company and any other information regarding the affairs of the Company; (b) promptly after they become available, copies of the Company’s federal, state, and local income tax returns for each year; and (c) a list showing the names, addresses and Company Interests of all Members. 4.4 Tax Returns and Reports. (a) Tax Returns. The Manager shall cause to be prepared and shall sign all income tax returns and reports required to be filed with the IRS and any other applicable government authorities. The Manager shall furnish copies of all returns, reports and associated schedules (including K-1’s) to the Members no later than the first day of the fourth calendar month following the Fiscal Year for which the return or report is prepared. (b) Reports. Within thirty (30) days after the end of each quarter, the Manager shall deliver to the Members a report including (i) the balance sheet of the Company as of the end of such quarter and statements of operations and changes in Members’ Capital Accounts, prepared in accordance with generally accepted accounting principles, consistently applied, and (ii) a report of the activities of the Company during the period covered by the quarterly report. The quarterly report shall set forth distributions to the Members for the period covered thereby and the amount of such distribution released from Reserves established in any prior period. Within ninety (90) days after the end of each Fiscal Year of the Company, the Manager shall provide an annual report setting forth an annualized summary of the quarterly reports. Page 6  KOTA Longboards® Operating Agreement 4.5 Bank Accounts. Except as otherwise provided in this Agreement, the bank accounts of the Company shall be maintained at such federal insured banking institution as approved by the Manager. 4.6 Fiscal Year. The Fiscal Year of the Company for tax and accounting purposes shall be the calendar year. 4.7 Transfer of Interest. If an interest in the Company is transferred during a calendar year, all items of income, gain, loss, deduction, and credit allocated pursuant to Article 5 or Article 6 hereof or Schedule B attached hereto shall be allocated between the transferor and the transferee as of the last day of the month in which the transfer occurred. Items of Company gain or loss earned or incurred on the sale, exchange, or other disposition of any Company asset shall be allocated to the Member owning the Company Interest at the time of the closing of such sale, exchange or other disposition of such Company asset. ARTICLE V CAPITAL CONTRIBUTIONS AND CAPITAL ACCOUNTS 5.1 Initial Capital Contributions. The Members have contributed to the Company the property upon the formation of the Company or upon execution of this Agreement, as specified on Schedule A attached hereto and incorporated herein by this reference. 5.2 Additional Capital Contributions. Members shall not be required to, but may voluntarily upon a Member Consent, make additional Capital Contributions, in excess of the Initial Capital Contributions, to the Company. 5.3 Capital Accounts. (a) Maintenance of Capital Accounts. A Capital Account shall be maintained for each Member in accordance with this Section 5.3 and the principles set forth in Schedule B attached hereto and incorporated herein by this reference. Each Member’s Capital Account shall be credited with such Member’s aggregate Capital Contributions, such Member’s allocable share of Profits and any items in the nature of income or gain that are specially allocated to such Member pursuant to Schedule B hereto, and the amount of any Company liabilities assumed by such Member or that are secured by any property of the Company distributed to such Member. Each Member’s Capital Account shall be debited with the aggregate amount of Distributions to such Member, such Member’s allocable share of Losses and any items in the nature of deduction or loss that are specially allocated to such Member pursuant to Schedule B attached hereto, and the amount of any liabilities of such Member assumed by the Company or that are secured by any property contributed by such Member to the Company. The determination and maintenance of the Members’ Capital Accounts, and any adjustments thereto, shall be made consistent with tax accounting and other principles set forth in Section 704(b) of the Code and Treasury Regulations Section 1.704-1(b) and the provisions of this Agreement shall be interpreted and applied consistently therewith. (b) Transfer of Capital Account. Immediately following the transfer of any portion of a Member’s Company Interest, the Capital Account of the transferee shall be equal to the Capital Account of the transferor attributable to the transferred Company Interest. Such Capital Page 7  KOTA Longboards® Operating Agreement Account shall not be adjusted to reflect any basis adjustment under Section 743 of the Code unless the Members make an election under Section 754 of the Code pursuant to Section 5.4, below. (c) No Interest Accrual. No interest shall be paid or accrued by the Company on balances in Members’ Capital Accounts. (d) Computation of Capital Account Adjustments. For purposes of computing the amount of any item of income, gain, deduction, or loss to be reflected in the Members’ Capital Accounts, the determination, recognition and classification of any such item shall be the same as its determination, recognition, and classification for federal income tax purposes, taking into account any adjustments required pursuant to Section 704(b) of the Code and the Treasury Regulations promulgated thereunder as more fully described in Schedule B hereto. 5.4 Basis-Adjustment Election. The Members by Member Consent shall elect pursuant to Section 754 of the Code to adjust the basis of the Company’s assets for all transfers of Company Interests or distributions of property to Members if such election would benefit any Member or the Company. 5.5 Withdrawal or Reduction of Capital Contributions. Except as otherwise expressly provided in this Agreement, a Member shall not receive out of the Company’s property any part of such Member’s Capital Contributions unless the consent of all Members is obtained. ARTICLE VI INCOME AND DISTRIBUTION 6.1 Allocations among Members. The Profits shall be divided and the losses, deductions and credits of the Company shall be borne in proportion relative to each Preferred Member’s respective Initial Capital Contribution. 6.2 Distributions of Cash Flow. Except as otherwise required upon dissolution or liquidation, Cash Flow or assets of the Company shall be distributed, applied, or paid, as follows: (a) First, an amount of such Cash Flow shall be distributed to the Preferred Members, until each Preferred Member has received aggregate distributions of Cash Flow pursuant to this Section 6.2(a) in an amount equal to each Preferred Member’s respective Initial Capital Contribution; and (b) thereafter, to the Members, pari passu, in accordance with their Company Interests. ARTICLE VII ADMINISTRATION OF THE COMPANY 7.1 Management The management and control of the Company shall be vested exclusively in the Manager. The Members shall have no part in the management or control of Page 8  KOTA Longboards® Operating Agreement the Company and shall have no authority or right to act on behalf of the Company in connection with any matter. 7.2 Authority of Manager. In accordance with the provisions of the Act and except as otherwise expressly provided in this Agreement, the Manager shall have all rights and powers that may be possessed by a manager under the Act on behalf of and in the name of the Company (i) to carry out any and all of the objects and purposes of the Company and (ii) to perform all acts which he may deem necessary or desirable to accomplish the foregoing, including, without limitation, the following: (a) To incur and pay all expenses and obligations incident to the operation and management of the Company; (b) To oversee the day-to-day operations of the Company including, without limitation, maintaining the Company’s books and records, opening, depositing to, withdrawing from and maintaining bank accounts in accordance with Section 4.5 hereof, preparing the tax returns of the Company and paying all taxes, assessments and other impositions applicable to the assets of the Company; (c) To make distributions to the Members in accordance with the terms of this Agreement; (d) To prepare and cause to be prepared reports, statements and appraisals as required under this Agreement; (e) To enter into any transactions, contracts, or agreements, including, without limitation, agreements for the management, development, improvement, marketing and sale of the Assets, between the Company and the Manager or a Member; (f) To sell, transfer, exchange or otherwise dispose of, pledge, encumber, grant any purchase rights, options to purchase, rights of first refusal to purchase, or approve any offer to purchase or exchange all or a material portion of the Assets; (g) To stipulate to a judgment against the Company; (h) To institute lawsuits or proceedings involving the Company and make decisions relating to the defense of such lawsuits or proceedings, or settle or compromise any claim or demand of or against the Company; (i) To bind or obligate the Company as a party, principal, accommodation party, guarantor, or surety for any third party or Member under any note, mortgage, deed of trust, lease, contract, or commercial paper, whether recourse or non-recourse; or prepay or modify the material terms of any indebtedness of the Company existing at the time of such decision; (j) To merge or consolidate the Company with or into any other partnership or other entity; (k) To dissolve and windup the affairs of the Company, except as otherwise provided herein or as required by the Act or other applicable law; (l) To add additional Members for an initial Capital Contribution and corresponding Company Interest as determined by the Manager and approved by a Member Consent; provided, such additional Members’ cumulative Company Interests do not result in the Page 9  KOTA Longboards® Operating Agreement reduction of Michael P. Maloney’s Company Interest to less than 51% of the total Company Interests unless so authorized by Member Consent; and (m) To act for and on behalf of the Company in all matters incidental to the foregoing. For purposes of this Section 7.2, any of Manager’s acts under paragraphs (e) through (l), inclusive, or any of Manager’s acts which cause an individual or cumulative economic impact to the Company in excess of $150,000.00, shall require Supermajority Member Consent, executed by the approving Members. 7.3 Use of Agents. The Manager may, from time to time, retain any Person to provide services to the Company, but only if the Manager reasonably believes that such Person is qualified to provide such services. The Manager is entitled to rely in good faith upon the recommendations, reports, advice, or other services provided by any such agent. 7.4 Expenses. The Company shall be responsible for and shall pay all Company Expenses. All Company Expenses shall be paid out of funds of the Company determined by the Manager to be available for such purpose. 7.5 Manager. (a) Appointment. Michael P. Maloney is hereby appointed as the Manager. The Manager may resign at any time upon written notice to the Company. In the event the Manager resigns, is unable to serve or is removed by the Members, a successor Manager shall be appointed by the Members by a Member Consent. (b) Removal of Manager. A Manager may be removed at any time by a Member Consent. Removal of a Manager (who also is a Member) shall have no effect on his rights and obligations as a Member. (c) Compensation as a Manager. The Manager shall be entitled to compensation at such rate as the Members may agree by a Member Consent. 7.7 Liability for Certain Acts. The Manager shall exercise the Manager’s business judgment in managing the business, operations, and affairs of the Company. Absent fraud, dishonesty or deceit, gross negligence, willful misconduct, or a wrongful taking, the Manager shall not be liable or obligated to the Members or to the Company for any mistake of fact or judgment, for the doing of any act, or for the failure to do any act in conducting the business, operations and affairs of the Company, which may cause or result in any loss or damage to the Company or its Members. The Manager does not guarantee the return of the Members’ Capital Contributions or a profit for the Members from the operations of the Company. The Manager shall not be responsible to any Member because of a loss of such Member’s investment, unless the loss shall have been the result of such Manager’s fraud, dishonesty or deceit, gross negligence, willful misconduct, or a wrongful taking by the Manager. 7.8 Manager and Member Indemnity. The Company (but not any Member) shall indemnify and hold harmless each Member and the Manager and their respective members, shareholders, directors, officers, employees and agents (collectively the “Indemnified Party”) in the event it was