Document:

aaxii8kex991_7182011.htm

 

 

Exhibit 99.1

 

Accelerated Acquisitions XII, INC.

A DEVELOPMENT STAGE COMPANY

March 31, 2011

TABLE OF CONTENTS

	  	
Page(s)

	  	  
	
Report of Independent Registered Public Accounting firm

	
F - 2

	  	  
	
Financial Statements:

	  
	  	  
	
Balance Sheet as of March 31, 2011

	
F - 3

	  	  
	
Statements of Operations for the Period From Inception (May 4, 2010) to March 31, 2011

	
F - 4

	  	  
	
Statements of Stockholder’s Equity for the Period from

	  
	
Inception (May 4, 2010) through March 31, 2010

	
F - 5

	  	  
	
Statements of Cash Flows for the Period from Inception (May 4, 2010) to March 31, 2011

	
F - 6

	  	  
	
Notes to Financial Statements

	
F - 7 to F - 11

 

 

  

 

  

 

 

	  	
Peter Messineo

Certified Public Accountant

1982 Otter Way Palm Harbor FL 34685

peter@pm-cpa.com

T   727.421.6268   F   727.674.0511

 

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

I have audited the accompanying balance sheets of Accelerated Acquisitions XII, Inc. (a development stage company) as of March 31, 2011 and the related statements of operations, stockholder's equity and cash flows for the period from inception (May 4, 2010) to March 31, 2011. These financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these financial statements based on my audit.

I conducted my audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. My audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as, evaluating the overall financial statement presentation. I believe that my audit provides a reasonable basis for my opinion.

In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Accelerated Acquisitions XII, Inc. (a development stage company) as of March 31, 2011 and the results of its operations and its cash flows for the period from inception (May 4, 2010) to March 31, 2011 in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has incurred a loss since inception, has a net accumulated deficit and may be unable to raise further equity. These factors raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

s/ Peter Messineo, CPA

Peter Messineo, CPA

Palm Harbor, Florida

June 24, 2011

 

 

 

 

  

F - 2

  

 

Accelerated Acquisitions XII, INC.

A Development Stage Company

BALANCE SHEETS

 

	 	 	March 31, 

2011

	 
	
ASSETS

	 	 	 
	CURRENT ASSETS:	 	 	 
	 	 	 	 	 
	
Cash

	 	$	200	 
	  	 	 	 	 
	
TOTAL CURRENT ASSETS:

	 	 	200	 
	  	 	 	 	 
	
TOTAL ASSETS

	 	$	200	 
	  	 	 	 	 
	
LIABILITIES AND STOCKHOLDER’S DEFICIENCY

	 	 	 	 
	  	 	 	 	 
	
CURRENT LIABILITIES:

	 	 	 	 
	
   Accrued expenses

	 	 	0	 
	
  TOTAL CURRENT LIABILITIES

	 	 	0	 
	
STOCKHOLDER’S EQUITY:

	 	 	 	 
	
Preferred stock, $.0001 par value; 10,000,000 shares authorized; none issued and outstanding

	 	 	-	 
	
Common stock, $.0001 par value; 100,000,000 shares authorized; 5,000,000 shares issued and outstanding as of March 31, 2011

	 	 	500	 
	
Additional paid-in capital

	 	 	1,500	 
	
Deficit accumulated during the development stage

	 	 	(1,800	)
	  	 	 	 	 
	
TOTAL STOCKHOLDER’S  EQUITY

	 	 	200	 
	  	 	 	 	 
	
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY

	 	$	200	 

See notes to financial statements.

 

 

  

F - 3

  

 

 

Accelerated Acquisitions XII, INC.

A Development Stage Company

STATEMENTS OF OPERATIONS

 

	  	  	
For the period from inception (May 4, 2010) to March 31,

2011

	  
	  	  	 	  
	
REVENUE

	  	
$

	
-

	  
	  	  	  	  	  
	
General and administrative expenses

	  	  	
1,800

	  
	  	  	  	  	  
	
NET (LOSS)

	  	
$

	
(1,800

	
)

	  	  	  	  	  
	
BASIC AND DILUTED NET (LOSS) PER SHARE

	  	
$

	
(.00

	
)

	  	  	  	  	  
	
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING

	  	  	
5,000,000

	  

See notes to financial statements.

 

 

  

F - 4

  

 

 

Accelerated Acquisitions XII, INC.

A Development Stage Company

STATEMENTS OF STOCKHOLDER’S EQUITYY

 

	  	  	
Preferred Stock

	  	  	
Common Stock

	  	  	
Additional

Paid-in

	  	  	
(Deficit)

Accumulated

During the

Development

	  	  	
Stockholder’s

	  
	  	  	
Shares

	  	  	
Amount

	  	  	
Shares

	  	  	
Amount

	  	  	
Capital

	  	  	
Stage

	  	  	
Equity

	  
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
BALANCE AT INCEPTION (MAY 4, 2010)

	  	  	
-

	  	  	
$

	
-

	  	  	  	
-

	  	  	
$

	
-

	  	  	
$

	
-

	  	  	
$

	
-

	  	  	
$

	
-

	  
	
Issuance of common stock, May 4, 2010, at $.004 per share

	  	  	
-

	  	  	  	
-

	  	  	  	
5,000,000

	  	  	  	
500

	  	  	  	
1,500

	  	  	  	
-

	  	  	  	
2,000

	  
	
Net (loss)

	  	  	
-

	  	  	  	
-

	  	  	  	
-

	  	  	  	
-

	  	  	  	
-

	  	  	  	
(1,800

	
)

	  	  	
(1,800

	
)

	
BALANCE AT  MARCH 31, 2011

	  	  	
-

	  	  	  	
-

	  	  	  	
5,000,000

	  	  	  	
500

	  	  	  	
1,500

	  	  	  	
(1,800

	
)

	  	  	
200

	  
	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  

See notes to financial statements.

 

 

  

F - 5

  

 

Accelerated Acquisitions XII, INC.

A Development Stage Company

STATEMENTS OF CASH FLOWS

	  	  	
For the period from 

inception 

(May 4, 2010) to 

March 31, 2011

	  
	  	  	 	  
	
CASH FLOWS FROM OPERATING ACTIVITIES:

	  	 	  
	
Net loss

	  	
$

	
(1,800

	
)

	
Adjustments to reconcile net (loss) to net cash used in operating activities:

	  	  	  	  
	
Changes in operating assets and liabilities:

	  	  	  	  
	
      Increase in accounts payable

	  	  	
0

	  
	
     Net cash used in operating activities

	  	  	
(1,800

	
)

	  	  	  	  	  
	
CASH FLOWS FROM FINANCING ACTIVITIES:

	  	  	  	  
	
Proceeds from the issuance of common stock

	  	  	
2,000

	  
	
Net cash provided by financing activities

	  	  	
2,000

	  
	  	  	  	  	  
	
NET (DECREASE) INCREASE IN CASH

	  	  	
1,800

	  
	  	  	  	  	  
	
Cash  at beginning of period

	  	  	
-

	  
	  	  	  	  	  
	
CASH  AT END OF PERIOD

	  	
$

	
200

	  

 

See notes to financial statements.

 

 

  

F - 6

  

 

Accelerated Acquisitions XII, INC.

(A Development Stage Company)

Notes to Financial Statements

May 4, 2010 (date of inception) through March 31,2011

 

 

	
NOTE 1

	
 -

	
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

 

	
(a)

	
Organization and Business:

 

Accelerated Acquisitions XII, Inc. (“the Company”) was incorporated in the state of Delaware on May 4, 2010 for the purpose of raising capital that is intended to be used in connection with its business plan which may include a possible merger, acquisition or other business combination with an operating business.

 

The Company is currently in the development stage. All activities of the Company to date relate to its organization, initial funding and share issuances.

 

	
(b)

	
Basis of Presentation

 

The accompanying Interim Financial Statements are unaudited and have been prepared in accordance with accounting principles generally accepted for interim financial statement presentation and in accordance with the instructions to Regulations S-K.  Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statement presentation. In the opinion of management, all adjustments for a fair statement of the results and operations and financial position for the interim periods presented have been included.  All such adjustments are of a normal recurring nature. The financial information should be read in conjunction with the Financial Statements and notes thereto included in the Company’s Form 10-K Annual Report for the year ended March 31, 2011 and the Company’s Registration Statement on Form 10. The financial statements presented herein may not be indicative of the results of the Company for the year ending March 31, 2012.

 

	
 (c)

	
Use of Estimates:

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

 

 

  

F - 7

  

 

Accelerated Acquisitions XII, INC.

(A Development Stage Company)

Notes to Financial Statements

 May 4, 2010 (date of inception) through March 31, 2011

	
NOTE 1

	
 -

	
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued)

 

 

	
  (d)

	
Development Stage

 

The Company has been in the development stage since its formation on May 4, 2010.  It has primarily engaged in raising capital to carry out its business plan, as described above. The Company expects to continue to incur significant operating losses and to generate negative cash flow from operating activities while it develops its operating plan.  The Company's ability to eliminate operating losses and to generate positive cash flows in the future will depend upon a variety of factors, many of which it is unable to control.  If the Company is unable to implement its business plan successfully, it may not be able to eliminate operating losses, generate positive cash flow, or achieve or sustain profitability, which would materially adversely affect its business, operations, and financial results, as well as its ability to make payments on any obligations it may incur.

 

	
(e)

	
Cash and Cash Equivalents

 

For purposes of the statement of cash flows, the Company considers highly liquid financial instruments purchased with a maturity of three months or less to be cash equivalents.  The Company had no cash equivalents at March 31,, 2011.

 

	
(f)

	
Loss per Common Share

 

Basic loss per share is calculated using the weighted-average number of common shares outstanding during each reporting period. Diluted per share includes potentially dilutive securities such as outstanding options and warrants, using various methods such as the treasury stock or modified treasury stock method in the determination of dilutive shares outstanding during each reporting period.  The Company has incurred a loss during the current period, therefore any potentially dilutive shares are excluded, as they would be anti-dilutive. The Company does not have any potentially dilutive instruments for this reporting period. 

 

 

	
NOTE 2

	
 -

	
GOING CONCERN

 

The accompanying financial statements have been prepared on a going concern basis, which assumes the Company will realize its assets and discharge its liabilities in the normal course of business. As reflected in the accompanying financial statements, the Company has a deficit accumulated during the development stage, used cash from operations since its inception, and had $200 of working capital at March 31, 2011. The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. The Company’s ability to continue as a going concern is also dependent on its ability to find a suitable target company and enter into a possible reverse merger with such company. Management’s plan includes obtaining additional funds by equity financing through a reverse merger transaction and/or related party advances; however there is no assurance of additional funding being available. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might arise as a result of this uncertainty.

 

  

F - 8

  

Accelerated Acquisitions XII, INC.

(A Development Stage Company)

Notes to Financial Statements

 May 4, 2010 (date of inception) through March 31, 2011

 

 

	
NOTE 3

	
-

	
RELATED PARTY TRANSACTIONS

 

At inception, the Company has issued 5,000,000 shares of restricted common stock to the majority shareholder for initial funding, in the amount of $2,000.  

 

The Company does not have employment contracts with its sole offer and director, who is the majority shareholder.

 

The sole officer and director of the Company is involved in other business activities and may, in the future, become involved in additional business opportunities that become available.  A conflict may arise in selecting between the Company and other business interests. The Company has not formulated a policy for the resolution of such conflicts.

 

We depend on our sole officer and director, to provide the Company with the necessary funds to implement our business plan, as necessary.  The Company does not have a funding commitment or any written agreement for our future required cash needs.

 

The Company does not own or lease property or lease office space. The office space used by the Company was arranged by the sole officer and director of the Company to use at no charge.

 

The above amount is not necessarily indicative of the amount that would have been incurred had a comparable transaction been entered into with independent parties.

 

 

	
NOTE 4

	
-

	
INCOME TAXES

 

The Company has incurred net operating losses since inception. The Company has not reflected any benefit of such net operating loss carry forward in the financial statements.  

 

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income.

 

Based on the level of historical taxable losses and projections of future taxable income (losses) over the periods in which the deferred tax assets can be realized, management currently believes that it is more likely than not that the Company will not realize the benefits of these deductible differences. Accordingly, the Company has provided a valuation allowance against the gross deferred tax assets as follows:

  

F - 9

  

 

Accelerated Acquisitions XII, INC.

(A Development Stage Company)

Notes to Financial Statements

May 4, 2010 (date of inception) through March 31, 2011

 

	
NOTE 4

	
-

	
INCOME TAXES (continued)

 

	  	  	
March 31,

2011

	
 

	

Gross deferred tax assets 

	  	$	

1,800

	

 

 

	

Valuation allowance 

	  	  	

(1,800)

	  
	 	 	 	 	 
	

Net deferred tax asset 

	  	$	

—

	

 

 

 

As of March 31, 2011, the Company had a net operating loss carryforward of approximately $1,800, which will begin to in the tax year 2028.

 

Federal tax laws impose significant restrictions on the utilization of net operating loss carryforwards and research and development credits in the event of a change in ownership of the Company, as defined by the Internal Revenue Code Section 382. The Company’s net operating loss carryforwards and research and development credits may be subject to the above limitations.

 

The relevant FASB standard resulted in no adjustments to the Company’s liability for unrecognized tax benefits. As of the date of adoption and as of March 31, 2011 there were no unrecognizable tax benefits. Accordingly, a tabular reconciliation from beginning to ending periods is not provided. The Company will classify any future interest and penalties as a component of income tax expense if incurred. To date, there have been no interest or penalties charged or accrued in relation to unrecognized tax benefits.  The Company is subject to federal and state examinations for the year 2008 forward. There are no tax examinations currently in progress.

 

 

  

F - 10

  

 

Accelerated Acquisitions XII, INC.

(A Development Stage Company)

Notes to Financial Statements

 May 4, 2010 (date of inception) through March 31, 2011

	
NOTE 5

	
-

	
RECENT ACCOUNTING PRONOUNCEMENTS

 

In December 2010, the FASB issued ASU 2010-28, “Intangibles — Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts.”  For reporting units with zero or negative carrying amounts, if it is more likely than not that a goodwill impairment exists, ASU 2010-28 requires performance of an additional test to determine whether goodwill has been impaired and to calculate the amount of impairment. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist.  ASU 2010-28 is effective for fiscal years and interim periods within those years beginning after December 15, 2010.  The Company adopted ASU 2009-28 in the first quarter of 2011 and the impact of adopting ASU 2010-28 will not be known until evaluations for goodwill impairment are performed at our annual impairment testing date or more frequently if indicators of potential impairment exist.

 

In December 2010, the FASB issued ASU 2010-29, “Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations.  ASU 2010-29 specifies that for material business combinations when comparative financial statements are presented, revenue and earnings of the combined entity should be disclosed as though the business combination had occurred as of the beginning of the comparable prior annual reporting period.  ASU 2010-29 also expands the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. ASU 2010-29 is effective prospectively for business combinations with an acquisition date on or after the beginning of the first annual reporting period after December 15, 2010.  The Company adopted this standard in 2011, and noted it had no impact on its disclosures through March 31, 2011.

 

Except for rules and interpretive releases of the SEC under authority of federal securities laws and a limited number of grandfathered standards, the FASB Accounting Standards CodificationTM (“ASC”) is the sole source of authoritative GAAP literature recognized by the FASB and applicable to the Company.  Management has reviewed the aforementioned rules and releases and believes any effect will not have a material impact on the Company's present or future consolidated financial statements.

 

  

F - 11

  

 

ACCELERATED ACQUISITIONS XII, INC.

(A Development Stage Company)

Notes to Financial Statements

 May 4, 2010 (date of inception) through March 31, 2011

 

	
NOTE 6

	
-

	
SUBSEQUENT EVENTS

 

On July 16, 2011, SSM Media Ventures, Inc (“Purchaser”) agreed to acquire 22,350,000 shares of the Company’s common stock par value $0.0001 for a price of $0.0001 per share.  At the same time, Accelerated Venture Partners, LLC agreed to tender 3,500,000 of their 5,000,000 shares of the Company’s common stock par value $0.0001 for cancellation.  Following these transactions, SSM Media Ventures owned approximately 94% of the Company’s 23,850,000 issued and outstanding shares of common stock par value $0.0001 and the interest of Accelerated Venture Partners, LLC was reduced to approximately 6% of the total issued and outstanding shares.  Simultaneously with the share purchase, Timothy Neher resigned from the Company’s Board of Directors and Atonn Muhammad was simultaneously appointed to the Company’s Board of Directors.  Such action represents a change of control of the Company.

The Purchaser used their working capital to acquire the Shares. The Purchaser did not borrow any funds to acquire the Shares. Prior to the purchase of the shares, the Purchaser was not affiliated with the Company. However, the Purchaser will be deemed an affiliate of the Company after the share purchase as a result of their stock ownership interest in the Company. The purchase of the shares by the Purchaser was completed pursuant to written Subscription Agreements with the Company.  The purchase was not subject to any other terms and conditions other than the sale of the shares in exchange for the cash payment. The Company intends to file a Certificate of Amendment to its Certificate of Incorporation with the Secretary of State of Delaware in order to change its name to “Real Hip-Hop Network, Inc.”.

On July 18, 2011, the Company entered into a Consulting Services Agreement with Accelerated Venture Partners LLC (“AVP”), a company controlled by Timothy J. Neher.  The agreement requires AVP to provide the  Company  with certain advisory services that include reviewing the Company’s business plan, identifying and introducing prospective financial and business partners, and providing general business advice regarding the Company’s operations and business strategy in consideration of (a) an option granted by the Company to AVP to purchase 1,500,000 shares of the Company’s common stock at a price of $0.0001 per share (the “AVP Option”) (which was immediately exercised by the holder) subject to a repurchase option granted to the Company to repurchase the shares at a price of $0.0001 per share in the event the Company fails to complete funding as detailed in the agreement subject to the following milestones:

.

	
● Milestone 1 -

	
Company’s right of repurchase will lapse with respect to 60% of the shares upon securing $10 million in available cash from funding;

 

	
● Milestone 2 -

	
Company’s right of repurchase will lapse with respect to 20% of the Shares upon securing $20 million in available cash (inclusive of any amounts attributable to Milestone 1);

 

	
● Milestone 3 -

	
Company’s right of repurchase will lapse with respect to 20% of the Shares upon securing $30 million in available cash (inclusive of any amounts attributable to Milestone 2);

 

and (b) cash compensation at a rate of $66,667 per month.  The payment of such compensation is subject to Company’s achievement of certain designated milestones, specifically, cash compensation of $800,000 is due consultant upon the achievement of Milestone 1, $800,000 upon the achievement of Milestone 2 and $800,000 upon the achievement of Milestone 3. Upon achieving each Milestone, the cash compensation is to be paid to consultant in the amount then due at the rate of $66,667 per month. The total cash compensation to be received by the consultant is not to exceed $2,400,000 unless the Company receives an amount of funding in excess of the amount specified in Milestone 3. If the Company receives equity or debt financing that is an amount less than Milestone 1, in between any of the above Milestones or greater than the above Milestones, the cash compensation earned by the Consultant under this Agreement will be prorated according to the above Milestones. The Company also has the option to make a lump sum payment to AVP in lieu of all amounts payable thereunder.

 

  

F - 12

  

ACCELERATED ACQUISITIONS XII, INC.

(A Development Stage Company)

Notes to Financial Statements

 May 4, 2010 (date of inception) through March 31, 2011

 

On August 15, 2011, Accelerated Acquisitions XII (the “Company”) entered into a Licensing Agreement (“Licensing Agreement”) with Real Hip-Hop Network Broadcast Corporation (“Licensor”) pursuant to which the Company was granted an exclusive, non-transferrable worldwide license for certain first run movies, live concerts, break-dance battles, rhyme competitions, documentaries, news, DJ competitions and interviews (“media content”), distribution platforms, patents, intellectual property, know-how, trade secret information to provide intelligent, family-appropriate Hip-Hop content to a multi-racial/multi-generational demographic. The Company is currently evaluating all licensors distribution contracts and will not take assignment of any contact liabilities until the evaluation is completed and the Company has completed its financing objectives outlined in the “Overview” and “Plan of Operations” sections below.

Except for the rights granted under the License Agreement, Licensor retains all rights, title and interest to the content and any additions thereto—although the License includes the Company’s right to utilize such additions.

The term of the License commences on the date of the Licensing Agreement and continues for thirty (30) years, provided that the Licensee is not in breach or default of any of the terms or conditions contained in this Agreement.  In addition to other requirements, the continuation of the License is conditioned on the Company generating net revenues in the normal course of operations or the funding by the Company of specified amounts for qualifying distribution and commercialization expenses related to the media content. In addition, the Company is required to fund certain specified expenses related to the distribution of the media content as specified in the License Agreement. The license is terminated upon the occurrence of events of default specified in the License Agreement and outlined as followed: If any of the Parties are in breach or default of the terms or conditions contained in this Agreement and do not rectify or remedy that breach or default within 90 days from the date of receipt of notice by the other party requiring that default or breach to be remedied, then the other party may give to the party in default a notice in writing terminating this Agreement.

Licensee may, at its option, terminate this Agreement at anytime by doing the following: By ceasing to use the media content and distribution platforms facilitated by any Licensed Products. Giving sixty (60) days prior written notice to Licensor of such cessation and of Licensee’s intent to terminate, and upon receipt of such notice, Licensor may immediately begin negotiations with other potential licensees and all other obligations of Licensee under this Agreement will continue to be in effect until the date of termination. By tendering payment of all accrued royalties and other payments due to Licensor as of the date of the notice of termination and evidencing to the Licensor that provision has been made for any prospective royalties and other payments to which Licensor may be entitled after the date of termination.

Licensor may terminate the License Agreement if Licensee is in breach or default of the terms or conditions contained in this Agreement and does not rectify or remedy that breach or default within 90 days from the date of receipt of notice by Licensor requiring that default or breach to be remedied, then Licensor, may alter License granted by this Agreement with regards to its exclusivity, its territorial application and restrictions on its application.

Licensor may terminate the License Agreement if Licensee is in breach or default of the terms or conditions contained in this Agreement and does not rectify or remedy that breach or default within 90 days from the date of receipt of notice by Licensor requiring that default or breach to be remedied, then Licensor, may alter License granted by this Agreement with regards to its exclusivity, its territorial application and restrictions on its application.  The License Agreement attached as Exhibit 10.1.

  

F - 1310.1 - Equity Grant Agreement

Equity Grant Agreement

This Equity Grant Agreement ("Agreement") is entered into this 1St day of July, 2011 by and between Red Trail Energy, LLC, a North Dakota limited liability company (the "Company"), and Kent Anderson (the "Grantee").

WHEREAS, as part of its effort to benefit the Company and its members, the Company wishes to provide Grantee with long-term incentives in the form of a contingent grant of membership units of the Company (the "Units").

NOW, THERFORE, in consideration of the mutual promises set forth herein, Company and Grantee agree as follows:

1.    Number of Units. Subject to the terms and conditions set forth herein, Grantee is eligible to receive an award of 100,000 Units.

2.    Award Schedule. Provided Grantee continuously (i) remains in good standing with the Company and continues to provide management services to Company commensurate with the type of service provided by a Chief Financial Officer of an ethanol plant, (ii) has met and continues to meet all of Grantee's obligations with respect to the Company and (iii) is in full compliance with the terms and conditions of this Agreement and any other agreements between Grantee and the Company by which Grantee is bound, the Award shall be granted to Grantee in the installments set forth below. Grantee's eligibility to receive each grant contemplated in this Section 2 is expressly conditioned upon receipt of any prior available grant hereunder. If for any reason Grantee does not qualify to receive a particular grant or grants as contemplated herein, the Company expressly reserves the right to change the installment allocations, decrease the aggregate amount of the Award and/or elect to not make the Award at all, in its sole discretion. All Units granted hereunder shall be fully vested as of the date of the award.

(a)On the Effective Date, October 1, 2011, Grantee will receive an award of 20,000 Units.

(b)On the Effective Date, October 1, 2012, Grantee will receive an award of 20,000 Units.

(c)On the Effective Date, October 1, 2013, Grantee will receive an award of 20,000 Units.

(d)On the Effective Date, October 1, 2014, Grantee will receive an award of 20,000 Units. 

(e) On the Effective Date, October 1, 2015, Grantee will receive an award of 20,000 Units.

3.    Change of Control. The Units referenced in paragraph 1 will vest immediately in the event of a Change of Control. For purposes of this paragraph 3, "Change of Control" shall mean a sale of all or substantially all of the assets of Red Trail; the event of a merger, exchange, reorganization of Red Trail with or into any other entity; or the occurrence of any transaction requiring member approval for a transaction involving Red Trail, such as a sale of all or substantially all of Red Trail's assets

4.    Grantee's Representations and Warranties. This Agreement is made with Grantee in reliance upon his representations and warranties to the Company as set forth herein, which by his acceptance of this Agreement he confirms.

		
	(a)
	The Units are or will be acquired for investment for an indefinite period for Grantee's own account, not as a nominee or agent, and not with a view to the sale or distribution of any part thereof, and Grantee has no present intention of selling, granting participation in, or otherwise distributing the same. By executing this Agreement, Grantee further represents that he does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer, or grant participations, to such person or to any third person, with respect to any of the Units.

		
	(b)
	Grantee understands that the Units have not been registered under the Securities Act of 1933, as amended (the "Act"), on the grounds that the transactions provided for in this Agreement are exempt from the registration requirements of the Act, and that the Company's reliance on such exemption is predicated on Grantee's representations set forth herein.

		
	(c)
	Grantee acknowledges that he understands that any sale of the securities that might be made by Grantee in reliance upon Rule 144 under the Act may be made only in limited amounts in accordance with the terms and conditions of that rule and that Grantee may not be able to sell the Units at the time or in the amount Grantee so desires. Grantee is familiar with Rule 144 and understands that the Units constitute "restricted securities" within the meaning of that Rule.

		
	(d)
	In connection with the investment representations made herein Grantee represents that he is able to fend for himself in the transactions contemplated by this Agreement, has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of his investment, has the ability to bear the economic risks of his investment and has been furnished with and has had access to such information as he has requested and deem appropriate to his investment decision.

		
	(e)
	Grantee agrees that in no event will he make a disposition of any of the Units unless and until (a) he has notified the Company of the proposed disposition and has furnished the Company with a statement of the circumstances surrounding the proposed disposition, and (b) he has furnished the Company with an opinion of counsel satisfactory to the Company to the effect that (i) such disposition will not require registration of such Units under the Act, or (ii) that appropriate action necessary for compliance with the Act has been taken, or (c) the Company shall have waived, expressly and in writing, its rights under clauses (a) and (b) of this subparagraph. In addition, prior to any disposition of any of the Units the Company may require the transferee or assignee to provide investment representations in writing and in a form acceptable to the Company.

		
	(f)
	The Company shall not be required (i) to transfer on its books any Units of the Company which shall have been sold or transferred in violation of any of the provisions set forth in this Agreement, or (ii) to treat as owner of such Units or to accord the right to vote as such owner or to pay dividends to any transferee to whom such Units shall have been so transferred.

(g) All certificates, if any, representing any Units of the Company subject to the provisions of this Agreement shall have endorsed thereon the following legends:

(i) THE TRANSFERABILITY OF THE UNITS REPRESENTED BY THIS CERTIFICATE IS RESTRICTED. SUCH UNITS MAY NOT BE SOLD, ASSIGNED, OR TRANSFERRED, NOR WILL ANY ASSIGNEE, VENDEE, TRANSFEREE, OR ENDORSEE THEREOF BE RECOGNZIED AS HAVING ACQUIRED ANY SUCH UNITS FOR ANY PURPOSES, UNLESS AND TO THE EXTENT SUCH SALE, TRANSFER, HYPOTHECATION OR ASSIGNMENT IS PERMITTED BY, AND IS COMPLETED IN STRICT ACCORDANCE WITH, THE APPLICABLE STATE AND FEDERAL LAW AND THE TERMS AND CONDITIONS SET FORTH IN THE MEMBER CONTROL AGREEMENT.

(ii)  THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, OFFERRED FOR SALE, OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND UNDER APPLICABLE STATE SECURITIES LAWS, OR AN OPIJONN OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED AND UNDER APPLICABLE STATE SECURITIES LAWS.

(iii)    Any legend required to be placed thereon by applicable state laws.

5.    Working Relationship not Guaranteed. Grantee acknowledges that he does not have a written contract of employment with the Company. Neither this Agreement, nor any Award constitutes a representation or 

guarantee that Grantee will continue working in the role of Chief Financial Officer at Red Trail, or in any other capacity. Grantee agrees and acknowledges that neither this Agreement, nor any Award hereunder survive termination or interruption of Grantee providing Chief Financial Officer, or the equivalent, services to the Company except as otherwise contemplated herein.

6.    Responsibility for Payment of Taxes. Grantee acknowledges that he is responsible for the payment of any tax liability that he may incur as a result of any Award.

7.    Member Control Agreement. Concurrent with Grantee's receipt of any Units hereunder, he shall be required to execute the Member Control Agreement in effect between the Members of Red Trail at the time Grantee receives any Units hereunder, unless he is currently a Member.

8.    Confidentiality/Non-Disclosure. Grantee acknowledges that during the course of his working relationship with the Company, he may become aware of trade secrets, know-how and other confidential business and technical information that is not generally known to the public, including, but not limited to, information on the Company's business plans, products, manufacturing methods and processes, and/or services, organization, finance, staffing, compensation, research and development, or marketing, as well as information the Company may receive from others under an obligation of confidentiality (the "Confidential Information"). Grantee agrees to (i) hold Confidential Information in confidence and trust, (ii) use Confidential Information only in the performance of his duties for the Company and for no other purpose at any other time, and (iii) use all reasonable precautions to ensure that Confidential Information is not disclosed to any unauthorized persons or used in an unauthorized manner both during and after his work with the Company.

9.    Non-solicitation of Red Trail Employees. During the term of this Agreement and until the date that is one (1) year after Grantee ceases providing services to the Company for any reason, Grantee agrees and acknowledges that he shall not, whether voluntarily or involuntarily, directly or indirectly, solicit, induce, attempt to solicit or induce, recruit, encourage, attempt to take away, or attempt to hire any employee of the Company or cause an employee to leave his or her employment with the Company, either for Grantee or for any other entity or person.

10.    Modification of Agreement. No provision of this Agreement may be modified, waived, or discharged unless such modification, waiver, or discharge is agreed to in writing and signed by the Company and Grantee.

11.    Governing Law. This Agreement shall be governed by, construed and enforced in accordance with the laws of the State of North Dakota without giving effect to the conflict of law principles thereof.

12.    Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof.

13.    Entire Agreement. This Agreement represents the entire agreement between Grantee and the Company with respect to the subject matter hereof and supersedes any and all prior agreements and understandings with respect to such subject matter.

Grantee                            Red Trail Energy, LLC

/s/ Kent Anderson                     By: /s/ Gerald Bachmeier                
Kent Anderson                            C.E.O.

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