R3 Printing Gets "BUY" Recommendation from Kingscrowd
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Jun 16, 2018
The global 3D printing market is estimated to be worth a whopping $32.8B by 2023 and a NY-based printer manufacturer looks poised to capi...
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Deal highlights
- The R3 Printer is an ultra-safe 3D printer for enterprise applications.
Prevents user burns, prints 90% faster than competitors, 200% larger build area than same-sized printers.*
Targeting a $5.6 billion addressable market.
$140K pre-sales signed since Q3 2017.
What’s the matter with 3D Printing?
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R3 Printer —
Safe, Fast, Efficient.
A 3D printer that addresses the industry’s biggest problems.
Safe.
The #1 injury caused by active 3D printers are burns.
The R3 Printer features Active Overheat Prevention, a proprietary system that eliminates the risk of getting burned. If a print job is overheating, the R3 printer senses it and immediately pauses, doing away with human intervention.
Most 3D printers jam by absorbing too much heat.
R3 Printer with Active Overheat Prevention prevents jams.
An off-the-shelf (unmonitored) print head assembly is compared to a test rig with Active Overheat Prevention™. Both testing rigs start at room temperature (green colors) and rapidly heat up (red colors). After the Active Overheat Prevention™ system detects overheating, the heater cartridges shut down and the print head returns to a safer temperature.
The Active Overheat Prevention senses overheating and initializes, letting the printer cool before a jam can occur. Unmonitored print head assemblies continue to absorb heat until prints eventually fail.
Fast.
The R3 Printer is 90% faster than contemporary 3D printers.
Working with aerospace engineers, we redesigned key printer components from the ground up, resulting in an 84% weight reduction and the discovery of other secret-sauce upgrades that further boost speed. The result is nearly doubled speeds.
An off-the-shelf 3D printer assembly is paced against our R3 Printer Test rig. Our optimized hardware assembly travels significantly faster — and we’re still pushing for even greater speeds.
Efficient.
The R3 Printer has a re-designed interior that utilizes the full internal volume of the chassis itself, leading to a 200% increase in build volume compared to current printers of the same chassis size.
Our Customer: 3D Print Manufacturers.
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What are 3D Print Manufacturers?
3D Print Manufacturers are companies that produce 3D printed goods for b2b and b2c clients.
Why is the R3 Printer a good fit for these manufacturers?
For them, the value proposition of the R3 Printer is straightforward.
Safety:
Less dangerous printers means lower insurance rates for companies -> money saved.
Speed:
90% increased print speeds means more capacity. Manufacturers can now produce almost double the quantity of goods -> more money made.
Efficiency:
Bigger build areas mean bigger individual print jobs or more units per print session -> more money made, larger products offered.
Why do our customers need the R3 Printer?
The 3D Print Services Industry - also referred to as Industrial 3D Printing - is growing at a 27%+ compounded annualized growth rate (CAGR) now through 2023.
As of 2018, the market size is estimated at $1.85 bllion.
In 2023, the Industrial 3D Printing industry will generate $5.6 billion dollars yearly.
3D Print Manufacturers are increasing their inventory to meet the demand — and replacing their old 3D printers along the way.
How will R3 Printing execute on this singular opportunity?
Our beachhead market are SMB 3D Print Manufacturers in the USA and Canada.
SMB 3D Print Manufacturers are companies with between 5 and 500 3D printers.
They produce 3D Printed products for both b2b and b2c markets.
The United States and Canada has 670 SMB 3D Print Manufacturers today.
It's a highly fragmented market with no standard hardware — a big opportunity for us.
There is also no incumbent 3D printer provider focused on the SMB 3D Print Manufacturer market – we have a winner-take-all opportunity.
We are aiming to gain dozens of customers within the first six months of production through a muscular team of experienced enterprise sales professionals.
What is R3 Printing’s goal?
Our goal is simple: We are aiming to capture 5% of the Industrial 3D Printing market in the next five years. That’s a total market size of $285 Million.
Traction
We've had some big wins on the traction front and are excited to share.
Pre-Sales
R3 Printing has signed $140,000 of pre-sales from customers in our target market in the last 3 months.
Why do pre-sales matter?
Pre-sales provide a signal to the market that a customer has identified a pain point or revenue-generating opportunity and that they’re willing to pay money for a product that allows them to execute.
Hardware is capital intensive to develop — pre-sales provide an important signal to prospective investors that the market wants this product to exist.
4 Patents Pending
R3 Printing has 4 non-provisional patents already filed on our technological innovations.
Why do patents matter?
Patents provide an integral way for businesses to protect their intellectual property after having spent money to fund breakthroughs.
Patents are important because they create moats — areas where competitors cannot act without explicitly infringing on your patents — and allow a single company to reap the rewards of their innovation.
Beta Testing Partners
We've partnered with 4 leading 3D Print Manufacturers as our beta testing partners.
Li-Leger Creative is a Vancouver-based product design and manufacturing firm specializing in full-stack product development. CEO Noah Li-Leger has a deep background in both product design and 3D Printing, having worked with 3D Printer producer Tinkerine on their product development. Li-Leger Creative is R3 Printing's first international beta testing partner.
Obsessively Geek is a New York-based 3D Print Manufacturer. Before he founded his
manufacturing company in 2015, Marco Nieves worked in R&D for Makerbot. With his strong technical background in 3D printer hardware, Marco has been an invaluableresource to R3 Printing as we develop our product.
Forge Manufacturing is a Jacksonville-based 3D Print Manufacturer and digital design firm. Co-Founders Bryce Pfanenstiel and Adam Dukes are leading specialists in
room temperature vulcanization (RTV) molding, producing ultra-high quality molds from 3D printed parts for the creation of prototypes or low-volume manufacturing runs. Bryce and Adam operate on the cutting edge of 3D Print Manufacturing and routinely share their latest hardware and product hacks.
Halo Aerospace is a West Palm Beach-based aerospace R&D company. Founder John
Calloway comes from a background of aerospace engineering and 3D Printing, having utilized both to establish Halo Manufacturing in 2015. At present, Halo Aerospace is developing novel applications for space flight technologies. We will be working with them to strenuously test the R3 Printer.
Guidance: Our Growth Partners
R3 Printing is a current member of the Ocean Accelerator.
We are in Cincinnati, Ohio until June 2018 in order to accelerate our development.
R3 Printing was initially developed at the guidance of the experienced professionals at the Futureworks NYC hardware incubator and the Fordham Foundry.
Business model
Our business model includes 2 revenue streams:
We sell 3D Print manufacturers the R3 Printer - a product optimized for their enterprise 3D Print manufacturing needs.
We have additional revenue stream opportunities through consulting, factory-workflow optimization, and product warranties. SaaS opportunities also exist for cloud file management.
Future Vision: Industry Automation
In the near future, we plan to create three products to expand our reach in the Industrial 3D Printing industry:
What is R3 Printing’s long term vision?
Our objective in these products is to fully automate the 3D Printing factory of tomorrow.
We’re reaching for “Factory-as-a-Service” - a world of fully automated hardware in factories.
Automated printers, factory robots - a fully humanless, scalable, factory of tomorrow.
Competitive Landscape
The R3 Printer provides our enterprise clients with a strong feature-set at a competitive price point.
Meet the Founders
We are experienced executives raised on the Lean Startup principles. We keep our team tight and execute directly.
Daniel Downs, Co-Founder, Strategy
Moving into the 3D Printing industry after a successful exit from Manhattan commercial real estate, Dan and Paul found that current 3D Printers had massive impediments that prevented them from widespread adoption in enterprise settings. They decided to tackle these problems directly. Dan brings to the table a deep background in business development, sales, and strategy.
Paul Sieradzki, Co-Founder, Product
During his 5 years as an operations executive, Paul has cultivated trade-secret processes and methods for producing ahead-of-schedule project deliverables. With prior backgrounds in both hardware design and software development, Paul’s acute product vision, operations experience, and passion for elegant creation guides the steady hand leading the R3 Printer creation process. Hardware development feels like home for this tech gadget aficionado and former Eagle Scout.
*: The above statements are the estimates of the Company based on the Company’s understanding of the market, all statements made are the opinion of the Company and have not been validated by any third party.
Join Us.
Together we can tackle the biggest challenges facing 3D Printing and usher in a new era of widespread on-demand manufacturing.
Deal terms
Funding goal
$25,000 – $1,070,000
R3 Printing needs to raise
$25K
before the deadline. The maximum amount R3 Printing is willing
to raise is $1.07M.
Learn more
Deadline
Jul 12
R3 Printing needs to reach their minimum funding goal before the deadline.
If they don’t, all investments will be refunded.
Learn more
Type of security
Crowd Safe
·
Learn more
The Crowd Safe is an agreement for future equity in the startup,
meaning that it can convert to equity in the future.
Discount
18%
If a trigger event for R3 Printing occurs, the discount provision
gives investors equity shares (or equal value in cash) at a reduced price.
Learn more.
Valuation cap
$5,000,000
The maximum valuation at which your investment converts
into equity shares or cash.
Learn more.
Bonus perks
Get additional perks from R3 Printing for your investment
Invest
$100
Receive
Your name on the "investors" page of our website to thank you. You can choose not to have your name listed.
Quantity
Limited (104 left of 250)
146 investors
Invest
$250
Receive
Our engineering runs off of coffee. You get an investor exclusive mug with our logo to show your support. (All of the above included)
Invest
$500
Receive
Get your very own R3 Printing t-shirt to show off your investor status! (All of the above included)
Invest
$1,000
Receive
Get access to live Q&A/progress sessions with the Founder and Co-Founder over webcam! (All of the above included)
Invest
$5,000
Receive
An individual meeting with the R3 Printing team via webcam! (All of the above included)
Quantity
Limited (24 left of 25)
1 investor
Invest
$10,000
Receive
Get invited to an exclusive investor event/party at our office to celebrate the completion of the campaign! (All of the above included)
Quantity
Limited (24 left of 25)
1 investor
Invest
$25,000
Receive
Join us in New York to see us in action! We also enjoy food, so let's do dinner and coffee! (All of the above included)
Invest
$50,000
Receive
Appointment to our Board of Advisors.
Quantity
Limited (3 left of 3)
Documents
Official filing on SEC.gov
Form C
Company documents
R3 Printing Crowd Safe
About R3 Printing
Legal Name
R3 Printing, Inc.
Founded
Mar 2018
Form
Delaware
Corporation
Headquarters
244 5th Avenue
, New York, NY
R3 Printing Team
Everyone helping build R3 Printing, not limited to employees
Len Gray
Advisor, Legal
Ray Spoljaric
Advisor, Business
Jim Lillis
Advisor, CFO-Sourced
Press
FAQ
What is proprietary?
What is proprietary?
We have a lot of proprietary systems involved. We currently have 4 patents pending on various features relating to the R3 Printer, including art related to the specific benefits of our Active Overheat Prevention system, our 90% increase in speed, and our 200% increase in build area.
Why do you list 0 employees when your team has multiple members/advisors?
Why do you list 0 employees when your team has multiple members/advisors?
As of filing date, our team has no employees in the strict legal definition. While Dan and Paul are the founders and working on the R3 Printer, they do not count as employees for the purposes of this disclosure.
How will you use the funds from this raise?
How will you use the funds from this raise?
Research and development, marketing, and first-factory run working capital are our largest expenses.
If you have been around for years, why does it say Founded 2018?
If you have been around for years, why does it say Founded 2018?
Startups need to take on investment dollars in order to grow. Institutional investors prefer C Corps to LLCs, which is why we created R3 Printing, Inc. - a Delaware C Corp. Our assets - patents and trademarks - were fully transferred over from our original entity of R3 Printing, LLC, a New York-based limited liability corporation. R3 Printing, LLC was founded in February 2014.
What did you talk about while at the LAUNCH festival?
What did you talk about while at the LAUNCH festival?
Please see the below transcript from R3 Printing's pitch at the LAUNCH festival.
Dan: You guys remember hearing a few years ago about how 3D printing was going to revolutionize our lives forever? We were supposed to have healthy 3D printed food in our homes, stylish 3D printed cars in our garages, and 3D printed buildings in our cities, so inexpensive, that nobody would go homeless again. So what happened? Where's the instant manufacturing we were promised?
Dan: The issue is that 3D printing today still has significant problems, in particular, there are three: 3D printing is slow, 3D printers today are not fast enough to meet user needs; 3D printers are dangerous, sharp components and hot parts lead directly to user injury; and 3D printers are inefficient. Early stage testing has given us great printers, but they're not yet ready for prime time.
Dan: Okay, we got it. My name is Dan Downs, I'm co-founder of R3 Printing, and we are bringing to market the R3 Printer, an enterprise-grade 3D printer that solves these problems.
Dan: First off, it's fast. The R3 Printer is 90% faster than current on-market 3D printers. We work with Aerospace engineers to reduce the weight of the printhead by 84%, resulting in almost doubled speeds. The R3 Printer is efficient. The R3 Printer is 200% bigger of a build platform, than same size 3D printers. This allows users with currently fixed real estate inventory to use printers that are much more efficient.
Dan: This is where I get really excited. In 2013, my co-founder Paul and I bought our first 3D printer, we were super-passionate about the tech, and ready to dive in. In 2016, I quit my career in real estate, and we founded R3 Printing, as a manufacturer, we produced 3D printed goods, for both businesses and consumers alike. We had two unique insights: number one, 3D printers today aren't yet ready for prime time; and number two, we're the guys to solve it.
Dan: We put together a rock star team. Paul has a deep background in both engineering and operations, myself, BusDev and sales. Our advisors have two exits under their belts and have raised over 50 million in venture. We have a massive market opportunity. 2017 saw $1.7 billion in 3D printer sales, the industry is growing at 27% per year, which means by 2023, $5.6 billion worth of 3D printers will be sold.
Dan: We have traction. Four utility patents on our tech, 140k in pre-sales, four beta testing partners from both US companies and Canada companies. We're graduates of the Ocean Accelerator in Cincinnati Ohio, Futureworks Incubator in New York, and are proudly built at the Form Foundry ... Go Rams ... we have amazing unit economics with a 78% margin.
Dan: We're currently raising. We'd love to have you on board. Thank you.
Jason: Okay, big round of applause. And now, you will be getting your feedback from us as a group, so you have to remember as many as eight questions, two from each of us. My question is, who's your customer and how much does it cost, you left out those two key pieces of information.
Jason: Stonly, what are your questions? Don't answer them yet, you gotta get all the questions first and remember them.
Jason: Go ahead.
Stonly: Thank you. What materials can you work with? And what stage are you at in the shipping process?
Jason: Andrea.
Andrea: I'd like to know a bit more about the revenue-
Jason: Oh.
Andrea: Oh, sorry. Like to know a bit more about the revenue, where it's come from, what type of revenue it is, and over what period of time.
Matthew: My main question was the customers, and I know you've got pre-sales, I guess you can't say are they going to re-order yet, but yeah, who are your customers?
Dan: Sore, so starting from the top. We are selling an enterprise grade 3 printer. Our beach head market are the 670, 3D print manufacturers in the United States and Canada today, we know these guys very well, we used to compete with them, this market, they have between three 3D printers each, smaller shops, to larger entities looking at Voodoo manufacturing, Shapeways, those guys have three to five hundred 3D printers.
Dan: Our goal is to target that market through our background in sales, put together a really aggressive sales team and use try before you buy to get us in the door with them. We have a really skinny bill of materials, at about a grand, time honored freight costs are between 150 and 200, and our assembly cost as well as overhead, inclusive of labor, is sub 400. So we're looking at a total unit cost about 1500, the goal is to sell for $6,000.
Dan: So that's question number one. Question number two, is materials. Our materials are primarily focused on deposition style 3D printers, so those make up 76% os all 3D printers sold, deposition style 3D printers are plastics, lower grade metals, you get unique materials like ceramics in there, wood pulp, et cetera. So to answer your guys questions, we have really strong unit economics and we're focused on a beach head market that we know very well. That being said, we've had talks with larger corporations that would be interested in onboarding our technology later on, for when they in-house their R&D.
Dan: So our goal is to focus on the niche market, verify product market fit, and go from there.
Jason: Alright, so let's give him a big round of applause, well done.
Still have questions? Check the
discussion section.
Risks
To date, we have not generated revenue, do not foresee generating any revenue in the near future and therefore rely on external financing.
We are a startup company and our business model currently focuses on hardware development rather than generating revenue. While we intend to generate revenue in the future, we cannot assure you when or if we will be able to do so.
We rely on external financing to fund our operations. We anticipate, based on our current proposed plans and assumptions relating to our operations (including the timetable of, and costs associated with, new product development) that, if the Minimum Amount is raised in this Offering, it will be sufficient to satisfy our contemplated cash requirements through approximately April 2019, assuming that we do not accelerate the development of other opportunities available to us, engage in an extraordinary transaction or otherwise face unexpected events, costs or contingencies, any of which could affect our cash requirements.
We expect capital outlays and operating expenditures to increase over the next several years as we expand our infrastructure, commercial operations, development activities and establish offices.
Our future funding requirements will depend on many factors, including but not limited to the following:
' The cost of expanding our operations;
' The financial terms and timing of any collaborations, licensing or other arrangements into which we may enter;
' The rate of progress and cost of development activities;
' The need to respond to technological changes and increased competition;
' The costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;
' The cost and delays in product development that may result from changes in regulatory requirements applicable to our products;
' Sales and marketing efforts to bring these new product candidates to market;
' Unforeseen difficulties in establishing and maintaining an effective sales and distribution network; and
' Lack of demand for and market acceptance of our products and technologies.
We may have difficulty obtaining additional funding and we cannot assure you that additional capital will be available to us when needed, if at all, or if available, will be obtained on terms acceptable to us. If we raise additional funds by issuing additional debt securities, such debt instruments may provide for rights, preferences or privileges senior to the Securities. In addition, the terms of the debt securities issued could impose significant restrictions on our operations. If we raise additional funds through collaborations and licensing arrangements, we might be required to relinquish significant rights to our technologies or product candidates, or grant licenses on terms that are not favorable to us. If adequate funds are not available, we may have to delay, scale back, or eliminate some of our operations or our research development and commercialization activities. Under these circumstances, if the Company is unable to acquire additional capital or is required to raise it on terms that are less satisfactory than desired, it may have a material adverse effect on its financial condition.
We have a limited operating history upon which you can evaluate our performance, and accordingly, our prospects must be considered in light of the risks that any new company encounters.
We were incorporated under the laws of Delaware on March 12, 2018. Accordingly, we have no history upon which an evaluation of our prospects and future performance can be made. Our proposed operations are subject to all business risks associated with new enterprises. The likelihood of our creation of a viable business must be considered in light of the problems, expenses, difficulties, complications, and delays frequently encountered in connection with the inception of a business, operation in a competitive industry, and the continued development of advertising, promotions, and a corresponding client base. We anticipate that our operating expenses will increase for the near future. There can be no assurances that we will ever operate profitably. You should consider the Company's business, operations and prospects in light of the risks, expenses and challenges faced as an early-stage company.
We may face potential difficulties in obtaining capital.
We may have difficulty raising needed capital in the future as a result of, among other factors, our lack of an approved product and revenues from sales, as well as the inherent business risks associated with our company and present and future market conditions. Our business currently does not generate any sales and future sources of revenue may not be sufficient to meet our future capital requirements. We will require additional funds to execute our business strategy and conduct our operations. If adequate funds are unavailable, we may be required to delay, reduce the scope of or eliminate one or more of our research, development or commercialization programs, product launches or marketing efforts, any of which may materially harm our business, financial condition and results of operations.
In order for the Company to compete and grow, it must attract, recruit, retain and develop the necessary personnel who have the needed experience.
Recruiting and retaining highly qualified personnel is critical to our success. These demands may require us to hire additional personnel and will require our existing management personnel to develop additional expertise. We face intense competition for personnel. The failure to attract and retain personnel or to develop such expertise could delay or halt the development and commercialization of our product candidates. If we experience difficulties in hiring and retaining personnel in key positions, we could suffer from delays in product development, loss of customers and sales, and diversion of management resources, which could adversely affect operating results. Our consultants and advisors may be employed by third parties and may have commitments under consulting or advisory contracts with third parties that may limit their availability to us.
The development and commercialization of our products is highly competitive.
We face competition with respect to any products that we may seek to develop or commercialize in the future. Our competitors include major companies worldwide. Many of our competitors have significantly greater financial, technical and human resources than we have and superior expertise in research and development and marketing approved products and thus may be better equipped than us to develop and commercialize products. These competitors also compete with us in recruiting and retaining qualified personnel and acquiring technologies. Smaller or early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. Accordingly, our competitors may commercialize products more rapidly or effectively than we are able to, which would adversely affect our competitive position, the likelihood that our products will achieve initial market acceptance, and our ability to generate meaningful additional revenues from our products.
We rely on other companies to provide major components for our products.
We depend on third-party suppliers and subcontractors to meet our contractual obligations to our customers and conduct our operations. Our ability to meet our obligations to our customers may be adversely affected if suppliers or subcontractors do not provide the agreed-upon supplies or perform the agreed-upon services in compliance with customer requirements and in a timely and cost-effective manner. Likewise, the quality of our products may be adversely impacted if companies to whom we delegate manufacture of major components or subsystems for our products, or from whom we acquire such items, do not provide major components which meet required specifications and perform to our and our customers' expectations. Our suppliers may be less likely than us to be able to quickly recover from natural disasters and other events beyond their control and may be subject to additional risks such as financial problems that limit their ability to conduct their operations. The risk of these adverse effects may be greater in circumstances where we rely on only one or two subcontractors or suppliers for a particular major component.
We depend on third-party service providers and outsource providers for a variety of services and we outsource a number of our non-core functions and operations.
In certain instances, we rely on single or limited service providers and outsourcing vendors because the relationship is advantageous due to quality, price, or lack of alternative sources. If production or service was interrupted and we were not able to find alternate third-party providers, we could experience disruptions in manufacturing and operations including product shortages, higher freight costs and re-engineering costs. If outsourcing services are interrupted or not performed or the performance is poor, this could impact our ability to process, record and report transactions with our customers and other constituents. Such interruptions in the provision of supplies and/or services could result in our inability to meet customer demand, damage our reputation and customer relationships and adversely affect our business.
We depend on third party providers, suppliers and licensors to supply some of the hardware, software and operational support necessary to provide some of our services.
We obtain these materials from a limited number of vendors, some of which do not have a long operating history or which may not be able to continue to supply the equipment and services we desire. Some of our hardware, software and operational support vendors represent our sole source of supply or have, either through contract or as a result of intellectual property rights, a position of some exclusivity. If demand exceeds these vendors' capacity or if these vendors experience operating or financial difficulties, or are otherwise unable to provide the equipment or services we need in a timely manner, at our specifications and at reasonable prices, our ability to provide some services might be materially adversely affected, or the need to procure or develop alternative sources of the affected materials or services might delay our ability to serve our customers. These events could materially and adversely affect our ability to retain and attract customers, and have a material negative impact on our operations, business, financial results and financial condition.
Quality management plays an essential role in determining and meeting customer requirements, preventing defects, improving the Company's products and services and maintaining the integrity of the data that supports the safety and efficacy of our products.
Our future success depends on our ability to maintain and continuously improve our quality management program. An inability to address a quality or safety issue in an effective and timely manner may also cause negative publicity, a loss of customer confidence in us or our current or future products, which may result in the loss of sales and difficulty in successfully launching new products. In addition, a successful claim brought against us in excess of available insurance or not covered by indemnification agreements, or any claim that results in significant adverse publicity against us, could have an adverse effect on our business and our reputation.
One of the potential risks we face in the distribution of our products is liability resulting from counterfeit or tainted products infiltrating the supply chain.
Because we source products from various sources, we rely on various suppliers and their quality control measures. While we have procedures to maintain the highest quality levels in our products, we may be subject to faulty components in our products, which would negatively affect our products and our customers' experience with them and could decrease customer demand for our products. In addition, if there is serious injury due to our products, there can be no assurance that the insurance coverage we maintain is sufficient or will be available in adequate amounts or at a reasonable cost, or that indemnification agreements will provide us with adequate protection.
Manufacturing or design defects, unanticipated use of our products, or inadequate disclosure of risks relating to the use of the products can lead to injury or other adverse events.
These events could lead to recalls or safety alerts relating to our products (either voluntary or required by governmental authorities) and could result, in certain cases, in the removal of a product from the market. Any recall could result in significant costs as well as negative publicity that could reduce demand for our products. Personal injuries relating to the use of our products can also result in product liability claims being brought against us.
We plan to implement new lines of business or offer new products and services within existing lines of business.
There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed. In developing and marketing new products and services, we may invest significant time and resources. Initial timetables for the introduction and development of new products or services may not be achieved and price and profitability targets may not prove feasible. We may not be successful in introducing new products and services in response to industry trends or developments in technology, or those new products may not achieve market acceptance. As a result, we could lose business, be forced to price products and services on less advantageous terms to retain or attract clients, or be subject to cost increases. As a result, our business, financial condition or results of operations may be adversely affected.
Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer.
We collect store sensitive data, including intellectual property, our proprietary business information and that of our customers, suppliers and business partners, and personally identifiable information of our customers and employees, in our data centers and on our networks. The secure processing, maintenance and transmission of this information is critical to our operations and business strategy. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, and regulatory penalties, disrupt our operations and the services we provide to customers, and damage our reputation, and cause a loss of confidence in our products and services, which could adversely affect our business/operating margins, revenues and competitive position.
The secure processing, maintenance and transmission of this information is critical to our operations and business strategy. The expenses associated with protecting our information/ these steps could reduce our operating margins.
An intentional or unintentional disruption, failure, misappropriation or corruption of our network and information systems could severely affect our business.
Such an event might be caused by computer hacking, computer viruses, worms and other destructive or disruptive software, 'cyber attacks' and other malicious activity, as well as natural disasters, power outages, terrorist attacks and similar events. Such events could have an adverse impact on us and our customers, including degradation of service, service disruption, excessive call volume to call centers and damage to our plant, equipment and data. In addition, our future results could be adversely affected due to the theft, destruction, loss, misappropriation or release of confidential customer data or intellectual property. Operational or business delays may result from the disruption of network or information systems and the subsequent remediation activities. Moreover, these events may create negative publicity resulting in reputation or brand damage with customers.
The Company's success depends on the experience and skill of the board of directors, its executive officers and key employees.
In particular, R3 Printing is dependent on Paul Sieradzki and Daniel Downs who are the Co-Founders of R3 Printing. R3 Printing has or intends to enter into employment agreements with Paul Sieradzki or Daniel Downs although there can be no assurance that it will do so or that they will continue to be employed by R3 Printing for a particular period of time. The loss of Paul Sieradzki or Daniel Downs or any member of the board of directors or executive officer could harm the R3 Printing's business, financial condition, cash flow and results of operations.
We rely on various intellectual property rights, including patents and trademarks in order to operate our business.
Such intellectual property rights, however, may not be sufficiently broad or otherwise may not provide us a significant competitive advantage. In addition, the steps that we have taken to maintain and protect our intellectual property may not prevent it from being challenged, invalidated, circumvented or designed-around, particularly in countries where intellectual property rights are not highly developed or protected. In some circumstances, enforcement may not be available to us because an infringer has a dominant intellectual property position or for other business reasons, or countries may require compulsory licensing of our intellectual property. Our failure to obtain or maintain intellectual property rights that convey competitive advantage, adequately protect our intellectual property or detect or prevent circumvention or unauthorized use of such property, could adversely impact our competitive position and results of operations. We also rely on nondisclosure and noncompetition agreements with employees, consultants and other parties to protect, in part, trade secrets and other proprietary rights. There can be no assurance that these agreements will adequately protect our trade secrets and other proprietary rights and will not be breached, that we will have adequate remedies for any breach, that others will not independently develop substantially equivalent proprietary information or that third parties will not otherwise gain access to our trade secrets or other proprietary rights.
As we expand our business, protecting our intellectual property will become increasingly important. The protective steps we have taken may be inadequate to deter our competitors from using our proprietary information. In order to protect or enforce our patent rights, we may be required to initiate litigation against third parties, such as infringement lawsuits. Also, these third parties may assert claims against us with or without provocation. These lawsuits could be expensive, take significant time and could divert management's attention from other business concerns. The law relating to the scope and validity of claims in the technology field in which we operate is still evolving and, consequently, intellectual property positions in our industry are generally uncertain. We cannot assure you that we will prevail in any of these potential suits or that the damages or other remedies awarded, if any, would be commercially valuable.
We are subject to income taxes as well as non-income based taxes, such as payroll, sales, use, value-added, net worth, property and goods and services taxes, in the United States of America.
Significant judgment is required in determining our provision for income taxes and other tax liabilities. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. Although we believe that our tax estimates are reasonable: (i) there is no assurance that the final determination of tax audits or tax disputes will not be different from what is reflected in our income tax provisions, expense amounts for non-income based taxes and accruals and (ii) any material differences could have an adverse effect on our financial position and results of operations in the period or periods for which determination is made.
We are not subject to Sarbanes-Oxley regulations and lack the financial controls and safeguards required of public companies.
We do not have the internal infrastructure necessary, and are not required, to complete an attestation about our financial controls that would be required under Section 404 of the Sarbanes-Oxley Act of 2002. There can be no assurance that there are no significant deficiencies or material weaknesses in the quality of our financial controls. We expect to incur additional expenses and diversion of management's time if and when it becomes necessary to perform the system and process evaluation, testing and remediation required in order to comply with the management certification and auditor attestation requirements.
Changes in raw material and manufacturing input prices could adversely affect our business and results of operations.
Because pricing for the majority of our cellulose specialty fibers customers is set annually, we typically have very limited ability to pass along fluctuations in costs to customers after pricing has been established. Raw material costs and energy are a significant operating expense. The cost of raw materials and energy can be volatile and are susceptible to rapid and substantial increases due to factors beyond our control, such as changing economic conditions, political unrest, instability in energy-producing nations, and supply and demand considerations. Price increases and general volatility could adversely affect our business and results of operations.
Failure to develop new products and production technologies or to implement productivity and cost reduction initiatives successfully may harm our competitive position.
We depend significantly on the development of commercially viable new products, product grades and applications, as well as process technologies, free of any legal restrictions. If we are unsuccessful in developing new products, applications and production processes in the future, our competitive position and results of operations may be negatively affected. However, as we invest in new technology, we face the risk of unanticipated operational or commercialization difficulties, including an inability to obtain necessary permits or governmental approvals, the development of competing technologies, failure of facilities or processes to operate in accordance with specifications or expectations, construction delays, cost over-runs, the unavailability of financing, required materials or equipment and various other factors. Likewise, we have undertaken and are continuing to undertake initiatives to improve productivity and performance and to generate cost savings. These initiatives may not be completed or beneficial or the estimated cost savings from such activities may not be realized.
Product liability claims could adversely impact our business and reputation.
Our business exposes us to potential product liability risk, as well as warranty and recall claims that are inherent in the design, manufacture, sale and use of our products. In the event our products actually or allegedly fail to perform as expected and we are subject to such claims above the amount of insurance coverage, outside the scope of our coverage, or for which we do not have coverage, our results of operations, as well as our reputation, could be adversely affected. Our products may be subject to recall for performance or safety-related issues. Product recalls subject us to harm to our reputation, loss of current and future customers, reduced revenue and product recall costs. Product recall costs are incurred when we, either voluntarily or involuntarily, recall a product through a formal campaign to solicit the return of specific products due to a known or suspected performance issue. Any significant product recalls could have an adverse effect on our business and results of operations.
We may incur additional expenses and delays due to technical problems or other interruptions at our manufacturing facilities.
Disruptions in operations due to technical problems or other interruptions such as floods or fire would adversely affect the manufacturing capacity of our facilities. Such interruptions could cause delays in production and cause us to incur additional expenses such as charges for expedited deliveries for products that are delayed. Additionally, our customers have the ability to cancel purchase orders in the event of any delays in production and may decrease future orders if delays are persistent. Additionally, to the extent that such disruptions do not result from damage to our physical property, these may not be covered by our business interruption insurance. Any such disruptions may adversely affect our business and results of operations.
Any disruption in our information systems could disrupt our operations and would be adverse to our business and results of operations.
We depend on various information systems to support our customers' requirements and to successfully manage our business, including managing orders, supplies, accounting controls and payroll. Any inability to successfully manage the procurement, development, implementation or execution of our information systems and back-up systems, including matters related to system security, reliability, performance and access, as well as any inability of these systems to fulfill their intended purpose within our business, could have an adverse effect on our business and results of operations. Such disruptions may not be covered by our business interruption insurance.
The potential impact of failing to deliver products on time could increase the cost of our products.
In most instances, we guarantee that we will deliver a product by a scheduled date. If we subsequently fail to deliver the product as scheduled, we may be held responsible for cost impacts and/or other damages resulting from any delay. To the extent that these failures to deliver occur, the total damages for which we could be liable could significantly increase the cost of the products; as such, we could experience reduced profits or, in some cases, a loss for that contract. Additionally, failure to deliver products on time could result in damage to customer relationships, the potential loss of customers, and reputational damage which could impair our ability to attract new customers.
Many of our customers do not commit to long-term production schedules, which makes it difficult for us to schedule production accurately and achieve maximum efficiency of our manufacturing capacity.
Many of our customers do not commit to firm production schedules and we continue to experience reduced lead-times in customer orders. Additionally, customers may change production quantities or delay production with little lead-time or advance notice. Therefore, we rely on and plan our production and inventory levels based on our customers' advance orders, commitments or forecasts, as well as our internal assessments and forecasts of customer demand. The variations in volume and timing of sales make it difficult to schedule production and optimize utilization of manufacturing capacity. This uncertainty may require us to increase staffing and incur other expenses in order to meet an unexpected increase in customer demand, potentially placing a significant burden on our resources. Additionally, an inability to respond to such increases may cause customer dissatisfaction, which may negatively affect our customers' relationships.
Further, in order to secure sufficient production scale, we may make capital investments in advance of anticipated customer demand. Such investments may lead to low utilization levels if customer demand forecasts change and we are unable to utilize the additional capacity. Additionally, we order materials and components based on customer forecasts and orders and suppliers may require us to purchase materials and components in minimum quantities that exceed customer requirements, which may have an adverse impact on our results of operations. Such order fluctuations and deferrals may have an adverse effect on our business and results of operations.
The Company could be negatively impacted if found to have infringed on intellectual property rights.
Technology companies, including many of the Company's competitors, frequently enter into litigation based on allegations of patent infringement or other violations of intellectual property rights. In addition, patent holding companies seek to monetize patents they have purchased or otherwise obtained. As the Company grows, the intellectual property rights claims against it will likely increase. The Company intends to vigorously defend infringement actions in court and before the U.S. International Trade Commission. The plaintiffs in these actions frequently seek injunctions and substantial damages. Regardless of the scope or validity of such patents or other intellectual property rights, or the merits of any claims by potential or actual litigants, the Company may have to engage in protracted litigation. If the Company is found to infringe one or more patents or other intellectual property rights, regardless of whether it can develop non-infringing technology, it may be required to pay substantial damages or royalties to a third-party, or it may be subject to a temporary or permanent injunction prohibiting the Company from marketing or selling certain products. In certain cases, the Company may consider the desirability of entering into licensing agreements, although no assurance can be given that such licenses can be obtained on acceptable terms or that litigation will not occur. These licenses may also significantly increase the Company's operating expenses.
Regardless of the merit of particular claims, litigation may be expensive, time-consuming, disruptive to the Company's operations and distracting to management. In recognition of these considerations, the Company may enter into arrangements to settle litigation. If one or more legal matters were resolved against the Company's consolidated financial statements for that reporting period could be materially adversely affected. Further, such an outcome could result in significant compensatory, punitive or trebled monetary damages, disgorgement of revenue or profits, remedial corporate measures or injunctive relief against the Company that could adversely affect its financial condition and results of operations.
Indemnity provisions in various agreements potentially expose us to substantial liability for intellectual property infringement and other losses.
Our agreements with advertisers, advertising agencies, customers and other third parties may include indemnification provisions under which we agree to indemnify them for losses suffered or incurred as a result of claims of intellectual property infringement, damages caused by us to property or persons, or other liabilities relating to or arising from our products, services or other contractual obligations. The term of these indemnity provisions generally survives termination or expiration of the applicable agreement. Large indemnity payments would harm our business, financial condition and results of operations. In addition, any type of intellectual property lawsuit, whether initiated by us or a third party, would likely be time consuming and expensive to resolve and would divert management's time and attention.
We rely heavily on our technology and intellectual property, but we may be unable to adequately or cost-effectively protect or enforce our intellectual property rights, thereby weakening our competitive position and increasing operating costs.
To protect our rights in our services and technology, we rely on a combination of copyright and trademark laws, patents, trade secrets, confidentiality agreements with employees and third parties, and protective contractual provisions. We also rely on laws pertaining to trademarks and domain names to protect the value of our corporate brands and reputation. Despite our efforts to protect our proprietary rights, unauthorized parties may copy aspects of our services or technology, obtain and use information, marks, or technology that we regard as proprietary, or otherwise violate or infringe our intellectual property rights. In addition, it is possible that others could independently develop substantially equivalent intellectual property. If we do not effectively protect our intellectual property, or if others independently develop substantially equivalent intellectual property, our competitive position could be weakened.
Effectively policing the unauthorized use of our services and technology is time-consuming and costly, and the steps taken by us may not prevent misappropriation of our technology or other proprietary assets. The efforts we have taken to protect our proprietary rights may not be sufficient or effective, and unauthorized parties may copy aspects of our services, use similar marks or domain names, or obtain and use information, marks, or technology that we regard as proprietary. We may have to litigate to enforce our intellectual property rights, to protect our trade secrets, or to determine the validity and scope of others' proprietary rights, which are sometimes not clear or may change. Litigation can be time consuming and expensive, and the outcome can be difficult to predict.
We rely on agreements with third parties to provide certain services, goods, technology, and intellectual property rights necessary to enable us to implement some of our applications.
Our ability to implement and provide our applications and services to our clients depends, in part, on services, goods, technology, and intellectual property rights owned or controlled by third parties. These third parties may become unable to or refuse to continue to provide these services, goods, technology, or intellectual property rights on commercially reasonable terms consistent with our business practices, or otherwise discontinue a service important for us to continue to operate our applications. If we fail to replace these services, goods, technologies, or intellectual property rights in a timely manner or on commercially reasonable terms, our operating results and financial condition could be harmed. In addition, we exercise limited control over our third-party vendors, which increases our vulnerability to problems with technology and services those vendors provide. If the services, technology, or intellectual property of third parties were to fail to perform as expected, it could subject us to potential liability, adversely affect our renewal rates, and have an adverse effect on our financial condition and results of operations.
We depend on profitable royalty-bearing licenses of our technology, and if we are unable to maintain and generate such license agreements, then we may not be able to sustain existing levels of revenue or increase revenue.
We depend upon the identification, investment in and license of new patents for our revenues. If we are unable to maintain such license agreements and to continue to develop new license arrangements, then we may not have the resources to identify new technology-based opportunities for future patents and inventions in order to maintain sustainable revenue and growth.
Our current or future license agreements may not provide the volume or quality of royalty revenue to sustain our business. In some cases, other technology sources may compete against us as they seek to license and commercialize technologies. These and other strategies may reduce the number of technology sources and potential clients to whom we can market our services. Our inability to maintain current relationships and sources of technology or to secure new licensees, may have a material adverse effect on our business and results of operations.
If we fail to maintain or expand our relationships with our suppliers, in some cases single-source suppliers, we may not have adequate access to new or key technology necessary for our products, which may impair our ability to deliver leading-edge products.
In addition to the technologies we develop, our suppliers develop product innovations at our direction that are requested by our customers. Further, we rely heavily on our component suppliers to provide us with leading-edge components that conform to required specifications or contractual arrangements on time and in accordance with a product roadmap. If we are not able to maintain or expand our relationships with our suppliers or continue to leverage their research and development capabilities to develop new technologies desired by our customers, our ability to deliver leading-edge products in a timely manner may be impaired and we could be required to incur additional research and development expenses. Also, disruption in our supply chain or the need to find alternative suppliers could impact the costs and/or timing associated with procuring necessary products, components and services. Similarly, suppliers have operating risks that could impact our business. These risks could create product time delays, inventory and invoicing problems, staging delays, and other operational difficulties.
We must acquire or develop new products, evolve existing ones, address any defects or errors, and adapt to technology change.
Technical developments, client requirements, programming languages, and industry standards change frequently in our markets. As a result, success in current markets and new markets will depend upon our ability to enhance current products, address any product defects or errors, acquire or develop and introduce new products that meet client needs, keep pace with technology changes, respond to competitive products, and achieve market acceptance. Product development requires substantial investments for research, refinement, and testing. We may not have sufficient resources to make necessary product development investments. We may experience technical or other difficulties that will delay or prevent the successful development, introduction, or implementation of new or enhanced products. We may also experience technical or other difficulties in the integration of acquired technologies into our existing platform and applications. Inability to introduce or implement new or enhanced products in a timely manner could result in loss of market share if competitors are able to provide solutions to meet customer needs before we do, give rise to unanticipated expenses related to further development or modification of acquired technologies as a result of integration issues, and adversely affect future performance.
Our failure to deliver high quality server solutions could damage our reputation and diminish demand for our products, and subject us to liability.
Our customers require our products to perform at a high level, contain valuable features and be extremely reliable. The design of our server solutions is sophisticated and complex, and the process for manufacturing, assembling and testing our server solutions is challenging. Occasionally, our design or manufacturing processes may fail to deliver products of the quality that our customers require. For example, a vendor may provide us with a defective component that failed under certain heavy use applications. As a result, our product would need to be repaired. The vendor may agree to pay for the costs of the repairs, but we may incur costs in connection with the recall and diverted resources from other projects. New flaws or limitations in our products may be detected in the future. Part of our strategy is to bring new products to market quickly, and first-generation products may have a higher likelihood of containing undetected flaws. If our customers discover defects or other performance problems with our products, our customers' businesses, and our reputation, may be damaged. Customers may elect to delay or withhold payment for defective or underperforming products, request remedial action, terminate contracts for untimely delivery, or elect not to order additional products. If we do not properly address customer concerns about our products, our reputation and relationships with our customers may be harmed. In addition, we may be subject to product liability claims for a defective product. Any of the foregoing could have an adverse effect on our business and results of operations.
The products we sell are advanced, and we need to rapidly and successfully develop and introduce new products in a competitive, demanding and rapidly changing environment.
To succeed in our intensely competitive industry, we must continually improve, refresh and expand our product and service offerings to include newer features, functionality or solutions, and keep pace with price-to-performance gains in the industry. Shortened product life cycles due to customer demands and competitive pressures impact the pace at which we must introduce and implement new technology. This requires a high level of innovation by both our software developers and the suppliers of the third-party software components included in our systems. In addition, bringing new solutions to the market entails a costly and lengthy process, and requires us to accurately anticipate customer needs and technology trends. We must continue to respond to market demands or our business operations may be adversely affected.
We must also anticipate and respond to customer demands regarding the compatibility of our current and prior offerings. These demands could hinder the pace of introducing and implementing new technology. Our future results may be affected if our products cannot effectively interface and perform well with software products of other companies and with our customers' existing IT infrastructures, or if we are unsuccessful in our efforts to enter into agreements allowing integration of third-party technology with our database and software platforms. Our efforts to develop the interoperability of our products may require significant investments of capital and employee resources. In addition, many of our principal products are used with products offered by third parties and, in the future, some vendors of non-Company products may become less willing to provide us with access to their products, technical information and marketing and sales support. As a result of these and other factors, our ability to introduce new or improved solutions could be adversely impacted and our business would be negatively affected.
Industry consolidation may result in increased competition, which could result in a loss of customers or a reduction in revenue.
Some of our competitors have made or may make acquisitions or may enter into partnerships or other strategic relationships to offer more comprehensive services than they individually had offered or achieve greater economies of scale. In addition, new entrants not currently considered to be competitors may enter our market through acquisitions, partnerships or strategic relationships. We expect these trends to continue as companies attempt to strengthen or maintain their market positions. The potential entrants may have competitive advantages over us, such as greater name recognition, longer operating histories, more varied services and larger marketing budgets, as well as greater financial, technical and other resources. The companies resulting from combinations or that expand or vertically integrate their business to include the market that we address may create more compelling service offerings and may offer greater pricing flexibility than we can or may engage in business practices that make it more difficult for us to compete effectively, including on the basis of price, sales and marketing programs, technology or service functionality. These pressures could result in a substantial loss of our customers or a reduction in our revenue.
Our business could be negatively impacted by cyber security threats, attacks and other disruptions.
Like others in our industry, we continue to face advanced and persistent attacks on our information infrastructure where we manage and store various proprietary information and sensitive/confidential data relating to our operations. These attacks may include sophisticated malware (viruses, worms, and other malicious software programs) and phishing emails that attack our products or otherwise exploit any security vulnerabilities. These intrusions sometimes may be zero-day malware that are difficult to identify because they are not included in the signature set of commercially available antivirus scanning programs. Experienced computer programmers and hackers may be able to penetrate our network security and misappropriate or compromise our confidential information or that of our customers or other third-parties, create system disruptions, or cause shutdowns. Additionally, sophisticated software and applications that we produce or procure from third-parties may contain defects in design or manufacture, including 'bugs' and other problems that could unexpectedly interfere with the operation of the information infrastructure. A disruption, infiltration or failure of our information infrastructure systems or any of our data centers as a result of software or hardware malfunctions, computer viruses, cyber attacks, employee theft or misuse, power disruptions, natural disasters or accidents could cause breaches of data security, loss of critical data and performance delays, which in turn could adversely affect our business.
If we do not respond to technological changes or upgrade our websites and technology systems, our growth prospects and results of operations could be adversely affected.
To remain competitive, we must continue to enhance and improve the functionality and features of our websites and technology infrastructure. As a result, we will need to continue to improve and expand our hosting and network infrastructure and related software capabilities. These improvements may require greater levels of spending than we have experienced in the past. Without such improvements, our operations might suffer from unanticipated system disruptions, slow application performance or unreliable service levels, any of which could negatively affect our reputation and ability to attract and retain customers and contributors. Furthermore, in order to continue to attract and retain new customers, we are likely to incur expenses in connection with continuously updating and improving our user interface and experience. We may face significant delays in introducing new services, products and enhancements. If competitors introduce new products and services using new technologies or if new industry standards and practices emerge, our existing websites and our proprietary technology and systems may become obsolete or less competitive, and our business may be harmed. In addition, the expansion and improvement of our systems and infrastructure may require us to commit substantial financial, operational and technical resources, with no assurance that our business will improve.
The Units of SAFE (Simple Agreement for Future Equity) will not be freely tradable until one year from the initial purchase date. Although the Units of SAFE may be tradable under federal securities law, state securities regulations may apply and each Purchaser should consult with his or her attorney.
You should be aware of the long-term nature of this investment. There is not now and likely will not be a public market for the Units of SAFE. Because the Units of SAFE have not been registered under the Securities Act or under the securities laws of any state or non-United States jurisdiction, the Units of SAFE have transfer restrictions and cannot be resold in the United States except pursuant to Rule 501 of Regulation CF. It is not currently contemplated that registration under the Securities Act or other securities laws will be effected. Limitations on the transfer of the Units of SAFE may also adversely affect the price that you might be able to obtain for the Units of SAFE in a private sale. Purchasers should be aware of the long-term nature of their investment in the Company. Each Purchaser in this Offering will be required to represent that it is purchasing the Securities for its own account, for investment purposes and not with a view to resale or distribution thereof.
Neither the Offering nor the Securities have been registered under federal or state securities laws, leading to an absence of certain regulation applicable to the Company.
No governmental agency has reviewed or passed upon this Offering, the Company or any Securities of the Company. The Company also has relied on exemptions from securities registration requirements under applicable state securities laws. Investors in the Company, therefore, will not receive any of the benefits that such registration would otherwise provide. Prospective investors must therefore assess the adequacy of disclosure and the fairness of the terms of this Offering on their own or in conjunction with their personal advisors.
No guarantee of return on investment.
There is no assurance that a Purchaser will realize a return on its investment or that it will not lose its entire investment. For this reason, each Purchaser should read the Form C and all Exhibits carefully and should consult with its own attorney and business advisor prior to making any investment decision.
Purchasers will not become equity holders until the Company decides to convert the Securities into CF Shadow Securities or until an IPO or sale of the Company.
Purchasers will not have an ownership claim to the Company or to any of its assets or revenues for an indefinite amount of time, and depending on when and how the Securities are converted, the Purchasers may never become equity holders of the Company. Purchasers will not become equity holders of the Company unless the Company receives a future round of financing great enough to trigger a conversion and the Company elects to convert the Securities. The Company is under no obligation to convert the Securities into CF Shadow Securities (the type of equity Securities Purchasers are entitled to receive upon such conversion). In certain instances, such as a sale of the Company, an IPO or a dissolution or bankruptcy, the Purchasers may only have a right to receive cash, to the extent available, rather than equity in the Company.
Purchasers will not have voting rights, even upon conversion of the Securities into CF Shadow Securities.
Purchasers will not have the right to vote upon matters of the Company even if and when their Securities are converted into CF Shadow Securities. Upon such conversion, CF Shadow Securities will have no voting rights and even in circumstances where a statutory right to vote is provided by state law, the CF Shadow Security holders are required to vote with the majority of the security holders in the new round of equity financing upon which the Securities were converted. For example, if the Securities are converted upon a round offering Series B Preferred Shares, the Series B-CF Shadow Security holders will be required to vote the same way as a majority of the Series B Preferred Share holders vote. Thus, Purchasers will never be able to freely vote upon any director or other matters of the Company.
Purchasers will not be entitled to any inspection or information rights other than those required by Regulation CF.
Purchasers will not have the right to inspect the books and records of the Company or to receive financial or other information from the Company, other than as required by Regulation CF. Other security holders may have such rights. Regulation CF requires only the provision of an annual report on Form C and no additional information. This lack of information could put Purchasers at a disadvantage in general and with respect to other security holders.
In a dissolution or bankruptcy of the Company, Purchasers will be treated the same as common equity holders.
In a dissolution or bankruptcy of the Company, Purchasers of Securities which have not been converted will be entitled to distributions as if they were common stock holders. This means that such Purchasers will be at the lowest level of priority and will only receive distributions once all creditors as well as holders of more senior securities, including any preferred stock holders, have been paid in full. If the Securities have been converted into CF Shadow Securities, the Purchasers will have the same rights and preferences (other than the ability to vote) as the holders of the Securities issued in the equity financing upon which the Securities were converted.
Purchasers will be unable to declare the Security in 'default' and demand repayment.
Unlike convertible notes and some other securities, the Securities do not have any 'default' provisions upon which the Purchasers will be able to demand repayment of their investment. The Company has ultimate discretion as to whether or not to convert the Securities upon a future equity financing and Purchasers have no right to demand such conversion. Only in limited circumstances, such as a liquidity event, may the Purchasers demand payment and even then, such payments will be limited to the amount of cash available to the Company.
The Company may never elect to convert the Securities or undergo a liquidity event.
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.
In addition to the risks listed above, businesses are often subject to risks not foreseen or fully appreciated by the management. It is not possible to foresee all risks that may affect us. Moreover, the Company cannot predict whether the Company will successfully effectuate the Company's current business plan. Each prospective Purchaser is encouraged to carefully analyze the risks and merits of an investment in the Securities and should take into consideration when making such analysis, among other, the Risk Factors discussed above.
THE SECURITIES OFFERED INVOLVE A HIGH DEGREE OF RISK AND MAY RESULT IN THE LOSS OF YOUR ENTIRE INVESTMENT. ANY PERSON CONSIDERING THE PURCHASE OF THESE SECURITIES SHOULD BE AWARE OF THESE AND OTHER FACTORS SET FORTH IN THIS FORM C AND SHOULD CONSULT WITH HIS OR HER LEGAL, TAX AND FINANCIAL ADVISORS PRIOR TO MAKING AN INVESTMENT IN THE SECURITIES. THE SECURITIES SHOULD ONLY BE PURCHASED BY PERSONS WHO CAN AFFORD TO LOSE ALL OF THEIR INVESTMENT.
Discussion
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