Item 1A. Risk Factors
Item 1A - Risk Factors
Risks Related to Our Company
We are at an early operational stage, and
our success is subject to the substantial risks inherent in the establishment of a new business venture.
Our business and operations are in an early stage
and subject to all of the risks inherent with new business ventures. Our initial operations have been focused on the remediation of soil
and the extraction of hydrocarbons, such as oil, from properties contaminated by or laden with heavy crude oil and hydrocarbon-based substances.
We intend to, but have not yet, completed the second stage of our operational strategy, selling the asphaltic cement and/or other petroleum-based
products we are able to produce from the hydrocarbons we recover.
Our business and operations may not prove to be
successful. We have deployed only two RPC units to date, including one unit to Kuwait (for which operations were temporarily suspended
due to COVID-19) and another to Vernal, Utah (which is presently operating). We will need to scale our business beyond these two RPCs
and demonstrate that our scaled-up recovery and remediation business can be profitable. Any future success that we may enjoy will depend
on many factors, some of which may be beyond our control, and others which cannot be predicted at this time. Although we began operations
in 2008 as a technology acquisition company primarily focused on medical technologies, we have been operating under our current business
plan focused on soil remediation since 2011, and we have not yet proven to be profitable. We have not yet sold any substantial amount
of products or services commercially and have not proven that our business model will allow us to identify and develop commercially feasible
products or technologies.
We have historically suffered net losses,
and we may not be able to sustain profitability.
We had an accumulated deficit of $35,731,359 as
of December 31, 2021, and we expect to continue to incur significant development expenses in the foreseeable future related to the completion
of the development and commercialization of our products. As a result, we are incurring operating and net losses, and it is possible that
we may never be able to sustain the revenue levels necessary to achieve and sustain profitability. If we fail to generate sufficient revenues
to operate profitably on a consistent basis, or if we are unable to fund our continuing losses, you could lose all or part of your investment.
We rely upon a few, select key employees
who are instrumental in our ability to conduct and grow our business. In the event any of those key employees would no longer be affiliated
with the Company, it may have a material detrimental impact as to our ability to successfully operate our business.
Our future success will depend in large part on
our ability to attract and retain high-quality management, operations, and other personnel who are in high demand, are often subject to
competing employment offers, and are attractive recruiting targets for our competitors. The loss of qualified executives and key employees,
or our inability to attract, retain, and motivate high-quality executives and employees required for the planned expansion of our business,
may harm our operating results and impair our ability to grow.
We depend on the continued services of our key
personnel, including Matthew Nicosia, our Chief Executive Officer, Tyler Nelson, our Chief Financial Officer, and Daniel Hashim, our Chief
Scientific Officer. Our work with each of these key personnel are subject to changes and/or termination, and our inability to effectively
retain the services of our key management personnel, could materially and adversely affect our operating results and future prospects.
We may have difficulty raising additional
capital, which could deprive us of necessary resources, and you may experience dilution or subordinate stockholder rights, preferences
and privileges as a result of our financing efforts.
We expect to continue to devote significant capital
resources to fund the continued development of our RPCs and related technologies. In order to support the initiatives envisioned in our
business plan, we will need to raise additional funds through the sale of public or private debt or equity financing or other arrangements.
Our ability to raise additional financing depends on many factors beyond our control, including the state of capital markets, the market
price of our common stock and the development or prospects for development of competitive technologies by others. Sufficient additional
financing may not be available to us or may be available only on terms that would result in further dilution to the current owners of
our common stock.
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We expect to obtain additional capital during
2022 through financing lease structures for our RPCs or other financing structures related to our RPCs. We also expect that our current
cash position, will enable us to fund our operating expenses and capital expenditure requirements for the next twelve months. Thereafter,
unless we can achieve and sustain profitability, we anticipate that we will need to raise additional capital to fund our operations while
we implement and execute our business plan.
Any future equity financing may involve substantial
dilution to our then existing shareholders. Any future debt financing could involve restrictive covenants relating to our capital raising
activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue
business opportunities. There can be no assurance that such additional capital will be available, on a timely basis, or on terms acceptable
to us. If we are unsuccessful in raising additional capital or the terms of raising such capital are unacceptable, then we may have to
modify our business plan and/or curtail our planned activities and other operations.
If we raise additional funds through government
or other third-party funding, collaborations, strategic alliances, licensing arrangements or marketing and distribution arrangements,
we may have to relinquish valuable rights to our technologies, future revenue stream or grant licenses on terms that may not be favorable
to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce
or terminate our product development or future commercialization efforts or grant rights to develop and market products that we would
otherwise prefer to develop and market ourselves.
Additionally, we have certain potential dilutive
instruments, of which the conversion of these instruments could result in dilution to shareholders: As of April 5, 2022, the maximum
potential dilution is 664,560, and includes convertible notes payable convertible into approximately 14,560 shares of common stock, stock
options granted to employees of 183,333 shares of common stock. Stock options granted to Board members or consultants of 466,667 shares
of common stock were granted as of April 5, 2022.
The COVID-19 pandemic has had and may continue
to have a negative impact on our business and operations.
Our Kuwait operations were suspended to comply
with the social distancing measures implemented in Kuwait. Our Utah operations were temporarily suspended from March through May 2020,
but have since resumed in full. These suspensions have had a negative impact on our business and there can be no guaranty that we will
not need to suspend operations again in the future as a result of the pandemic. We are closely monitoring the COVID-19 pandemic and the
directives from federal and local authorities in the United States and in Kuwait affecting not only our workforce, but those of companies
with whom we work.
Economic conditions in the current period
of disruption and instability could adversely affect our ability to access the capital markets, in both the near and long term, and thus
adversely affect our business and liquidity.
The current economic conditions related to the
COVID-19 pandemic have had, and likely will continue to have for the foreseeable future a negative impact on the capital markets. Even
if we are able to raise capital, it may not be at a price or on terms that are favorable to us. We cannot predict the occurrence of future
disruptions or how long the current conditions may continue.
Failure to effectively manage our expected
growth could place strains on our managerial, operational and financial resources and could adversely affect our business and operating
results.
Our expected growth could place a strain on our
managerial, operational and financial resources. Further, if our subsidiaries’ businesses grow, then we will be required to manage
multiple relationships. Any further growth by us or our subsidiaries, or any increase in the number of our strategic relationships, will
increase the strain on our managerial, operational and financial resources. This strain may inhibit our ability to achieve the rapid execution
necessary to implement our business plan and could have a material adverse effect on our financial condition, business prospects and operations
and the value of an investment in our company.
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We will need to achieve commercial acceptance
of our products to continue to generate revenues and sustain profitability.
Our goal is to ultimately produce asphaltic cement
and/or other petroleum-based products from the hydrocarbons we recover and sell these products to customers; however, we may not be able
to successfully commercialize our products, and even if we do, we may not be able to do so on a timely basis. Superior competitive technologies
may be introduced, or customer needs may change, which will diminish or extinguish the commercial uses for our applications. We cannot
predict when significant commercial market acceptance for our products will develop, if at all, and we cannot reliably estimate the projected
size of any such potential market. If the markets fail to accept our products, then we may not be able to generate revenues from the commercial
application of our technologies. Our revenue growth and profitability will depend substantially on our ability to manufacture and deploy
additional RPCs and produce asphaltic cement to the specifications required by each of our potential customers.
We have identified
a material weakness in our internal control over financial reporting. Failure to maintain effective internal controls could cause our
investors to lose confidence in us and adversely affect the market price of our common stock. If our internal controls are not effective,
we may not be able to accurately report our financial results or prevent fraud.
Section 404 of the Sarbanes-Oxley
Act of 2002 (“Section 404”) requires that we maintain internal control over financial reporting that meets applicable standards.
We may err in the design or operation of our controls, and all internal control systems, no matter how well designed and operated, can
provide only reasonable assurance that the objectives of the control system are met. Because there are inherent limitations in all control
systems, there can be no assurance that all control issues have been or will be detected. If we are unable, or are perceived as unable,
to produce reliable financial reports due to internal control deficiencies, investors could lose confidence in our reported financial
information and operating results, which could result in a negative market reaction and a decrease in our stock price.
We have identified a
material weakness in our internal controls related to the segregation of duties within our internal controls. We believe that we will
have substantially resolved our previously identified material weakness in our internal controls as we continue to hire personnel to fulfill
the duties related to the growth in our business. There can be no assurances that weakness in our internal controls will not occur in
the future.
If we identify new material
weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of Section 404 in a timely
manner, if we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public
accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting (if and when
required), we may be late with the filing of our periodic reports, investors may lose confidence in the accuracy and completeness of our
financial reports and the market price of our common stock could be negatively affected. As a result of such failures, we could also become
subject to investigations by the stock exchange on which our securities are listed, the SEC, or other regulatory authorities, and become
subject to litigation from investors and stockholders, which could harm our reputation, financial condition or divert financial and management
resources from our core business, and would have a material adverse effect on our business, financial condition and results of operations.
A major portion of our business is dependent
on the oil industry, which is subject to numerous worldwide variables.
Our prospective customers are concentrated in
the oil industry. As a result, we will be subject to the success of the oil industry, which is subject to substantial volatility based
on numerous worldwide factors. A decline in the oil industry may have a material adverse effect on our business, financial condition,
results of operations and cash flows. The oil and gas industry is competitive in all its phases. Competition in the oil and gas industry
is intense. We will compete with other participants in the search for oil sand properties and in the marketing of oil and other hydrocarbon
products. Our customers could include competitors such as oil and gas companies that have substantially greater financial resources, staff
and facilities than those of our customers and lessees. Competitive factors in the distribution and marketing of oil and other hydrocarbon
products include price and methods and reliability of delivery.
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Within the oil remediation market, demand for
our services will be limited to a specific customer base and highly correlated to the oil industry. The oil industry’s demand for
equipment is affected by a number of factors including the volatile nature of the oil industry’s business, increased use of alternative
types of energy and technological developments in the oil extraction process. A significant reduction in the target market’s demand
for oil would reduce the demand for the equipment, which would have a material adverse effect upon our business, financial condition,
results of operations and cash flows.
Low oil prices may substantially impact
our ability to generate revenues.
Low oil prices may negatively impact our ability
to operate. The demand for our products and services depend, in part, on the price of oil and the margins oil producers receive on the
sale of oil. Oil prices are volatile and can fluctuate widely based upon a number of factors beyond our control. Any decline in the prices
of and demand for oil could have a material adverse effect on our business, financial condition, results of operations and cash flows.
We require a variety of permits to operate
our business. If we are not successful in obtaining and/or maintaining those permits it will adversely impact our operations.
Our business requires permits to operate. Our
inability to obtain permits in a timely manner could result in substantial delays to our business. In addition, our customers may not
receive permitting for our equipment’s specific use and we may be unable to adjust our equipment to meet our customer’s permitting
needs. The issuance of permits is dependent on the applicable government agencies and is beyond our control and that of our customers.
There can be no assurance that we and/or our customers will receive the permits necessary to operate, which could substantially and adversely
affect our operations and financial condition.
We are required to pay permit and approval
fees to operate in certain business segments and locations. If we are not able to pay those fees it would adversely impact our business.
We are required to pay various types of permit
and approval fees to the applicable governmental and quasi-governmental agencies to operate our business. These fees are subject to change
at the discretion of the various agencies. Our inability to pay these permit and approval fees could substantially and adversely affect
our operations and financial condition.
We, and our customers and prospective customers,
are subject to numerous governmental regulations, both domestically and internationally. In order to operate successfully we must be able
comply with these regulations.
Current and future government laws, regulations
and other legal requirements may increase the costs of doing business or restrict business operations. Laws, regulations and other legal
requirements, such as those relating to the protection of the environment and natural resources, health, business and tax have an effect
on our cost of operation or those of our customers. Such governmental regulation may result in delays, cause us to incur substantial compliance
and other costs and prohibit or severely restrict our business or that of our customers, which could have an adverse effect on our business,
financial condition, results of operations and cash flows.
Based on the nature of our business we currently depend and are
likely to continue to depend on a limited number of customers for a significant portion of our revenues.
We currently have two customers in Utah and a
single customer in Kuwait. The failure to obtain additional customers or the loss of all or a portion of the revenues attributable to
any current or future customer as a result of competition, creditworthiness, inability to negotiate extensions or replacement of contracts
or otherwise could have a material adverse effect on our business, financial condition, results of operations and cash flows.
If our customers do not enter into, extend or
honor their contracts with us, our profitability could be adversely affected. Our ability to receive payment for production depends on
the continued solvency and creditworthiness of our customers and prospective customers. If any of our customers’ creditworthiness
suffers, we may bear an increased risk with respect to payment defaults. If customers refuse to accept our equipment or make payments
for which they have a contractual obligation, our revenues could be adversely affected. In addition, if a substantial portion of our contracts
are modified or terminated and we are unable to replace the contracts (or if new contracts are priced at lower levels), our results of
operations will be adversely affected.
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Our primary business is impacted by the
oil industry and the manufacturing industry, which are subject to uncertain economic conditions.
The global economy is subject to fluctuation and
it is unclear how stable the oil industry and the manufacturing industry will be in the future. As a result, there can be no assurance
that the business will achieve anticipated cash flow levels. Further, recent world events evolving out of trade disputes, increased terrorist
activities and political and military action, and the COVID-19 pandemic, among other events, have created an air of uncertainty concerning
the stability of the global economy. Historically, such events have resulted in disturbances in financial markets, and it is impossible
to determine the likelihood of future events. Any negative change in the general economic conditions in the United States and globally
could adversely affect the financial condition and operating results of the business. We plan to expand our level of operations. Slower
economic activity, concerns about inflation or deflation, decreased consumer confidence, reduced corporate profits and capital spending,
adverse business conditions and liquidity concerns in the general economy and recent international conflicts and terrorist and military
activity have resulted in a downturn in worldwide economic conditions, especially in the United States. Political and social turmoil related
to international conflicts and terrorist acts may place further pressure on economic conditions in the United States and worldwide. These
political, social and economic conditions make it extremely difficult for us to accurately forecast and plan future business activities.
If such conditions continue or worsen, then our business, financial condition and results of operations could be materially and adversely
affected.
We will continue to be subject to competition
in our business .
Our oil remediation equipment utilizes specific
technology to extract oil from sand. Oil producers are continually investigating alternative oil production technologies with a view to
reduce production costs. In addition, industries that compete with the oil industry, such as the electric power industry, also continue
to innovate and create products that compete with the oil industry. There can be no assurance that superior alternative technologies will
emerge, which could reduce the demand for and price of our product and services.
The market for our products and services is highly
competitive and is becoming more so, which could hinder our ability to successfully market our products and services. We may not have
the resources, expertise or other competitive factors to compete successfully in the future. We expect to face additional competition
from existing competitors and new market entrants in the future. Many of our competitors have greater name recognition and more established
relationships in the industry than we do. As a result, these competitors may be able to:
·
develop and expand their product offerings more rapidly;
·
adapt to new or emerging changes in customer requirements more quickly;
·
take advantage of acquisition and other opportunities more readily; and
·
devote greater resources to the marketing and sale of their products and adopt more aggressive pricing policies than we can.
We carry insurance coverage against liabilities
for personal injury, death and property damage, but there is no guarantee this coverage will be sufficient to cover us against all claims.
Although, we maintain insurance coverage against
liability for personal injury, death and property damage. There can be no assurance that this insurance will be sufficient to cover any
such liabilities. We may not be insured or fully insured against the losses or liabilities that could arise from a casualty in the business
operations. In addition, there can be no assurance that particular risks that are currently insurable will continue to be insurable on
an economical basis or that the current levels of coverage will continue to be available. If a loss occurs that is partially or completely
uninsured, we may incur a significant liability.
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We may be unable to adequately protect our proprietary rights.
Our ability to compete partly depends on the superiority,
uniqueness and value of our intellectual property. To protect our proprietary rights, we will rely on a combination of patents, copyrights
and trade secrets, confidentiality agreements with our employees and third parties, and protective contractual provisions. Despite these
efforts, any of the following occurrences may reduce the value of our intellectual property:
·
Our applications for patents relating to our business may not be granted and, if granted, may be challenged or invalidated;
·
Issued patents may not provide us with any competitive advantages;
·
Our efforts to protect our intellectual property rights may not be effective in preventing misappropriation of our technology;
·
Our efforts may not prevent the development and design by others of products or technologies similar to or competitive with, or superior
to those we develop; or
·
Another party may obtain a blocking patent and we would need to either obtain a license or design around the patent in order to continue
to offer the contested feature or service in our products.
We may become involved in lawsuits to protect
or enforce our patents that would be expensive and time consuming.
In order to protect or enforce our patent rights,
we may initiate patent litigation against third parties. In addition, we may become subject to interference or opposition proceedings
conducted in patent and trademark offices to determine the priority and patentability of inventions. The defense of intellectual property
rights, including patent rights through lawsuits, interference or opposition proceedings, and other legal and administrative proceedings,
would be costly and divert our technical and management personnel from their normal responsibilities. An adverse determination of any
litigation or defense proceedings could put our pending patent applications at risk of not being issued.
Furthermore, because of the substantial amount
of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could
be compromised by disclosure during this type of litigation. For example, during the course of this type of litigation, confidential information
may be inadvertently disclosed in the form of documents or testimony in connection with discovery requests, depositions or trial testimony.
This disclosure could have a material adverse effect on our business and our financial results.
Our primary business operations rely on
our ability to transport our equipment to different locations. Any impact on the cost, availability and reliability of transportation
could adversely affect our business.
The availability and reliability of transportation
and fluctuation in transportation costs could negatively impact the business. Transportation logistics play an important role in the sale
of our products and services and in the oil industry generally. Delays and interruptions of transportation services because of accidents,
failure to complete construction of infrastructure, infrastructure damage, lack of capacity, weather-related problems, governmental regulation,
terrorism, strikes, lock-outs, third-party actions or other events could impair the operations of our customers and may also directly
impair our ability to commence or complete production or services, which could have a material adverse effect on our business, financial
condition, results of operations and cash flows.
The lands on which we conduct our business
operations must be properly zoned for our services. If they aren’t then it could impact our business.
The lands on which we conduct our business operates
must comply with applicable zoning regulations. Any unknown or future violations could limit or require us to cease operations.
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Data security breaches are increasing worldwide.
If we are the victim of such a breach it will materially impact our business.
We will collect and retain certain personal information
provided by our employees and investors. We intend to implement certain protocols designed to protect the confidentiality of this information
and periodically review and improve our security measures; however, these protocols may not prevent unauthorized access to this information.
Technology and safeguards in this area are consistently changing and there is no assurance that we will be able to maintain sufficient
protocols to protect confidential information. Any breach of our data security measures and disbursement of this information may result
in legal liability and costs (including damages and penalties), as well as damage to our reputation, that could materially and adversely
affect our business and financial performance.
We may indemnify our directors and officers
against liability to us and holders of our securities, and such indemnification could increase our operating costs.
Our bylaws allow us to indemnify our directors
and officers against claims associated with carrying out the duties of their offices. Our bylaws also allow us to reimburse them for the
costs of certain legal defenses. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the “Securities
Act”) may be permitted to our directors, officers or control persons, we have been advised by the SEC that such indemnification
is against public policy and is therefore unenforceable. If our officers and directors file a claim against us for indemnification, the
associated expenses could also increase our operating costs.
We may be subject to liability if our equipment does not perform
as expected.
We may be exposed to liability in the event our
equipment does not perform as expected. We intend to enter into contracts with customers, which will grant certain rights with respect
to the condition and use of our products. Certain contractual and legal claims could arise in the event the equipment does not perform
as expected and in the event of personal injury, death or property damage as a result of the use of our equipment. There can be no assurance
that particular risks are insured or, if insured, will continue to be insurable on an economical basis or that current levels of coverage
will continue to be available. We may be liable for any defects in the equipment or its products and services and uninsured or underinsured
personal injury, death or property damage claims.
Our business depends on our ability to manufacture
various pieces of equipment, many of which are quite large. Any disruption in our manufacturing ability will adversely affect our business
and operations.
Our business involves manufacturing and plant
operation risks of delay that may be outside of our control. Production or services may be delayed or prevented by factors such as adverse
weather, strikes, energy shortages, shortages or increased costs of materials, inflation, environmental conditions, legal matters and
other unknown contingencies. Our business also requires certain manufacturing apparatus to manufacture the equipment. If the manufacturing
apparatus were to suffer major damage or are destroyed by fire, abnormal wear, flooding, incorrect operation or otherwise, we may be unable
to replace or repair such apparatus in a timely manner or at a reasonable cost, which would impact the our ability to stay in production
or service. Any significant downtime of the equipment manufacturing could impair our ability to produce for or serve customers and materially
and adversely affect our results of operations. In addition, changes in the equipment plans and specifications, delays due to compliance
with governmental requirements or impositions of fees or other delays could increase production costs beyond those budgeted for the business.
If any cost overruns exceed the funds budgeted for operations, the business would be negatively impacted.
Any accident at our manufacturing facilities could subject us
to substantial liability.
The manufacturing and operation of the equipment
involves hazards and risks which could disrupt operations, decrease production and increase costs. The occurrence of a significant accident
or other event that is not fully insured could adversely affect our business, financial condition, results of operations and cash flows.
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If critical components become unavailable
or our suppliers delay their production of our key components, our business will be negatively impacted.
Our ability to get key components to build our
equipment is crucial to our ability to manufacture our products. These components are supplied by certain third-party manufacturers, and
we may be unable to acquire necessary amounts of key components at competitive prices.
If we are successful in our growth, outsourcing
the production of certain parts and components would be one way to reduce manufacturing costs. We plan to select these particular manufacturers
based on their ability to consistently produce these products according to our requirements in an effort to obtain the best quality product
at the most cost-effective price. However, the loss of all or any one of these suppliers or delays in obtaining shipments would have an
adverse effect on our operations until an alternative supplier could be found, if one may be located at all. If we get to that stage of
growth, such loss of manufacturers could cause us to breach any contracts we have in place at that time and would likely cause us to lose
sales.
Any shortage of skilled labor would have
a detrimental impact on our ability to provide our products and services.
The manufacturing and operating of the equipment
requires skilled laborers. In the event there is a shortage of labor, including skilled labor, it could have an adverse impact on our
productivity and costs and our ability to expand production in the event there is an increase in demand for our product or services.
We rely on third party contractors for some of our operations.
If we are unable to find quality contractors, it would severely impact our business.
We outsource certain aspects of our business to
third party contractors. We are subject to the risks associated with such contractors’ ability to successfully provide the necessary
services to meet the needs of our business. If the contractors are unable to adequately provide the contracted services, and we are unable
to find alternative service providers in a timely manner, our ability to operate the business may be disrupted, which may adversely affect
our business, financial condition, results of operations and cash flows.
Union activities could adversely impact our business.
While none of our employees are currently members
of unions, we may become adversely effected by union activities. We are not subject to any collective bargaining or union agreement; however,
it is possible that future employees may join or seek recognition to form a labor union or may be required to become a labor agreement
signatory. If some or all of our employees become unionized, it could adversely affect productivity, increase labor costs and increase
the risk of work stoppages. If a work stoppage were to occur, it could interfere with the business operations and have a material adverse
effect on our business, financial condition, results of operations and cash flows.
Although we do
not believe that we are, or will be, an investment company covered by the Investment Company Act of 1940, if we are deemed to be an investment
company, we may be required to institute burdensome compliance requirements and our activities may be restricted, which may make it difficult
for us to engage in strategic transactions.
A company that, among
other things, is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting,
owning, trading or holding certain types of securities would be deemed an investment company under the Investment Company Act of 1940,
as amended, (the “Investment Company Act”). Additionally, a company that is not and does hold itself out as being engaged
primarily in the business of investing, reinvesting, owning, trading or holding certain types of securities may nevertheless be deemed
an investment company under the Investment Company Act if more than 40% of such company’s assets are deemed to be “investment
securities.”
We are not in the business
of buying and selling securities of other companies. As our strategy had involved the Company investing in other companies, including
Scepter Holdings and Odyssey Group International, it is possible that we could be deemed an investment company, although, given the nature
and extent of our business operations, we do not believe that we are or will be subject us to the Investment Company Act. Our investments
in Scepter Holdings and Odyssey Group International arose from loan agreements that were settled in the form of equity because cash was
not available for the borrowers, and we have recently sold, in a private transaction, all of our shares of Odyssey Group International.
The Company has not traded or sold any securities of other companies that it has acquired. For those LLCs for which the Company serves
as manager, it has been disclosed in the business plan of these LLCs that their primary business is manufacturing heavy machinery or to
provide the Company with cash to specifically manufacture or purchase heavy machinery in exchange for a royalty from the production of
the heavy machinery. These entities do not engage in activities such as investing, reinvesting, owning, holding or trading “investment
securities,” and neither the units of ownership for these entities, nor rights to royalties, have any market and are not traded,
and such interests are accounted for at cost.
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In order not to be regulated as an investment
company under the Investment Company Act, unless we can qualify for an exclusion, we must ensure that we are engaged primarily in a business
other than investing, reinvesting or trading in securities and that our activities do not include investing, reinvesting, owning, holding
or trading “investment securities” constituting more than 40% of our total assets (exclusive of U.S. government securities
and cash items) on an unconsolidated basis. Presently, our “investment securities,” which include our holdings in Scepter
Holdings, as well as certain entities described in our corporate structure, comprise approximately 7% of our total assets, which is below
such 40% threshold. As our business continues to develop and production increases, the percentage of our total assets comprised of investment
securities is expected to decline substantially; however, in the event that the percentage of our holdings in investment securities increases,
we risk exceeding such 40% threshold and being deemed an investment company. We do not plan to buy businesses or assets with a view to
resale or profit from their resale. We do not plan to buy unrelated businesses or assets or to be a passive investor.
If we are nevertheless
deemed to be an investment company under the Investment Company Act, we may be subject to certain restrictions that may make it more difficult
for us to complete a business combination, including:
·
restrictions on the nature of our investments; and
·
restrictions on the issuance of securities.
In addition, we may have
imposed upon us certain burdensome requirements, including:
·
registration as an investment company;
·
adoption of a specific form of corporate structure; and
·
reporting, record keeping, voting, proxy, compliance policies and procedures and disclosure requirements and other rules and regulations.
Compliance
with these additional regulatory burdens would require additional expense for which we have not allotted.
Item 1B - Unresolved Staff Comments
Not applicable.