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taxable income and taxable to tax-exempt investors. In addition, if the IRS successfully asserts that we are engaged in a trade or business |
for U.S. federal income tax purposes (for example, if it determines we are engaged in a lending business), tax-exempt holders, and in |
certain cases non-U.S. holders, would be subject to U.S. income tax on any income generated by such business. The foregoing would apply |
only if the amount of such business income does not cause us to fail to meet the qualifying income test (which would happen if such income |
exceeded 10% of our gross income, and in which case such failure would cause us to be taxable as a corporation). 70 A portion of the income arising from an |
investment in our shares may be treated as income that is effectively connected with our conduct of a U.S. trade or business, which income |
would be taxable to holders who are not U.S. taxpayers. If the IRS successfully asserts that we are engaged in a trade or business |
in the United States for U.S. federal income tax purposes (for example, if it determines we are engaged in a lending business), then in |
certain cases non-U.S. holders would be subject to U.S. income tax on any income that is effectively connected with such business. It |
could also cause the non-U.S. holder to be subject to U.S. federal income tax on a sale of his or her interest in our company. The foregoing |
would apply only if the amount of such business income does not cause us to fail to meet the qualifying income test (which would happen |
if such income exceeded 10% of our gross income, and in which case such failure would cause us to be taxable as a corporation). Risks related to recently enacted legislation. The rules dealing with U.S. federal income taxation |
are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. No assurance |
can be given as to whether, when or in what form the U.S. federal income tax laws applicable to us and our shareholders may be enacted. |
Changes to the U.S. federal income tax laws and interpretations of U.S. federal income tax laws could adversely affect an investment in |
our shares. We cannot predict whether, when or to what extent |
new U.S. federal tax laws, regulations, interpretations or rulings will be issued, nor is the long-term impact of recently enacted tax |
legislation clear. Prospective investors are urged to consult their tax advisors regarding the effect of potential changes to the U.S. |
federal income tax laws on an investment in our shares. Risks Related to Ownership of Our Common Shares Our common shares are quoted on the OTCQB |
Market, which may have an unfavorable impact on our share price and liquidity. Our common shares are quoted on the OTCQB Market |
operated by OTC Markets Group Inc. The OTCQB Market is a significantly more limited market than the New York Stock Exchange or The Nasdaq |
Stock Market. The quotation of our shares on the OTCQB Market may result in a less liquid market available for existing and potential |
shareholders to trade our common shares, could depress the trading price of our common shares and could have a long-term adverse impact |
on our ability to raise capital in the future. The market price, trading volume and marketability |
of our common shares may, from time to time, be significantly affected by numerous factors beyond our control, which may materially adversely |
affect the market price of your common shares, the marketability of your common shares and our ability to raise capital through future |
equity financings. The market price and trading volume of our common |
shares may fluctuate significantly. Many factors that are beyond our control may materially adversely affect the market price of your |
common shares, the marketability of your common shares and our ability to raise capital through equity financings. These factors include |
the following ● actual or anticipated variations in our periodic operating results; ● increases in market interest rates that lead investors of our common shares to demand a higher investment |
return; ● changes in earnings estimates; ● changes in market valuations of similar companies; ● actions or announcements by our competitors; ● adverse market reaction to any increased indebtedness we may incur in the future; ● additions or departures of key personnel; ● actions by shareholders; and ● speculation in the media, online forums, or investment community. 71 An active, liquid trading market for our |
common shares may not be sustained, which may cause our common shares to trade at a discount from the public offering price and make it |
difficult for you to sell the common shares you purchase. We |
cannot predict the extent to which investor interest in us will sustain a trading market or how active and liquid that market may remain. |
If an active and liquid trading market is not sustained, you may have difficulty selling any of our common shares that you purchase at |
a price above the price you purchase it or at all. The failure of an active and liquid trading market to continue would likely have a |
material adverse effect on the value of our common shares. An inactive market may also impair our ability to raise capital |
to continue to fund operations by selling shares and may impair our ability to acquire other companies or technologies by using our shares |
as consideration. Future sales of common shares may affect |
the market price of our common shares. We cannot predict what effect, if any, future |
sales of our common shares, or the availability of common shares for future sale, will have on the market price of our common shares. |
Sales of substantial amounts of our common shares in the public market, or the perception that such sales could occur, could materially |
adversely affect the market price of our common shares and may make it more difficult for you to sell your common shares at a time and |
price which you deem appropriate. Rule 144 sales in the future may have a |
depressive effect on our share price. All of the outstanding common shares held by the |
present officers, directors, and affiliate shareholders are “restricted securities” within the meaning of Rule 144 under the |
Securities Act of 1933, as amended, or the Securities Act. As restricted shares, these shares may be resold only pursuant to an effective |
registration statement or under the requirements of Rule 144 or other applicable exemptions from registration under the Securities Act |
and as required under applicable state securities laws. Rule 144 provides in essence that a person who is an affiliate or officer or director |
who has held restricted securities for six months may, under certain conditions, sell every three months, in brokerage transactions, a |
number of shares that does not exceed the greater of 1.0% of a company’s outstanding common shares. There is no limitation on the |
amount of restricted securities that may be sold by a non-affiliate after the owner has held the restricted securities for a period of |
six months if our company is a current, reporting company under the Exchange Act. A sale under Rule 144 or under any other exemption from |
the Securities Act, if available, or pursuant to subsequent registration of common shares of present shareholders, may have a depressive |
effect upon the price of the common shares in any market that may develop. Our series A senior convertible preferred |
shares are senior to our common shares as to distributions and in liquidation, which could limit our ability to make distributions to |
our common shareholders. Holders of our series A senior convertible preferred |
shares and series B senior convertible preferred shares are entitled to quarterly dividends, payable in cash or in common shares, at a |
rate per annum of 14.0% of the stated value ($2.00 per share for our series A senior convertible preferred shares and $3.00 per share |
for our series B senior convertible preferred shares), subject to adjustment. In addition, upon any liquidation of our company or its |
subsidiaries, each holder of outstanding series A senior convertible preferred shares and series B senior convertible preferred shares |
will be entitled to receive an amount of cash equal to 115% of the stated value, plus an amount of cash equal to all accumulated accrued |
and unpaid dividends thereon (whether or not declared), before any payment shall be made to or set apart for the holders of our common |
shares. This could limit our ability to make regular distributions to our common shareholders or distributions upon liquidation. We may issue additional debt and equity |
securities, which are senior to our common shares as to distributions and in liquidation. In the future, we may attempt to increase our |
capital resources by entering into additional debt or debt-like financing that is secured by all or up to all of our assets, or issuing |
debt or equity securities, which could include issuances of commercial paper, medium-term notes, senior notes, subordinated notes or shares. |
In the event of our liquidation, our lenders and holders of our debt securities would receive a distribution of our available assets before |
distributions to our shareholders. Any additional preferred securities, if issued by us, may have a preference |
with respect to distributions and upon liquidation, which could further limit our ability to make distributions. Because our decision |
to incur debt and issue securities in our future offerings will depend on market conditions and other factors beyond our control, we cannot |
predict or estimate the amount, timing or nature of our future offerings and debt financing. Further, market conditions could require us to |
accept less favorable terms for the issuance of our securities in the future. Thus, you will bear the risk of our future offerings reducing |
the value of your shares and diluting your interest in us. In addition, we can change our leverage strategy from time to time without |
approval of shareholders, which could materially adversely affect the market share price of our common shares. 72 Our potential future earnings and cash distributions |
to our shareholders may affect the market price of our common shares. Generally, the market price of our common shares |
may be based, in part, on the market’s perception of our growth potential and our current and potential future cash distributions, |
whether from operations, sales, acquisitions or refinancings, and on the value of our businesses. For that reason, our common shares may |
trade at prices that are higher or lower than our net asset value per share. Should we retain operating cash flow for investment purposes |
or working capital reserves instead of distributing the cash flows to our shareholders, the retained funds, while increasing the value |
of our underlying assets, may materially adversely affect the market price of our common shares. Our failure to meet market expectations |
with respect to earnings and cash distributions and our failure to make such distributions, for any reason whatsoever, could materially |
adversely affect the market price of our common shares. Were our common shares to be considered |
penny stock, and therefore become subject to the penny stock rules, U.S. broker-dealers may be discouraged from effecting transactions |
in our common shares. Our common shares may be subject to the penny |
stock rules under the Exchange Act. These rules regulate broker-dealer practices for transactions in “penny stocks.” Penny |
stocks are generally equity securities with a price of less than $5.00 per share. The penny stock rules require broker-dealers that derive |
more than 5% of their customer transaction revenues from transactions in penny stocks to deliver a standardized risk disclosure document |
that provides information about penny stocks, and the nature and level of risks in the penny stock market, to any non-institutional customer |
to whom the broker-dealer recommends a penny stock transaction. The broker-dealer must also provide the customer with current bid and |
offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson and monthly account statements showing |
the market value of each penny stock held in the customer’s account. The bid and offer quotations and the broker-dealer and salesperson |
compensation information must be given to the customer orally or in writing prior to completing the transaction and must be given to the |
customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction, |
the broker and/or dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and |
receive the purchaser’s written agreement to the transaction. The transaction costs associated with penny stocks are high, reducing |
the number of broker-dealers who may be willing to engage in the trading of our shares. These additional penny stock disclosure requirements |
are burdensome and may reduce all the trading activity in the market for our common shares. As long as our common shares are subject to |
the penny stock rules, holders of our common shares may find it more difficult to sell their common shares. Holders of our shares may not be entitled |
to a jury trial with respect to claims arising under our operating agreement, which could result in less favorable outcomes to the plaintiffs |
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