RISK FACTORS
An investment in our securities involves
a high degree of risk. You should carefully consider the risks and uncertainties described below together with all of the other
information contained or incorporated by reference in this prospectus, including our consolidated financial statements and the
related notes, before making a decision to invest in our securities. You should also consider the risks, uncertainties and assumptions
discussed under Item 1A, “Risk Factors,” in Part I of our Annual Report on Form 10-K for the year ended December 31,
2019 and any updates or other risks contained in other filings that we may make with the Securities and Exchange Commission (“SEC”)
after the date of this prospectus, all of which are incorporated herein by reference, and may be amended, supplemented or superseded
from time to time by other reports we file with the SEC in the future. If any of these risks actually occur, our business, results
of operations and financial condition could suffer. In that case, the market price of our common stock could decline, and you may
lose all or part of your investment.
Risks Related to this Offering
You will experience immediate and
substantial dilution in the book value per share of the common stock you purchase.
The public offering price per share
of our common stock will be substantially higher than the net tangible book value per share of our common stock immediately prior
to the offering. After giving effect to the sale of the shares of our common stock in this offering, assuming that no investor
has elected to purchase pre-funded warrants in lieu of common stock, purchasers of our common stock in this offering will incur
immediate dilution in the net tangible book value of the common stock they acquire. For a further description of the dilution
that investors in this offering will experience, see “Dilution.”
In addition, to the extent that outstanding
warrants (including the exercise of any common warrants) or options have been or may be exercised, the Debenture is converted into
shares of common stock or other shares issued, you may experience further dilution.
Our management will have broad discretion
over the use of proceeds from this offering and may not use the proceeds effectively.
Our management will have broad discretion
over the use of proceeds from this offering. The net proceeds from this offering will be used primarily
for working capital and general corporate purposes and engaging in acquisitions or other business combinations or investments,
sales and marketing activities, general and administrative matters and capital expenditures. Our management will have considerable
discretion in the application of the net proceeds, and you will not have the opportunity, as part of your investment decision,
to assess whether the proceeds are being used appropriately. The failure by our management to apply these funds effectively could
result in financial losses that could have a material adverse effect on our business and cause the price of our common stock to
decline. The net proceeds may be used for corporate purposes that do not improve our operating results or enhance the value
of our common stock.
Risks Relating to our Company
Our auditor’s report on our
consolidated financial statements contains an explanatory paragraph regarding our ability to continue as a going concern.
Our consolidated financial statements
as of December 31, 2019 have been prepared under the assumption that we will continue as a going concern. In addition, our independent
registered public accounting firm has issued a report that includes an explanatory paragraph referring to our recurring losses
from operations and negative operating cash flows that raise substantial doubt in our ability to continue as a going concern.
Our consolidated financial statements as of December 31, 2019 did not include any adjustments that might result from the outcome
of this uncertainty.
If we are not successful in our efforts
to increase sales or raise capital, we could experience a shortfall in cash over the next twelve months, and our ability
to obtain additional financing on acceptable terms, if at all, may be limited.
On December 31, 2019 and 2018,
we had cash and cash equivalents and a short-term investment, collectively, of $1,625,671 and $1,368,395, respectively. However,
during the fiscal years ended December 31, 2019 and 2018, we reported a net loss of $6,920,540 and $4,844,021,
respectively, and used $2,815,621 and $3,452,234 of cash for operations, respectively. Despite raising capital in the
April 2020 Offering, if we are not successful with our efforts to increase revenue, we could experience a shortfall in cash over
the next twelve months. If there is a shortfall, we may be forced to reduce operating expenses, among other steps, all
of which would have a material adverse effect on our operations going forward.
We may also seek to obtain debt or additional
equity financing to meet any cash shortfalls. The type, timing and terms of any financing we may select will depend on, among other
things, our cash needs, the availability of other financing sources and prevailing conditions in the financial markets. However,
there can be no assurance that we will be able to secure additional funds if needed and that, if such funds are available, the
terms or conditions would be acceptable to us. If we are unable to secure additional financing, further reduction in operating
expenses might need to be substantial in order for us to ensure enough liquidity to sustain our operations. Any equity financing
would be dilutive to our stockholders. If we incur debt, we will likely be subject to restrictive covenants that significantly
limit our operating flexibility and require us to encumber our assets. If we fail to raise sufficient funds and continue to incur
losses, our ability to fund our operations, take advantage of strategic opportunities, or otherwise respond to competitive pressures
will be significantly limited. Any of the above limitations could force us to significantly curtail or cease our operations, and
you could lose all of your investment in our common stock. These circumstances have raised substantial doubt about our ability
to continue as a going concern, and continued cash losses may risk our status as a going concern. Our consolidated financial statements
do not include any adjustments that might be necessary should we be unable to continue as a going concern.
We have incurred net losses in prior
periods, and there can be no assurance that we will generate income in the future, or that we will be able to successfully achieve
or maintain our growth strategy.
Our ability
to achieve profitability will depend upon our ability to generate and sustain substantially increased revenues. We may continue
to incur operating losses in the future as we execute our growth strategy. Although we expect that our expenses will decline due
to our new business model, there can be no assurance that our revenue from royalties will exceed our expenses, especially since
we anticipate that most of our expenses will be fixed expenses that will not be dependent upon
revenue generated. The likelihood that we will generate net income in the future must be considered in light of the difficulties
facing the construction industry as a whole, economic conditions and the competitive environment in which we operate. Our operating
results for future periods are subject to numerous uncertainties, and we may not achieve sufficient revenues to sustain or increase
profitability. In addition, we may be unable to successfully achieve or maintain our growth strategy, including our ability to
expand into new geographic markets.
There can be no assurance that our
collaboration with Transcend will be successful and generate revenue.
On March 30, 2020, we entered into a non-binding
Memorandum of Understanding with Transcend to provide joint products and services. Products that are expected to be implemented
include modular primary care medical units, COVID-19 diagnostic testing units, quarantine living units, as well as drive through
testing units at employer onsite clinics and community hospitals. The Memorandum of Understanding does not specify a quantity of
units to be built or provide for any guarantee of services by either party. There can be no assurance that the collaboration will
continue, that it will yield the anticipated benefits or generate significant revenue, if any, that we will be able to build the
anticipated medical and testing units in a timely manner or that the need for such units will continue.
There can be no assurance that
our Distributorship Agreement with Osang will generate revenue.
On April 30, 2020, we entered into
the Distributorship Agreement with Osang that provides us with the non-exclusive right to distribute Osang’s GeneFinder
COVID-19 Plus RealAmp Kit in the United States for a stated term of one (1) year. The Distribution Agreement does not guarantee
us a specific quantity of kits to sell or a customer list, requires us to pay for 100% of the purchase order prior to delivery
(though we do not expect to make any cash outlays for product and expect instead to require our customers to make such cash outlays)
and may be terminated by either party at any time on thirty (30) days’ notice. To date, we have never sold any medical devices
or kits and there can be no guarantee that we will be able to establish a sales force, establish distribution channels or solicit
customers for the kits. There can be no assurance that the Distributorship Agreement will continue, that it will yield the anticipated
benefits or generate significant revenue, if any.
Product liability and
other claims with respect to Osang’s GeneFinder COVID-19 Plus RealAmp Kit may have material adverse effects on our business.
Companies that distribute medical tests, are generally subject
to risks related to product liability litigation and other claims or litigation. Product liability risks are inherent in marketing
and sale of pharmaceutical products. Even though we are not currently subject to any product liability claims such claims could
arise at a later date. Though Osang has agreed to indemnify us for certain product liability claims, claims arising under the Distributorship
Agreement must be arbitrated in Singapore and enforcement of such indemnification provisions would be time-consuming for our management
and lead to significant costs and losses, which would adversely affect our business, results of operations, cash flows, financial
condition, and/or prospects.
Even though we intend to obtain product liability insurance
and Osang has agreed to indemnify us for certain claims arising out of the manufacture of the kits, there can be no assurance that
such insurance coverage will continue to be available on reasonable commercial terms or that such insurance or indemnification
will prove adequate. If sufficient insurance coverage is not obtained covering product liability, or if such future litigation
or investigation exceeds our insurance coverage, we could be subject to significant liabilities, which could have material adverse
effect on our business, results of operations, cash flows, financial condition, and/or prospects.
Our residential construction business
model depends upon a third-party licensee who is outside our control.
We entered into an exclusive license
agreement with CPF, pursuant to which we granted CPF an exclusive license solely within the United States and its legal territories
to commercialize our technology, intellectual property, any improvements thereto, and any related permits, in order to develop
and commercialize products within the field of design and project management platforms for residential use, including, without
limitation, single-family residences and multi-family residences, but specifically excluding military housing. Under the terms
of the License Agreement, CPF is to provide us with royalties based upon its sale of products that utilize the licensed technology.
Inasmuch as CPF has an exclusive license in the United States, which is the only territory to date where we have been retained
to construct products for use for residences, unless we were to either expand residential construction product sales to territories
outside of the United States or enter into licensing arrangements similar to that with CPF for sales of products that utilize our
technology outside of the United States for residential use or in the United States for business not cover by the License, such
as military residences and commercial and industrial construction, we will be totally dependent upon CPF for our revenue for residential
construction. CPF is an independent entity and we cannot control the amount or timing of resources that it devotes to such commercialization
efforts. CPF may not assign as great a priority to such commercialization efforts or pursue them as diligently as we would if we
were undertaking such commercialization ourselves. If CPF or any other licensee fails to devote sufficient time and resources to
such commercialization efforts, or if its performance is substandard our ability to generate revenue may be adversely affected.
CPF may also have relationships with other commercial entities, some of whom may compete with us. If CPF assists our competitors
at our expense, our competitive position would be harmed. In addition, upon certain extraordinary events, CPF is entitled to terminate
the license agreement in which case we would be forced to incur the costs to commercialize products for residential construction
unless another licensee were found.
Our residential construction business is difficult to
evaluate because we are currently focused on a new business model and have very limited operating history and limited information.
We recently engaged in a new licensing
business model for our residential construction business in the United States. We have entered into one license agreement for use
of our technology for construction of residences in the United States and if successful, we intend to expand our model and enter
into additional similar agreements. There is a risk that we will be unable to successfully generate revenue from this new business
model and that we will be unable to enter into additional licensing agreements or that any additional agreements that we enter
into will be on favorable terms. Although we believe that we will experience cost savings from this new business model resulting
in greater net income since we will no longer require the same level of capital, personnel and equipment as was required from our
prior residential construction business model, there can be no assurance that we will experience the level of cost savings that
we anticipate or generate the income that we anticipate. We are subject to many risks associated with this new business model such
as our dependence upon licensees to commercialize products that utilize our technology. There is no assurance that the licensees
activities will be successful or will result in any revenues or profit. Even if we generate revenue, there can be no assurance
that we will be profitable. We are subject to the risks inherent to the operation of a new business enterprise, and cannot assure
you that we will be able to successfully address these risks.
In December 2019, a novel strain
of coronavirus, COVID-19, was reported to have surfaced in Wuhan, China. Since then, the COVID-19 coronavirus has spread to multiple
countries, including the United States. The impact of the COVID-19 coronavirus outbreak, or similar global health concerns, could
negatively impact our ability to source certain products, impact product pricing, impact our customers’ ability or that of
our licensee to obtain financing or have a negative impact on our business.
In March 2020, the World Health Organization
declared COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and the related adverse
public health developments, have adversely affected work forces, economies and financial markets globally. Our use of third-party
suppliers for production and shipping of certain products could be negatively impacted by the regional or global outbreak of illnesses,
including the COVID-19 coronavirus outbreak. To date, we have experienced some delays in projects due to COVID-19. Any quarantines,
the timing and length of containment and eradication solutions, travel restrictions, absenteeism by infected workers, labor shortages
or other disruptions to our suppliers and their contract manufacturers or our customers or our licensee, CPF, would likely adversely
impact our sales and operating results and result in further project delays. In addition, the pandemic could result in an economic
downturn that could affect the ability of our customers and licensees to obtain financing and therefore impact demand for our products.
Order lead times could be extended or delayed and pricing could increase. Some products or services may become unavailable
if the regional or global spread were significant enough to prevent alternative sourcing. Accordingly, we are considering alternative
product sourcing in the event that product supply becomes problematic. We expect this global pandemic to have an impact on
our revenue and our results of operations, the size and duration of which we are currently unable to predict.
In addition, the outbreak of the COVID-19 coronavirus
could disrupt our operations due to absenteeism by infected or ill members of management or other employees, or absenteeism by
members of management and other employees who elect not to come to work due to the illness affecting others in our office or other
workplace, or due to quarantines. COVID-19 illness could also impact members of our Board of Directors resulting in absenteeism
from meetings of the directors or committees of directors, and making it more difficult to convene the quorums of the full Board
of Directors or its committees needed to conduct meetings for the management of our affairs.
The global outbreak of the COVID-19 coronavirus
continues to rapidly evolve. The extent to which the COVID-19 coronavirus may impact our business and clinical trials will
depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic
spread of the disease, the duration of the outbreak, travel restrictions and social distancing in the United States and other countries,
business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain
and treat the disease.
The requirements of being a public
company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board
members.
We are subject to the reporting and corporate
governance requirements of the Exchange Act, the listing requirements of the Nasdaq Capital Market and other applicable securities
rules and regulations, including the Sarbanes-Oxley Act and the Dodd-Frank Act. Compliance with these rules and regulations will
increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand
on our systems and resources. Among other things, the Exchange Act requires that we file annual, quarterly and current reports
with respect to our business and results of operations and maintain effective disclosure controls and procedures and internal control
over financial reporting. In order to continue to maintain our disclosure controls and procedures and internal control over financial
reporting to meet this standard, significant resources and management oversight may be required. As a result, management’s
attention may be diverted from other business concerns, which could harm our business, financial condition, results of operations
and prospects. We also may need to further expand our legal and finance departments in the future, which will increase our costs
and expenses.
In addition, changing laws, regulations
and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing
legal and financial compliance costs and making some activities more time-consuming. These laws, regulations and standards are
subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice
may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty
regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend
to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general
and administrative expense and a diversion of management’s time and attention from revenue-generating activities to compliance
activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory
or governing bodies, regulatory authorities may initiate legal proceedings against us and our business and prospects may be harmed.
As a result of disclosure of information in the filings required of a public company, our business and financial condition are
more visible, which may result in threatened or actual litigation, including by competitors and other third parties. If such claims
are successful, our business, financial condition, results of operations and prospects could be harmed, and even if the claims
do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could
divert the resources of our management and harm our business, financial condition, results of operations and prospects.
The issuance of shares of our common
stock upon the exercise of outstanding options, warrants and restricted stock units may dilute the percentage ownership of the
then-existing stockholders and may make it more difficult to raise additional equity capital.
As of December 31, 2019, there are outstanding
options and warrants to purchase 53,170 and 53,190 shares of common stock, respectively, in addition to 21,859 vested and unvested
restricted stock units. The exercise of such options and warrants and the vesting of restricted stock units would dilute the then-existing
stockholders’ percentage ownership of our stock, and any sales in the public market of common stock underlying such securities
could adversely affect prevailing market prices for the common stock. Moreover, the terms upon which we would be able to obtain
additional equity capital could be adversely affected because the holders of our options and warrants can be expected to exercise
them at a time when we would, in all likelihood, be able to obtain any needed capital on terms more favorable to us than those
provided by such securities.
We are dependent on the services of key personnel, and
the unexpected loss of their services may adversely affect our operations.
Our success depends highly upon the personal
efforts and abilities of our senior management team, specifically the efforts of Paul M. Galvin, our Chief Executive Officer, Gerald
Sheeran, our Acting Chief Financial Officer, and Stevan Armstrong, our Chief Technology Officer. The Company has entered into employment
agreements with Mr. Galvin. The employment agreement with Mr. Galvin provides for two-year terms, with automatic renewal after
the end of such term. The loss of the services of one or more of these individuals could have a material adverse effect on our
business. Our ability to achieve profitability and generate increased revenue will depend upon our ability to retain, and,
if necessary, attract experienced management personnel.
The loss of one or a few
customers could have a material adverse effect on us.
A few customers have in the past, and may
in the future, account for a significant portion of our revenues in any one year or over a period of several consecutive
years. For example, for the year ended December 31, 2019, approximately 78% of our revenue was generated from two customers.
Although we have contractual relationships with many of our significant customers, our customers may unilaterally reduce or discontinue
their contracts with us at any time. The loss of business from a significant customer could have a material adverse effect on our
business, financial condition, results of operations and cash flows.
We rely on certain vendors to supply
us with materials and products that, if we were unable to obtain, could adversely affect our business.
We have relationships with key materials
vendors, and we rely on suppliers for our purchases of products from them. Any inability to obtain materials or services
in the volumes required and at competitive prices from our major trading partners, the loss of any major trading partner or the
discontinuation of vendor financing (if any) may seriously harm our business because we may not be able to meet the demands of
our customers on a timely basis in sufficient quantities or at all. Other factors, including reduced access to credit
by our vendors resulting from economic conditions, may impair our vendors’ ability to provide products in a timely manner
or at competitive prices. We also rely on other vendors for critical services such as transportation, supply chain and
professional services. Any negative impacts to our business or liquidity could adversely impact our ability to establish
or maintain these relationships. For the years ended December 31, 2019 and 2018, 74% and 55%, respectively of our cost of
revenue related to three and two vendors, respectively.
An impairment
of goodwill could have a material adverse effect on our financial condition and results of operations.
As December 31,
2019, we had $1,223,520 of goodwill. We perform an impairment test of our goodwill annually during the fourth quarter of our fiscal
year or when events occur or circumstances change that would more-likely-than-not indicate that goodwill might be impaired. Factors
that may be considered a change in circumstances, indicating that the carrying value of our goodwill may not be recoverable, include
a decline in stock price and market capitalization, reduced future cash flow estimates and slower growth rates in our industry.
Our annual impairment tests resulted in an impairment of goodwill during fiscal 2019 in the amount of $2,938,653. The annual impairment
test during fiscal 2018 resulted in no impairment being recorded. Deterioration in estimated future cash flows in our
reporting unit could result in further future goodwill impairment. Changes to our business strategy, changes in industry or market
conditions, changes in operating performance or other indicators of impairment could cause us to record a significant impairment
charge during the period in which the impairment is determined, negatively impacting our results of operations and financial position.
We currently are, and may in the
future be, subject to legal proceedings or investigations, the resolution of which could negatively affect our profitability and
cash flows in a particular period.
The nature of our operations exposes us
to possible litigation claims, including disputes relating to our operations and commercial and contractual arrangements. Although
we make every effort to avoid litigation, these matters are not totally within our control. We will contest these matters vigorously
and will make insurance claims where appropriate, but because of the uncertain nature of litigation and coverage decisions, we
cannot predict the outcome of these matters. The costs associated with litigation matters could have a material adverse effect
on our financial condition and profitability. In addition, our profitability or cash flow in a particular period could be affected
by an adverse ruling in any litigation currently pending in the courts or by litigation that may be filed against us in the future.
We are also subject to environmental and other government regulation, which could result in administrative proceedings in the future.
Risks Relating to our Business and Industry
We and CPF are dependent on the availability
and skill of subcontractors, their willingness to work with us, and their selection of, and ability to obtain, suitable and quality
building materials.
We and CPF will rely on subcontractors
to perform the actual construction of our building projects and, in many cases, to select and obtain raw materials. Despite detailed
specifications and quality control procedures, in some cases, improper construction processes or defective materials may be used
to finish construction of our building projects. We and CPF may need to spend money to remediate such problems when they are discovered.
Defective products can result in the need to perform extensive repairs to large numbers of buildings. Though subcontracts are written
to protect from substandard performance or materials, pervasive problems could adversely affect CPF’s business and therefore
our ability to generate royalty income. Our revenue from our CPF is based upon the gross revenue it receives from product sales
which is exclusive of amounts repaid or credited by reason of rejection or returns. The inability to contract with skilled subcontractors
or general contractors at reasonable costs and on a timely basis could limit our or CPF’s ability to construct and deliver
buildings and could erode our profit margins and adversely affect our results of operations and cash flows.
We depend on third parties for
transportation services, and limited availability or increases in costs of transportation could adversely affect our business and
operations.
Our business depends on the transportation of a large number
of products, via railroad or truck. We rely primarily on third parties for transportation of the products we manufacture or distribute
and for the delivery of our raw materials. We are also subject to seasonal capacity constraints, which may be severely reduced
due to COVID-19 coronavirus, and weather-related delays for both rail and truck transportation. If any of our third-party transportation
providers were to fail to deliver raw materials to us or our Modules to our customers in a timely manner, we may be unable to complete
projects in a timely manner and may, among other things, incur penalties for late delivery or be unable to use the Modules as intended.
In addition, if any of these third parties were to cease operations or cease doing business with us, we may be unable to replace
them at reasonable cost. Any failure of a third-party transportation provider to deliver raw materials to us or finished Modules
to our customers in a timely manner could harm our reputation, negatively affect our customer relationships, and have a material
adverse effect on our operating results, cash flows, and financial condition. Additionally, an increase in transportation rates
or fuel surcharges could adversely affect our sales, profitability, and cash flows.
We may have difficulty protecting
our proprietary manufacturing processes, which could adversely affect our ability to compete.
We use a proprietary
manufacturing process that allows us to be code-compliant in our SGBlocks™ product. Such manufacturing process
is unique to the construction industry and is important to ensure our continued success, and we cannot assure you that our efforts
to protect our proprietary rights will be sufficient or effective. If other companies replicate our methodology, we could lose
our competitive advantage. Any future patent or trademark applications may not lead to issued patents and registered trademarks
in all instances. We also cannot be assured that the scope of any patents issued in the future will be sufficiently broad to offer
meaningful protection. Others may develop or patent similar or superior technologies, products or services, and our intellectual
property rights may be challenged, invalidated, misappropriated or infringed by others. If we are unable to protect and maintain
our intellectual property rights, or if there are any successful intellectual property challenges or infringement proceedings against
us, our business and revenue could be materially and adversely affected.
Expansion of our operations may strain
resources, and our failure to manage growth effectively could adversely impact our operating results and harm our ability to attract
and retain key personnel.
Increased orders for our Modules have placed,
and may continue to place, a strain on our operational, financial, and managerial resources and personnel. In addition, execution
of our growth strategy will require further substantial capital and effective planning. Significant rapid growth on top of our
current operations could greatly strain our internal resources, leading to a lower quality of customer service, reporting problems,
and delays, resulting in a loss of market share and other problems that could adversely affect our financial performance. Our efforts
to grow could place an additional strain on our personnel, management systems, liquidity, and other resources. If we do not manage
our growth effectively, our operations could be adversely affected, resulting in slower, no or negative growth, critical shortages
of cash and a failure to achieve or sustain profitability.
Our clients may adjust, cancel or
suspend the contracts in our backlog; as such, our backlog is not necessarily indicative of our future revenues or earnings. In
addition, even if fully performed, our backlog is not a good indicator of our future gross margins.
Backlog represents the total dollar amount
of revenues we expect to record in the future as a result of performing work under contracts we have been awarded. Backlog may
fluctuate significantly due to the timing of orders or awards for large projects and is not necessarily indicative of future backlog
levels or the rate at which backlog will be recognized as revenue. We include in backlog only those contracts for which we have
reasonable assurance that the customer can obtain the permits for construction and can fund the construction. As of December
31, 2018, our backlog totaled approximately $97.7 million and as of December 31, 2019, our backlog totaled approximately $17.6
million. The decrease in backlog at December 31, 2019 from December 31, 2018 is primarily attributable to us moving a contract
of approximately $25 million out of backlog after receiving a cancellation notice from the customer and moving two contracts of
approximately $70 million out of backlog due to the exclusive License Agreement. Our backlog includes one large contract entered
into by us during the third quarter of 2019 in the amount of approximately $17 million as described in more detail in
“Note 10—Construction Backlog” of the notes to our consolidated financial statements included in our
Annual Report on Form 10-K for the year ended December 31, 2020. We cannot provide assurance that our backlog will be realized
as revenues in the amounts reported or, if realized, will result in profits. In accordance with industry practice, substantially
all of our contracts are subject to cancellation, termination or suspension at our customer’s discretion. In the event of
a project cancellation, we generally would not have a contractual right to the total revenue reflected in our backlog. Projects
can remain in backlog for extended periods of time because of the nature of the project and the timing of the particular services
required by the project. In addition, the risk of contracts in backlog being cancelled or suspended generally increases during
periods of widespread economic slowdowns or in response to changes in commodity prices.
The contracts in our backlog are subject
to changes in the scope of services to be provided and adjustments to the costs relating to the contracts. The revenue for certain
contracts included in backlog is based on estimates. Additionally, our performance of our individual contracts can affect greatly
our gross margins and, therefore, our future profitability. We can provide no assurance that the contracts in backlog, assuming
they produce revenues in the amounts currently estimated, will generate gross margins at the rates we have realized in the past.
Our liability for estimated warranties may be inadequate,
which could materially adversely affect our business, financial condition and results of operations.
We are subject to construction defect and
warranty claims arising in the ordinary course of business. These claims are common in the construction industry and can be costly.
At this time, our third-party providers offer guarantees and warranties in accordance with industry standards that flow through
to our clients. A large number of warranty claims could have a material adverse effect on our results of operations.
We can be adversely affected by failures
of persons who act on our behalf to comply with applicable regulations and guidelines.
Although we expect all of our associates
(i.e., employees), officers and directors to comply at all times with all applicable laws, rules and regulations, there are instances
in which subcontractors or others through whom we do business may engage in practices that do not comply with applicable regulations
or guidelines. It is possible that our associates may become aware of these practices but do not take steps to prevent
them. If we learn of practices relating to buildings constructed on our behalf that do not comply with applicable regulations
or guidelines, we will move actively to stop the non-complying practices as soon as possible, and we will take disciplinary action
with regard to our associates who were aware of the practices, including in some instances terminating their employment. However,
regardless of the steps we take, we may be subject to fines or other governmental penalties, and our reputation may be negatively
affected.
The cyclical and seasonal nature of
the construction industry causes our revenues and operating results to fluctuate, and we expect this cyclicality and seasonality
to continue in the future.
The construction industry is highly
cyclical and seasonal and is influenced by many international, national and regional economic factors, including the availability
of consumer and wholesale financing, which may be severely reduced due to COVID-19 coronavirus, seasonality of demand, consumer
confidence, interest rates, income levels and general economic conditions, including inflation and recessions. As a result of the
foregoing factors, the revenues and operating results we derive from customers and CPF will fluctuate and we currently expect them
to continue to fluctuate in the future. Moreover, we have experienced, and may continue to experience, operating losses during
cyclical downturns in the construction market. These and other economic factors could have a material adverse effect on demand
for our products and our financial condition and operating results.
Our business depends on the
construction industry and general business, financial market and economic conditions.
The construction industry is cyclical and
significantly affected by changes in general and local economic and real estate conditions, such as employment levels, consumer
confidence, demographic trends, housing demand, inflation, deflation, interest rates and credit availability. Changes in these
general and local economic conditions or deterioration in the broader economy could negatively impact the level of purchases, capital
expenditures and creditworthiness of our indirect customers and suppliers to CPF s, and, therefore, our royalty income and financial
condition, results of operations and cash flows. Changes in these economic conditions may affect some of our regions or markets
more than others. If adverse conditions affect our larger markets, they could have a proportionately greater impact on us than
on some other companies. In addition, any uncertainty regarding global economic conditions may have an adverse effect on the results
of operations and financial condition of us or our customers, distributors and suppliers, such as negative effects of currency
exchange fluctuations. A shortage of labor in the construction industry could also have an impact on our financial results.
Our business relies on private investment
and a slower than expected economy may adversely affect our results.
A significant portion of our sales and
those of CPF are for projects with non-public owners, such as non-residential builders and home builders who make investments with
private funds into their projects. Construction spending is affected by their customers’ ability to finance projects, which
may be severely reduced due to the COVID-19 coronavirus. Residential and nonresidential construction could decline if companies
and consumers are unable to finance construction projects or if the economy slows or is stalled, which could result in delays or
cancellations of capital projects. If the economy slows, or if housing starts and nonresidential projects do not increase, sales
of our products directly by us to consumers or by CPF and related services may decline, and our financial position, results of
operations and liquidity could be materially adversely affected.
A material disruption at one of
our suppliers’ facilities could prevent us from meeting customer demand, reduce our sales and negatively affect our overall
financial results.
Any of the following events could cease
or limit operations unexpectedly: fires, floods, earthquakes, hurricanes, on-site or off-site environmental incidents or other
catastrophes; global pandemic; utility and transportation infrastructure disruptions; labor difficulties; other operational problems;
or war, acts of terrorism or other unexpected events. Any downtime or damage at our suppliers’ facilities could prevent us
from meeting customer demand for our products or require us to make more expensive purchases from a competing supplier. If our
suppliers were to incur significant downtime, our ability to satisfy customer requirements could be impaired, resulting in customers
seeking products from other distributors, as well as decreased customer satisfaction and lower sales and operating income.
Environmental, health and safety laws and regulations
and any changes to, or liabilities arising under, such laws and regulations could have a material adverse effect on our financial
condition, results of operations and liquidity.
We are subject to a variety of federal,
state and local laws and regulations relating to, among other things: the release or discharge of materials into the environment;
the management, use, generation, treatment, processing, handling, storage, transport or disposal of solid and hazardous wastes
and materials; and the protection of public and employee health and safety and the environment. These laws and regulations may
expose us to liability for the conduct of others or for our actions, even if such actions complied with all applicable laws at
the time these actions were taken. These laws and regulations may also expose us to liability for claims of personal injury or
property or natural resource damage related to alleged exposure to, or releases of, regulated or hazardous materials. The existence
of contamination at properties we own, lease or operate could also result in increased operational costs or restrictions on our
ability to use those properties as intended, including for purposes of construction materials distribution. In addition, because
our properties are generally situated adjacent to or near industrial companies, our properties may be at an increased risk of having
environmental contaminants from other properties spill or migrate onto or otherwise affect our properties.
Despite our compliance efforts, there is
an inherent risk of liability in the operation of our business, especially from an environmental standpoint, and, from time to
time, we may be in noncompliance with environmental, health and safety laws and regulations. These potential liabilities or non-compliances
could have an adverse effect on our operations and profitability. In some instances, we must have government approvals, certificates,
permits or licenses in order to conduct our business, which may require us to make significant capital, operating and maintenance
expenditures to comply with environmental, health and safety laws and regulations. Our failure to obtain and maintain required
approvals, certificates, permits or licenses or to comply with applicable governmental requirements could result in sanctions,
including substantial fines or possible revocation of our authority to conduct some or all of our operations. The cost of complying
with such laws could have a material adverse effect on our financial condition, results of operations and liquidity.
Our business may be subject to economic and political
risks of operating and obtaining supplies from foreign countries, including adverse impact of changes in international trade and
tariff policies.
We operate in and source some of our products
from outside of the United States, and our suppliers may also rely upon non-domestic products. As such, any significant changes
to, among other things, the general political and social conditions in foreign counties in which we maintain operations or sourcing
relationships, unfavorable changes in U.S. trade legislation and regulation, the recent outbreak of the COVID-19 coronavirus,
the imposition of governmental economic sanctions on countries in which we do business or other trade barriers, threats of war,
terrorism or governmental instability, labor disruptions, currency controls, fluctuating exchange rates with respect to contracts
not denominated in U.S. dollars and unanticipated or unfavorable changes in government policies with respect to laws and regulations,
anti-inflation measures and method of taxation. If we are unable to navigate foreign regulatory environments, or if we are unable
to enforce our contract rights in foreign countries, our business could be adversely impacted. Any of these events could interrupt
our business and cause operational disruptions, increase our costs of operations, reduce our sales or otherwise have an adverse
effect on our operating performance.
The U.S. government has indicated its intent
to alter its approach to trade policy, including, in some instances, to revise, renegotiate or terminate certain multilateral trade
agreements. It has also imposed new tariffs on certain foreign goods and raised the possibility of imposing additional increases
or new tariffs on other goods. Such actions have, in some cases, led to retaliatory trade measures by certain foreign governments.
Such policies could make it more difficult or costly for us to do business in or procure products from those countries. In turn,
we may need to raise prices or make changes to our operations, which could negatively impact our revenue or operating results.
At this time, it remains unclear what additional actions, if any, will be taken by the U.S. government or foreign governments with
respect to tariff and international trade agreements and policies, and we cannot predict future trade policy or the terms of any
revised trade agreements or any impact on our business.
Our operating results will be subject
to fluctuations and are inherently unpredictable.
In order to return to profitability, we
will need to generate and sustain higher revenue while maintaining reasonable cost and expense levels. In our most recent quarter,
we experienced a loss. We do not know if our revenue will grow, or if it will grow sufficiently to outpace our expenses, which
we expect to increase as we expand our operational capacity. We may not be able to become profitable on a quarterly or an annual
basis. Our quarterly revenue and operating results will be difficult to predict and have in the past fluctuated from quarter to
quarter. The amount, timing and mix of project sales, often for a single medium or large-scale project, may cause large fluctuations
in our revenue and other financial results. Further, our revenue mix of high margin materials sales versus lower margin projects
can fluctuate dramatically quarter to quarter, which may adversely affect our revenue and financial results in any given period.
Finally, our ability to meet project completion schedules for an individual project and the corresponding revenue impact under
the percentage-of-completion method of recognizing revenue, may similarly cause large fluctuations in our revenue and other financial
results. This may cause us to miss any future guidance announced by us.
We base our planned operating expenses
in part on our expectations of future revenue, and a significant portion of our expenses are fixed in the short-term. If revenue
for a particular quarter is lower than we expect, we likely will be unable to proportionately reduce our operating expenses for
that quarter, which would harm our operating results for that quarter. This may cause us to miss any guidance announced by us.
Cybersecurity risks related
to the technology used in our operations and other business processes, as well as security breaches of company, customer, employee
and vendor information, could adversely affect our business.
We rely on various information technology
systems to capture, process, store and report data and interact with customers, vendors and employees. Despite careful security
and controls design, as the prevalence of cyber-attacks continues to increase, our information technology systems,
and those of our third-party providers, could become subject to increased security threats, such as phishing and malware incidents. Our
security measures may be unable to prevent certain security breaches, and any such network, system, data or other breaches could
result in misappropriation of sensitive data, transactional errors, theft of funds, business disruptions, loss of or damage to
intellectual property, loss of customers and business opportunities, unauthorized access to or disclosure of confidential or personal
information (which could cause a breach of applicable data protection legislation), regulatory fines, penalties or intervention, reputational damage,
reimbursement or other compensatory costs and additional compliance costs, any of which could have a material adverse effect on
our reputation, business, financial condition, results of operations and cash flows.
Because the techniques used to obtain unauthorized
access to, or disable, degrade or sabotage, information technologies systems change frequently, and may not be recognized until
after they have been launched against a target, we may be unable to anticipate these techniques, implement adequate preventative
measures or remediate any breach in a timely or effective manner. In addition, the development and maintenance of preventative
or detective measures is costly, and requires ongoing monitoring and updating as technologies change and efforts to circumvent
security measures become more sophisticated. As well as incurring additional costs, sophisticated hardware and operating system
software and applications that we 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 systems, or we may be unable to successfully integrate
and launch new systems as planned without disruptions to our operations. Misuse of internal applications, theft of intellectual
property, trade secrets, funds or other corporate assets and inappropriate disclosure of confidential information could stem from
such incidents.
Despite our efforts, we remain potentially
vulnerable to cyber-attacks and security breaches, and any such attack or breach could adversely affect our reputation, business,
financial condition or results of operations.
We could suffer adverse tax and other
financial consequences if we are unable to utilize our net operating loss carryforwards.
At December 31, 2019, we had tax net
operating loss carryforwards totaling approximately $12.9 million. The net operating loss expires beginning 2030 through 2037 for
those losses generated in 2017 and prior years. Approximately $5.5 million of such net operating losses will carryforward indefinitely
and be available to offset up to 80% of future taxable income each year. Subsequent to December 31, 2019, the Coronavirus
Aid, Relief and Economic Security Act (“CARES Act”) was passed, which temporarily removes such 80% limitation for years
2019 and 2020. At December 31, 2019, we had a valuation allowance of $3.1 million, primarily related to net operating
loss carryforwards that are not more likely than not to be utilized due to an inability to carry back these losses in
most states and short carryforward periods that exist in certain states. If we are unable to use our net operating losses,
we may be required to record charges or reduce our deferred tax assets, which could have an adverse effect on our results of operations.
Risks Relating to the Construction Sector
We and CPF may be dependent upon third-party financing,
and our financial condition and results of operations could be negatively affected if additional third-party financing for our
customers does not become available
Our business and earnings depend substantially
on our ability and the ability of CPF to obtain financing for the development of their construction projects, which may be adversely
impacted by the recent COVID-19 coronavirus outbreak. The availability and cost of such financing is further dependent
on the number of financial institutions participating in the industry, the departure of financial institutions from the industry,
the financial institutions’ lending practices, the strength of the domestic and international credit markets generally, governmental
policies and other conditions, all of which are beyond our control. In light of the current economic climate, some of our projects
and those of CPF may not be successful in obtaining additional funds in a timely manner, on favorable terms or at all. The availability
of borrowed funds, especially for construction financing, has been greatly reduced, and lenders may require project developers
to invest increased amounts of equity in a project in connection with both new loans and the extension of existing loans. Unfavorable
changes in the availability and terms of financing in the industry will have a material adverse effect on certain privately financed
projects.
Our results of operations also depend on
the ability of any potential privately financed licensees to obtain loans for the purchase of new buildings. Over the past few
years, lenders have tightened the credit underwriting standards, which have reduced lending volumes. If this trend continues, it
would negatively impact CPF’s sales and our royalty income, which depend in large part on the availability and
cost of financing. In addition, where our potential customers must sell their existing buildings or real estate in order to develop
new buildings, increases in mortgage costs and/or lack of availability of mortgages could prevent buyers of potential customers’
existing buildings from obtaining the mortgages they need to complete their purchases, which would result in our potential customers’
inability to make purchases from us. If our potential customers cannot obtain suitable financing, our sales and results of operations
would be adversely affected.
The construction industry is highly
competitive, and such competition may increase the adverse effects of industry conditions, including the consolidation of the industry.
We operate in a very competitive environment
characterized by competition from numerous local, regional and national builders. We may compete for financing, raw materials and
skilled management and labor resources. A decline in construction starts could adversely affect demand for our buildings and our
results of operations. Increased competition could require us to further increase our selling incentives and/or reduce our prices,
which could negatively affect our profits. We may be unable to successfully expand into or compete in the markets in new geographic
areas. In addition, while we believe our ESR may improve our competitive position by potentially expediting reviews and approvals
by state and local building departments and certifying our specific quality control and design acceptance criteria, there is no
assurance that it will have the desired impact.
There can be no assurance that
Modules or modular construction techniques that utilize our technology and expertise will achieve market acceptance and grow; thus,
the future of our business and the modular construction industry as a whole is uncertain.
There can be no assurance that we
will achieve market acceptance for our technology and expertise or that the modular construction market will grow. Our business
may be disrupted by the introduction of new products and services and is subject to changing consumer preferences and industry
trends, which may adversely affect our ability to plan for the future development and marketing of our products. Although Modules
have particular applications in a wide variety of market segments, there is no assurance that we will be able to expand our relationship
within such market segments or, even if we do, that general market acceptance for our technology and expertise or Modules will
continue to increase.
Government regulations and legal
challenges may delay the start or completion of our projects, increase our expenses or limit our building activities, which could
have a negative impact on our operations.
Various domestic and international rules
and regulations concerning building, zoning, sales and similar matters apply to and/or affect the construction industry. Governmental
regulation affects construction activities, as well as sales activities, mortgage lending activities and other dealings with consumers. These
industries also have experienced an increase in state and local legislation in the United States and regulations that limit the
availability or use of land. Municipalities may also restrict or place moratoriums on the availability of utilities, such
as water and sewer taps. In some areas, municipalities may enact growth control initiatives, which restrict the number of
building permits available in a given year. In addition, we may be required to apply for additional approvals or modify our
existing approvals because of changes in local circumstances or applicable law. If governments in locations in which we operate
take actions like the ones described, they could adversely affect our business by causing delays, increasing our costs or limiting
our ability to operate in those areas. Further, we may experience delays and increased expenses as a result of legal challenges
to our proposed projects, whether brought by governmental authorities or private parties. Failure to comply with laws or regulations
applicable to or affecting us, or the passage in the future of new and more stringent laws affecting us, may adversely affect our
financial condition or results of operations.
The dangers inherent in our operations,
such as disruptions to our facilities and project sites, and the limits on insurance coverage could expose us to potentially significant
liability costs and materially interfere with the performance of our operations.
While we believe our insurance coverage
is adequate and in line with our industry’s standards, all construction, including modular construction, involves operating
hazards that can cause personal injury or loss of life, severe damage to and destruction of property and equipment and suspension
of operations, including, but not limited to, natural or man-made disruptions to our facilities and project sites. The failure
of such structures during and after installation can result in similar injuries and damages. Although we believe that our insurance
coverage is adequate, there can be no assurance that we will be able to maintain adequate insurance in the future at rates we consider
reasonable, or that our insurance coverage will be adequate to cover future claims that may arise. Claims for which we are not
fully insured may adversely affect our working capital and profitability. In addition, changes in the insurance industry have generally
led to higher insurance costs and decreased availability of coverage. The availability of insurance that covers risks we and our
competitors typically insure against may decrease, and the insurance that we are able to obtain may have higher deductibles, higher
premiums and more restrictive policy terms.
Risks Relating to Ownership of our
Common Stock and this Offering
Our failure to meet the continued
listing requirements of the Nasdaq Capital Market could result in a delisting of our common stock.
Our common stock is listed on the Nasdaq Capital
Market (“Nasdaq” or the “Nasdaq Capital Market”), which imposes, among other requirements, a
minimum bid requirement. On July 1, 2019, we received a letter from Nasdaq that, because the closing bid price for our
common stock was below $1.00 for 30 consecutive business days, we no longer met the minimum bid price requirement
for continued listing on Nasdaq. On February 21, 2020, we received written notice from the Listing Qualifications
department of Nasdaq notifying us that we had regained compliance with the minimum bid price and stockholder’s equity
rules.
The delisting of our common stock from Nasdaq may
make it more difficult for us to raise capital on favorable terms in the future, or at all. Such a delisting would likely have
a negative effect on the price of our common stock and would impair your ability to sell or purchase our common stock when you
wish to do so. Further, if our common stock were to be delisted from Nasdaq, our common stock would cease to be recognized
as a covered security, and we would be subject to additional regulation in each state in which we offer our securities. Moreover,
there is no assurance that any actions that we take to restore our compliance with the Nasdaq minimum bid requirement
would stabilize the market price or improve the liquidity of our common stock, prevent our common stock from falling below the Nasdaq minimum
bid price required for continued listing again or prevent future non-compliance with Nasdaq’s listing requirements.
There can be no assurance that we will
continue to meet the minimum bid price requirement, or any other requirement in the future. If we fail to meet the minimum bid
price requirement, or other applicable Nasdaq listing requirements, including maintaining minimum levels of stockholders’
equity or market values of our common stock, our common stock could be delisted. Delisting from Nasdaq would cause us
to pursue eligibility for trading of our common stock on other markets or exchanges, or on an over-the-counter market. In such
case, our stockholders’ ability to trade or obtain quotations of the market value of our common stock would be severely limited
because of lower trading volumes and transaction delays. These factors could contribute to lower prices and larger spreads in the
bid and ask prices of these securities. There can be no assurance that our common stock, if delisted from the Nasdaq, would
be listed on a national securities exchange, a national quotation service or the over-the-counter markets. Delisting from the Nasdaq could
also result in negative publicity, make it more difficult for us to raise additional capital, adversely affect the market liquidity
of our common stock, decrease securities analysts’ coverage of us or diminish investor, supplier and employee confidence.
In addition, our stock could become a “penny stock,” which would make trading of our common stock more difficult.
Our stock price has been subject
to fluctuations in the past, has recently been volatile, and will likely continue to be subject to fluctuations and decline, due
to factors beyond our control, and investors in our common stock may lose all or part of their investment in our company.
Prior to the public offering of our stock
in June 2017, there was no market for shares of our common stock. Shares of our common stock were sold in our June 2017 public
offering at a price of $100.00 per share and in our December 2019 public offering at a price of $3.00 per share. Although
our common stock is listed on the Nasdaq Capital Market, the market price of our common stock may be subject to wide fluctuations
in response to various factors, some of which are beyond our control, including, but not limited to:
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economic
and market conditions or trends in our industry or the economy as a whole and, in particular, in the construction industry;
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additions or departures of key personnel;
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operating results that fall below expectations;
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new laws or regulations or new interpretations of existing laws or regulations applicable to our business;
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material litigation or government disputes;
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the
public’s response to press releases or other public announcements by us or third parties, including our filings with the
SEC;
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changes
in financial estimates or recommendations by any securities analysts who follow our common stock;
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the
size of our market float and potential dilution due to the exercise of outstanding options and warrants;
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future
sales of our common stock by our officers, directors and significant stockholders, including sales pursuant to a registration
statement filed to permit a significant stockholder to sell shares of our common stock, pursuant to certain registration rights
granted to such stockholder;
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other
events or factors, including those resulting from such events, or the prospect of such events, including war, terrorism and other
international conflicts, public health issues including health epidemics or pandemics, such as the recent outbreak of the COVID-19
novel coronavirus, and natural disasters such as fire, hurricanes, earthquakes, tornados or other adverse weather and climate
conditions, whether occurring in the United States or elsewhere, could disrupt our operations, disrupt the operations of our suppliers
or result in political or economic instability; and
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period-to-period
fluctuations in our financial results.
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In addition, the securities markets have,
from time to time, experienced significant price and volume fluctuations that are unrelated to the operating performance of
particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.
Since the stock price of our common stock has fluctuated in the past, has recently been volatile and will likely be volatile in
the future, investors in our common stock may lose all or part of their investment in our company. In the past, stockholders have
instituted securities class action litigation following periods of market volatility. If we were to become involved in securities
litigation, we could incur substantial costs and our resources and the attention of management could be diverted from our business.
The trading in our stock has in the
past and may continue to be very volatile.
Our stock price and the trading volume
of our stock continue to be very volatile. As such, investors may find it difficult to obtain accurate stock price quotations and
holders of our stock may be unable to resell their stock at desirable prices. Sales of substantial amounts of our common stock,
or the perception that such sales might occur, could adversely affect prevailing market prices of our common stock and our stock
price may decline substantially in a short period of time. As a result, our stockholders could suffer losses or be unable to liquidate
holdings.
Sales of a substantial number of
shares of our common stock in the public market, or the perception that they might occur, could cause the price of our common stock
to decline.
The price of our common stock could decline
if there are substantial sales of our common stock, particularly sales by our directors, executive officers and significant stockholders.
If our existing stockholders sell substantial amounts of our common stock in the public market, or if the public perceives that
such sales could occur, this could have an adverse impact on the market price of our common stock, even if there is no relationship
between such sales and the performance of our business.
Pursuant to certain registration rights,
we filed a registration statement in 2018 to permit a significant stockholder to sell its shares of our common stock;
we expect that, because there were a large number of shares registered pursuant to such registration statement, the selling stockholder
will continue to offer shares covered by such registration statement for a significant period of time, the precise duration of
which cannot be predicted, Accordingly, any adverse market or price pressures resulting from sales by the significant stockholder
may continue for an extended period of time and cause continued negative pressure on the market price of our common stock, which
could have a material adverse effect on our ability to raise additional equity capital.
In addition, shares subject to outstanding
options under our SG Blocks, Inc. Stock Incentive Plan (the “Incentive Plan”) will become eligible for sale in the
public market in the future, subject to certain legal and contractual limitations. Substantial sales of such shares, at that time,
could depress the sale price of our common stock.
Significant sales of our common stock,
or the possibility that these sales may occur, might make it more difficult for us to sell equity securities in the future at a
time and at a price that we deem appropriate. In addition, we may issue shares of our common stock in connection with investments
or acquisitions in the future. The amount of shares of our common stock issued in connection with an investment or acquisition
could constitute a material portion of our then-outstanding shares of common stock.
Our principal stockholders and management
own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.
As of May 1, 2020, our directors and
executive officers beneficially own approximately 4.0% of our outstanding common stock and three of our stockholders beneficially
owns approximately 8.9%, 7.5% and 7.2 %, respectively, of our outstanding common stock. Accordingly, these stockholders will continue
to have significant influence over the outcome of corporate actions requiring stockholder approval, including the election of
directors, merger, consolidation, or sale of all or substantially all of our assets, or any other significant corporate transaction.
The interests of these stockholders may not be the same as, or may even conflict with, investors’ interests. For example,
these stockholders could delay or prevent a change in control of us, even if such a change in control would benefit our other
stockholders, which could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a
sale of us or our assets and might affect the prevailing price of our common stock. The significant concentration of stock ownership
may negatively impact the price of our common stock due to investors’ perception that conflicts of interest may exist or
arise.
The issuance of additional securities
by our Board of Directors (the “Board” or “Board of Directors”) will dilute the ownership interests of
our current stockholders and could discourage the acquisition of us.
Our Board, without any action by our stockholders,
is authorized to designate and issue additional classes or series of capital stock (including classes or series of preferred stock)
as it deems appropriate and to establish the rights, preferences and privileges of such classes or series, and we currently
have an effective universal shelf registration statement on file with the SEC, providing for the potential issuance of shares of
our common stock and other securities. The issuance of any new class or series of capital stock would not only dilute the
ownership interest of our current stockholders but may also adversely affect the voting power and other rights of holders of common
stock. The rights of holders of preferred stock and other classes of common stock that may be issued may be superior to the
rights of the holders of the existing class of common stock in terms of the payment of ordinary and liquidating dividends and voting
rights.
In addition, the ability of the Board to
designate and issue such shares could impede or deter an unsolicited tender offer or takeover proposal regarding us and the issuance
of additional shares having preferential rights could adversely affect the voting power and other rights of holders of common stock
and render more difficult the removal of current management, even if such removal may be in the stockholders’ best interests.
We do not expect to pay dividends
in the future. Any return on investment may be limited to the value of our common stock.
For the foreseeable future, we intend to
retain any earnings to finance the development and expansion of our business, and we do not anticipate paying any cash dividends
on our common stock. Any determination to pay dividends in the future will be at the discretion of our Board of Directors and will
depend upon results of operations, financial condition, restrictions imposed by applicable law and other factors our Board of Directors
deem relevant. Accordingly, if you purchase shares of our common stock, realization of a gain on your investment will depend on
the appreciation of the price of our common stock, which may never occur. Investors seeking cash dividends in the foreseeable future
should not purchase our common stock.
If securities or industry analysts
do not publish research or reports about our business or our industry, or publish negative reports about our business or our industry,
our stock price and trading volume could decline.
The trading market for our common stock
will be influenced by the research and reports that securities or industry analysts publish about us, our business, our industry
or our competitors. If one or more of the analysts who cover us change their recommendation regarding our stock adversely, change
their opinion of the prospects for our company in a negative manner or provide more favorable relative recommendations about our
competitors, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly
publish reports on us, we could lose visibility in the financial markets, which could cause our stock price or trading volume to
decline.
Certain provisions of Delaware law
could discourage, delay or prevent a merger or acquisition at a premium price.
Certain provisions of Delaware law could
discourage potential acquisition proposals, delay or prevent a change in control of our company, or limit the price that investors
may be willing to pay in the future for shares of our common stock. Because we are incorporated in Delaware, we are governed by
the provisions of Section 203 of the Delaware General Corporation Law, which prohibits a person who owns in excess of 15% of our
outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which
the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed
manner. Such provisions may discourage, delay or prevent a merger or acquisition of the Company, including a transaction in which
the acquirer may offer a premium price for our stock.
If our shares become subject to the
penny stock rules, it would become more difficult to trade our shares.
The SEC has adopted rules that regulate
broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price
of less than $5.00, other than securities registered on certain national securities exchanges or authorized for quotation on certain
automated quotation systems, provided that current price and volume information with respect to transactions in such securities
is provided by the exchange or system. If we do not retain a listing on the Nasdaq Capital Market and if the price of
our shares of common stock is less than $5.00, our common stock will be deemed a penny stock (meaning that our shares may be considered
highly speculative and may trade infrequently, which can make them difficult to accurately price or sell). The penny stock rules
require a broker-dealer, before a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized
risk disclosure document containing specified information. In addition, the penny stock rules require that, before effecting any
transaction in a penny stock not otherwise exempt from those rules, a broker-dealer must make a special written determination that
the penny stock is a suitable investment for the purchaser and receive: (i) the purchaser’s written acknowledgment of the
receipt of a risk disclosure statement; (ii) a written agreement to transactions involving penny stocks; and (iii) a signed and
dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the trading activity
in the secondary market for our common stock, and therefore stockholders may have difficulty selling their shares.
As a “smaller reporting company,”
we may avail ourselves of reduced disclosure requirements, which may make our common stock less attractive to investors.
We are a “smaller reporting company”
under applicable SEC rules and regulations, and, as a result of the SEC’s recent amendment to the definition of
“smaller reporting company,” we will continue to be a “smaller reporting company” for so long as either
(i) the market value of our common stock held by non-affiliates as of the end of our most recently completed second quarter (“public
float”) is less than $250 million or (ii) annual revenues of less than $100 million during the most recently completed
fiscal year and (A) no public float or (B) a public float of less than $700 million. As a “smaller reporting company,”
we have relied on exemptions from certain SEC disclosure requirements that are applicable to other public companies. These exemptions
include reduced financial disclosure and reduced disclosure obligations regarding executive compensation. Until such time as we
cease to be a “smaller reporting company,” such reduced disclosure in our SEC filings may make it harder for investors
to analyze our operating results and financial prospects. If some investors find our common stock less attractive as a result
of our reduced disclosure, there may be a less active trading market for our common stock and our stock price may be more volatile.
Our shares of common stock are from
time to time thinly traded, so stockholders may be unable to sell at or near ask prices or at all if they need to sell shares to
raise money or otherwise desire to liquidate their shares.
Our common stock has from time to time
been “thinly-traded,” meaning that the number of persons interested in purchasing our common stock at or near ask
prices at any given time may be relatively small or non-existent. This situation is attributable to a number of factors, including
the fact that we are a small company that is relatively unknown to stock analysts, stock brokers, institutional investors and
others in the investment community that generate or influence sales volume, and that even if we came to the attention of such
persons, they tend to be risk-averse and would be reluctant to follow an unproven company such as ours or purchase or recommend
the purchase of our shares until such time as we became more seasoned and viable. As a consequence, there may be periods of several
days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer that has a large
and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. We
cannot give stockholders any assurance that a broader or more active public trading market for our common stock will develop or
be sustained, or that current trading levels will be sustained.
There is no public market for
the pre-funded warrants being offered in this offering.
There is no established public trading
market for the pre-funded warrants being offered in this offering, and we do not expect a market to develop. In addition, we do
not intend to apply to list the pre-funded warrants on any securities exchange or nationally recognized trading system, including
Nasdaq. Without an active market, the liquidity of the pre-funded warrants will be limited.
The pre-funded warrants are speculative
in nature.
The pre-funded warrants offered hereby
do not confer any rights of common stock ownership on their respective holders, such as voting rights or the right to receive
dividends, but rather merely represent the right to acquire shares of common stock at a fixed price. Specifically, commencing
on the date of issuance, holders of the pre-funded warrants may exercise their right to acquire the common stock and pay an exercise
price of $0.001 per share. Moreover, following this offering, the market value of the pre-funded warrants is uncertain and there
can be no assurance that the market value of the pre-funded warrants will equal or exceed their public offering price.
In the event that our common stock
price does not exceed the exercise price of the pre-funded warrants during the period when the pre-funded warrants are exercisable,
as applicable, such warrants may not have any value.
Holders of the pre-funded warrants
purchased in this offering will have no rights as common stockholders until such holders exercise such warrants and acquire our
common stock.
Until holders of the pre-funded warrants
acquire shares of our common stock upon exercise thereof, holders of such pre-funded warrants will have no rights with respect
to the shares of our common stock underlying such pre-funded warrants. Upon exercise of the pre-funded warrants, such holders
will be entitled to exercise the rights of a common stockholder only as to matters for which the record date occurs after the
exercise date.
UNDERWRITING
We have entered into an underwriting
agreement, dated , 2020, with ThinkEquity, a division of Fordham Financial Management, Inc., acting as the sole book-running manager
(sometimes referred to as the “Representative”). Subject to the terms and conditions of the underwriting agreement,
the underwriter named below has agreed to purchase, and we have agreed to sell to it, the number of shares of common stock or
pre-funded warrants at the public offering price, less the underwriting discounts and commissions, as set forth on the cover page
of this prospectus and as indicated below:
Underwriters
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Number of
Shares
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Number of
Pre-Funded
Warrants
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ThinkEquity, a division of Fordham Financial Management,
Inc.
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Total
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The underwriting agreement provides
that the obligations of the underwriter to pay for and accept delivery of the shares of common stock and the pre-funded warrants
offered by this prospectus are subject to various conditions and representations and warranties, including the approval of certain
legal matters by its counsel and other conditions specified in the underwriting agreement. The shares of common stock and the
pre-funded warrants are offered by the underwriter, subject to prior sale, when, as and if issued to and accepted by it. The underwriter
reserves the right to withdraw, cancel or modify the offer to the public and to reject orders in whole or in part. The underwriter
is obligated to take and pay for all of the shares of common stock and the pre-funded warrants offered by this prospectus if any
such shares of common stock and the pre-funded warrants are taken.
We have agreed to indemnify the underwriter
and certain of its affiliates and controlling persons (within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act), among others, against specified liabilities, including liabilities under the Securities Act, and to contribute
to payments the underwriter may be required to make in respect thereof.
Discounts and Commissions
The underwriter proposes to offer the
shares of common stock and the pre-funded warrants directly to the public at the public offering price set forth on the cover
page of this prospectus. After the offering to the public, the offering price and other selling terms may be changed by the underwriter
without changing the proceeds we will receive from the underwriter.
The following table summarizes the public
offering price, underwriting commissions and proceeds before expenses to us. The underwriting commissions are 7.0% of the public
offering price.
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Per Share
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Per
Pre-Funded
Warrant
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Total
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Public offering price
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$
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Underwriting discount (7.0%)
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$
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Proceeds, before expenses, to us(1)
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$
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(1)
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Excluding
the proceeds, if any, from the exercise of the pre-funded warrants.
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We have agreed to pay a non-accountable
expense allowance to the underwriter equal to 1% of the gross proceeds received at the closing of the offering.
We have also agreed to pay certain
of the Representative’s expenses relating to the offering, including the fees and expenses of the Representative’s
legal counsel and for the underwriter’s use of Ipreo’s book-building, prospectus tracking and compliance software
for this offering, totaling $113,500.
Our total estimated expenses of the offering, including the non-accountable
expense allowance, registration, filing and listing fees, printing fees and legal and accounting expenses, but excluding underwriting
discounts and commissions, are approximately $475,000.
Over-allotment Option
We have granted a 45-day option to the Representative of the underwriters
to purchase up to 563,909 additional shares of common stock (based on an assumed public offering price of $3.99 per share,
which was the last reported sale price of our common stock on The Nasdaq Capital Market on May 1, 2020) from us solely to cover
over-allotments, if any, at the public offering price less underwriting discounts and commissions.
Representative’s Warrants
Upon closing of this offering, we have
agreed to issue to the Representative as compensation warrants to purchase a number of shares of common stock equal to 5% of the
aggregate number of shares of common stock and the shares of common stock issuable upon
exercise of the pre-funded warrants sold in this offering, or the Representative’s Warrants. The Representative’s
Warrants will be exercisable at a per share exercise price equal to 125% of the public offering price per share in this offering
(excluding the over-allotment option). The Representative’s Warrants are exercisable at any time and from time to time,
in whole or in part, during the four and one half year period commencing 180 days from the effective date of the registration
statement of which this prospectus is a part.
The Representative’s Warrants have
been deemed compensation by FINRA and are therefore subject to a 180-day lock-up pursuant to Rule 5110(g)(1) of FINRA. The Representative
(or permitted assignees under Rule 5110(g)(1)) will not sell, transfer, assign, pledge, or hypothecate these warrants or the securities
underlying these warrants, nor will they engage in any hedging, short sale, derivative, put, or call transaction that would result
in the effective economic disposition of the warrants or the underlying securities for a period of 180 days from the effective
date of the registration statement. In addition, the warrants provide for registration rights upon request, in certain cases.
The one-time demand registration right provided will not be greater than five years from the effective date of the registration
statement in compliance with FINRA Rule 5110(f)(2)(G)(iv). The unlimited piggyback registration right provided will not be greater
than seven years from the effective date of the registration statement in compliance with FINRA Rule 5110(f)(2)(G)(v). We will
bear all fees and expenses attendant to registering the securities issuable on exercise of the warrants other than underwriting
commissions incurred and payable by the holders. The exercise price and number of shares issuable upon exercise of the warrants
may be adjusted in certain circumstances including in the event of a stock dividend or our recapitalization, reorganization, merger
or consolidation. However, the warrant exercise price or underlying shares will not be adjusted for issuances of shares of common
stock at a price below the warrant exercise price.
Right of First Refusal
As a result of the December 2019 Offering
(as hereinafter defined), beginning on May 11, 2020 and ending twelve (12) month’s thereafter, the representative has a
right of first refusal to act as sole investment banker, sole book-runner and/or sole placement agent, at its sole discretion,
for each and every of our future public equity and debt offerings, including all equity linked financings, for us, or any of our
successors or subsidiaries, on terms customary to the Representative. The Representative in conjunction with us, has the sole
right to determine whether or not any other broker-dealer shall have the right to participate in any such offering and the economic
terms of any such participation.
Lock-Up Agreements
Pursuant to “lock-up” agreements,
we, our executive officers and directors, have agreed, without the prior written consent of the Representative, not to, directly
or indirectly, offer to sell, sell, pledge or otherwise transfer or dispose of any of shares of (or enter into any transaction
or device that is designed to, or could be expected to, result in the transfer or disposition by any person at any time in the
future of) our common stock, enter into any swap or other derivatives transaction that transfers to another, in whole or in part,
any of the economic benefits or risks of ownership of shares of our common stock, make any demand for or exercise any right or
cause to be filed a registration statement, including any amendments thereto, with respect to the registration of any shares of
common stock or securities convertible into or exercisable or exchangeable for common stock or any other securities of ours or
publicly disclose the intention to do any of the foregoing, subject to customary exceptions, for a period of 90 days after the
date of this prospectus for our directors and officers as well as the Company and any successor of the Company.
Other
Public
Offerings
On
April 3, 2020, we consummated the April 2020 Offering in which we issued and sold an aggregate of 440,000 shares of our common
stock at a public offering price of $4.25 per share. The net proceeds to us from the April 2020 Offering, after deducting the underwriting
discount, the underwriters’ fees and expenses and our estimated offering expenses, were approximately $1.6 million. ThinkEquity
acted as the representative of the underwriters in the April 2020 Offering and was paid (i)
$149,600 in underwriting commissions (8% of the public offering price) and (ii) a non-accountable expense allowance equal
to 1% (or $18,700) of the gross proceeds received at the closing of the offering. We also paid certain of the representative’s
out-of-pocket expenses related to the April 2020 Offering, including, but not limited
to, the fees and expenses of the representative’s legal counsel and for the underwriter’s
use of Ipreo’s book-building, prospectus tracking and compliance software for the offering, totaling $67,500.
On
December 13, 2019, we consummated the December 2019 Offering in which we issued and sold an aggregate of 857,500 shares of our
common stock at a public offering price of $3.00 per share. The 857,500 shares of common stock issued and sold in the December
2019 Offering included 107,500 shares sold pursuant to the exercise in full by the underwriters of their over-allotment option.
The net proceeds to us from the December 2019 Offering, after deducting the underwriting discount, the underwriters’ fees
and expenses and our estimated offering expenses, were approximately $2.04 million. ThinkEquity acted as the representative
of the underwriters in the December 2019 Offering and was paid (i) $205,800 in underwriting
commissions (8% of the public offering price) and (ii) a non-accountable expense allowance equal to 1% (or $22,500) of the
gross proceeds received at the closing of the offering. We also paid certain of the representative’s out-of-pocket expenses
relating to the December 2019 Offering, including, but not limited to, the fees and expenses of the representative’s legal
counsel, up to a maximum of $103,500.
Private
Placement
On
November 12, 2019, we entered into a Securities Purchase Agreement (the “Purchase Agreement”)
with an investor, pursuant to which we issued to the investor a senior secured convertible debenture in the principal amount of
$480,770 (the “Debenture”) for proceeds of $375,000 (representing an original
issue discount of 22%). In connection with the issuance of the Debenture, we entered into a Placement Agency Agreement with
ThinkEquity pursuant to which we paid cash fees to ThinkEquity.
Subsequent Equity Sales
Subject to certain exceptions, until 90
days following the date hereof, neither we nor any of our subsidiaries may issue, enter into any agreement to issue, effectuate
or announce the issuance or proposed issuance of any shares of common stock or common stock equivalents (or a combination of units
thereof), including a variable rate transaction (as defined in the underwriting agreement) without the Representative’s consent.
Determination of Offering Price
The public offering price of the securities
we are offering was negotiated between us and the underwriter based on the trading of our common stock prior to the offering, among
other things. Other factors considered in determining the public offering price of the shares include the history and prospects
of the Company, the stage of development of our business, our business plans for the future and the extent to which they have been
implemented, an assessment of our management, general conditions of the securities markets at the time of the offering and such
other factors as were deemed relevant.
Listing
Our common stock is listed on the Nasdaq
Capital Market under the symbol “SGBX”. There is no established trading market
for the pre-funded warrants and we do not expect a market for such securities to develop. In addition, we do not intend to apply
for the listing of the pre-funded warrants on any national securities exchange or other trading market. Without an active trading
market, the liquidity of the pre-funded warrants will be limited.
Price Stabilization, Short Positions
and Penalty Bids
In connection with this offering, the underwriter
may engage in transactions that stabilize, maintain or otherwise affect the price of our common stock. The underwriter may elect
to stabilize the price of our common stock by bidding for, and purchasing, common stock in the open market.
The underwriter may also impose a penalty
bid. This occurs when a particular underwriter or dealer repays selling concessions allowed to it for distributing a security in
this offering because the underwriter repurchases that security in stabilizing or short covering transactions.
Finally, the underwriter may bid for, and
purchase, shares of our common stock in market making transactions, including “passive” market making transactions
as described below.
These activities may stabilize or maintain
the market price of our common stock at a price that is higher than the price that might otherwise exist in the absence of these
activities. The underwriter is not required to engage in these activities, and may discontinue any of these activities at any time
without notice. These transactions may be effected on the Nasdaq Capital Market, in the over-the-counter market, or otherwise.
In connection with this offering, the underwriter
and selling group members, if any, or their affiliates may engage in passive market making transactions in our common stock immediately
prior to the commencement of sales in this offering, in accordance with Rule 103 of Regulation M under the Exchange Act. Rule 103
generally provides that:
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a passive market maker may not effect transactions or display bids for our common stock in excess of the highest independent bid price by persons who are not passive market makers;
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net purchases by a passive market maker on each day are generally limited to 30% of the passive market maker’s average daily trading volume in our common stock during a specified two-month prior period or 200 shares of common stock, whichever is greater, and must be discontinued when that limit is reached; and
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passive market making bids must be identified as such.
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Electronic Distribution
This prospectus in electronic format may
be made available on websites or through other online services maintained by one or more of the underwriters, or by their affiliates.
Other than this prospectus in electronic format, the information on any underwriter’s website and any information contained
in any other website maintained by an underwriter is not part of this prospectus or the registration statement of which this prospectus
forms a part, has not been approved and/or endorsed by us or any underwriter in its capacity as underwriter, and should not be
relied upon by investors.
NOTICE TO INVESTORS
Notice to Investors in the United Kingdom
In relation to each Member State of the
European Economic Area which has implemented the Prospectus Directive (each, a “Relevant Member State”) an offer to
the public of any securities which are the subject of the offering contemplated by this prospectus may not be made in that Relevant
Member State except that an offer to the public in that Relevant Member State of any such securities may be made at any time under
the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State:
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(a)
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to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;
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(b)
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to any legal entity which has two or more of: (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than € 43,000,000; and (3) an annual net turnover of more than € 50,000,000, as shown in its last annual or consolidated accounts;
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(c)
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by the underwriter to fewer than 100 natural or legal persons (other than qualified investors as defined in the Prospectus Directive); or
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(d)
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in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of these securities shall result in a requirement for the publication by the issuer or the underwriter of a prospectus pursuant to Article 3 of the Prospectus Directive.
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For the purposes of this provision, the
expression an “offer to the public” in relation to any of the securities in any Relevant Member State means the communication
in any form and by any means of sufficient information on the terms of the offer and any such securities to be offered so as to
enable an investor to decide to purchase any such securities, as the same may be varied in that Member State by any measure implementing
the Prospectus Directive in that Member State and the expression “Prospectus Directive” means Directive 2003/71/EC
and includes any relevant implementing measure in each Relevant Member State.
Each underwriter has represented, warranted
and agreed that:
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(a)
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it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000 (the “FSMA”)) received by it in connection with the issue or sale of any of the securities in circumstances in which section 21(1) of the FSMA does not apply to the issuer; and
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(b)
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it has complied with and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the securities in, from or otherwise involving the United Kingdom.
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European Economic Area
In particular, this document does not constitute
an approved prospectus in accordance with European Commission’s Regulation on Prospectuses no. 809/2004 and no such prospectus
is to be prepared and approved in connection with this offering. Accordingly, in relation to each Member State of the European
Economic Area which has implemented the Prospectus Directive (being the Directive of the European Parliament and of the Council
2003/71/EC and including any relevant implementing measure in each Relevant Member State) (each, a Relevant Member State), with
effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the Relevant
Implementation Date) an offer of securities to the public may not be made in that Relevant Member State prior to the publication
of a prospectus in relation to such securities which has been approved by the competent authority in that Relevant Member State
or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member
State, all in accordance with the Prospectus Directive, except that it may, with effect from and including the Relevant Implementation
Date, make an offer of securities to the public in that Relevant Member State at any time:
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to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;
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to any legal entity which has two or more of: (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than € 43,000,000; and (3) an annual net turnover of more than € 50,000,000, as shown in the last annual or consolidated accounts; or
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in any other circumstances which do not require the publication by the Issuer of a prospectus pursuant to Article 3 of the Prospectus Directive.
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For the purposes of this provision, the
expression an “offer of securities to the public” in relation to any of the securities in any Relevant Member State
means the communication in any form and by any means of sufficient information on the terms of the offer and the securities to
be offered so as to enable an investor to decide to purchase or subscribe for the securities, as the same may be varied in that
Member State by any measure implementing the Prospectus Directive in that Member State. For these purposes the securities offered
hereby are “securities.”
Canada
The offering of our common stock in Canada
is being made on a private placement basis in reliance on exemptions from the prospectus requirements under the securities laws
of each applicable Canadian province and territory where our common stock may be offered and sold, and therein may only be made
with investors that are purchasing, or deemed to be purchasing, as principal and that qualify as both an “accredited investor”
as such term is defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act
(Ontario) and as a “permitted client” as such term is defined in National Instrument 31-103 Registration Requirements,
Exemptions and Ongoing Registrant Obligations. Any offer and sale of our common stock in any province or territory of Canada
may only be made through a dealer that is properly registered under the securities legislation of the applicable province or territory
wherein our common stock is offered and/or sold or, alternatively, where such registration is not required.
Any resale of our common stock by an investor
resident in Canada must be made in accordance with applicable Canadian securities laws, which require resales to be made in accordance
with an exemption from, or in a transaction not subject to, prospectus requirements under applicable Canadian securities laws.
These resale restrictions may under certain circumstances apply to resales of the common stock outside of Canada.
Securities legislation in certain provinces
or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment
thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within
the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer
to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these
rights or consult with a legal advisor.
Pursuant to section 3A.3 (or, in the case
of securities issued or guaranteed by the government of a non-Canadian jurisdiction, section 3A.4) of National Instrument 33-105
Underwriting Conflicts (“NI 33-105”), the underwriters are not required to comply with the disclosure requirements
of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
Upon receipt of this prospectus,
each Québec investor hereby confirms that it has expressly requested that all documents evidencing or relating in any way
to the sale of the securities described herein (including for greater certainty any purchase confirmation or any notice) be drawn
up in the English language only. Par la réception de ce document, chaque investisseur québecois confirme par
les présentes qu’il a expressément exigé que tous les documents faisant foi ou se rapportant de quelque
manière que ce soit à la vente des valeurs mobilières décrites aux présentes (incluant, pour
plus de certitude, toute confirmation d’achat ou tout avis) soient rédigés en anglais seulement.
Enforcement of Legal Rights
All of our directors and officers as
well as the experts named herein may be located outside of Canada and, as a result, it may not be possible for Canadian purchasers
to effect service of process within Canada upon us or those persons. All or a substantial portion of our assets and the assets
of those persons may be located outside of Canada and, as a result, it may not be possible to satisfy a judgment against us or
those persons in Canada or to enforce a judgment obtained in Canadian courts against us or those persons outside of Canada.
Taxation and Eligibility for Investment
Canadian purchasers of our shares of
common stock should consult their own legal and tax advisors with respect to the tax consequences of an investment in the share
in their particular circumstances and about the eligibility of the shares for investment by the purchaser under relevant Canadian
legislation.