Be sure to understand the risks of this type of investment. No regulatory body (not the SEC, not any state regulator) has passed upon the merits of or given its approval to the securities, the terms of the offering, or the accuracy or completeness of any offering materials or information posted herein. That’s typical for Regulation CF offerings like this one.
We face risks related to health epidemics and other outbreaks, which could significantly disrupt the Company’s operations and could have a material adverse impact on us. The outbreak of pandemics and epidemics could materially and adversely affect the Company’s business, financial condition, and results of operations. If a pandemic occurs in areas in which we have material operations or sales, the Company’s business activities originating from affected areas, including sales, materials, and supply chain related activities, could be adversely affected. Disruptive activities could include the temporary closure of facilities used in the Company’s supply chain processes, restrictions on the export or shipment of products necessary to run the Company’s business, business closures in impacted areas, and restrictions on the Company’s employees’ or consultants’ ability to travel and to meet with customers, vendors or other business relationships. The extent to which a pandemic or other health outbreak impacts the Company’s results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of a virus and the actions to contain it or treat its impact, among others. Pandemics can also result in social, economic, and labor instability which may adversely impact the Company’s business.
If the Company’s employees or employees of any of the Company’s vendors, suppliers or customers become ill or are quarantined and in either or both events are therefore unable to work, the Company’s operations could be subject to disruption. The extent to which a pandemic affects the Company’s results will depend on future developments that are highly uncertain and cannot be predicted.
Unlike listed companies that are valued publicly through market-driven stock prices, the valuation of private companies, especially startups, is difficult to assess and you may risk overpaying for your investment. In addition, there may be additional classes of equity with rights that are superior to the class of equity being sold.
Investing in early-stage companies is very risky, highly speculative, and should not be made by anyone who cannot afford to lose their entire investment. Unlike an investment in a mature business where there is a track record of revenue and income, the success of a startup or early-stage venture often relies on the development of a new product or service that may or may not find a market. Before investing, you should carefully consider the specific risks and disclosures related to both this offering type and the company.
Unless otherwise specified in the offering documents and subject to state law, you are not entitled to receive any dividends on your interest in the Company. Accordingly, any potential investor who anticipates the need for current dividends or income from an investment should not purchase any of the securities offered on the Site.
The Company is in the startup stage and has limited financial or operating history upon which to estimate its prospects for success. At the present time, the Company anticipates that, even if its business plan is successfully implemented, it will generate losses for at least the next two years and may never achieve or sustain profitability. Start-up investing is risky. Investing in early-stage companies is very risky, highly speculative, and should not be made by anyone who cannot afford to lose their entire investment. Unlike an investment in a mature business where there is a track record of revenue and income, the success of a startup or early-stage venture often relies on the development of a new product or service that may or may not find a market. Before investing, you should carefully consider the specific risks and disclosures related to both this Offering and the Company.
The Company has no product sales or license agreements in place. The Company, along with its development partners, will need to develop continuous production of graphene flakes. The Company will undoubtedly encounter technical challenges, and may ultimately be unsuccessful. It is also possible that, even if the Company is successful in developing continuous production of graphene flakes, the cost of production will be too high, and, therefore, the market will be unreceptive. Graphene is a highly competitive field and another company could enter the market before Avadain with the technology to manufacture high quality graphene flakes in industrial volumes at a price acceptable to industry. See “Business and Operations of the Company.” The likelihood of the Company’s success must be considered in light of these and other challenges, expenses, complications and delays frequently encountered in connection with the formation of a new business and the development and commercialization of services in a competitive and regulated environment. No assurance can be given that the Company’s business plan will be effectuated, or if effectuated, will be successful.
Holders of Class B Common Shares Effectively Control the Company:
The Company is managed by its Board of Directors. The holders of the Company’s Class B Common Shares are entitled to ten votes per share on matters requiring stockholder approval, and the holders of the Company’s Class A Common Shares and Class A-1 Common Shares are entitled to one vote per share on matters requiring stockholder approval, including the election of directors. Bastille LLC, as the sole holder of the Company’s Class B Common Shares, will control a substantial majority of the voting power of the Company’s outstanding capital stock following the conclusion of the Offering. This concentrated control will limit or preclude the ability of the holders of Class A Common Shares and the Class A-1 Common Shares to elect directors or exert any influence on corporate governance matters for the foreseeable future.
Risks Related to Panasonic Arrangement:
Panasonic funded the development of the Company’s technology from inception to date. The Company entered into an agreement that entitles Panasonic to 50% of all revenue received by Bastille LLC as a consequence of its ownership of the Class B Common Shares. In addition, under the agreement, Panasonic has the right to appoint one director to the Company’s Board of Directors and to exercise negative control rights with respect to a number of the Company’s activities, including but not limited to:
1. Panasonic’s Right to Revenue. Panasonic’s designated director may, no more than once each year, compel the Board of Directors to distribute to the stockholders cash on hand less reserved cash to cover taxes, working capital and capital investment needs.
2. Material Changes. The Company must obtain the approval of the Panasonic-designated director to any material changes to the Company’s legal structure, business plan, and/or operating expenses.
3. Admission of New Shareholders. The Company may not admit a new stockholder without the prior written consent of Panasonic, whose consent shall not be unreasonably withheld.
4. Continued Control of Ownership. During the term of the Company’s agreement with Panasonic, Bastille LLC must maintain control of the Company and may not assign or transfer its interest in the Company to any other party without the advance written consent of Panasonic.
Accordingly, though not a stockholder of the Company, Panasonic exerts material control over the Company. If the interests of Panasonic and the Company diverge, there could be negative consequences for the Company.
Single Business Offering:
Because the business of the Company will involve the ownership and operation of one business, an investment in the Shares has exposure to additional risks associated with changes in laws, rules or regulations, particular economic or environmental problems or other similar matters of that business, the effects of which might be absorbed, spread or compensated for in a multi-business program.
Reliance upon Directors and Officers:
There can be no assurance that the Board of Directors and officers of the Company will be able to successfully implement effective management and financial policies for the Company. Failure by the Board of Directors and officers of the Company to successfully implement effective management and financial policies for the Company would have a material adverse effect on the Company’s business, financial condition and results of operation.
Dependence on Third Parties:
The Company will rely upon others to provide a variety of services required for the operation of the Company. The Company cannot make any representations or warranties regarding the quality of such third parties’ services. Should the third-party service provider fail to adequately provide services to the Company, it is uncertain whether another cost-effective source of such services could be found or effectively utilized.
Reliance upon a Single Product:
The Company will focus on technology to manufacture and license graphene flakes. If the Company is unable to scale up its manufacturing process for graphene flakes as planned, its ability to grant licenses could be impeded and the Company will not be profitable.
Numerous indirect competitors exist within the Company’s planned market. These competitors include manufacturers of (1) low quality graphene flakes, which do not have the properties of the Company’s flakes; (2) materials labeled “graphene” but which are, in reality, nanoplatelets, or graphite; or (3) graphene sheets. These indirect competitors are located throughout the world. Some of the Company’s potential indirect competitors are larger and better capitalized, have greater experience in manufacturing at industrial scale and may have long established relationships with customers for such products. As a result of this competition, it cannot be guaranteed that the Company will be able to grow or grant licenses to manufacture graphene or achieve profitability. Competition could have a material adverse effect on the Company’s business, financial condition or the results of operations.
Liability and Uncertainty of Adequate Insurance:
The Company aims to license its graphene flake manufacturing technology. The Company may be subject to liability as a result of claims relating to the safety of its products. To defend against and defray such costs, it is anticipated the Company will attempt to obtain and maintain general liability insurance. While the Company believes it will have and maintain adequate general liability coverage, there can be no assurance that the insurance obtained and maintained by the Company will be sufficient to fully cover the Company in the event of a claim. Furthermore, there can be no assurance that the Company will be able to obtain general liability insurance in the future with adequate coverage or at acceptable costs.
The Company’s business will be subject to extensive regulation in all of the markets in which it operates. This may include regulations regarding licensing, production, distribution, marketing, advertising and labeling of its products. The Company will be required to comply with these regulations and to maintain various permits and licenses. The Company will also be required to conduct business only with holders of licenses to import, warehouse, transport, distribute and sell its product. The Company cannot assure investors that these and other governmental regulations applicable to the graphene industry will not change or become more stringent. Moreover, because these laws and regulations are subject to interpretation, the Company may not be able to predict when and to what extent liability may arise. Failure to comply with any of the current or future regulations and requirements relating to our industry and products could result in monetary penalties, suspension or even revocation of our licenses and permits. Costs of compliance with changes in regulations could be significant and could harm the Company’s business, as the Company could find it necessary to raise its prices in order to maintain profit margins, which could lower the demand for its product and reduce sales and profit potential.
Dependence on Key Personnel; Recruitment:
The Company’s three key employees are Bradley Larschan, Ericka Wojack and Philip Van Wormer, the executive officers of the Company. We are highly dependent on the services of the Company’s executive officers and directors. Our future business and results of operations depend in significant part upon the continued contributions of our executive officers and directors. If we lose those services or if the executive officers fail to perform in their current positions, or if we are not able to attract and retain skilled employees in addition to the current team, this could adversely affect the development of our business plan and harm our business. In addition, the loss of any other member of the Board of Directors or executive officers could harm the Company's business, financial condition, cash flow and results of operations.
No Public Market for Shares; Lack of Liquidity:
There will be no public market for the Shares offered by the Company. The Shares offered herein have not been and will not be registered under the Securities Act or any other applicable securities laws in reliance upon available exemptions from the registration requirements thereof. Accordingly, under the Securities Act and such securities laws, the securities offered hereby are subject to substantial restrictions on transfer and may only be sold, assigned, transferred or otherwise disposed of by a holder if subsequently registered, or if federal and other exemptions from registration are available and an opinion of counsel satisfactory to the Company is furnished to that effect. Because the Shares offered hereby are not readily transferable, an investor’s ability to pledge such Shares as collateral for loans may be limited, and the restrictions on transfer could reduce the price of the securities in any permitted sale. An investor should not expect to be able to liquidate his or her investment readily or at all. Accordingly, each prospective investor should be aware of the long-term nature of the investment in the Shares and must indicate that he or she is acquiring such Shares for investment for his or her own account and not with a view to the resale, transfer or other disposition thereof.
The Company anticipates that it will use the proceeds from this Offering to fund costs related to the Company’s operations, including producing and testing samples, obtaining and maintaining intellectual property rights, licensing activities and raising additional capital through a second equity crowdfunding campaign on a platform called Netcapital. If the Company is unable to procure the necessary financing, its future growth and profitability could be adversely affected.
The manner in which the Company is to be taxed, the deductions available to the Company and the effect of the operations of the Company on each prospective investor involve complex issues. Because of the uncertainties and risks associated with the Federal, state, and local income tax aspects of the investment in Shares, it is imperative that, prior to making an investment in the Company, potential investors consult their own tax advisors regarding their particular tax situation and the tax consequences of investing in the Company.
Investors should note that the Company anticipates no significant tax benefits associated with the future operation of the Company. No ruling will be sought from the Internal Revenue Service (the “IRS”) on the Federal income tax consequences or any other tax issues affecting the Company or the subscribers. The Company has neither requested nor will it receive an opinion from its counsel with respect to the tax matters discussed below. Each investor should carefully review the following risk factors and consult his own tax advisor with respect to the Federal, state and local income tax consequences of an investment in the Company.
Possible Legislative or Other Actions Affecting Tax Consequences:
The Federal income tax treatment of an investment in the Company may be modified by legislative, judicial or administrative action at any time, and any such action may retroactively affect investments and commitments previously made. The rules dealing with Federal income taxation of companies are constantly under review by the IRS, resulting in revisions of its regulations and revised interpretations of established concepts. In evaluating an investment in the Company, each investor should consult with his or her personal tax advisor with respect to possible legislative, judicial and administrative developments.
State, Local and Foreign Taxation:
Each investor should consult his or her own attorney or tax advisor regarding the effect of state, local, or foreign taxes on his or her personal situation.
Risks Related to Marital Relationship of Founders:
Bastille LLC, the sole holder of Class B Common Shares of the Company, is primarily owned by Bradley Larschan and Ericka Wojack. Mr. Larschan is CEO of the Company, and Ms. Wojack is CFO and COO of the Company; both are holders of options to purchase Class A Common Shares. Mr. Larschan and Ms. Wojack are husband and wife. They began working together in 1993 and have been involved with numerous companies and transactions since then. They were married in July 1995 and currently have 14-year old twin daughters. If they were to become adverse, the Company could suffer a disruption. Additionally, since they control Bastille LLC, which is the owner of the Company's Class B Common Shares and holds the majority of the voting power of the Company, there could be negative consequences for the Company.
At the present time, the Company understands that the license and manufacture of graphene flakes is not regulated as a class by the Federal government. However, graphene flakes are a strategically important material and it is possible that the Federal government may, sometime in the future, regulate or restrict the manufacturing or licensing of graphene flakes.
We are dependent on general economic conditions:
Potential customers may be less willing to invest in innovation and forward-looking improvements if they are facing an economic downturn. This may temporarily reduce our market size. Furthermore, a global crisis might make it harder to diversify.
No governmental agency has reviewed the Company’s offering and no state or federal agency has passed upon either the adequacy of the disclosure contained herein or the fairness of the terms of this offering.
Investors will not be entitled to any inspection or information rights other than those required by Regulation Crowdfunding.
Investors will not have the right to inspect the books and records of the Company or to receive financial or other information from the Company, other than as required by Regulation Crowdfunding. Other security holders of the Company may have such rights. Regulation Crowdfunding requires only the provision of an annual report on Form C and no additional information – there are numerous methods by which the Company can terminate annual report obligations, resulting in no information rights, contractual, statutory or otherwise, owed to Investors.
This lack of information could put investors at a disadvantage in general and with respect to other security holders.