William G. and Debra C. Kellen - Page 10




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               will not require liquidity in the investment.                          
               Investors must be prepared for the possible loss of                    
               their entire investment.                                               
               The offering memorandum then proceeded to discuss a number             
          of specific, and significant, risk factors associated with an               
          investment in San Nicholas.  Among those risks, the offering                
          memorandum warned: (1) Research and development risks were so               
          great that an investment in San Nicholas should be considered               
          “highly speculative”; (2) the general partner had no previous               
          experience in dealing in jojoba; (3) there was no structured                
          market or distribution system for jojoba; (4) there were no                 
          facilities dedicated to the processing of jojoba; (5) commercial            
          applications of jojoba are not extensive; (6) the general partner           
          had not conducted any market analysis or similar studies; (7)               
          there was no assurance of any increase in marketing or production           
          facilities or in the demand for jojoba; (8) in the absence of any           
          such increase, the production of jojoba might be unprofitable,              
          regardless of any technology that might be developed by the R&D             
          contractor; and (9) there was the likelihood of audit by the                
          Internal Revenue Service.  Indeed, the discussion concerning the            
          tax risks associated with an investment in San Nicholas                     
          constituted half of the section on “Risk Factors”.                          
               The offering memorandum also included projections of                   
          revenue, cashflow, and taxable income or loss.  Investors were              
          warned, however, that those projections, which had been prepared            






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