Royal Caridea

Competition: To flourish, Royal needs to compete effectively. Competition is most likely to come from Asia, Central America, and new operations in Florida, Texas, and Minnesota. Minimizing this risk can be accomplished by delivering a sizable portion of its sales as NEVER frozen shrimp, delivering consistent size and color, maximizing sales to markets that Asia and Central America mostly cannot, and by controlling transportation costs which should be greatly reduced from that of foreign competitors.

General Risks of Investment in Agriculture. The economic success of an investment in the Company will also depend upon agricultural markets. Risks and hazards inherent in the agricultural market may cause it difficult for the Portfolio Securities to achieve a reasonable return. These risk and hazards include, among others: The price and availability of agricultural land and commodities is influenced by economic and industry conditions, including but not limited to supply and demand factors such as: crop disease; contamination caused by poor sanitation, humans, or illnesses; contamination affecting food safety, natural resources/environment; weed control; water availability; various planting, growing, or harvesting problems; severe weather conditions such as drought, floods, heavy rains, frost, or natural disasters that are difficult to anticipate and that cannot be controlled; uncontrolled fires (including arson); changes in supply or demand that impact domestic or international prices of inputs or outputs; changes in demand for quantity or quality attributes, food safety requirements, or timing of product delivery; challenges in doing business with companies (including foreign companies); legal and regulatory restrictions; transportation costs; interruptions in energy supply; and political and economic instability. Agricultural land and commodities are subject to the United States and foreign policies and regulations that materially affect operations. Governmental policies affecting the agricultural industry, such as taxes, tariffs, duties, subsidies, incentives, acreage control, and import and export restrictions on agricultural commodities and commodity products, can influence the planting of certain crops, the location and size of crop production, the volume and types of imports and exports, and industry profitability. Additionally, crop production is affected by laws and regulations relating to, but not limited to, the sourcing, transporting, storing, and processing of agricultural raw materials as well as the transporting, storing, and distributing of related agricultural products. Agricultural commodity producers also may need to comply with various environmental laws and regulations, such as those regulating the use of certain pesticides, and local laws that regulate the production of genetically modified crops. The price and risks associated with supply chain facilitation, including input supply, production, postharvest, storage, processing, marketing and distribution, food service, and consumption; labor disputes affecting transportation, communication, energy infrastructures, and services; and changes in enterprise or supply chain reputation and dependability. Poor management decisions; poor quality control; forecast and planning errors; breakdowns in farm or farm equipment; use of outdated seeds; lack of preparation to change product, process, and markets; inability to adapt to changes in cash and labor flows.

Environmental Liability. Federal, state, and local laws may impose liability on a property owner for releases or the otherwise improper presence on the premises of hazardous substances without regard to fault or knowledge of the presence of such substances. A property owner may be held liable for environmental releases of such substances that occurred before it acquired title and that is not discovered until after it sells the property. If any hazardous substances are found at any time on the Portfolio Securities, the Owners may be held jointly and severally liable for all cleanup costs, fines, penalties, and other costs regardless of whether they owned their Interests when the releases occurred or the hazardous substances were discovered. 

Unfavorable Changes in Market and Economic Conditions Could Hurt Appreciation Rates. The value and demand for agricultural land where the Portfolio Securities is located have historically been positively and negatively affected by the market and economic conditions, any decrease in such could adversely affect the market for the Portfolio Securities. 

Natural Disasters. The Portfolio Company may be susceptible to various natural disasters including, without limitation, windstorms, floods, earthquakes, droughts, and other natural disasters.

Potential Liability for Environmental Contamination Could Result in Substantial Costs. Under various federal, state, and local laws, ordinances and regulations, the Portfolio Company could be liable for the costs to investigate and remove or remediate hazardous or toxic substances on or in the Portfolio Company, often regardless of whether the Portfolio Company knew of, or were responsible for, the presence of these substances. These costs may be substantial. If hazardous or toxic s substances are present on any property owned by the Portfolio Company Portfolio Securities or if the Portfolio Company fails to properly remediate such substances, the Portfolio Company’s ability to operate and conduct its business may be adversely affected.

No Guaranteed Cash Flow. There can be no assurance that cash distributions will, in fact, be made or, if made, whether those distributions will be made when or in the amount anticipated. Delays in making cash distributions could result from the inability of the Portfolio Company to purchase profitable assets. The Manager is not obligated to distribute cash from activities of the Partnership to enable the Partners to pay the tax imposed on taxable income generated by the Partnership and allocated to partners. This may result in Partners having tax liabilities without distributions from the Partnership to allow them to pay such tax obligations. 

Competition. The operations of the Portfolio Company are subject to local, national, and worldwide competition.  In general, agricultural and farming operations are subject to competition from local farms, other national farms, and international farming industries.  Many of these operations are in locations that are able to operate at costs that are significantly lower or have weather that is not subject to the same natural risks as the operations of the Portfolio Company. The Partnership will experience competition for Investments from individuals, corporations, and other entities engaged in similar investment activities. Competition for such Investments may have the effect of increasing costs and reducing returns to the Members.

Energy Shortages and Allocations. There may be shortages or increased costs of fuel, natural gas or electric power pliers, or governmental regulatory bodies in the area where the Portfolio Securities are located which may affect operations and farming. It is not possible to predict the extent if any, to which such shortages, increased prices, or allocations will occur or the degree to which such events might influence developers. 

Limited Representations and Warranties. The Company is acquiring the Portfolio Securities with only limited representations and warranties from the Sponsor regarding the Portfolio Company.  The extent of damages that the Company may incur as a result of such matters cannot be predicted, but potentially could have a significant adverse effect on the Portfolio Securities and the return to the Investors.

Uncertain Economic Conditions. The United States economy experienced a significant downturn beginning in 2020 due to the COVID-19 Pandemic. While there has been a recovery in the economy generally, it is still unclear how stable agricultural markets currently are or will be once the government pulls back from its unprecedented participation in the bond market to keep interest rates low. As a result, there can be no assurance that the Portfolio Company will achieve anticipated cash flow levels. However, any negative change in the general economic conditions in the United States could adversely affect the financial condition and operating results of the Portfolio Company.  In addition, the Portfolio Company’s revenues and operating results may be affected by uncertain or changing economic and market conditions., If global economic and market conditions, or economic conditions in the United States or other key markets, remain uncertain or persist, spread, or deteriorate further, developers may experience material impacts on their financial condition, which may affect the Portfolio Company’s operating results. 

Condemnation of Land. Land owned or leased by the Portfolio Company, or a portion thereof, could become subject to an eminent domain action by government or regulatory authorities. Such an action could have a material adverse effect on the marketability of the Portfolio Company or the amount of return on investment for the Investors or result in a premature Disposition of the Portfolio Securities. 

Regulatory Matters. Future changes in land use and environmental laws and regulations, whether federal, state, or local, may impose new restrictions on the development, construction, or disposition of the Portfolio Company. The Center for Disease Control, the Food and Drug Administration, and/or other agencies could issue a “food safety alert” or recalls that could negatively impact the Portfolio Company’s operations. The ability of the Portfolio Company to operate its business as currently intended may be adversely affected by such regulations.

Sustainability Practices and Organic Certification. Sustainable agriculture is a diverse and growing practice area, however, there are no universal standards or internationally recognized certifications. In addition, much research is being performed locally and around the world, with various levels of success. There can be no assurances that sustainability methods will work with our particular ranches, which could impact crop yields, pest problems, water issues, and other issues that may negatively impact our ability to profit from the operation. In addition, changes in organic certification regulations, consumer preference, compliance economics, or other factors may make it unfeasible or undesirable to gain or maintain that particular certification in the future.

Speculative Investment.  No assurance can be given that the investors will satisfy their investment objectives.  No assurance can be given that the investors will realize a substantial return (if any) on their investment or that they will not lose their entire investment in the Portfolio Securities.  For this reason, prospective investors should carefully read this Memorandum.  All such persons or entities should consult with their attorney or business or tax advisors prior to making an investment. 

Other Risks. Risks normally beyond Royal’s control:

• facilities malfunction
• weather such as hurricanes
• transportation disruption
• power outages
• third-party technology breakthroughs
• federal and state government policies and changes in incentives
• inflation
• Counterparty risk. Royal Caridea will work with a number of 3rd party entities including customers, suppliers, and service providers. There are a number of risks associated with these relationships including but not limited to credit risk, failure to provide service to the required standard, fraud, theft, etc.

Offering Price is arbitrary. The offering price of the Units has been arbitrarily determined by the Portfolio Company and bears no relationship to the Portfolio Company’s assets, book value, net worth, earnings, actual results of operations, or any other established investment criteria. Among the factors considered in determining such offering price were the Portfolio Company’s current financial condition, its cash requirements, the general condition of the securities market, and an evaluation of the prospects for the Portfolio Company’s growth. The offering price set forth in this Offering should not, therefore, be considered an indication of the actual value of the Portfolio Company’s securities.

Reliance upon Officers and Managers. The Portfolio Company is wholly dependent upon the personal efforts and abilities of its officers and Managers. The loss of or unavailability to the Portfolio Company of the services of its officers and Managers, particularly Dr. Maurice C. Kemp, Michael A. Cunha, Tony Brand, Philip Peck, or Craig Collins, would have a materially adverse effect on the Portfolio Company’s business prospects and potential earning capacity. The Portfolio Company maintains a $2.7MM life insurance policy on Michael Cunha but does not currently maintain any insurance on any other team member to compensate the Company for any such loss; however, it intends to obtain such insurance on the team members in the future.

Dependence on Key Personnel. The success of the Portfolio Company is dependent on the efforts and abilities of its President, Dr. Maurice Kemp, CFO Michael Cunha, VP Engineering Tony Brand, VP Marketing and Sales Philip Peck, or its Plant Manager Craig Collins. If the Portfolio Company were to lose the services of the aforementioned personnel before a qualified replacement could be obtained, its business could be materially and adversely affected. However, the Portfolio Company has entered into employment agreements with the aforementioned persons and has done so with other key personnel to ensure continuity of the Portfolio Company’s operations. Such employment agreements include, as a minimum, a two-year non-disclosure, and non-compete agreement. 

The ability of the Portfolio Company to attract and retain qualified operational and management personnel is critical to its success of the Portfolio Company. To date, the Portfolio Company has been able to attract and retain sufficient professional employees to meet its needs; however, there can be no assurance that the Company will be able to do so in the future. If the Portfolio Company were unable to employ the qualified employees needed, then its business could be materially and adversely affected. 

Government Regulation. The operations of the Portfolio Company will be subject to regulations normally incident to business operations (e.g., occupational safety and health act, worker’s compensation statutes, unemployment insurance legislation and income tax and social security related regulations) and, for certain activities, regulations promulgated by the USDA and the FDA. Although the Portfolio Company will make every effort to comply with applicable regulations, it can provide no assurance of its ability to do so, nor can the Portfolio Company predict the effect of these regulations on its proposed activities. 

Investors Have Limited Control over the Company.  The investors have limited rights to participate in the management of the Company or in the decisions made by the Manager, except as specifically set forth in the Operating Agreement. In the event of the dissolution, death, retirement, or other incapacities of the Manager or its principals, the business and operations of the Company may be affected. The Members will then elect a new Manager or the Manager shall elect a new Manager pursuant to the Operating Agreement. 

Conflicts of Interest. Conflicts of interest between the Company and the various roles, activities, and duties of the Manager and its principals and executives are likely to occur from time to time. The Sponsor will have conflicts of interest in allocating management time, services, and functions between the Manager and the Portfolio Securities and other current and future activities. There is no guarantee that the Manager will have sufficient staff, consultants, independent contractors, and business and property managers to adequately perform their duties. The investors will not have any right to any interest in any future entities or business ventures formed or developed by the Manager or any of their Affiliates. Any conflicts of interest may result in the rights of the Company not being adequately protected to the detriment of its investors. None of the agreements or arrangements, including those relating to compensation, between the Company, the Sponsor, or its Affiliate, is the result of arm’s-length negotiations.  

Investors Do Not Have Legal Title to the Portfolio Securities. The investors will not have legal title to the Portfolio Securities; the investors will only hold membership interests in the Company. The investors will not have any right to seek an in-kind distribution of the Portfolio Securities or divide or partition the Portfolio Securities. Moreover, the investors will not have any decision-making authority or voting rights as to whether or not the Portfolio Securities will be sold.

No Decision Rights regarding Disposition Requirements for the Portfolio Securities; The investors will not have any vote or decision-making authority with respect to the Disposition of the Portfolio Securities.  

Limited Voting Rights. Members will have limited voting rights with respect to matters affecting the Company, which include certain amendments to the Operating Agreement and disposition or sale of Portfolio Securities. No Members shall have any right, power or authority to remove or expel the Manager of the Company, to cause the manager to withdraw from the Company, to appoint a successor Manager in the event of the withdrawal or bankruptcy of the Manager, or to terminate the Company, unless such right, power or authority is conferred on it or them by law.

Limited Duties to the Investors. The Manager will not owe any duties to the investors other than those limited duties set forth in the Operating Agreement. In performing its duties, the Manager will only be liable to the investors for willful misconduct, bad faith, fraud, or gross negligence. 

Lack of Diversification. The Company may only own and liquidate the Portfolio Securities. The Company generally cannot acquire or develop any property or investments other than the Portfolio Securities. Thus, an investment in the Company will not provide any diversity as to asset type. This lack of diversification substantially increases the risks associated with an investment in Interests. Adverse market conditions could have a material and adverse impact on your investment in the Company, including any return on your investment.  

Loss on Dissolution or Termination. In the event of a Disposition, the ability of an Investor to recover all or any portion of such Investor’s investment will depend on the number of net proceeds realized from the liquidation and the number of claims to be satisfied therefrom. There can be no assurance that the Company will recognize any gains or realize net proceeds on liquidation, and you may not recover any portion of your investment. 

Limited Transferability of Interests.  Each investor will be required to represent that he is acquiring an Interest for investment and not with a view to distribution or resale, that such investor understands that an Interest is not freely transferable and that such investor must bear the economic risk of investment in the Portfolio Securities for an indefinite period of time because:  (i) the Interest has not been registered under the Act or applicable state “Blue Sky” or securities laws; and (ii) the Interest cannot be sold unless it is subsequently registered or an exemption from such registration is available.  There currently is no market for Interest nor is one expected in the future and investors may not be able to liquidate their investment in case of an emergency.  Investors may not assign or transfer Interests to any “Benefit Plan Investor” (as defined herein). 

Offering Not Registered with Securities and Exchange Commission or State Securities Authorities.  The offering of an Interest will not be registered with the SEC under the Act or the securities agency of any state and is being offered in reliance upon an exemption from the registration provisions of the Act and state securities laws apply only to offers and sales to investors meeting the suitability requirements set forth herein.  Since this is a nonpublic offering, prospective investors will not have the benefit of review by the SEC or any state securities regulatory authority.  The terms and conditions of the offering may not comply with the guidelines and regulations established for real estate programs that are required to be registered and qualified with those agencies.

Private Offering Exemption – Compliance with Requirements.  An Interest is being offered and will be sold, to persons or entities in reliance upon a private offering exemption from registration provided in the Act and state securities laws.  If the Company should fail to comply with the requirements of such exemption, investors may have the right, if they so desired, to rescind their purchase of an Interest.  This might also occur under the applicable state securities or “Blue Sky” laws and regulations in states where an Interest will be offered without registration or qualification pursuant to a private offering or other exemption.  If such were the case and a number of investors were successful in seeking rescission, the Company would face severe financial demands that would adversely affect them as a whole and, thus, the investment in an Interest by the remaining investors. 

Minimum Offering.  This is a “minimum” offering.  The Company will not close on the sale of an Interest unless at least the Minimum Offering Amount has been received from Investors.  If the Company cannot sell at least the Minimum Offering Amount, the Company will terminate the offering and the Escrow Holder will return the cash deposits to the investors.

Lack of Secondary Market. There can be no assurance (and it is very unlikely) that a secondary resale market for the Interests will develop or if it does develop, that it will provide the Investors with liquidity for their investments or that it will continue for as long as the Interests remain outstanding. The Interests will not be listed on any securities exchange.

Unregistered Offerings. The offerings of the Interests will not be registered with the SEC under the Securities Act or with the securities authorities of any state. The Interests are being offered in reliance on exemptions from the registration provisions of the Securities Act and state securities laws applicable to offers and sales to prospective Investors meeting the prospective investor suitability requirements set forth herein. If the Company should fail to comply with the requirements of such exemptions, prospective purchasers may have the right to rescind their purchase of the Interests, as applicable. This might also occur under the applicable state securities laws and regulations in states where the Interests will be sold without registration or qualification pursuant to a private offering or other exemption. If a number of the Investors were successful in seeking rescission, the Company would face severe financial demands that would adversely affect the Company as a whole and, thus, the investment in the Interests of the remaining Investors. Such an event would have a material adverse effect on the Company. 

Lack of Regulatory Review. Since the Offering is nonpublic and, as such, not registered under federal or state securities laws, you will not have the benefit of a review of this Memorandum by the SEC or any state securities commissions or other regulatory authorities prior to your investment. The terms and conditions of the Offering will not comply with the guidelines and regulations established for securities offerings that are required to be registered and qualified with those authorities.

Availability of Exemptions for Other Offerings. Other offerings by Affiliates of the Sponsor have been made in reliance on exemptions from the registration provisions of federal and state securities laws. No assurance, however, can be given that such exemptions were available or that the compliance requirements were met. If exemptions were not available for those offerings, the Company, as well as the partners and principals involved in such other offerings, could incur significant liability, including the return of amounts paid to investors.  

Pro Forma Budgets/Projected Aggregate Cash Flows. Any pro forma budgets or projected cash flows included in this Memorandum are forward-looking statements that involve significant risk and uncertainty. All materials or documents supplied by the Company or its Affiliates, including any such pro forma budgets or cash flows, should be considered speculative and are qualified in their entirety by the assumptions, information, and risks disclosed in this Memorandum. The assumptions and facts upon which such projections are based are subject to variations that may arise as future events actually occur and to a complex series of events, many of which are outside the control of the Company and the Sponsor. The projections included herein are based on assumptions regarding future events. There is no assurance that actual events will correspond with these assumptions. Actual results for any period may or may not approximate projections and may differ significantly. You should consult with your tax and business advisors about the validity and reasonableness of the factual, accounting, and tax assumptions. Neither the Company nor any other person or entity makes any representation or warranty as to the future profitability of the Company or of an investment in the Interests.

No Representation of Investors. Each of the Investors acknowledges and agrees that counsel, the Manager, the Company and their Affiliates do not represent and shall not be deemed under the applicable codes of professional responsibility to have represented or to be representing any or all of the Investors in any respect. 

No Independent Review/No Managing Dealer. Currently, the Company has not engaged the services of a managing dealer and it is uncertain whether a managing dealer will be used for this Offering. Under federal securities laws, an independent broker-dealer is expected to take steps to ensure that the information contained in this Memorandum is accurate and complete. The steps are typically taken by the “Managing Underwriter” or “Managing Dealer” who participates in the preparation of an offering memorandum. In addition, the Managing Dealer has certain duties related to an offering, including a duty to a prospective investor to ensure that an investment in a security is suitable for that prospective investor, a duty to conduct adequate due diligence with respect to the offering, and a duty to comply with federal and state securities laws. If a Managing Dealer is not engaged for this Offering, this independent review and analysis of the Memorandum and this Offering will not be conducted.

Forward-Looking Statements.  Some of the information you will find in this Memorandum may contain forward-looking statements.  Such “forward-looking” statements are based on various assumptions of the Sponsor, which assumptions may not prove to be correct. Accordingly, there can be no assurance that such projections, assumptions, and statements will accurately predict future events or the actual performance of the Portfolio Securities.  In addition, any projections and statements, written or oral, which do not conform to those contained in this Memorandum, should be disregarded, and their use is a violation of the law.  The projections contained in this Memorandum are based upon specified assumptions.  If these assumptions are incorrect, the projections likewise would be incorrect.  No representation or warranty can be given that the estimates, opinions, or assumptions made herein or therein will prove to be accurate.  Prospective investors should closely review the assumptions set forth in the projections.  Any projected cash flow included in this Memorandum and all other materials or documents supplied by the Sponsor or its affiliates should be considered speculative and are qualified in their entirety by the assumptions, information, and risks disclosed in this Memorandum.  There is no assurance that actual events will correspond with these assumptions.

The Company intends to identify forward-looking statements in this Memorandum by using words or phrases such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “maybe,” “objective,” “plan,” “predict,” “project” and “will be” and similar words or phrases, or the negative thereof or other variations thereof or comparable terminology.  These types of statements discuss future expectations or contain projections or estimates.  When considering such forward-looking statements, you should keep in mind the risk factors outlined herein.  These risk factors, or other events, could cause actual results to differ materially from those contained in any forward-looking statement. 

Classification.  Under current law, the Company is initially classified as a partnership, and not as an association taxable as a corporation, for federal income tax purposes. 

Taxation of Members. As a limited liability company, the Company is not itself subject to U.S. federal income tax but will file an annual company information return with the IRS. Each Member is required to report separately on his or her income tax return his or her distributive share of the Company’s net long-term capital gain or loss, net short-term capital gain or loss, net ordinary income, deductions, and credits. The Company may utilize a variety of investment and trading strategies that produce both short-term and long-term capital gain (or loss), as well as ordinary income (or loss). The Company will send annually to each Member a Schedule K-1 showing his or her distributive share of the Company items of income, gain, loss deduction, or credit. 

Each Member that is subject to U.S. federal income taxes (a “U.S. Member”) will be liable for taxes on its distributive share of Company income regardless of whether the Company has made any distributions to the Member. 

Allocations of the items of income, gain, loss, deductions, and credits of the Company will be made in accordance with the Operating Agreement of the Company. Such allocations are intended to have a “substantial economic effect.” If an allocation to a Member does not have substantial economic effect, such Member’s distributive share of profit or loss for tax purposes will be determined in accordance with such Member’s interest in the Company, taking into account all facts and circumstances. Consequently, if the IRS were to successfully challenge the allocations set forth in the Operating Agreement, the Member may be allocated different amounts of income, gain, loss, deductions, or credits than initially reported to such Member. 

Upon any redemption of the Interest of a U.S. Member, the Company may specially allocate separate Company items of income, gain, loss, and deduction to a redeeming U.S. Member to the extent necessary such that the U.S. Member would have an adjusted tax basis in its Interest equal to the redemption payment. The Manager generally retains sole discretion in determining the character of any such items specially allocated to a particular redeeming U.S. Member. Although the Manager believes that these special allocations will be respected for federal income tax purposes, there are no assurances that such allocations could not be successfully challenged. If successfully challenged, a Member’s allocable share of Company taxable income and loss may be affected. 

To the extent that these special allocations are not made, or are made but successfully challenged, for U.S. federal income tax purposes, the U.S. Member would not have an adjusted tax basis in its Interest equal to the redemption payment. In that case, cash paid as part of redemption to a U.S. Member in excess of the adjusted tax basis of its Interest will be treated as an amount received on the sale or exchange of its Interest and will generally be taxable as a capital gain. Further, in that case, a U.S. Member may not recognize a loss upon a partial redemption of its Interest or partial withdrawal of its capital in the Company, and may only recognize a loss upon a complete withdrawal or the redemption or termination of its entire Interest in the Company after the U.S. Member has received all distributions and payments in respect of such complete withdrawal, redemption, or termination. In such a case, the Member generally would recognize a capital loss to the extent of any remaining tax basis in its Interest.

Any capital gain or loss so recognized by a U.S. Member upon redemption (or upon a distribution, withdrawal, termination, or other disposition) of its Interest generally would be a long-term capital gain or loss to the extent of the portion of the Member’s Interest that is held for more than twelve months, and short-term capital gain or loss to the extent of the portion of the Member’s Interest that is held for twelve months or less. For this purpose, a Member would begin a new holding period in a portion of its Interests each time it makes additional investment in the Company. Cash distributed (including with respect to partial withdrawals and partial redemption payments) to a U.S. Member in excess of the adjusted tax basis of its Interest will be treated as an amount received on the sale or exchange of its Interest and will generally be taxable as a capital gain. An in-kind distribution of property other than cash generally will not result in taxable income or loss to any Member. 

Where the Company makes a distribution that constitutes a “substantial basis reduction” distribution (e.g., the complete redemption of a Member’s Interest where the Member recognizes a tax loss in excess of $250,000), the Company is generally required to adjust its tax basis in its assets in respect of all Members. (The Company also is required to adjust its tax basis in its assets in respect of a transferee Member in the case of a sale or exchange of an Interest, or a transfer upon death, when there exists “substantial built-in loss” (i.e., in excess of $250,000) in respect of Company property immediately after the transfer.) For this reason, the Company will require (i) a Member who receives a distribution from the Company in connection with a complete withdrawal, (ii) a transferee of an Interest (including a transferee in case of death), and (iii) any other Member in appropriate circumstances to provide the Company with information regarding its adjusted tax basis in its Interest.  

Unrelated Business Taxable Income.  An organization that is otherwise exempt from U.S. federal income tax is nonetheless subject to taxation with respect to its “unrelated business taxable income” (“UBTI”).  Tax-exempt investors may recognize a significant amount of UBTI as a result of the indebtedness the Company will incur with respect to the Portfolio Securities.  For certain types of tax-exempt organizations, the receipt of UBTI might have extremely adverse consequences, although a “qualified organization” within the meaning of Code Section 514(c)(9) may be eligible for an exemption provided for the debt-financed property.  Prospective tax-exempt investors are strongly urged to consult their tax advisors regarding the tax consequences of their ownership of Interests. 

Limitations on Losses and Credits from Passive Activities. Losses from passive trade or business activities generally may not be used to offset “portfolio income,” such as interest, dividends, royalties, salary, or other active business income. Deductions from such passive activities generally may be used to offset only passive income. Interest deductions attributable to passive activities are treated as passive activity losses, and not as investment interest. Thus, such interest deductions are subject to limitation under the passive activity loss rule and not under the investment interest limitation rule. Credits from passive activities generally are limited to the tax attributable to the income from passive activities. Passive activities include trade or business activities in which the taxpayer does not materially participate and also generally include rental activities. The Investor’s income and loss from the Company will likely constitute income and loss from passive activities.  

Limitation on Losses under the At-Risk Rules. An Investor that is an individual or closely held corporation will be unable to deduct losses from the Company, if any, to the extent such losses exceed the amount such Investor is “at risk.” Losses not allowed under the at-risk provisions may be carried forward to subsequent taxable years and used when the amount at risk increases. See “Certain U.S. Federal Income Tax Consequences.”  

Potential Tax Liability in Excess of Cash Distributions. It is possible that an Investor’s tax liability resulting from its Interest will exceed its share of cash distributions from the Company. This may occur because (i) cash flow from the Portfolio Securities may be used to fund nondeductible expenses of the Portfolio Securities; or (ii) Portfolio Securities in an extremely rare circumstance, a substitution of the Portfolio Securities may result in taxable gain without cash proceeds. Thus, there may be years in which an Investor’s tax liability exceeds its share of cash distributions from the Company. The same consequences may result from a sale or transfer of an Interest, whether voluntary or involuntary, that gives rise to ordinary income or capital gain. If any of these circumstances occur, an Investor would have to use funds from other sources to satisfy its tax liability. 

Risk of Audit. An audit of an Investor’s tax returns by the IRS or any other taxing authority could result in a challenge to, and disallowance of, some of the deductions claimed on such returns. An audit of an Investor’s tax returns also could arise as a result of an examination by the IRS or any other taxing authority of tax returns filed by the Portfolio Company or its Affiliates, or another Investor, or any information return filed by the Company.  

Changes in Federal Income Tax Law. The discussion of tax aspects contained in this Memorandum is based on law presently in effect and certain proposed Treasury Regulations. Nonetheless, prospective Investors should be aware that new administrative, legislative or judicial action could significantly change the tax aspects of an investment in an Interest. Any such change may or may not be retroactive with respect to transactions entered into or contemplated before the effective date of such change and could have a material adverse effect on an investment in an Interest. A taxpayer’s ability to claim privilege on any communication with a federally-authorized tax preparer involving a tax shelter is limited. In addition, taxpayers and material advisors are required to comply with disclosure and list maintenance requirements for reportable transactions. Reportable transactions include transactions that generate losses under Code Section 165 and may include certain large like-kind exchanges entered into by corporations. The Company and its legal counsel believe they are not required to and do not intend to, make any filings pursuant to this disclosure or list maintenance requirements. There can be no assurances that the IRS will agree with this determination by the Company and Tax Counsel. Significant penalties could apply if a party fails to comply with these rules, and such rules are ultimately determined to be applicable. 

State and Local Taxes. In addition to federal income tax consequences, a prospective Investor should consider the state and local tax consequences of an investment in an Interest. Prospective Investors must consult with their own tax advisors concerning the applicability and impact of any state and local tax laws. Investors may be required to file state tax returns in some or all of the states where the Properties are located in connection with the ownership of an Interest. See “Certain U.S. Federal Income Tax Consequences.” 

Alternative Minimum Tax. The alternative minimum tax applies to taxable income adjusted by designated items of tax preference. The limitations on the deduction of passive losses also apply for purposes of computing alternative minimum taxable income. Prospective Investors should consult with their own tax advisors concerning the applicability of the alternative minimum tax.  

Royal Caridea, LLC does not own the patents. However, all patent work done by its employees, consultants, and contractors are 100% assigned to Royal Caridea, LLC as a condition or work. Currently all patents and patent application work are assigned to Royal Caridea, LLC and will continue.