Captivision Inc.

Captivision Inc. operates in the nascent fourth-generation architectural media glass industry, where it believes it is the first and only provider of such technology ¹. The company's G-Glass product combines architectural glass with customizable, large-scale LED digital media display capabilities, offering architectural durability, near full transparency, and sophisticated media functionality ². This technology is utilized in diverse applications, from handrails to complete glass building façades, and is positioned to create new revenue models for vertical real estate and the Digital Out of Home (DOOH) media market ³. The global demand for architectural glass is estimated at 128 billion square feet per year, and the DOOH media market has a current estimated value of $20 billion, with an expected growth rate of 12% per annum until 2025 ⁴.

Captivision Korea, a subsidiary, is the exclusive developer and manufacturer of G-Glass and is a vertically integrated manufacturer, controlling nearly every aspect of product manufacturing and assembly, including laminates, aluminum frames, electronics development, software operation, delivery, and installation ⁵. This vertical integration, along with over 30 proprietary raw materials and more than 20 patents (five of which are fundamental), contributes to significant competitive advantages and high barriers to entry in the architectural media glass market ⁶. The company has completed over 490 architectural installations worldwide and holds international certifications such as CE, EN, China Compulsory Certificate, and KC, enabling product delivery into various international markets ⁷.

The core business model revolves around the sale and installation of G-Glass, with revenue recognized upon delivery or completion of installation, depending on contract terms ⁸. Payment terms typically involve an initial payment of 30% to 50% of the total project value upon signing, with the balance due upon project completion ⁹. The company is also expanding into "Glass as a Service" (GaaS), a cost-sharing model where Captivision retains 80% of media and advertising revenue from installations in exchange for bearing a portion of maintenance and installation costs ¹⁰. Primary customer segments include real estate developers, building owners, and government agencies, with a diversification strategy targeting content, applications, and DOOH media ¹¹.

Captivision's product portfolio includes G-Glass for architectural façades, bridge railings, handrails, G-Tainers (container-sized modular systems for events), G-Walls (free-standing or permanent installations for events and displays), showroom applications for automotive brands, and bus shelter applications for wayfinding and artistic imagery ¹². The G-Glass technology is available with LED pitches of 80, 60, 40, 30, and 20 millimeters, in both color and monochrome versions, and can be customized with specialist glass, coatings, double glazing, and various thicknesses ¹³. The company's manufacturing facility in Pyeongtaek, South Korea, has a production capacity of over 700,000 square feet of G-Glass per year, representing an estimated $220 million of product revenue annually ¹⁴.

For the year ended December 31, 2023, total revenue decreased by 27.5% to $14,636,763 ¹⁵ from $20,191,935 in 2022 ¹⁶. Cost of sales decreased by 11.1% to $12,361,612 ¹⁷ from $13,910,570 in 2022 ¹⁸. Gross profit decreased by 63.8% to $2,275,151 ¹⁹ from $6,281,365 in 2022 ²⁰. Selling and administrative expenses increased by 76.1% to $15,553,783 ²¹ from $8,827,619 in 2022 ²². Operating loss widened to $(13,278,632) ²³ from $(2,546,254) in 2022 ²⁴. Net loss for the year was $(76,985,584) ²⁵, compared to $(7,892,168) in 2022 ²⁶. Cash and cash equivalents as of December 31, 2023, were approximately $476,715 ²⁷. Total borrowings as of December 31, 2023, amounted to $21,957,620 ²⁸. The company reported a retained deficit of $(136,790,543) and current liabilities exceeding current assets by $40,692,649 as of December 31, 2023 ²⁹.

Year-over-year, revenue decreased by 27.5% in 2023, primarily due to a $2,906,366 decrease from G-SMATT America and a $2,697,803 decrease in Captivision Korea revenue, with a one-off revenue recognition of $2,737,294 from Project MMOF in 2022 impacting the comparison ³⁰. Gross profit margin declined significantly, and operating loss widened due to the substantial increase in selling and administrative expenses, which rose by $6,726,164 ³¹. Finance income decreased by 96.8% to $134,124 ³² due to the absence of a gain from discharge of indebtedness recognized in 2022 ³³. Finance costs increased by 187.8% to $3,226,024 ³⁴ due to a $1,546,792 increase in interest expense, driven by higher interest rates and new long-term borrowings ³⁵. Other expenses surged by 282.0% to $57,952,751 ³⁶, largely attributable to Nasdaq listing expenses of $26,884,034 and reverse acquisition expenses of $18,736,326 ³⁷.

During the reported period, Captivision consummated its Business Combination with Captivision Korea, JGGC, and Exchange Sub on November 15, 2023, resulting in Captivision Korea becoming a wholly-owned subsidiary ³⁸. The company executed contracts to supply over 16,000 sq. ft. of glass for the Mohegan INSPIRE Entertainment Resort in Incheon and the Magok Meeting, Incentives, Convention, and Exhibition (MICE) complex in Seoul ³⁹. A strategic partnership with LG Electronics of South Korea for very large-scale projects integrating façades and other digital screens was announced in 2022 ⁴⁰. The company also acquired 100% ownership of Inflectix Limited for $301,654 on November 30, 2022 ⁴¹.

Captivision's future growth is highly dependent on the adoption of architectural media glass by the construction and DOOH media industries, which are considered nascent markets for its fourth-generation G-Glass technology ⁴². The company anticipates growing demand for its products, but acknowledges the uncertainty of widespread market acceptance, particularly given the construction industry's heavy investment in conventional materials and potential resistance to new technology ⁴³. The company's financial projections are subject to significant risks, assumptions, estimates, and uncertainties, meaning actual revenues, market share, expenses, and profitability may differ materially from expectations ⁴⁴.

A major growth area for Captivision is the conversion of its current project pipeline, which includes approximately 64 projects in the proposal phase ⁴⁵. Diligently and efficiently converting these opportunities into "closed deals" is expected to drive initial growth over the next few years ⁴⁶. The company also plans to focus on larger scale opportunities such as the Inspire Casino Resort, the Magok MICE complex in South Korea, and potential future projects in NEOM City in Saudi Arabia, alongside numerous smaller and mid-size projects ⁴⁷. Smaller projects, like media walls in Incheon Airport, Porsche showrooms in the UK, and rental/media projects in the US, are expected to provide greater earnings stability due to shorter sales cycles ⁴⁸.

Another significant growth vector is the development of media and services delivered through its media glass technology, which is expected to generate substantial additional monetary upside ⁴⁹. The company aims to transform urban environments by developing architectural-scale media services and applications, such as outdoor cinema, dynamic art displays, building information, advertising, interactive services, and broadcasting ⁵⁰. The "G-Store," an e-platform for purchasing artworks and videos for G-Glass, is under development, creating a secondary sales opportunity for media content ⁵¹. The company also plans to expand its "Glass as a Service" (GaaS) offering globally, where it would retain 80% of media and advertising revenue from installations in exchange for cost-sharing capital expenditures and maintenance ⁵².

Operationally, Captivision plans to continue innovating and diversifying its product portfolio, focusing on improvements in quality, pixel density, brightness, and technical performance ⁵³. New systems are being developed for the events market, road safety, and sustainable media display, with a particular focus on integrating photovoltaic systems for carbon-neutral media façades ⁵⁴. The company aims to become a comprehensive architectural display solutions provider by growing its product portfolio to include other smaller pixel pitch products, targeting sports, events, media, and entertainment customers ⁵⁵. The company's manufacturing facility in Pyeongtaek, South Korea, has a production capacity of over 700,000 square feet of G-Glass per year, representing an estimated $220 million of product revenue annually, with current estimated revenue accounting for only about 12% of total output capacity, indicating significant room for sales and production growth without additional CAPEX investment ⁵⁶.

The company plans to fully staff its regional sales and marketing offices to generate a diversified global pipeline, expecting that $15 million of marketing spend could result in approximately $100 million of revenue ⁵⁷. Historically, most growth has been in South Korea, but the US and UK offices have shown robust growth trajectories, with the Los Angeles office serving the film and music industry and the UK office completing a 43,000 square foot façade installation in Doha, Qatar, which is expected to drive growth in the Middle Eastern market ⁵⁸.

In terms of capital allocation, the company expects to incur increasing expenses for research and development, growing the business organization, and pursuing distribution opportunities ⁵⁹. The company will require substantial additional financing to fund its operations and complete the development and commercialization of its process technologies ⁶⁰. As of December 31, 2023, the company's cash and cash equivalents of approximately $476,715 are not sufficient to fund operating expenses and anticipated expenditures for at least 12 months ⁶¹. The company is engaged in negotiations to extend the maturity dates of various debts to December 31, 2024, and to allow for debt-to-equity conversions ⁶². For example, negotiations are ongoing with Kyung Sook Kim for a $926,977 debt to be converted into equity shares ⁶³.

Structural headwinds and execution risks include the protracted sales cycle for large projects (averaging four to five years), which makes annual revenue hard to predict and can create volatile revenue swings ⁶⁴. The company's ability to realize revenues is also subject to the financial health of real estate developers and contractors ⁶⁵. Technological innovation by others could render G-Glass obsolete or uneconomical, and failure to develop new products and enhancements on a timely basis could harm future prospects ⁶⁶. The company operates with a modest inventory, making it difficult to efficiently allocate capacity in response to demand changes, which could result in lost revenue ⁶⁷.

Geographic, regulatory, and macro factors identified as constraints include the nascent nature of the fourth-generation architectural media glass industry, which may take a long time to penetrate target markets ⁶⁸. Fluctuations in the cost or availability of raw materials, components, and services, exacerbated by geopolitical instability and high interest rates, could adversely affect profitability ⁶⁹. A global economic downturn could reduce demand for products, particularly given the business's reliance on the real estate, construction, and advertising industries ⁷⁰. Government sector sales, a significant portion of revenue, may be affected by political events and policy changes ⁷¹. Regulatory restrictions and changes in building codes in the IT, vertical real estate, and large format wallscape sectors could limit demand and adversely affect sales ⁷². The "Excellent Product" designation by the Public Procurement Service of Korea for G-Glass, which allows for non-tender government contracts, expires on March 31, 2025, potentially decreasing domestic government sales ⁷³. Operations in countries like the United Kingdom, China, Japan, Hong Kong, and the United States expose the company to economic, political, and tax conditions, including currency fluctuations, trade restrictions, and geopolitical tensions ⁷⁴. The manufacturing facility in Tianjin, China, remains non-operational due to economic challenges, and the company plans to sell all stakes in G-SMATT TECH Co., Ltd. to streamline marketing and reduce cash support ⁷⁵.

Captivision faces substantial macroeconomic and operational risks, including a critical liquidity shortfall, with current liabilities exceeding current assets by $40,692,649 ⁷⁶ and a retained deficit of $(136,790,543) as of December 31, 2023 ⁷⁷, raising substantial doubt about its ability to continue as a going concern without significant additional financing ⁷⁸. The company anticipates being unable to comply with certain debt covenants, which could lead to accelerated debt repayment and potential liquidation if sufficient funds are not raised ⁷⁹. Geopolitical instability, including armed conflicts in Israel and Ukraine, has disrupted supply chains, increasing prices for essential commodities like glass, semiconductors, and aluminum, and raising shipping and warehousing costs ⁸⁰. The company's "Excellent Product" designation in South Korea, which facilitates government sales, expires on March 31, 2025, potentially reducing domestic government revenue ⁸¹. The protracted sales cycle for Super Large Architectural Media (SLAM) projects, averaging four to five years, makes annual revenue unpredictable and creates volatility ⁸². Furthermore, the company's reliance on third-party contractors for installation exposes it to risks of delays, damages, and unexpected costs that can impact profit margins ⁸³. Technological innovation by competitors could render G-Glass obsolete, and the company's ability to protect its intellectual property, covered by over 20 patents, is crucial for maintaining competitiveness ⁸⁴.

Management's message to shareholders emphasizes the innovative nature of G-Glass as the world's first IT-enabled construction material, transforming buildings into digital media devices with architectural durability, near full transparency, and sophisticated media capabilities ⁸⁵. They highlight the company's market leadership in fully transparent media façade capabilities, with over 490 architectural installations worldwide, and its vertically integrated manufacturing approach as key competitive strengths ⁸⁶. A primary strategic priority is to convert the current pipeline of approximately 64 projects in the proposal phase into closed deals to drive initial growth ⁸⁷. Another key strategic focus is the development of media and services, including the "G-Store" e-platform and the global expansion of the "Glass as a Service" (GaaS) offering, where the company aims to retain 80% of media and advertising revenue from installations ⁸⁸. Management also stresses innovation and diversification of the product portfolio, including the integration of photovoltaic systems for carbon-neutral media façades and expanding into new applications and verticals to become a comprehensive architectural display solutions provider ⁸⁹. Despite these growth initiatives, management explicitly states that current liquidity resources are insufficient to fund operations for at least 12 months from the date of the annual report, necessitating additional capital through equity, debt, or mezzanine financing ⁹⁰. They are actively engaged in negotiations to extend debt maturity dates and convert outstanding debt into equity ⁹¹.