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 this technology ¹. The company's G-Glass product is an IT-enabled construction material that integrates 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 aims to create new revenue models for vertical real estate and the Digital Out of Home (DOOH) media market ³. The global architectural glass market is estimated at 128 billion square feet per year, and Captivision believes it can penetrate 0.1% of this market, representing a total addressable market of $38 billion per year based on a $300 price per square foot ⁴. The DOOH media market is currently estimated at $20 billion and is projected to grow at 12% per annum until 2025 ⁵.

Captivision's core business model revolves around the exclusive development, manufacturing, and installation of its G-Glass product. The company is vertically integrated, controlling nearly every aspect of product manufacturing and assembly, including media glass laminates, aluminum frames, electronics development, software operation, and product delivery and installation ⁶. This vertical integration allows for high quality and service to customers, who include prestigious automotive brands, commercial retailers, hospitals, major sporting institutions, and film production companies ⁷. The company generates revenue primarily from the sale and installation of architectural media glass, with revenue recognition varying by project based on factors like size, location, installation method, and commercial conditions 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's product line, G-Glass, addresses three fundamental flaws observed in existing media façade products: transparency, durability, and cost ¹⁰. G-Glass is more than 99% transparent, architecturally durable with a lifespan of at least 30-40 years, and designed to be the building envelope itself, removing the need for a secondary system ¹¹. It is fully customizable in terms of glass size, coatings, frit patterns, and thicknesses, and can be delivered with LED pitches of 80, 60, 40, 30, and 20 millimeters in both color and monochrome versions ¹². Applications include architectural façades, bridge railings, handrails, G-Tainers (container-sized modular systems for events), G-Walls (free-standing or permanent installations for events), showroom partitions, and bus shelters ¹³. The company is also developing a "G-Store," an e-platform for customers to purchase artworks and videos for G-Glass displays, creating a secondary sales opportunity for media content ¹⁴.

For the fiscal year ended December 31, 2023, Captivision reported total revenue of $14,636,763 ¹⁵, a decrease of 27.5% from the prior year ¹⁶. Cost of sales was $12,361,612 ¹⁷, leading to a gross profit of $2,275,151 ¹⁸. The gross profit margin was approximately 15.5% ($2,275,151 / $14,636,763). Selling and administrative expenses increased by 76.1% to $15,553,783 ¹⁹. The company reported an operating loss of $(13,278,632) ²⁰, resulting in an operating margin of approximately -90.7% ($(13,278,632) / $14,636,763). Net loss for the year was $(76,985,584) ²¹. Cash and cash equivalents stood at $476,715 ²² as of December 31, 2023, while current liabilities exceeded current assets by $40,692,649 ²³, and the company had a retained deficit of $(136,790,543) ²⁴. Total borrowings as of December 31, 2023, were $21,957,620 ²⁵.

Comparing 2023 to 2022, total revenue decreased by 27.5% from $20,191,935 ²⁶ to $14,636,763 ²⁷. This was primarily due to a $2,906,366 decrease in revenue from G-SMATT America and a $2,697,803 decrease in Captivision Korea revenue, partly offset by a $760,000 increase in distribution rights revenue ²⁸. Gross profit decreased by 63.8% from $6,281,365 ²⁹ to $2,275,151 ³⁰. Selling and administrative expenses increased by 76.1% to $15,553,783 ³¹, driven by increases in bad debt expenses ($2,381,637), employee share compensation cost ($1,844,933), commission ($609,162), and professional fees ($549,137) ³². Operating loss widened significantly from $(2,546,254) ³³ to $(13,278,632) ³⁴. Net loss for the year increased by 875.5% from $(7,892,168) ³⁵ to $(76,985,584) ³⁶. Cash flows from operating activities worsened from $(5,500,004) ³⁷ to $(10,479,265) ³⁸.

During 2023, Captivision entered into a binding Business Combination Agreement for its merger with Jaguar Global Growth Corporation I, resulting in Captivision becoming a publicly traded company on Nasdaq ³⁹. The company also 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 ⁴⁰. A strategic partnership with LG Electronics of South Korea for very large-scale projects integrating façades and other digital screens was announced in 2022 ⁴¹. The company's manufacturing facility in Tianjin, China, which suspended operations in March 2020 due to COVID-19 restrictions, has not yet restarted operations ⁴².

Captivision's current liquidity resources raise substantial doubt about its ability to continue as a going concern and to comply with debt covenants unless additional capital is raised in the near term ⁴³. The company's operating cash flow, short-term financing capabilities, and existing cash and cash equivalents are not sufficient to fund operations for at least 12 months from the date of the annual report ⁴⁴. Captivision expects its losses to continue for the foreseeable future as it invests in capabilities and markets its products ⁴⁵. The company is engaged in negotiations to extend the maturity date of certain debts to December 31, 2024, and to allow for the conversion of this debt into equity at its discretion ⁴⁶. Discussions are ongoing with various creditors to convert outstanding debt amounts into ordinary shares of the Company ⁴⁷.

A major growth area for Captivision is the conversion of its current project pipeline. The company has identified a significant number of opportunities, with approximately 64 projects currently in the proposal phase ⁴⁸. Diligently and efficiently converting these proposals into "closed deals" is expected to drive initial growth over the next few years ⁴⁹. Another key growth strategy involves developing media and services, leveraging its G-Glass products as a foundation for strong growth over the next decade ⁵⁰. The company plans to continue concentrating on developing architectural-scale media services and applications to transform urban environments, aiming to become a market leader by firmly tying application platforms to its technology ⁵¹. This includes expanding its "G-Store" e-platform for selling media content ⁵².

Innovation and diversification of the product portfolio are also central to Captivision's growth. The company is working on improvements in quality, pixel density, brightness, and technical performance, and developing new systems for markets such as events, road safety, and sustainable media display ⁵³. A particular focus is the integration of photovoltaic systems with G-Glass to deliver carbon-neutral media façades, aligning with a commitment to sustainability ⁵⁴. The company also aims to expand into additional verticals and applications, including the utilization of third-party LED products, to become a comprehensive architectural display solutions provider ⁵⁵. This includes targeting short-term rental applications and sports, events, media, and entertainment customers with smaller pixel pitch products for higher resolution and daytime visibility ⁵⁶.

Further penetration of international markets is a key strategic objective. The company believes its public listing will enable it to fully staff regional sales and marketing offices to generate a diversified global pipeline ⁵⁷. Historically, most growth has been in South Korea, but the United States and United Kingdom offices have shown robust growth trajectories with scaled projects ⁵⁸. The Los Angeles office is seeing growth in its pipeline for new verticals and applications, including temporary installations at events and continued demand from commercial and construction customers ⁵⁹. The United Kingdom office's 43,000 square foot façade installation at View Hospital in Doha, Qatar, is expected to set a trend for rapid growth in the Middle Eastern market ⁶⁰. The company plans to focus on large-scale opportunities like Inspire Casino Resort, the Magok MICE complex, and NEOM City in Saudi Arabia, as well as smaller and mid-size projects with shorter sales cycles to reduce revenue volatility ⁶¹.

Captivision plans to expand its Glass as a Service (GaaS) offering globally, a model where it shares capital expenditures with customers and maintains installations in exchange for a license to use the media glass for third-party advertising ⁶². Under these arrangements, Captivision typically retains 80% of the media and advertising revenue, aiming to increase margins and monetize installations over 30 years ⁶³. Implementations over 200,000 square feet are expected to maximize digital content delivery, with content costs or advertising spend potentially exceeding $10,000 per day ⁶⁴. This strategy requires the company's transformation into a platform product where content and software are as important as the media glass itself ⁶⁵.

The company's fixed cost of operation is estimated at approximately $10 million per year, representing the minimum costs to maintain factories, overseas subsidiaries, and essential staff ⁶⁶. To cover these fixed costs, Captivision estimates it needs approximately $26.0 million in revenues, comprising $20.0 million for existing operations and $6.0 million for additional costs as a public company ⁶⁷. No significant capital expenditures are expected in the short to medium term, as the operational manufacturing capacity of over 700,000 square feet of G-Glass per year represents an estimated $220 million of product revenue annually, which is more than six times the current estimated demand for 2024 ⁶⁸. The company anticipates needing additional cash to fund marketing expenses as it enters new markets ⁶⁹. For inventory, after an initial investment of approximately $4 million, future raw material expenses are expected to be funded by cash flow from operations ⁷⁰.

Captivision faces substantial risks, including a significant need for additional financing to fund operations and development, with current liquidity raising substantial doubt about its ability to continue as a going concern and comply with debt covenants ⁷¹. The company has an outstanding deficit of $136.8 million ⁷² and current liabilities exceeding current assets by $40.7 million ⁷³ as of December 31, 2023. Failure to raise additional capital could lead to delays or suspensions of manufacturing and commercialization efforts, reduced research and development, decreased financial resources for partnering, and potential liquidation of assets ⁷⁴. The fourth-generation architectural media glass industry is nascent, and widespread adoption of G-Glass technology by the DOOH and construction industries is uncertain, potentially affecting profitability ⁷⁵. Fluctuations in raw material costs and availability, exacerbated by global supply chain disruptions and geopolitical instability (e.g., conflicts in Israel and Ukraine), could adversely affect profitability and production ⁷⁶. The sales cycle for large projects (SLAMs) is protracted, averaging four to five years, making annual revenue and financial metrics hard to predict and creating volatile revenue swings ⁷⁷. The company's Excellent Product designation by the Public Procurement Service of Korea, which allows it to bypass public tenders for government contracts, expires on March 31, 2025, potentially decreasing domestic government sales ⁷⁸. Operations in South Korea and other international markets expose the company to economic, political, legal, regulatory, and exchange rate risks, including potential trade wars and increased tariffs ⁷⁹. The company's Warrants and Converted Options may never be in the money and could expire worthless, limiting potential cash proceeds from their exercise ⁸⁰.

Management's message to shareholders emphasizes the innovative nature of Captivision's G-Glass technology as the first and only provider of fourth-generation architectural media glass, capable of transforming buildings into digital media devices with architectural durability, near full transparency, and sophisticated media capabilities. They highlight the company's vertical integration and over 490 architectural installations worldwide as key competitive strengths. However, management explicitly states that the company's current liquidity resources raise substantial doubt about its ability to continue as a going concern and to comply with its debt covenants unless additional capital is raised to meet obligations in the near term ⁸¹. They anticipate that operating cash flow, short-term financing capabilities, and existing cash and cash equivalents will not be sufficient to fund operations for at least 12 months from the date of the annual report ⁸². The three strategic priorities emphasized for the period ahead are converting the current project pipeline, developing media and services, and further penetrating international markets. Management notes that approximately 64 projects are in the proposal phase, which, if converted, will drive initial growth ⁸³. They also plan to expand the "Glass as a Service" (GaaS) offering globally, aiming to retain 80% of media and advertising revenue from installations ⁸⁴. The company expects to fund marketing and sales personnel in international jurisdictions to fuel growth, with an anticipated $15 million of marketing spend expected to result in approximately $100 million of revenue ⁸⁵.