Public companies are required to disclose risks that can affect the business and impact the stock. These disclosures are known as “Risk Factors”. Companies disclose these risks in their yearly (Form 10-K), quarterly earnings (Form 10-Q), or “foreign private issuer” reports (Form 20-F). Risk factors show the challenges a company faces. Investors can consider the worst-case scenarios before making an investment. TipRanks’ Risk Analysis categorizes risks based on proprietary classification algorithms and machine learning.

Creative Realities disclosed 39 risk factors in its most recent earnings report. Creative Realities reported the most risks in the “Finance & Corporate” category.

Risk Overview Q3, 2024

Risk Distribution

44% Finance & Corporate

23% Tech & Innovation

23% Ability to Sell

5% Macro & Political

3% Legal & Regulatory

3% Production

Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy

This chart displays the stock's most recent risk distribution according to category. TipRanks has identified 6 major categories: Finance & corporate, legal & regulatory, macro & political, production, tech & innovation, and ability to sell.

Risk Change Over Time

2020

S&P500 Average

Sector Average

Risks removed

Risks added

Risks changed

Creative Realities Risk Factors

New Risk (0)

Risk Changed (0)

Risk Removed (0)

No changes from previous report

The chart shows the number of risks a company has disclosed. You can compare this to the sector average or S&P 500 average.

The quarters shown in the chart are according to the calendar year (January to December). Businesses set their own financial calendar, known as a fiscal year. For example, Walmart ends their financial year at the end of January to accommodate the holiday season.

Risk Highlights Q3, 2024

Main Risk Category

Finance & Corporate

With 17 Risks

Finance & Corporate

With 17 Risks

Number of Disclosed Risks

From last report

S&P 500 Average: 31

From last report

S&P 500 Average: 31

Recent Changes

1Risks added

0Risks removed

0Risks changed

Since Sep 2024

1Risks added

0Risks removed

0Risks changed

Since Sep 2024

Number of Risk Changed

-7

From last report

S&P 500 Average: 3

-7

From last report

S&P 500 Average: 3

See the risk highlights of Creative Realities in the last period.

Risk Word Cloud

The most common phrases about risk factors from the most recent report. Larger texts indicate more widely used phrases.

Risk Factors Full Breakdown - Total Risks 39

Finance & Corporate

Total Risks: 17/39 (44%)Below Sector Average

Share Price & Shareholder Rights8 | 20.5%

Share Price & Shareholder Rights - Risk 1

There may not be an active market for shares of our common stock.

In general, there has been minimal trading volume in our common stock. Small trading volumes would likely make it difficult for our shareholders to sell their shares as and when they choose. Furthermore, small trading volumes are generally understood to depress market prices. As a result, you may not always be able to resell shares of our common stock publicly at the time and prices that you feel are fair or appropriate.

Share Price & Shareholder Rights - Risk 2

Sales of a substantial number of shares of our common stock in the public market by certain of our stockholders could cause our stock price to fall.

Sales of a substantial number of shares of our common stock in the public market or the perception that these sales might occur, could depress the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that sales may have on the prevailing market price of our common stock.

Share Price & Shareholder Rights - Risk 3

Significant issuances of our common stock, or the perception that significant issuances may occur in the future, could adversely affect the market price for our common stock.

Significant actual or perceived potential future issuance of our common stock could adversely affect the market price of our common stock. Generally, issuances of substantial amounts of common stock in the public market, and the availability of shares for future sale, could adversely affect the prevailing market price of our common stock, and could cause the market price of our common stock to remain low for a substantial amount of time. We cannot foresee the impact of potential securities issuances of common shares on the market for our common stock, but it is possible that the market for our shares may be adversely affected, perhaps significantly. It is also unclear whether or not the market for our common stock could absorb a large number of attempted sales in a short period of time, regardless of the price at which they might be offered.

Share Price & Shareholder Rights - Risk 4

We can provide no assurance that our securities will continue to meet Nasdaq listing requirements. If we fail to comply with the continuing listing standards of the Nasdaq, our securities could be delisted.

In 2022, the bid price of the Company's common stock closed for 30 consecutive trading days below the $1.00 per share minimum required for continued listing on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2) (the "Minimum Bid Price Requirement"). Although the Company cured such noncompliance as a result of its 1-for-3 reverse stock split in March 2023, the trading price of the Company's common stock has been subject to large movement in the past, especially in light of historically low trading volumes. We cannot be certain that the Company will be able to comply with the Minimum Bid Price Requirement and the other continued listing requirements of Nasdaq in the future, in which case the Company's common stock may be delisted from the Nasdaq Capital Market. In the event our common stock is delisted from The Nasdaq Capital Market and we are also unable to maintain listing on another alternate exchange, trading in our common stock could thereafter be conducted in FINRA's OTC Bulletin Board or in the over-the-counter markets in the so-called "pink sheets." In such event, the liquidity of our common stock would likely be further impaired, not only in the number of shares which could be bought and sold, but also through delays in the timing of the transactions, and there would likely be a reduction in our coverage by security analysts and the news media, thereby resulting in lower prices for our common stock than might otherwise prevail.

Share Price & Shareholder Rights - Risk 5

Our Articles of Incorporation grant our Board of Directors the power to issue additional shares of common and preferred stock and to designate other classes of preferred stock, all without shareholder approval.

Our authorized capital consists of 116,666,666 shares of capital stock, 50,000,000 of which is undesignated preferred stock. Pursuant to authority granted by our Articles of Incorporation, our Board of Directors, without any action by our shareholders, may designate and issue shares in such classes or series (including other classes or series of preferred stock) as it deems appropriate and establish the rights, preferences and privileges of such shares, including dividends, liquidation and voting rights, provided such designation is consistent with Minnesota law. The rights of holders of other classes or series of stock that may be issued could be superior to the rights of holders of our common shares. The designation and issuance of shares of capital stock having preferential rights could adversely affect other rights appurtenant to shares of our common stock. Furthermore, any issuances of additional stock (common or preferred) will dilute the percentage of ownership interest of then-current holders of our capital stock and may dilute our book value per share.

Share Price & Shareholder Rights - Risk 6

Our largest shareholder and senior lender possesses significant voting power with respect to our common stock, which will limit your influence on our management and affairs, and may discourage parties from initiating potential merger, takeover, or other change-of-control transactions.

As of March 20, 2024, our largest shareholder and investor, Slipstream is the holder of all of our outstanding debt instruments, including two term loans, and has beneficial ownership of approximately 26% of our common stock (on an as-converted, fully diluted basis including conversion of outstanding warrants, and assuming no other convertible securities, options and warrants are converted or exercised by other parties). Slipstream has significant influence on our management and affairs, including the election and removal of our Board of Directors and all other matters requiring shareholder approval, including the future merger, consolidation or sale of all or substantially all of our assets. This stockholder position, especially in light of Pegasus' prior proposals described below, may discourage others from initiating any potential merger, takeover, or other change-of-control transaction that may otherwise be beneficial to our shareholders. Furthermore, this concentrated ownership will limit the practical effect of your participation in Company matters, through shareholder votes and otherwise. On February 2, 2023 and May 1, 2023, we received unsolicited proposals from Pegasus Capital Advisors, L.P., on behalf of itself and certain of its affiliates, including Slipstream (collectively, "Pegasus"), to acquire all of the outstanding shares of common stock of the Company that are not owned by Pegasus for purchase prices of $0.83 per share in cash (or, as a result of our 1-for-3 reverse stock split effectuated in March 2023, $2.49 per share), and $2.85 per share in cash, respectively. Pegasus is the beneficial owner of our common stock owned of record by Slipstream. The Special Committee of the Company's Board of Directors (the "Special Committee") concluded that each proposal undervalued the Company based on the Special Committee's views of the intrinsic value of the Company's existing business and current and future prospects, and was not in the best interests of the Company's existing shareholders. Consequently, the Special Committee advised Pegasus that it rejected each proposal, and since such time, Pegasus has not made any subsequent acquisition proposal.

Share Price & Shareholder Rights - Risk 7

Added

The Guaranteed Consideration payable to former Reflect stockholders is an estimate only and is subject to change. Accordingly, the contingent liability that we book for payment of the Guaranteed Consideration is an estimate only, and the actual liability may differ. In addition, disputes over the proper calculation of the Guaranteed Consideration could result in litigation or arbitration.

Pursuant to the Merger Agreement governing the merger in which we acquired Reflect (the "Merger"), shares of Reflect's capital were converted into the right to receive cash and a total of 2,333,334 shares of our common stock (the "Merger Shares"). The Merger Agreement also requires us to make additional contingent cash payments to the former Reflect stockholders (the "Guaranteed Consideration") on or after February 17, 2025 (subject to a six-month extension under certain circumstances) (the "Guarantee Date") in an amount by which the value of our shares on the Guarantee Date is less than $6.40 per share (such applicable amount, the "Guaranteed Price"), multiplied by the number of Merger Shares held by the Reflect stockholders on the Guarantee Date. The actual amount of Guaranteed Consideration cannot be determined until such time. On March 23, 2023, the Company completed a 1-for-3 reverse stock split (the "Reverse Split") primarily intended to bring the Company into compliance with the minimum bid price requirement to maintain the listing of its common stock on the Nasdaq Capital Market. As a result of the Reverse Split, the number of Merger Shares decreased from 2,333,334 to 777,778. Our financial statements have and continue to book a contingent liability for payment of the Guaranteed Consideration conservatively as though the Reverse Split resulted in an upward adjustment of the Guaranteed Price from $6.40 per share to $19.20 per share. Notwithstanding this accounting position, we have engaged in discussions with RSI Exit Corporation, as representative of the former Reflect stockholders ("RSI"), regarding the impact that the Reverse Split properly had on the calculation of the Guaranteed Consideration, given that the Merger Agreement provides for a Guaranteed Price of $6.40 per share and does not provide for any adjustment to the Guaranteed Price as a result of the Reverse Stock Split or other similar transaction with respect to our common stock. To date, the Company and RSI have not reached any agreement regarding the calculation of the Guaranteed Consideration under the plain terms of the Merger Agreement. Ultimately, the Guaranteed Price may not be adjusted for the Reverse Split based on the terms of the Merger Agreement, and the contingent liability that we book for payment of the Guaranteed Consideration may differ from the amount ultimately paid. See "Note 2 Section 11 Summary of Significant Policies - Contingent Consideration" to the Company's Consolidated Financial Statements contained in this Report for a description of our obligations to pay the contingent consideration. If we and RSI are ultimately unable to agree upon the proper calculation of the Guaranteed Consideration, the matter may result in litigation or arbitration. RSI may file claims against us for, among other things, failure to pay the correct amount for the Guaranteed Consideration once the payment due date occurs, which is anticipated to occur in February 2025. We cannot provide any certainty that our interpretation of the Merger Agreement, and position on the amount of the Guaranteed Consideration, will ultimately be accepted by RSI and the former Reflect stockholders, or by any arbitrator or court that ultimately adjudicates the matter. In addition, any claim will require significant time of management, and the Company will likely incur substantial expenses. If our interpretation of the Merger Agreement is not correct, we may be forced to cover the expenses of RSI in bringing such claim.

Share Price & Shareholder Rights - Risk 8

We risk losing directors, officers, and employees, or paying more cash compensation, if our shareholders do not approve our 2023 Stock Incentive Plan.

Our ability to issue incentive awards under our 2014 Stock Incentive Plan expired in 2023. Nasdaq's listing rules require us to obtain our shareholder's approval of a stock incentive plan before we may issue any shares under the plan or any option issued under the plan may be exercised. On November 8, 2023, our Board of Directors adopted a 2023 stock incentive plan (the "2023 Plan"), and we intend to seek shareholder approval of such plan at our 2024 annual shareholder meeting. As a company with limited capital resources, we have historically relied upon our ability to issue incentives from our stock incentive plans to our directors, officers and employees in lieu of cash-based compensation. Currently, we may only issue options under the 2023 Plan that cannot be exercised unless shareholder approval of the 2023 Plan is obtained in advance of the exercise of any option. We cannot issue restricted stock awards or stock awards, which we have issued in the past to incentivize our directors, officers and employees and to mitigate the cash compensation that would otherwise be payable to such persons. This limited use of the 2023 Plan limits the value of these incentives, and will require us to use cash in place of incentives under the 2023 Plan until shareholder approval is obtained, or we risk losing the services of our officers, directors and employees. We cannot guarantee that we will be able to obtain shareholder approval of the 2023 Plan. Our shareholders failed to approve at our 2023 annual shareholder meeting a 2023 equity incentive plan that authorized the issuance of up to 1,500,000 shares under such plan.

Accounting & Financial Operations5 | 12.8%

Accounting & Financial Operations - Risk 1

We do not have significant tangible assets that could be sold upon liquidation.

We have nominal tangible assets. As a result, if we become insolvent or otherwise must dissolve, there will be no tangible assets to liquidate and no corresponding proceeds to disburse to our shareholders. If we become insolvent or otherwise must dissolve, shareholders will likely not receive any cash proceeds on account of their shares.

Accounting & Financial Operations - Risk 2

We have never paid dividends on our capital stock and we do not anticipate paying dividends in the foreseeable future.

We have never paid dividends on any of our capital stock and currently intend to retain any future earnings to fund the growth of our business. Any determination to pay dividends in the future will be at the discretion of our Board of Directors and will depend on our financial condition, operating results, capital requirements, general business conditions, and other factors that our Board of Directors may deem relevant. As a result, capital appreciation, if any, of our common stock will be the sole source of gain for the foreseeable future.

Accounting & Financial Operations - Risk 3

Our financial condition and potential for continued net losses may negatively impact our relationships with customers, prospective customers and third-party suppliers.

Our financial condition and potential for continued net losses may cause current and prospective customers to defer placing orders with us, to require terms that are less favorable to us, or to place their orders with our competitors, which could adversely affect our business, financial condition, and results of operations. On the same basis, third-party suppliers may refuse to do business with us, or may do so only on terms that are unfavorable to us, which also could cause our expenses to increase.

Accounting & Financial Operations - Risk 4

Our success and longevity depend on our ability to generate profits from future operations and obtain sufficient capital through financing transactions to refinance our debt obligations, pay any contingent consideration owed to former Reflect stockholders, and meet our other business obligations.

The report of our independent registered public accounting firm on our Consolidated Financial Statements for the fiscal year ended December 31, 2023 included an explanatory paragraph indicating that there is substantial doubt as to our ability to continue as a going concern within one year after that date that the Consolidated Financial Statements are issued. At December 31, 2023, the Company has an accumulated deficit of $53,346, negative working capital of $1,587, including current debt obligations of $3,690, and cash of $2,910. For the year ended December 31, 2023, the Company generated operating income of $1,346 and generated positive net cash flows from operations of $5,167. Pursuant to the Second Amended and Restated Credit and Security Agreement (the "Credit Agreement") between the Company and Slipstream, the Company is required and began to make monthly repayments of principal on the Consolidation Term Loan on September 1, 2023. The monthly principal payment is approximately $370 and will continue on the first day of each month thereafter until the Maturity Date on February 17, 2025, with total principal repayments of $4,037 during the twelve months subsequent to the reporting date of our Consolidated Financial Statements. In addition, the Company is required to repay the principal balance on the Acquisition Term Loan of $10,000 at maturity and resolve the contingent consideration (described below), currently estimated for accounting purposes at $11,208, each of which mature on February 17, 2025 and collectively raises substantial doubt about the Company's ability to continue as a going concern under the technical framework within ASU 205-40. See "Note 1: Nature of Organization of Organization and Operations- Liquidity and Financial Consideration" to the Company's Consolidated Financial Statements contained in this Report for a description of our payment obligations under the Credit Agreement. The merger agreement in which we acquired Reflect requires us to pay to former Reflect stockholders additional contingent cash consideration after February 17, 2025 (subject to a six-month extension under certain circumstances), if the closing price of our shares of common stock on such date is less than $6.40 per share (the "Guaranteed Price"). The actual amount of such contingent consideration cannot be determined until such time, but our financial statements reflect $11,208 as the amount of such payment as of December 31, 2023, which include an increase in the Guaranteed Price to reflect the Company's 1-for-3 reverse stock split that occurred on March 23, 2023. See "Note 5 Business Combinations" to the Company's Consolidated Financial Statements contained in this Report for a description of our obligations to pay the contingent consideration. We do not anticipate that we will have adequate funds from our operations to satisfy these obligations in February 2025. In response to these conditions, the Company plans to evaluate its available options for refinancing, via recapitalization, debt financing or equity financing, its upcoming obligations associated with the Acquisition Term Loan, Consolidation Term Loan, and contingent consideration. However, these plans have not been finalized, are subject to market conditions, and are not within the Company's control, and therefore cannot be deemed probable. As a result, the Company has concluded that management's plans do not alleviate substantial doubt about the Company's ability to continue as a going concern. Any equity financings will likely be dilutive to shareholders and may be completed at a discount to the then-current market price of our securities. Debt financing, if available, may involve restrictive covenants on our operations or pertaining to future financing arrangements. Nevertheless, we may not successfully complete any future equity or debt financing. Adequate funds for our operations, whether from financial markets, collaborative or other arrangements, may not be available when needed or on terms attractive to us. If adequate funds are not available, our plans to operate our business may be adversely affected and we could be required to curtail our activities significantly and/or cease operating.

Accounting & Financial Operations - Risk 5

We have generally incurred losses, and may never become or remain profitable.

We have incurred historical net losses, and we have had negative cash flows from operations. While we have been able to achieve net income in 2021 and 2022, we incurred a net loss in 2023 and it is uncertain whether we will be able to sustain or increase our profitability in successive periods. We have formulated our business plans and strategies based on certain assumptions regarding the acceptance of our business model and the marketing of our products and services. Nevertheless, our assessments regarding market size, market share, market acceptance of our products and services and a variety of other factors may prove incorrect. Our future success will depend upon many factors, including factors beyond our control and those that cannot be predicted at this time.

Debt & Financing2 | 5.1%

Debt & Financing - Risk 1

We do not have sufficient capital to engage in material research and development, which may harm our long-term growth.

In light of our limited resources in general, we have limited material investments in research and development over the past several years. This conserves capital in the short term. In the long term, as a result of our failure to invest in research and development, our technology and product offerings may not keep pace with the market, and we may lose any current existing competitive advantage. Over the long term, this may harm our revenues growth and our ability to become profitable.

Debt & Financing - Risk 2

Unpredictability in financing markets could impair our ability to grow our business through acquisitions.

We anticipate that opportunities to acquire similar businesses will materially depend on, among other things, the availability of financing options for us with acceptable terms. Poor credit and other market conditions or uncertainty in financial markets could adversely affect our ability to obtain such financing, and as a result, materially limit our ability to grow through acquisitions.

Corporate Activity and Growth2 | 5.1%

Corporate Activity and Growth - Risk 1

There has been, and we expect that there will continue to be, significant consolidation in our industry. Our failure or inability to either lead or participate in that consolidation would have a severe adverse impact on our access to financing, customers, technology, and human resources.

Our industry is currently composed of a large number of relatively small businesses; no single business dominates or provides integrated solutions and product offerings incorporating much of the available industry technology. We believe that substantial consolidation is occurring in our industry and will continue to do so in the near future. We believe that our prior acquisitions of Allure and Reflect illustrate acquisition opportunities that exist in our industry. If we are not active participants in consolidation, either as a consolidator or as a target, we may be left out of this process, with product offerings of limited value compared with those of our consolidated competitors. Moreover, even if we lead the consolidation process, we may incur unknown liabilities in such consolidations, fail to fully integrate the operations, personnel, or technology from such consolidations, and the market may not validate the decisions we make in that process.

Corporate Activity and Growth - Risk 2

Because of our limited internal resources, we may not have in place various processes and protections common to more mature companies and may be more susceptible to adverse events.

We have limited internal resources. As a result, we may not have in place systems, processes, and protections that many of our competitors have or that may be essential to protect against various risks. For example, we have in place only limited resources and processes addressing human resources, timekeeping, data protection, business continuity, personnel redundancy, and knowledge institutionalization concerns. As a result, we are at risk that one or more adverse events in these and other areas may materially harm our business, financial condition, and results of operations.

Tech & Innovation

Total Risks: 9/39 (23%)Above Sector Average

Innovation / R&D2 | 5.1%

Innovation / R&D - Risk 1

Our industry is characterized by frequent technological change. If we are unable to adapt our products and services and develop new products and services to keep up with these rapid changes, we will not be able to obtain, or maintain, market share.

The market for our products and services is characterized by rapidly changing technology, evolving industry standards, changes in customer needs, heavy competition, and frequent new product and service introductions. If we fail to develop new products and services or modify or improve existing products and services in response to these changes in technology, customer demands, or industry standards, our products and services could become less competitive or obsolete. We must respond to changing technology and industry standards in a timely and cost-effective manner. We may not be successful in using new technologies, developing new products and services or enhancing existing products and services in a timely and cost-effective manner. Furthermore, even if we successfully adapt our products and services, these new technologies or enhancements may not achieve sufficient market acceptance.

Innovation / R&D - Risk 2

It is common for our current and prospective customers to evaluate our products over an extended period of time, most especially during economic downturns that affect our customers' businesses, as we saw during the COVID-19 pandemic. The lengthy and variable sales cycle makes it difficult to predict our operating results.

It is difficult for us to forecast the timing and recognition of revenue from sales of our products and services because our actual and prospective customers often take significant time to evaluate our products before committing to a purchase. Even after making their first purchases of our products and services (or "pilot program" purchases), existing customers may not make significant purchases of those products and services for a long period of time following their initial purchases, if at all. The period between initial customer contact and a purchase by a customer may be years with potentially an even longer period separating initial purchases and any significant purchases thereafter. During the evaluation period, prospective customers may decide not to purchase or may scale down proposed orders of our products for various reasons, including: - reduced need to upgrade existing visual marketing systems;- introduction of products by our competitors;- lower prices offered by our competitors; and - changes in budgets and purchasing priorities. Our prospective customers routinely require education regarding the use and benefit of our products and solutions. This may also lead to delays in receiving customers' orders.

Trade Secrets1 | 2.6%

Trade Secrets - Risk 1

We use developed and licensed software technology, and we could face claims of infringement by others in the industry. Such claims are costly and add uncertainty to our operational results.

A portion of our business involves our ownership and licensing of software. This market space is characterized by frequent intellectual property claims and litigation. We could be subject to claims of infringement of third-party intellectual-property rights resulting in significant expense and the potential loss of our own intellectual property rights. From time to time, third parties may assert copyright, trademark, patent, or other intellectual property rights to technologies that are important to our business. Any litigation to determine the validity of these claims, including claims arising through our contractual indemnification of our business partners, regardless of their merit or resolution, would likely be costly and time consuming and divert the efforts and attention of our management and technical personnel. If any such litigation resulted in an adverse ruling, we could be required to: - pay substantial damages;- cease the development, use, licensing or sale of infringing products;- discontinue the use of certain technology; or - obtain a license under the intellectual property rights of the third party claiming infringement, which license may not be available on reasonable terms or at all.

Cyber Security2 | 5.1%

Cyber Security - Risk 1

Our reliance on information management and transaction systems to operate our business exposes us to cyber incidents and hacking of our sensitive information if our outsourced service provider experiences a security breach.

Effective information security internal controls are necessary for us to protect our sensitive information from illegal activities and unauthorized disclosure in addition to denial of service attacks and corruption of our data. In addition, we rely on the information security internal controls maintained by our outsourced service provider. Breaches of our information management system could also adversely affect our business reputation. Finally, significant information system disruptions could adversely affect our ability to effectively manage operations or reliably report results.

Cyber Security - Risk 2

We are subject to cyber security risks and interruptions or failures in our information technology systems and those of third party partners with whom our applications are integrated, and will likely need to expend additional resources to enhance our protection from such risks. Notwithstanding our efforts, a cyber incident could occur and result in information theft, data corruption, operational disruption, and/or financial loss.

We depend on digital technologies to process and record financial and operating data and rely on sophisticated information technology systems and infrastructure to support our business, including process control technology. At the same time, cyber incidents, including deliberate attacks, have increased. Our technologies, systems and networks and those of our vendors, suppliers, and other business partners may become the target of cyberattacks or information security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of proprietary and other information, or other disruption of business operations. In addition, certain cyber incidents, such as surveillance, may remain undetected for an extended period. Our systems for protecting against cyber security risks may not be sufficient. As the sophistication of cyber incidents continues to evolve, we will likely be required to expend additional resources to continue to modify or enhance our protective measures or to investigate and remediate any vulnerability to cyber incidents. Additionally, any of these systems may be susceptible to outages due to fire, floods, power loss, telecommunications failures, usage errors by employees, computer viruses, cyber-attacks, or other security breaches or similar events. The failure of any of our information technology systems may cause disruptions in our operations, which could adversely affect our revenues and profitability. Additionally, we engage third-party service providers to assist us in providing products and services for our customers. Those third-party services providers also subject to the foregoing risks to their systems. We do not have a process to oversee and identify risks from cyber security threats associated with our use of such third-party service providers, and any such incidents occurring on their system could similarly affect us, our revenues and profitability.

Technology4 | 10.3%

Technology - Risk 1

We may have insufficient network or server capacity, which could result in interruptions in our services and loss of revenues.

Our operations are dependent in part upon: network capacity provided by third-party telecommunications networks; data center services provider owned and leased infrastructure and capacity; our dedicated and virtualized server capacity located at its data center services provider partner and a geo-redundant micro-data center location; and our own infrastructure and equipment. Collectively, this infrastructure, equipment, and capacity must be sufficiently robust to handle all of our customers' web-traffic, particularly in the event of unexpected surges in high-definition video traffic and network services incidents. We (and our service providers) may not be adequately prepared for unexpected increases in bandwidth and related infrastructure demands from our customers. In addition, the bandwidth we have contracted to purchase may become unavailable for a variety of reasons, including payment disputes, outages, or such service providers going out of business. Any failure of these service providers or our own infrastructure to provide the capacity we require, due to financial or other reasons, may result in a reduction in, or interruption of, service to our customers, leading to an immediate decline in revenue and possible additional decline in revenue as a result of subsequent customer losses.

Technology - Risk 2

Because our technology, products, platform, and services are complex and are deployed in and across complex environments, they may have errors or defects that could seriously harm our business.

Our technology, proprietary platforms, products, and services are highly complex and are designed to operate in and across data centers, large and complex networks, and other elements of the digital media workflow that we do not own or control. On an ongoing basis, we need to perform proactive maintenance services on our platform and related software services to correct errors and defects. In the future, there may be additional errors and defects in our software that may adversely affect our services. We may not have in place adequate reporting, tracking, monitoring, and quality assurance procedures to ensure that we detect errors in our software in a timely manner. If we are unable to efficiently and cost-effectively fix errors or other problems that may be identified, or if there are unidentified errors that allow persons to improperly access our services, we could experience loss of revenues and market share, damage to our reputation, increased expenses and legal actions by our customers.

Technology - Risk 3

Our business may be adversely affected by malicious applications that interfere with, or exploit security flaws in, our products and services.

Our business may be adversely affected by malicious applications that make changes to our customers' computer systems and interfere with the operation and use of our products or products that impact our business. These applications may attempt to interfere with our ability to communicate with our customers' devices. The interference may occur without disclosure to or consent from our customers, resulting in a negative experience that our customers may associate with our products and services. These applications may be difficult or impossible to uninstall or disable, may reinstall themselves and may circumvent other applications' efforts to block or remove them. The ability to provide customers with a superior interactive marketing technology experience is critical to our success. If our efforts to combat these malicious applications fail, or if our products and services have actual or perceived vulnerabilities, there may be claims based on such failure or our reputation may be harmed, which would damage our business and financial condition.

Technology - Risk 4

Our proprietary platform architectures and data tracking technology underlying certain of our services are complex and may contain unknown errors in design or implementation that could result in system performance failures or inability to scale.

The platform architecture, data tracking technology, and integration layers underlying our proprietary platforms, our contract administration, procurement, timekeeping, content and network management, network services, device management, virtualized services, software automation and other tools, and back-end services are complex and include specially developed software and code. This software and code are developed internally, licensed from third parties, or integrated by in-house personnel and third parties. Any of the system architecture, system administration, integration layers, software, or code may contain errors, or may be implemented or interpreted incorrectly, particularly when they are first introduced or when new versions or enhancements to our tools and services are released. Consequently, our systems could experience performance failure, or we may be unable to scale our systems, which may: - adversely impact our relationship with customers and others who experience system failure, possibly leading to a loss of affected and unaffected customers;- increase our costs related to product development or service delivery; or - adversely affect our revenues and expenses.

Ability to Sell

Total Risks: 9/39 (23%)Above Sector Average

Competition3 | 7.7%

Competition - Risk 1

We compete with other companies that have more resources, which puts us at a competitive disadvantage.

The market for interactive marketing technologies is highly competitive and we expect competition to increase in the future. Many competitors have significantly greater financial, technical, and marketing resources than us. These competitors may be able to respond more rapidly than we can to new or emerging technologies or changes in customer preferences or requirements. They may also devote greater resources to the development, promotion and sale of their products and services than us. We expect competitors to continue to improve the performance of their current products, services, and technologies and to introduce new products, services, and technologies as well. Successful new product and service introductions or enhancements by our competitors could reduce sales and the market acceptance of our products and services, cause intense price competition, or make our products and services obsolete. To be competitive, we must continue to invest significant resources in research and development, sales and marketing and customer support. If we do not have sufficient resources to make these investments or are unable to make the technological advances necessary to be competitive, our competitive position will suffer. Increased competition could result in price reductions, fewer customer orders, reduced margins, and loss of market share. Our failure to compete successfully against current or future competitors could adversely affect our business and financial condition.

Competition - Risk 2

Our competitors are constantly evolving, and we may be unable to compete successfully against existing or future competitors to our business.

The market in which we operate is increasingly competitive. Our current competitors generally include general digital signage companies, specialized digital signage operators targeting certain vertical markets (e.g., financial services, retail, or food services), content management software companies, or integrators and vertical solution providers who develop single implementations of content distribution, digital marketing technology, and related services. These competitors, including future new competitors who may emerge, may be able to develop comparable or superior solution capabilities, software platform, technology stack, and/or series of services that provide a similar or more robust set of features and functionality than our technology, products and services. If this occurs, we may be unable to grow as necessary to make our business profitable. In addition, our existing and potential future competitors may be able to use their extensive resources to: - develop and deploy new products and services more quickly and effectively than we can;- develop, improve, and expand their platforms and related infrastructures more quickly than we can;- offer less expensive products, technology, platform, and services as a result of a lower cost structure, greater capital reserves, or otherwise;- adapt more swiftly and completely to new or emerging technologies and changes in customer requirements;- take advantage of acquisition and other opportunities more readily; and - devote greater resources to the marketing and sales of their products, technology, platform, and services. If we are unable to compete effectively in our various markets, or if competitive pressures place downward pressure on the prices at which we offer our products and services, our business, financial condition and results of operations may suffer.

Competition - Risk 3

We operate in an intensely competitive industry, and our competitors are developing products and solutions that incorporate AI and ML . We may not be as successful as our competitors in incorporating AI and ML into our products and solutions.

Our competitors may be larger, more diversified, better funded, and have access to more advanced technology, including AI and ML. These competitive advantages may enable our competition to innovate their products and solutions faster or better than we can, or to provide increased competition on quality and price, which could adversely affect our business and profitability. Burgeoning interest in AI and ML may increase competition and disrupt the Company's business model. AI and ML may lower barriers to entry in our industry and the Company may be unable to effectively compete with the products or services offered by new competitors. Changes to the products and services we offer related to AI and ML may affect customer expectations, requirements, or tastes in ways that the Company cannot adequately anticipate or adapt to, causing its business to lose revenues.

Demand2 | 5.1%

Demand - Risk 1

Our continued growth and financial performance could be adversely affected by the loss of several key customers.

No customer accounted for more than 10% of revenue for the year ended December 31, 2023. We had three customers that accounted for 44% of revenue for the years ended December 31, 2022. Decisions by one or more of these key customers to not renew, terminate, or substantially reduce their use of our products, technology, services, and platform could substantially slow our revenue growth and lead to a decline in revenue. Our business plan assumes continued growth in revenue, and it is unlikely that we will become profitable without a continued increase in revenue.

Demand - Risk 2

Our success depends on our interactive marketing technologies achieving and maintaining widespread acceptance in our targeted markets.

Our success will depend to a large extent on market acceptance of our interactive marketing technologies among our current and prospective customers. Our prospective customers may still not use our solutions for a number of other reasons, including preference for static advertising, lack of familiarity with our technology, preference for competing technologies or perceived lack of reliability. We believe that the acceptance of our interactive marketing technologies by prospective customers will depend primarily on the following factors: - our ability to demonstrate the economic and other benefits attendant to our interactive marketing technologies;- our customers becoming comfortable with using our interactive marketing technologies; and - the reliability of our interactive marketing technologies. Our interactive technologies are complex and must meet stringent user requirements. Some undetected errors or defects may only become apparent as new functions are added to our technologies and products. The need to repair or replace products with design or manufacturing defects could temporarily delay the sale of new products and adversely affect our reputation. Delays, costs, and damage to our reputation due to product defects could harm our business.

Sales & Marketing4 | 10.3%

Sales & Marketing - Risk 1

The variable sales cycle of our products will likely make it difficult to predict operating results.

Although we are focusing on increasing our revenues from SaaS services to our customers, our overall revenues in any quarter depend substantially upon contracts signed and the related shipment and installation or delivery of hardware and software products in that quarter. It is therefore difficult for us to accurately predict revenues and this difficulty also will affect the Company. It is difficult to forecast the timing of large individual hardware and software sales with a high degree of certainty due to the extended length of the sales cycle and the generally more complex contractual terms that may be associated with our products that could result in the deferral of some or all of the revenue to future periods. Accordingly, large individual sales have sometimes occurred in quarters subsequent to when we anticipated or not at all. If we receive any significant cancellation or deferral of customer orders, or it is unable to conclude license negotiations by the end of a fiscal quarter, our operating results may be lower than anticipated. In addition, any weakening or uncertainty in the economy may make it more difficult for the Company to predict quarterly results in the future, and could negatively impact our business, financial condition, and results of operations for an indefinite period of time.

Sales & Marketing - Risk 2

Our digital marketing business is evolving in a rapidly changing market, and we cannot ensure the long-term successful operation of our business or the execution of our business plan.

Digital marketing technology and solutions are evolving and the markets in which we compete are rapidly changing. As a result, our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by growing companies in new and rapidly evolving markets. We may be unable to accomplish any of the following, which would materially impact our ability to implement our business plan: - timely and successfully developing new technology, solution, service, and platform features, including but not limited to the utilization of artificial intelligence, and increasing the functionality and features of our existing technology, solution, service, and platform offerings;- establishing and maintaining broad market acceptance of our technology, solutions, services, and platforms, and converting that acceptance into direct and indirect sources of revenue;- establishing and maintaining adoption of our technology, solutions, services, and platforms in and on a variety of environments, experiences, and device types;- developing technology, solutions, services, and platforms that result in a high degree of customer satisfaction and a high level of end-customer usage;- successfully responding to competition, including competition from emerging technologies and solutions;- developing and maintaining strategic relationships to enhance the distribution, features, content and utility of our technology, solutions, services, and platforms;- identifying, attracting and retaining talented engineering, network operations, program management, technical services, creative services, and other personnel at reasonable market compensation rates in the markets in which we employ such personnel; and - integrating operations, personnel and technology from our acquisitions. Our business strategy may be unsuccessful and we may be unable to address the risks we face in a cost-effective manner, if at all. If we are unable to successfully accomplish these tasks, our business will be harmed.

Sales & Marketing - Risk 3

Because we do not have long-term purchase commitments from our customers, the failure to obtain anticipated orders or the deferral or cancellation of commitments could have adverse effects on our business.

Our business is characterized by short-term purchase orders, contracts that do not require that purchases be made by our customers, and monthly subscription contracts (SaaS) that may be terminated with minimal notice. This makes forecasting our sales difficult. The failure to obtain anticipated orders and deferrals or cancellations of purchase commitments or SaaS services because of changes in customer requirements, or otherwise, could have a material adverse effect on our business, financial condition, and results of operations. We have experienced such challenges in the past and may experience such challenges in the future.

Sales & Marketing - Risk 4

Most of our contracts are terminable by our customers with limited notice and without penalty payments, and early terminations could have a material adverse effect on our business, financial condition, and results of operations.

Most of our contracts are terminable by our customers following limited notice and without early termination payments or liquidated damages due from them. In addition, each stage of a project often represents a separate contractual commitment, at the end of which the customers may elect to delay or not to proceed to the next stage of the project. We cannot assure you that one or more of our customers will not terminate a material contract or materially reduce the scope of a large project. The delay, cancellation or significant reduction in the scope of a large project or a number of projects could have a material adverse effect on our business, financial condition and results of operations.

Macro & Political

Total Risks: 2/39 (5%)Below Sector Average

Economy & Political Environment1 | 2.6%

Economy & Political Environment - Risk 1

General global market and economic conditions may have an adverse impact on our operating performance and results of operations.

Our business has been and could continue to be affected by general global economic and market conditions. Any downturn in the United States and worldwide economy could have a negative effect on our operating results, including a decrease in revenue and operating cash flow. To the extent our customers are unable to profitably leverage various forms of digital marketing technology and solutions, and/or the content we create, deliver and publish on their behalf, they may reduce or eliminate their purchase of our products and services. Such reductions in traffic would lead to a reduction in our revenues. Additionally, in a down-cycle economic environment, we may experience the negative effects of increased competitive pricing pressure, customer loss, slowdown in commerce over the Internet, and corresponding decrease in traffic delivered over our network and failures by our customers to pay amounts owed to us on a timely basis or at all. Suppliers on which we rely for equipment, field services, servers, bandwidth, co-location, and other services could also be negatively impacted by economic conditions that, in turn, could have a negative impact on our operations or revenues. Flat or worsening economic conditions may harm our operating results and financial condition. In addition, our business could be adversely affected by the effects of a widespread outbreak of contagious disease, including another outbreak of COVID-19 or another illness. A significant outbreak of contagious diseases in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could affect demand for our products, our ability to collect against existing trade receivables and our operating results. Specifically, such event may cause us, our customers or suppliers to temporarily suspend operations in the affected city or country, and customers may suspend or terminate capital improvements including in-store digital deployments or refresh projects, all of which may have a material adverse effect on our business.

Natural and Human Disruptions1 | 2.6%

Natural and Human Disruptions - Risk 1

Our business operations are susceptible to interruptions caused by events beyond our control.

Our business operations are susceptible to interruptions caused by events beyond our control. For example, the COVID-19 pandemic resulted in authorities implementing numerous preventative measures to contain or mitigate the outbreak of the virus, such as travel bans and restrictions, limitations on business activity, quarantines, and shelter-in-place orders. These measures caused business slowdowns and shutdowns in certain affected areas, both regionally and worldwide, which significantly adversely impacted our business and results of operations. We are vulnerable to potential problems when events beyond our control arise, including, among others: - our platform, technology, products, and services and underlying infrastructure, or that of our key suppliers, may be damaged or destroyed by events beyond our control, such as fires, earthquakes, floods, power outages, or telecommunications failures;- we and our customers and/or partners may experience interruptions in service as a result of the accidental or malicious actions of Internet users, hackers, or current or former employees;- we may transmit viruses to third parties that damage or impair their access to computer networks, programs, data or information, and eliminating computer viruses and alleviating other security problems may require interruptions, delays or cessation of service to our customers and cause us to face liability;- failure of our systems or those of our suppliers may disrupt service to our customers (and from our customers to their customers), which could materially impact our operations (and the operations of our customers), adversely affect our relationships with our customers and lead to lawsuits and contingent liability;- delays in product development or releases, or reductions in manufacturing production and sales of consumer hardware, as a result of inventory shortages, supply chain or labor shortages;- significant volatility and disruption of global financial markets, which could negatively impact our ability to access capital in the future;- our inability to recognize revenue, collect payment, or generate future revenue from customers, including from those that have been or may be forced to close their businesses or are otherwise adversely impacted by any resulting economic downturn;- negative impact on our workforce productivity, product development, and research and development due to difficulties resulting from our personnel working remotely - illnesses to key employees, or a significant portion of our workforce, which may result in inefficiencies, delays, and disruptions in our business; and - increased volatility and uncertainty in the financial projections we use as the basis for estimate used in our financial statements. The occurrence of any of the foregoing could result in claims for consequential and other damages, significant repair and recovery expenses and extensive customer losses and otherwise have a material adverse effect on our business, financial condition, and results of operations.

Legal & Regulatory

Total Risks: 1/39 (3%)Below Sector Average

Regulation1 | 2.6%

Regulation - Risk 1

Issues relating to the use of new and evolving technologies in our offerings, such as AI and ML, may result in increased regulation and costs to comply with such regulations.

We are exploring manners to integrate AI and ML into many of our offerings. We may need to increase our operational, research and development and compliance costs, or divert resources from other research and development efforts, to address potential issues related to AI and ML in a quickly evolving social, legal, and regulatory environment. As with many cutting-edge innovations, AI and ML present new risks and challenges, and existing laws and regulations may apply to us in new ways, the nature and extent of which are difficult to predict. Potential government regulation related to AI, including relating to ethics and social responsibility, may also increase the burden and cost of compliance and research and development.

Production

Total Risks: 1/39 (3%)Below Sector Average

Employment / Personnel1 | 2.6%

Employment / Personnel - Risk 1

Our future success depends on key personnel and our ability to attract and retain additional personnel.

Our key personnel include: - Rick Mills, our Chief Executive Officer and Chairman; and - Will Logan, our Chief Financial Officer. If we fail to retain our key personnel or to attract, retain, and motivate other qualified employees, our ability to maintain and develop our business may be adversely affected. Our future success depends significantly on the continued service of our key technical, sales, and senior management personnel and their ability to execute our growth strategy. The loss of the services of our key employees could harm our business. We may be unable to retain our employees or to attract, assimilate and retain other highly qualified employees who could migrate to other employers who offer competitive or superior compensation packages.

See a full breakdown of risk according to category and subcategory. The list starts with the category with the most risk. Click on subcategories to read relevant extracts from the most recent report.

FAQ

What are “Risk Factors”?

Risk factors are any situations or occurrences that could make investing in a company risky.

The Securities and Exchange Commission (SEC) requires that publicly traded companies disclose their most significant risk factors. This is so that potential investors can consider any risks before they make an investment.

They also offer companies protection, as a company can use risk factors as liability protection. This could happen if a company underperforms and investors take legal action as a result.

It is worth noting that smaller companies, that is those with a public float of under $75 million on the last business day, do not have to include risk factors in their 10-K and 10-Q forms, although some may choose to do so.

How do companies disclose their risk factors?

Publicly traded companies initially disclose their risk factors to the SEC through their S-1 filings as part of the IPO process.

Additionally, companies must provide a complete list of risk factors in their Annual Reports (Form 10-K) or (Form 20-F) for “foreign private issuers”.

Quarterly Reports also include a section on risk factors (Form 10-Q) where companies are only required to update any changes since the previous report.

According to the SEC, risk factors should be reported concisely, logically and in “plain English” so investors can understand them.

How can I use TipRanks risk factors in my stock research?

Use the Risk Factors tab to get data about the risk factors of any company in which you are considering investing.

You can easily see the most significant risks a company is facing. Additionally, you can find out which risk factors a company has added, removed or adjusted since its previous disclosure. You can also see how a company’s risk factors compare to others in its sector.

Without reading company reports or participating in conference calls, you would most likely not have access to this sort of information, which is usually not included in press releases or other public announcements.

A simplified analysis of risk factors is unique to TipRanks.

What are all the risk factor categories?

TipRanks has identified 6 major categories of risk factors and a number of subcategories for each. You can see how these categories are broken down in the list below.

1. Financial & Corporate

Accounting & Financial Operations - risks related to accounting loss, value of intangible assets, financial statements, value of intangible assets, financial reporting, estimates, guidance, company profitability, dividends, fluctuating results.
Share Price & Shareholder Rights – risks related to things that impact share prices and the rights of shareholders, including analyst ratings, major shareholder activity, trade volatility, liquidity of shares, anti-takeover provisions, international listing, dual listing.
Debt & Financing – risks related to debt, funding, financing and interest rates, financial investments.
Corporate Activity and Growth – risks related to restructuring, M&As, joint ventures, execution of corporate strategy, strategic alliances.

2. Legal & Regulatory

Litigation and Legal Liabilities – risks related to litigation/ lawsuits against the company.
Regulation – risks related to compliance, GDPR, and new legislation.
Environmental / Social – risks related to environmental regulation and to data privacy.
Taxation & Government Incentives – risks related to taxation and changes in government incentives.

3. Production

Costs – risks related to costs of production including commodity prices, future contracts, inventory.
Supply Chain – risks related to the company’s suppliers.
Manufacturing – risks related to the company’s manufacturing process including product quality and product recalls.
Human Capital – risks related to recruitment, training and retention of key employees, employee relationships & unions labor disputes, pension, and post retirement benefits, medical, health and welfare benefits, employee misconduct, employee litigation.

4. Technology & Innovation

Innovation / R&D – risks related to innovation and new product development.
Technology – risks related to the company’s reliance on technology.
Cyber Security – risks related to securing the company’s digital assets and from cyber attacks.
Trade Secrets & Patents – risks related to the company’s ability to protect its intellectual property and to infringement claims against the company as well as piracy and unlicensed copying.

5. Ability to Sell

Demand – risks related to the demand of the company’s goods and services including seasonality, reliance on key customers.
Competition – risks related to the company’s competition including substitutes.
Sales & Marketing – risks related to sales, marketing, and distribution channels, pricing, and market penetration.
Brand & Reputation – risks related to the company’s brand and reputation.

6. Macro & Political

Economy & Political Environment – risks related to changes in economic and political conditions.
Natural and Human Disruptions – risks related to catastrophes, floods, storms, terror, earthquakes, coronavirus pandemic/COVID-19.
International Operations – risks related to the global nature of the company.
Capital Markets – risks related to exchange rates and trade, cryptocurrency.

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