依據第424(B)(3)條提交
註冊說明書第333-280297號

招股說明書

CAPTIVISION Inc.

最多30,301,058股普通股

 

 

本招股說明書 涉及不時轉售最多30,301,058股普通股，面值0.0001美元(“普通股“)，由特拉華州有限責任公司新圈主投資有限責任公司 (“新圓圈和科恩和公司資本市場，J.V.B.的一個部門。金融集團有限責任公司(“CCM“)。本招股說明書所包括的普通股由我們已發行的普通股組成。 或吾等可酌情選擇根據吾等於2024年6月12日與New Circle訂立的股份購買協議，在本招股說明書日期後不時向New Circle發行及出售(“購買 協議“)，其中New Circle已承諾在購買協議所指明的條款及條件下，酌情向吾等購買最多30,000,000美元的普通股。此外，包括在 本招股說明書包括151,058股普通股，作爲New Circle根據購買協議(「購買協議」)承諾購買吾等普通股的代價。承諾額“)和150,000 我們向CCM發行的普通股，作爲與融資相關的配售代理角色的對價。見本招股說明書標題爲“承諾股權融資“了解有關購買的說明 協議和題爲“賣家持有者了解有關賣家的更多信息。

我們的 本招股說明書所涵蓋證券的登記並不意味着出售持有人將發售或出售任何普通股。在符合購買協議條款的情況下，New Circle可以提供、出售或分銷全部或部分 按現行市價或協議價格公開或私下交易其普通股。我們在本節中提供了更多關於出售持有者如何出售或以其他方式處置普通股的信息 題爲“配送計劃“我們將不會從出售持有者出售我們的普通股或以其他方式處置我們的普通股獲得任何收益。然而，我們將從銷售中獲得總計高達30,000,000美元的毛收入 根據購買協議，吾等可酌情於本招股說明書日期後不時選擇將本公司普通股出售予New Circle。我們將承擔與註冊有關的所有費用、開支和費用。 特此發行的普通股。出售持股人將承擔因出售特此提供的普通股而產生的所有佣金和折扣。

New Circle是1933年修訂的《證券法》第2(A)(11)節所指的「承銷商」( “證券法“)，而New Circle出售普通股的任何利潤以及New Circle收到的任何折扣、佣金或優惠可被視爲根據 證券法。

假設發行本招股說明書提供轉售的所有普通股(“轉售 證券)根據購買協議向New Circle及對CCM出售證券(考慮到其作爲配售代理的角色與發售有關)，回售證券將約佔我們普通股總額的104.4 截至本招股說明書日期的已發行股票。出售所有轉售證券，或認爲這些出售可能發生，可能導致我們普通股的公開交易價格大幅下降。

我們可以根據需要不時通過提交修改或補充來修改或補充本招股說明書。你應該讀讀這篇文章 在作出投資決定前，請仔細考慮整份招股章程及任何修訂或補充事項。我們的普通股和公開認股權證在納斯達克股票市場(「納斯達克」)上市，交易代碼爲「CAPT」。 和「CAPTW」。2024年10月7日，我們的普通股和公募認股權證在納斯達克上的收盤價分別爲每股2.05美元和每權證0.03美元。

我們是JumpStart Our Business中定義的「新興成長型公司」 初創企業法“，因此有資格利用適用於其他上市公司的某些降低的報告要求。

我們也是《交易法》所界定的「外國私人發行人」，不受《交易法》規定的某些規則的約束 根據交易法第14條，這對委託書徵集規定了某些披露義務和程序要求。此外，我們的高級管理人員、董事和主要股東不受報告和 根據《交易法》第16條，關於他們購買和出售普通股的「短期」利潤回收條款。此外，我們不需要向美國證券交易委員會提交定期報告和財務報表 與其證券根據《交易法》註冊的美國公司一樣頻繁或同樣迅速。

我們是一家控股公司 在開曼群島註冊成立，並在韓國設有主要執行辦事處。我們的業務在韓國進行，我們在英國、中國、日本、香港和美國的子公司。在整個招股說明書中， 除非上下文另有說明，否則(1)引用Captivision,” “我們「或」美國“請參考Captivision Inc.(前身爲Phygtal Immersive Limited)、註冊人和開曼群島 本集團及其直接和間接附屬公司的當前控股公司--島嶼控股公司，(2)Captivision韓國“請參閱Captivision Korea，Inc.，一家公司(Chusik Hoesa) 根據韓國法律和Captivision總部和全資子公司的法律組織，以及(3)提及“JGGC參考捷豹全球增長公司I，特拉華州的一家公司，一家空白支票公司 作爲業務合併的結果，該公司與Captivision合併並併入Captivision，Captivision在合併後倖存下來。Captivision Korea及其子公司負責Captivision的日常業務運營。對於描述以下內容的圖表 Captivision的公司結構，請參閱招股說明書摘要-概述-Captivision的結構.”

投資者 我們的證券投資於開曼群島控股公司，而不是我們運營子公司的證券。這種結構給投資者帶來了獨特的風險。特別是，因爲我們的主要執行辦事處位於南方 雖然我們在韓國有很大一部分業務和資產位於韓國，但在韓國開展業務可能會面臨各種法律和運營風險。有關以下風險的詳細說明 Captivision的控股公司結構以及在韓國和我們開展業務的其他國家的業務，見風險因素-與韓國和我們開展業務的其他國家相關的風險.”

 

 

投資我們的證券涉及高度風險。請參閱“風險因素“ 從本招股說明書第20頁開始，討論在投資我們的證券時應考慮的信息。

美國證券交易委員會和任何其他監管機構都沒有批准或不批准這些證券，也沒有確定招股說明書是否屬實 或者是完整的。任何相反的陳述都是刑事犯罪。

招股說明書日期：2024年10月8日

TABLE OF CONTENTS

 

ABOUT THIS PROSPECTUS			1
FINANCIAL INFORMATION PRESENTATION			2
INDUSTRY AND MARKET DATA			3
FREQUENTLY USED TERMS			4
FORWARD-LOOKING STATEMENTS			9
PROSPECTUS SUMMARY			11
THE OFFERING			19
RISK FACTORS			20
COMMITTED EQUITY FINANCING			61
USE OF PROCEEDS			65
DIVIDEND POLICY			66
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS			67
MATERIAL CAYMAN ISLANDS TAX CONSIDERATIONS			74
BUSINESS			75
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			95
MANAGEMENT			154
EXECUTIVE COMPENSATION			161
CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS			167
DESCRIPTION OF SECURITIES			175
BENEFICIAL OWNERSHIP OF SECURITIES			194
SELLING HOLDERS			196
PLAN OF DISTRIBUTION			198
EXPENSES RELATED TO THE OFFERING			200
LEGAL MATTERS			201
EXPERTS			202
ENFORCEABILITY OF CIVIL LIABILITY UNDER U.S. SECURITIES LAWS			203
WHERE YOU CAN FIND MORE INFORMATION			204
INDEX TO FINANCIAL STATEMENTS			F-1

 

i

You should rely only on the information contained or incorporated by reference in this prospectus or any supplement. Neither we nor the Selling Holders have authorized anyone else to provide you with different information. We and the Selling Holders take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. The securities offered by this prospectus are being offered only in jurisdictions where the offer is permitted. You should not assume that the information in this prospectus or any supplement is accurate as of any date other than the date on the front of each document. Our business, financial condition, results of operations and prospects may have changed since that date.

Except as otherwise set forth in this prospectus, neither we nor the Selling Holders have taken any action to permit a public offering of these securities outside the United States or to permit the possession or distribution of this prospectus outside the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about and observe any restrictions relating to the offering of these securities and the distribution of this prospectus outside the United States.

 

 

ii

ABOUT THIS PROSPECTUS

This prospectus is part of a registration statement on Form F-1 that we filed with the SEC. The Selling Holders named in this prospectus may, from time to time, sell the securities described in this prospectus in one or more offerings. We will not receive any proceeds from the sale by the Selling Holders of the Ordinary Shares offered by them described in this prospectus. This prospectus includes important information about us, the securities being offered by us and the Selling Holders and other information you should know before investing. Any prospectus supplement may also add, update, or change information in this prospectus. If there is any inconsistency between the information contained in this prospectus and any prospectus supplement, you should rely on the information contained in that particular prospectus supplement. This prospectus does not contain all of the information provided in the registration statement that we filed with the SEC. You should read this prospectus together with the additional information about us described in the section below entitled “Where You Can Find More Information.” You should rely only on information contained in this prospectus, any prospectus supplement and any related free writing prospectus. We have not, and the Selling Holders have not, authorized anyone to provide you with information different from that contained in this prospectus, any prospectus supplement and any related free writing prospectus. The information contained in this prospectus is accurate only as of the date on the front cover of the prospectus. You should not assume that the information contained in this prospectus is accurate as of any other date.

The Ordinary Shares may be sold or distributed from time to time by the Selling Holders directly to one or more purchasers or through brokers, dealers, or underwriters who may act solely as agents at market prices prevailing at the time of sale, at prices related to the prevailing market prices, at negotiated prices, or at fixed prices, which may be changed. See “Plan of Distribution.”

This prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction.

 

1

FINANCIAL INFORMATION PRESENTATION

Captivision

We qualify as a foreign private issuer as defined under Rule 405 under the Securities Act and will prepare our financial statements denominated in U.S. dollars and in accordance with International Financial Reporting Standards as adopted by the International Accounting Standards Board (“IFRS”). Accordingly, the audited financial information included in this prospectus have been prepared in accordance with IFRS and denominated in U.S. dollars.

 

2

INDUSTRY AND MARKET DATA

In this prospectus, we present industry data, information and statistics regarding the markets in which we compete as well as publicly available information, industry and general publications and research and studies conducted by third parties. This information is supplemented where necessary with our own internal estimates and information obtained from discussions with our customers, taking into account publicly available information about other industry participants and our management’s judgment where information is not publicly available. This information appears in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and other sections of this prospectus.

Industry publications, research, studies and forecasts generally state that the information they contain has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and uncertainties as the other forward-looking statements in this prospectus. These forecasts and forward-looking information are subject to uncertainty and risk due to a variety of factors, including those described under “Risk Factors.” These and other factors could cause results to differ materially from those expressed in any forecasts or estimates.

 

3

FREQUENTLY USED TERMS

The following terms used in this prospectus have the meanings indicated below:

“Business Combination” means the Merger, the Share Swap (as defined in the Business Combination Agreement) and the other transactions contemplated by the Business Combination Agreement, collectively.

“Business Combination Agreement” means the Business Combination Agreement, dated as of March 2, 2023, as amended as of June 16, 2023, July 7, 2023, July 18, 2023 and September 7, 2023 by and among JGGC, Captivision Korea, Jaguar Global Growth Korea Co., Ltd, and the Company.

“Business Day” shall mean any day other than a Saturday, a Sunday or other day on which commercial banks in New York, New York, Seoul, Republic of Korea or the Cayman Islands are authorized or required by Legal Requirements to close.

“Captivision”, the “Company” and “we” means Captivision Inc. (formerly known as Phygital Immersive Limited), an exempted company with limited liability under the laws of the Cayman Islands, together with its direct and indirect subsidiaries.

“Captivision Korea” means Captivision Korea, Inc. (f/k/a GLAAM Co., Ltd.), a corporation (chusik hoesa) organized under the laws of the Republic of Korea and a subsidiary of the Company.

“Captivision Korea Common Shares” means the common shares, KW 500 par value per share, of Captivision Korea.

“Captivision Korea Exchange Ratio” means 0.800820612130561.

“Captivision Korea Founder Earnout Letter” means the letter agreement, dated March 2, 2023, by and among the Captivision Korea Founders, the Company, Exchange Sub, JGGC and Captivision Korea, pursuant to which, at the Closing, issued or caused to be issued to the Captivision Korea Founders (in the aggregate), (i) the 1,666,666.67 Series I RSRs, (ii) the 1,666,666.67 Series II RSRs and (iii) the 1,666,666.67 Series III RSRs and setting forth the terms upon which such 5,000,000 Earnout RSRs shall vest and be settled for Ordinary Shares.

“Captivision Korea Founders” means Houng Ki Kim and Ho Joon Lee.

“Captivision Korea Options” means the options to purchase Captivision Korea Common Shares.

“Captivision Korea Shareholders” means the holders of Captivision Korea Common Shares.

“Closing” means the consummation of the Business Combination.

“Code” means the U.S. Internal Revenue Code of 1986, as amended.

“Companies Act” means the Companies Act (As Revised) of the Cayman Islands.

“Converted Options” means the options to acquire Ordinary Shares issued upon conversion of the Captivision Korea Options, in each case subject to substantially the same terms and conditions as were applicable under the converted Captivision Korea Option, the number of Ordinary Shares (rounded down to the nearest whole share), determined by multiplying the number of Captivision Korea Common Shares subject to the converted Captivision Korea Option as of immediately prior to the Share Swap by the Captivision Korea Exchange Ratio, at an exercise price per Captivision Korea Common Share (rounded up to the nearest whole cent) equal to (x) the exercise price per Captivision Korea Common Share of the converted Captivision Korea Options divided by (y) the Captivision Korea Exchange Ratio.

 

4

“Converted Warrants” means, collectively, the Public Warrants and the Private Warrants.

“Convertible Notes” means the convertible promissory notes issued to certain investors in private placements pursuant to those certain subscription agreements dated February 16, 2024 and April 16, 2024 which shall automatically be converted into Ordinary Shares upon the effectiveness of the securities registration statement submitted to the Financial Supervisory Services of Korea in accordance with applicable Korean law.

“DOOH” means digital out of home.

“Earnout Period” means, with respect to the Earnout RSRs, the period commencing at Closing and ending on the third anniversary of the Closing.

“Earnout RSRs” means, collectively, the Series I RSRs, the Series II RSRs and the Series III RSRs.

“Earnout Shares” means the shares issuable upon settlement of the Earnout RSRs.

“Earnout Strategic Transaction” means the occurrence in a single transaction or as a result of a series of related transactions, of (i) a merger, consolidation, business combination, reorganization, recapitalization, liquidation, dissolution or other similar transaction with respect to the Company, in each case, in which shares of the Company are exchanged for cash, securities of another person or other property (excluding, for the avoidance of doubt, any domestication of the Company or any other transaction in which Ordinary Shares are exchanged for substantially similar securities of the Company or any successor entity of the Company) or (ii) the sale, lease or other disposition, directly or indirectly, by the Company of all or substantially all of the assets of the Company and its subsidiaries, taken as a whole (excluding any such sale or other disposition to an entity at least a majority of the combined voting power of the voting securities of which are owned by holders of Ordinary Shares).

“Equity Plan” means the equity incentive plan for employees, directors and service providers of the Company and its subsidiaries in effect as of the Closing.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Exchange Sub” means Jaguar Global Growth Korea Co., Ltd., a stock corporation (chusik hoesa) organized under the laws of the Republic of Korea and wholly owned direct subsidiary of the Company.

“Founder Warrants” means the warrants held by the Captivision Korea Founders that are exercisable for an aggregate of 1,779,368 Ordinary Shares at $11.50 per share.

“FPCB” means flexible printed circuit board.

“GaaS” means glass as a service.

“Governmental Entity” means (a) any federal, provincial, state, local, municipal, foreign, national or international court, governmental commission, government or governmental authority, department, regulatory or administrative agency, board, bureau, agency or instrumentality, tribunal, arbitrator or arbitral body (public or private), or similar body; (b) any self-regulatory organization; or (c) any political subdivision of any of the foregoing.

“IASB” means International Accounting Standards Board.

“IC semiconductor chip” means an integrated circuit chip.

“IFRS” means International Financial Reporting Standards, as issued by the IASB.

 

5

“Investment Company Act” means the Investment Company Act of 1940, as amended.

“IRS” means the U.S. Internal Revenue Service.

“JGGC” means Jaguar Global Growth Corporation I, a Cayman Islands exempted company.

“JGGC Class A Ordinary Shares” means JGGC’s Class A ordinary shares, par value $0.0001 per share.

“JGGC IPO” means JGGC’s initial public offering of units of JGGC, each consisting of one JGGC Class A Ordinary Share, one JGGC Right and one-half of one JGGC Public Warrant, which was consummated on February 10, 2022.

“JGGC Public Warrants” means the redeemable warrants, each exercisable to purchase one JGGC Class A Ordinary Share.

“JGGC Rights” means the rights entitling the holder thereof to receive one-twelfth of one JGGC Class A Ordinary Share.

“JGGC Sponsor” means Jaguar Global Growth Partners I, LLC, a Delaware limited liability company.

“JOBS Act” means Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012, as amended.

“LED” means light-emitting diode.

“Legal Requirements” means any federal, state, local, municipal, foreign or other law, statute, constitution, treaty, principle of common law, resolution, ordinance, code, edict, decree, rule, regulation, ruling, injunction, judgment, order, assessment, writ or other legal requirement, administrative policy or guidance or requirement issued, enacted, adopted, promulgated, implemented or otherwise put into effect by or under the authority of any Governmental Entity.

“Merger” means the merger of JGGC with and into the Company upon the terms and subject to the conditions set forth in the Business Combination Agreement, the plan of merger relating to the Merger and in accordance with the applicable provisions of the Companies Act, whereupon the separate corporate existence of JGGC ceased and the Company continued its existence under the Companies Act as the surviving company.

“Nasdaq” means the Nasdaq Stock Market LLC.

“Ordinary Shares” means the ordinary shares of the Company, par value $0.0001 per share.

“PCAOB” means the Public Company Accounting Oversight Board.

“PFIC” means passive investment foreign company.

“Private Warrant” means a warrant of the Company to purchase one Ordinary Share that was issued upon conversion of a private placement warrant issued by JGGC in the Merger.

“Public Warrant” means a warrant of the Company to purchase one Ordinary Share that was issued upon conversion of a public warrant issued by JGGC in the Merger.

“Purchase Agreement” means that certain share purchase agreement, dated as of June 12, 2024, by and between Captivision Inc. and New Circle.

 

6

“Registration Rights Agreement” means the Registration Rights Agreement entered into at Closing by and among the Company, the JGGC Sponsor, certain former Captivision Korea Shareholders party thereto and the other parties thereto, which amended and restated the registration rights agreement, dated February 10, 2022, by and among JGGC, the JGGC Sponsor and other holders of JGGC securities party thereto.

“Resale Securities” means those Ordinary Shares being offered for resale pursuant to this prospectus.

“SEC” means the U.S. Securities and Exchange Commission.

“Securities Act” means the Securities Act of 1933, as amended.

“Selling Holders” means New Circle Principal Investments LLC, a Delaware limited liability company and Cohen & Company Capital Markets, a division of J.V.B. Financial Group, LLC.

“Series I RSRs” means the 1,666,666.67 Series I restricted stock rights of the Company that will vest and be settled for an equal number of Ordinary Shares if, during the Earnout Period, the daily VWAP of the Ordinary Shares is greater than or equal to $12.00 for any twenty (20) Trading Days within any thirty (30) consecutive Trading Day period.

“Series II RSRs” means the 1,666,666.67 Series II restricted stock rights of the Company that will vest and be settled for an equal number of Ordinary Shares if, during the Earnout Period, the daily VWAP of the Ordinary Shares is greater than or equal to $14.00 for any twenty (20) Trading Days within any thirty (30) consecutive Trading Day period.

“Series III RSRs” means the 1,666,666.67 Series III restricted stock rights of the Company that will vest and be settled for an equal number of Ordinary Shares if, during the Earnout Period, the daily VWAP of the Ordinary Shares is greater than or equal to $16.00 for any twenty (20) Trading Days within any thirty (30) consecutive Trading Day period.

“SLAM” means Super Large Architectural Media.

“Specified Period” means the later of (i) the date that is 180 days after the Closing and (ii) the VWAP for Ordinary Share being at least $12.50 for 20 Trading Days within any 30-consecutive Trading Day period during the period following the Closing and ending on the five (5) year anniversary of the Closing.

“Sponsor Support Agreement” means the support agreement dated March 2, 2023 entered into between JGGC, the Company, Captivision Korea and the JGGC Sponsor.

“Transfer Agent” means Continental, the Company’s transfer agent.

“Treasury Regulations” shall mean the regulations promulgated by the U.S. Department of the Treasury pursuant to and in respect of provisions of the Code.

“Trust Account” means the trust account that held a portion of the proceeds from the IPO and the concurrent sale of the JGGC Private Placement Warrants and that was maintained by Continental Stock Transfer & Trust Company, acting as trustee.

“U.S.” means the United States.

“U.S. GAAP” means generally accepted accounting principles in the United States as in effect from time to time.

 

7

“VWAP” means for each Trading Day, the daily volume-weighted average price for Ordinary Shares on Nasdaq during the period beginning at 9:30:01 a.m., New York time on such Trading Day and ending at 4:00:00 p.m., New York time on such Trading Day, as reported by Bloomberg through its “HP” function (set to weighted average).

“Warrants” means, collectively, the Converted Warrants and the Founder Warrants.

 

8

FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. These forward-looking statements include, without limitation, statements relating to expectations for future financial performance, business strategies or expectations for our respective businesses. These statements are based on the beliefs and assumptions of our management. Although we believe that our plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, we cannot assure you that we will achieve or realize these plans, intentions or expectations. These statements constitute projections, forecasts and forward-looking statements, and are not guarantees of performance. Such statements can be identified by the fact that they do not relate strictly to historical or current facts. When used in this prospectus, words such as “anticipate”, “believe”, “can”, “continue”, “could”, “estimate”, “expect”, “forecast”, “intend”, “may”, “might”, “plan”, “possible”, “potential”, “predict”, “project”, “seek”, “should”, “strive”, “target”, “will”, “would” or the negative of such terms, and similar expressions, may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking.

The risks and uncertainties include, but are not limited to:

 

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our ability to raise financing in the future and to comply with restrictive covenants related to indebtedness;

 

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our ability to realize the benefits expected from the Business Combination;

 

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the significant market adoption, demand and opportunities in the construction and DOOH media industries for our products;

 

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our ability to maintain the listing of the Ordinary Shares and the Public Warrants on Nasdaq;

 

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our ability to remain competitive in the fourth-generation architectural media glass industry in the face of future technological innovations;

 

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our ability to execute its international expansion strategy;

 

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our ability to protect its intellectual property rights;

 

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the profitability of our larger projects, which are subject to protracted sales cycles;

 

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whether the raw materials, components, finished goods and services we use to manufacture our products will continue to be available and will not be subject to significant price increases;

 

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the IT, vertical real estate and large format wallscape modified regulatory restrictions or building codes;

 

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the ability our manufacturing facilities to meet their projected manufacturing costs and production capacity;

 

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our future financial performance;

 

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the emergence of new technologies and the response of our customer base to those technologies;

 

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our ability to retain or recruit, or to effect changes required in, our officers, key employees or directors;

 

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our ability to comply with laws and regulations applicable to our business;

 

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our ability to meet conditions precedent to issue Ordinary Shares to New Circle under the Purchase Agreement;

 

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the dilution of holders of Ordinary Shares from our issuance of Ordinary Shares to the Selling Holders. There can be no guarantee that how many Ordinary Shares we will issue under the Purchase Agreement, if any at all;

 

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the volatility of the price of Ordinary Shares that may result from sales of Ordinary Shares by the Selling Holders; and

 

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other risks and uncertainties indicated in this prospectus, including those set forth under the section of this prospectus entitled “Risk Factors” beginning on page 20.

These forward-looking statements are based on information available as of the date of this prospectus and our management team’s current expectations, forecasts and assumptions, and involve a number of judgments, known and unknown risks and uncertainties and other factors, many of which are outside of our control and our directors, officers and affiliates. Accordingly, forward-looking statements should not be relied upon as representing our management team’s views as of any subsequent date. We do not undertake any obligation to update, add or to otherwise correct any forward-looking statements contained herein to reflect events or circumstances after the date they were made, whether as a result of new information, future events, inaccuracies that become apparent after the date hereof or otherwise, except as may be required under applicable securities laws.

 

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RISK FACTORS

Investing in our securities involves risks. You should carefully consider the risks described below and the other information contained in this prospectus, including the financial statements and notes to the financial statements included herein, in evaluating your decision to buy our securities. These risk factors are not exhaustive and investors are encouraged to perform their own investigation with respect to the business, cash flows, financial condition and results of operations of Captivision Korea and the Company. The occurrence of one or more of the events or circumstances described in these risk factors, alone or in combination with other events or circumstances, may have a material adverse effect on the business, cash flows, financial condition and results of operations of Captivision. Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations. Our business, financial condition or results of operations could be materially and adversely affected by any of these risks. The risk factors described below are not necessarily exhaustive and you are encouraged to perform your own investigation with respect to the business of the Company.

Risks Related to This Offering

It is not possible to predict the actual number of Ordinary Shares we will sell under the Purchase Agreement to New Circle, or the actual gross proceeds resulting from those sales. Further, we may not have access to the full amount available under the Purchase Agreement with New Circle.

On June 12, 2024, we entered into the Purchase Agreement with New Circle, pursuant to which New Circle has committed to purchase up to $30,000,000 of our Ordinary Shares, subject to certain limitations and conditions set forth in the Purchase Agreement. In addition, we issued the Commitment Shares to New Circle as consideration for its commitment to purchase our Ordinary Shares pursuant to the Purchase Agreement and 150,000 Ordinary Shares to CCM in consideration for its role as placement agent in connection with the financing. The Ordinary Shares that may be issued under the Purchase Agreement may be sold by us to New Circle at our discretion from time to time.

We generally have the right to control the timing and amount of any sales of our Ordinary Shares to New Circle under the Purchase Agreement. Sales of our Ordinary Shares, if any, to New Circle under the Purchase Agreement will depend upon market conditions and other factors to be determined by us. We may ultimately decide to sell to New Circle all, some or none of the Ordinary Shares that may be available for us to sell to New Circle pursuant to the Purchase Agreement.

Because the purchase price per share to be paid by New Circle for the Ordinary Shares that we may elect to sell to New Circle under the Purchase Agreement, if any, will fluctuate based on the market prices of our Ordinary Shares prior to each Purchase made pursuant to the Purchase Agreement, if any, it is not possible for us to predict, as of the date of this prospectus and prior to any such sales, the number of Ordinary Shares that we will sell to New Circle under the Purchase Agreement, the purchase price per share that New Circle will pay for Ordinary Shares purchased from us under the Purchase Agreement, or the aggregate gross proceeds that we will receive from those purchases by New Circle under the Purchase Agreement, if any.

Moreover, although the Purchase Agreement provides that we may sell up to an aggregate of $30,000,000 of our Ordinary Shares to New Circle, only 30,000,000 Ordinary Shares are being registered for resale under the registration statement that includes this prospectus. If we elect to sell to New Circle all of the 30,000,000 Ordinary Shares being registered for resale under this prospectus, depending on the market price of our Ordinary Shares prior to each Purchase made pursuant to the Purchase Agreement, the actual gross proceeds from the sale of all such Ordinary Shares may be substantially less than the $30,000,000 available to us under the Purchase Agreement, which could materially adversely affect our liquidity.

If it becomes necessary for us to issue and sell to New Circle under the Purchase Agreement more than the 30,000,000 Ordinary Shares being registered for resale under this prospectus in order to receive aggregate gross

 

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proceeds equal to $30,000,000 under the Purchase Agreement, we must file with the SEC one or more additional registration statements to register under the Securities Act the resale by New Circle of any such additional Ordinary Shares we wish to sell from time to time under the Purchase Agreement, which the SEC must declare effective. Any issuance and sale by us under the Purchase Agreement of Ordinary Shares in addition to the 30,000,000 Ordinary Shares being registered for resale by New Circle under the registration statement that includes this prospectus could cause additional dilution to our shareholders.

We are not required or permitted to issue any Ordinary Shares under the Purchase Agreement if such issuance would breach our obligations under the rules or regulations of Nasdaq. In addition, New Circle will not be required to purchase any Ordinary Shares if such sale would result in New Circle’s beneficial ownership exceeding 4.99% of the then issued and outstanding Ordinary Shares. Our inability to access a part or all of the amount available under the Purchase Agreement, in the absence of any other financing sources, could have a material adverse effect on our business.

The sale and issuance of our Ordinary Shares to New Circle will cause dilution to our existing shareholders, and the sale of the Ordinary Shares acquired by New Circle, or the perception that such sales may occur, could cause the price of our Ordinary Shares to fall.

The purchase price for the Ordinary Shares that we may sell to New Circle under the Purchase Agreement will fluctuate based on the price of our Ordinary Shares. Depending on a number of factors, including market liquidity, sales of such Ordinary Shares may cause the trading price of our Ordinary Shares to fall.

If and when we do sell Ordinary Shares to New Circle, New Circle may resell all, some, or none of those Ordinary Shares at its discretion, subject to the terms of the Purchase Agreement. Therefore, sales of Ordinary Shares to New Circle by us could result in substantial dilution to the interests of other holders of our Ordinary Shares. Additionally, the sale of a substantial number of Ordinary Shares to New Circle, or the anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a desirable time and price.

Investors who buy Ordinary Shares at different times will likely pay different prices.

Pursuant to the Purchase Agreement, we control the timing and amount of any sales of Ordinary Shares to New Circle. If and when we do elect to sell Ordinary Shares to New Circle pursuant to the Purchase Agreement, New Circle may resell all, some, or none of such shares in its discretion and at different prices, subject to the terms of the Purchase Agreement. As a result, investors who purchase Ordinary Shares from New Circle in this offering at different times may experience different outcomes in their investment results. Investors may experience a decline in the value of the Ordinary Shares they purchase from New Circle in this offering as a result of future sales made by us to New Circle at prices lower than the prices such investors paid for their Ordinary Shares in this offering. In addition, if we sell a substantial number of Ordinary Shares to New Circle under the Purchase Agreement, or if investors expect that we will do so, the actual sales of Ordinary Shares or the mere existence of our arrangement with New Circle may make it more difficult for us to sell equity or equity-related securities in the future at a desirable time and price.

Our management team may invest or spend the proceeds of this offering in ways with which you may not agree or in ways which may not yield a significant return.

Our management will have broad discretion over the use of proceeds from this offering. We intend to use the net proceeds, if any, from this offering for general corporate purposes, which may include, among other things, working capital. Our management will have considerable discretion in the application of the net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. The net proceeds may be used for corporate purposes that do not increase our operating results or enhance the value of Ordinary Shares.

 

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Risks Related to Our Industry and Company

The fourth-generation architectural media glass industry is a nascent industry; it may take a long time for our technology to penetrate our target markets.

We believe we are the first and only provider of fourth generation architectural media glass. Unlike third generation architectural media glass, the fourth-generation iteration is architecturally durable, fully transparent and is able to be installed in any structures where traditional architectural glass can be installed. However, despite its use in a variety of industries, such as hardware / equipment, software, media content and design, architectural media glass is mainly used for building exteriors and DOOH advertising, giving it limited uses in a somewhat limited market. Since the commercial trends of the fourth-generation architectural media glass industry are still uncertain in this relatively nascent industry in which we are the sole player, we cannot assure you of the future growth of our G-Glass technology. We further cannot assure you that our G-Glass technology will be widely adopted or that it will penetrate any or all of our target markets in the near term, which may adversely affect our profitability.

Our future growth and success are dependent upon the DOOH market and the construction industry’s willingness to adopt architectural media glass and specifically our G-Glass technology.

Our growth is highly dependent upon the adoption of architectural media glass by the construction industry and DOOH media industry. Although we anticipate growing demand for our products, there is no guarantee of such future demand, or that our products will remain competitive in the market.

Many of our potential customers in the construction industry are heavily invested in conventional building materials and may be resistant to new technology or unfamiliar products and services, in part due to health and safety concerns. Any perception of health and safety concerns, whether or not valid, may indirectly inhibit market acceptance of our products and services. Although we continue to expand our sales by successfully completing over 500 projects across multiple continents, our ability to continue to penetrate the market remains uncertain, as there is no guarantee that we will gain widespread market acceptance.

If the market for architectural media glass in general and our products in particular does not develop as we expect, or develops more slowly than we expect, or if demand for our products decreases, our business, prospects, financial condition and operating results could be harmed. The market for our products could be affected by numerous factors, such as:

 

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perceptions about G-Glass’ features, quality, safety, performance and cost;

 

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competition, including from other types of architectural media glass or traditional architectural glass;

 

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the cost premium for G-Glass in contrast to traditional architectural glass;

 

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government regulations and economic incentives;

 

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reduced construction activity; and

 

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concerns about our future viability.

Failure to maintain the performance, reliability and quality standards required by our customers could have a materially adverse impact on our financial condition and results of operation.

If our products or services have performance, reliability or quality problems, or our products are improperly installed (for instance, with incompatible glazing materials), we may experience additional warranty and service expenses, reduced or canceled orders, diminished pricing power, higher manufacturing or installation costs or delays in the collection of accounts receivable. Additionally, performance, reliability or quality claims from our customers, with or without merit, could result in costly and time-consuming litigation that could require significant time and attention of management and involve significant monetary damages that could adversely affect our financial results.

 

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Our business and results have been and may be adversely affected by fluctuations in the cost or availability of raw materials, components, purchased finished goods, shipping or services.

Although certain of the raw materials we use to produce G-Glass, such as unique resin, IC semiconductor chips and LEDs, are manufactured through proprietary processes, we source all of our raw materials and components from a limited number of third-party providers on an as-needed basis. Mitigating volatility in certain commodities, such as oil, affecting all suppliers may result in additional price increases from time to time, regardless of the number and availability of suppliers. Our profitability and production could be negatively impacted by limitations inherent within the supply chains of certain of these component parts, including competitive, governmental, and legal limitations, natural disasters, and other events that could impact both supply and price.

Additionally, we are dependent on certain service providers for key operational functions, such as installation of finished goods. While there are a number of providers of these services, the cost to change service providers and set up new processes could be significant. Our ongoing efforts to improve the cost effectiveness, performance, quality, support, delivery and capacity of our products and services may reduce the number of providers we depend on, in turn increasing the risks associated with reliance on a single or a limited number of providers. Our results of operations would be adversely affected if we are unable to obtain adequate supplies of high-quality raw materials, components or finished goods in a timely manner or make alternative arrangements for such supplies in a timely manner.

The enduring consequences of the COVID-19 pandemic had an adverse impact on our business in both 2020 and 2021. Additionally, the simultaneous negative effects of the armed conflicts in Israel and Ukraine, coupled with a sluggish economic environment exacerbated by high-interest rates, contributed to the disruptions of our supply chain for specific components throughout 2023. These disruptions resulted in increased prices for essential commodities such as glass, semiconductors, and aluminum, alongside increased shipping and warehousing costs. If these supply chain disruptions and shortages persist in the future, they could affect our ability to procure components for our products on a timely basis, or at all, or could require us to provide longer lead times to secure critical components by entering into longer term supply agreements. Alternatively, supply chain disruptions and shortages may require us to rely on spot market purchases at higher costs to obtain certain materials or products. Future increases in our costs and/or continued disruptions in the supply chain could negatively impact our profitability, as there can be no assurance that future price increases will be successfully passed through to customers. See “—We are currently operating in a period of economic uncertainty and capital markets disruption, which has been significantly impacted by geopolitical instability due to the military conflict between Russia and Ukraine and armed conflicts between Israel and Hamas. Our business, financial condition and results of operations may be materially and adversely affected by any negative impact on the global economy and capital markets resulting from the conflicts in Ukraine, the Gaza Strip or any other geopolitical tensions.”

A global economic downturn could result in reduced demand for our products and adversely affect our profitability.

In recent years, adverse conditions and volatility in the worldwide financial markets, fluctuations in oil and commodity prices and the general weakness of the global economy have contributed to the uncertainty of global economic prospects in general and have adversely affected, and may continue to adversely affect, the South Korean economy. Global economic downturns in the past have adversely affected demand for our products and services by our customers in South Korea and overseas.

The architectural media glass business is heavily influenced by the economic trends in the real estate, construction, and advertising industries, the governments’ spending abilities and the overall domestic and global economic fluctuations and economic growth trends. The uncertainty of the Biden administration’s policies and the U.S. Federal Reserve’s increase of the base interest rate may pose risks to economic recovery and growth. Additionally, the uncertainty arising out of the European Union’s political environment, including the United

 

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Kingdom’s exit from the European Union, and China’s current regulations to cool down its overheated real estate market may curtail investor confidence.

We cannot provide any assurance that demand for our products can be sustained at current levels in future periods or that the demand for our products will not decrease in the future due to such economic downturns, which may adversely affect our profitability. We may decide to adjust our production levels in the future subject to market demand for our products, the production outlook of the global architectural media glass industry, any significant disruptions in our supply chain and global economic conditions in general. Any decline in demand for architectural media glass products may adversely affect our business, results of operations and/or financial condition.

Our short-term profitability will be adversely impacted by our anticipated need to incur significant expenses in connection with the expansion of our staff and marketing efforts.

We plan to fund primarily marketing and sales personnel in our international jurisdictions in order to fuel growth. To date, the expenses and long lead times inherent in our efforts to pursue additional South Korean and international business opportunities have slowed, and are expected to continue to slow, the implementation of our expansion strategy, particularly in light of our ongoing capital constraints, and have limited, and are expected to continue to limit, the revenue that we receive as a result of our efforts to develop international business in the short term. Until we are able to increase our sales as a result of such investment, our short-term profitability will be adversely impacted by the increased costs associated with investing in our expansion plans.

Our sales cycle for large projects is protracted, which makes our annual revenue and other financial metrics hard to predict.

For our Super Large Architectural Media (“SLAM”) installations, our sales cycles, which spans from initial commercial discussion to installation, is approximately four to five years on average, subject to a variety of factors including economic fluctuations and economic growth trends, supply chain disruptions and shortages, political climate changes and credit availability, all of which are out of our immediate control and which could cause delays at various stages of a SLAM installation.

The design and sales quotation phase of a SLAM project typically takes two to three years, followed by a two to three-year construction phase. We ship and install our architectural media glass at the very end of the construction phase. The points at which we recognize revenue can be highly variable and tend to be determined on a case-by-case basis as a combination of when the initial order is placed, when the products are shipped, and when the products are installed and handed over to the customer. Revenue may be recognized at predetermined milestones during the lifecycle of a SLAM project, such as the point of the initial order, the shipment and installation. The longer the sales cycle for a particular project, the more unpredictable our ability to recognize the full potential revenue from such project. Extended sales cycles, without offsetting revenue from smaller projects with shorter sales cycles, can create volatile revenue swings from period to period. In addition, the expenses and long lead times inherent in pursuing SLAM projects have slowed Captivision Korea’s implementation of its strategy to pursue international business opportunities, particularly in light of Captivision Korea’s ongoing capital constraints, and have limited, and are expected to continue to limit, the revenue that Captivision Korea receives as a result of its efforts to develop international business in the short term. For a more detailed explanation of Captivision Korea’s revenue recognition strategy see “Management’s Discussion and Analysis of Financial Condition and Results of Operation of Captivision Korea—Components of Results of Operations—Revenues.”

 

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Our ability to realize revenues on our projects is subject to risks related to the financial health and condition of the real estate developers, and their suppliers or contractors, with whom we contract to supply our products. The financial distress or bankruptcy of such developers, and their suppliers and contractors, could result in our inability to realize revenues on contracted projects.

Our key customers include real estate developers and their suppliers and contractors. Because we depend on these customers for a significant portion of our revenue, if any of these real estate developers and their suppliers or contractors were to encounter financial difficulties affecting their ability to make payments, we may not be paid in full or at all on one or more contracted projects, which could adversely affect our operating results, financial position, and cash flows. Further, if any of our customers with whom we have billing or payment disputes seek bankruptcy protection, such dispute or bankruptcy will likely force us to incur additional costs in attorneys’ fees and fees for other professional consultants, which will negatively affect our revenue and profit.

Technological innovation by others could render our technology and the products produced using our process technologies obsolete or uneconomical.

Our success will depend on our ability to maintain a competitive position with respect to technological advances. Our technology and the products derived from our technology may be rendered obsolete or uneconomical by technological advances by others, more efficient and cost-effective products, or entirely different approaches developed by one or more of our competitors or other third parties. Though we plan to continue to expend significant resources to enhance our technology platform and processes, there are no assurances we will be able to keep pace with technological change.

Our success depends partly upon our ability to enhance existing products and services and to develop new products and services through product development initiatives and technological advances; any failure to make such improvements could harm our future business and prospects.

We have continuously enhanced and improved our existing products and developed new products and services. We are devoting resources to the development of new products in all aspects of our business, including products that can reach a broader customer base. For example, we are working to diversify our customer base by offering smaller scale, mass market products such as bus shelter, bridge, showroom and handrail applications, which require less customization and allow us to generate revenue in a much shorter time frame than SLAM projects. We are also developing our “G-Store,” an e-platform where our customers can purchase various artworks and videos, and other media content, to be displayed on G-Glass. Wherever and whenever our customers install G-Glass, they will also use media content. Some of our customers have the capability to create their own content. However, the vast majority of our customers do not have their own content creation capability. This creates a secondary sales opportunity to sell media content to our customers. As such, we are developing our content platform, G-Store. Our South Korean team, dedicated to creating media content, has created an aggregate of over 500 artworks and videos since 2017 to populate the G-Store. The successful development of our products and product enhancements are subject to numerous risks, both known and unknown, including unanticipated delays, access to significant capital, budget overruns, technical problems and other difficulties that could result in the abandonment or substantial change in the design, development and commercialization of these new products. These events could have a materially adverse impact on our results of operations.

Given the uncertainties inherent with product development and introduction, including lack of market acceptance, we cannot provide assurances that any of our product development efforts will be successful on a timely basis or within budget, if at all. Failure to develop new products and product enhancements on a timely basis or within budget could harm our business and prospects. In addition, we may not be able to achieve the technological advances necessary for us to remain competitive, which could have a materially negative impact on our financial condition.

 

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If our efforts to attract prospective clients and advertisers and to retain existing clients and users of our services are not successful, our growth prospects and revenue will be adversely affected.

Our ability to grow our business, including our DOOH delivery capabilities, and generate revenue depends on retaining, expanding and monetizing our customer base. In particular, our future growth depends in large part on G-Glass installation, adoption of our services and advertising revenue and content monetization across our DOOH business. We have focused on both developing longer-term higher-value SLAM projects in an effort to accelerate our growth and profitability and advancing smaller scale mass-market products that we believe will provide greater earnings stability over time. As part of our effort to secure more SLAM projects, we are looking to introduce glass as a service (“GaaS”) globally, whereby we bear a portion of the maintenance and installation costs of each new G-Glass installation and license the use of the G-Glass to third parties in exchange for a portion of the media and advertising revenue derived from the installation.

However, familiarizing prospective customers with and convincing them of the value proposition of our products and services require significant time and resources. Many of our existing and prospective clients are large property owners, developers and government agencies, and we often struggle to gain access to their ultimate decision makers. The expenses and long lead times inherent in pursuing SLAM projects have slowed the implementation of our strategy to pursue international business opportunities, particularly in light of our ongoing capital constraints, and have limited, and are expected to continue to limit, the revenue that we receive as a result of our efforts to develop international business in the short term. Furthermore, our ability to attract new clients, retain existing clients, and convert users of our G-Glass to our value-added services depends in large part on our ability to continue to offer compelling curated content, leading technologies and products, superior functionality, and an engaging customer experience.

Continued downward pricing of third generation products could adversely affect fourth generation architectural media glass pricing, which may affect our results of operations.

Although we are the only player in the fourth-generation iteration of architectural media façades, the pricing of third-generation products still impacts our revenues in the DOOH media industry. The market for third-generation display-glass products is large and has attracted numerous new DOOH advertising media and media companies. As some companies have sought to compete based on price, they have created pricing pressures on architectural media glass, which we expect to continue in the future. If competitive forces drive down the prices we are able to charge for our products, our margins will shrink, which will adversely affect our ability to maintain our profitability and to invest in and grow our business.

Our revenue largely depends on continuing domestic and global demand for architectural media glass, large media displays, and associated digital content. Our sales may not grow at the rate we expect.

Currently, our total sales are derived principally from real estate developers, building owners, and to a lesser extent, governments. Going forward, our diversification strategy includes targeting more sales to content, applications and DOOH media. As each of these product segments significantly contributes to our total sales, we will continue to be dependent on continuing demand for our architectural media glass, large media displays and associated digital content from each of the construction industry, the remodeling industry and the DOOH media industry for a substantial portion of our sales. Any downturn in any of those industries in which our customers operate would result in reduced demand for our products, which may in turn result in reduced revenue, lower average selling prices and/or reduced margins.

If new construction levels out and repair and remodeling markets decline, such market pressures have, and may in the future, adversely affect our results of operations.

The architectural media glass industry is subject to the cyclical market pressures of the larger new construction and repair and remodeling markets. In turn, these larger markets have in the past been, and may in

 

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the future be, affected by adverse changes in economic conditions such as demographic trends, employment levels, interest rates, commodity prices, availability of credit and consumer confidence, as well as by changing needs and trends in the markets, such as shifts in customers’ preferences and architectural trends. Already, Captivison Korea’s revenue has been negatively affected by the ongoing environment of elevated interest rates in South Korea, which has delayed and/or reduced spending in the South Korean real estate industry, which historically has been our largest market. Any future downturn or any other negative market pressures could adversely affect our results of operations in the future, as margins may decrease as a direct result of an overall decrease in demand for our products. Additionally, we have additional idle manufacturing capacity which may have a negative effect on our cost structure.

If property developers, who make up our key customer base, continue to, or in the future, face operational and financial challenges, they may continue to, or in the future, change, delay or even cancel ongoing and planned projects. Since our architectural media glass products are installed at the very end of the construction process, at which point we have already, or would already have, incurred significant costs, such changes, delays or cancellations have had, or would have, a negative impact on our financial condition and results of operations.

Our government sector sales, which comprise a significant portion of our sales, may be adversely affected by presidential and congressional elections, policy changes, government land development plan changes and other local political events.

Our customers include national, provincial and local government entities. Our significant government sector sales are made primarily in South Korea. Political events such as pending presidential and congressional elections, the outcome of recent elections, changes in leadership among key executive decision makers, or revisions to government land development plans can affect our ability to secure new government contracts or the speed at which new contracts are signed, decrease future levels of spending and authorizations for programs that we bid on and/or shift spending priorities to programs in areas for which we do not provide products or services.

The IT, vertical real estate and large format wallscape sectors are regulated and any new or modified regulatory restrictions could adversely affect our sales and results of operations.

The IT, vertical real estate and large format wallscape sectors are subject to various laws, ordinances, rules and regulations concerning zoning, building design and safety, hurricane and floods, construction, and other similar matters. G-Glass has been tested and successfully obtained various certifications required for electric safety as well as construction materials in all of our key markets, including Korea Certification (KC), China Compulsory Certification (CCC), Conformité Européenne (CE) and Underwriter Laboratories (UL) certification. However, if we fail to maintain or renew these certifications, we are at risk of falling out of compliance with applicable laws, ordinances, rules and regulations, which will negatively affect our sales and results of operations. Further, increased regulatory restrictions could limit demand for our products and/or services, which could adversely affect our sales and results of operations. We may not be able to satisfy any future regulations, which consequently could have a negative effect on our sales and results of operations.

Changes in building codes could lower the demand for our G-Glass technology.

The market for G-Glass depends in large part on our ability to satisfy applicable state and local building codes. If the standards in such building codes are raised, we may not be able to meet such requirements, and demand for our products could decline. Conversely, if the standards in such building codes are lowered or are not enforced in certain areas, demand for our products may decrease in favor of cheaper alternatives. If we are unable to satisfy future regulations, including building code standards, it could adversely affect our sales and results of operations.

Certain jurisdictions have stricter regulations covering the types of products and services we offer, which may potentially deter us from entering or expanding within such jurisdictions in the future. For example, the

 

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Hong Kong government imposes stringent rules and requirements with respect to building codes and we may not invest additional resources to penetrate the Hong Kong market if the cost of meeting these requirements outweighs perceived economic gains.

We sometimes manage the installation of our products, which subjects us to risks and costs that may impact our profit margin.

From time to time, we plan and manage the installation of our products at our customers’ venues. The installation process subjects us to risks that are out of our immediate control, including construction delays, unexpected modifications, work stoppages, extreme weather conditions and operational hazards. In addition, we rely on various contractors and subcontractors to carry out each step of the construction and installation process, including brick, façade, insulation, windowpane and curtain glass installers, carpenters, electricians, painters and other contractors. Our reliance on third party contractors in combination with certain operational risks can result in delays, damages, replacements or repairs that may subject us to increased or unexpected costs and may affect our ability to complete installations in a timely manner.

Due to the number of contractors and workers on a construction site and the difficulty in identifying issues during the construction process, including delays in identifying latent leaks, intermittent electrical power or signal failures, or other issues, it is difficult to identify the root cause of certain issues that materialize during the installation process. This uncertainty may prevent us from assigning legal liability or requesting reimbursement from third party contractors, forcing us to fund any replacements or remedies necessary for the completion of the installation. As a result, our project margin may be adversely affected.

We sometimes rely on third-party contractors for the installation of our products, which subjects us to risks and costs that are out of our control.

We may rely on third party contractors for the installation of our products at our customers’ venues. Such installation work is subject to various hazards and risks, including extreme weather conditions, work stoppages and operational hazards. If we are delayed or unable to complete installations due to a third-party contractors’ failure to properly operate or if we experience significant changes in the cost of these services due to new or additional regulations, we may not be able to complete installations in a timely manner or make alternative arrangements for such installations in a timely manner. As installation costs represent a significant part of our cost structure, substantial increases in these costs would result in a material adverse effect on our revenues and costs of operations.

Additionally, the performance of such third-party contractors is outside of our control, as a result, failures or deficiencies in the installations of third-party contractors could have an adverse impact on our operating results.

We are subject to labor, health, construction/building and safety regulations, and may be exposed to liabilities and potential costs for lack of compliance.

We are subject to labor, health, construction/building and safety laws and regulations that govern, among other things, the relationship between us and our employees, and the health and safety of our employees. If an adverse final decision that we violated any labor or health and safety laws is issued, we may be exposed to penalties and sanctions, including the payment of fines. Our subsidiaries could also be subject to work stoppages or closure of operations.

We rely on key researchers and engineers, senior management and production facility operators, and the loss of the services of any such personnel or the inability to attract and retain them may adversely affect our business.

Our success depends to an extent upon the continued service of our research and development and engineering personnel, as well as on our ability to continue to attract, retain and motivate qualified researchers

 

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and engineers, especially during periods of rapid growth. Our focus on rapid technological developments and advanced manufacturing processes has meant that we must aggressively recruit research and development personnel and engineers with expertise in cutting-edge technologies.

We also depend on the services of experienced key senior management, and if we lose their services, it would be difficult to find and integrate replacement personnel in a timely manner, if at all. We also employ highly skilled line operators at our production facilities.

The loss of the services of a significant number of our key research and development and engineering personnel, senior management or skilled operators without adequate replacement, or the inability to attract new qualified personnel, may have an adverse effect on our operations.

Equipment failures, delays in deliveries and catastrophic loss at our manufacturing facilities could lead to production curtailments or shutdowns that prevent us from producing our products.

We have one operational state-of-the-art manufacturing facility located in Pyeongtaek, South Korea, which currently fulfills all of the market demand for our products. In March 2020, our second manufacturing facility, located in Tianjin, China, temporarily suspended its operations as a result of COVID-19 pandemic-related restrictions imposed by the Chinese government on manufacturers. Our Chinese manufacturing facility has not yet restarted operations, and no concrete proposal has been made as to if, and when, operations might resume. Any interruption or significant disruption in production capabilities at our facilities stemming from equipment failures, insufficient personnel to operate our manufacturing facilities, or other reasons could result in our inability to manufacture our products, which would reduce our sales and earnings for the affected period. See “—We rely on production facility operators and manufacturing facility employees, and the loss of the services of any such personnel or the inability to attract and retain will adversely affect our business.”

In addition, as a result of the highly customizable nature of our products, we generally begin the manufacturing process after receiving an order from a customer rather than relying on pre-existing inventory. If our manufacturing facilities experience any production stoppages, even if only temporarily, or any delays, delivery times could be severely affected. Any significant delay in deliveries to our customers could lead to increased product returns or cancellations and cause us to lose future sales. Our manufacturing facilities are also subject to the risk of loss due to unanticipated events such as fires, explosions, acts of terrorism or extreme weather conditions. Any plant shutdowns or periods of reduced production stemming from equipment failure, delays in deliveries or catastrophic loss, could have a material adverse effect on our results of operations or financial condition. Further, we may not have adequate insurance to compensate for all losses that result from any of these events.

We may be adversely affected by disruptions to our manufacturing facilities or disruptions to our customer, supplier or employee base.

Any disruption to our manufacturing facilities could damage a significant portion of our inventory and materially impair our ability to distribute our products to customers. We could incur significantly higher costs and longer lead times associated with distributing our products to customers during the time that it takes for us to reopen or replace a damaged facility. In addition, if there are disruptions to our customer and supplier base or to our employees caused by weather-related events, acts of terrorism, pandemics, our ongoing capital constraints, or any other cause, our business could be temporarily adversely affected by decreased production capabilities, higher costs for materials, increased shipping and storage costs, increased labor costs, increased absentee rates and scheduling issues. Any interruption in the production or delivery of our supplies could reduce sales of our products and increase costs.

 

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We rely on production facility operators and manufacturing facility employees, and the loss of the services of any such personnel or the inability to attract and retain will adversely affect our business.

Our success depends to an extent upon the continued service of our production facility operators and manufacturing facility personnel, especially for the completion of large-scale projects and during periods of rapid growth. The recent loss of the services of a significant number of our manufacturing facility personnel and our inability to identify adequate replacements due to our ongoing capital constraints will have an adverse effect on our operations. In particular, our reduction in human capital has disrupted our production capabilities at our facilities for the production of one of our large-scale projects, which we expect will lead to the delayed delivery of the product to our client. This delay will reduce our sales and earnings for the affected period, and could lead to increased product returns or cancellations and cause us to lose future sales from this client.

We operate with a modest inventory, which may make it difficult for us to efficiently allocate capacity on a timely basis in response to changes in demand.

Our customers provide us with advance forecasts of their product requirements. However, due to the highly customizable nature of our components and large-scale products in particular, firm orders are not placed until negotiations on purchase prices and construction timelines are finalized and definitive orders are placed several months prior to delivery.

As a result, firm orders may be less than anticipated based on these prior forecasts. Although we typically operate with an inventory level estimated for several months, it may be difficult for us to adjust production costs or to allocate production capacity in a timely manner to compensate for any such modifications in order volumes. Our inability to respond quickly to changes in overall demand for architectural media glass as well as changes in product mix and specifications may result in lost revenue, which would adversely affect our results of operations.

We may experience losses on inventories.

The customizable nature of most of our projects makes it difficult for us to maintain usable stock of finished or semi-finished products. As a result, our inventory consists mostly of raw materials including, glass stocks, LEDs, aluminum extrusion, resins, adhesives, drivers, FPCBs and spacer tape, among other items. Our ability to fulfil orders in a timely manner regardless of their size is dependent on the maintenance of adequate reserves of raw materials in our inventory.

We manage our inventory based on our customers’ and our own forecasts and typically operate with an inventory level estimated for several months. Although adjustments are regularly made based on market conditions, we typically deliver our goods to the customers within several months after a firm order has been placed. While we maintain open channels of communication with our major customers to avoid unexpected decreases in firm orders or subsequent changes to placed orders, and try to minimize our inventory levels, such actions by our customers may have an adverse effect on our inventory management. Other factors affecting our inventory levels include the shelf life of our raw materials and the production capacity of our manufacturing facilities.

Any issues or delays in meeting our projected manufacturing costs and production capacity could adversely impact our business, prospects, operating results and financial condition.

Future events could result in issues or delays in further ramping our products and expanding production output at our existing and future operating lines. In order to achieve our volume and the anticipated ramp in production of our products, we must continue to sustain and ramp significant production at our existing production lines. We are not currently employing a full degree of automation in the manufacturing processes for our products. If we are unable to maintain production at our facilities, ramp output additionally over time as needed, and do so cost-effectively, or if we are unable to attract, hire and retain, as we have been unable to do

 

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recently, a substantial number of highly skilled personnel, our ability to supply our products could be negatively impacted, which could adversely affect our brand and harm our business, prospects, financial condition and operating results. See “—We will require substantial additional financing to fund our operations and complete the development and commercialization of the process technologies that produce each of our products or new aspects of our existing process technologies that produce each of our products, and we may not be able to obtain such financing on favorable terms, or at all.”

Our failure to properly manage the distribution of our products and services could result in the loss of revenues and profits.

We utilize a direct sales force, as well as a network of distribution and integration partners, to market and sell our products and services. We are continually reviewing our go-to-market strategy to help ensure that we are reaching the most customers that we can and with the highest level of service. At times, this may require strategic changes to our sales organization or enlisting or dropping various distributors in certain regions, which could result in additional costs or operational challenges. Successfully managing the interaction of our direct and indirect sales channels to reach various potential customers for our products and services is a complex process. In addition, our reliance on indirect selling methods may reduce visibility to demand and pricing issues.

To support the expansion of our business internationally, we may decide to make changes to our operating structure in other countries when we believe these changes will make us more competitive by reaching additional customers, offering faster delivery, importation services, and/or local currency sales. These new operating models may require changes in legal structures, business systems, and business processes that may result in significant business disruption and negatively impact our customers’ experience, resulting in loss of sales. Furthermore, as we assume more responsibility for the importation of our products into other countries, we face higher compliance risk in adhering to local regulatory and trade requirements. Finally, the local stocking of our products in countries outside of our primary distribution centers may result in higher costs and increased risk of excess or obsolete inventory associated with maintaining the appropriate level and mix of stock in multiple inventory locations, resulting in lower gross margins.

Our go-to-market strategy has distinct risks and costs, and therefore, our failure to implement the most advantageous balance in the sales and operating model for our products and services could have a material adverse effect on our revenue and profitability.

Our business involves complex manufacturing processes that may cause personal injury or property damage, subjecting us to liabilities and possible losses or other disruptions of our operations in the future, which may not be covered by insurance.

Our business involves complex manufacturing processes. Some of these processes, such as various forms of durability testing, involve high pressures, temperatures and other hazards that present certain safety risks to workers employed at our manufacturing facilities. The potential exists for accidents involving death or serious injury. The potential liability resulting from any such accident to the extent not covered by insurance, could result in unexpected cash expenditures, thereby reducing the cash available to operate our business. Such an accident could disrupt operations at any of our facilities, which could adversely affect our ability to deliver products to our customers on a timely basis and to retain our current business.

Operating hazards inherent in our business, some of which may be outside of our control, can cause personal injury and loss of life, damage to or destruction of property, plant and equipment and environmental damage. We maintain insurance coverage in amounts and against the risks we believe are consistent with industry practice, but this insurance may not be adequate or available to cover all losses or liabilities we may incur in our operations. Our insurance policies are subject to varying levels of deductibles. Losses up to our deductible amounts accrue based upon our estimates of the ultimate liability for claims incurred and an estimate of claims incurred but not reported. However, liabilities subject to insurance are difficult to estimate due to unknown

 

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factors, including the severity of an injury, the determination of our liability in proportion to other parties, the number of incidents not reported and the effectiveness of our safety programs. If we were to experience insurance claims or costs above our estimates, we might also be required to use working capital to satisfy these claims.

Our business relies on our patent rights which may be narrowed in scope or found to be invalid or otherwise unenforceable.

Our success will depend, to a significant extent, on our ability to obtain and enforce our patent rights both in South Korea and worldwide. The coverage claimed in a patent application can be significantly reduced before a patent is issued, either in South Korea or abroad. Consequently, we cannot provide assurance that any of our pending or future patent applications will result in the issuance of patents. Patents issued to us may be subjected to further proceedings limiting their scope and may not provide significant proprietary protection or competitive advantage. Our patents also may be challenged, circumvented, invalidated or deemed unenforceable. In addition, because patent applications in certain countries generally are not published until more than 18 months after they are first filed, and because publication of discoveries in scientific or patent literature often lags behind actual discoveries, we cannot be certain that we were, or any of our licensors was, the first creator of inventions covered by pending patent applications, that we or any of our licensors will be entitled to any rights in purported inventions claimed in pending or future patent applications, or that we were, or any of our licensors was, the first to file patent applications on such inventions.

Furthermore, pending patent applications or patents already issued to us or our licensors may become subject to dispute, and any dispute could be resolved against us. For example, we may become involved in re-examination, reissue or interference proceedings and the result of these proceedings could be the invalidation or substantial narrowing of our patent claims. We also could be subject to court proceedings that could find our patents invalid or unenforceable or could substantially narrow the scope of our patent claims. In addition, depending on the jurisdiction, statutory differences in patentable subject matter may limit the protection we can obtain on some of our inventions.

Failure to protect our intellectual property rights could impair our competitiveness and harm our business and future prospects.

We believe that the fact that we produce G-Glass from fully proprietary, self-developed production machines and equipment, and are the only market player that can offer products of this kind at this time are critical to the success of our business. We take active measures to obtain international protection of our intellectual property by obtaining patents and undertaking monitoring activities in our major markets. However, we cannot assure you that the measures we are taking will effectively deter competitors from improper use of our proprietary technologies. Our competitors may misappropriate our intellectual property, disputes as to ownership of intellectual property may arise and our intellectual property may otherwise become known or independently developed by our competitors.

We may in the future be subject to claims that former employees, collaborators, or other third parties have an interest in our patents or other intellectual property as an inventor or co-inventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developing our products. Litigation may be necessary to defend against these and other claims challenging inventorship. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

Any failure to protect our intellectual property could impair our competitiveness and harm our business and future prospects.

 

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We are subject to potential exposure to environmental liabilities and are subject to environmental regulation and any such liabilities or regulation may adversely affect our costs and results of operations in the future.

Our manufacturing processes involve hazardous materials and generate industrial waste such as used glass containing resin at various stages in the manufacturing process, and we are subject to a variety of laws and regulations relating to the use, storage, discharge and disposal of waste substances, which are frequently changing and becoming more stringent. Although we have enacted safety measures, engaged in employee education on handling such materials and installed various types of safety equipment, consistent with industry standards, for the treatment of such industrial waste, engage a professional third party industrial waste management service provider and believe that our facilities are materially in compliance with such laws and regulations, we cannot provide assurance that our protocols will always be followed by our employees or the third party service provider and safety or environmental related claims will not be brought against us or that the local or national governments will not take steps toward adopting more stringent safety or environmental standards.

Furthermore, as owners of real property, our subsidiaries can be held liable for the investigation or remediation of contamination on such properties, in some circumstances, without regard to whether we knew of or were responsible for such contamination. Remediation may be required in the future because of spills or releases of hazardous substances, the discovery of unknown environmental conditions, or more stringent standards regarding existing residual contamination. Environmental regulatory requirements may become more burdensome, increase our general and administrative costs, the availability of construction materials, raw materials and energy, and increase the risk that our subsidiaries incur fines or penalties or be held liable for violations of such regulatory requirements. New regulations regarding climate change may also increase our expenses and eventually reduce our sales.

Earthquakes, tsunamis, floods, severe health epidemics (including any possible recurrence of COVID-19 or other types of widespread infectious diseases) and other natural calamities could materially adversely affect our business, results of operations or financial condition.

If earthquakes, tsunamis, floods, fires, extreme weather events (whether as a result of climate change or otherwise), severe health epidemics or any other natural calamities were to occur in the future in any area where any of our assets, suppliers or customers are located, our business, results of operations or financial condition could be adversely affected. A number of suppliers of our raw materials, components and manufacturing equipment, as well as certain of our manufacturing facilities, are located in countries which have historically suffered natural calamities from time to time, such as China and South Korea. Any occurrence of such natural calamities in countries where our suppliers are located may lead to shortages or delays in the supply of raw materials, components or manufacturing equipment. In addition, natural calamities in areas where our customers are located, including South Korea, China, Japan, the United States and Europe, may cause disruptions in their businesses, which in turn could adversely impact their demand for our products. If we are unable to develop adequate plans to ensure that our business functions continue to operate during and after a disaster and to execute successfully on those plans in the event of a disaster or emergency, our business would be seriously harmed.

Future pandemics could have an adverse effect on our business.

Future pandemics could significantly impact the national and global economy and commodity and financial markets. For example, the COVID-19 pandemic caused, among other things, extreme volatility in financial markets, a slowdown in economic activity, extreme volatility in commodity prices and a global recession. The response to COVID-19 led to significant restrictions on travel, temporary business closures, quarantines and global stock market volatility.

While the impacts of COVID-19 have diminished, any resurgence or new strains, or any future pandemics, may have further impacts on labor availability, consumable supply and transport logistics. Any future pandemics,

 

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or a resurgence, or new strains of COVID-19 could lead to significant restrictions on travel and business closures. These travel restrictions and business closures may in the future adversely affect our operations, including our ability to obtain regulatory approvals and to sell our product, which could materially and adversely affect our business. The impacts of any future pandemics on our operational and financial performance will depend on various future developments, including the duration and spread of any new outbreak of an existing or new strain and the impact on regulatory agencies, customers, suppliers and employees.

We continue to face significant risks associated with our international expansion strategy.

We are continuing to seek new opportunities to produce and commercialize products using our process technologies outside the South Korea through entering into licensing and distribution with new and existing industry partners. Overall, the expenses and long lead times inherent in our efforts to pursue international business opportunities have slowed, and are expected to continue to slow, the implementation of our expansion strategy, particularly in light of our ongoing capital constraints, and have limited, and are expected to continue to limit, the revenue that we receive as a result of our efforts to develop international business in the short term. More broadly, our international business operations are subject to a variety of risks, including:

 

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challenges associated with operating in diverse cultural and legal environments, including legal restrictions that impact our ability to enter into strategic partnering arrangements;

 

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the need to comply with a variety of South Korean laws applicable to the conduct of overseas operations, including export control laws and local law requirements;

 

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our ability, or reduced ability, to protect our intellectual property in certain countries;

 

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potential for longer sales cycles in certain countries;

 

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changes in or interpretations of foreign rules and regulations that may adversely affect our or our industry partners’ ability to produce or sell products manufactured using our process technologies or repatriate profits to South Korea;

 

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economic, political or social instability in foreign countries;

 

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difficulties in staffing and managing foreign and geographically dispersed operations including our ongoing operations and planned operational growth in China;

 

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changes in demand for products produced using our process technologies in international markets;

 

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the imposition of tariffs and other foreign taxes;

 

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the imposition of limitations on, or increase of, withholding and other taxes on remittances and other payments by foreign subsidiaries or joint ventures; and

 

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the availability of government subsidies or other incentives that benefit competitors in their local markets that are not available to us.

Our inability to overcome these obstacles could harm our business, financial condition and operating results. Even if we are successful in managing these obstacles, our industry partners internationally are subject to these same risks and may not be able to manage these obstacles effectively.

Our financial results could vary significantly from quarter to quarter and are difficult to predict.

Our financial results could vary significantly from quarter to quarter because of a variety of factors, many of which are outside of our control and are difficult to predict. As a result, comparing our results of operations on a period-to-period basis may not be meaningful. In addition to the risk factors stated herein, other factors that could cause our quarterly results of operations to fluctuate include:

 

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achievement of, or failure to achieve, technology or product development milestones needed to allow us to enter identified markets on a timely and cost-effective basis; delays or greater than anticipated

 

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expenses associated with the scale-up and the commercialization of process technologies to produce new products;

 

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changes in the amount that we invest to develop, acquire or license new technologies and processes;

 

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our ability to successfully enter into partnering arrangements, and the terms of those relationships (including levels of related capital contributions);

 

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fluctuations in the prices or availability of the raw materials required to produce products using our process technologies or those of our competitors;

 

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changes in the size and complexity of our organization, including our expanded operations as a public company;

 

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changes in general economic, industry and market conditions, both domestically and in our foreign markets;

 

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business interruptions, including disruptions in the production process at any facility where products produced using our process technologies are manufactured;

 

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departure of executives or other key management employees;

 

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changes in the needs for the products produced using our process technologies;

 

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the development of new competitive technologies or products by others and competitive pricing pressures;

 

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the timing, size and mix of sales to our industry partners for products produced using our process technologies; and

 

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seasonal production and the sale of products produced using our process technologies.

Due to these and other factors, our financial results for any quarterly or annual period may not meet our expectations or the expectations of our investors and may not be meaningful indications of our future performance.

Our current liquidity resources raise substantial doubt about our ability to continue as a going concern and to comply with our debt covenants unless we raise additional capital to meet our obligations in the near term.

Since inception, we have incurred recurring net losses and negative cash flows from operating activities, and we have financed operations primarily through financing transactions, such as the issuance of convertible promissory notes and loans. As of June 30, 2024, we have an outstanding deficit of $145.8 million, and our current liabilities exceed current assets by $47.0 million. We expect our losses to continue for the foreseeable future as we invest in our capabilities and continue to market and deploy our products with customers. Our cash and cash equivalents are not sufficient to fund operating expenses, currently anticipated expenditures and other obligations as they come due, and we will require additional capital infusions to fund our ongoing operations. As a result, substantial doubt exists about our ability to continue as a going concern within one year after the issuance date of our financial statements for the six months ended June 30, 2024. In addition, based on our current business plan and forecasts, without the injection of further capital, we anticipate being unable to comply with certain of our debt covenants in our existing loan agreements. Unless these defaults are waived or cured, our lenders could accelerate repayment of our indebtedness which would give them the right to declare any and all debt outstanding, together with accrued and unpaid interest and fees, to be immediately due and payable. In addition, the lenders would have the right to proceed against the collateral in which we granted a security interest to them. If our debt were to be accelerated, we may not have sufficient cash or be able to borrow sufficient funds to refinance the debt or sell sufficient assets to repay the debt, which would materially and adversely affect our cash flows, business, results of operations, and financial condition.

 

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We will require substantial additional financing to fund our operations and complete the development and commercialization of the process technologies that produce each of our products or new aspects of our existing process technologies that produce each of our products, and we may not be able to obtain such financing on favorable terms, or at all.

 

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Captivision Korea’s operations have consumed substantial amounts of cash since inception, and we expect to incur increasing expenses going forward, in particular, as we:

 

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repay transaction and other expenses associated with the Business Combination;

 

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enter into and engage in strategic partnering arrangements to produce products cost-effectively at acceptable quality levels and price points, including making capital contributions for the construction of certain plants;

 

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invest in developments with respect to existing process technologies in order to increase their effectiveness or reduce related capital expenditures;

 

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expand research and development efforts;

 

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grow the business organization;

 

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pursue select distribution opportunities;

 

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seek to identify additional market opportunities for the products produced using Captivision Korea’s process technologies; and

 

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pursue partnering arrangements.

Our operating cash flow, short term financing capabilities, and our existing cash and cash equivalents will not be sufficient to fund operations for at least 12 months from the date of this prospectus. To continue operations, we will need to raise capital through equity debt, or mezzanine financing. Securing additional financing could require a substantial amount of time and attention from management and may divert a disproportionate amount of its attention away from our business activities, which may adversely affect our and Captivision Korea’s ability to conduct day-to-day operations. In addition, neither we, nor Captivision Korea, can guarantee that future financing will be available in sufficient amounts or on acceptable terms, if at all. Captivision Korea has faced, and continues to face, significant ongoing capital constraints in 2023 which have prevented it from implementing more aggressive sales efforts resulting in decreased pipeline growth and reduced conversion of existing pipeline into revenue. Further, circumstances may cause it to consume capital significantly faster than we currently anticipate, and it may need to spend more money than currently expected because of circumstances beyond our and its control. Moreover, Captivision Korea and its industry partners may experience delays in the production of commercial quantities of products, in a manner that is cost-effective and at suitable quality levels, which would postpone Captivision Korea’s, and therefore our, ability to generate revenue associated with the sale of such products.

As discussed above, ongoing capital constraints have prevented Captivision Korea from implementing more aggressive sales efforts resulting in decreased pipeline growth and reduced conversion of existing pipeline into revenue. If we and Captivision Korea are unable to raise additional capital on acceptable terms or at all, we may be required to:

 

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delay or suspend some or all manufacturing and commercialization efforts;

 

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decrease or abandon some or all research and development efforts;

 

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decrease the financial resources dedicated to partnering efforts, which may substantially postpone the development, manufacture, marketing or sale of existing and future products produced using Captivision Korea’s process technologies;

 

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suspend the growth of the organization; and/or

 

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liquidate our assets even though the values we receive for our assets in liquidation or dissolution could be significantly lower than the values reflected in the financial statements.

To raise additional funds to support business operations, we may sell additional equity, or convertible debt securities, which would result in the issuance of additional share capital and dilution to our shareholders. Alternatively, we may incur debt or issue other debt securities. The incurrence of indebtedness would result in increased fixed payment obligations and could also result in certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. If we continue to be unable to raise additional capital in sufficient amounts or on terms acceptable to us, we will be prevented from pursuing discovery, development and commercialization efforts and our ability to generate revenues and achieve or sustain profitability will be substantially harmed. Ultimately, if we are unable to raise additional capital in sufficient amounts we will be forced to liquidate.

If we are unable to manage our growth and expand our operations successfully, our reputation and brand may be damaged, and our business and results of operations may be harmed.

We expect our growth to accelerate in the future in connection with our commercialization efforts, expanded research and development activities, and as we transition to operating as a public company. Our ability to effectively manage our anticipated growth and expansion of our operations will require us to do, among other things, the following:

 

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enhance our operational, financial and management controls and infrastructure, human resource policies, and reporting systems and procedures;

 

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effectively scale our operations;

 

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successfully identify, recruit, hire, train, maintain, motivate and integrate additional employees;

 

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expand our facilities and equipment; and

 

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effectively manage and maintain our corporate culture.

These enhancements and improvements will require significant capital expenditures that are beyond our existing resources and allocation of valuable management and employee resources, and our growth will continue to place a strain on our operational, financial and management infrastructure. Our future financial performance and our ability to execute on our business plan will depend, in part, on our ability to effectively manage any future growth and expansion. There are no guarantees we will be able to do so in an efficient or timely manner, or at all. Our failure to effectively manage growth and expansion could have a material adverse effect on our business, results of operations, financial condition, prospects and reputation.

Our results of operations are subject to exchange rate fluctuations, which may affect our costs and revenues.

There has been considerable volatility in foreign exchange rates in recent years, including rates between the Korean Won and the U.S. dollar, between the Korean Won and the Chinese Yuan, between the Korean Won and the Euro, and between the Korean Won and the Japanese Yen. To the extent that we incur costs in one currency and make sales in another, our profit margins may be affected by changes in the exchange rates between the two currencies.

To date, the majority of our revenue is derived from the Korean market; as a result, our revenue is denominated mainly in Korean Won. Most of our international sales are denominated in U.S. dollars, and, to a much lesser extent, Japanese Yen and Chinese Yuan. The majority of our costs and the largest proportion of our expenditures on capital equipment are denominated in Korean Won. Accordingly, fluctuations in exchange rates, in particular between the U.S. dollar and the Korean Won, between the Chinese Yuan and the Korean Won as well as between the Japanese Yen and the Korean Won, will affect our pre-tax income.

 

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In recent years, the value of the Won relative to the U.S. dollar, Chinese Yuan and Japanese Yen has fluctuated widely. Although a depreciation of the Korean Won against the U.S. dollar increases the Korean Won value of our export sales and enhances the price-competitiveness of our products in foreign markets in U.S. dollar terms, it also increases the cost of imported raw materials and components in Korean Won terms.

A depreciation of the Korean Won against the Chinese Yuan or Japanese Yen increases the Korean Won cost of our Chinese Yuan- or Japanese Yen-denominated purchases of equipment, raw materials or components, as applicable. Despite the fact that the majority of our costs and revenues are in Korean Won, continued exchange rate volatility may also result in foreign exchange losses for us. Although a depreciation of the Korean Won against the U.S. dollar, in general, has a net positive impact on our results of operations that more than offsets the net negative impact caused by a depreciation of the Korean Won against the Chinese Yuan or Japanese Yen, we cannot provide assurance that the exchange rate of the Korean Won against foreign currencies will not be subject to significant fluctuations, or that the impact of such fluctuations will not adversely affect the results of our operations.

Increasing interest rates could materially adversely affect our ability to generate positive cashflows and secure financing required to carry out our strategic plans.

Historically, portions of our debt have been indexed to variable interest rates that are affected by a variety of factors over which we have no control. A rise in interest rates could adversely impact the cost of financing for a portion of our debt with variable interest rates which could negatively impact our cash flow generation. Furthermore, a rise in interest rates could limit our ability to obtain financing required to support our growth through our continuing programs designed to develop new products, expand the capacity of our manufacturing facilities and execute our business strategy. While we may mitigate the risk derived from interest rate fluctuations by entering into derivative contracts or by obtaining fixed rate financing, general increases in interest rates would still have an impact on the cost of financing and our ability to obtain appropriate funding.

Government regulation of DOOH media may restrict our out-of-home advertising operations.

Regulation of the DOOH media industry varies by municipality, region and country, but generally limits the size, placement, hours of operations, nature and density of out-of-home displays. Other regulations limit the subject matter, animation and language of out-of-home displays. Our failure to comply with these or any future regulations could have an adverse impact on the effectiveness of our architectural media glass installations or their attractiveness to clients as an advertising medium. As a result, we may experience a significant impact on our operations, revenue, international client base and overall financial condition.

We have encountered regulations that restrict or prohibit digital displays, such as our digital billboards that display digital advertising copy from various advertisers which changes several times per minute. Since digital billboards have been developed and introduced relatively recently into the market on a large scale, existing regulations that currently do not apply to them by their terms could be revised or new regulations could be enacted to impose greater restrictions on digital billboards due to alleged concerns over aesthetics or driver safety. Any new restrictions on digital billboards could have a material adverse effect on both our existing inventory of digital billboards and our plans to expand our digital deployment.

A number of state and local governments have implemented or initiated taxes, fees and registration requirements in an effort to decrease or restrict the number of outdoor signs and/or to raise revenue. From time to time, legislation has also been introduced in international jurisdictions attempting to impose taxes on revenue from out-of-home advertising, for the right to use out-of-home advertising assets or for the privilege of engaging in the out-of-home advertising business. Several jurisdictions have imposed such taxes as a percentage of our out-of-home advertising revenue generated in that jurisdiction or based on the size of the billboard and type of display technology. In addition, some jurisdictions have taxed companies’ personal property and leasehold interests in advertising locations using various valuation methodologies. We expect U.S. and foreign jurisdictions

 

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to continue to try to impose such taxes as a way of increasing revenue. The increased imposition of these measures could adversely affect our operating income if we are unable to pass on the cost of these items to our customers.

Regulations governing categories of products that can be advertised through our products vary across the countries in which we conduct business. Certain products and services, such as tobacco, are banned from outdoor advertising in the U.S., and other products, such as alcohol, may be targeted in the future. Most E.U. countries, among other nations, also have banned outdoor advertisements for tobacco products and regulate alcohol advertising. In the U.K., there are localized restrictions on the location of advertising for high fat, salt and sugar foods. While we don’t generate any revenues from such advertising today, any significant reduction in advertising of products due to content-related restrictions in the future could cause a reduction in our direct revenues from such advertisements and an increase in available space on the existing inventory of billboards in the out-of-home advertising industry.

The advancement of laws and regulations may not keep pace with the accelerating advancement of the digital signage industry and technology, which may have a detrimental effect on the growth of our industry.

Changes in government policies can have significant impacts on the profitability of our architectural media glass business. The revised Act on the Management of Outdoor Advertisements in South Korea defines “digital advertising” as the “use of digital displays to provide information or advertisements.” However, defining digital outdoor advertising is complex because digital technology continues to evolve. Additionally, specific discussions surrounding a possible standardization of digital advertisements, display methods, and installation standards have yet to be carried out. Rather than approaching the issue as an ecosystem encompassing hardware, software and content industries, the scope of the current legal approach is limited to regulating advertisements. We believe that the Act on the Management of Outdoor Advertisements is a more complex legal framework than other laws regulating media advertisements.

Because the installation and operation of advertisements are mandated by city and province regulations, even if the law is revised, the installation and operation of advertisements will be complicated by local frameworks unless the city, province, county, and local ordinances are similarly revised. Given the digital signage industry and enabling technology are fast evolving, the laws and regulations may not keep the pace, which may hamper the growth of our industry.

Failures or security breaches of our networks or information technology systems could have an adverse effect on our business.

We rely heavily on information technology (“IT”) both in our products and services for customers and in our IT systems used to run our business. Government agencies and security experts have warned about growing risks of hackers, cyber-criminals, malicious insiders and other actors targeting confidential information and all types of IT systems. These actors may engage in fraudulent activities, theft of confidential or proprietary information and sabotage or ransomware.

Our IT systems, connected products, and confidential information, which we collect and store in our cloud-based data centers and on our networks, may be vulnerable to damage or intrusion from a variety of attacks including computer viruses, worms or other malicious software programs. The risk of such attacks may increase as we integrate newly acquired companies or develop new connected products and related software. These attacks pose a risk to the security of our products, systems and networks and those of our customers, suppliers and third-party service providers, as well as to the confidentiality of our information and the integrity and availability of our data. While we attempt to mitigate these risks through board oversight, controls, due diligence, employee training and communication, third party intrusion testing, system hardening, email and web filters,

 

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regular patching, multi-factor authentication, surveillance, encryption, and other measures, we remain vulnerable to information security threats.

We may experience cyber security threats and vulnerabilities in our systems and those of our third-party providers, and we have experienced viruses and attacks targeting our IT systems and networks. Despite the precautions we take, we could experience an intrusion or infection of our systems or connected products. While we have not had such intrusions or infections to date, we cannot guarantee there will be no such intrusions or infections in the future. Similarly, an attack on our IT systems or connected products could result in theft or disclosure of trade secrets or other intellectual property, a breach of confidential customer or employee information, or product failure or misuse. Any such events could have an adverse impact on sales, harm our reputation and cause us to incur legal liability and increased costs to address such events and related security concerns. As threats evolve and become more potent, we may incur additional costs to secure the products that we sell, as well as our data and infrastructure of networks and devices.

We do not have absolute control over the affiliates where we are the minority shareholder nor do we maintain control over the actions of other shareholders. Actions of other shareholders of affiliates could negatively impact our performance.

We do not have a majority ownership stake in each of G-SMATT Japan Co., Ltd. (“G-SMATT Japan”), G-SMATT Hong Kong Co., Ltd. (“G-SMATT Hong Kong”) and Tian Jin CECEP Brillshow Co., Ltd. (“Brillshow”), a joint venture with China Energy Conservation and Environmental Protection Group (“CECEP”). Although together with G-Frame Co., Ltd. (“G-Frame”), a wholly-owned subsidiary of Captivision Korea, we own a majority stake in G-SMATT America Co., Ltd. (“G-SMATT America”), Captivision Korea does not individually own a majority stake in G-SMATT America. As a result, we do not have absolute control over the operations of such companies nor do we maintain control over the actions of other shareholders.

In many cases, other shareholders may share certain approval rights over major decisions and these investments may involve risks not otherwise present with other methods of investment, including, but not limited to:

 

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that other shareholders might become bankrupt;

 

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that other shareholders may at any time have economic or business interests or goals which are or which become inconsistent with our business interests or goals;

 

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that other shareholders may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives; For example, Zhong Jiénéng New Material Investment Co., Ltd., our co-venturer in Brillshow, is entitled to elect a majority of the board of directors of, and thereby exercise control over Brillshow;

 

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that, if other shareholders fail to fund their share of any required capital contributions, we may be required to contribute that capital;

 

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that joint venture or shareholders agreements often restrict the transfer of other shareholders’ interest or may otherwise restrict our ability to sell the interest when we desire or on advantageous terms;

 

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that our relationships with other shareholders are contractual in nature and may be terminated or dissolved under the terms of the agreements and, in each event, we may not continue to own or operate the interests or assets underlying the relationship or may need to purchase these interests or assets at an above-market price to continue ownership;

 

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that disputes between us and any of other shareholders may result in litigation or arbitration that would increase our expenses and prevent our officers and directors from focusing their time and effort on our business; and

 

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that we may in certain circumstances be liable for the actions of other shareholders.

 

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Our joint distribution agreement with G-SMATT Global, which is in effect until 2025, may adversely affect our financial results.

Pursuant to the Distribution Agreement dated as of July 31, 2015, between us and G-SMATT Global Co., Ltd. (“G-SMATT Global”), as amended on March 7, 2019 (the “G-SMATT Global Distribution Agreement”), Captivision Korea granted G-SMATT Global the joint right with Captivision Korea to distribute G-Glass in any and all territories worldwide, except China, until July 31, 2025.

In December 2013, we granted Brillshow exclusive distribution and manufacturing rights in China. Subsequently, in July 2016, Brillshow granted us permission to distribute in China. As a result of ongoing challenging economic conditions in China following the start of the COVID-19 pandemic, Brillshow’s manufacturing and distribution business in Tianjin, China is currently non-operational and, as of the date of this prospectus, Brillshow does not currently have a plan to resume such operations. Since Captivision Korea has permission to distribute its products in China, Captivision Korea is not currently restricted from distributing and selling products in China that Captivision Korea has manufactured in its South Korean manufacturing facility while Brillshow’s factory remains non-operational. We believe there is a possibility that Brillshow is wound-up and ceases operations, and the assets currently sitting in the Brillshow JV may be unrecoverable.

Under the G-SMATT Global Distribution Agreement, the pricing of the products produced by Captivision Korea and sold to G-SMATT Global for distribution are mutually agreed between the parties, provided that the parties ensure there is an appropriate margin for Captivision Korea. Further, where G-SMATT Global pursues a project, whether in South Korea or abroad, the prices of the products shall be decided by mutual consultation by Captivision Korea and G-SMATT Global prior to the submission of project proposals. In addition, in the event that Captivision Korea and G-SMATT Global jointly develop a new product, (i) any rights to such product, including any intellectual property rights, will be jointly owned by Captivision Korea and G-SMATT Global and (ii) Captivision Korea will have the right to exclusively produce, and G-SMATT Global will have the right to exclusively distribute, such product.

On September 14, 2022, the Suwon District Court denied G-SMATT Global’s filing in connection with the commencement of corporate rehabilitation proceedings, However, we believe that our efforts to mitigate the effects of G-SMATT Global’s prior bankruptcy proceedings have insulated us from any material impacts on our business functions, financial condition and result of operation. In September 2018, as part of G-SMATT Global’s restructuring process, Captivision Korea’s management decided to sell G-SMATT Global. As part of the terms of the sale, (i) Captivision Korea and G-SMATT Global were given dual distribution rights to distribute G-Glass in any and all territories worldwide, except China, and (ii) all staff involved in the G-Glass operation within G-SMATT Global were transferred to Captivision Korea. The sale of G-SMATT Global was completed in March 2019.

As a result of the sale and Captivision Korea gaining joint distribution rights to distribute G-Glass in any and all territories worldwide, except China, Captivision Korea did not suffer any disruption of its operations. Since the start of G- SMATT Global’s bankruptcy proceedings, Captivision Korea has retained no material relationship or transactional or financial link with G-SMATT Global. As such, G-SMATT Global’s bankruptcy had no material impact on Captivision Korea’s financial condition or results of operation. Once the G-SMATT Global Distribution Agreement expires in 2025, Captivision Korea will regain full distribution rights.

Although G-SMATT Global has expressed that it has no intent to distribute our products, we cannot assure you that G-SMATT Global will not successfully emerge from bankruptcy and exercise its rights under the G-SMATT Global Distribution Agreement, potentially imposing restrictions on Captivision Korea’s ability to price its products, which may adversely affect our business, results of operations and/or financial condition.

 

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Our Excellent Product designation of G-Glass by the Public Procurement Service of Korea expires on March 31, 2025, which may materially adversely affect our domestic government sales.

All businesses who wish to supply goods and services to government agencies in South Korea are required to compete through a public tender process to ensure transparency and fair competition, except for goods designated as “Excellent Quality Products” by the Public Procurement Service of Korea (“PPS”). In such case, government agencies can enter into agreements and transact without a public tender.

PPS has been operating the Excellent Quality Products program since 1996, which aims to provide support to prominent small and medium-sized domestic businesses and venture companies struggling to supply their products to government institutions. The program grants the designation of Excellent Quality Products to technologies that achieve certified standards for Korean Technology, New Technology, Excellent Machine, Mechanism & Materials, Innovative Technology, Good Recycled Product, Good Quality, electric technologies, construction technologies, and patents following a rigorous evaluation by PPS.

Once a product obtains the Excellent Quality Product designation, PPS registers the designated product as a government-supply product and contracts with the company. PPS subsequently procures advertisement and promotional services and promotes the product as an Excellent Quality Product to various government agencies and public institutions.

G-Glass has been a registered Excellent Quality Product since 2020, which has allowed us to enter into contracts with government agencies without participating in public tendering procedures. However, G-Glass’ Excellent Quality Product designation will expire on March 31, 2025, after which we will lose the exemption from the public tender requirement. This may result in a decrease in revenues generated from government contracts which could have a negative impact on our financial condition and results of operation.

Risks Related to South Korea and Other Countries Where We Operate

If economic conditions in South Korea deteriorate, our current business and future growth could be materially and adversely affected.

We are headquartered in South Korea and a substantial portion of our operations and assets are located in South Korea.

In addition, the vast majority of our installed projects are located in South Korea. Accordingly, we are subject to political, economic, legal and regulatory risks specific to South Korea, and our performance and successful fulfillment of our operational strategies are dependent in large part on the overall South Korean economy. The economic indicators in South Korea in recent years have shown mixed signs of growth and uncertainty, and starting in 2020, the South Korean and global economies were affected as a result of the COVID-19 pandemic. As a result, future growth of the South Korean economy is subject to many factors beyond our control, including developments in the global economy.

The South Korean economy is closely tied to, and is affected by developments in, the global economy. In recent years, adverse conditions and volatility in the worldwide financial markets, fluctuations in oil and commodity prices, and the COVID-19 pandemic, have contributed to the uncertainty of global economic prospects in general and have adversely affected, and may continue to adversely affect, the South Korean economy. Due to liquidity and credit concerns and volatility in the global financial markets, the value of the Korean Won relative to the U.S. dollar and other foreign currencies and the stock prices of South Korean companies have fluctuated significantly in recent years. Further declines in the Korea Composite Stock Price Index, and large amounts of sales of South Korean securities by foreign investors and subsequent repatriation of the proceeds of such sales may adversely affect the value of the Korean Won, the foreign currency reserves held by financial institutions in South Korea, and the ability of South Korean companies to raise capital. Any future deterioration of the South Korean economy or the global economy could adversely affect our business, financial condition, and results of operations.

 

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Potential developments that have had or could have an adverse impact on South Korea’s economy include:

 

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adverse conditions or developments in the economies of countries and regions that are important export markets for South Korea, such as China, the United States, Europe, and Japan, or in emerging market economies in Asia or elsewhere, including as a result of deteriorating economic and trade relations between the United States and China and increased uncertainties resulting from the United Kingdom’s exit from the European Union;

 

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adverse changes or volatility in foreign currency reserve levels, commodity prices (including oil prices), exchange rates (including fluctuation of the Korean Won, the U.S. dollar, the euro or other exchange rates, or the revaluation of the Chinese Renminbi), interest rates, inflation rates, or stock markets;

 

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increased sovereign default risk of select countries and the resulting adverse effects on the global financial markets;

 

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a deterioration in the financial condition or performance of small- and medium-sized enterprises and other companies in South Korea due to the South Korean government’s policies to increase minimum wages and limit working hours of employees;

 

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investigations of large South Korean business groups and their senior management for possible misconduct;

 

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a continuing rise in the level of household debt and increasing delinquencies and credit defaults by retail and small- and medium-sized enterprise borrowers in South Korea;

 

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the continued emergence of the Chinese economy, to the extent its benefits (such as increased exports to China) are outweighed by its costs (such as competition in export markets or for foreign investment and the relocation of the manufacturing base from South Korea to China), as well as a slowdown in the growth of China’s economy, which is one of Korea’s most important export markets;

 

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the economic impact of any pending or future free trade agreements or of any changes to existing free trade agreements;

 

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social or labor unrest;

 

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substantial changes in the market prices of South Korean real estate;

 

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a decrease in tax revenue and a substantial increase in the South Korean government’s expenditures for fiscal stimulus measures, unemployment compensation, and other economic and social programs that, together, would lead to an increased government budget deficit;

 

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financial problems or lack of progress in the restructuring of certain South Korean conglomerates, certain other large troubled companies, or their suppliers;

 

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loss of investor confidence arising from corporate accounting irregularities and corporate governance issues concerning certain South Korean conglomerates;

 

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increases in social expenditures to support an aging population in South Korea or decreases in economic productivity due to the declining population size in South Korea;

 

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geopolitical uncertainty and risk of further attacks by terrorist groups around the world;

 

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the occurrence of severe health epidemics in South Korea or other parts of the world;

 

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deterioration in economic or diplomatic relations between South Korea and its trading partners or allies, including deterioration resulting from territorial or trade disputes or disagreements in foreign policy (such as the ongoing trade disputes with Japan);

 

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political uncertainty or increasing strife among or within political parties in South Korea;

 

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hostilities or political or social tensions involving oil producing countries in the Middle East and North Africa and any material disruption in the global supply of oil or increase in the price of oil;

 

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an increase in the level of tensions or an outbreak of hostilities between North Korea and South Korea or the United States;

 

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political or social tensions involving Russia and any resulting adverse effects on the global supply of oil or the global financial markets;

 

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natural or man-made disasters that have a significant adverse economic or other impact on South Korea or its major trading partners; and

 

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changes in financial regulations in South Korea.

We are subject to the risks of operations in the United Kingdom, China, Japan, Hong Kong and the United States.

We have subsidiaries in the United Kingdom, China, Japan, Hong Kong and the United States and a manufacturing plant in Tianjin, China. Consequently, we are subject to the economic, political and tax conditions prevalent in the countries in which we have our subsidiaries and manufacturing facilities, including:

 

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fluctuations in the value of local currencies;

 

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labor unrest, difficulties in staffing and geographic labor shortages;

 

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longer payment cycles;

 

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cultural differences;

 

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increases in duties, tariffs, and taxation levied on our products including anti-dumping and countervailing duties;

 

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trade restrictions including limitations on imports or exports of components or assembled products, unilaterally or bilaterally;

 

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trade sanctions and related regulatory enforcement actions and other proceedings;

 

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potential trade wars;

 

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increased scrutiny by the media and other third parties of labor practices within our industry (including but not limited to working conditions) which may result in allegations of violations, more stringent and burdensome labor laws and regulations and inconsistency in the enforcement and interpretation of such laws and regulations, higher labor costs, and/or loss of revenues if our customers become dissatisfied with our labor practices and diminish or terminate their relationship with us;

 

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imposition of restrictions on currency conversion or the transfer of funds;

 

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expropriation of private enterprises;

 

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ineffective legal protection of our intellectual property rights in certain countries;

 

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natural disasters;

 

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exposure to infectious disease, epidemics and pandemics, including the effects of the COVID-19 on our business operations in geographic locations impacted by the outbreak and on the business operations of our customers and suppliers;

 

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inability of international customers and suppliers to obtain financing resulting from tightening of credit in international financial markets;

 

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political unrest; and

 

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a potential reversal of current favorable policies encouraging foreign investment or foreign trade by our host countries.

Our manufacturing facility located in Tianjin, China suspended its operations in March 2020 due to COVID-19 pandemic restrictions imposed by the Chinese government on manufacturers. Since then, it has not yet resumed production due to ongoing economic challenges in the region. Consequently, CECEP, the primary shareholder with a 62% stake, has consistently communicated its intent to divest this stake to Captivision Korea. We believe that this proposed transaction will serve to fully secure our manufacturing capabilities, contingent upon meeting the specified conditions with Captivision Korea. While it was operational, our Chinese production capabilities were primarily geared towards the domestic Chinese market. If and when we resume manufacturing at our Tianjin facility, our attractiveness to customers and our ability to expand our operations may be affected by changes in United States and other jurisdictions’ trade policies.

In 2018, the United States imposed tariffs on a large variety of products of Chinese origin. On May 10, 2019, the United States increased tariffs on $200 billion of Chinese goods to 25%. Further, on May 15, 2019, former President Donald Trump issued an executive order designed to secure the information and communications technology and services supply chain, which would restrict the acquisition or use in the United States of information and communications technology or services designed, developed, manufactured, or supplied by persons owned by, controlled by, or subject to the jurisdiction or direction of foreign adversaries. The executive order is subject to implementation by the Secretary of Commerce and applies to contracts entered into prior to the effective date of the order. In addition, the U.S. Commerce Department has implemented additional restrictions and may implement further restrictions that would affect the conduct of business with certain Chinese companies. A “phase one” trade deal signed between the United States and China on January 15, 2020 accompanied a U.S. decision to cancel a plan to increase tariffs on an additional list of Chinese products and to reduce the tariffs imposed on May 13, 2019 from 15% to 7.5% effective February 14, 2020. With U.S.-China discussions over the “phase one” trade deal potentially stalled, there is a risk the current administration may consider raising tariffs on critical Chinese industries while rolling back tariffs for other products. At present, the majority of tariff exclusions granted have expired and many of the additional tariffs on Chinese origin goods remain, as do concerns over the stability of bilateral trade relations, particularly given the limited scope of the phase one agreement. In addition, China has not met its obligations under the deal and the economic disruption caused by the COVID-19 pandemic increases the potential for China to invoke the deal’s “disaster clause,” which could further challenge US-China bilateral trade relations. Depending upon their duration and implementation as well as our ability to mitigate their impact, these tariffs, the executive order and its implementation and other regulatory actions could materially affect our business, including in the form of increased cost of goods sold, decreased margins, increased pricing for customers, and reduced sales.

In light of these circumstances, U.S.-China bilateral trade relations remain uncertain. At this time, there is no assurance that a broader trade agreement will be successfully negotiated between the United States and China to reduce or eliminate the existing tariffs. Furthermore, in China, governmental authorities exercise significant influence over many aspects of the economy, and their actions could have a significant effect on us.

Operations in foreign countries also present risks associated with currency exchange and convertibility, inflation and repatriation of earnings. Inflation may impact our profits and cash flows as well as adversely affect foreign exchange rates. In some countries, economic and monetary conditions and other factors could affect our ability to convert our cash distributions to U.S. dollars or other freely convertible currencies, or to move funds from our accounts in these countries. Furthermore, the central bank of any of these countries may have the authority to suspend, restrict or otherwise impose conditions on foreign exchange transactions or to approve distributions to foreign investors.

 

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Increased tensions with North Korea could adversely affect the South Korean economy and, consequently, our results of operations and financial condition in the future.

Relations between South Korea and North Korea have been tense throughout South Korea’s modern history. The level of tension between the two countries has fluctuated and may increase abruptly as a result of current and future events. In particular, there have been heightened security concerns stemming from North Korea’s nuclear weapons and ballistic missile programs and its hostile military actions against Korea.

North Korea’s economy also faces severe challenges, which may further aggravate social and political pressures within North Korea. Although bilateral summit meetings were held between the two nations in April, May and September 2018 and between the United States and North Korea in June 2018, February 2019 and June 2019 (held at the Korean Demilitarized Zone), North Korea has since resumed its missile testing, heightening tensions, and the outlook of such discussions remains uncertain. As such, there can be no assurance that the level of tension on the Korean peninsula will not escalate further in the future. Any such further increase in tensions, which may occur, for example, if North Korea experiences a leadership or economic crisis, high-level contacts between South Korea and North Korea break down or further military hostilities occur, could have a material adverse effect on the South Korean economy and on our business, prospects, financial condition and results of operations and could lead to a decline in the market value of our securities.

Our businesses and partnerships may be affected by geopolitical tensions between China and the United States.

In recent years, there has been a deterioration in the relationship between China and the United States which has resulted in intense potential conflicts between the two countries in trade, technology, finance and other areas, and this has led to greater uncertainties in the geopolitical situations in other parts of the world affecting China, Chinese companies and companies that have business relationships with Chinese companies. For example, economic and trade sanctions have been threatened and/or imposed by the U.S. government on a number of Chinese technology companies. The United States has also threatened to impose further sanctions, trade embargoes, and other heightened regulatory requirements. Most recently, in August 2020 and January 2021, former U.S. President Donald Trump issued Executive Orders 13942, 13943 and 13971, setting forth restrictions on persons subject to U.S. jurisdiction from entering into certain transactions within the United States involving TikTok, WeChat and WeChat Pay and eight other Chinese-linked communications and financial technology software applications. The U.S. District Court for the District of Columbia enjoined enforcement of the EO 13942 restrictions on September 19, 2020 and the U.S. District Court for the Northern District of California enjoined enforcement of the EO 13943 restrictions on September 27, 2020. Although President Biden issued Executive Order 14034 on June 9, 2021 (the “EO 14034”) revoking these three Trump administration executive orders, the EO 14034 reaffirms that apps designed, developed, manufactured or supplied by “foreign adversaries” may present national security concerns, particularly with regard to access by persons owned, controlled, or subject to the jurisdiction of “foreign adversaries,” including China.

Our manufacturing facility in Tianjin, China is currently inactive due to the country’s challenging economic conditions, and no concrete proposal has been made as to if, and when, operations might resume. In addition, we plan to sell all stakes in G-SMATT TECH Co., Ltd. This will streamline marketing operations and reduce cash support. Accordingly, any further deterioration of U.S.-China relations or further sanctions involving Chinese companies with whom we may do business may be detrimental and have an adverse impact on our business.

Further militarization of the South Pacific in response to the growing military strength of China could destabilize political relationships in the region and impact regional businesses.

Over the past two decades, China has significantly increased its military presence in the South China Sea, causing tensions in the region to rise. In the event that our product distribution channels are disrupted because of hostile action stemming from the militarization of the South Pacific in response to China’s growing military presence in the area, our ability to deliver our products to our customers could be materially adversely affected.

 

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We are currently operating in a period of economic uncertainty and capital markets disruption, which has been significantly impacted by geopolitical instability due to the military conflict between Russia and Ukraine and armed conflicts between Israel and Hamas. Our business, financial condition and results of operations may be materially and adversely affected by any negative impact on the global economy and capital markets resulting from the conflicts in Ukraine, the Gaza Strip or any other geopolitical tensions.

On February 24, 2022, Russia launched an invasion into Ukraine, which has escalated global tensions between the United States and NATO countries against Russia. South Korea has also condemned Russia’s invasion of Ukraine. Multiple economic sanctions against Russia have been imposed by many countries worldwide which has impacted the global economy as many commercial, industrial and financial businesses are closing operations in Russia. Trade restrictions imposed on Russia have led to increasing prices of oil, fluctuation in commodities markets and destabilizing many foreign currency exchange rates.

Further escalation of conflict can lead to severe constraints on global supply chains such as logistics obstructions, raw material price increases and shortages, and higher energy costs. Disruptions in global supply chains can adversely affect our ability to manufacture and deliver product to our customers.

In addition, the recent Hamas’ attack of Israel and the ensuing war has created and is expected to create further global economic consequences. The lengths, impacts and outcomes of both the ongoing war between Russia and Ukraine and the armed conflict between Israel and Hamas are highly unpredictable, and such unpredictability has created uncertainty for financial and commodity markets. We are continuing to monitor the situations in Ukraine, the Gaza Strip and globally and assessing their potential impacts on our business.

In addition, sanctions on Russia and hostilities involving Israel could adversely affect the global economy and financial markets and lead to instability and lack of liquidity in capital markets, potentially making it more difficult for us to obtain additional funds.

It may be difficult or impossible to enforce judgments of courts of the United States and other jurisdictions against us.

While we have a subsidiary in the United States, a number of our directors and officers and other persons named in this document reside outside the United States, and a substantial majority of our assets and many of the personal assets of such persons are located outside the United States. As a result, it may be difficult or impossible for you to effect service of process on, or to enforce judgments of United States courts against them or us based on the civil liability provisions of the federal securities laws of the United States or of the securities laws of any state of the United States. There is doubt as to the enforceability in South Korea, either in original actions or in actions for enforcement of judgments of United States courts, of civil liabilities predicated on the federal securities laws of the United States or the securities laws of any state of the United States.

Changes in South Korea’s customs, import and export laws and foreign policy, may have an adverse effect on our financial condition and results of operations.

Our business depends significantly on South Korea’s customs and foreign exchange laws and regulations, including import and export laws, as well as on fiscal and foreign policies. In the past we have benefited from, and now currently benefit from, certain customs and tax benefits granted by South Korean laws, such as free trade zones which incentivizes the import of machinery and equipment by providing tax breaks, as well as from South Korean foreign policy, such as free trade agreements with countries like the United States. As a result, our business and results of operations or financial condition may be adversely affected by changes in government or fiscal policies, foreign policy or customs and foreign exchange laws and regulations. We cannot predict what policies the South Korean government will adopt and whether those policies would have a negative impact on the South Korean economy or on our business and financial performance in the future.

 

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New or higher taxes resulting from changes in tax regulations or the interpretation thereof in South Korea could adversely affect our results of operations and financial condition in the future.

New tax laws and regulations, and uncertainties with respect to future tax policies pose risks to us.

Changes in tax-related laws and regulations, and interpretations thereof, can create additional tax burdens on us and our businesses by increasing tax rates and fees, creating new taxes, limiting tax deductions, and/or eliminating tax-based incentives and non-taxed income. In addition, tax authorities and competent courts may interpret tax regulations differently than us, which could result in tax litigation and associated costs and penalties in part due to the novelty and complexity of new regulation.

Risks Related to Operating as a Public Company

Unpaid transaction expenses, the costs of certain fee deferral arrangements and the issuances of additional ordinary shares under certain of our contracts and arrangements may result in dilution of holders of Ordinary Shares and have a negative impact on our results of operation, our liquidity and/or the market price of the Ordinary Shares.

On April 16, 2024, we issued the April Convertible Notes in favor of certain investors in the aggregate amount of $1,175,000, convertible into 233,600 Ordinary Shares, at a conversion price of $5.03 per share, upon the effectiveness of a securities registration statement to the Financial Supervisory Services in Korea in accordance with applicable Korean law. On February 16, 2024, we issued the February Convertible Notes in favor of certain investors in the aggregate amount of $1,250,000, convertible into 201,290 Ordinary Shares, at a conversion price of $6.21 per share, upon the effectiveness of a securities registration statement submitted to the Financial Supervisory Services of Korea in accordance with applicable Korean law. On June 30, 2023, JGGC issued a promissory note in favor of JGG SPAC Holdings LLC (“JGG SPAC Holdings”) in the amount of $450,000, which was subsequently increased to $1,500,000 (the “Working Capital Promissory Note”). The total amount owed under the Working Capital Promissory Note as of the Closing Date, is $1,112,500. On the Closing Date, we entered into a deferral agreement with JGGC, JGG SPAC Holdings and Captivision Korea (the “JGGC SPAC Holdings Deferral Agreement”) for the amount outstanding under the Working Capital Promissory Note. Due to ongoing capital constraints, we were unable to pay approximately $14.1 million of additional transaction expenses on the Closing Date. Effective as of November 15, 2023, a number of our service providers, Captivision Korea and JGGC entered into agreements (“Deferred Fee Arrangements” and together with the JGGC SPAC Holdings Deferral Agreement, the “Deferral Agreements”) to defer amounts due to these service providers (“Deferred Amounts”) until a future date when sufficient funds may become available to us to pay such Deferred Amounts in cash. Each of the Deferral Agreements generally provides that (i) until repaid, the Deferred Amounts accrue interest at the rate of 12% per annum and (ii) (A) 50% of the Deferred Amount under such agreement, plus accrued interest, is to be paid 365 days after the Closing Date and (B) the remaining 50%, plus accrued interest, is to be paid 730 days after the Closing Date.

As an alternative to cash payment, certain of the Deferral Agreements, including the JGGC SPAC Holdings Deferral Agreement, accounting for approximately $7.7 million of the unpaid transaction expenses, provide that the counterparties have the option to convert all or a portion their outstanding amount owed to them under their respective Deferral Agreements into Ordinary Shares at a share price equal to the average of the volume weighted average of an Ordinary Share for the 20 consecutive trading day period occurring prior to the applicable election date. In June and August of 2024 we entered into amendments to certain Deferred Fee Arrangements comprising a total of $295,000 in Deferred Amounts, providing those counterparties with the option to convert all or a portion of their outstanding amount owed to them into Ordinary Share a conversion price per share equal to the lesser of (a) the VWAP Price and (b) 98% of the last price at which the Ordinary Shares traded on Nasdaq prior to the close of trading hours on the trading day prior to the applicable election date; provided, that no more than $170,000 of the then outstanding Deferred Amount may be so converted within any 5 consecutive trading day period. The timing, frequency, and the price at which we issue Ordinary Shares are subject to market prices and such counterparty’s decision to accept repayment for any such amount in equity. Any Ordinary Shares issued pursuant to these arrangements will need to be registered for resale on a Form F-1 registration statement.

 

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If and when we issue such Ordinary Shares, such recipients, upon effectiveness of a Form F-1 or Form F-3 (as applicable) registration statement registering such securities for resale, may resell all, some or none of such shares in their discretion and at different prices subject to the terms of the applicable agreement. As a result, investors who purchase shares from such recipients at different times will likely pay different prices for those shares, and so may experience different levels of dilution (and in some cases substantial dilution) and different outcomes in their investment results. Existing investors may experience a decline in the value of the shares they purchase as a result of future issuances or issuances and sales made by us to such aforementioned parties or others at prices lower than the prices such investors paid for their shares. In addition, if we issue a substantial number of shares to such parties, or if investors expect that we will do so, the actual sales of shares or the mere existence of an arrangement with such parties may adversely affect the price of our securities or make it more difficult for us to sell equity or equity-related securities in the future at a desirable time and price, or at all.

The issuance, if any, of Ordinary Shares would not affect the rights or privileges of our existing shareholders, except that the economic and voting interests of existing shareholders would be diluted, potentially substantially. Although the number of Ordinary Shares that existing shareholders own would not decrease as a result of these additional issuances, the Ordinary Shares owned by existing shareholders would represent a smaller percentage of the total outstanding Ordinary Shares after any such issuance, potentially significantly smaller.

On the dates that are 365 days and 730 days following the Closing Date, we will be required to make substantial payments in respect of any Deferred Amounts that remain outstanding, plus accrued interest. To finance these costs, we may need to raise capital through equity, debt or mezzanine financing. Securing additional financing could require a substantial amount of time and attention from management and may divert a disproportionate amount of its attention away from our business activities, which may adversely affect our and Captivision Korea’s ability to conduct day-to-day operations. In addition, neither we, nor Captivision Korea, can guarantee that future financing will be available in sufficient amounts or on terms acceptable, if at all. We may sell additional equity, or convertible debt securities, which would result in the issuance of additional share capital and dilution to our shareholders.

Alternatively, we may incur debt or issue other debt securities. The incurrence of indebtedness would result in increased fixed payment obligations and could also result in certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. If we continue to be unable to raise additional capital in sufficient amounts or on terms acceptable to us, we will be prevented from pursuing discovery, development and commercialization efforts and our ability to generate revenues and achieve or sustain profitability will be substantially harmed. Ultimately, if we are unable to raise additional capital in sufficient amounts we will be forced to liquidate.

We incur significant costs as a result of operating as a public company.

As a public company, we incur and will continue to incur significant legal, accounting and other expenses that Captivision Korea did not incur as a private company. We are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules adopted, and to be adopted, by the SEC and Nasdaq. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives and may not effectively or efficiently manage the transition into a public company. Moreover, we expect these rules and regulations to substantially increase our legal and financial compliance costs and to make some activities more time-consuming and costly. For example, such rules and regulations may make it more difficult and expensive for us to obtain director and officer liability insurance and we may be forced to accept reduced policy limits or incur substantially higher costs to maintain the same or similar coverage. We cannot predict or estimate the amount or timing of additional costs it may incur to respond to these requirements. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board of directors’ committees or as executive officers.

 

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Certain members of our management team have limited experience managing a publicly traded company, interacting with public company investors and complying with the increasingly complex laws pertaining to public companies in the United States. The additional demands associated with being a public company may disrupt regular operations of our business by diverting the attention of some of our senior management team away from revenue producing activities to management and administrative oversight, adversely affecting our ability to attract and complete business opportunities and increasing the difficulty in both retaining professionals and managing and growing our businesses. Our management team may not successfully or efficiently manage our transition to being a public company subject to significant regulatory oversight and reporting obligations under the U.S. federal securities laws and the continuous scrutiny of securities analysts and investors.

In addition, the public reporting obligations associated with being a public company in the United States may subject us to litigation as a result of increased scrutiny of our financial reporting. If we are involved in litigation regarding our public reporting obligations, this could subject us to substantial costs, divert resources and management attention from our business and seriously undermine our business.

Any of these effects could harm our business, financial condition and results of operations.

We incur, and will continue to incur significant costs and are subject to additional regulations and financial reporting obligations in South Korea.

Prior to the Business Combination, Captivision Korea was required to file with the Financial Services Commission of Korea (“FSC”) (i) a securities registration statement relating to the public offering of its shares in South Korea, which Captivision Korea had caused to be accepted and made effective by the FSC and (ii) a prospectus when such securities registration statement became effective.

As a public company, we incur, and will continue to incur, significant expenses. As a result of filing a securities registration statement in South Korea, we are subject to certain reporting requirements and regulations in South Korea, including, submitting to the FSC (1) an annual business report within 120 calendar days after the end of each fiscal year, (2) interim reports with respect to the three month period, six month period and nine month period from the beginning of each fiscal year within 60 calendar days following the end of each period, and (3) reports describing any event that may have a material effect on its business, financial condition or results of operations; provided, however, that if Captivision Korea has filed any reports deemed equivalent to such reports with the authorities in relevant jurisdictions, we are required to file with the FSC within 10 calendar days from the date of such filing in relevant jurisdictions instead of the above prescribed periods (or, within 5 calendar days in case of the report prescribed in (3) above or such filings deemed equivalent to it), (i) such reports as prescribed in (1) through (3) above or (ii) the filing made in relevant jurisdictions together with its summary in South Korean.

As stipulated under applicable South Korean law, a failure to comply with such obligation may result in criminal punishment, fines, penalties, or suspension or prohibition of issuance, public offering, sales or other transactions of securities in South Korea.

We may not be able to timely and effectively implement controls and procedures required by Section 404(a) of the Sarbanes-Oxley Act.

We are required to provide management’s attestation on internal controls in connection with our second annual report on Form 20-F. The standards required for a public company under Section 404(a) of the Sarbanes- Oxley Act are significantly more stringent than those required of Captivision Korea as a privately-held company. Management may not be able to effectively and timely implement controls and procedures that adequately respond to the increased regulatory compliance and reporting requirements. If we are not able to implement the additional requirements of Section 404(a) in a timely manner or with adequate compliance, we may not be able to assess whether our internal controls over financial reporting are effective, which may subject us to adverse regulatory consequences and could harm investor confidence and the market price of Ordinary Shares.

 

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As a foreign private issuer and a company treated as an “emerging growth company” for certain purposes, we have different disclosure and other requirements than U.S. domestic registrants and non-emerging growth companies.

As a foreign private issuer and a company treated as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) for certain purposes, we are subject to different disclosure and other requirements than domestic U.S. registrants and non-emerging growth companies. For example, as a foreign private issuer, in the United States, we are not subject to the same disclosure requirements as a domestic U.S. registrant under the Exchange Act, including the requirements to prepare and issue quarterly reports on Form 10-Q or to file current reports on Form 8-K upon the occurrence of specified significant events, the proxy rules applicable to domestic U.S. registrants under Section 14 of the Exchange Act or the insider reporting and short-swing profit rules applicable to domestic U.S. registrants under Section 16 of the Exchange Act with respect to purchases or sales of Ordinary Shares. In addition, we may rely on exemptions from certain U.S. rules which will permit us to follow Cayman Islands legal requirements rather than certain of Nasdaq’s corporate governance requirements that are applicable to U.S. domestic registrants. Cayman Islands laws and regulations applicable to Cayman Islands companies do not contain any provisions comparable to the U.S. proxy rules, the U.S. rules relating to the filing of reports on Form 10-Q or 8-K or the U.S. rules relating to liability for insiders who profit from trades made in a short period of time.

Furthermore, foreign private issuers are required to file their annual report on Form 20-F within four months after the end of each fiscal year, while U.S. domestic issuers that are accelerated filers are required to file their annual report on Form 10-K within 75 days after the end of each fiscal year. Foreign private issuers are also exempt from Regulation Fair Disclosure (“Regulation FD”), aimed at preventing issuers from making selective disclosures of material information, although we are subject to Cayman Islands laws and regulations having substantially the same effect as Regulation FD. As a result of the above, even though we are required to file reports on Form 6-K disclosing the limited information which we have made or are required to make public pursuant to Cayman Islands law, or is required to distribute to shareholders generally, and that is material to us, you may not receive information of the same type or amount that is required to be disclosed to shareholders of a U.S. company.

The JOBS Act contains provisions that, among other things, relax certain reporting requirements for emerging growth companies. Under this act, as a company treated as an emerging growth company for certain purposes, we are not be subject to the same disclosure and financial reporting requirements as non-emerging growth companies. For example, we are permitted to, and may take advantage of, certain exemptions that allow us to comply with reduced disclosure obligations in this prospectus that are applicable to other public companies that are not emerging growth companies. As a result, our shareholders may not have access to certain information that they deem important. Accordingly, the information about us available to you will not be the same as, and may be more limited than, the information available to shareholders of a non-emerging growth company.

Moreover, we are not required to file periodic reports and financial statements with the SEC as frequently or within the same time frames as U.S. companies with securities registered under the Exchange Act. We currently prepare our financial statements in accordance with IFRS. We will not be required to file financial statements prepared in accordance with or reconciled to U.S. GAAP so long as our financial statements are prepared in accordance with IFRS, as issued by the IASB.

We cannot predict if investors will find Ordinary Shares less attractive because we rely on certain of these exemptions. If some investors find Ordinary Shares less attractive as a result, there may be a less active trading market for Ordinary Shares and our share price may be more volatile.

We may lose our foreign private issuer status, which would then require us to comply with the Exchange Act’s domestic reporting regime and cause us to incur significant legal, accounting and other expenses.

In order to maintain our current status as a foreign private issuer, either (a) more than 50% of our Ordinary Shares must be directly or indirectly owned of record by non-residents of the United States or (b)(1) a majority of

 

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our executive officers or directors must not be U.S. citizens or residents; (2) more than 50% of our assets must be located outside of United States; and (3) our business must be administered principally outside the United States. If we lose this status, we would be required to comply with the Exchange Act reporting and other requirements applicable to U.S. domestic issuers, which are more detailed and extensive than the requirements for foreign private issuers. We may also be required to make changes in our corporate governance practices in accordance with various SEC and Nasdaq rules. The regulatory and compliance costs to us under U.S. securities laws if we are required to comply with the reporting requirements applicable to a U.S. domestic issuer may be significantly higher than the costs us will incur as a foreign private issuer.

As a foreign private issuer, we are permitted to rely on exemptions from certain Nasdaq corporate governance standards applicable to U.S. issuers. This may afford less protection to holders of Ordinary Shares.

Section 5605 of the Nasdaq listing rules requires listed companies to have, among other things, a majority of their board members be independent, and to have independent director oversight of executive compensation, nomination of directors and corporate governance matters. As a foreign private issuer, however, we are permitted to follow, and we may follow, home country practice in lieu of certain of the above requirements. As a result, you may not be provided with the benefits of certain corporate governance requirements of Nasdaq applicable to U.S. domestic public companies. See “Management—Corporate Governance Practices.”

Warrants are exercisable for Ordinary Shares, which will increases the number of shares eligible for future resale in the public market and result in dilution to its shareholders.

Warrants to purchase Ordinary Shares are exercisable in accordance with the terms of the agreement governing those securities. Warrants became exercisable 30 days after the completion of the Business Combination. The exercise price of Warrants is $11.50 per share. To the extent Warrants are exercised, additional Ordinary Shares will be issued, which will result in dilution to the holders of Ordinary Shares and increase the number of shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public market or the fact that Warrants may be exercised could adversely affect the market price of Ordinary Shares. However, there is no guarantee that the Warrants will ever be in the money prior to their expiration, and as such, Warrants may expire worthless.

Our ability to meet expectations and projections in any research or reports published by securities or industry analysts, or a lack of coverage by securities or industry analysts, could result in a depressed market price and limited liquidity for our securities. Additionally, if securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, the price of our securities and our trading volume could decline.

The trading market for our securities will be influenced by the research and reports that industry or securities analysts may publish about us or our business, market, or our competitors. If no securities or industry analysts commence coverage of us, the price of our securities would likely be less than that which would be obtained if we had such coverage and the liquidity, or trading volume of our securities may be limited, making it more difficult for a holder to sell securities at an acceptable price or amount. If any analysts do cover us, their projections may vary widely and may not accurately predict the results we actually achieve. The price of our securities may decline if our actual results do not match the projections of research analysts covering us. Similarly, if one or more of the analysts who write reports on us downgrades our securities or publishes inaccurate or unfavorable research about our business, the price of our securities could decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, the price of our securities or trading volume could decline.

 

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Future resales of a substantial number of Ordinary Shares in the public market, or the perception that such sales could occur, could cause the price of Ordinary Shares to decline.

The market price of Ordinary Shares could decline as a result of substantial sales of Ordinary Shares, particularly sales by our directors, executive officers and significant shareholders, a large number of ordinary shares becoming available for sale or the perception in the market that such sales could occur. As of the date of this prospectus, there are approximately 29,030,998 Ordinary Shares outstanding and an additional 66,108,524 Ordinary Shares reserved for issuance upon conversion, exercise or vesting of outstanding securities (excluding any Ordinary Shares reserved for issuance under the Equity Plan). The Ordinary Shares sold in the Business Combination are freely tradable without restriction or further registration under the Securities Act by persons other than our affiliates within the meaning of Rule 144 of the Securities Act. Our shareholders or entities controlled by them or their permitted transferees will be able to sell their Ordinary Shares in the public market from time to time without registering them, subject to certain limitations on the timing, amount and method of those sales imposed by regulations promulgated by the SEC. If any of our shareholders, the affiliated entities controlled by them or their respective permitted transferees were to sell a large number of their Ordinary Shares, the market price of Ordinary Shares may decline significantly. In addition, the perception in the public markets that sales by them might occur may also cause the trading price of Ordinary Shares to decline.

The Registration Rights Agreement provides that the RRA Parties will be granted certain customary registration rights, demand rights and piggyback rights with respect to their respective Ordinary Shares. We have filed a registration statement to inter alia satisfy our obligations thereunder. Upon effectiveness of any registration statement that we file pursuant to the above-referenced Registration Rights Agreement, in a registered offering of securities pursuant to the Securities Act or otherwise in accordance with Rule 144 under the Securities Act, our shareholders may sell large amounts of Ordinary Shares in the open market or in privately negotiated transactions, which could have the effect of increasing the volatility in the trading price of the Ordinary Shares or putting significant downward pressure on the trading price of the Ordinary Shares. Further, sales of Ordinary Shares could encourage short sales by market participants. Generally, short selling means selling a security, contract or commodity not owned by the seller. The seller is committed to eventually purchase the financial instrument previously sold. Short sales are used to capitalize on an expected decline in the security’s price. As such, short sales of Ordinary Shares could have a tendency to depress the price of the Ordinary Shares, which could increase the potential for short sales.

We cannot predict the size of future issuances of Ordinary Shares or the effect, if any, that future issuances and sales of Ordinary Shares will have on the market price of the Ordinary Shares. Sales of substantial amounts of Ordinary Shares, or the perception that such sales could occur, may materially and adversely affect prevailing market prices of Ordinary Shares.

The Warrants and the Converted Options may never be in the money, and may expire worthless.

The exercise price of the Warrants is $11.50 per share, and the exercise price of the Converted Options is $4.84 per share. We believe the likelihood that warrant holders will exercise the Warrants, and therefore the amount of cash proceeds that we would receive, is dependent upon the trading price of our Ordinary Shares. If the market price for our Ordinary Shares is less than the exercise price of the Warrants (on a per share basis), we believe that the holders of the Warrants will be very unlikely to exercise their Warrants. If the market price for our Ordinary Shares is less than the exercise price of the Converted Options, we believe the holders of Converted Options will be very unlikely to exercise their Converted Options. On October 7, 2024, the closing price of our Ordinary Shares on the Nasdaq was $2.05 per share. There is no guarantee that the Warrants or the Converted Options will be in the money following the time they become exercisable and prior to their expiration, and as such, the Warrants and/or the Converted Options may expire worthless and we may receive no proceeds from the exercise of the Warrants or the Converted Options.

 

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You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated under the laws of the Cayman Islands, we conduct substantially all of our operations, and a majority of its directors and executive officers reside, outside of the United States.

We are an exempted company limited by shares incorporated under the laws of the Cayman Islands, and we conduct a majority of our operations through our subsidiaries outside the United States. Substantially all of our assets are located outside the United States. Many of our officers and directors reside outside the United States and a substantial portion of the assets of those persons are located outside of the United States. As a result, it could be difficult or impossible for you to bring an action against us or against these individuals outside of the United States in the event that you believe that your rights have been infringed upon under the applicable securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of South Korea could render you unable to enforce a judgment against our assets or the assets of our directors and officers.

Our corporate affairs are governed by the Governing Documents, the Companies Act and the common law of the Cayman Islands. The rights of shareholders to take action against our directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as that from English common law. Appeals from the Cayman Islands courts to the Privy Council (which is the final Court of Appeal for British overseas territories such as the Cayman Islands) are binding on the courts of the Cayman Islands. Decisions of the English courts, and particularly the Supreme Court and the Court of Appeal are generally of persuasive authority, but are not binding in the courts of the Cayman Islands. Decisions of courts in other Commonwealth jurisdictions are similarly of persuasive but not binding authority. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities laws relative to the United States. In addition, some U.S. states, such as Delaware, have more fulsome and judicially interpreted bodies of corporate law than the Cayman Islands.

As a result of all of the above, our shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of our board of directors or controlling shareholders than they would as shareholders of a corporation incorporated in a jurisdiction in the United States.

While Cayman Islands law allows a dissenting shareholder to express the shareholder’s view that a court sanctioned reorganization of a Cayman Islands company would not provide fair value for the shareholder’s shares, Cayman Islands statutory law does not specifically provide for shareholder appraisal rights in connection with a court sanctioned reorganization (by way of a scheme of arrangement). This may make it more difficult for you to assess the value of any consideration you may receive in a merger or consolidation (by way of a scheme of arrangement) or to require that the acquirer gives you additional consideration if you believe the consideration offered is insufficient. However, Cayman Islands statutory law provides a mechanism for a dissenting shareholder in a merger or consolidation that does not take place by way of a scheme of arrangement to apply to the Grand Court of the Cayman Islands for a determination of the fair value of the dissenter’s shares if it is not possible for the company and the dissenter to agree on a fair price within the time limits prescribed.

Shareholders of Cayman Islands exempted companies (such as us) have no general rights under Cayman Islands law to inspect corporate records and accounts or to obtain copies of lists of shareholders. Our directors have discretion under the Governing Documents to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it more difficult for you to obtain information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest.

 

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Subject to limited exceptions, under Cayman Islands law, a minority shareholder may not bring a derivative action against the board of directors. Class actions are not recognized in the Cayman Islands, but groups of shareholders with identical interests may bring representative proceedings, which are similar.

It is not expected that we will pay dividends in the foreseeable future.

It is expected that we will retain most, if not all, of our available funds and any future earnings to fund the development and growth of our business. As a result, it is not expected that we will pay any cash dividends in the foreseeable future.

Our board of directors has complete discretion as to whether to distribute dividends. Even if our board of directors decides to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on the future results of operations and cash flow, capital requirements and surplus, the amount of distributions, if any, received by us from subsidiaries, our financial condition, contractual restrictions and other factors deemed relevant by our board of directors.

The Governing Documents contain anti-takeover provisions that may discourage a third party from acquiring us and adversely affect the rights of holders of Ordinary Shares.

The Governing Documents contain certain provisions that could limit the ability of others to acquire control of us, including provisions that:

 

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Authorize our board of directors to issue, without further action by our shareholders, undesignated preferred shares with terms, rights and preferences;

 

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impose advance notice requirements for shareholder proposals at annual general meetings;

 

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limit our shareholders’ ability to call extraordinary general meetings; and

 

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require approval from the holders of at least two-thirds in voting power of all outstanding shares who attend and voted at our general meeting to amend a provision of the Governing Documents.

These anti-takeover defenses could discourage, delay or prevent a transaction involving our change of control. These provisions could also make it more difficult for you and other of our shareholders to appoint directors of your choosing and cause us to take other corporate actions that you desire.

Captivision Korea has granted in the past, and we intend to grant in the future, share incentives, which may result in increased share-based compensation expenses.

In connection with the Business Combination, our board of directors adopted the Equity Plan. Initially, the maximum number of Ordinary Shares that may be issued under the Equity Plan after it becomes effective is 6,668,797 Ordinary Shares. We believe the granting of share-based compensation is of significant importance to our ability to attract and retain key personnel and employees, and as such, we will grant share-based compensation and incur share-based compensation expenses. As a result, expenses associated with share-based compensation may increase, which may have an adverse effect on our business and results of operations. See “Executive Compensation—Equity Incentive Plan.”

We are a Cayman Islands exempted company with limited liability. The rights of its shareholders, including with respect to fiduciary duties and corporate opportunities, may be different from the rights of shareholders governed by the laws of U.S. jurisdictions.

We are a Cayman Islands exempted company with limited liability. Our corporate affairs are governed, by the Governing Documents, the Companies Act and by the common law of the Cayman Islands. The rights of shareholders and the responsibilities of members of our board of directors may be different from the rights of

 

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shareholders and responsibilities of directors in companies governed by the laws of U.S. jurisdictions. In particular, as a matter of Cayman Islands law, directors of a Cayman Islands company owe fiduciary duties to the company and separately a duty of care, diligence and skill to the company. Under Cayman Islands law, directors and officers owe the following fiduciary duties: (1) duty to act in good faith in what the director or officer believes to be in the best interests of the company as a whole; (2) duty to exercise powers for the purposes for which those powers were conferred and not for a collateral purpose; (3) directors should not improperly fetter the exercise of future discretion; (4) duty to exercise powers fairly as between different sections of shareholders; (5) duty to exercise independent judgment; and (6) duty not to put themselves in a position in which there is a conflict between their duty to the company and their personal interests. The Governing Documents vary this last obligation by providing that a director must disclose the nature of his or her interest in any contract or arrangement, and following such disclosure, such director may vote in respect of any transaction or arrangement in which he or she is interested and may be counted in the quorum at the meeting. Conversely, under Delaware corporate law, a director has a fiduciary duty to the corporation and its shareholders (made up of two components) and the director’s duties prohibit self-dealing by a director and mandate that the best interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the shareholders generally.

United States civil liabilities and certain judgments obtained against us by our shareholders may not be enforceable.

We are a Cayman Islands exempted company and substantially all of our assets are located outside of the United States. In addition, many of our directors and officers are nationals and residents of countries other than the United States, and a substantial portion of the assets of these persons is located outside of the United States.

As a result, it may be difficult to effect service of process within the United States upon these persons. It may also be difficult to enforce in U.S. courts judgments obtained in U.S. courts based on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors who are not resident in the United States and the substantial majority of whose assets are located outside of the United States.

Further, it is unclear if original actions predicated on civil liabilities based solely upon U.S. federal securities laws are enforceable in courts outside the United States, including in the Cayman Islands. We have been advised by our Cayman Islands legal counsel, Ogier (Cayman) LLP, that the courts of the Cayman Islands are unlikely to: (i) recognize or enforce against us judgments of U.S. courts obtained against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state of the United States; and (ii) in original actions brought in the Cayman Islands, to impose liabilities against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any State, to the extent that the liabilities imposed by those provisions are penal in nature. The Cayman Islands court will not enforce criminal fines and tax judgments and judgments that are contrary to Cayman Islands public policy. However, although there is currently no statutory enforcement or treaty between the U.S. and the Cayman Islands providing for enforcement of judgments obtained in the United States, the courts of the Cayman Islands will recognize and enforce a foreign money judgment of a foreign court of competent jurisdiction without retrial on the merits based on the principle that a judgment of a competent foreign court imposes upon the judgment debtor an obligation to pay the sum for which judgment has been given provided certain conditions are met. For a foreign judgment to be enforced in the Cayman Islands, such judgment must be final and conclusive, given by a court of competent jurisdiction (the courts of the Cayman Islands will apply the rules of the Cayman Islands private international law to determine whether the foreign court is a court of competent jurisdiction), and must not be in respect of taxes or a fine or penalty, inconsistent with a Cayman Islands judgment in respect of the same matter, impeachable on the grounds of fraud or obtained in a manner, and or be of a kind the enforcement of which is contrary to natural justice or the public policy of the Cayman Islands. Furthermore, it is uncertain that Cayman Islands courts would enforce: (1) judgments of U.S. courts obtained in actions against us or other persons that are predicated upon the civil liability provisions of the U.S. federal securities laws; or (2) original actions brought against us or other persons predicated upon the Securities Act. Ogier (Cayman) LLP has

 

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informed us that there is uncertainty with regard to Cayman Islands law relating to whether a judgment obtained from the U.S. courts under civil liability provisions of the securities laws will be determined by the courts of the Cayman Islands as penal, punitive in nature. In addition, a Cayman Islands court may stay proceedings if concurrent proceedings are being brought elsewhere.

The A&R Warrant Agreement designates the courts of the State of New York or the United States District Court for the Southern District of New York as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by holders of the warrants, which could limit the ability of warrant holders to obtain a favorable judicial forum for disputes with us.

The A&R Warrant Agreement provides that, subject to applicable law: (i) any action, proceeding or claim against us arising out of or relating in any way to the warrant agreement, including under the Securities Act, will be brought and enforced in the courts of the State of New York or the United States District Court for the Southern District of New York, and (ii) that we irrevocably submit to such jurisdiction, which jurisdiction shall be the exclusive forum for any such action, proceeding or claim. The A&R Warrant Agreement also provides that we waive any objection to such exclusive jurisdiction or that such courts represent an inconvenient forum. Notwithstanding the foregoing, these provisions of the A&R Warrant Agreement will not apply to suits brought to enforce any liability or duty created by the Exchange Act or any other claim for which the federal district courts of the United States of America are the sole and exclusive forum. Any person or entity purchasing or otherwise acquiring any interest in any of Warrants shall be deemed to have notice of and to have consented to the forum provisions in the A&R Warrant Agreement. If any action, the subject matter of which is within the scope of the forum provisions of the A&R Warrant Agreement, is filed in a court other than a court of the State of New York or the United States District Court for the Southern District of New York (a “foreign action”) in the name of any holder of Warrants, such holder shall be deemed to have consented to: (x) the personal jurisdiction of the state and federal courts located in the Country of New York, State of New York or the United States District Court for the Southern District of New York in connection with any action brought in any such court to enforce the forum provisions (an “enforcement action”) and (y) having service of process made upon such warrant holder in any such enforcement action by service upon such warrant holder’s counsel in the foreign action as agent for such warrant holder.

This choice-of-forum provision may limit a warrant holder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us, which may discourage such lawsuits. Alternatively, if a court were to find this provision of A&R Warrant Agreement inapplicable or unenforceable with respect to one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could materially and adversely affect our business, financial condition and results of operations and result in a diversion of the time and resources of our management and board of directors.

The price of our Ordinary Shares has and may continue to be volatile.

The price of the Ordinary Shares has and may continue to fluctuate due to a variety of factors, including:

 

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changes in the industries in which we and our customers operate;

 

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developments involving our competitors;

 

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changes in laws and regulations affecting our business;

 

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variations in our operating performance and the performance of our competitors in general;

 

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actual or anticipated fluctuations in our quarterly or annual operating results;

 

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publication of research reports by securities analysts about us or our competitors or our industry;

 

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the public’s reaction to our press releases, our other public announcements and our filings with the SEC;

 

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actions by shareholders, including the sale by potential PIPE investors of any of their Ordinary Shares;

 

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additions and departures of key personnel;

 

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commencement of, or involvement in, litigation involving us;

 

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changes in our capital structure, such as future issuances of securities or the incurrence of additional debt;

 

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the volume of Ordinary Shares available for public sale;

 

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general economic and political conditions, such as the effects of public health outbreaks, recessions, interest rates, local and national elections, fuel prices, international currency fluctuations, corruption, political instability; and

 

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acts of war or terrorism.

These market and industry factors may materially reduce the market price of the Ordinary Shares regardless of our operating performance.

Estimates of market opportunity and forecasts of market growth may prove to be inaccurate, and even if the market in which we compete achieves the forecasted growth, our business could fail to grow at similar rates, if at all.

Market opportunity estimates and growth forecasts, including those Captivision Korea has generated, are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. The variables that go into the calculation of our market opportunity are subject to change over time, and there is no guarantee that any particular number or percentage of companies covered by our market opportunity estimates will purchase our products at all or generate any particular level of revenue for us. Any expansion in our market depends on a number of factors, including the cost, performance, and perceived value associated with our platform and products and those of our competitors. Even if the market in which we compete meets the size estimates and growth forecasted, our business could fail to grow at similar rates, if at all. Our growth is subject to many factors, including our success in implementing its growth strategies, which are subject to many risks and uncertainties. Accordingly, our forecasts of market growth should not be taken as indicative of our future growth.

We may be required to take write-downs or write-offs, restructuring and impairment or other charges that could have a significant negative effect on our financial condition, results of operations and share price, which could cause you to lose some or all of the shareholders’ investment.

We may be forced to write down or write off assets, restructure our operations, or incur impairment or other charges that could result in losses. Unexpected risks may arise and previously known risks may materialize. Even though these charges may be non-cash items and not have an immediate impact on our liquidity, the fact that we report charges of this nature could contribute to negative market perceptions about us or our securities. In addition, charges of this nature may cause us to violate net worth or other covenants to which we may be subject as a result of assuming any pre-existing debt or by virtue of any financing arrangement or be unable to obtain future financing on favorable terms or at all. Accordingly, shareholders could suffer a reduction in the value of their initial investment. Such shareholders are unlikely to have a remedy for such reduction in value.

We may be subject to securities litigation, which is expensive and could divert management attention.

Our share price has been and may continue to be volatile and, in the past, companies that have experienced volatility in the market price of their shares have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Litigation of this type could result in substantial costs and diversion of management’s attention and resources, which could have a material adverse effect on our business, financial condition, results of operations and prospects. Any adverse determination in litigation could also subject us to significant liabilities.

 

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Our only significant asset is our ownership interest in Captivision Korea. If our business is not profitably operated, we may be unable to pay our shareholders dividends or make distributions or loans to enable us to pay any dividends on our Ordinary Shares or satisfy our other financial obligations.

We have no direct operations and no significant assets other than our ownership interest in Captivision Korea. We depend on profits generated by our business for distributions, debt repayment and other payments to generate the funds necessary to meet our financial obligations, including our expenses as a publicly traded company, and to pay any dividends with respect to our Ordinary Shares. Legal and contractual restrictions in agreements governing our indebtedness, as well as our financial condition and operating requirements, may limit our ability to receive distributions.

We have not made a determination to our PFIC status and if we are classified as a PFIC for U.S. federal income tax purposes, there could be adverse U.S. federal income tax consequences to U.S. Holders of our Securities.

A foreign (i.e., non-U.S.) corporation will be a PFIC for U.S. federal income tax purposes if at least 75% of its gross income in a taxable year, including its pro rata share of the gross income of any corporation in which it is considered to own at least 25% of the shares by value (a “Look- Through Subsidiary”), is passive income. Alternatively, a foreign corporation will be a PFIC if at least 50% of its assets in a taxable year, ordinarily determined based on fair market value and averaged quarterly over the year, including its pro rata share of the assets of any Look-Through Subsidiary (and excluding the value of the shares held in such corporation), are held for the production of, or produce, passive income. Passive income generally includes dividends, interest, rents and royalties (other than certain rents or royalties derived from the active conduct of a trade or business) and gains from the disposition of passive assets.

We have not made a determination as to our PFIC status or the PFIC status of any of the entities in which we hold equity interests.

Furthermore, our PFIC status for any taxable year is an annual determination that can be made only after the end of such taxable year and is based on the composition of our income and assets, the value of our assets, our market capitalization, and activities in a given year. We therefore cannot express a view as to whether we will be a PFIC for the current or any future taxable year, and U.S. Holders (as defined below in “Material U.S. Federal Income Tax Considerations”) should invest in Ordinary Shares or Warrants only if they are willing to bear the U.S. federal income tax consequences of an investment in a PFIC.

If we are characterized as a PFIC, U.S. Holders may suffer adverse tax consequences, including having gains realized on the sale of our Ordinary Shares treated as ordinary income rather than capital gain, the loss of the potential for preferential rate applicable to dividends received on Ordinary Shares by individuals who are U.S. Holders, having interest charges apply to certain distributions by us and the proceeds of sales of Ordinary Shares, and a requirement to file annual reports with the IRS.

As further described under “Material U.S. Federal Income Tax Considerations—PFIC Considerations”, certain elections may be available to U.S. Holders with respect to Ordinary Shares that may mitigate the adverse consequences of PFIC status. U.S. Holders should consult their own tax advisors regarding our PFIC status for any taxable year and the potential application of the PFIC rules.

If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, shareholders could lose confidence in our financial and other public reporting, which is likely to adversely affect our business and the market price of Ordinary Shares.

Effective internal control over financial reporting is necessary for us to provide reliable financial reports and prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in our

 

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implementation could cause us to fail to meet our reporting obligations. In addition, any testing conducted by us, or any testing conducted by our independent registered public accounting firm, may reveal deficiencies in our internal control over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our financial statements or identify other areas for further attention or improvement. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which is likely to adversely affect our business and the market price of Ordinary Shares.

 

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COMMITTED EQUITY FINANCING

On June 12, 2024, we entered into the Purchase Agreement with New Circle. Pursuant to the Purchase Agreement, we have the right to sell to New Circle up to $30,000,000 of our Ordinary Shares, subject to certain limitations and conditions set forth in the Purchase Agreement, from time to time during the term of the Purchase Agreement. In connection with the execution of the Purchase Agreement, we issued the Commitment Shares to New Circle as consideration for its commitment to purchase our Ordinary Shares pursuant to the Purchase Agreement. We have also issued 150,000 Ordinary Shares to CCM in consideration for its role as placement agent in connection with the financing. Sales of Ordinary Shares to New Circle under the Purchase Agreement, and the timing of any such sales, are at our option, and we are under no obligation to sell any securities to New Circle under the Purchase Agreement.

In accordance with our obligations under the Registration Rights Agreement, we have filed the registration statement of which this prospectus forms a part with the SEC to register under the Securities Act the resale by New Circle of up to 30,000,000 Ordinary Shares that we may elect, in our sole discretion, to issue and sell to New Circle, from time to time under the Purchase Agreement. Upon the satisfaction of the conditions to New Circle’s purchase obligation set forth in the Purchase Agreement, including that the registration statement of which this prospectus forms a part be declared effective by the SEC and the final form of this prospectus is filed with the SEC, we will have the right, but not the obligation, from time to time at our discretion during the 24-month period after the date the registration statement of which this prospectus forms a part is declared effective by the SEC, to direct New Circle to purchase Ordinary Shares by delivering a Purchase Notice to New Circle. While there is no mandatory minimum amount for any Purchase, a Purchase Notice may not be for the purchase of more than the greater of (i) an amount of Ordinary Shares equal to one hundred percent (100%) of the average daily traded amount for the five (5) trading days immediately preceding a Purchase Notice, and (ii) the number of Ordinary Shares equal to $50,000 divided by the VWAP of the Ordinary Shares during the five (5) trading days immediately preceding a Purchase Notice. The per share purchase price for the Ordinary Shares that we elect to sell to New Circle in a Purchase will be determined by reference to the Market Price (as defined in the Purchase Agreement) and calculated in accordance with the Purchase Agreement, less a discount of 3.0%.

We will control the timing and amount of any sales of Ordinary Shares to New Circle. Actual sales of Ordinary Shares to New Circle under the Purchase Agreement will depend on a variety of factors to be determined by us from time to time, which may include, among other things, market conditions, the trading price of our Ordinary Shares, and determinations by us as to the appropriate sources of funding for our company and its operations.

Under the applicable Nasdaq rules, in no event may we issue to New Circle under the Purchase Agreement more than 5,803,296 Ordinary Shares, which number of Ordinary Shares is equal to the Exchange Cap, unless (i) we obtain shareholder approval to issue Ordinary Shares in excess of the Exchange Cap in accordance with applicable Nasdaq rules, (ii) all applicable sales of Ordinary Shares under the Purchase Agreement equal or exceed $2.74 per share (which represents the lower of (a) the Nasdaq official closing price (as reflected on Nasdaq.com) immediately prior to the date of the Purchase Agreement or (b) the average Nasdaq official closing price for the five (5) trading days immediately prior to the date of the Purchase Agreement), or (iii) we have duly elected to follow home country practice rules in accordance with Nasdaq Listing Rule 5615(a)(3). Because we have duly elected to follow home country practice rules in accordance with Nasdaq Listing Rule 5615(a)(3), the Exchange Cap does not apply at this time. Moreover, we may not issue or sell any Ordinary Shares to New Circle under the Purchase Agreement which, when aggregated with all other Ordinary Shares then beneficially owned by New Circle and its affiliates (as calculated pursuant to Section 13(d) of the Exchange Act and Rule 13d-3 promulgated thereunder), would result in the beneficial ownership by New Circle and its affiliates to exceed the Beneficial Ownership Limitation. Notwithstanding the Beneficial Ownership Limitation, New Circle may sell our Ordinary Shares in the public market at any time, so long as the registration statement of which this prospectus forms a part remains effective and this prospectus remains usable and the related Purchase Agreement with New Circle has not been terminated.

 

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Neither we nor New Circle may assign or transfer any of our respective rights and obligations under the Purchase Agreement without the prior written consent of the other party, and no provision of the Purchase Agreement may be modified or waived by the parties other than by an instrument in writing signed by both parties.

The net proceeds from sales, if any, under the Purchase Agreement, will depend on the frequency and prices at which we sell Ordinary Shares to New Circle. To the extent we sell Ordinary Shares under the Purchase Agreement, we currently plan to use any proceeds therefrom for working capital and general corporate purposes.

The Purchase Agreement contains customary representations, warranties, conditions, and indemnification obligations of the parties. The representations, warranties, and covenants contained in such agreements were made only for purposes of such agreements and as of specific dates, were solely for the benefit of the parties to such agreements and may be subject to limitations agreed upon by the contracting parties.

Purchases of Ordinary Shares Under the Purchase Agreement

Purchases

We will have the right, but not the obligation, from time to time at our discretion, during the 24-month period after the date the registration statement of which this prospectus forms a part is declared effective by the SEC, to direct New Circle to purchase up to a specified maximum amount of Ordinary Shares as set forth in the Purchase Agreement by delivering an Purchase Notice on any trading day (each, a “Share Purchase Notice Date”), so long as the amount under any single Purchase Notice does not exceed the greater of (i) an amount of Ordinary Shares equal to one hundred percent (100%) of the average daily traded amount for the five (5) trading days immediately preceding a Purchase Notice, and (ii) the number of Ordinary Shares equal to $50,000 divided by the VWAP of the Ordinary Shares during the five (5) trading days immediately preceding a Purchase Notice, unless otherwise agreed by the parties.

Conditions to Each Purchase

New Circle’s obligation to accept Purchase Notices that are timely delivered by us under the Purchase Agreement and to purchase Ordinary Shares under the Purchase Agreement are subject to the satisfaction, at the applicable Share Purchase Notice Date, of the conditions precedent thereto set forth in the Purchase Agreement, all of which are entirely outside of New Circle’s control, which conditions include the following:

 

•

the accuracy in all material respects of our representations and warranties included in the Purchase Agreement and the applicable Purchase Notice;

 

•

us having issued to New Circle the Commitment Shares;

 

•

there being an effective registration statement pursuant to which New Circle is permitted to utilize the prospectus thereunder to resell all of the Ordinary Shares pursuant to such Purchase Notice;

 

•

the sale and issuance of such Ordinary Shares being legally permitted by all laws and regulations to which we are subject;

 

•

our board of directors shall have approved the transactions contemplated hereby and such approval has not been amended, rescinded or modified and remains in full force and effect as of each Share Purchase Notice Date;

 

•

no Material Outside Event (as such term is defined in the Purchase Agreement) shall have occurred and be continuing;

 

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us having performed, satisfied, and complied in all material respects with all covenants, agreements, and conditions required by the Purchase Agreement to be performed, satisfied, or complied with by us;

 

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•

no statute, rule, regulation, executive order, decree, ruling, or injunction having been enacted, entered, promulgated, or endorsed by any court or governmental authority of competent jurisdiction that prohibits or directly, materially, and adversely affects any of the transactions contemplated by the Purchaser Agreement;

 

•

the Ordinary Shares being quoted for trading on Nasdaq and us having not received any written notice that is then still pending threatening the continued quotation of the Ordinary Shares on Nasdaq;

 

•

there being a sufficient number of authorized but unissued and otherwise unreserved Ordinary Shares for the issuance of all of the Ordinary Shares pursuant to such Purchase Notice;

 

•

except with respect to the first Purchase Notice, we have delivered all Ordinary Shares relating to all prior Purchases; and

 

•

the Ordinary Shares on the Trading Day immediately preceding the Share Purchase Notice Date is not less than the Threshold Price (as defined in the Purchase Agreement).

Termination of the Purchase Agreement

Unless earlier terminated as provided in the Purchase Agreement, the Purchase Agreement will terminate automatically on the earliest to occur of:

 

•

the 24-month anniversary of the date a resale registration statement for the Shares is declared effective by the SEC;

 

•

the date on which New Circle shall have purchased Ordinary Shares under the Purchase Agreement for an aggregate gross purchase price equal to $30,000,000; and

 

•

the date any statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated, withdrawn or endorsed by any court or governmental authority of competent jurisdiction, as applicable, (which shall include the SEC), the effect of which would prohibit any of the transactions contemplated by the Purchase Agreement.

We also have the right to terminate the Purchase Agreement at any time, at no cost or penalty, upon five trading days’ prior written notice to New Circle; provided that (i) there are no outstanding Purchase Notices under which we are yet to issue Ordinary Shares and (ii) we have paid all amounts owed to New Circle pursuant to the Purchase Agreement. We and New Circle may also terminate the Purchase Agreement at any time by mutual written consent.

No Short-Selling by New Circle

New Circle has agreed that it and its affiliates will not engage in any short sales during the term of the Purchase Agreement and will not enter into any transaction that establishes a net short position with respect to the Ordinary Shares; provided, however, that New Circle may sell such Ordinary Shares that it is unconditionally obligated to purchase pursuant to, and following receipt of, a Purchase Notice, but prior to receiving such Ordinary Shares, and may sell other Ordinary Shares acquired pursuant to the Purchase Agreement that New Circle has continuously held from a prior date of acquisition.

Effect of Sales of Our Ordinary Shares under the Purchase Agreement on Our Shareholders

All of the Ordinary Shares that are being registered under the Securities Act for resale by New Circle in this offering are expected to be freely tradable. The Ordinary Shares being registered for resale in this offering may be issued and sold by us to New Circle from time to time at our discretion over the term of the Purchase Agreement. The resale by New Circle of a significant amount of Ordinary Shares registered for resale in this offering at any given time, or the perception that these sales may occur, could cause the market price of our

 

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Ordinary Shares to decline and to be highly volatile. Sales of our Ordinary Shares, if any, to New Circle under the Purchase Agreement will depend upon market conditions and other factors to be determined by us. We may ultimately decide to sell to New Circle all, some, or none of the Ordinary Shares that may be available for us to sell to New Circle pursuant to the Purchase Agreement.

If and when we do elect to sell Ordinary Shares to New Circle pursuant to the Purchase Agreement, New Circle may resell all, some, or none of such Ordinary Shares in its discretion and at different prices subject to the terms of the Purchase Agreement. As a result, investors who purchase Ordinary Shares from New Circle in this offering at different times will likely pay different prices for those Ordinary Shares, and so may experience different outcomes in their investment results. Investors may experience a decline in the value of the Ordinary Shares they purchase from New Circle in this offering as a result of future sales made by us to New Circle at prices lower than the prices such investors paid for their Ordinary Shares in this offering. In addition, if we sell a substantial number of Ordinary Shares to New Circle under the Purchase Agreement, or if investors expect that we will do so, the actual sales of Ordinary Shares or the mere existence of our arrangement with New Circle may make it more difficult for us to sell equity or equity-related securities in the future at a desirable time and price.

Because the purchase price per share to be paid by New Circle for the Ordinary Shares that we may elect to sell to New Circle under the Purchase Agreement, if any, will fluctuate based on the market prices of our Ordinary Shares during the applicable pricing period, as of the date of this prospectus we cannot reliably predict the number of Ordinary Shares that we will sell to the Selling Holder under the Purchase Agreement, the actual purchase price per share to be paid by New Circle for those Ordinary Shares, or the actual gross proceeds to be received by us from those sales, if any. As of the date of this prospectus, there were 29,030,998 Ordinary Shares outstanding. If all of the 30,151,058 Ordinary Shares offered for resale by New Circle under the registration statement that includes this prospectus were issued and outstanding as of the date of this prospectus, such Ordinary Shares would represent approximately 103.9% of the total number of our Ordinary Shares outstanding.

Although the Purchase Agreement provides that we may, in our discretion, from time to time after the date of this prospectus and during the term of the Purchase Agreement, direct New Circle to purchase Ordinary Shares from us in one or more Purchases under the Purchase Agreement, for a maximum aggregate purchase price of up to $30,000,000, only 30,000,000 Ordinary Shares are being registered for resale under the registration statement that includes this prospectus. While the market price of our Ordinary Shares may fluctuate from time to time after the date of this prospectus and, as a result, the actual purchase price to be paid by New Circle under the Purchase Agreement for our Ordinary Shares, if any, may also fluctuate, in order for us to receive the full amount of New Circle’s commitment under the Purchase Agreement, it is possible that we may need to issue and sell more than the number of Ordinary Shares being registered for resale under the registration statement that includes this prospectus.

If it becomes necessary for us to issue and sell to New Circle more Ordinary Shares than are being registered for resale under this prospectus in order to receive aggregate gross proceeds equal to $30,000,000 under the Purchase Agreement, we must first file with the SEC one or more additional registration statements to register under the Securities Act the resale by New Circle of any such additional Ordinary Shares, which the SEC must declare effective, in each case, before we may elect to sell any additional Ordinary Shares to New Circle under the Purchase Agreement. The number of Ordinary Shares ultimately offered for resale by New Circle depends upon the number of Ordinary Shares, if any, we ultimately sell to New Circle under the Purchase Agreement.

The issuance, if any, of Ordinary Shares to New Circle pursuant to the Purchase Agreement would not affect the rights or privileges of our existing shareholders, except that the economic and voting interests of each of our existing shareholders would be diluted. Although the number of Ordinary Shares that our existing shareholders own would not decrease as a result of sales, if any, under the Purchase Agreement, the Ordinary Shares owned by our existing shareholders would represent a smaller percentage of our total outstanding Ordinary Shares after any such issuance.

 

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USE OF PROCEEDS

All of the securities offered by the Selling Holders pursuant to this prospectus will be sold by the Selling Holders for their own account. We will not receive any of the direct proceeds from these sales. However, we may receive up to $30,000,000 aggregate gross proceeds, before deducting expenses payable by us, from any sales we make to New Circle pursuant to the Purchase Agreement. The net proceeds from sales, if any, under the Purchase Agreement, will depend on the frequency and prices at which we sell Ordinary Shares to New Circle after the date of this prospectus. See the section titled “Plan of Distribution” elsewhere in this prospectus for more information.

We expect to use any proceeds that we receive under the Purchase Agreement for working capital and general corporate purposes. As of the date of this prospectus, we cannot specify with certainty all of the particular uses, and the respective amounts we may allocate to those uses, for any net proceeds we receive. Accordingly, we will retain broad discretion over the use of these proceeds.

The Selling Holders will pay any underwriting commissions and discounts, and expenses incurred by the Selling Holders for brokerage, marketing costs, or legal services (other than those detailed below). We will bear the costs, fees and expenses incurred in effecting the registration of the securities covered by this prospectus, including all registration and filing fees, securities or blue sky law compliance fees, Nasdaq listing fees and expenses of our counsel and our independent registered public accounting firm.

 

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DIVIDEND POLICY

We have never declared or paid any cash dividend on our Ordinary Shares. We currently intend to retain any future earnings and do not expect to pay any dividends on our Ordinary Shares in the foreseeable future. Any future determination to pay dividends on our Ordinary Shares would be at the discretion of our board of directors, subject to applicable laws, and would depend on our financial condition, results of operations, capital requirements, general business conditions, and other factors that our board of directors may deem relevant.

 

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MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS

The following is a discussion of material U.S. federal income tax considerations generally applicable to the acquisition, ownership and disposition of Ordinary Shares (the “Captivision Shares”) by a U.S. Holder (as defined below). This discussion applies only to a U.S. Holder that acquires Captivision Shares in this offering and that holds such securities as capital assets within the meaning of the Code (generally, property held for investment). This discussion does not discuss all aspects of U.S. federal income taxation that may be relevant to holders in light of their particular circumstances or status including:

 

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the JGGC Sponsor or our officers or directors or any affiliate thereof;

 

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financial institutions or financial services entities;

 

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broker-dealers;

 

•

taxpayers that are subject to the mark-to-market accounting rules;

 

•

tax-exempt entities, qualified retirement plans, individual retirement accounts or other tax deferred accounts;

 

•

governments or agencies or instrumentalities thereof;

 

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insurance companies;

 

•

regulated investment companies or real estate investment trusts;

 

•

expatriates or former long-term residents of the United States;

 

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persons that actually or constructively own five percent (5%) or more of the total voting power or value of any class of our outstanding Ordinary Shares;

 

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persons that acquired Captivision Shares pursuant to an exercise of employee share options, in connection with employee share incentive plans or otherwise as compensation or in connection with the performance of services;

 

•

persons that hold Captivision Shares as part of a straddle, constructive sale, hedging or conversion, integrated or similar transaction;

 

•

partnerships or other pass-through entities or arrangements for U.S. federal income tax purposes, or beneficial owners of partnerships or other pass-through entities or arrangements;

 

•

persons required to accelerate the recognition of any item of gross income with respect to Captivision Shares as a result of such income being recognized on an applicable financial statement;

 

•

persons that hold Captivision Shares in connection with a trade or business conducted outside the United States;

 

•

non-US Holders;

 

•

controlled foreign corporations or passive foreign investment companies; or

 

•

persons whose functional currency is not the U.S. dollar.

This discussion is based on the Code, proposed, temporary and final Treasury Regulations promulgated under the Code, and judicial and administrative interpretations thereof, all as of the date hereof. All of the foregoing is subject to change, which change could apply retroactively and could affect the tax considerations described herein. This discussion does not address U.S. federal taxes other than those pertaining to U.S. federal income taxation (such as estate or gift taxes, the alternative minimum tax or the Medicare tax on net investment income), nor does it address any aspects of U.S. state or local or non-U.S. taxation.

We have not and do not intend to seek any rulings from the IRS with respect to any statement or conclusion in this discussion. There can be no assurance that the IRS will not challenge such statement or conclusion in the following discussion or, if challenged, that a court will uphold such statement or conclusion.

 

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This discussion does not consider the tax treatment of partnerships (or other entity or arrangement classified as a partnership or other pass-through entity for U.S. federal income tax purposes) or persons who hold Captivision Shares through such entities or arrangements. If a partnership (or any entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds Captivision Shares, the tax treatment of such partnership and a person treated as a partner of such partnership will generally depend on the status of the partner and the activities of the partnership. Partnerships holding any Captivision Shares and partners of such partnerships should consult their own tax advisors as to the particular U.S. federal income tax consequences of the acquisition, ownership and disposition of the Captivision Shares.

For purposes of this discussion, a “U.S. Holder” means a beneficial owner of Captivision Shares who or that is for U.S. federal income tax purposes, (i) a citizen or individual resident of the United States, (ii) a corporation (or other entity that is treated as a corporation for U.S. federal income tax purposes) created or organized (or treated as created or organized) in or under the laws of the United States, any state therein or the District of Columbia; (iii) an estate, the income of which is subject to the U.S. federal income taxation regardless of its source; or (iv) a trust if (A) a U.S. court can exercise primary supervision over the administration of such trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (B) it has a valid election in place to be treated as a U.S. person. The term U.S. Holder does not include an entity treated as a partnership for U.S. federal income tax purposes. This summary does not discuss the treatment of Converted Warrants (except where specifically indicated below in the context of the application of PFIC rules to Captivision Shares) or securities other than Captivision Shares.

EACH U.S. HOLDER SHOULD CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER OF THE CONSIDERATIONS RELATING TO THE ACQUISITION, OWNERSHIP AND DISPOSITION OF CAPTIVISION SHARES, INCLUDING THE EFFECTS OF U.S. FEDERAL, STATE AND LOCAL AND NON-U.S. TAX LAWS.

U.S. Federal Income Tax Considerations of Acquiring, Owning and Disposing of Ordinary Shares

Taxation of Dividends and Other Distributions on Ordinary Shares

Subject to the PFIC rules discussed below, if we make a distribution of cash or other property to a U.S. Holder of Ordinary Shares, such distribution will generally be treated as a dividend for U.S. federal income tax purposes on the date actually or constructively received to the extent the distribution is paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Such dividends will be taxable to a corporate U.S. Holder at regular rates and will not be eligible for the dividends-received deduction generally allowed to domestic corporations in respect of dividends received from other domestic corporations.

Distributions in excess of such earnings and profits will generally be applied against and reduce the U.S. Holder’s adjusted tax basis in its Ordinary Shares (but not below zero) and, to the extent in excess of such adjusted tax basis, will be treated as gain from the sale or exchange of such Ordinary Shares. We may not determine our earnings and profits on the basis of U.S. federal income tax principles, however, in which case any distribution paid by us will be reported as a dividend.

Dividends received by non-corporate U.S. Holders (including individuals) may be taxable at preferential rates applicable to “qualified dividend income,” provided that certain holding period requirements and other conditions are satisfied, including that the Ordinary Shares are readily tradable on an established securities market in the United States. However, qualified dividend income treatment will not apply if we are treated as a PFIC with respect to the U.S. Holder for the taxable year in which a dividend is paid or the preceding taxable year. See discussion below under “—PFIC Considerations.” Moreover, even if we were not a PFIC, there can be no assurance that Ordinary Shares will be considered “readily tradable” on an established securities market in any taxable year. U.S. Treasury guidance indicates that shares listed on Nasdaq (which the Ordinary Shares are currently listed on) will be considered readily tradable on an established securities market in the United States.

 

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Non-corporate U.S. Holders that do not meet a minimum holding period requirement during which they are not protected from the risk of loss or that elect to treat the dividend income as “investment income” pursuant to Section 163(d)(4) of the Code (concerning the deduction for investment interest expense) will not be eligible for the reduced rates of taxation, regardless of our status as a qualified foreign corporation. U.S. Holders should consult their own tax advisors regarding the availability of the lower tax rate for any dividends paid with respect to Ordinary Shares.

Dividends on Ordinary Shares will generally constitute foreign source income for foreign tax credit limitation purposes. Subject to certain conditions and limitations, non-refundable non-U.S. withholding taxes, if any, on dividends paid by us may be treated as foreign taxes eligible for credit against a U.S. Holder’s U.S. federal income tax liability under the U.S. foreign tax credit rules. However, recently issued Treasury Regulations require non-U.S. income tax laws to meet certain requirements in order for taxes imposed under such laws to be eligible for credit. We have not determined whether these requirements have been met and, accordingly, no assurance can be given that any withholding tax on dividends paid by us will be creditable. For this purpose, dividends distributed by us with respect to the Ordinary Shares generally will constitute “passive category income” but could, in the case of certain U.S. Holders, constitute “general category income.” In lieu of claiming a foreign tax credit, a U.S. Holder may deduct foreign taxes in computing their taxable income, subject to generally applicable limitations under U.S. federal income tax law. The rules governing the U.S. foreign tax credit are complex. U.S. Holders should consult their own tax advisors regarding the availability of the U.S. foreign tax credit under their particular circumstances.

Taxation on the Sale or Other Taxable Disposition of Captivision Shares

Subject to the PFIC rules discussed below, upon a sale or other taxable disposition of Captivision Shares, a U.S. Holder will generally recognize capital gain or loss. The amount of gain or loss recognized will generally be equal to the difference between (i) the sum of the amount of cash and the fair market value of any property received in such disposition and (ii) the U.S. Holder’s adjusted tax basis in such Ordinary Shares.

Under tax law currently in effect, long-term capital gains recognized by non-corporate U.S. Holders are generally subject to U.S. federal income tax at a reduced rate of tax. Capital gain or loss will be long-term capital gain or loss if the U.S. Holder’s holding period for the Captivision Shares exceeds one year. The deductibility of capital losses is subject to limitations. This gain or loss generally will be treated as U.S. source gain or loss for a U.S. Holder. In the event any non-U.S. tax (including withholding tax) is imposed upon such sale or other taxable disposition, a U.S. Holder’s ability to claim a foreign tax credit for such non-U.S. tax is subject to various limitations and restrictions. U.S. Holders should consult their own tax advisors regarding the ability to claim a foreign tax credit.

PFIC Considerations

Definition of a PFIC

A foreign (i.e., non-U.S.) corporation will be a PFIC for U.S. federal income tax purposes if at least 75% of its gross income in a taxable year, including its pro rata share of the gross income of any Look-Through Subsidiary, is passive income. Alternatively, a foreign corporation will be a PFIC if at least 50% of its assets in a taxable year, ordinarily determined based on fair market value and averaged quarterly over the year, including its pro rata share of the assets of any Look-Through Subsidiary (and excluding the value of the shares held in such corporation), are held for the production of, or produce, passive income. Passive income generally includes dividends, interest, rents and royalties (other than certain rents or royalties derived from the active conduct of a trade or business) and gains from the disposition of passive assets.

Our PFIC Status

We have not made a determination as to our PFIC status or the PFIC status of any of the entities in which we hold equity interests.

 

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Furthermore, our PFIC status for any taxable year is an annual determination that can be made only after the end of such taxable year, and is based on the composition of our income and assets, the value of our assets, our market capitalization, and activities in a given year. We therefore cannot express a view as to whether we will be a PFIC for the current or any future taxable year, and U.S. Holders should invest in our Ordinary Shares only if they are willing to bear the U.S. federal income tax consequences of an investment in a PFIC.

Application of PFIC Rules

If we are determined to be a PFIC for any taxable year (or portion thereof) that is included in a U.S. Holder’s holding period in Captivision Shares, then such holder will generally be subject to special rules (the “Default PFIC Regime”) unless, in the case of Ordinary Shares, the U.S. Holder made (i) a timely and effective QEF Election (as defined below) in respect of our first taxable year as a PFIC in which the U.S. Holder held Ordinary Shares (such taxable year as it relates to each U.S. Holder, the “First PFIC Holding Year”), (ii) a QEF Election along with a “purging election,” or (iii) a “mark-to-market” election, each as described below under “—QEF Election, Mark-to-Market Election and Purging Election.” The Default PFIC Regime applies with respect to:

 

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any gain recognized by the U.S. Holder on the sale or other disposition of its Captivision Shares (which may include gain realized by reason of transfers of Captivision Shares that would otherwise qualify as non-recognition transactions for U.S. federal income tax purposes); and

 

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any “excess distribution” made to the U.S. Holder (generally, any distributions to such U.S. Holder during a taxable year of the U.S. Holder that are greater than 125% of the average annual distributions received by such U.S. Holder in respect of its Ordinary Shares during the three preceding taxable years of such U.S. Holder or, if shorter, such U.S. Holder’s holding period for such Ordinary Shares).

Under the Default PFIC Regime:

 

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the U.S. Holder’s gain or excess distribution will be allocated ratably over the U.S. Holder’s holding period for its Captivision Shares;

 

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the amount of gain allocated to the U.S. Holder’s taxable year in which the U.S. Holder recognized the gain or received the excess distribution, or to the period in the U.S. Holder’s holding period before the first day of the First PFIC Holding Year, will be taxed as ordinary income; and

 

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the amount of gain allocated to other taxable years (or portions thereof) of the U.S. Holder and included in such U.S. Holder’s holding period will be taxed at the highest tax rate in effect for that year and applicable to the U.S. Holder and the interest charge generally applicable to underpayments of tax will be imposed on the U.S. Holder will be imposed on the U.S. Holder in respect of the tax attributable to each such other taxable year of such U.S. Holder.

It is not entirely clear how various aspects of the PFIC rules apply to the Converted Warrants. Section 1298(a)(4) of the Code provides that, to the extent provided in Treasury Regulations, any person who has an option to acquire stock in a PFIC shall be considered to own such stock in the PFIC for purposes of the PFIC rules (and hence the tax year where a person holds such an option would be the First PFIC Holding Year). No final Treasury Regulations are currently in effect under Section 1298(a)(4) of the Code. However, proposed Treasury Regulations under Section 1298(a)(4) of the Code have been promulgated with a retroactive effective date (the “Proposed PFIC Option Regulations”). Each U.S. Holder is urged to consult its own tax advisors regarding the possible application of the Proposed PFIC Option Regulations to the Converted Warrants. Solely for discussion purposes, the following discussion assumes that the Proposed PFIC Option Regulations will apply to the Converted Warrants.

 

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ALL U.S. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE EFFECTS OF THE PFIC RULES ON THE ACQUISITION, OWNERSHIP OR DISPOSITION OF CAPTIVISION SHARES, INCLUDING THE IMPACT OF ANY PROPOSED OR FINAL TREASURY REGULATIONS.

QEF Election, Mark-to-Market Election and Purging Election

In general, a U.S. Holder may avoid the Default PFIC Regime with respect to its Ordinary Shares (but not Converted Warrants) by making a timely and effective “qualified electing fund” election under Section 1295 of the Code (a “QEF Election”) with respect to such holder’s First PFIC Holding Year. A U.S. Holder that makes a QEF Election will include in income its pro rata share of our net capital gains (as long-term capital gain) and other earnings and profits (as ordinary income), on a current basis, in each case whether or not distributed, in the taxable year of the U.S. Holder in which or with which our taxable year ends if we are treated as a PFIC for that taxable year. A U.S. Holder generally can make a separate election to defer the payment of taxes on undistributed income inclusions under the QEF Election rules, but if deferred, any such taxes will be subject to an interest charge.

It is the IRS’s view that a U.S. Holder may not make a QEF Election with respect to its Converted Warrants. As a result, if a U.S. Holder sells or otherwise disposes of such Converted Warrants (other than upon exercise of such Converted Warrants) and we were a PFIC at any time during the U.S. Holder’s holding period of such Converted Warrants, any gain recognized will generally be subject to the special tax and interest charge rules treating the gain as an excess distribution, as described above. If a U.S. Holder that exercises such Converted Warrants properly makes a QEF Election with respect to the newly acquired Ordinary Shares, the QEF Election will apply to the newly acquired Ordinary Shares (it is not clear how a previously made QEF Election that is in effect with respect to us would apply to Ordinary Shares subsequently acquired on the exercise of such Converted Warrants). Notwithstanding the foregoing, the adverse tax consequences relating to PFIC shares, adjusted to take into account current income inclusions resulting from the QEF Election, will generally continue to apply with respect to such newly acquired Ordinary Shares (which will generally be deemed to have a holding period – for purposes of the PFIC rules – that includes all or a portion of the period the U.S. Holder held such Converted Warrants), unless the U.S. Holder makes a purging election (discussed below).

The QEF Election is made on a shareholder-by-shareholder basis and, once made, can be revoked only with the consent of the IRS. A U.S. Holder generally makes a QEF Election by attaching a completed IRS Form 8621 (Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund), including the information provided in a PFIC Annual Information Statement, to a timely filed U.S. federal income tax return for the taxable year to which the election relates. Retroactive QEF elections generally may be made only by filing a protective statement with such return and if certain other conditions are met or with the consent of the IRS. U.S. Holders should consult their own tax advisors regarding the availability and tax consequences of a retroactive QEF Election under their particular circumstances.

In order to comply with the requirements of a QEF Election with respect to Ordinary Shares, a U.S. Holder must receive a PFIC Annual Information Statement from us. If we determine that we are a PFIC for a taxable year, we will endeavor to use commercially reasonable efforts to make available to U.S. Holders a PFIC Annual Information Statement with respect to such taxable year. However, there is no assurance that we will have timely knowledge of our status as a PFIC in the future or that we will make available a PFIC Annual Information Statement.

If a U.S. Holder has made a QEF Election with respect to Ordinary Shares, and the special tax and interest charge rules do not apply to such shares (because the QEF Election was made in the U.S. Holder’s First PFIC Holding Year or a purging election (discussed below) was made), any gain recognized on the sale of Ordinary Shares will generally be taxable as capital gain and no interest charge will be imposed under the PFIC rules. As discussed above, U.S. Holders who make a QEF Election with respect to a PFIC are currently taxed on their pro rata shares of such PFIC’s earnings and profits, whether or not distributed. In such case, a subsequent distribution of such earnings and profits that were previously included in income should generally not be taxable as a dividend to such U.S. Holders. The adjusted tax basis of a U.S. Holder’s shares in a PFIC with respect to which a

 

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QEF Election has been made will be increased by amounts that are included in taxable income, and decreased by amounts distributed but not taxed as dividends, under the above rules. Similar basis adjustments apply to property if by reason of holding such property the U.S. Holder is treated under the applicable attribution rules as owning shares in a PFIC with respect to which a QEF election has been made.

As noted above, a determination that we are a PFIC for a taxable year in which a U.S. Holder holds our shares will generally continue to apply to such U.S. Holder for subsequent years in which such holder continues to hold our shares (including a successor entity), whether or not we continue to be a PFIC. A U.S. Holder who makes the QEF Election for such holder’s First PFIC Holding Year, however, will not be subject to the PFIC tax and interest charge rules discussed above in respect to such shares. In addition, such U.S. Holder will not be subject to the QEF Elelction regime with respect to such shares for any of our taxable years that ends within or with a taxable year of the U.S. Holder and in which we are not a PFIC. However, if the QEF Election is not effective for each of our taxable years in which we are a PFIC and the U.S. Holder holds (or is deemed to hold) Ordinary Shares, the Default PFIC Regime discussed above will continue to apply to such shares unless such holder makes a purging election (discussed below), and pays the tax and interest charge with respect to the gain inherent in such shares attributable to the pre-QEF Election period.

Alternatively, if a U.S. Holder, at the close of its taxable year, owns (or is deemed to own) shares in a PFIC that are treated as marketable shares, the U.S. Holder may make a mark-to-market election with respect to such shares for such taxable year. If a U.S. Holder makes (or has made) a valid mark-to-market election with respect to Ordinary Shares for such holder’s First PFIC Holding Year, such holder will generally not be subject to the Default PFIC Regime in respect to its Ordinary Shares as long as such shares continue to be treated as marketable shares. Instead, the U.S. Holder will generally include as ordinary income for each year in its holding period that we are treated as a PFIC the excess, if any, of the fair market value of our Ordinary Shares at the end of our taxable year over the adjusted basis in such Ordinary Shares. The U.S. Holder also will be allowed to take an ordinary loss in respect of the excess, if any, of the adjusted basis of its Ordinary Shares over the fair market value of such shares at the end of its taxable year (but only to the extent of the net amount of previously included income as a result of the mark-to-market election). The U.S. Holder’s basis in its Ordinary Shares will be adjusted to reflect any such income or loss amounts, and any further gain recognized on a sale or other taxable disposition of such shares in a taxable year in which we are treated as a PFIC will be treated as ordinary income. Special tax rules may also apply if a U.S. Holder makes a mark-to-market election for a taxable year after such holder’s First PFIC Holding Year. Currently, the mark-to-market election may not be made with respect to the Converted Warrants.

The mark-to-market election is available only for stock that is regularly traded on a national securities exchange that is registered with the Securities and Exchange Commission, including Nasdaq. It is expected that Ordinary Shares will be listed on Nasdaq, but there can be no assurance that Ordinary Shares will continue to be so listed or will be “regularly traded” for purposes of these rules. U.S. Holders should consult their own tax advisors regarding the availability and tax consequences of a mark-to-market election in respect of Ordinary Shares under their particular circumstances.

Ordinary Shares treated as stock of a PFIC under the Default PFIC Regime will continue to be treated as stock of a PFIC, including in taxable years in which we cease to be a PFIC, unless the applicable U.S. Holder makes a “purging election” with respect to such shares. Under one type of purging election, the U.S. Holder will be deemed to have sold such shares at their fair market value on the last day of the last year in which we are treated as a PFIC, and any gain recognized on such deemed sale will be treated as an excess distribution, as described above. As a result of this election, the U.S. Holder will have additional basis (to the extent of any gain recognized in the deemed sale) and, solely for purposes of the PFIC rules, a new holding period in such holder’s Ordinary Shares. U.S. Holders should consult their own tax advisors regarding the application of the purging elections rules to their particular circumstances.

If we are a PFIC and, at any time, we have an equity interest in any foreign entity that is classified as a PFIC, U.S. Holders would generally be deemed to own a proportionate amount (by value) of the shares of such lower-tier PFIC, and generally could incur liability for the deferred tax and interest charge described above if we

 

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receive a distribution from, or disposes of all or part of our interest in, the lower-tier PFIC or the U.S. Holders otherwise were deemed to have disposed of an interest in the lower-tier PFIC, in each case, as if the U.S. Holder held such shares directly, even though the U.S. Holder will not receive any proceeds of those distributions or dispositions. A mark-to-market election generally would not be available (nor, as a practical matter, a QEF Election would be available) with respect to such lower-tier PFIC. U.S. Holders are urged to consult their own tax advisors regarding the tax issues raised by lower-tier PFICs.

A U.S. Holder that owns (or is deemed to own) shares in a PFIC during any taxable year of the U.S. Holder may have to file an IRS Form 8621 (whether or not a QEF Election or market-to-market election is made) with such U.S. Holder’s U.S. federal income tax return and provide such other information as may be required by the Treasury. The rules dealing with PFICs and with the QEF Election and mark-to-market elections are very complex and are affected by various factors in addition to those described above. Accordingly, U.S. Holders of Captivision Shares should consult their own tax advisors concerning the application of the PFIC rules to Captivision Shares under their particular circumstances.

THE RULES DEALING WITH PFICS ARE VERY COMPLEX AND ARE IMPACTED BY VARIOUS FACTORS IN ADDITION TO THOSE DESCRIBED ABOVE. ALL U.S. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE CONSEQUENCES TO THEM OF THE PFIC RULES, INCLUDING, WITHOUT LIMITATION, WHETHER A QEF ELECTION, A MARK-TO-MARKET ELECTION, OR ANY OTHER ELECTION IS AVAILABLE AND THE CONSEQUENCES TO THEM OF ANY SUCH ELECTION, AND THE IMPACT OF ANY PROPOSED OR FINAL PFIC TREASURY REGULATIONS.

Information Reporting and Backup Withholding

Information reporting requirements may apply to dividends paid on and other proceeds received with respect to the Captivision Shares by U.S. Holders effected within the United States (and, in certain cases, outside the United States), in each case other than U.S. Holders that are exempt recipients (such as corporations). Backup withholding may apply to such amounts if the U.S. Holder fails to provide an accurate taxpayer identification number (generally on an IRS Form W-9 provided to the paying agent of the U.S. Holder’s broker) or is otherwise subject to backup withholding. U.S. Holders should consult their own tax advisors regarding the application of the U.S. information reporting and backup withholding rules.

Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against the U.S. Holder’s U.S. federal income tax liability, and a U.S. Holder may obtain a refund of any excess amounts withheld under the backup withholding rules by timely filing the appropriate claim for a refund with the IRS and furnishing any required information.

Foreign Financial Asset Reporting

Certain U.S. Holders that own “specified foreign financial assets” with an aggregate value in excess of US$50,000 on the last day of the taxable year or US$75,000 at any time during the taxable year are generally required to file an information statement along with their tax returns, currently on IRS Form 8938, with respect to such assets. “Specified foreign financial assets” include any financial accounts held at a non-U.S. financial institution, as well as securities issued by a non-U.S. issuer that are not held in accounts maintained by financial institutions. Higher reporting thresholds apply to certain individuals living abroad and to certain married individuals. The understatement of income attributable to “specified foreign financial assets” in excess of US$5,000 extends the statute of limitations with respect to the tax return to six years after the return was filed. U.S. Holders who fail to report the required information could be subject to substantial penalties. U.S. Holders are encouraged to consult with their own tax advisors regarding the possible application of these rules, including the application of the rules to their particular circumstances.

 

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MATERIAL CAYMAN ISLANDS TAX CONSIDERATIONS

The following is a discussion of certain Cayman Islands tax consequences of an investment in our Ordinary Shares. The discussion is a general summary of present law, which is subject to prospective and retroactive change. It is not intended as tax advice, does not consider any investor’s particular circumstances and does not consider tax consequences other than those arising under Cayman Islands Law.

Under Existing Cayman Islands Laws

Payments of dividends and capital in respect of our Ordinary Shares will not be subject to taxation in the Cayman Islands and no withholding will be required on the payment of interest and principal or a dividend or capital to any holder of Ordinary Shares, as the case may be, nor will gains derived from the disposal of our Ordinary Shares be subject to Cayman Islands income or corporation tax.

The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains, or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the Government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or, after execution, brought within the jurisdiction of the Cayman Islands. There are no exchange control regulations or currency restrictions in the Cayman Islands.

No stamp duty is payable in respect of the issuance of our Ordinary Shares or on an instrument of transfer in respect of an Ordinary Share. An instrument of transfer in respect of an Ordinary Shares is stampable if executed in or brought into the Cayman Islands.

We have been incorporated under the laws of the Cayman Islands as an exempted company with limited liability and, as such, have obtained an undertaking from the Financial Secretary of the Cayman Islands in the following form:

The Tax Concessions Act Undertaking as To Tax Concessions

In accordance with the Tax Concessions Act (As Revised) of the Cayman Islands, the following undertaking is hereby given to us:

 

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That no Act which is hereafter enacted in the Islands imposing any tax to be levied on profits, income, gains or appreciations shall apply to us or our operations; and

 

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In addition, that no tax to be levied on profits, income, gains or appreciations or which is in the nature of estate duty or inheritance tax shall be payable

 

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on or in respect of our shares, debentures or other obligations; or

 

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by way of the withholding in whole or in part of any relevant payment as defined in the Tax Concessions Act (As Revised).

These concessions shall be for a period of TWENTY years from the 1^st day of March, 2023.

 

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BUSINESS

Overview of the Business

Captivision Korea is the exclusive developer and manufacturer of an innovative architectural media glass product called G-Glass. G-Glass is the world’s first IT-enabled construction material capable of transforming buildings into extraordinary digital media devices. Captivision Korea’s G-Glass technology combines architectural glass with customizable, large-scale light-emitting diode (“LED”) digital media display capabilities, delivering architectural durability, near full transparency and sophisticated media capabilities. Utilized in diverse applications from handrails to complete glass building façades, G-Glass delivers a paradigm shift in the Digital Out of Home (“DOOH”) media market, providing entirely new revenue models for vertical real estate. With over 500 architectural installations worldwide, we believe Captivision Korea is the market leader in fully transparent media façade capabilities.

Through Captivision Korea, we are a vertically integrated manufacturer controlling almost every aspect of product manufacturing and assembly, including assembling the media glass laminates, manufacturing the aluminum frame, developing the electronics, operating the software and delivering and installing the product. Our ability to exert control over the various stages of design, manufacturing and development of our products enables us to deliver an unparalleled level of quality and service to our customers, who include prestigious automotive brands, commercial retailers, hospitals, major sporting institutions, members of the music industry (as filming backdrops), film production companies, transportation hubs and telecommunications companies.

Our rapid expansion and innovative G-Glass technology have translated into an increasing international presence. We are a global company with headquarters in South Korea and offices in the United States, the United Kingdom, Japan and China (including Hong Kong Special Administrative Region (“Hong Kong”)). In the six months ended June 30, 2024, and 2023, we generated $15.3 million and $12.6 million in revenue, respectively. In the years ended December 31, 2023, 2022 and 2021, we generated $14.6 million, $20.2 million and $9.4 million in revenue, respectively.

History of the Company

We are an exempted company incorporated with limited liability in the Cayman Islands on February 24, 2023. We own no material assets other than our equity interests in its wholly-owned subsidiaries, Exchange Sub and Captivision Korea.

Captivision Korea was founded in 2005 in Seoul, South Korea. The first founder of the Company was Mr. Hyungjoo Kim, who established the Company in 2005 under the name, Saman ELT Co., Ltd. In 2009, Saman ELT Co., Ltd. filed for bankruptcy. In 2011, Dr. Ho Joon Lee and Houng Ki Kim fully acquired the Company and re-founded the Company as G-SMATT Co., Ltd (n/k/a Captivision Korea). In 2024 GLAAM Co., Ltd. changed its name to Captivision Korea Inc. Its registered office and factory are located at 298-42 Chung-buk Chungang-ro Chung-buk, Pyeong-taek, Gyounggi, Republic of Korea. The following table shows major events in Captivision Korea’s history:

 

Calendar Year		Event
2005		Founded in Seoul, South Korea
2007		Completed manufacturing facilities and commenced operations
2007-2014		Improved core product and grew small to medium reference sites
2013		Formed Chinese joint venture Brillshow
2016-2017		Opened overseas offices in the United States, United Kingdom, Japan and Hong Kong
2017		Installed a 12,000 square foot media façade at COEX Expo Center Seoul’s Gangnam business district
2018		Completed manufacturing facility located in Tianjin, China
2018		Delivered several large media glass implementations to the Pyeongchang Winter Olympics
2019		Completed full set of international certifications

 

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Calendar Year		Event
2021		First Launched Pier 17 Howard Hughes installation in New York, United States
2022		Announced strategic partnership with LG Electronics of South Korea for very large-scale projects integrating façades and other digital screens
2022		Installed 43,000 square foot media façade at the View Hospital in Doha, Qatar
2023		Entered into a binding Business Combination Agreement for its merger with Jaguar Global Growth Corporation I (Nasdaq: JGGC), resulting in us becoming a publicly traded company on Nasdaq
2023		Executed contracts to supply over 16,000 sq. ft. of glass for each of the Mohegan INSPIRE Entertainment Resort in Incheon and the Magok MICE complex Meeting, Incentives, Convention, and Exhibition (“MICE”) complex in Seoul
2024		Successfully extended the term of G-Glass’s Excellent Quality Product designation planned to expire on March 31, 2025, for one year until March 31, 2026
2024		Supplied G-Glass to Hotel & Resort UE Garden in Japan

Competitive Strengths

G-Glass is Fully Customizable

Architectural media glass projects require a very high degree of customization. A façade may need different sizes of glass, glass coatings, frit patterns (glass printed with ink that contains microscopic particles of ground-up glass), toughened or heat-soaked glass, specialist glass types, different glass thicknesses and/or double or triple glazing. Developing the flexibility to deliver all these modifications is complex and requires a specialized production line. We have spent the last decade building these capabilities and integrating them seamlessly into our manufacturing process. This means that we have become a one-stop shop not only for a customer’s media glass requirement but also for all their glass requirements. We also employ highly proficient façade engineers that understand the detail of glass façade projects and can consult with customers to meet, and sometimes exceed, their glass requirements. The combination of an integrated glass customization process and specialist façade engineering knowledge places us at a significant competitive advantage in bidding for projects.

Architectural Durability

Architectural projects require durable materials in order to withstand extreme weather conditions and normal wear and tear over time. Third generation media façade products currently on the market are ordinary electronic products and have typical life spans of two to five years. Much of the technical innovation of Captivision Korea solutions is our ability to deliver an architectural level durable electronic product that meets real estate developers’ needs for products with a life span of at least 30-40 years. In order to achieve this durability, we use high-quality LEDs that are rated to withstand daily use of a minimum of eight hours a day for more than 35 years and are built to the rigorous standards of construction materials. Our product is comprised of LED-embedded glass components that function just like architectural glass and have full architectural life span. The electronic component is composed of drivers and other such innately less-durable components and these are housed in the aluminum mullion frame around our G-Glass and can be easily accessed by opening a cover panel, making them readily accessible for maintenance or replacement. As a result, our product design leads to a highly architecturally durable electronic glass product that is easy to maintain and has a low rate of failure.

Full Transparency

Nearly all of the currently available media glass technology on the market is partly opaque, limiting its ability to be installed in locations and building façades that require full transparency. As most building façades cannot be obstructed by bar or mesh media systems, there is a much larger market opportunity for transparent products. Our G-Glass product is more than 99% transparent and can be implemented on virtually any glass façade, vastly increasing the vertical real estate space available for media display. We provide our products to a wide range of applications ranging from new construction to replacement, refurbishment and upgrade of existing

 

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architectural glass façades and over existing façades. In addition, our media glass is used as a transparent media surface for interior real estate, for example, behind existing windows, as separate wall dividers, safety guards and bus shelters, among other applications.

Sophisticated Media Capability

When built into a façade, G-Glass effectively has the same capabilities as any computer monitor. This means that any application or service you can imagine on your personal computer (“PC”) can be run on the façade. However, due to the sheer size and scale of a typical architectural façade that houses G-Glass, appropriate content and applications need to be chosen that work in that particular setting. Importantly, this content can easily be monetizable and provide additional revenue streams to vertical real estate space with G-Glass installed. Our G-Glass technology is able to generate revenue from several different applications, such as:

 

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Content Services: Advertising currently provides most of the content played on large external media screens, but so much more is possible. Outdoor cinema, dynamic art displays, building or city information, and public service content are just a few of the use cases in which G-Glass can be implemented to generate revenue.

 

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Interactive Services: This could be as simple as changing colors of a building as people walk in front of it or could be more complex such as imitating a pool of water and as people walk in front of the building it drops water into the pool. G-Glass’ capabilities also include architectural gaming, allowing people to play with each other on the side of a building, creating groups that gravitate around to observe these games. These types of services interest and excite people and foster greater community in an area that benefits all the commercial outlets in the vicinity.

 

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Broadcasting Services: If appropriate broadcast rights are negotiated, a building could be used to broadcast a football game or other sporting event. The building itself would provide a giant screen for people to watch the action together. Similarly, institutions such as art galleries, theatres or museums could broadcast activities inside the institution on the outside of the building, extending their reach into the community.

 

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Messaging Services: Building façades could be used for a public address in the event of an emergency integrating with citywide notification systems. They can also be used for more localized messaging such as reporting on local traffic conditions or the occupancy status of local car parks.

 

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Apps: There is endless potential for architectural apps that could broadcast content through a G-Glass display. There are the obvious ones like a clock, the weather forecast and air quality information but many others are possible, such as a smartphone app that generates a personalized message, a picture or other content when you walk past the building. Buildings could be creative, allowing for paid wedding proposals or a bidding system for different types of content to appear on the building.

Vertical Integration

Our vertical integration and local sourcing of components help keep our cost of production low, delivering a substantial gross margin. With little competition in the market that would drive commoditization and economies of scale in production as we grow, we predict that our gross margin will improve over time.

All of our products are currently manufactured in our state-of-the-art facility covering over 43,000 square feet, located in Pyeongtaek, South Korea, which has a production capacity of over 700,000 square feet of G-Glass per year, which represents total output capacity of an estimated $220 million of product revenue per year. Current estimated G-Glass revenue accounts for only about 4.9% of total output capacity, by revenue, of our South Korean manufacturing facility, which we believe allows for significant market growth without the need for additional CAPEX investment.

Barriers to Entry

The architectural digital media market is very difficult to break into due in part to the customary requirement for a significant number of reference sites. We have penetrated this market over more than a decade by creating small projects and gradually working towards bigger and bigger installations of our technology.

 

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Twelve years following our initial launch we now have a significant number of reference sites. Our installations range from smaller installations all the way up to a 43,000 square foot installation. We believe our reputation as a trusted partner for even bigger implementations is increasing. For example, we recently held discussions regarding a future confidential project of a 140,000 square foot hotel façade implementation in Las Vegas, Nevada.

Our manufacturing machinery and production line is almost entirely proprietary and self-developed. We believe we have the world’s largest proprietary super-precision laser etching and surface-mount technology machine. We offer a complete in-house solution, including G-Glass, framing, driver, controller, software, media content, installation, repair and accessory parts. We have developed over 30 proprietary raw materials used in our manufacturing, including unique resin and LEDs from global suppliers.

Our technology is covered by over 20 patents, five of which are fundamental patents essential for G-Glass production. To date we have completed hundreds of projects worldwide and invested over $185 million in research and development, production facilities and marketing.

We have a full set of international certifications that cover our media glass, including glass safety, glass construction, fire safety and electronics certifications across the European, North American and South Korean markets. These include Conformité Européenne (“CE”), Europäische Norm (“EN”), China Compulsory Certificate, and Korea Certification (“KC”) certifications and this breadth allows us to deliver product into every international market.

We believe that our high production capacity, proprietary technology, deep experience and numerous installations provide us with at least 10 years of market lead over new industry entrants.

Growth Strategies

Converting Current Pipeline

We currently have identified a significant amount of opportunities where we are conducting ongoing discussions with property owners, developers, architects and other potential customers. Of these opportunities, approximately 75 projects are in the proposal phase. Converting these pipelines into “closed deals” diligently and efficiently in the future will drive our company’s initial growth over the next few years.

Developing Media and Services

Our media glass products form a firm foundation for strong growth over the next decade. However, we believe that value added services delivered through our media glass technology can generate significant additional monetary upside. We plan to continue to concentrate on developing media services and applications that can be used at architectural scale to transform urban environments. We believe that buildings can be transformed into giant media devices able to tell stories, deliver information, beautify the cityscape, advertise brands and interact directly with people on both a general and personal level. As the first entrant into this market at an architectural scale, we have an opportunity to become the market leader by firmly tying application platforms to our technology.

Innovation

Innovation and diversification of our product portfolio is a key component of our strategy. In addition to improvements in quality, pixel density and brightness, and technical performance, we are working to deliver new systems, including, for example, for the events market, road safety and sustainable media display. In particular, we are currently working on the integration of photovoltaic systems with our media glass with the intent of delivering media façades that are carbon neutral. This is in line with our strong commitment to sustainability, ethical sourcing of materials and ensuring that our systems move towards carbon neutrality.

 

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Additional Verticals and Applications

As we continue to innovate on our product and expand internationally, we believe there is significant potential for new applications and uses for our G-Glass, including the utilization of third-party LED products. By growing our product portfolio and becoming a comprehensive architectural display solutions provider, we believe we will be able to compete for a wide array of projects and customer types not currently served by our G-Glass. Historically, we have developed our strongest demand in large commercial and governmental construction projects in the APAC and EMEA regions. However, as our product becomes more widely known, we are seeing strong demand for short-term rental applications, and with the addition of other smaller pixel pitch products, we are seeing further demand among sports, events, media and entertainment customers who can replicate the project over their entire portfolio of assets. Simply put, by utilizing a smaller pixel pitch, we provide a higher resolution product that is required for daytime visibility and close proximity viewing.

Further Penetration of International Markets

We believe a key benefit of the public listing will be the ability to fully staff our regional sales and marketing offices in order to generate an actionable and diversified global pipeline. Based on our experience, $15 million of marketing spend would be expected to result in approximately $100 million of revenue.

Historically, most of our growth has been in South Korea, but, over the last two years, the United States and the United Kingdom offices have also installed scaled projects. In our Los Angeles location, our media glass technology is utilized by the film and music industry and we have been able to count some of the largest names in media production such as Netflix as recent customers. Further, our Los Angeles office is also seeing growth in its pipeline towards the additional verticals and applications, as evidenced by a recently completed temporary installation at a Coachella Music Festival event with Hulu, as well as continued demand for larger and mid-size installations with commercial and construction customers. Our United Kingdom office recently completed a 43,000 square foot façade installation at View Hospital in Doha, Qatar, our largest installation to date. We believe that this will set the trend towards rapid growth in the Middle Eastern market.

Generating and Converting Global Pipeline

We use a multi-channel marketing approach that concentrates on informing all potential stakeholders for large and medium sized construction projects about our products. This includes giving Continuing Professional Development (“CPD”) seminars to architects, contacting developers directly via personal contacts or direct marketing, briefing main contractors at trade shows we attend, maintaining memberships with professional bodies in the construction and audio-visual markets, and an active social media presence. We have a robust reseller network that we support constructively with technical expertise, demonstration units and marketing materials.

Over the coming years, we plan to focus on both larger scale opportunities, such as Mohegan INSPIRE Entertainment Resort, the Magok MICE complex Meeting, Incentives, Convention, and Exhibition (“MICE”) complex in South Korea and NEOM City in Saudi Arabia as well as numerous smaller and mid-size projects. We re in the final stages of construction with Mohegan INSPIRE Entertainment Resort, the Magok MICE complex, and are in the final stages of construction. Additionally, we are in discussions for future projects regarding NEOM City and various other opportunities in the United States and the APAC region. Our smaller projects, which we believe will be a large driver for growth and will represent a larger mix of our pipeline over time, have a shorter sales cycle and reduce volatility in our revenue stream. Examples of recent smaller projects include a media wall in Incheon Airport in Korea, a showroom for Porsche in the United Kingdom, and various rental and media related projects in the United States.

Maximizing Digital Content Delivery Opportunities

We plan to expand our Glass as a Service (“GaaS”) offering globally. GaaS is a method of cost sharing capital expenditures with the customer, together with an agreement to maintain the installation, in exchange for a license covering the use of the media glass by third parties. Under these arrangements, we would typically retain

 

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80% of the media and advertising revenue that the installation generates, thereby creating a “win-win” solution where the customer reduces its upfront cost and retains a portion the upside potential while we increase our margins through GaaS, monetizing the installations over 30 years.

Implementations over 200,000 square feet maximize our digital content delivery. These installations are landmark installations and the content cost or advertising spend can be in excess of $10,000 per day. If we are able to acquire multiple sites in capital cities across the world, the opportunities for a brand looking to gain awareness for global product releases would be substantial. This requires that we continue our transformation into a platform product with the content and software becoming as important as the media glass product.

Product

In developing our G-Glass technology, we set out early to solve three fundamental flaws that we have observed in many of the media façade products currently in the market:

 

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Transparency: Blockage of line of sight or opacity of the product, which limited the utility of such products;

 

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Durability: The bar and mesh products are primarily electronic products and do not have the durability necessary for long-term architectural usage leading to high maintenance costs; and

 

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Cost: All the systems available at the time were an addition to the building façade adding an extra level of complexity and cost.

The concept for our product was very simple: create a media display system that has architectural durability and nearly complete transparency that can be used as the building envelope. We wanted to remove the need for a secondary system. G-Glass has all of these characteristics and can be modified with specialist glass, glass coatings, double glazing, different glass thicknesses and sizes. This is vital in the construction industry as most projects are highly bespoke. To our knowledge, we are the only manufacturer that can deliver a transparent glass media system to such a high degree of specialization and at significant scale.

Product Structure

Our core media glass product, G-Glass, is laminated glass with embedded LEDs mounted inside the glass and driven by electronics hidden inside the mullion frames around the media glass panes. The composition of our media glass products is a base glass coated in a transparent conductive layer into which we laser-etch circuitry.

High-quality, long-life LEDs are attached to this circuitry using a metallic adhesive. A cover glass is then placed over the base glass using separators to protect the LEDs. Flexible printed circuit boards (“FPCBs”) are connected to the etched circuitry at the edges of the base glass. The gap between the base and cover glass is filled with a proprietary resin. The frame of the glass contains the LED drivers and each of these drivers are connected to the media glass via the FPCBs.

Drivers are connected in series into frames and each unit of media glass has at least one data and one power connection. Data connections run to a high-definition multimedia interface (“HDMI”) controller unit that has multiple channels connected to different media glass panels. One or more HDMI controllers take a single HDMI input from a PC or laptop running either proprietary or third-party LED screen management software.

The product can be delivered in multiple panel-sizes up to nine feet tall by four and a half feet wide dependent on LED pitch. The LED pitch defines the distance between individual LEDs and determines the resolution of the media glass. We currently deliver G-Glass with a pitch of 80 millimeters, 60 millimeters, 40 millimeters, 30 millimeters and 20 millimeters and can produce both color and monochrome versions of our media glass.

 

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Architectural projects can require very idiosyncratic glass specifications which we are able to conform to our G- Glass technology. For example, we have delivered mirrored glass, low iron glass, heat treated or toughened glass, specialist no-reflective coatings, double glazing, various thicknesses of cover and base glass, and frit patterns.

Installation

Although from time to time we plan and manage the installation of our products at our customers’ venues, we also rely heavily on a third-party façade engineering company for the installation of our products for certain projects. Typically, there is a separate provider for the steel or aluminum curtain wall system to which our media glass panels attach. In those instances, we work with these providers to develop a combined façade system. See “Risk Factors—Risk Factors Related to Our Industry and Company—We sometimes manage the installation of our products, which subjects us to risks and costs that may impact our profit margin.” and “—We sometimes rely on third-party contractors for the installation of our products, which subjects us to risks and costs that are out of our control.”

There are currently three different types of architectural installation that are possible:

 

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New build: Our media glass forms the external envelope of the building attaching to the curtain wall system, which in turn is affixed to the concrete floor slabs.

 

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Internal: This tends to be a brown field solution where the customer is trying to add media functionality to an existing façade. In this instance, the media glass is affixed to the inside of an existing façade system.

 

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External rain façade: Another brown field solution that can be utilized on almost any existing façade. This is typically a secondary skin built over the existing façade. It’s often used where the existing façade is either old or unattractive and the owners want to enhance the appearance of the structure to make it more modern.

Captivision Korea project engineers are typically onsite to help with any problems during installation and to verify that the installation meets our expected standards.

Applications

Our G-Glass technology is flexible, and G-Glass can be used for many different applications ranging from large architectural deployments to temporary event installations. Examples of the types of deployments we have delivered include the following:

 

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Architectural façade: At over 43,000 square feet, our View Hospital façade is our largest screen to date, but it is just the latest in a long list of architectural façade implementations. Our architectural façades are typically the largest and most lucrative of our deployments.

 

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Bridge railing: We have installed G-Glass on numerous bridge railings in South Korea. Prior to our G-Glass technology, bridges mainly used traditional lighting to enhance their aesthetic appearance at night. However, we are now seeing increasing demand for storytelling-capable media. Although traditional LED screens have media capabilities, they diminish the aesthetic beauty of an architect’s design and require high maintenance costs. The use of G-Glass has proved to be a perfect solution for this application.

 

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Handrails: Our handrail product has become increasingly popular in South Korea since its release. Like our bridge railing deployments, we believe the success behind our handrail product is due to its storytelling capabilities, ability to enhance the aesthetics of architectural design and relatively low maintenance costs.

 

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G-Tainer: One of our event solutions, the G-Tainer, consists of a steel frame of the approximate size of a shipping container, which is used to mount our media glass. G-Tainers allow us to create multi-story,

 

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temporary structures. They have been deployed at scale for events in both South Korea and the United Kingdom.

 

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G-Wall: Another one of our event implementations, the G-Wall, is comprised of a steel or aluminum frame that allows us to mount one or more standard panels for both outdoor and indoor events.

 

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Showroom application: Our G-Glass technology has been used to create showroom partitions for both BMW and Porsche showrooms. We believe showroom applications are a potential growth market.

 

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Bus Shelter Applications: These have been implemented mostly in South Korea; they involve using our media glass to either deliver wayfinding information or to display artistic imagery on the sides of bus shelters.

While these applications cover our recent deployments, we continue to pursue the development of new uses for our technology.

Technology

Since 2011, we have pioneered an architectural media glass technology that is durable, nearly completely transparent and capable of rich media display. Our technology contains many innovations in both the materials and machinery used in the production line. It embeds LEDs in an ultraviolet (“UV”) cured resin laminate with laser etched circuitry connecting the LEDs to FPCBs at the edge of the glass that are then connected to drivers in the frame of the glass.

Laser etching circuitry at such a large scale was a significant technical problem and for which we managed to develop in-house specific machinery for the process. The resin in the laminate is also proprietary and was developed in conjunction with Kömmerling Chemische Fabrik GmbH (“Kommerling”) to have very specific viscosity, transparency, durability and curing characteristics. The silver paste used to attach the LEDs to the fluorine-doped tin oxide glass is also a proprietary compound specially designed to give uniform adhesion and connectivity without deterioration of the bond over time. In the aggregate, we have over 30 proprietary raw materials in use across our production line.

We use high performance LEDs from both Osram GmbH (“Osram”) and Nichia Corporation (“Nichia”) in our products. These LEDs are rated for over 100,000 hours of performance at full brightness giving us both the quality and durability we and our customers require for an architectural product.

Our LED drivers that power and control the individual LEDs that are mounted inside the G-Glass frame, are designed by us and are built to our or our customers specifications. These LED drivers are mounted inside the frame mullion that surround each G-Glass window pane and are easily serviced or replaced after the G-Glass windows are installed.

Our glass comes from internationally recognized and certified flat glass manufacturers such as Pilkington plc (“Pilkington”) and Saint-Gobain.

Our technology also includes our bespoke designed HDMI controllers, sub controller units and data receivers. We deliver our own mapping software that allows us to upload mapping files to the HDMI controllers allowing them to be configured for multiple orientations, size and pitches of glass. Our software development department has also created a proprietary LED screen media management system that allows us to choose architectural scale media from a large range of content, much of which has been specifically designed to play on an LED screen.

Patents

We currently have over 20 patents registered across several different countries including South Korea, the United States, China and Japan. Five of these are fundamental patents essential for G-Glass production. We also

 

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have another four patents pending in South Korea. Our patents cover both our technology and our manufacturing process.

Research and Development

Over the past 12 years, our research and development department has consistently created reliable products that meet and exceed customer expectations. Our product and technology roadmaps are carefully coordinated. In particular, our research and development team concentrates on the following areas:

 

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Components and materials: We have developed over 30 proprietary components, including our LED drivers, and materials, such as our specialized resin. We expect to continue to innovate in this area to ensure that our components and materials continue to improve in performance and longevity.

 

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Manufacturing: The majority of our manufacturing process relies on our proprietary machinery and systems. In the future, we intend to increase the maximum dimensions of our products and accommodate additional functions, such as photovoltaic, electrochromic and audio functions.

 

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Products: To date, we have been able to deliver a wide range of bespoke products with LED pitches between 20 and 80 millimeters in both monochrome and color. We concentrate on improving the brightness and ease of use of our current media glass products while also exploring different ways of implementing our base technology to meet evolving market needs.

 

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Software: We have developed software for the mapping of our controllers to different media glass configurations and an LED media display and content management system. We expect the market for architectural media glass to be substantial and strive for our business to become more media-orientated over time. Software development is likely to be an increasingly significant focus of our research and development efforts in the future.

We intend to expand our research and development activities in the future to meet our aspirations of leading the architectural display market.

We have obtained 28 separate certifications across the United States, European, Chinese, Japanese and South Korean markets. These include, amongst others, CE electricity safety and CE electromagnetic EMC certifications in Europe, a KC electromagnetic compatibility certification in South Korea, and FCC electromagnetic certifications in the United States. Our certifications cover all aspects of our media glass, including fire safety, building material, electrical standards and production processes at our manufacturing plants. We monitor evolving regional regulations and take steps to ensure our products comply with expected standards.

Manufacturing

Machines & Equipment

We own or lease a range of equipment, including production line machinery, transportation, computers and plants. The machinery for the production line is proprietary and heavily modified to enable the production of bespoke media glass products. It includes the following main components: cutting, laser etching, LED bonding, UV resin setting, glass hardening and double-glazing. In addition, there are testing rigs and a range of other stations that allow for bonding of FPCBs, resin pouring and aging.

Quality Control

We apply quality control in three main areas of production: raw materials, machinery and product. Our raw materials are tested by our partners under strict guidelines and international standards before being sent to us. Accordingly, we are assured of high quality upon arrival in the factory. Our production line machinery undergoes calibration testing at scheduled intervals to ensure that it is performing as expected and within known tolerances.

 

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We source our raw materials from leading global manufacturers, including KCC Corporation, Kommerling, Magnachip Semiconductor Corp (“Magnachip”) Nichia, Osram, Pilkington, and Schuco International KG. Most of our materials can be easily sourced locally in South Korea. For some key raw materials, we source at least two suppliers as a contingency so that any unexpected delay from one supplier does not interrupt our manufacturing.

In order to promote the highest quality, our products are individually checked and tested for a range of potential issues before leaving the factory. In particular we check and test for:

 

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Debonding of the laminate: the resin has not hardened uniformly causing delamination at points within the glass laminate.

 

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Faulty LEDs: LEDs are either not working or working incorrectly (poor brightness or color performance).

 

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Faulty bonding of LEDs: the LEDs are only partially bonded to the circuitry on the glass.

 

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Bubbles in the resin: pockets of air in the hardened resin, especially around the LEDs.

 

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Faulty bonding of FPCBs: the FPCBs are only partially bonded to the glass.

 

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Faulty drivers: the drivers are not performing as expected leading to either failure of a part of the media glass panel or faulty brightness or performance of a section of the media panel.

 

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Faulty receivers: a failure of the receiver causing poor performance of the whole media glass panel.

In addition, all cables and terminations are checked to ensure that they are securely connected and are free of damage.

Warranty

We generally provide a basic two-year warranty for the glass part of our product and a two-year warranty for the electronic part of our product. This includes a provision for the replacement parts and warranty services of our products. We also give customers an option to extend their warranties for a fee.

Costs incurred under our warranty liabilities consist primarily of repairs. We set aside a warranty reserve based on our historical experience and future expectations as to the rate and cost of claims under our warranties. We maintain warranty exchange inventories in regional hubs to meet our customers’ needs.

Capacity

We have one operational manufacturing facility in Pyeongtaek, South Korea (operational since 2012) and one manufacturing facility in Tianjin, China (operational from 2019 to 2020), which suspended its operations in March 2020 due to COVID-19 regulations imposed by the Chinese government and has not yet restarted its operations due to the region’s sluggish economic conditions following the COVID-19 pandemic. When operational, each facility has the capacity to produce 700,000 square feet of G-Glass per year. This allows us to rapidly produce large quantities of high-quality customizable products. During the six months ended June 30, 2024 and 2023, and the years ended December 31, 2023 and 2022, our glass production amounted to approximately 4.9%, 5.1%, 5.9% and 4.5%, respectively, of our operational facility’s total possible production capacity based on our revenue for those time periods, indicating we have considerable room for sales and production growth without the need for concomitant capital investment.

Materials and Suppliers

Many of our raw materials are proprietary. We have worked with a range of suppliers to develop these materials, such as our UV activated laminate resin which was specifically formulated for us through an experimental development process with our supplier. The suppliers of many of our critical components are

 

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considered “best-in- class” for their materials, such as Pilkington for our glass or Osram and Nichia for our LEDs. We have raw material contracts with supply periods of up to one year, which has enabled us to remain flexible and adaptable to fluctuations and uncertainties in the supply of raw material. All materials are rigorously tested to provide high- quality final products able to meet the expectations of our customers for both durability and reliability.

Although the prices of raw material have remained generally stable over the past 10 years, recent disruptions in the global supply chain, including the armed conflict between Russia and Ukraine, have significantly driven up the prices of some of our raw material. However, this increase is partially offset by decreases in our manufacturing costs, due to improved manufacturing efficiency. As of the years ended December 31, 2023 and 2022, our unit price of raw materials only increased approximately 3.7% and 6.1%, respectively, over the prior year, which has not made a significant impact on our financial condition and results of operation. For the six months ended June 30, 2024, our unit price of raw materials remained unchanges from the prior year. Going forward, we would expect that global supply chain stabilization and increasing production volume result in a decline in our raw material costs.

Supply Agreements

We are party to multiple supply agreements with various partners (our “Partners”). Pursuant to the supply agreements, our Partners have agreed to supply us with ordered materials (“Ordered Materials”) at our request pursuant to purchase orders.

The price of the Ordered Materials is determined by our Partners. When considering the price of the Ordered Materials, our Partners take into consideration the quantity, quality, specification, delivery date, payment method, material price, labor, or market price trends and include all costs such as freight, unloading and insurance fees to a delivery location designated by the order form, unless otherwise specified. We may, if necessary, provide the raw materials used by our Partners for the production of the Ordered Materials by consulting with the Partner.

The supply agreements are each effective for a term of one year from the date of signing. Each supply agreement may be automatically extended for an additional year on the same terms and conditions unless either party provides written notice of termination at least one month prior to the expiration of the term of the agreement.

The supply agreement may be terminated by either party, if either party: (i) has been suspended from a financial institution, (ii) begins a liquidation process, (iii) enters into a merger agreement, (iv) experiences a force majeure, or (v) provides a preemptory notice to the other party for a period of not less than one month. Upon termination, each party must promptly return to the other party any specification documents and loaned or gratuitous materials that was used in the course of the supply agreements. While the Partners may have considered the Business Combination Agreement to be a merger agreement under the terms of their supply agreements that could trigger their termination right thereunder, none of the supply agreements has been terminated and Captivision Korea has not received notice of termination or intent to terminate from any of the Partners.

Insurance

We currently have property insurance coverage, including business interruption coverage, for our production facility in Pyeongtaek, South Korea for up to such amounts as we deem reasonable for our business. We also have insurance coverage for work-related injuries to our employees, damage during construction, damage to products and equipment during shipment, automobile accidents and bodily, as well as mandatory unemployment insurance for our workers and director and officer liability insurance. In addition, we maintain general and product liability, employment practice liability, and world-wide cargo insurance. Our subsidiaries also have insurance coverage for damage to office fixtures and equipment and life and disability insurance for their employees. All of our overseas subsidiaries also carry property insurance and commercial general liability insurance.

 

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Competitive Landscape

Fourth Generation

We consider Captivision Korea to be the first and only provider of fourth generation architectural media glass. G-Glass’s combination of transparency, durability and media opportunity presents a new opportunity in the digital marketplace. As seen in the below image we see G-Glass as the natural progression of architectural lighting and media façade.

 

 

1.	Based on management’s review of publicly available information. Note: Definition of 4th Generation media façade is media product that has more than 99% transparency and architectural durability. The definition was minted by Moto Design.

As illustrated above, we consider the first generation of architectural lighting to be the scenic lighting that has lit buildings for centuries in order to better display architecture at night. This first generation of architectural lighting is historic scenic lighting. In the 1940s, second generation architectural lighting began in the form of neon lighting that could start to tell crude stories using pictograms. As a result, lights could now run advertisements, light up to consumers the name of a building or brand, or simply highlight aspects of structures. The third generation of architectural lighting began in the 1990s. Starting in the 1990s the world started to see LED bar and mesh products form the first true media façades. Compared to the second generation, video became possible and designers or architects could begin to tell more complex stories. However, third generation architectural lighting still has many drawbacks. Due to the metal or plastic matrix obscuring the line of sight, these solutions were then and are still today limited in their areas of deployment and only a very limited number of locations can use third generation lighting. Additionally, because third generation displays are not transparent, those behind the display cannot see beyond the LEDs. Captivision Korea architectural media glass is a true fourth generation product. Being almost fully transparent, it can be implemented anywhere traditional architectural glass can be implemented. It does not negatively impact the aesthetic beauty of an architect’s design and it does not block the line of sight from inside the building. Combining this with sophisticated media capability and full architectural durability, G-Glass is revolutionary.

According to the 2023 Freedonia Group Global Flat Glass Report, the global demand for architectural glass market is estimated to be 128 billion square feet per year. This market does not include the first, second or third

 

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generation architectural lighting market, since these products are not in glass form. In addition, as the previous generations of architectural lighting are not categorized as construction material, they will not replace or become interchangeable with architectural glass products.

We believe that our fourth generation glass façade product, G-Glass, is squarely within the architectural glass market. Unlike the previous generations of architectural lighting, our G-Glass technology is an IT-enabled construction material. It combines conventional architectural glass with customizable, large-scale LED digital media display capabilities, delivering architectural durability, near full transparency and sophisticated media capabilities. As such, we believe it has the potential to displace part of the traditional architectural glass market.

Competitors

Due to the capital-intensive nature of the architectural media glass industry and the high production volume required to achieve economies of scale, the international market for architectural glass media installations is characterized by significant barriers to entry, curtailing major competitors from entering the market.

We estimate it would take any competitor five to six years to develop a process and machinery, three years to obtain the necessary certifications, and five to six years to build reference sites. This totals an aggregate of 15 years to penetrate the market. We largely attribute our success to our ability to produce our novel G-Glass technology in- house, with a mix of proprietary raw materials and raw materials sourced by third parties. The majority of our key raw materials are internally developed and unavailable in the market. Additionally, we have completed over 500 projects, three of which are SLAM projects in the APAC and EMEA regions. Potential competitors would also have to compete against our global distribution and reference network.

Our employees have extensive training, knowledge and experience at manufacturing high specification products. We believe the vertically integrated nature of our operations means there are high barriers to successfully entering our markets and competing with us on price, quality and versatility. In addition, the equipment, research and development expenses needed to operate in the architectural media glass industry are expensive, therefore requiring significant upfront capital investment. As of June 30, 2024 and December 31, 2023, we have invested over $0.1 million and $0.7 million into research and development as well as machinery and manufacturing capabilities, and any emerging competitor would likely need to do the same.

We do not believe that traditional architectural glass manufacturers could easily enter the architectural media glass market. Although our products do use architectural glass produced by traditional architectural glass manufacturers, our product is fundamentally an IT product with complex circuitry, electronic functions and novel manufacturing processes that are non-existent in the conventional architectural glass market. In order to penetrate this market, traditional architectural glass manufacturers would need to rapidly develop and integrate IT products with their glass products, which would require very significant expenses and development time.

Similarly, we do not believe that traditional DOOH manufacturers could easily enter the architectural media glass market. Although DOOH manufacturers have an understanding of circuitry and electronics, our manufacturing process differs greatly from that of traditional DOOH products. Our processes involves architectural aspects such as glass tempering, insulated glass units, fire-proofing and complex customization, which traditional DOOH manufacturers do not utilize. In order to penetrate this market, traditional DOOH manufacturers would also need to rapidly develop new manufacturing techniques which would incur substantial costs and entail lengthy development times.

We consider Captivision Korea to be the first and only commercialized and mass-producer of architectural media glass. Architectural media glass combines conventional architectural glass with LED digital media display capabilities and is characterized by (i) more than 99% transparency, (ii) architectural durability and (iii) architectural customization capability. We believe Captivision Korea to be the only large-scale architectural media glass manufacturer that fits this definition. However, we do compete with earlier generation hardware

 

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products that do not deliver the architectural industry mandated transparency, durability and customization, including LED bars, LED mesh and LED screens.

Smaller-scale architectural media glass manufacturers

We believe we are the only company to successfully commercialize and mass-produce a construction material that integrates LEDs into glass panels. Other companies that have endeavored to commercialize similar products include:

 

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Glas-Platz GmbH & Co’s Power Glass, a German manufacturer, who, to our knowledge, is only able to produce a very limited quantity their product and is unable to fulfil diverse customization requirement required by clients; and

 

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AGC Glass Europe’s Glassiled, a European arm of a global glass manufacturer which has been largely inactive during the past few years and has few commercial or installation references.

Lesser generation architectural hardware manufacturers

We have also faced a new class of competitors using LED films, including LG Electronics (“LGE”). LED films, however, have critical disadvantages such as limited durability, hazy transparency, sub-standard aesthetic finish and an inability to customize size stemming from inherent technological limits of LED film technology. These are all critical in the architectural market.

As a result, we believe that there is no other existing LED technology with comparable durability, scalability or mass-production capability competing with G-Glass in the architectural media glass market. We are also not aware of any other architectural media glass competitor that has a comparable commercial history, proven architectural durability, significant installation references and meaningful manufacturing production capacity and technology.

Market Size, Marketing and Sales

Market Size and Market Strategy

We continue to expand on our existing South Korean foundation by strategically expanding our sales efforts globally in both developing and developed markets. We are an established company with a proven, innovative product and strong market acceptance, having made hundreds of completed installations across multiple continents. According to the 2023 Freedonia Group Global Flat Glass Report, global demand for architectural glass is 128 billion square feet per year. Assuming we are able to penetrate 0.1% of that area, our total addressable market would be $38 billion per year based on a $300 price per square foot. Furthermore, according to a report by PQ Media Global Digital, the DOOH media has a current estimated market value of $20 billion and is expected to grow at 12% per annum until 2025 despite being relatively new to the technological landscape. We believe there is no significant convergence between the architectural glass market and the DOOH media market. We expect that the emergence of a more architecturally appealing solution, like G-Glass, will accelerate and expand the growth of this market.

We are targeting the largest DOOH markets in Asia, the Americas and EMEA through a robust regional sales and marketing efforts. Our efforts have shown us that each market costs roughly $2 million to penetrate, but we estimate that each market will generate $10 million annually within five years. As part of our international strategy, we built overseas sales channels through several subsidiaries: G-SMATT America, G-SMATT Japan, G-SMATT Hong Kong, G-SMATT Europe and G-SMATT Tech.

Our sales strategy also allows us to capitalize on advertising revenue. For each new installation, Captivision Korea will offer to split the upfront capital expenditures or installation costs with the customer and agree to maintain the installed G-Glass. In return, Captivision Korea will license the use of the G-Glass to third parties and retain 80% of the media and advertising revenue the installation generates.

 

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Sales Cycle

The sales cycles of our SLAM projects are an average of four to five years. The bid process of these large-scale projects takes approximately six months to one year, which is followed by a design and sales quotation phase of two to three years. The construction phase can then take anywhere from two to three years, including the installation of G-Glass at our customers’ venues. This timeline is subject to a variety of factors such as delays in construction schedules, reallocation of budgets and project modifications. While SLAM projects are lucrative and represent the most impressive implementations of our technology, we do not rely wholly upon these projects to drive revenue. See “Risk Factors—Risk Factors Related to Our Industry and Company—Our sales cycle for large projects is protracted, which makes our annual revenue and other financial metrics hard to predict.”

Our smaller projects and rental applications, such as handrails, bus stops, bridges, G-Tainers and media walls, have shorter sales cycles that typically range from three months to one year from the time of the initial order to the completion of the installation of our products. The timelines for these smaller projects are also subject to a number of factors such as government policy changes, reallocation of budgets and typical construction delays.

Our sales cycles may also be subject to seasonality, depending on the sector. The small-scale architectural sector tends to be quieter during the winter season because the colder weather conditions often hinder active construction work. Our domestic government sales have been weaker in the first half tend as most government budgets are typically spent in the fourth quarter. In general, our sales have been slower in the first half of the year and busier in the second half. However, we believe that this could change over time as our geographic footprint, customer base, product line-up and services expand.

Geographic Distribution

We are establishing a leading reputation in the domestic South Korean and international construction and DOOH markets by providing high value and impact-resistant architectural media glass products. We have ongoing or completed projects across three continents and eight countries. Our G-Glass is certified in compliance with South Korean regulations and has been registered as an “Excellent Product” by the Public Procurement Service of Korea since 2020, allowing us to enter into contracts with government agencies without participating in public tendering procedures. See “Risk Factors—Risk Factors Related to Our Industry and Company—Our Excellent Product designation of G-Glass by the Public Procurement Service of Korea expires on March 31, 2025, which may materially adversely affect our domestic government sales.”

Since our inception, the majority of our sales to date have been concentrated mainly in South Korea and surrounding Asian countries, including China and Japan. Sales in APAC comprised 99.8% and 96.4% of our revenue in the six months ended June 30, 2024 and 2023, and 73%, 51% and 87% of our revenue in the years ended December 31, 2023, 2022, and 2021, respectively. However, we have now started to meaningfully break into the United States and Middle East markets. Utilizing various marketing opportunities resulting from the Business Combination, we intend to continue to grow our sales organically in other geographical jurisdictions in an effort to expand our global footprint.

 

Geographic Market		Growth for the Six Months Ended June 30, 2024 vs 2023				Revenue for the Six Months Ended June 30, 2024 (in $ million)				% of Total Revenue for the Six Months Ended June 30, 2024				Revenue for the Six Months Ended June 30, 2023 (in $ million)				% of Total Revenue for the Six Months Ended June 30, 2023
APAC			25.9	%			15.2				99.8	%			12.1				96.4	%
EMEA			-77.9	%			0.0				0.1	%			0.1				0.7	%
North America			-97.4	%			0.0				0.1	%			0.4				2.9	%
Total			21.6	%			15.3				100.0	%			12.6				100.0	%

 

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Geographic Market		Growth for the Year Ended December 31, 2023 vs 2022				Revenue for the Year Ended December 31, 2023 (in $ million)				% of Total Revenue for the Year Ended December 31, 2023				Revenue for the Year Ended December 31, 2022 (in $ million)				% of Total Revenue for the Year Ended December 31, 2022
APAC			3.7	%			10.7				73.0	%			10.3				51	%
EMEA			(46.4	%)			3.6				24.5	%			6.7				33	%
North America			(88.6	%)			0.4				2.5	%			3.2				16	%
Total			(131.3	%)			14.6				100	%			20.2				100	%

 

Geographic Market		Growth for 2022 vs 2021				Revenue for the Year Ended December 31, 2022 (in $ million)				% of Total Revenue for the Year Ended December 31, 2022				Revenue for the Year Ended December 31, 2021 (in $ million)				% of Total Revenue for the Year Ended December 31, 2021
APAC			26	%			10.3				51	%			8.2				87	%
EMEA			2,549	%			6.7				33	%			0.3				3	%
North America			244	%			3.2				16	%			0.9				10	%
Total			114	%			20.2				100	%			9.4				100	%

Group Structure

We are incorporated and domiciled in the Republic of Korea. Our registered office and manufacturing facility are located at 298-42 Chung-buk Chungang-ro Chung-buk, Pyeong-taek, Gyounggi, Republic of Korea.

The following table lists our associates or entities over which we have influence but do not possess control or joint control.

 

Associate		Jurisdiction of Formation		Percent Owned
Brillshow Limited		China			33.00	%
G-SMATT Japan		Japan			40.16	%*
G-SMATT Hong Kong		Hong Kong			27.40	%*

 

(*)	Including the shares of G-Frame Co., Ltd. which is 100% owned by Captivision Korea.

Our corporate structure is comprised of the following consolidated subsidiaries and associates that are either wholly owned or majority-owned.

 

Entity		Jurisdiction of Formation		Percent Owned
G-Frame Co., Ltd.		South Korea			100.00	%
G-SMATT Europe		United Kingdom			76.55	%
G-SMATT America		United States			54.63	%*
G-SMATT Tech		China			100.00	%

 

(*)	Including the shares of G-Frame Co., Ltd. which is 100% owned by Captivision Korea.

Distribution Agreements

Captivision Korea and G-SMATT Global

On July 31, 2015, Captivision Korea and G-SMATT Global, a former related party of Captivision Korea (“G-SMATT Global”), entered into an exclusive distribution agreement (the “Original G-SMATT Global Distribution Agreement”). Pursuant to the agreement, G-SMATT Global was granted exclusive distribution rights for Captivision Korea’s LED transparent display products in all territories, except China from 2015 to 2025.

 

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On September 14, 2022, the Suwon District Court denied G-SMATT Global’s filing in connection with the commencement of corporate rehabilitation proceedings. However, we believe that our efforts to mitigate the effects of G-SMATT Global’s prior bankruptcy proceedings have insulated us from any material impacts on our business functions, financial condition and result of operation. In September 2018, as part of G-SMATT Global’s restructuring process, Captivision Korea’s management decided to sell G-SMATT Global. As part of the terms of the sale, (i) Captivision Korea and G-SMATT Global were given dual distribution rights to distribute G-Glass in any and all territories worldwide, except China, and (ii) all staff involved in the G-Glass operation within G-SMATT Global were transferred to Captivision Korea. On March 7, 2019, the Original G-SMATT Global Distribution Agreement was amended (together with the Original G-SMATT Global Distribution Agreement, the “G-SMATT Global Distribution Agreement”) to grant Captivision Korea a joint distribution right in its products. As a result, Captivision Korea acquired 50% of the consideration received from G-SMATT Global in connection with the G-SMATT Global Distribution Agreement for this exclusive territorial distribution right as intangible assets. The sale of G-SMATT Global was completed in March 2019.

Under the G-SMATT Global Distribution Agreement, the pricing of the products produced by Captivision Korea and sold to G-SMATT Global for distribution are mutually agreed upon between the parties, provided that the parties ensure there is an appropriate margin for Captivision Korea. Further, where G-SMATT Global pursues a project, whether in South Korea or abroad, Captivision Korea is required to consult on the pricing of products with G-SMATT Global prior to the submission of project proposals. In addition, in the event that Captivision Korea and G-SMATT Global jointly develop a new product, (i) any rights to such product, including any intellectual property rights, will be jointly owned by Captivision Korea and G-SMATT Global and (ii) Captivision Korea will have the right to exclusively produce, and G-SMATT Global will have the right to exclusively distribute, such product. G-SMATT Global has expressed that it has no intent to distribute our products. Once the G-SMATT Global Distribution Agreement expires in 2025, Captivision Korea will regain full distribution rights.

The G-SMATT Global Distribution Agreement contains termination rights in the event of a breach of the agreement by the other party, the event of a bankruptcy or if the distributed product is found to infringe on a third party’s industrial property rights. The G-SMATT Global Distribution Agreement is governed by the laws of South Korea and contains conflict resolution procedures in the event of a dispute between the parties. See “Risk Factors—Risk Related to Our Industry and Company—Our joint distribution agreement with G-SMATT Global, which is in effect until 2025, may adversely affect our financial results.”

Captivision Korea and G-SMATT Europe

As part of our ongoing strategic and internal restructuring, we determined that it was in our best interest to dispose of our interest in G-SMATT Europe, which previously served as our European sales affiliate and partly owned subsidiary. On September 25, 2024, Captivision Korea entered into a share purchase agreement with certain purchasers named therein (the “Purchasers”), pursuant to which Captivision Korea agreed to sell and the Purchasers agreed to purchase, Captivision Korea’s 76.6% ownership interest in G-SMATT Europe in exchange for a nominal aggregate purchase price of KRW 1 million (approximately $800). The sale is expected to close on or about September 25, 2024.

G-SMATT Europe does not have material assets other than its rights under a distribution agreement with Captivision Korea, dated May 18, 2020 (the “Distribution Agreement”), granting G-SMATT Europe exclusive distribution rights for Captivision Korea’s LED transparent display products in the United Kingdom and European Union, which has been terminated by Captivision Korea, effective as of September 19, 2024.

Captivision Korea and G-SMATT America

On May 18, 2020, Captivision Korea and G-SMATT America entered into an exclusive distribution and license agreement (the “G-SMATT America Distribution Agreement”). Pursuant to the agreement, G-SMATT

 

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America was granted exclusive distribution rights for Captivision Korea’s LED transparent display products in the United Stated of America for an initial term of six years. Upon the expiry of the initial term, the G-SMATT America Distribution Agreement shall be automatically renewed for a period of three years, unless both parties agree to terminate the agreement.

Under the terms of the agreement, Captivision Korea granted G-SMATT America a non-exclusive, non-transferrable and non-sub-licensable license to manufacture and sell Captivision Korea’s products in the United States. G-SMATT America may construct a factory to manufacture Captivision Korea’s products in the United States, subject to consultation with Captivision Korea prior to commencing construction. The agreement is non-assignable without the prior consent of the other party.

Captivision Korea has the right to terminate the G-SMATT America Distribution Agreement with immediate effect by written notice to G-SMATT America in the event that G-SMATT America (i) fails to satisfy the minimum sales obligation, which entails purchasing and re-selling $85,000,000 worth of Captivision Korea products over the initial term of the agreement, (ii) liquidates or becomes insolvent, (iii) fails to make any undisputed payments within two months of notice of such breach from Captivision Korea or (iv) defaults on its obligations under the agreement and fails to remedy the breach within three months of written notice from Captivision Korea.

The G-SMATT America Distribution Agreement is governed by the laws of the Republic of Korea and binds the parties to the Korean Commercial Arbitration board in Seoul in the event of a dispute between the parties.

G-SMATT Global and G-SMATT America

On June 15, 2016, G-SMATT Global, a former related party of Captivision Korea, and G-SMATT America entered into an exclusive distribution and license agreement with a ten-year term covering the United States and Canada. Per the agreement, in consideration for the exclusive territorial distribution rights and license, G-SMATT America paid a one-time, non-refundable royalty fee, of which 50% of the consideration by G-SMATT Global for sub-licensing the exclusive territorial distribution right to another party must be paid to Captivision Korea. Accordingly, 50% of the consideration received from G-SMATT America was paid to Captivision Korea by G-SMATT Global after finalizing the exclusive territorial distribution contract with G-SMATT America.

G-SMATT Global and G-SMATT Europe

On March 27, 2017, G-SMATT Global and G-SMATT Europe entered into exclusive distribution and license agreements for an initial term of 10 years covering Europe. The payment for the exclusive territorial distribution rights and license granted, is being amortized using the straight-line method over a useful life of 10 years. 50% of the consideration received from G-SMATT Europe was paid by G-SMATT Global to Captivision Korea.

Regulation

We are subject to extensive and varied federal, state and local government regulation in the jurisdictions in which we operate, including laws and regulations relating to zoning and density, building design and safety, fire, hurricane and floods, construction, and similar matters. In particular, the market for G-Glass depends in large part on our ability to satisfy state and local building codes. Additionally, some jurisdictions in which we operate require that installation of doors and windows be approved by the competent authorities that grant distribution licenses. We have invested significantly in our quality assurance department in order to maintain rigorous oversight over the production process to ensure the consistent production of high-quality products that comply with local regulation. We have been certified in compliance with rigorous safety standards, as described in more detail in the section titled “—Certifications.”

 

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We are also typically subject to laws and regulations related to light pollution and city beautification. The laws and regulations vary widely between countries, cities and even within different zones in a city. As our product tends not to create light pollution we are generally in compliance with these policies.

If our product is to be used for outdoor advertising, we are subject to laws and regulations related to outdoor advertising. Outdoor advertising laws and regulations tend to be strict in developed countries. These laws and regulations vary widely between countries, cities and even within different zones in a city. There are also many countries, cities and zones which promote outdoor advertising to boost the local economy.

We are subject to laws and regulations relating to our relationships with our employees, public health and safety and fire codes. Although our business and facilities are subject to federal, state and local environmental regulation, environmental regulation does not have a material impact on our operations.

Aggregate Compensation of Executive Officers and Directors

The aggregate cash compensation paid and shared-based compensation and other payment expensed by us and our subsidiaries to our executive officers and directors as a group for the year ended December 31, 2023 was $1,136,073.

None of our directors or executive officers are compensated by any third party for their respective services rendered to us as required to be disclosed pursuant to Nasdaq Rule 5250(b)(3).

Under the Labor Standard Act and the Employee Retirement Benefit Security Act, we are required to pay a severance amount to eligible employees who voluntarily or involuntarily terminate their employment with us, including through retirement. The severance amount for our officers equals the monthly salary at the time of his or her departure, multiplied by the number of continuous years of service. There is no severance benefit for our directors.

We maintain directors’ and officers’ liability insurance policy covering certain potential liabilities of our directors and officers.

Human Capital

As of June 30 2024 and June 30, 2023 and as of December 31, 2023 and December 31, 2022, we had a total of 97, 97, 98 and 103 employees, respectively. As of the date of this prospectus, we have experienced the loss of a significant number of our manufacturing personnel due to our working capital constraints, which will have an adverse effect on our operations.

Our key personnel includes specialized engineering personnel, key researchers, engineers, senior management and production facility operators. We actively encourage and facilitate the development of our employees through rolling training programs, with multiple training sessions held on regular basis. These programs increase the ability of our employees with appropriate skill sets required for dedicated tasks. We are committed to developing our employees and remaining at the forefront of technology and market dominance in our industry. We consider ourselves an equal opportunity employer and have constantly sought to seek the best talent irrespective of gender or ethnicity. While the jobs associated to the core operations are predominantly filled by males, our sales and administrative staff is comprised of approximately 18% female and 82% male staff. From an ethnicity perspective, our labor force is diverse but predominantly South Korean based on our location.

Property and Facilities

We maintain one operational manufacturing facility in Pyeongtaek, South Korea and one temporarily non-operational facility in Tianjin, China. We also maintain offices in South Korea, the United States, the United

 

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Kingdom, Japan and China (including Hong Kong). All of our facilities are used in our sole operating segment. We believe these are sufficient for our needs.

Legal Proceedings

We may, from time to time, be subject to legal proceedings in connection with our regular course of business. Although we cannot predict with certainty the ultimate resolution of lawsuits, investigations and claims asserted against us, we are not currently a party to any litigation or legal proceedings that, in the opinion of our management, are likely to have a material effect on our business, results of operations, cash flows or financial condition.

Additional Information About the Company

We maintain a number of websites including www.captivision.com, www.captivision.co.kr, www.g-smatteurope.com, and www.glaamamerica.com. The information contained in, or accessible through, our website does not constitute a part of this prospectus.

Our corporate filings, and any amendments to those filings, are available in English free of charge on our Investor Relations page at https://ir.captivision.com/, which are uploaded as soon as reasonably practicable after we electronically file (or furnish in certain cases) such material with the SEC, and can also be found at the SEC’s website at http://sec.gov.com.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis provide information which management believes is relevant to an assessment and understanding of our operations and financial condition. The discussion should be read together with our unaudited condensed consolidated financial statements as of June 30, 2024 and 2023 and our audited financial statements as of December 31, 2023 and 2022, and the related notes that are included elsewhere in this prospectus. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Cautionary Note Concerning Forward-Looking Statements” and “Risk Factors” sections of this prospectus, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Unless the context otherwise requires, references in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to “we”, “us”, “our”, and “the Company” are intended to mean the business and operations of Captivision Korea and its consolidated subsidiaries prior to the Closing of the Business Combination and to Captivision and its consolidated subsidiaries following the Closing of the Business Combination.

Overview

We are the exclusive developer, manufacturer and installer of an innovative architectural media glass product called G-Glass. G-Glass is the world’s first IT-enabled construction material that transforms buildings into extraordinary digital media content delivery devices. G-Glass combines architectural glass with customizable, large-scale LED digital media display capabilities, delivering architectural durability, nearly full transparency, and sophisticated media capability. Utilized in diverse applications from handrails to complete glass building façades, G-Glass delivers a paradigm shift in the Digital out of Home (“DOOH”) media market providing entirely new revenue models for vertical real estate. We believe we are the market leader in the delivery of fully transparent media façade capabilities with over 500 architectural installations worldwide.

We are a vertically integrated manufacturer controlling almost every aspect of product assembly and installation, including assembling the media glass laminates, manufacturing the aluminum frame, developing the electronics as well as delivering and installing the product. This enables us to provide an unparalleled level of quality and service to our customers, who include prestigious automotive brands, commercial retailers, hospitals, major sporting institutions, the music industry (as filming backdrops), film production companies, transportation hubs and telecommunications companies.

We are a global company with offices in South Korea, the United States, the United Kingdom, Japan and China (including the Hong Kong Special Administrative Region). In the six months ended June 30, 2024, and 2023, we generated $15,315,361 and $12,562,180 in revenue, respectively. In 2023, 2022, and 2021, we generated $14,636,763, $20,191,935 and $9,415,119 in revenue, respectively.

We have more than 500 installations in nine countries around the world split across three operational regions as detailed in the table below.

Comparison of the six months ended June 30, 2024 and June 30, 2023

 

Geographic Market		Growth for the Six Months Ended June 30, 2024 vs 2023				Revenue for the Six Months Ended June 30, 2024 (in $ million)				% of Total Revenue for the Six Months Ended June 30, 2024				Revenue for the Six Months Ended June 30, 2023 (in $ million)				% of Total Revenue for the Six Months Ended June 30, 2023
APAC			25.9	%			15.2				99.8	%			12.1				96.4	%
EMEA			-77.9	%			0.0				0.1	%			0.1				0.7	%
North America			-97.4	%			0.0				0.1	%			0.4				2.9	%
Total			21.6	%			15.3				100.0	%			12.6				100.0	%

 

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Comparison of the years ended December 31, 2023 and December 31, 2022

 

Geographic Market		Growth for 2023 vs 2022				Revenue for 2023 (in $ million)				% of Total Revenue for 2023				Revenue for 2022 (in $ million)				% of Total Revenue for 2022
APAC			3.7	%			10.7				73	%			10.3				51	%
EMEA			(46.4	%)			3.6				24.5	%			6.7				33	%
North America			(88.6	%)			0.4				2.5	%			3.2				16	%
Total			(131.3	%)			14.7				100	%			20.2				100	%

Comparison of the years ended December 31, 2022 and December 31, 2021

 

Geographic Market		Growth for 2022 vs 2021				Revenue for 2022 (in $ million)				% of Total Revenue for 2022				Revenue for 2021 (in $ million)				% of Total Revenue for 2021
APAC			26	%			10.3				51	%			8.2				87	%
EMEA			2549	%			6.7				33	%			0.3				3	%
North America			244	%			3.2				16	%			0.9				10	%
Total			114	%			20.2				100	%			9.4				100	%

Business Combination

On November 15, 2023, we consummated our Business Combination with Captivision Korea, JGGC and Exchange Sub. Pursuant to the Business Combination Agreement, (i) JGGC merged with and into us, with us surviving the Merger, (ii) immediately thereafter, we issued a number of Ordinary Shares equal to the Aggregate Share Swap Consideration (as defined in the Business Combination Agreement) (excluding Ordinary Shares reserved for issuance upon exercise of Converted Options) to Exchange Sub, and (iii) all Captivision Korea Shareholders transferred their respective Captivision Korea Common Shares to Exchange Sub in exchange for their respective portion of the Aggregate Share Swap Consideration in the Share Swap and, in exchange for the Aggregate Share Swap Consideration, Exchange Sub distributed all of the Captivision Korea Common Shares it received from Captivision Korea Shareholders to us. Upon consummation of the Business Combination and the other transactions contemplated by the Business Combination Agreement, Captivision Korea became our wholly owned subsidiary.

Recent Developments

July Contribution Agreements

On July 16, 2024, we entered into the July Contribution Agreements with Captivision Korea and the July Contributors, pursuant to which the July Contributors agreed to contribute the July Contributed Debt to us in exchange for the issuance of Ordinary Shares in a debt to equity conversion transaction.

Pursuant to the July Conversion, an aggregate of KRW 5,791,867,301 (approximately $4,244,681 as of the exchange rate calculation date) of July Contributed Debt was contributed to us in exchange for the issuance of an aggregate of 1,414,895 Ordinary Shares at a conversion price per Ordinary Share equal to $3.00.

G-SMATT Europe Disposition and termination of distribution right

In connection with our streamlining and internalizing of our European and Middle East sales, functions, we determined that it was in our best interest to dispose of our interest in G-SMATT Europe, which previously served as our European and Middle East sales affiliate and partly owned subsidiary.

 

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G-SMATT Europe does not have material assets other than its rights under the Distribution Agreement with Captivision Korea, dated May 18, 2020, granting G-SMATT Europe exclusive distribution rights for Captivision Korea’s LED transparent display products in the United Kingdom and European Union, which has been terminated by Captivision Korea, effective as of September 19, 2024.

July 18 Private Bonds Subscription Agreements

On July 18, 2024, Captivision Korea entered into the July 18 Subscription Agreement with the July Subscribers, pursuant to which the July 18 Subscribers agreed to subscribe to and Captivision Korea agreed to issue an aggregate amount of KRW 3,100,000,000 (approximately $2.23 million) of unregistered private placement bonds. The July 18 Bonds mature on July 18, 2026 and bear an interest rate of 2.00% per annum to be paid on the date of every three months from the date of issuance. The yield-to-date maturity rate shall be 6.00% per annum.

Pursuant to the terms of the July 18 Subscription Agreement, a July 18 Subscriber may request early redemption for all or part of the issue price of the July 18 Bonds (i) from October 18, 2024, which is three months from the date of the issuance of the July 18 Bonds, until the day before the maturity date; and (ii) at any time after the issuance date upon the occurrence of an event of default of the July 18 Subscription Agreement. If a July 18 Subscriber requests early redemption, Captivision Korea shall repay the principal of the July 18 Bonds requested for early redemption within three months from the date of receipt of the early redemption request form provided by such July 18 Subscriber, and interest from the date of the request for early redemption until the July 18 Early Redemption Payment Date shall not be paid.

If a July 18 Subscriber makes a request for early redemption, at such July 18 Subscriber’s discretion, he or she may be repaid by making an in-kind contribution of monetary claims, which are held against Captivision Korea upon the exercise of the right of early redemption, to us, and thereafter would be issued Ordinary Shares, each a “July 18 D/E Conversion”. The issue price per Ordinary Share for a July 18 D/E Conversion shall be $2.70. The approximate maximum numbers of Ordinary Shares that might be issued is 826,667 Ordinary Shares.

Marketing Services Agreement

On July 18, 2024, we entered into the Marketing Services Agreement with OTB, pursuant to which we agreed to issue 83,333 Ordinary Shares to OTB as consideration for its services provided under the Marketing Services Agreement at a price per Ordinary Share equal to $2.40.

Private Placement

On July 30, 2024, we entered into the Subscription Agreements with certain investors, pursuant to which such investors agreed to subscribe for and purchase from us an aggregate amount of $1,675,000 Ordinary Shares. The purchase price per share was $2.47, resulting in the issuance of a total of 678,138 Ordinary Shares.

July 29 Private Bonds Subscription Agreement

On July 29, 2024, we entered into the July 29 Subscription Agreement with Captivision Korea and the July 29 Subscribers, pursuant to which the July 29 Subscribers agreed to subscribe to and Captivision Korea agreed to issue an aggregate amount of KRW 1,900,000,000 (approximately $1,377,120) of unregistered private placement bonds. The July 29 Bonds mature on July 29, 2026 and bear an interest rate of 2.00% per annum to be paid on the date of every three months from the date of issuance. The yield-to-date maturity rate shall be 6.00% per annum.

Pursuant to the terms of the July 29 Subscription Agreement, a July 29 Subscriber may request early redemption for all or part of the issue price of the July 29 Bonds (i) from October 29, 2024, which is three months from the date of the issuance of the July 29 Bonds, until the day before the maturity date; and (ii) at any

 

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time after the issuance date upon the occurrence of an event of default of the July 29 Subscription Agreement. If a July 29 Subscriber requests early redemption, Captivision Korea shall repay the principal of the July 29 Bonds requested for early redemption within three months from the date of receipt of the early redemption request form provided by such July 29 Subscriber, and interest from the date of the request for early redemption until the July 29 Early Redemption Payment Date shall not be paid.

If a July 29 Subscriber makes a request for early redemption, at such July 29 Subscriber’s discretion, he or she may be repaid by making an in-kind contribution of monetary claims, which are held against Captivision Korea upon the exercise of the right of early redemption, to us, and thereafter would be issued Ordinary Shares, each a “July 29 D/E Conversion”. The issue price per Ordinary Share for a July 29 D/E Conversion shall be $2.50. The approximate maximum number of Ordinary Shares that might be issued is 550,848 Ordinary Shares.

September Debt Contribution Agreements

On September 25, 2024, we entered into the September Debt Contribution Agreements with G-SMATT Europe and the September Debt Contributors, pursuant to which the September Debt Contributors agreed to contribute the respective outstanding balances remaining under their various debt agreements with Captivision Korea (the “September Contributed Debt”) to us in exchange for the issuance of Ordinary Shares in a debt to equity conversion transaction (the “September Debt Conversion”).

Pursuant to the September Debt Conversion, an aggregate of $978,273 of September Contributed Debt was contributed to us in exchange for the issuance of an aggregate 39,594 Ordinary Shares at a conversion price per Ordinary Share equal to $10.00 and an aggregate 232,934 Ordinary Shares at a conversion price per Ordinary Share equal to $2.50.

September Equity Contribution Agreement

On September 25, 2024, we entered into the September Equity Contribution Agreement with G-SMATT Europe and CSY, pursuant to which CSY agreed to contribute to us its $660,400 of equity in G-SMATT Europe in exchange for the issuance of an aggregate of 264,160 Ordinary Shares at a conversion price equal to $2.50 in an equity to equity conversion transaction.

September Private Placement

On September 25, 2024, we entered into the September Subscription Agreements with certain investors, pursuant to which such investors agreed to subscribe for and purchase from us an aggregate amount of $500,000 Ordinary Shares. The purchase price per share was $1.65, resulting in the issuance of a total of 303,030 Ordinary Shares.

Change in Executive Officer Status

On August 7, 2024, as part of ongoing organizational adjustments, our board of directors determined that, based on their roles and responsibilities, Dr. Ho Joon Lee, our chief technology officer and a member of our board of directors, and Orhan Erthugul, our managing director, do not qualify as executive officers, as defined under the Exchange Act. Dr. Lee will remain as employee and as member of our board of directors.

September Share Purchase Agreement

On September 25, 2024, Captivision Korea entered into a share purchase agreement with the Purchasers, pursuant to which Captivision Korea agreed to sell and the Purchasers agreed to purchase, Captivision Korea’s 76.6% ownership interest in G-SMATT Europe in exchange for a nominal aggregate purchase price of KRW 1 million (approximately $800). The sale is expected to close on or about September 25, 2024.

 

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Consulting Agreement

On September 30, 2024, Captivision Korea entered into the Consulting Agreement with Houng Ki Kim, pursuant to which Mr. Kim agreed to provide Captivision Korea with management consulting services related to (x) to identifying and proposing financing options, (y) establishing financial policies and guidelines and (z) optimizing operational efficiency (collectively, the “Services”). As consideration for the Services, we agreed to issue to Mr. Kim (i) 100,000 ordinary shares upon the execution of the Consulting Agreement and (ii) 10,000 ordinary shares on a monthly basis for the duration of the Consulting Agreement.

Furthermore, if Mr. Kim advises Captivision Korea on a successful financing he shall receive an additional fee from Captivision Korea equal to 5% of any funds raised. He shall also be entitled to up to $15,000 a month in reimbursement by Captivision Korea for any expenses incurred in connection with providing the Services. Mr. Kim has agreed not to engage with United States persons or entities or undertake any solicitation in or through any means of interstate commerce in the United States in connection with the performance of the Services.

The term of the Consulting Agreement is from September 1, 2024 to December 31, 2024, with a mutual option to extend until December 31, 2025.

Dismissal of Independent Registered Public Accounting Firm

On October 2, 2024, the Audit Committee of our board of directors approved the conclusion of the engagement and dismissal of CKP as the our independent registered public accounting firm, effective October 2, 2024. The audit reports of CKP on our financial statements as of and for the fiscal years ended December 31, 2023 and 2022 did not contain an adverse opinion or a disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles. During the two most recent fiscal years ended December 31, 2022 and 2023 and the subsequent interim period through the effective date of CKP’s dismissal, (i) there were no disagreements between us and CKP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of CKP, would have caused it to make reference thereto in its reports on our financial statements for such fiscal years and (ii) there were no reportable events, as defined in Item 304(a)(1)(v) of Regulation S-K.

Appointment of Independent Registered Public Accounting Firm

On October 2, 2024, the Audit Committee approved the appointment of UHY as the our new independent registered public accounting firm, effective October 2, 2024. During the fiscal years ended December 31, 2023 and 2022, and the subsequent interim period through the effective date of UHY’s engagement, neither us nor anyone on our behalf, consulted with UHY with respect to either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our consolidated financial statements, and no written report or oral advice was provided by UHY to us that UHY concluded was an important factor considered by us in reaching a decision as to the accounting, auditing, or financial reporting issue or (ii) any matter that was the subject of either a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K) or a reportable event (as described in Item 304(a)(1)(v) of Regulation S-K).

 

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Key Factors Affecting Our Operating Results

Our operating and business performance is driven by various factors that affect commercial real estate developers and their markets, trends affecting the broader construction, DOOH media and architectural media glass industries, and trends affecting the specific markets and customer base that we target, including the following:

Ability to Win Projects

Our operating results are driven by our ability to win new projects to install G-Glass with new and existing customers. Our ability to win project bids is affected by:

 

•

The existence of local reference projects with installed products at a comparable scale in a potential customer’s market;

 

•

Our access to stakeholders at various levels within a new or existing customer’s organization, including high level decision makers;

 

•

Our trained sales personnel and their ability to properly explain Captivision’s unique product value proposition;

 

•

G-Glass receiving and maintaining necessary certifications with respect to material, fire, electrical, and other construction requirements to comply with local building codes;

 

•

Our ability to generate qualified leads through an effective multi-channel marketing strategy;

 

•

Building and maintaining a successful reseller network;

 

•

Potential customers’ evaluations of our ability to successfully deliver and install G-Glass in accordance with their specifications; and

 

•

Our marketing and advertising expenses which have been, and our future marketing advertising expenses will be limited by capital constraints.

Competitive Pricing

Our operating results are directly tied to the sale price of our products and services. Our prices are affected by a variety of factors including prices charged by our competitors in the third generation space, the efficacy of our products, our cost basis, changes in our product mix, the size of the project and our relationship with the relevant customer, as well as general market and economic conditions. We carefully monitor our target markets and set prices taking into account local market conditions. Our prices have remained relatively stable since 2019 at levels that we believe make our product competitive with alternative display offerings. Special pricing is available for scaled projects on a case-by-case basis. We also maintain separate reseller pricing to ensure that G-Glass provides an attractive sales proposition for our partners and sales channels.

Average Project Size and Average Revenue

In addition to the number of project bids we win, the size of our projects and the average revenue per project are key drivers of our revenue and overall operating results. Our ability to continue to grow revenue will depend on our ability to increase both the number of our projects and the average size per project. To do this we need to be continuously effective in marketing to increase the number of sales opportunities, and continue to install successful larger size implementations to serve as reference projects to encourage cautious prospective customers.

Ability to Develop New Applications

As part of our growth strategy, we plan to continue to innovate on product applications. Our continued success depends on our ability to develop and implement use cases for G-Glass at both large scales, such as SLAMs, and smaller scales, such as handrails. SLAMs entail lengthy sales cycles and are subject to a variety of

 

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uncertainties outside of our control. Although SLAMs are lucrative, and represent the most impressive implementation of G- Glass, we do not rely wholly upon these projects to drive revenue because of their extended sales cycles. A key component of our growth strategy and revenue generation is to develop and implement smaller projects using G- Glass that have shorter sales cycles, require reduced customer investment and allow us to showcase our technology. Current G-Glass applications include:

 

•

G-Tainers: Our G-Tainer product is a convergence of a shipping container and G-Glass container-sized modular system that uses steel frames and G-Glass panels to deliver compelling, media enabled, temporary structures for events and pop-up retail spaces. To date, G-Tainers have been utilized in numerous acclaimed outdoor events and exhibitions such as the 2018 Pyeongchang Winter Olympics in South Korea and the BoomTown EDM festival in the United Kingdom.

 

•

Handrails: Developed for both external and internal uses, our handrail products turn balustrades into media devices allowing them to deliver motion art, wayfinding information, and advertising. To date, our handrail installations include external bridge railings and shopping center balustrades.

 

•

Bus Shelters: We are offering solutions that integrate G-Glass into bus shelters that allow bus operators to deliver wayfinding information, motion art and advertising to passengers and those passing.

 

•

G-Wall: Our G-Wall product can be a free-standing or permanent installation. It is typically a smaller-scale implementation of G-Glass that has been used in promotional events, internal office partitions, retail displays and outdoor urban media features.

International Expansion

Although we have more than 500 installations in nine countries around the world, we believe that our geographical footprint is relatively small compared to what it could become. We expect that our international activities will continue to grow for the foreseeable future as we continue to pursue opportunities in existing and new international markets. Our operating results will be impacted by our ability to break into new markets in a cost-efficient manner and to use our initial projects in each new market as the launching pad for broader marketing efforts in that region. To date, the expenses and long lead times inherent in our efforts to pursue additional South Korean and international business opportunities have slowed, and are expected to continue to slow, the implementation of our expansion strategy, particularly in light of our ongoing capital constraints, and have limited, and are expected to continue to limit, the revenue that we receive as a result of our efforts to develop international business in the short term.

Inventory

The customizable nature of most of our projects makes it difficult for us to maintain usable stock of finished or semi-finished products. As a result, our inventory consists mostly of raw materials that we can use across a variety of products regardless of customer or application. These raw materials include glass stocks, LEDs, aluminum extrusion, resins, adhesives, drivers, flexible printed circuit boards (“FPCB”) and spacer tape, among other items.

As our product portfolio develops and extends further into shorter sales cycle product lines, typically requiring less customization, we believe we will be able to hold an inventory of regularly requested, smaller-scale products. In addition, we may in the future hold an inventory of lower priced, standard size panels for certain smaller-scale architectural applications. Our handrails, G-Wall and G-Tainer products all have potential to be offered “off the shelf” and thus kept as inventory items.

Our ability to fulfill orders in a timely manner regardless of their size and broad customization needs is dependent on, amongst other things, the maintenance of a large enough reserve of raw materials in our inventory. This needs to be carefully controlled taking into account a variety of factors including expected order time, shelf life and production capacity.

 

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Sales Commissions

We rely on a trained sales force to sell G-Glass. Sales commissions vary per operational region and are dependent on the type of compensation and incentive package agreed upon with our sales agents. Commissions can vary widely from a fully commission-based model to a mostly fixed salary model with a commission based on either revenue or profit. Our implementation of commission structures best suited to each operational region is critical and requires local knowledge and good judgement. To empower local management to design appropriate commission structures, while retaining central oversight and preventing unnecessarily large commissions, we give local sales management discretion to implement an appropriate structure within the parameters of agreed human resource budgets and company policies.

Ability to Obtain Competitively Priced Raw Materials and Components

Although some of the raw materials we use to produce G-Glass are manufactured through proprietary processes, we source all of our raw materials from third-party providers. These providers include global suppliers with local distribution, global suppliers that ship internationally and local suppliers. We rely on these suppliers to deliver our raw materials on time, to specification and at acceptable prices. If our suppliers are unable or unwilling to continue to supply our raw materials at requested quality, quantity, performance and costs, or in a timely manner, our business and reputation could be seriously harmed. Our inability to procure raw materials from other suppliers at the desired quality, quantity, performance and cost might result in unforeseen manufacturing and operations problems. To mitigate these risks, we attempt to maintain more than one supplier of every type of raw material. Obtaining suitable raw materials and components to meet our operational requirements also requires us to have sufficient working capital to pay our suppliers for those inputs. Our ongoing capital constraints have impaired, and are expected to continue to impair, our ability to acquire suitable raw materials and components in sufficient quantities to meet our operational requirements, which we expect will delay our ability to meet our obligations under certain contracts, which will delay revenue.

As our operations scale, we expect that we will have an increasing ability to negotiate the pricing of raw materials and take advantage of significant volume discounts from many of our suppliers. It is our policy to obtain competing quotes from our suppliers of raw materials and regularly assess both suppliers and raw material costs to maintain low fixed costs at the highest quality for our products.

Global Political Events and Other Disruptions

As our operations scale, we expect that we will have an increasing ability to negotiate the pricing of raw materials and take advantage of significant volume discounts from many of our suppliers. It is our policy to obtain competing quotes from our suppliers of raw materials and regularly assess both suppliers and raw material costs in order to maintain low fixed costs at the highest quality for our products.

The Construction Industry’s Adoption of our G-Glass Technology

G-Glass is a unique architectural media product as it provides construction grade durability, media functionality and full transparency. With our product portfolio, installed base, range of certifications and ability to provide highly customized solutions at high volumes, we believe Captivision is the clear market leader. As we complete more scaled projects and integrate more sophisticated applications and media into our G-Glass technology, we believe we will become the de facto industry standard. We believe that this will lead to widespread adoption of our technology within the construction, real estate, and property markets.

Regulations of DOOH Media, IT, Vertical Real Estate and Large Format Wallscape

We are subject to many complex, uncertain and overlapping laws, ordinances, rules and regulations concerning zoning, building design and fire, safety, hurricane, earthquake and flood regulations, construction and advertising in the various markets where we operate. These laws and regulations will likely be subject to

 

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evolving interpretations and applications, and it can often be difficult to predict how these might be applied to our business, particularly as we introduce new products and services and expand into new jurisdictions.

In addition, we will progressively be subject to laws and regulations relating to the collection, use, retention, security, and transfer of information, including the personally identifiable information of our clients and all of the users in the information chain. Our current product implementations do not have access to or collect personal information because we sell our products to be installed in buildings or other public areas that are owned and operated by our customers who in turn may use our products for one-directional, mass advertising. In the future, we may develop architectural applications that cause us or our customers to collect and store personal information. This will require us to evaluate and update our compliance models to ensure that we are complying with applicable restrictions.

Foreign Exchange Gains and Losses

As an increasingly international company with a global customer base and primarily South Korean operations, we are exposed to fluctuations in foreign exchange rates.

While most of our revenue is generated in Korean Won, our operating revenues from our foreign operations during the six months ended June 30, 2024 and June 30, 2023 and the years ended December 31, 2023, 2022 and 2021, amounted to 0.2%, 3.4%, 6.1%, 17.4% and 11.0% of our total revenue, respectively, and foreign-currency denominated revenues accounted for 32.3%, 49.6% and 20.9% of our total operating revenue for the years ended December 31, 2023, 2022 and 2021, respectively.

The majority of our operating costs are denominated in or indexed to Korean Won, constituting 83,7%, 83.6%, 86.8%, 86.2% and 82.6% of our total operating costs for the six months ended June 30, 2024 and 2023 and the years ended December 31, 2023, 2022 and 2021, respectively. Our key U.S. dollar-denominated operating costs relate to operations of our U.S. subsidiary and include facilities, work force, marketing, plant and material costs.

Our reporting currency is the U.S. dollar (USD) and our functional currency is the Korean Won (KRW). As our international operations expand and our revenues grow, we will increasingly be subject to potential foreign exchange rate gains and losses. We intend to manage our foreign exchange risk exposure by a policy of matching, to the extent possible, receipts and local payments in each individual currency. To date, our foreign exchange risk exposure results primarily from the impact of changes in the Korean Won – U.S. dollar exchange rate on our Korean Won transactions. See “Risk Factors—Risk Related to Our Industry and Company—Our results of operations are subject to exchange rate fluctuations, which may affect our costs and revenues.”

Our Corporate Structure

The following table lists our associates or entities over which we have influence but do not possess control or joint control.

 

Associate		Jurisdiction of Formation		Percent Owned
Brillshow Limited		China			33.00	%
G-SMATT Japan		Japan			40.16	%*
G-SMATT Hong Kong		Hong Kong			27.40	%*

 

(*)	Including the shares of G-Frame Co., Ltd. which is 100% owned by Captivision Korea.

 

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Our corporate structure is comprised of the following consolidated subsidiaries that are either wholly owned or majority-owned.

 

Entity		Jurisdiction of Formation		Percent Owned
G-Frame Co., Ltd.		South Korea			100.00	%
G-SMATT Europe**		United Kingdom			76.55	%*
G-SMATT America***		United States			54.63	%*
G-SMATT Tech		China			100.00	%

 

(*)	Including the shares of G-Frame Co., Ltd. which is 100% owned by Captivision Korea.

(**)

On November 30, 2022, G-SMATT Europe acquired 100% ownership of Inflectix Limited (“Inflectix”) as a wholly owned subsidiary for USD 301,654. Inflectix was incorporated on July 11, 2018, by Orhan Ertughrul, G-SMATT Europe’s chief executive officer. It is located in Gloucestershire, United Kingdom and provides high level technical expertise service in biotechnology investment consulting field. As of the date of this prospectus, Inflectix no longer has ongoing operations.

(***)

In 2022, certain minority shareholders of G-SMATT America Co., Ltd (an equity method associate located in CA, USA) sold all their shares, a total of 1,470,116 shares, to us. As a result, our ownership in G-SMATT America Co., Ltd. increased by 12.00% from 42.63% to 54.63% and became the major shareholder. G-SMATT America Co., Ltd. is subject to consolidation from the date of the majority ownership change in July 1, 2022.

The following diagram depicts the simplified organizational structure of the Company, its subsidiaries and associates:

 

 

(1)	Excludes G Frame’s 11.4% Ownership

(2)	Excludes G Frame’s 7.4% Ownership

(3)	Excludes G Frame’s 16.6% Ownership

Components of Results of Operations

Revenues

Captivision Korea generates revenue primarily from the sale and installation of architectural media glass. Our product revenue is recognized when a customer obtains control over Captivision Korea’s products, which typically occurs upon delivery or completion of installation depending on the terms of the contracts with the customer. The point at which we recognize revenue can be highly variable and tends to be determined on a project-by-project basis. Factors affecting revenue recognition include: size of project; location of project; whether a third party is used for all or part of the installation; commercial conditions surrounding the contract;

 

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length of time of install (revenue may be recognized at predetermined points during the project) and timing of regulatory approvals. Payment terms vary widely from project to project, but we typically expect an initial payment of 30% to 50% of the total project value upon signing, with the balance of payment due upon completion of the project.

Cost of Sales

Cost of sales includes cost of goods sold, commissions, administrative and marketing costs and installation, transportation, raw materials, installation, utility, maintenance, depreciation of machinery and labor costs related to manufacturing costs.

Selling and administrative expenses

Selling and administrative expenses consist primarily of bad debt expenses, commissions, salaries, amortization, ordinary research and development expenses, employee share compensation cost, taxes and dues, employee benefits, severance benefits, travel expenses, transportation, sundry allowances, rent, marketing, advertisement expenses and electricity.

Finance income

Finance income comprises interest income on funds invested (including debt instruments measured at Fair Value Through Other Comprehensive Income (“FVOCI”), gains on disposal of debt instruments measured at FVOCI, and changes in fair value of financial assets at Fair Value Through Profit or Loss (“FVTPL”)). Interest income is recognized as it accrues in profit or loss, using the effective interest method.

We have no substantial finance income and do not manage any debt instruments.

Finance costs

Captivision Korea had a blended interest rate (all financial costs divided by total debt) of 8.54%, 7.86%, 11.23%, 4.9% and 6.4% for the six months ended June 30, 2024 and June 30, 2023 and the years ended December 31, 2023, 2022, and 2021, respectively. New debts were incurred due to the impact of the COVID-19 pandemic, however, this was partly offset by a large scale debt-to-equity conversion in 2021 and 2022.

Due to ongoing capital constraints, we were unable to pay approximately $14.1 million of additional transaction expenses on the Closing Date. Effective as of November 15, 2023, a number of our service providers, Captivision Korea and JGGC entered into Deferral Agreements to defer Deferred Amounts until a future date when sufficient funds may become available to pay such Deferred Amounts in cash. Each of the Deferral Agreements generally provide that (i) until repaid, the Deferred Amounts accrue interest at the rate of 12% per annum and (ii) (A) 50% of the Deferred Amount under such agreement, plus accrued interest, is to be paid 365 days after the Closing Date and (B) the remaining 50%, plus accrued interest, is to be paid 730 days after the Closing Date. As an alternative to cash payment, certain of the Deferral Agreements, including the JGGC SPAC Holdings Deferral Agreement, accounting for approximately $7.7 million of the transaction expenses, provide that the counterparties have the option to convert all of a portion their outstanding amount owed to them under their respective fee deferral agreements into Ordinary Shares at a share price equal to the average of the volume weighted average of a Captivision Ordinary Share for the 20 consecutive Trading Day period occurring prior to the applicable election date. In June and August of 2024 we entered into amendments to certain Deferred Fee Arrangements comprising a total of $295,000 in Deferred Amounts, providing those counterparties with the option to convert all or a portion of their outstanding amount owed to them into Ordinary Share a conversion price per share equal to the lesser of (a) the VWAP Price and (b) 98% of the last price at which the Ordinary Shares traded on Nasdaq prior to the close of trading hours on the trading day prior to the applicable election date; provided, that no more than $170,000 of the then outstanding Deferred Amount may be so converted within any 5 consecutive trading day period. The timing, frequency, and the price at which we issue Ordinary Shares are subject to market prices and such counterparty’s decision to accept repayment for any such amount in equity.

 

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Other income

Other income consists of miscellaneous income, loss from equity method investment and income from disposal of related companies.

Other expenses

Other expenses primarily consist of loss from disposal of investment in subsidiaries, other allowance for other receivables and prepayments, loss from inventory impairment, miscellaneous loss, loss from equity method investment and impairment loss from intangible assets.

Corporate income tax expense (benefit)

Corporate income tax benefit consists of corporate tax paid, changes in deferred tax due to temporary differences, corporate tax benefit directly reflected in capital and other (which primarily consists of our tax refund). Corporate income tax expense consists of deferred tax expense recognized from reversal of prior year deferred tax asset.

Results of Operations

Comparison of the six months ended June 30, 2024 and June 30, 2023

The results of operations presented below should be reviewed in conjunction with the consolidated financial statements and notes included elsewhere in this prospectus. The following table sets forth our consolidated results of operations for the periods presented:

 

		For the Six Months Ended June 30,
		2024				2023
		(in U.S. $ unless otherwise indicated)
Consolidated Statement of Profit and Loss:
Revenue			15,315,361				12,562,180
Cost of sales			6,792,995				6,327,732
Gross profit			8,522,366				6,234,448
Selling and administrative expenses			16,078,689				4,981,094
Operating profit			(7,556,323	)			1,253,354
Finance income			558,890				193,076
Finance costs			2,083,599				885,210
Other income			17,477				18,851
Other expenses			227,236				107,739
Loss before tax			(9,290,791	)			472,232
Corporate income tax benefit			—				20,081
Net loss for the year			(9,290,791	)			452,251

Revenue

Our revenue increased by 21.9% to $15.3 million for the six months ended June 30, 2024, compared to $12.6 million for the same period in 2023. This increase was primarily due to the completion of a select number of meaningful, previously announced projects, primarily the Magok MICE Complex, Mohegan INSPIRE Entertainment Resort, Hotel & Resort UE Garden, and the Line Shop in Japan. The UE Garden and Line Shop projects in Japan contributed to a significant increase in service revenue, which reached $4.5 million for the six months ended June 30, 2024, compared to $0.6 million for the same period in 2023.

 

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Revenue from granting distribution rights was nil for the six months ended June 30, 2024. The revenue from distribution rights for the same period in 2023 was a one-time revenue amounting to $0.8 million from GLAAM Malaysia Sdn. Bhd. This resulted in a temporary increase in revenue from distribution rights in 2023.

Cost of revenue

Our cost of goods sold increased by 7.4% to $6.8 million for the six months ended June 30, 2024, compared to $6.3 million for the same period in 2023. This increase was primarily driven by an increase of $3.3 million in outsourcing costs, which was offset by decreases of $2.0 million in inventory movement costs and $0.8 million in other costs.

The increase in outsourcing costs can be attributed to the increase in service revenue, which increased from $0.6 million for the six months ended June 30, 2023 to $4.5 million for the six months ended June 30, 2024, resulting in an increase of $3.9 million.

The decrease in the cost of inventory movement for the six months ended June 30, 2024 was primarily due to raw material costs of approximately $1.5 million related to the Mohegan INSPIRE Entertainment Resort, which were recognized for the six months ended June 30, 2023. After production was completed, the products were delivered to Mohegan INSPIRE Entertainment Resort during the six months ended June 30, 2023; however, the recognition of Mohegan INSPIRE Entertainment Resort revenue was canceled for the year ended December 31, 2023 due to pending approval from aviation authorities, which was a key condition for revenue recognition. The revenue from the Mohegan INSPIRE Entertainment Resort project was fully recognized during the six months ended June 30, 2024 upon receipt of final approval from the authorities.

The decrease in other cost compared for the six months ended June 30, 2023 was primarily due to a one-time cost of $0.6 million related to outsourced media content production incurred for the six months ended June 30, 2023. No related costs were incurred during the six months ended June 30, 2024.

For the six months ended June 30, 2024 our cost of sales consisted primarily of labor cost of $0.9 million, outsourced cost of $3.7 million, cost of inventory movement of $1.6 million and others $0.6 million.

For the six months ended June 30, 2023, our cost of sales consisted primarily of labor cost of $1.0 million, outsourced cost of $0.4 million, cost of inventory movement of $3.5 million and others $1.4 million.

Gross profit

Gross profit increased by 36.7% to $8.5 million for the six months ended June 30, 2024, compared to $6.2 million for the same period in 2023. This increase was primarily due to the full recognition of revenue from Mohegan INSPIRE Entertainment Resort, which contributed $3.7 million to revenue for the six months ended June 30, 2024. While all related costs of sales were fully recognized for the year ended December 31, 2023, the revenue could only be recognized for the six months ended June 30, 2024 due to the pending approval from the aviation authorities. The approval has been subsequently received.

Selling and administrative expenses

Our selling and administrative expenses increased by 222.8% to $16.1 million for the six months ended June 30, 2024, compared to $5.0 million, for the same period in 2023. This increase was primarily caused by increases in Professional fees, Bad debt expenses, Salaries, Commission by $6.3 million, $2.1 million, $1.8 million, $1.2 million, respectively. The reasons for the increase in each account are as follows:

 

•

Professional fee: The increase in professional fees is due to Captivision Inc. recognizing professional fees related to Post De-SPAC amounting to $6.4 million.

 

•

Salaries: The increase in Salaries is due to the salaries paid to executives and employees of Captivision Inc. starting in 2024.

 

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•

Bad debt expenses: At the end of 2022, all overdue accounts receivable were written off, and for the six months ended June 30, 2023, there were almost no overdue receivables. However, for the six months ended June 30, 2024, overdue receivables have been experienced, resulting in an increase in bad debt expenses.

 

•

Commission: The increase in commission is mainly due to the Magok MICE complex project of $1.5 million.

For the six months ended June 30, 2024, our selling and administrative expenses consisted primarily of professional fee of $6.9 million, salaries of $2.9 million, bad debt expenses of $2.1 million, commission of $1.8 million, insurance of $0.7 million, and employee share compensation cost of $0.4 million.

For the six months ended June 30, 2023, our selling and administrative expenses consisted primarily of commission of $1.2 million, salaries of $1.1 million, amortization of $0.9 million, employee share compensation cost of $0.4 million, and depreciation of $0.1 million.

Operating loss

Our operating loss decreased by 702.9% to $7.6 million for the six months ended June 30, 2023, compared to operating profit of $1.3 million for the six months ended June 30, 2023. The decrease was primarily caused by a significant increase in selling and administrative expense. Selling and administrative expense increased by $11.1 million to $16.1 million for the six months ended June 30, 2024 from $5.0 million for the six months ended June 30, 2023. As a result, operating profit(loss) as a percentage of revenue decreased to (49.3)% for the six months ended June 30, 2024 from 10% for the six months ended June 30, 2023.

Finance income

Our finance income increased by 189.5% to $0.6 million for the six months ended June 30, 2024, compared to $0.2 million for the six months ended June 30, 2023. The increase in gain from foreign currency translation is mainly due to the change in foreign exchange rates, which led to higher translation gains on short-term foreign currency loans and foreign currency trade receivables. The foreign exchange rate increased from 1USD : 1,295 KRW on December 31, 2023, to 1USD : 1,381 KRW on June 30, 2024. Additionally, the increase is also due to the gain from fair value of derivative warrant liabilities of $0.1 million recognized from the decrease in the fair value of derivative warrant liabilities related to the warrants.

For the six months ended June 30, 2024, our finance income consisted primarily of gain from foreign currency translation of $0.4 million, gain from fair value of derivative warrant liabilities of $0.1 million, and gain from foreign currency transactions and interest Income of $0.1 million.

For the six months ended June 30, 2023, our finance income consisted primarily of gain from foreign exchange translation of $156 thousand, gain foreign currency translation of $22 thousand, and interest income of $15 thousand.

Finance costs

Our finance costs increased by 135.4% to $2.1 million for the six months ended June 30, 2024, compared to $0.9 million for the six months ended June 30, 2023, mainly due to a significant increase in interest expense of $1.2 million. The increase in interest expense is primarily due to the $1.1 million in interest expense incurred from the Deferred Fee Agreement in respect of De-SPAC activities.

For the six months ended June 30, 2024, our finance costs consisted primarily of interest expense of $2.0 million, and loss from foreign currency translation and transactions of $0.1 million.

For the six months ended June 30, 2023, our finance costs consisted primarily of interest expense of $0.8 million, and loss from foreign currency translation and transactions of $0.1 million.

 

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Other income

Our other income decreased by 7.3% to $17 thousand for the six months ended June 30, 2023, compared to $19 thousand for the six months ended June 30, 2023.

For the six months ended June 30, 2024, our other income consisted of income from disposal of tangible assets of $1 thousand, reversal of allowance for bad debts of $14 thousand, miscellaneous of $1 thousand, dividend income of $1 thousand.

For the six months ended June 30, 2023, our other income consisted of $11 thousand miscellaneous income resulting from the disposal of scrap materials, gain from equity method of $7 thousand, and dividend income and income from disposal of tangible assets of $1 thousand.

Other expenses

Our other expenses increased by 110.9% to $227 thousand for the six months ended June 30, 2024, compared to $108 thousand for the six months ended June 30, 2023, mainly due to the increase in miscellaneous losses of $307 thousand and reversal of allowance for bad debts of $203 thousand associated with other receivables/prepayments. Miscellaneous losses consist of the penalty payments associated with delayed loan repayments, and a reversal of allowance for bad debts is due to the receipt of raw materials which were previously written off.

For the six months ended June 30, 2024, our other expenses consisted of miscellaneous loss of $430 thousand and $(203) thousand associated with reversal of other allowance for the bad debts.

For the six months ended June 30, 2023, other expenses consisted of miscellaneous loss related to compensation for claims of $70 thousand and donation of $38 thousand.

Profit/(loss) before tax

Our profit/(loss) before tax decreased by 2,067% to $(9.3) million for the six months ended June 30, 2024, compared to profit before tax of $0.5 million for the six months ended June 30, 2023, mainly due to increase in SG&A expenses by $11.1 million as compared to the six months ended June 30, 2023.

Corporate income tax expense (benefit)

Our corporate income tax expense (benefit) decreased by 100% to $0 for the six months ended June 30, 2024, compared to $20 thousand for the six months ended June 30, 2023, mainly due to the absence of taxable income.

For the six months ended June 30, 2023, our corporate income tax expense consisted of changes in deferred tax assets due to temporary differences of $23 thousand and corporate tax benefit of $(3) thousand.

Net profit/(loss) for the six months

Our net profit(loss) decreased by 2,154.3% to $(9.3) million for the six months ended June 30, 2024, compared to $0.5 million for the six months ended June 30, 2023, mainly due to the decrease in operating profit by $8.8 million.

 

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Comparison of the year ended December 31, 2023 and December 31, 2022

The results of operations presented below should be reviewed in conjunction with the consolidated financial statements and notes included elsewhere in this prospectus. The following table sets forth our consolidated results of operations for the periods shown:

 

		2023				2022
		(in U.S. $ unless otherwise indicated)
Consolidated Statement of Profit and Loss and Comprehensive Income:
Revenue			14,636,763				20,191,935
Cost of sales			12,361,612				13,910,570
Gross profit			2,275,151				6,281,365
Selling and administrative expenses			15,553,783				8,827,619
Operating profit			(13,278,632	)			(2,546,254	)
Finance income			134,124				4,233,034
Finance costs			3,226,024				1,120,831
Other income			198,778				5,199,803
Other expenses			57,952,751				15,169,616
Loss before tax			(74,124,505	)			(9,403,864	)
Corporate income tax expense(benefit)			2,861,079				(1,511,696	)
Net loss for the year			(76,985,584	)			(7,892,168	)
Owners of the parent			(74,726,799	)			(5,892,144	)
Non-controlling interests			(2,258,785	)			(2,000,024	)
Other Comprehensive Loss			(952,555	)			11
Items that may not be reclassified to profit or loss			284,832				(362,544	)
Re-evaluation of defined benefit plan			284,832				(362,544	)
Stock option			—				—
(negative) Changes in retained earnings due to equity method			—				—
Items that may be subsequently reclassified to profit or loss			(1,237,387	)			362,555
Loss on valuation of other financial assets			2,688				—
Changes in equity from equity method			—				(360,339	)
Exchange difference on translating foreign operations			(1,240,075	)			722,894
Total Comprehensive Income(Loss)			(77,938,139	)			(7,892,157	)

Revenue

Our revenue decreased by 27.5% to $14,636,763 for the year ended December 31, 2023, compared to $20,191,935 for year ended December 31, 2022. This decrease was mainly due to a decrease in revenue from G-SMATT America amounting to $2,906,366 and a decrease in Captivision Korea revenue totaling $2,697,803. The decrease in revenue from G-SMATT America is due to the recognition of a one-off revenue amount related to Project MMOF in 2022, totaling $2,737,294. This resulted in a temporary increase in revenue in 2022, leading to a decreased revenue in 2023.

While revenue from Distribution right increased by $760,000, the inability to recognize $3,666,634 due to legal restrictions on Mohegan Inspire Entertainment Resort resulted in a decrease in revenue. Accordingly, the offsetting effect of $2,906,634 constitutes the majority of the decrease in revenue.

 

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