ITEM 1. BUSINESS
Business Overview
Ezagoo Limited, a Nevada corporation (“the Company”) was incorporated under the laws of the State of Nevada on May 9, 2018.
Hunan Ezagoo Zhicheng Internet Technology Limited (“HEZL”) is the company through which we operate, and which shares our business plan to provide video advertising on buses. Prior to December 31, 2016, Hunan Ezagoo Zhicheng Internet Technology Limited (HEZL) was initially a startup stage company engaged in e-commerce, offering electronics products for sale such as, but not limited to, mobile phones, tablets and related accessories. Due to continued losses from their e-commerce business activities, and high competition in the industry, HEZL discontinued all e-commerce business activities and sold off any remaining inventories relating to such e-commerce activities. Following December 31, 2016, the Company adopted its current business plan.
At present, the Company operates within the Chinese digital advertising network through advertisements displayed on flat-panel audiovisual television displays located on the vast network of urban bus lines in Changsha City. On February 10, 2018, HEZL entered into an agreement with Changsha Zhongwang Bus Co., Ltd. (“CZB”) wherein CZB will provide HEZL with Seven Hundred Forty-Two (742) buses to display media advertising within the interior of the buses. This agreement will be valid until February 9, 2021 and HEZL shall pay CZB a rental fee of 800 Chinese Yuan per bus, for a total of One Million Seven Hundred Eighty Thousand Eight Hundred (1,780,800) Chinese Yuan as well as a semi-annual rental fee of Two Hundred Ninety Six Thousand Eighty Hundred (296,800) Chinese Yuan.
Our TV audio visual advertising network. displayed on the rented buses, provides an opportunity for brands to break through the advertising clutter and effectively reach a large audience of bus passengers. On October 1, 2017 Hunan Ezagoo Limited Co., Ltd. entered into an agreement with HEZL, in which HEZL will lease 3,000 LED screens from Hunan Ezagoo Limited Co., Ltd. This agreement will terminate on September 30, 2020. Per the terms of the agreement there is a rent-free period between October 1, 2017 and July 31, 2018. Subsequent to the rent-free period HZT will pay Hunan Ezagoo Limited Co., Ltd. Six Hundred Fifty (650) Chinese Yuan per screen as an annual fee. The first rental payment was due on or before August 31, 2018, and rent will be paid semi-annually from that point forward. HEZL will install these LED displays in the buses rented from CZB, and it is through these LED screens that advertisements will be displayed.
Through our special media portal (digital TV Screen advertising), we help connect sellers with buyers and ultimately reach their ideal target audiences. We anticipate a growing need for our services in Mainland China because of our ability to provide access to a wide range of consumers at cost effective prices. In today’s complex corporate landscape there is an increasing need for enterprises, in all industries, to maximize their performance and profitability while keeping costs low. We believe that our competitive fees, will provide us with a competitive advantage over our competitors and lead to increased demand for our services.
The Company’s primary business activity is to display advertisements for its clients on TV screens mounted on public buses that operate in Changsha City. At present the advertisements were displayed solely on 22-inch audiovisual screens that are mounted behind the bus driver’s seat, with speakers placed throughout the buses so that all passengers on the bus are able to both watch and hear advertisements. This placement of screens and speakers will ensure that all passengers inside the bus are subjected to advertisements of our clients throughout the full duration of their bus journey.
screens in 800 buses run 10 hours daily while buses are traveling within Changsha City. To date, there are three main kinds of bus advertising promotion, consisting of the following:
● A majority of advertisements are displayed on bus TV screen which are broadcast repeatedly approximately 20 times per day in a 15-minute cycle.
Bus advertisements are highly visible and are displayed daily while the buses travel along the same routes daily, offering advertisers massive impact and high frequency to targeted audiences. With 10 hours of uninterrupted TV audiovisual display, quality ready-made video commercials advertisements maximize the exposure of bus audiences during their daily journeys. The TV screen promotion of brand, products and services can be undertaken using a wide range of bus TV channels in several different bus lines while offering a chance to directly reach bus passengers living in different areas throughout the city. Additionally, through the bus’s background system, the TV display flashes upcoming bus-stop information along with various ads on the TV screens. This ensures that passengers often look at the screen to grasp information about the next stop while they are exposed to the brand messages and advertisements of our clients. This grants advertisers the assurance it is highly likely that their message will be seen by the consumers.
● Some bus advertisements allow brands to directly target desirable passengers travelling along a specific bus route.
Certain advertisements may be of more interest to, and thus be considered more effective, when directed to specific consumer groups. Furthermore, due to the nature of the bus advertisements we offer we can place advertisements along certain bus routes, for example on a bus travelling from a residential location to a commercial hub. This allows advertisers to display their message in front of viewers who are more likely to have an interest in their products or services. This is a highly targeted and cost-effective way for brand clients to reach their ideal consumer groups. It is the belief of the company that this could produce higher consumer recall rate of ads than when those same ads are displayed randomly.
● Bus TV screens can also set a time slot and allow the advertising content to be updated remotely over a WIFI connection.
We have the ability to plan campaigns and focus on consumers at specific times of the day by scheduling a time segment during which specific advertisements will play. This can also be further customized by selecting certain bus lines on which to display client advertisements. If appropriate, we could coordinate advertising campaigns so that only one, or perhaps several, commercial brands are placed on TV screens of each bus or specific bus line. This would allow these clients to guarantee their advertisement will be seen in a certain timeslot and physical location, granting them an advantage over potential competitors. Advertisements scheduled to run during commuter traffic, for example, could generate far more leads than at other, less congested, times of day. Our bus TV display background system enables access to independently monitor and adjust performance, frequency and playback times of advertisements daily on each bus. These TV screens can display a fully customized range of content such as ads, videos, promotional content, news, sports, etc. for passengers. Additionally, this system enables us to upload new advertisements anywhere and anytime with 3G/ 4G or Wi-Fi connection.
Standard Advertisement Pricing
Marketing Plan
We expect to increase our marketing efforts through our President’s personal networks and industry association channels which have not, at this point in time, been fully identified. Additionally, we intend to bolster our professional reputation and image by showcasing our knowledge and industry expertise via marketing campaigns through various forms of media. We have undefined plans to initially market our services through webinars, the creation of a wide variety of white papers, newsletters, books, and other information offerings. Furthermore, we plan to begin a social media campaign utilizing blogs, twitter, Facebook, and LinkedIn. A targeted campaign is intended to be made to focus on start-ups and small to mid-size companies in various industries.
Competition
We compete primarily with several different groups of competitors:
● Advertising companies that operate public transport advertising companies, especially Bus line advertising networks, such as Bus Online Co. Ltd.
● Out-of-home digital advertising networks beyond the Bus Line sector, such as Focus Media;
● Other advertising media companies, such as Internet, street furniture displays, billboards, and with traditional advertising media, such as newspapers, television, magazines and radio, some of which may advertise on the Buses in which we have exclusive contract rights to operate digital TV screens.
The digital advertising industry our company operates in is extremely competitive and there are limited barriers to entry, thus new competitors frequently enter the market. We believe that existing and new competitors will continue to improve their services and introduce new services with competitive pricing and performance characteristics. In periods of reduced demand for our services, we can either choose to maintain market share by reducing our prices to attract new customers, or maintain prices, which would likely reduce market share. Sales and overall profitability could be reduced in either case.
Future Plans
It is our goal to optimize the efficiency of city services and connect to residents by creating the largest bus TV advertising network in China. We aim to be a promoter and participator of a ‘smart city’ concept. At present, we solely focus on Changsha city, but in the future, we plan to allocate funds to integrate advertisement, digital TV devices and new communication technology regionally. At the same time, we plan to create a commercial APP for both our bus advertising clients and bus passengers. We anticipate that our company will install more than 10 thousand screens and expand into 300 cities throughout Mainland China in the next three to five years. However, we do not have distinct and detailed expansion plans as of this point in time. In the future, a full range of local and international brand advertisements are intended to be displayed on our bus TV digital screens and broadcast throughout large-scale regional bus networks.
However, without an appropriate budget and intensive research, plans referring to development, expansion, potential unidentified acquisitions and concrete timescales cannot be determined at present.
Employees
As of December 31, 2019, we have 42 employees comprised of our President Xiaohao Tan and Chief Financial Officer Xin Yang.
We do not have pension, health, annuity, insurance, stock options, profit sharing, or similar benefit plans at present. However, we may adopt plans in the future.
Government regulation
We are subject to the laws and regulations of the jurisdictions in which we operate, which may include business licensing requirements, income taxes and payroll taxes. In general, the development and operation of our business is not subject to special regulatory and/or supervisory requirements.
ITEM 1A.
ITEM 1A. RISK FACTORS
You should carefully consider the risks described below and elsewhere in this Annual Report, which could materially and adversely affect our business, results of operations or financial condition. Our business faces significant risks and the risks described below may not be the only risks we face. Additional risks not presently known to us or that we currently believe are immaterial may materially affect our business, results of operations, or financial condition. If any of these risks occur, the trading price of our common stock could be decline and you may lose all or part of your investment.
Risks Related to our Business
We rely entirely on the operations of Hunan Ezagoo Zhicheng Internet Technology Limited. Any successes or failures of Hunan Ezagoo Zhicheng Internet Technology Limited will directly impact our financial condition and may cause your investment to be either positively or negatively impacted.
At present, we share the same business plan as, and rely entirely upon, Hunan Ezagoo Zhicheng Internet Technology Limited. Any successes or failures of Hunan Ezagoo Zhicheng Internet Technology Limited will directly impact our financial condition and may cause your investment to be either positively or negatively impacted. Hunan Ezagoo Zhicheng Internet Technology Limited is considered a variable interest entity through which we operate exclusively at this time and we have been deemed to currently be a direct beneficiary of Hunan Ezagoo Zhicheng Internet Technology Limited. As such, in the event that the business of operations of Hunan Ezagoo Zhicheng Internet Technology Limited were to fail, then our own business would, in turn, fail as well. We would be forced to either drastically alter our business strategy, or we would likely cease operations entirely, which could result in the whole or partial loss of any investments made in the company.
Competition from both large, established industry participants and new market entrants may negatively affect our current and future results of operations.
We face vigorous competition from companies throughout the world and in China specifically, including large multinational advertising companies. Some established competitors have greater resources and better accessibility than us, therefore they are able to adapt quicker to changes in customer requirements and reach customers easier from all over the globe. If we are unable to continue to compete effectively, it could have an adverse impact on our business, results of operations and financial condition.
If we do not manage our growth effectively, the quality of our solution or our relationships with our customers may suffer, and our operating results may be negatively affected.
We rely heavily on information technology, or IT, systems to manage critical functions such as advertising campaign management and operations, data storage and retrieval, revenue recognition, budgeting, forecasting, financial reporting and other administrative functions. To manage our growth effectively, we must continue to improve and expand our infrastructure, including our IT, financial and administrative systems and controls. We must also continue to manage our employees, operations, finances, research and development and capital investments efficiently. Our productivity and the quality of our solution may be adversely affected if we do not integrate and train our new employees, particularly our sales and account management personnel, quickly and effectively and if we fail to appropriately coordinate across our executive, engineering, finance, human resources, legal, marketing, sales, operations and customer support teams. If we continue our rapid growth, we will incur additional expenses, and our growth may continue to place a strain on our resources, infrastructure and ability to maintain the quality of our solution. If we do not adapt to meet these evolving growth challenges, and if the current and future members of our management team do not effectively scale with our growth, the quality of our solution may suffer and our corporate culture may be harmed. Failure to manage our future growth effectively could cause our business to suffer, which, in turn, could have an adverse impact on our financial condition and results of operations.
Our business, financial condition and results of operations may be materially adversely affected by global health epidemics, including the recent COVID-19 outbreak.
Outbreaks of epidemic, pandemic, or contagious diseases such as COVID-19, could have an adverse effect on our business, financial condition, and results of operations. The spread of COVID-19 from China to other countries has resulted in the World Health Organization declaring the outbreak of COVID-19 as a global pandemic. The slow-down in the global economy and the reduced levels of international and domestic travel experienced since the beginning of January would affect our business adversely. The Any resulting financial impact cannot be reasonably estimated at this time. The extent to which the COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions taken globally to contain the coronavirus or treat its impact, among others. Existing insurance coverage may not provide protection for all costs that may arise from all such possible events. We are still assessing our business operations and the impact COVID-19 may have on our results and financial condition, but there can be no assurance that this analysis will enable us to avoid part or all of any impact from the spread of COVID-019 or its consequences, including downturns in business sentiment generally or in our sector in particular.
We may require additional capital to support growth, and such capital might not be available on terms acceptable to us, if at all. This could hamper our growth and adversely affect our business.
We intend to continue to make investments to support our business growth and may require additional funds, beyond those generated by this offering, to respond to business challenges, including the need to develop new features or enhance our platform, improve our operating infrastructure or acquire complementary businesses and technologies. Accordingly, we may need to engage in public or private equity, equity-linked or debt financings to secure additional funds. If we raise additional funds through future issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. Any debt financing that we secure in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, including the ability to pay dividends. This may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. We may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and respond to business challenges could be significantly impaired, and our business could be adversely affected.
We may not be able to compete successfully against current and future competitors because competition in our industry is intense, and our competitors may offer solutions that are perceived by our customers to be more attractive than ours. These factors could result in declining revenue, or inability to grow our business.
Competition for our advertisers’ advertising budgets is intense. We also expect competition to increase as the barriers to enter our market are low. Increased competition may force us to charge less for our solution, or offer pricing models that are less attractive to us and decrease our margins. Our principal competitors include companies that offer demand-side platforms that allow advertisers to purchase inventory directly from advertising exchanges or other third parties and manage their own consumer data, traditional advertising networks and advertising agencies themselves.
We also rely predominately on advertising agencies to purchase our solution on behalf of advertisers, and certain of those agencies or agency holding companies are creating competitive solutions, referred to as agency trading desks. If these agency trading desks are successful in leveraging their relationships with the advertisers we may be unable to compete even if our solution is more effective. Many agencies that we work with are also owned by large agency holding companies. For various reasons related to the agencies’ own priorities or those of their holding companies, they may not recommend our solution, even though it may be more effective, and we may not have the opportunity to demonstrate our value to advertisers.
Many current and potential competitors have competitive advantages relative to us, such as longer operating histories, greater name recognition, larger client bases, greater access to advertising inventory on premium websites and significantly greater financial, technical, sales and marketing resources. Increased competition may result in reduced pricing for our solution, longer sales cycles or a decrease of our market share, any of which could negatively affect our revenue and future operating results and our ability to grow our business.
We have been dependent on TV display advertising. A decrease in the use of display advertising, or our inability to further penetrate display, mobile, social and video advertising channels would harm our business, growth prospects, operating results and financial condition.
Historically, our customers have predominantly used our solution for TV display advertising, and the substantial majority of our revenue is derived from advertisers, that use our solution for TV display advertising. We expect that TV display advertising will continue to be a significant channel used by our customers. Recently, overall display advertising growth has been driven by mobile, social and video advertising. Should our customers lose confidence in the value or effectiveness of TV display advertising, the demand for our display solution could decline. In addition, our failure to achieve market acceptance of our solution for mobile, social and video advertising would harm our growth prospects, financial condition and results of operations.
Our growth depends, in part, on the success of our strategic relationships with advertisers, including ready access to hardware in key bus line to facilitate the delivery of our solution and reliable management of Internet traffic.
We anticipate that we will continue to depend on various advertisers’ relationships in order to grow our business. We continue to pursue additional relationships with advertisers. Identifying, negotiating and documenting relationships with them requires significant time and resources as does integrating advertisers’ data and services. Our agreements with providers of technology, computer hardware, display facilities, content and consulting services and real-time advertising exchanges are typically non-exclusive, do not prohibit them from working with our competitors or from offering competing services and do not typically have minimum purchase commitments. Our competitors may be effective in providing incentives to third parties to favor their products or services over ours or to otherwise prevent or reduce purchases of our solution. In addition, these advertisers may not perform as expected under our agreements with them, and we may have disagreements or disputes with advertisers, which could negatively affect our brand and reputation.
In particular, our continued growth depends on our ability to source computer hardware, including servers built to our specifications, and the ability to locate those servers and related hardware in co-location facilities in the most desirable bus line and time slot to facilitate the timely delivery of our services. Disruptions in the services provided at co-location facilities that we rely upon can degrade the level of services that we can provide, which could harm our business. We also rely on our integration with many advertisers’ technology providers to execute our business on a daily basis. We must efficiently direct a large amount of network traffic and each bid typically must take place. We rely on TV screens to direct display to our solution for efficient processing. If our TV screens experiences disruptions or performance problems, this could result in inefficient balancing of traffic across our servers as well as impairing or preventing audiences’ connectivity to our TV advertisings, which could harm our business.
We have historically relied, and expect to continue to rely, on our existing customers for a significant portion of our revenue. The loss of any of existing customers could significantly harm our business, financial condition and results of operations.
We expect that we will continue to depend upon our existing customers for a significant portion of our revenue for the foreseeable future. As a result, if we fail to successfully attract or retain new or existing customers or if existing customers run fewer advertising campaigns with us, defer or cancel their insertion orders, or terminate their relationship with us altogether, whether through the actions of their agency representatives or otherwise, our business, financial condition and results of operations would be harmed.
Our sales and marketing efforts require significant investment, which may not yield returns in the foreseeable future, if at all.
We have invested significant resources in our research and development, sales and marketing teams to educate potential and prospective advertisers about the value of our solution. We often spend substantial time and resources explaining how our solution can optimize advertising campaigns in real time, and responding to requests for proposals from potential advertisers, including developing material specific to the needs of such potential advertisers. Our business depends in part upon advertisers’ confidence that represent those advertisers, that our use of real-time advertising exchanges to purchase inventory is superior to other methods of purchasing digital TV display advertising. We may not be successful in attracting new advertisers despite our investment in our business development, sales and marketing organizations.
If we do not effectively grow and train our sales team, we may be unable to add new customers or increase sales to our existing customers, and our business would be adversely affected.
We continue to be substantially dependent on our sales team to obtain new customers and to drive sales from our existing customers. We believe that there is significant competition for sales personnel with the skills and technical knowledge that we require. Our ability to achieve significant revenue growth will depend, in large part, on our success in recruiting, training, integrating and retaining sufficient numbers of sales personnel to support our growth. Our current sales team is primarily trained and experienced in selling to advertising agencies, which often control an advertiser’s budget. If more of our business shifts to direct relationships with brand advertisers, we may not have an adequately trained sales team to support that shift and to sell products effectively to those advertisers. New hires require significant training and it may take significant time before they achieve full productivity. Our recent hires and planned hires may not become productive as quickly as we expect, and we may be unable to hire or retain sufficient numbers of qualified individuals in the markets where we do business or plan to do business. In addition, as we continue to grow rapidly, a large percentage of our sales team will be new to the company and our solution. If we are unable to hire and train sufficient numbers of effective sales personnel, or the sales personnel are not successful in obtaining new customers or increasing sales to our existing customer base, our business would be adversely affected.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 2.
ITEM 2. PROPERTIES
Our principal executive office is located at YIJIAREN BUSINESS HOTEL NO. 168, TONG ZI PO XI LU, YUELU DISTRICT CHANGSHA, HUNAN 410205, CHINA
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we maybe involve in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. Currently there are no pending legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results. None of our directors, officers or affiliates is involved in a proceeding adverse to our business or has a material interest adverse to our business.
ITEM 4.
Item 4 Controls and Procedures.
Evaluation of Disclosure Controls and Procedures:
We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of June 30, 2016. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2019, our disclosure controls and procedures were not effective due to the presence of material weaknesses in internal control over financial reporting.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management has identified the following material weaknesses which have caused management to conclude that, as of December 31, 2019, our disclosure controls and procedures were not effective: (i) inadequate segregation of duties and effective risk assessment; and (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines.
Changes in Internal Control over Financial Reporting:
There were no changes in our internal control over financial reporting during the year ending December 31, 2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We know of no materials, active or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceedings or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any beneficial shareholder are an adverse party or has a material interest adverse to us.
Item 1A. Risk Factors.
You should carefully consider the risks described below and elsewhere in this Annual Report, which could materially and adversely affect our business, results of operations or financial condition. Our business faces significant risks and the risks described below may not be the only risks we face. Additional risks not presently known to us or that we currently believe are immaterial may materially affect our business, results of operations, or financial condition. If any of these risks occur, the trading price of our common stock could be decline and you may lose all or part of your investment.
Risks Related to our Business
We rely entirely on the operations of Hunan Ezagoo Zhicheng Internet Technology Limited. Any successes or failures of Hunan Ezagoo Zhicheng Internet Technology Limited will directly impact our financial condition and may cause your investment to be either positively or negatively impacted.
At present, we share the same business plan as, and rely entirely upon, Hunan Ezagoo Zhicheng Internet Technology Limited. Any successes or failures of Hunan Ezagoo Zhicheng Internet Technology Limited will directly impact our financial condition and may cause your investment to be either positively or negatively impacted. Hunan Ezagoo Zhicheng Internet Technology Limited is considered a variable interest entity through which we operate exclusively at this time and we have been deemed to currently be a direct beneficiary of Hunan Ezagoo Zhicheng Internet Technology Limited. As such, in the event that the business of operations of Hunan Ezagoo Zhicheng Internet Technology Limited were to fail, then our own business would, in turn, fail as well. We would be forced to either drastically alter our business strategy, or we would likely cease operations entirely, which could result in the whole or partial loss of any investments made in the company.
Competition from both large, established industry participants and new market entrants may negatively affect our current and future results of operations.
We face vigorous competition from companies throughout the world and in China specifically, including large multinational advertising companies. Some established competitors have greater resources and better accessibility than us, therefore they are able to adapt quicker to changes in customer requirements and reach customers easier from all over the globe. If we are unable to continue to compete effectively, it could have an adverse impact on our business, results of operations and financial condition.
If we do not manage our growth effectively, the quality of our solution or our relationships with our customers may suffer, and our operating results may be negatively affected.
We rely heavily on information technology, or IT, systems to manage critical functions such as advertising campaign management and operations, data storage and retrieval, revenue recognition, budgeting, forecasting, financial reporting and other administrative functions. To manage our growth effectively, we must continue to improve and expand our infrastructure, including our IT, financial and administrative systems and controls. We must also continue to manage our employees, operations, finances, research and development and capital investments efficiently. Our productivity and the quality of our solution may be adversely affected if we do not integrate and train our new employees, particularly our sales and account management personnel, quickly and effectively and if we fail to appropriately coordinate across our executive, engineering, finance, human resources, legal, marketing, sales, operations and customer support teams. If we continue our rapid growth, we will incur additional expenses, and our growth may continue to place a strain on our resources, infrastructure and ability to maintain the quality of our solution. If we do not adapt to meet these evolving growth challenges, and if the current and future members of our management team do not effectively scale with our growth, the quality of our solution may suffer and our corporate culture may be harmed. Failure to manage our future growth effectively could cause our business to suffer, which, in turn, could have an adverse impact on our financial condition and results of operations.
Our business, financial condition and results of operations may be materially adversely affected by global health epidemics, including the recent COVID-19 outbreak.
Outbreaks of epidemic, pandemic, or contagious diseases such as COVID-19, could have an adverse effect on our business, financial condition, and results of operations. The spread of COVID-19 from China to other countries has resulted in the World Health Organization declaring the outbreak of COVID-19 as a global pandemic. The slow-down in the global economy and the reduced levels of international and domestic travel experienced since the beginning of January would affect our business adversely. The Any resulting financial impact cannot be reasonably estimated at this time. The extent to which the COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions taken globally to contain the coronavirus or treat its impact, among others. Existing insurance coverage may not provide protection for all costs that may arise from all such possible events. We are still assessing our business operations and the impact COVID-19 may have on our results and financial condition, but there can be no assurance that this analysis will enable us to avoid part or all of any impact from the spread of COVID-019 or its consequences, including downturns in business sentiment generally or in our sector in particular.
We may require additional capital to support growth, and such capital might not be available on terms acceptable to us, if at all. This could hamper our growth and adversely affect our business.
We intend to continue to make investments to support our business growth and may require additional funds, beyond those generated by this offering, to respond to business challenges, including the need to develop new features or enhance our platform, improve our operating infrastructure or acquire complementary businesses and technologies. Accordingly, we may need to engage in public or private equity, equity-linked or debt financings to secure additional funds. If we raise additional funds through future issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. Any debt financing that we secure in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, including the ability to pay dividends. This may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. We may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and respond to business challenges could be significantly impaired, and our business could be adversely affected.
We may not be able to compete successfully against current and future competitors because competition in our industry is intense, and our competitors may offer solutions that are perceived by our customers to be more attractive than ours. These factors could result in declining revenue, or inability to grow our business.
Competition for our advertisers’ advertising budgets is intense. We also expect competition to increase as the barriers to enter our market are low. Increased competition may force us to charge less for our solution, or offer pricing models that are less attractive to us and decrease our margins. Our principal competitors include companies that offer demand-side platforms that allow advertisers to purchase inventory directly from advertising exchanges or other third parties and manage their own consumer data, traditional advertising networks and advertising agencies themselves.
We also rely predominately on advertising agencies to purchase our solution on behalf of advertisers, and certain of those agencies or agency holding companies are creating competitive solutions, referred to as agency trading desks. If these agency trading desks are successful in leveraging their relationships with the advertisers we may be unable to compete even if our solution is more effective. Many agencies that we work with are also owned by large agency holding companies. For various reasons related to the agencies’ own priorities or those of their holding companies, they may not recommend our solution, even though it may be more effective, and we may not have the opportunity to demonstrate our value to advertisers.
Many current and potential competitors have competitive advantages relative to us, such as longer operating histories, greater name recognition, larger client bases, greater access to advertising inventory on premium websites and significantly greater financial, technical, sales and marketing resources. Increased competition may result in reduced pricing for our solution, longer sales cycles or a decrease of our market share, any of which could negatively affect our revenue and future operating results and our ability to grow our business.
We have been dependent on TV display advertising. A decrease in the use of display advertising, or our inability to further penetrate display, mobile, social and video advertising channels would harm our business, growth prospects, operating results and financial condition.
Historically, our customers have predominantly used our solution for TV display advertising, and the substantial majority of our revenue is derived from advertisers, that use our solution for TV display advertising. We expect that TV display advertising will continue to be a significant channel used by our customers. Recently, overall display advertising growth has been driven by mobile, social and video advertising. Should our customers lose confidence in the value or effectiveness of TV display advertising, the demand for our display solution could decline. In addition, our failure to achieve market acceptance of our solution for mobile, social and video advertising would harm our growth prospects, financial condition and results of operations.
Our growth depends, in part, on the success of our strategic relationships with advertisers, including ready access to hardware in key bus line to facilitate the delivery of our solution and reliable management of Internet traffic.
We anticipate that we will continue to depend on various advertisers’ relationships in order to grow our business. We continue to pursue additional relationships with advertisers. Identifying, negotiating and documenting relationships with them requires significant time and resources as does integrating advertisers’ data and services. Our agreements with providers of technology, computer hardware, display facilities, content and consulting services and real-time advertising exchanges are typically non-exclusive, do not prohibit them from working with our competitors or from offering competing services and do not typically have minimum purchase commitments. Our competitors may be effective in providing incentives to third parties to favor their products or services over ours or to otherwise prevent or reduce purchases of our solution. In addition, these advertisers may not perform as expected under our agreements with them, and we may have disagreements or disputes with advertisers, which could negatively affect our brand and reputation.
In particular, our continued growth depends on our ability to source computer hardware, including servers built to our specifications, and the ability to locate those servers and related hardware in co-location facilities in the most desirable bus line and time slot to facilitate the timely delivery of our services. Disruptions in the services provided at co-location facilities that we rely upon can degrade the level of services that we can provide, which could harm our business. We also rely on our integration with many advertisers’ technology providers to execute our business on a daily basis. We must efficiently direct a large amount of network traffic and each bid typically must take place. We rely on TV screens to direct display to our solution for efficient processing. If our TV screens experiences disruptions or performance problems, this could result in inefficient balancing of traffic across our servers as well as impairing or preventing audiences’ connectivity to our TV advertisings, which could harm our business.
We have historically relied, and expect to continue to rely, on our existing customers for a significant portion of our revenue. The loss of any of existing customers could significantly harm our business, financial condition and results of operations.
We expect that we will continue to depend upon our existing customers for a significant portion of our revenue for the foreseeable future. As a result, if we fail to successfully attract or retain new or existing customers or if existing customers run fewer advertising campaigns with us, defer or cancel their insertion orders, or terminate their relationship with us altogether, whether through the actions of their agency representatives or otherwise, our business, financial condition and results of operations would be harmed.
Our sales and marketing efforts require significant investment, which may not yield returns in the foreseeable future, if at all.
We have invested significant resources in our research and development, sales and marketing teams to educate potential and prospective advertisers about the value of our solution. We often spend substantial time and resources explaining how our solution can optimize advertising campaigns in real time, and responding to requests for proposals from potential advertisers, including developing material specific to the needs of such potential advertisers. Our business depends in part upon advertisers’ confidence that represent those advertisers, that our use of real-time advertising exchanges to purchase inventory is superior to other methods of purchasing digital TV display advertising. We may not be successful in attracting new advertisers despite our investment in our business development, sales and marketing organizations.
If we do not effectively grow and train our sales team, we may be unable to add new customers or increase sales to our existing customers, and our business would be adversely affected.
We continue to be substantially dependent on our sales team to obtain new customers and to drive sales from our existing customers. We believe that there is significant competition for sales personnel with the skills and technical knowledge that we require. Our ability to achieve significant revenue growth will depend, in large part, on our success in recruiting, training, integrating and retaining sufficient numbers of sales personnel to support our growth. Our current sales team is primarily trained and experienced in selling to advertising agencies, which often control an advertiser’s budget. If more of our business shifts to direct relationships with brand advertisers, we may not have an adequately trained sales team to support that shift and to sell products effectively to those advertisers. New hires require significant training and it may take significant time before they achieve full productivity. Our recent hires and planned hires may not become productive as quickly as we expect, and we may be unable to hire or retain sufficient numbers of qualified individuals in the markets where we do business or plan to do business. In addition, as we continue to grow rapidly, a large percentage of our sales team will be new to the company and our solution. If we are unable to hire and train sufficient numbers of effective sales personnel, or the sales personnel are not successful in obtaining new customers or increasing sales to our existing customer base, our business would be adversely affected.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5.
Item 5. Other Information.
None.