Before investing in MDGC, read this
RISK FACTORS
An investment in our shares involves a high degree of risk. Before making any investment decision, you should carefully consider all of the risks described in this prospectus. If any of the risks discussed in this prospectus actually occur, our business, financial condition and results of operations could be materially and adversely affected. If this were to happen, the price of our shares could decline significantly and you might lose all or a part of your investment. The risk factors described below are not the only ones that may affect us. Our forward-looking statements in this prospectus are also subject to the following risks and uncertainties. Our actual results could differ materially from those anticipated by our forward-looking statements as a result of the risk factors below. See “Special Note Regarding Forward-Looking Statements.”
Risk Factors Related to Our Business
We are an early stage company and have a limited operating history on which to evaluate our potential for future success.
Although the companies that we have acquired have from two to three years of operating history, our parent company, MediaG3, was formed in December 2005, and to date has only two full years of operations. Therefore, we have only a limited operating history upon which you can evaluate our business and prospects. In addition, we are currently refining our services and products for commercial sale, and we expect that our new products, mg3 studio™ and mg3 mobile™, will not be available until early 2008. Also, there can be no assurance that we will derive significant revenues from either of these products.
We are an early stage company. You must consider the risks and uncertainties frequently encountered by early stage companies in new and rapidly evolving markets such as competing technologies, lack of customer acceptance of a new or improved service or product and obsolescence of the technology before it can be fully commercialized. If we are unsuccessful in addressing these risks and uncertainties, our business, results of operations and financial condition will be materially and adversely affected.
Doubts exist about our ability to continue as a going concern.
Our auditors have modified their report on our December 31, 2006 consolidated financial statements to include an uncertainty paragraph wherein they expressed substantial doubt about our ability to continue as a going concern. These concerns arise because of our operating losses and need to raise additional capital.
These conditions give rise to substantial doubt about our ability to continue as a going concern. Our consolidated financial statements do not include adjustments relating to the recoverability and classification of reported asset amounts or the amount and classification of liabilities that might be necessary should we be unable to continue as a going concern. Our future success is dependent upon our ability to achieve profitable operations and generate cash from operating activities as well as our ability to raise additional capital.
If we do not obtain additional capital, we may be unable to sustain our business.
Our operating plans for 2008 are focused on the development and marketing of our product applications for online and wireless marketing communications. We estimate that approximately $20 million will be required to support this plan for the next 12 months. Since our inception in 2005, we have not received any funds from the issuance of common stock, but we have received from time to time advances and funds in the form of convertible debt from our Chief Executive Officer and other parties. In August 2007, we borrowed $220,000 from a bank under a line of credit with a limit of $300,000; such loan was repaid in full on December 15, 2007. We are actively seeking additional funding, but to date have not entered into any agreements or other arrangements for such additional financing. There can be no assurance that the required additional financing will be available on terms favorable to us or at all.
If adequate funds are not available or are not available on acceptable terms when required, we may be required to significantly curtail our operations or may not be able to fund expansion, take advantage of unanticipated acquisition opportunities, develop or enhance services or products or respond to competitive pressures. These circumstances could have a material adverse effect on our business, results of operations and financial condition. If additional funds are raised through the issuance of equity or convertible debt securities, our then existing shareholders may experience substantial dilution, and such securities may have rights, preferences and privileges senior to those of our common stock.
Our business revenue generation model is unproven and could fail.
Our revenue model is new and evolving, and we cannot be certain that it will be successful. Our ability to generate revenue will depend, among other things, on our ability to provide effective online and wireless rich-media services and products to our customers. Our success will be largely dependent upon our ability to educate potential customers about the features and benefits of rich-media e-mail technology and applications. We cannot assure you that our business model will be successful or that we can sustain revenue growth or achieve or sustain profitability.
Our future revenues are unpredictable and our quarterly operating results may fluctuate significantly.
We have a very limited operating history. We cannot forecast with any degree of certainty the amount of revenue to be generated by any of our products or services. In addition, we cannot predict the consistency of our quarterly operating results. Factors which may cause our operating results to fluctuate significantly from quarter to quarter include:
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our ability to attract new and repeat customers;
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our ability to keep current with the evolving requirements of our target markets;
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our ability to protect our proprietary technology;
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the ability of our competitors to offer new or enhanced products or services; and
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unanticipated delays or cost increases with respect to research and development.
Because of these and other factors, we believe that quarter-to-quarter comparisons of our results of operations will not be good indicators of our future performance. If our operating results fall below the expectations of securities analysts and investors in some future periods, then our stock price may decline.
If we are not able to compete effectively in the highly competitive interactive rich-media marketing and communications industry, we may be forced to reduce or cease operations.
Our ability to compete effectively with our competitors depends on the following factors, among others:
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the performance of our products, services and technology in a manner that meets customer expectations;
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our ability to price our services and products at a price point that is competitive with similar or comparable services and products offered by our competitors while still providing us with an acceptable gross margin;
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general conditions in the interactive marketing, communications and wireless industries;
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the success of our efforts to develop, improve and satisfactorily address any issues relating to our technology;
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our ability to compete effectively with companies that have substantially greater market presence and financial, technical, marketing and other resources than us, including advertising agencies and print and broadcast media companies; and
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our ability to adapt to the consolidation of our competitors or the entry into the market of new competitors.
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