Risks Specific to Night Flight®
We have a limited operating history and a history of net losses, and we anticipate that we will experience net losses for the foreseeable future.
You should consider our business and prospects in light of the risks, expenses and difficulties encountered by companies in their early stage of development. We have experienced significant net losses since our inception, and given the significant operating and capital expenditures associated with our business plan, we anticipate continuing net losses for the foreseeable future. If we do achieve profitability, we cannot be certain that we will be able to sustain or increase such profitability. To achieve and sustain profitability, we must accomplish numerous objectives,
including substantially increasing the number of paying subscribers to our service and finding sponsors to purchase ads on our website and during our broadcasts. We cannot assure you that we will be able to achieve these objectives.
If our efforts to attract subscribers or sponsors are not successful, our revenues will be affected adversely.
We must continue to attract and retain subscribers. To succeed, we must continue to attract a large number of subscribers who use and continue to use subscription services such as Amazon, Netflix, Hulu, and Vudu; free services such as YouTube; pay cable channels, such as HBO and Showtime, and pay-per-view and video-on-demand, or streaming services, for in-home filmed entertainment. Our ability to attract and retain subscribers will depend in part on our ability to consistently provide our subscribers a high-quality experience for selecting, receiving, and viewing titles. If consumers do not perceive our service offering to be of high quality, or if we introduce new services that are not favorably received by them, we may not be able to attract or retain subscribers. In addition, many of our new subscribers originate from word-of-mouth advertising and referrals from existing subscribers. If our efforts to satisfy our existing subscribers are not successful, we may not be able to attract new subscribers, and as a result, our revenue will be affected adversely.
We also intend to continue selling advertising and sponsorships for our programs and website. Although we anticipate that our expenses for advertising and sponsorships will not exceed our revenue from the advertising and sponsorships, it is a vital revenue stream for our business. The inability to procure advertisers and sponsors, and generate the related revenue could adversely affect our profits.
If we are not able to manage our growth, our business could be affected adversely.
We have expanded rapidly since we launched our website. We anticipate that further expansion of our operations will be required to address any significant growth in our subscriber base and take advantage of favorable market opportunities. Any future expansion will likely place significant demands on our managerial, operational, administrative and financial resources. If we are not able to respond effectively to new or increased demands that arise because of our growth, or, if in responding, our management is materially distracted from our current operations, our business may be affected adversely. In addition, if we do not have sufficient breadth and depth of the titles necessary to satisfy increased demand arising from growth in our subscriber base, our subscriber satisfaction may be affected adversely.
We have no experience offering our subscription service outside of the United States. If we offer our service outside the United States, we will need to focus substantial resources to handle operations in a foreign environment, including addressing issues related to foreign labor markets and the regulatory environments. As a result, our managerial, operational, administrative and financial resources may be strained. Any international expansion may not achieve the subscriber acquisition or operating results anticipated by us at the time we determine to expand our operations internationally.
If we experience excessive rates of subscriber churn, our revenues and business will be harmed.
We must minimize the rate of loss of existing subscribers while adding new
subscribers. Average churn is related to the average age of our subscriber base. In periods of rapid subscriber growth, we believe that our average churn is likely to increase. In periods of slow subscriber growth, we believe that our average churn is likely to decrease. Our brief operating history leads us to believe that subscriber duration with the service is a leading indicator of subscriber churn, which we also believe decreases with age of service. Subscribers may cancel their subscriptions to our service for many reasons, including a perception that they do not use the service frequently, the service is a poor value and customer service issues are not satisfactorily resolved on a timely basis. We must continually add new subscribers both to replace subscribers who cancel their subscriptions and to continue to grow our business beyond our current subscriber base. If too many of our subscribers cancel our service, or if we are unable to attract new subscribers in sufficient numbers to grow our business, our operating results will be adversely affected. Further, if an excessive number of subscribers cancel our service, we may be required to incur significantly higher marketing expenditures than we currently anticipate to replace these subscribers with new subscribers.
Our operating results are expected to be difficult to predict based on a number of factors that also will affect our long-term performance.
We expect our operating results to fluctuate significantly in the future based on a variety of factors, many of which are outside our control and difficult to predict. As a result, period-to-period comparisons of our operating results may not be a good indicator of our future or long-term performance. The following factors may affect us from period-to-period and may affect our long-term performance:
- our ability to manage our fulfillment processes to handle significant increases in the number of subscribers and subscriber selections;
- our ability to improve or maintain gross margins in our business;
- changes by our competitors to their product and service offerings;
- price competition;
- our ability to maintain an adequate breadth and depth of titles;
- our ability to maintain, upgrade and develop our website, and our internal computer systems;
- fluctuations in the use of the Internet for the purchase of consumer goods and services such as those offered by us;
- technical difficulties, system downtime or Internet disruptions;
- our ability to attract new and qualified personnel in a timely and effective manner and retain existing personnel;
- the amount and timing of operating costs and capital expenditures relating to expansion of our business, operations and infrastructure;
- our ability to effectively manage the development of new business segments and markets;
- our ability to maintain and develop new and existing marketing relationships;
- our ability to successfully manage the integration of operations and technology resulting from acquisitions;
- governmental regulation and taxation policies; and
- general economic conditions and economic conditions specific to the Internet, online commerce and the movie and television industries.
If our efforts to build strong brand identity, and improve subscriber satisfaction and loyalty are not successful, we may not be able to attract or retain subscribers, and our operating results will be affected adversely.
Although the Night Flight brand dates back to the 1980s, its reemergence is
relatively new and it's new to a young audience. We must continue to build strong brand identity. To succeed, we must continue to attract and retain a large number of those interested in our type of entertainment and persuade them to subscribe to our service through our website. We may be required to incur significantly higher advertising and promotional expenditures than we currently anticipate to attract large numbers of new subscribers. We believe that the importance of brand loyalty will increase with a proliferation of subscription services and other means of distributing titles, such as VOD. If our branding efforts are not successful, our operating results and our ability to attract and retain subscribers will be affected adversely.
If we are unable to offset increased demand for titles with increased subscriber retention or operating margins, our operating results may be affected adversely.
If our subscriber retention does not increase or our operating margins do not
improve to an extent necessary to offset the effect of increased operating costs, our operating results will be adversely affected.
In addition, subscriber demand for titles may increase for a variety of other reasons beyond our control, including promotion by studios and seasonal variations in movie watching. Our subscriber growth and retention may be affected adversely if we attempt to increase our monthly subscription fees to offset any increased costs of acquiring or delivering titles.
If we are unable to compete effectively, our business will be affected adversely.
The market for in-home filmed entertainment is intensely competitive and subject to rapid change. Many consumers maintain simultaneous relationships with multiple in-home filmed entertainment providers and can easily shift spending from one provider to another. For example, consumers may subscribe to HBO, subscribe to Hulu, subscribe to Starz, subscribe to any other number of streaming and VOD providers, buy a DVD from WalMart and subscribe to Netflix, or some combination thereof, all in the same month. Competitors may be able to launch new businesses at relatively low cost. Streaming and VOD represents only one of many existing and potential new technologies for viewing filmed entertainment. In addition, the growth in adoption of streaming and VOD technology is not mutually exclusive from the growth of other technologies. If we are unable to successfully compete with current and new competitors and technologies, we may not be able to achieve adequate market share, increase our revenues, or achieve and maintain profitability. Our principal competitors include, or could include:
- movie retail stores, such as Best Buy, Wal-Mart and Amazon.com;
- subscription entertainment services, such as Amazon.com, Hulu, Netflix, HBO and Showtime;
- pay-per-view and video-on-demand services;
- Free streaming services such as Facebook Live and YouTube;
- Internet movie providers;
- cable providers, such as Time Warner and Spectrum; and
- direct broadcast satellite providers, such as DirectTV and DishNetwork.
Many of our competitors have longer operating histories, larger customer bases,
greater brand recognition and significantly greater financial, marketing and other resources than we do. Some of our competitors have adopted, and may continue to adopt, aggressive pricing policies and devote substantially more resources to their marketing, website and systems development than we do. The rapid growth of our online entertainment subscription business since our inception may attract direct competition from larger companies with significantly greater financial resources and national brand recognition. Increased competition may result in reduced operating margins, loss of market share and reduced revenues. In addition, our competitors may form or extend strategic alliances with studios and distributors that could affect adversely our ability to obtain filmed entertainment on favorable terms.
If we fail to maintain or adequately replace our outside sources of new subscribers or are unable to continue to market our service in the manner currently conducted, our subscriber levels may be affected adversely and our marketing expenses may increase.
We obtain a large portion of our new subscribers through incentive-based online marketing programs and through apps on video on demand services such as AppleTV, Amazon, Roku, and others. We engage third parties to solicit new subscribers through the use of banner ads, pop-under and pop-over placements, direct links and e-mails. We also have an active affiliate program by which third parties register with us and obtain particular advertisements from us for use on their websites or through other online marketing forums. In addition, we have engaged in various offline incentive-based marketing programs. These third parties may not continue to participate in our marketing programs if the programs do not provide sufficient value for their participation, our competitors offer better terms or the market for incentive-based advertising decreases. If we are unable to maintain or replace these sources of subscribers, our subscriber levels may be affected adversely and our cost of marketing may increase.
If we are unable to continue our current marketing activities, our ability to attract new subscribers may be affected adversely.
We may not be able to continue to support the marketing of our service by mass e-mail or other online means if such activities are adverse to our business. Laws or regulations may be enacted which prohibit use of mass e-mails or similar marketing activities. Even if no relevant law or regulation is enacted, we may discontinue use or support of these activities if we become concerned that subscribers or potential subscribers deem them intrusive or they otherwise adversely affect our goodwill and brand.
Following the offering, we may need additional capital, and we cannot be sure that additional financing will be available.
Historically, we have funded our operating losses and capital expenditures through proceeds from private equity and debt financings from our officers. Although we currently anticipate that the proceeds of this offering, together with our available funds and cash flow from operations, will be sufficient to meet our cash needs for the foreseeable future, we may require additional financing. Our ability to obtain financing will depend, among other things, on our development efforts, business plans, operating performance and condition of the capital markets at the time we seek financing. We cannot assure you that additional financing will be available to us on favorable terms when required, or at all. If we raise additional funds through the issuance of equity, equity-linked or debt securities, those securities may have rights, preferences or privileges senior to the rights of our common stock, and our stockholders may experience dilution.
Any significant disruption in service on our website or in our computer systems could result in a loss of subscribers.
Subscribers and potential subscribers access our service through our website or
through an app on a video on demand services such as AppleTV or Amazon FireTV,
where the title selection process is integrated with our delivery processing systems and software. Our reputation and ability to attract, retain and serve our subscribers is dependent upon the reliable performance of our website, our app, network infrastructure and fulfillment processes. Interruptions in these systems could make our website unavailable and hinder our ability to fulfill selections. Service interruptions or the unavailability of our website or app could diminish the overall attractiveness of our subscription service to existing and potential subscribers.
Any attempts by hackers to disrupt our website service or our internal systems,
if successful, could harm our business, be expensive to remedy and damage our
reputation. Efforts to prevent hackers from entering our computer systems are
expensive to implement and may limit the functionality of our services. Any
significant disruption to our website, app, or internal computer systems could
result in a loss of subscribers and adversely affect our business and results
Our communications hardware and the computer hardware used to operate our
website and app are hosted at the facilities of a third party provider. Problems faced by our third party web hosting provider, with the telecommunications network providers with whom it contracts or with the systems by which it allocates capacity among its subscribers, including us, could impact adversely the experience of our subscribers. Any of these problems could result in a loss of subscribers.
The loss of one or more of our key personnel, or our failure to attract, assimilate and retain other highly qualified personnel in the future, could seriously harm our existing business and new service developments.
We depend on the continued services and performance of our key personnel,
including Stuart S. Shapiro, our Chief Executive Officer, President and Chairman of the Board; Thomas Mullarney, our Senior Producer and Vice President; Ian Marshall, our Archivist; and Ed Seaman, our VP of Acquisitions.
In addition, much of our key technology and systems are custom made for our
business by our personnel so that the loss of our key technology personnel could disrupt the operation of our title selection and fulfillment systems and have an adverse effect on our ability to grow and expand our systems.
Privacy concerns could limit our ability to leverage our subscriber data.
In the ordinary course of business, and in particular, in connection with providing our personal movie recommendation service, we collect and utilize data supplied by our subscribers. We currently face certain legal obligations regarding the manner in which we treat such information. Other businesses have been criticized by privacy groups and governmental bodies for attempts to link personal identities and other information to data collected on the Internet regarding users’ browsing and other habits. Increased regulation of data utilization practices, including self-regulation, as well as increased enforcement of existing laws could have an adverse effect on our business.
Our reputation and relationships with subscribers would be harmed if our billing data were to be accessed by unauthorized persons.
To secure transmission of confidential information obtained by us for billing purposes, including subscribers’ credit card data, we rely on licensed encryption and authentication technology. In conjunction with the credit card companies, we take measures to protect against unauthorized intrusion into our subscribers’ credit card and other data. If, despite these measures, we experience any unauthorized intrusion into our subscribers’ data, current and potential subscribers may become unwilling to provide the information that is necessary for them to become subscribers, and our business could be affected adversely. Similarly, if a well-publicized breach of the consumer data security of any other major consumer website were to occur, there could be a general public loss of confidence in the use of the Internet for commerce transactions, which could adversely affect our business.
In addition, because we obtain subscribers’ billing information on our website, we do not obtain signatures from subscribers in connection with the use of credit cards by them. Under current credit card practices, to the extent we do not obtain cardholders’ signatures, we are liable for fraudulent credit card transactions, even where the associated financial institution approves payment of the orders. We do not currently carry insurance against the risk of fraudulent credit card transactions. A failure to adequately control fraudulent credit card transactions would harm our business and results of operations.
Our relationship with subscribers and credit card companies could be harmed if our billing software fails.
We have in the past experienced problems with our subscriber billing software,
causing us to overbill subscribers. Although we have and will continue to credit the accounts of the subscribers we overbill, problems with our billing software may have an adverse effect on our subscriber satisfaction and may cause one or more of the major credit companies to disallow our continued use of their payment products. In addition, if our billing software fails and we fail to bill subscribers our cash flow and results of operations will be affected adversely.
If our trademarks and other proprietary rights are not adequately protected to prevent use or appropriation by our competitors, the value of our brand and other intangible assets may be diminished, and our business may be adversely affected.
We rely and expect to continue to rely on a combination of confidentiality and
license agreements with our employees, consultants and third parties with whom
we have relationships, as well as trademark, copyright, patent and trade secret
protection laws, to protect our proprietary rights.
If the protection of our proprietary rights is inadequate to prevent use or appropriation by third parties, the value of our brand and other intangible assets may be diminished, competitors may be able to more effectively mimic our service and methods of operations, the perception of our business and service to subscribers and potential subscribers may become confused in the marketplace
and our ability to attract subscribers may be adversely affected.
Intellectual property claims against us could be costly and result in the loss of significant rights related to, among other things, our website, title selection processes and marketing activities.
Trademark, copyright, patent and other intellectual property rights are important to us and other companies. Our intellectual property rights extend to our technology, business processes and the content on our website. We use the intellectual property of third parties in merchandising our products and marketing our service through contractual and other rights. If there is any claim against us for infringement, misappropriation, misuse or other violation of third party intellectual property rights, and we are unable to obtain sufficient rights or develop non-infringing intellectual property or otherwise alter our business practices, as appropriate, on a timely basis, our business and competitive position may be affected adversely. Many companies are devoting significant resources to developing patents that could potentially affect many aspects of our business. There are numerous patents that broadly claim means and methods of conducting business on the Internet. We have not exhaustively searched patents relative to our technology. We may be accused of infringing certain of these patents. In addition, other parties may assert infringement or unfair competition or other intellectual property claims against us that could relate to any aspect of our technology, business processes, merchandizing and marketing activities or our intellectual property rights. We cannot predict whether third parties will assert claims of infringement against us, the subject matter of any of these claims or whether these assertions or
prosecutions will adversely affect our business. If we are forced to defend
ourselves against any of these claims, whether they are with or without merit
or are determined in our favor, we may face costly litigation, diversion of
technical and management personnel, inability to use our current website or
inability to market our service or merchandise our products. As a result of a
dispute, we may have to develop non-infringing technology, enter into royalty
or licensing agreements adjust our merchandizing or marketing activities or
take other action to resolve the claims. These actions, if required, may be
unavailable on terms acceptable to us, costly or unavailable.
If we are unable to protect our domain names, our reputation and brand
could be affected adversely.
We currently hold various domain names relating to our brand, including
NightFlight.com and NightFlightPlus.com. Failure to protect our domain names
could affect adversely our reputation and brand, and make it more difficult for
users to find our website and our service. The acquisition and maintenance of
domain names generally are regulated by governmental agencies and their
designees. The regulation of domain names in the United States may change in
the near future. Governing bodies may establish additional top-level domains,
appoint additional domain name registrars or modify the requirements for holding
domain names. As a result, we may be unable to acquire or maintain relevant
domain names. Furthermore, the relationship between regulations governing
domain names and laws protecting trademarks and similar proprietary rights is
unclear. We may be unable to prevent third parties from acquiring domain names
that are similar to, infringe upon or otherwise decrease the value of our
trademarks and other proprietary rights.
Because our business is accessed over the Internet, if the Internet infrastructure is not developed or maintained, we could lose subscribers.
The Internet may not become a viable commercial marketplace for many potential
subscribers due to inadequate development of network infrastructure and enabling technologies that address consumer concerns about:
- network performance;
- speed of access;
- ease of use, and
- bandwidth availability.
The Internet has experienced a variety of outages and delays as a result of damage to portions of its infrastructure, and it could face outages and delays in the future. These outages and delays could frustrate public use of the Internet, including use of our website offerings. In addition, the Internet could lose its viability due to delays in the development or adoption of new standards and protocols to handle increased levels of activity or due to governmental regulation.
If we become subject to liability for the Internet content that we publish or upload from our users, our results of operations would be affected adversely.
As a publisher of online content, we face potential liability for negligence, copyright, patent or trademark infringement or other claims based on the nature and content of materials that we publish or distribute. We also may face potential liability for content uploaded from our users in connection with our community-related content or movie reviews. If we become liable, then our business may suffer. Litigation to defend these claims could be costly and harm our results of operations. We cannot assure you that we are adequately insured to cover claims of these types or to indemnify us for all liability that may be imposed on us.
We may need to change the manner in which we conduct our business, or
incur greater operating expenses, if government regulation of the Internet or
other areas of our business changes or if consumer attitudes toward use of the
The adoption or modification of laws or regulations related to the Internet or other areas of our business could limit or otherwise adversely affect the manner in which we currently conduct our business. In addition, the growth and development of the market for online commerce may lead to more stringent consumer protection laws, which may impose additional burdens on us. If we are required to comply with new regulations or legislation or new interpretations of existing regulations or legislation, this compliance could cause us to incur additional expenses or alter our business model.
The manner in which Internet and other legislation may be interpreted and enforced cannot be precisely determined and may subject either us or our customers to potential liability, which in turn could have an adverse effect on our business, results of operations and financial condition. The adoption of any laws or regulations that adversely affect the popularity or growth in use of the Internet could decrease the demand for our subscription service and increase our cost of doing business.
In addition, if consumer attitudes toward use of the Internet change, consumers may become unwilling to select their entertainment online or otherwise provide
us with information necessary for them to become subscribers. Further, we may
not be able to effectively market our services online to users of the Internet. If we are unable to interact with consumers because of changes in their attitude toward use of the Internet, our subscriber acquisition and retention and operating results may be affected adversely.
Risks Related to this Offering
Our officers and directors and their affiliates will exercise significant control over Night Flight.
After the completion of this offering, our executive officers and directors, will control in the aggregate, approximately 90% of our common stock. In addition, Stuart S. Shapiro, our CEO one of our directors, will beneficially own approximately 64% of our common stock. The percentage of shares beneficially owned by Mr. Shapiro after the offering assumes that they do not purchase any shares of our common stock in this offering. Mr. Shapiro, and other insiders, may have individual interests that are different from yours and will be able to exercise significant control over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, which could delay or prevent someone from acquiring or merging with us.
Provisions in our charter documents and under Delaware law could discourage a takeover that stockholders may consider favorable.
Following this offering, our charter documents may discourage, delay or prevent
a merger or acquisition that a stockholder may consider favorable because they
- authorize our board of directors, without stockholder approval, to issue up to 1,000,000 shares of undesignated preferred stock;
- provide for a classified board of directors;
- prohibit our stockholders from acting by written consent;
- establish advance notice requirements for proposing matters to be approved by stockholders at stockholder meetings; and
- prohibit stockholders from calling a special meeting of stockholders.
Financial forecasting by us and financial analysts who may publish estimates of our financial results will be difficult because of our limited operating history, and our actual results may differ from forecasts.
As a result of our recent growth and our limited operating history, it is difficult to accurately forecast our revenues, gross profit, operating expenses, number of paying subscribers, and other financial and operating data. The inability by us or the financial community to accurately forecast our operating results could cause our net losses in a given quarter to be greater than expected, which could cause a decline in the trading price of our common stock. We have a limited amount of meaningful historical financial data upon which to base our planned operating expenses. Our current and forecasted expense levels are based on our operating plans and estimates of future revenues, which are dependent on the growth of our subscriber base and the demand for music content by our subscribers, as well as advertising revenue from sponsors and music video ad revenue. As a result, we may be unable to make accurate financial forecasts or to adjust our spending in a timely manner to compensate for any unexpected shortfalls in revenues. We believe that these difficulties in forecasting are even greater for financial analysts that may publish their own estimates of our financial results.
There is no market for our stock and for the foreseeable future, it is unlikely one will develop.
Prior to this offering, there has been no public market for shares of our common stock. An active market may not develop following completion of this offering, or if developed, may not be maintained.
The market prices of the securities of Internet and technology-related companies have been extremely volatile. The price at which our common stock will trade after this offering could be extremely volatile and may fluctuate substantially due to the following factors, some of which are beyond our control:
- variations in our operating results;
- variations between our actual operating results and the expectations of securities analysts, investors and the financial community;
- announcements of developments affecting our business, systems or expansion plans by us or others;
- market volatility in general; and
- the operating results of our competitors.
As a result of these and other factors, investors in our common stock may not
be able to resell their shares at or above the initial offering price.
In the past, securities class action litigation often has been instituted against companies following periods of volatility in the market price of their securities. This type of litigation, if directed at us, could result in substantial costs and a diversion of management’s attention and resources.
We have no immediate plans to list on an exchange, and based on this type of
offering, we are unable to even contemplate listing on an exchange as this offering is pursuant to Regulation CF, which is highly restrictive. Investors should view an investment in our stock as a long-term investment.
We have no intention to pay cash dividends on our common stock for the foreseeable future.
We currently expect to retain future earnings, if any, to finance the growth and development of our business and do not anticipate paying any cash dividends for the foreseeable future. Therefore, you possibly will not receive any return on an investment in our common stock unless you sell your common stock for a price greater than which you paid for it.
Our offering price is arbitrary and bears no relationship to our assets, earnings, or book value.
There is no current public trading market for the Company's Common Stock and the price at which the Shares are being offered bears no relationship to conventional criteria such as book value or earnings per share. There can be no assurance that the offering price bears any relation to the current fair market value of the Common Stock.
New shareholders will experience immediate dilution.
The net tangible book value of the Common Stock offered hereby will be substantially diluted below the offering price paid by investors. Therefore, new shareholders will experience immediate dilution.
One of our officers is currently part-time.
Laurie Dolphin (our Treasurer) currently works part-time.