iPic Entertainment (IPIC) Risk Analysis

Under Sections 3(a)(1)(A) and (C) of the 1940 Act, a company generally will be deemed to be an "investment company" for purposes of the 1940 Act if (i) it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities or (ii) it engages, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and it owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. We do not believe that we are an "investment company," as such term is defined in either of those sections of the 1940 Act. iPic is the sole manager of Holdings, and Holdings is the sole managing member of iPic-Gold Class. As a result, we will indirectly control and operate iPic-Gold Class. On that basis, we believe that our interest in iPic-Gold Class is not an "investment security" as that term is used in the 1940 Act. However, if we were to cease participation in the management of iPic-Gold Class, our interest in iPic-Gold Class could be deemed an "investment security" for purposes of the 1940 Act. We, Holdings and iPic-Gold Class intend to conduct our operations so that we will not be deemed an investment company. However, if we were to be deemed an investment company, restrictions imposed by the 1940 Act, including limitations on our capital structure and our ability to transact with affiliates, could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business.

As of March 1, 2019, our directors, officers and 10% or greater stockholders control approximately 87.7% of the combined voting power of all classes of our common stock through their ownership of Class A and Class B Common Stock. Such stockholders will, for the foreseeable future, have significant influence over our corporate management and affairs, and will be able to control virtually all matters requiring stockholder approval. Such stockholders are able to, subject to applicable law, elect a majority of the members of our board of directors and control actions to be taken by us and our board of directors, including amendments to our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws and approval of significant corporate transactions, including mergers and sales of substantially all of our assets. The directors so elected will have the authority, subject to the terms of our indebtedness and applicable rules and regulations, to issue additional stock, implement stock repurchase programs, declare dividends and make other decisions. It is possible that the interests of such stockholders may in some circumstances conflict with our interests and the interests of our other stockholders, including you. For example, such stockholders that are also holders of LLC Interests may have different tax positions from us that could influence their decisions regarding whether and when to dispose of assets, and whether and when to incur new or refinance existing indebtedness. In addition, the determination of future tax reporting positions, the structuring of future transactions and the handling of any future challenges by any taxing authority to our tax reporting positions may take into consideration these holders of LLC Interests' tax or other considerations, which may differ from the considerations of us or our other stockholders. In addition, certain of such stockholders are in the business of making or advising on investments in companies and hold, and may from time to time in the future acquire, interests in or provide advice to businesses that directly or indirectly compete with certain portions of our business or the business of our suppliers. Our Amended and Restated Certificate of Incorporation provides that, to the fullest extent permitted by law, none of such stockholders or any director who is not employed by us or his or her affiliates will have any duty to refrain from engaging in a corporate opportunity in the same or similar lines of business as us. Such stockholders may also pursue acquisitions that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us.

The trading price of our Class A Common Stock has been volatile since our IPO. Since shares of our Class A Common Stock began trading on NASDAQ in February 2018, the reported high and low sales prices of our Class A Common Stock have ranged from $17.00 to $2.02 through March 1, 2019. The following factors, in addition to other factors described in this "Risk Factors" section and elsewhere in this Annual Report on Form 10-K, may have a significant impact on the market price of our Class A Common Stock: - announcements of innovations or new services by us or our competitors;         - any adverse changes to our relationship with our customers or suppliers;         - variations in the costs of products that we use in our restaurants or theaters;         - announcements concerning our competitors or the restaurant and movie theater industry in general;         - achievement of expected sales and profitability;         - supply or distribution shortages;         - adverse actions taken by regulatory agencies with respect to our services or the products we use;         - actual or anticipated fluctuations in our quarterly or annual operating results;         - changes in financial estimates or recommendations by securities analysts;         - trading volume of our Class A Common Stock;         - sales of our Class A Common Stock by us, our executive officers and directors or our stockholders in the future;         - general economic and market conditions and overall fluctuations in the U.S. equity markets;         - actual or perceived risks that our Class A Common Stock will be delisted; and         - changes in accounting principles. In addition, broad market and industry factors may negatively affect the market price of our Class A Common Stock, regardless of our actual operating performance, and factors beyond our control may cause our stock price to decline rapidly and unexpectedly.

On December 28, 2018, we received a letter from the Listing Qualifications Department of The Nasdaq Stock Market stating that for the 30 consecutive business days prior to the date of the letter, we did not meet the minimum market value of listed securities of $35,000,000 required for continued listing on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(b)(2). In accordance with Nasdaq Listing Rule 5810(c)(3)(C), Nasdaq provided us with 180 calendar days to regain compliance. On March 12, 2019, we received notice from NASDAQ that for ten consecutive business days, the Company's market value of listed securities had been $35,000,000 or greater and therefore the Company regained compliance with Nasdaq Listing Rule 5550(b)(2). In addition, we transferred our Class A common stock from The Nasdaq Global Select Market to The Nasdaq Capital Market effective August 10, 2018. As previously disclosed in a Form 8-K filing dated as of May 9, 2018, this transfer followed a letter from the Listing Qualifications Department of The Nasdaq Stock Market dated May 9, 2018 notifying us that for the past 30 consecutive business days prior to the date of the letter, the Company did not meet the minimum market value of publicly held shares of $15,000,000 required for continued listing on The Nasdaq Global Select Market pursuant to Nasdaq Listing Rule 5450(b)(3)(C). There is no assurance that the Company will meet the minimum market value of listed securities for continued listing on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(b)(2) in the future or that we will continue to comply with other Nasdaq listing requirements. If our Class A Common Stock were to be delisted from the NASDAQ Capital Market, the liquidity of our Class A Common Stock would be materially impacted.

As of March 1, 2019, we have an aggregate of 92,855,867 shares of Class A Common Stock authorized but unissued. The holders of our Class B Common Stock are generally entitled to have their corresponding LLC Interests redeemed for shares of our Class A Common Stock, subject to certain restrictions contained in the Holdings LLC Agreement. We cannot predict the size of future issuances of our Class A Common Stock or the effect, if any, that future issuances and sales of shares of our Class A Common Stock may have on the market price of our Class A Common Stock. Sales or distributions of substantial amounts of our Class A Common Stock, including shares issued in connection with an acquisition, or the perception that such sales or distributions could occur, may cause the market price of our Class A Common Stock to decline.

Sales of a substantial number of shares of our Class A Common Stock in the public market or the perception that these sales might occur, could depress the market price of our Class A Common Stock and could impair our ability to raise capital through the sale of additional equity securities. The shares of Class A Common Stock issued in our IPO are freely tradable without restriction under the Securities Act. On February 1, 2018, we filed a registration statement on Form S-8 under the Securities Act to register all shares of Class A Common Stock issued or issuable upon exercise of outstanding options under our stock plans and outstanding IPO Restricted Stock Units. Accordingly, shares registered under such registration statement will be available for sale in the open market following the expiration of the applicable lock-up period, upon exercise of options vested at such time. Moreover, holders of an aggregate of 7,432,377 shares of our common stock have rights, subject to certain conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares held by our affiliates. Any sales of securities by these stockholders could have a material adverse effect on the trading price of our common stock. In the future, we may also issue additional securities if we need to raise capital, which could constitute a material portion of our then-outstanding shares of common stock.

The trading market for our Class A common stock will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our markets or our competitors. We do not have any control over these analysts and we cannot provide any assurance that analysts will cover us or provide favorable coverage. If any of the analysts who may cover us adversely change their recommendation regarding our stock, or provide more favorable relative recommendations about our competitors, our stock price could decline. If any analyst who may cover us were to cease coverage of our Company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends in the foreseeable future. As a result, we expect that only appreciation of the price of our common stock, if any, will provide a return to investors in our common stock for the foreseeable future.

As a public company, we are subject to the reporting requirements of Exchange Act, the corporate governance standards of the Sarbanes-Oxley Act of 2002, (the "Sarbanes-Oxley Act"), and NASDAQ. As a result, we will incur significant legal, accounting and other costs that we did not incur as a private company. These requirements will place a strain on our management, systems and resources and we will incur significant legal, accounting, insurance and other expenses that we have not incurred as a private company. The Exchange Act requires us to file annual, quarterly and current reports with respect to our business and financial condition within specified time periods and to prepare a proxy statement with respect to our annual meeting of stockholders. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal controls over financial reporting. NASDAQ requires that we comply with various corporate governance requirements. To maintain and improve the effectiveness of our disclosure controls and procedures and internal controls over financial reporting and comply with the Exchange Act and NASDAQ requirements, significant resources and management oversight will be required. This may divert management's attention from other business concerns and lead to significant costs associated with compliance, which could have a material adverse effect on us and the price of our Class A Common Stock. We have had difficulty and paid significantly more to obtain directors' and officers' liability insurance. Going forward we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers. Advocacy efforts by stockholders and third parties may also prompt even more changes in governance and reporting requirements. We cannot predict or estimate the amount of additional costs we may incur or the timing of these costs.

Our Amended and Restated Certificate of Incorporation and our Amended and Restated contain provisions that could have the effect of rendering more difficult or discouraging an acquisition deemed undesirable by our board of directors. Our corporate governance documents include provisions that: - authorize blank check preferred stock, which could be issued with voting, liquidation, dividend and other rights superior to our common stock;         - limit the liability of, and provide indemnification to, our directors and officers;         - limit the ability of our stockholders to call and bring business before special meetings and to take action by written consent in lieu of a meeting;         - require advance notice of stockholder proposals and the nomination of candidates for election to our board of directors;         - require that directors only be removed from office for cause; and         - limit the determination of the number of directors on our board and the filling of vacancies or newly created seats on the board to our board of directors then in office. Further, we are subject to the anti-takeover provisions of section 203 of the Delaware General Corporation Law, which prohibits us from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. The application of section 203 could have the effect of delaying or preventing a change of control that could be advantageous to the stockholders. These provisions of our charter documents and Delaware law, alone or together, could delay or deter hostile takeovers and changes in control or changes in our management. Any provision of our Amended and Restated Certificate of Incorporation or Amended and Restated Bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our common stock if they are viewed as discouraging takeover attempts in the future.