ITEM 1A. Risk Factors
Investing in our securities
involves a high degree of risk. Before making any investment decision, you should consider carefully the following risks and other information
in this Report, including our consolidated financial statements and related notes. The risks and uncertainties we describe are not the
only ones facing us. Additional risks and uncertainties that we are unaware of or that we believe are not material at the time could also
materially adversely affect our business, financial condition or results of operations. In any case, the value of our Common Stock could
decline, and you could lose all or part of your investment. Please also see the section entitled “Cautionary Note Regarding Forward-Looking
Statements.”
Risks Related to Our Business and Industry
Our business is highly dependent on macroeconomic
and U.S. residential real estate market conditions, including those affecting the broader mortgage market. Deterioration of such conditions
may have a negative impact on our rate of growth and potential to achieve or maintain profitability.
Our success depends largely
on the health of the U.S. residential real estate industry, which is seasonal, cyclical, and affected by changes in general economic
conditions beyond our control. Any of the following macroeconomic factors could adversely affect demand for residential real estate, result
in falling home prices, and harm our business:
● increased interest rates;
● increased unemployment rates or stagnant or declining wages;
● slow economic growth or recessionary conditions;
● weak credit markets;
● fluctuations in local and regional home inventory levels;
● strength of financial institutions;
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● high levels of foreclosure activity in particular markets;
● a decrease in home ownership rates;
We may not achieve or maintain profitability
in the future.
We expect to continue to make
future investments in developing and expanding our business, including technology, recruitment and training, marketing, and pursuing strategic
opportunities. These investments may not result in increased revenue or growth in our business. Additionally, we may incur significant
losses in the future for a number of reasons, including:
● our inability to grow market share;
● increased competition in the U.S. residential real estate industry;
● changes in our commission rates;
● failure to execute our growth strategies;
● declines in the U.S. residential real estate industry; and
Accordingly, we may not be
able to achieve or maintain profitability and we may continue to incur significant losses in the future.
Our business is concentrated in certain
geographic markets. Failing to grow in those markets or any disruptions in those markets could harm our business.
For 2024 and 2025, a substantial majority of our real estate revenue, respectively, was derived from our top markets, which consists primarily of major metropolitan areas
in California. These markets are primarily major metropolitan areas, where home prices and transaction volumes are generally higher than
other markets. Local and regional economic conditions in these markets differ materially from prevailing conditions in other parts of
the United States. In addition, due to the higher home prices in these markets, our real estate revenue and gross margin is generally
higher in these markets than in our smaller markets. Any overall or disproportionate downturn in demand or economic conditions in any
of our largest markets, particularly if we are not able to increase revenue from our other markets, could result in a decline in our revenue
and harm our business.
Our future market share gains may take longer
than planned and cause us to incur significant costs.
We represent people buying
and selling homes in California, in the future, we plan to expand to more markets in the United States. We have a limited operating
history in many of these markets. Expanding our services in existing and new markets and increasing the depth and breadth of our presence
imposes significant burdens on our marketing, compliance, and other administrative and managerial resources. Our plan to expand and deepen
our market share in our existing markets and possibly expand into additional markets is subject to a variety of risks and challenges.
These risks and challenges include the varying economic and demographic conditions of each market, competition from local and regional
residential brokerage firms, variations in transaction dynamics, and pricing pressures. Additionally, our earlier markets typically have
higher mean home prices than our more recent markets. In addition, many valuable markets have established residential brokerages with
superior local referral networks, name recognition, and perceived local knowledge and expertise. If we cannot manage our expansion efforts
efficiently, our market share gains could take longer than planned and our related costs could exceed our expectations. In addition, we
could incur significant costs to seek to expand our market share, and still not succeed in attracting sufficient customers to offset such
costs.
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We expect our revenue and results of operations
to fluctuate on a quarterly and annual basis.
Our revenue and results of
operations are likely to vary significantly from period to period and may fail to match expectations as a result of a variety of factors,
many of which are outside our control. The other risk factors discussed in this “Risk Factors” section may contribute
to the variability of our quarterly and annual results. In addition, our revenue and results may fluctuate as a result of:
● cyclical periods of slowdowns or recessions in the U.S. real estate market;
● our ability to increase market share;
● fluctuations in sale prices and transaction volumes in our top markets;
● the price of homes bought or sold by Linkhome homebuyers and home sellers;
● price competition;
● volume of transactions in markets with a higher than average mean home price;
● mix of transactions;
● impairment charges associated with goodwill and other intangible assets;
● the timing and success of new offerings by us and our competitors;
● changes in local market conditions;
● changes in interest rates and the mortgage and credit markets;
As a result of potential variations
in our revenue and results of operations, period-to-period comparisons may not be meaningful and the results of any one period should
not be relied on as an indication of future performance. In addition, our results of operations may not meet the expectations of investors
or public market analysts who follow us, which may adversely affect our stock price.
Our business model
and growth strategy depend on our ability to attract homebuyers and home sellers to our website and mobile application in a cost-effective
manner.
Our success depends on our
ability to attract homebuyers and home sellers to our website and mobile application in a cost-effective manner. Our website and mobile
application are our primary channels for meeting customers. We rely on organic traffic generated from search engines and other unpaid
sources to meet customers. We use a variety of media in our marketing efforts, including online and television advertising and social
media, to drive traffic. We intend to continue to invest resources in our marketing efforts.
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We are heavily dependent on
digital marketing initiatives such as search engine optimization to improve our website’s search result ranking and generate new
customer leads. We also rely on other marketing methods such as social media marketing, paid search advertising, and targeted email communications.
Advertising platforms, such as Facebook, Google, and others, may raise their rates significantly, and we may choose to use alternative
and less expensive channels, which may not be as effective at attracting homebuyers and home sellers to our website and mobile application.
We also use video advertising, which may have significantly higher costs than other methods. In addition, we may be required to expand
into or continue to invest in more expensive channels than those we are currently in, which could harm our business.
These marketing efforts may
not succeed for a variety of reasons, including changes to search engine algorithms, ineffective campaigns across marketing channels,
and limited experience in certain marketing channels like television. External factors beyond our control may also affect the success
of our marketing initiatives, such as filtering of our targeted communications by email servers, homebuyers and home sellers failing to
respond to our marketing initiatives, and competition from third parties. Any of these factors could reduce the number of homebuyers and
home sellers to our website and mobile application. We also anticipate that our marketing efforts will become increasingly expensive as
competition increases and we seek to expand our business in existing markets. Generating a meaningful return on our marketing initiatives
may be difficult. If our strategies do not attract homebuyers and home sellers efficiently, our business and growth would be harmed. Even
if we successfully increase revenue as a result of these efforts, that additional revenue may not offset the related expenses we incur.
We rely heavily on internet search engines
and mobile application stores to direct traffic to our website and our mobile application, respectively.
We rely on Internet search
engines, such as Google, Bing and Yahoo!, to drive traffic to our website and on mobile application stores, such as Apple iTunes Store
and the Android Play Store, for downloads of our mobile application. The number of visitors to our website and mobile application downloads
depends in large part on how and where our website and mobile application rank in Internet search results and mobile application stores,
respectively. For example, when a user types a property address into an Internet search engine, we rely on that search engine to rank
our webpages in the search results and to direct a user to the listing on our website. While we use search engine optimization to help
our webpages rank highly in search results, maintaining our search result rankings is not within our control. Internet search engines
frequently update and change their ranking algorithms, referral methodologies, or design layouts, which determine the placement and display
of a user’s search results. In some instances, Internet search engines may change these rankings in order to promote their own competing
services or the services of one or more of our competitors. Similarly, mobile application stores can change how they display searches
and how mobile applications are featured. For instance, editors at the Apple iTunes Store can feature prominently editor-curated mobile
applications and cause the mobile application to appear larger than other applications or more visibly on a featured list. Listings on
our website and mobile application have experienced fluctuations in search result and mobile application rankings in the past, and we
anticipate fluctuations in the future. If our website or listings on our website fail to rank prominently in Internet search results,
our website traffic could decline. Likewise, a decline in our website and mobile application traffic could reduce the number of customers
for our services.
Cyber-attacks and security vulnerabilities
could result in serious harm to our reputation, business, and financial condition.
Threats to network and data
security are constantly evolving and becoming increasingly diverse and sophisticated. Our products and services, as well as our servers
and computer systems and those of third parties that we rely on, are subject to cybersecurity risks inherent to companies that process
personal data. An increasing number of organizations have disclosed breaches of their information security systems, some of which have
involved sophisticated and highly targeted attacks.
To that end, we employ
robust security to defend against intrusion and attack of our systems, to protect our data and to resolve and mitigate the impact of
any incidents. We also regularly educate our employees on these risks, and provide training to them to learn how to identify and
respond to the same. Like most companies today, despite these efforts there is no way to fully remove the possibility of a
cybersecurity incident from occurring and we, and third parties that we rely on, will likely experience cyber incidents in the
future. Thus, in addition to the identified risk above, any additional future cyber incidents and resulting data breaches could
result in substantial liability, regulatory actions, financial penalties, significant out of pocket costs, damage to our data and
ability to do business, and reputational harm.
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We and third parties that we
rely on may experience cybersecurity incidents due to human error, malfeasance, system errors or vulnerabilities, or other issues. Actual
or perceived cybersecurity incidents relating to our data or confidential information could subject us to regulatory investigations and
orders, litigation, indemnity obligations, damages, penalties, fines and other costs in connection with actual and alleged contractual
breaches, violations of applicable laws and regulations and other liabilities. Any such incident could also materially damage our reputation
and harm our business, results of operations and financial condition. We maintain errors, omissions, and cyber liability insurance policies
covering certain security and privacy damages. However, we cannot be certain that our coverage will always be adequate for the liabilities
actually incurred or that insurance will continue to be available to us on economically reasonable terms, or at all, especially depending
on the facts of the situation and method of incident.
We may not be able to obtain and maintain
accurate, comprehensive, or reliable data, because data suppliers may withdraw data that we have previously collected or withhold data
from us in the future or we may fail to maintain and improve our methods and technologies, or anticipate new methods or technologies,
for data collection, organization, and cleansing. As a result, we may experience reduced demand for our products and services and loss
of customer confidence.
Our success depends on our
users’ confidence in the depth, breadth, and accuracy of our data. The task of establishing and maintaining accurate data is challenging
and expensive. The depth, breadth, and accuracy of our data differentiates us from our competitors. If our data, including the data we
obtain from third parties and our data extraction, cleaning, and insights, are not current, accurate, comprehensive, or reliable, it would
increase the likelihood of negative user experiences, which in turn would reduce the likelihood of users utilizing our app or website
and harm our reputation, making it more difficult to obtain new users, which could have an adverse effect on our business, results of
operations, and financial condition.
If we cannot obtain and provide to our customers
comprehensive and accurate real estate listings quickly, or at all, our business will suffer.
Our ability to attract consumers
to our website and mobile application is heavily dependent on our timely access to comprehensive and accurate real estate listings data.
We get listings data primarily from MLS in the markets we serve. We also source listings data from public records, other third-party listing
providers, and individual homeowners and brokers. Many of our competitors and other real estate websites also have access to MLS and other
listings data, including proprietary data, and may be able to source listings data or other real estate information faster or more efficiently
than we can. Since MLS participation is voluntary, brokers and homeowners may decline to post their listings data to their local MLS or
may seek to change or limit the way that data is distributed. A competitor or another industry participant could also create an alternative
listings data service, which may reduce the relevancy and comprehensive nature of the MLS. If MLS cease to be the predominant source of
listings data in the markets that we serve, we may be unable to get access to comprehensive listings data on commercially reasonable terms,
or at all, and we may be unable to provide timely listings to our customers.
If we do not comply with the rules, terms
of service and policies of the MLS, our access to and use of listings data may be restricted or terminated and harm our business.
We must comply with the MLS’s
rules, terms of service and policies to access and use its listings data. Each MLS that we belong to has adopted its own rules, terms
of service, and policies governing, among other things, how MLS data may be used, and listings data must be displayed on our website and
mobile application. These rules typically do not contemplate multi-jurisdictional online brokerages like ours and vary widely among markets.
They also are in some cases inconsistent with the rules of other MLS such that we are required to customize our website, mobile application,
or service to accommodate differences between MLS rules. Complying with the rules of each MLS requires significant investment, including
personnel, technology and development resources, other resources, and the exercise of considerable judgment. If we are deemed to be noncompliant
with an MLS’s rules, we may face disciplinary sanctions in that MLS, which could include monetary fines, restricting or terminating
our access to that MLS’s data, or other disciplinary measures. The loss or degradation of this listings data could materially and
adversely affect traffic to our website and mobile application, making us less relevant to consumers and restricting our ability to attract
customers. It also could reduce agent and customer confidence in our services and harm our business.
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Competition in the residential brokerage
industry is intense and if we cannot compete effectively, our business will be harmed.
We face intense competition
in each of the markets we serve. We compete primarily against other residential brokerages, which include operations affiliated with national
or local brands and small independent brokerages. We also compete with a growing number of AI-based residential brokerages and others
who operate with non-traditional real estate business models. Competition with brokerages is particularly intense in some of the densely
populated metropolitan markets we serve. To capture and retain market share, we must compete successfully against other brokerages, not
only for customers, but also for high-performing agents and other critical employees.
The residential brokerage industry
has low barriers to entry for new participants, including other technology-driven brokerages that offer lower commissions than the traditional
pricing model. We may change our pricing strategies in response to a number of factors, including competitive pressures or in response
to transaction volume fluctuations in particular markets we serve. As competitors introduce new offerings that compete with ours or reduce
their commission rates, we may need to change our pricing strategies to compete effectively. Any such changes, particularly in the top
markets we serve, may affect our ability to compete successfully and harm our business.
Many of our brokerage competitors
have substantial competitive advantages, such as longer operating histories, greater financial resources, stronger brand recognition,
more management, sales, marketing and other resources, and extensive relationships with participants in the residential real estate industry,
including third-party data providers such as MLS. Consequently, these brokerages may have an advantage in recruiting and retaining agents,
attracting consumers, acquiring customers, and growing their businesses. They may be able to provide consumers with offerings that are
different from or superior to those we provide. They may also be acquired by third parties with greater resources than ours, which would
further strengthen and enable them to compete more vigorously or broadly with us. The success of our competitors could result in our loss
of market share and harm our business.
Our revenue may not continue to grow at
its recent pace, or at all.
Our revenue may not continue
to grow at the same pace as it has over the past several years. We believe that our future revenue growth will depend, among other
factors, on our ability to:
● successfully expand and deepen our business and market share;
● compete with the pricing and offerings of our competitors;
● attract more customers to our website and mobile application;
● successfully invest in developing technology, tools, features, and products;
● maintain high levels of customer service;
● maximize our agents’ productivity;
● attract and retain high-quality agents;
● successfully contract with high-quality partner agents; and
● increase our brand awareness.
We may not be successful
in our efforts to do any of the foregoing, and any failure to be successful in these matters could adversely affect our revenue growth.
You should not consider our past revenue growth to be indicative of our future growth.
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If we’re not able to deliver a rewarding
experience on mobile devices, whether through our mobile website or mobile application, we may be unable to attract and retain customers.
Developing and supporting a
mobile website and mobile application across multiple operating systems and devices requires substantial time and resources. We may not
be able to consistently provide a rewarding customer experience on mobile devices and, as a result, customers we meet through our mobile
website or mobile application may not choose to use our brokerage services, or those of our partner agents, at the same rate as customers
we meet through our website.
As new mobile devices and mobile
operating systems are released, we may encounter problems in developing or supporting our mobile website or mobile application for them.
Developing or supporting our mobile website or mobile application for new devices and their operating systems may require substantial
time and resources. The success of our mobile website and mobile application could also be harmed by factors outside our control, such
as:
Adverse developments in economic conditions
could harm our business.
Our business is sensitive to
general economic conditions that are outside our control. These conditions include interest rates, inflation, fluctuations in consumer
confidence, fluctuations in equity and debt capital markets, availability of credit, and the strength of financial institutions, which
are sensitive to changes in the general macroeconomic environment. A host of factors beyond our control could cause fluctuations in these
conditions, including the political environment, disruptions in an economically significant geographic region, or equity or debt markets,
acts or threats of war, or terrorism, any of which could harm our business.
Our growth may be limited due to historically
low home inventory levels.
Traditionally, a “balanced”
residential real estate industry requires enough homes on the market to satisfy six months of homebuyer demand. In recent years,
home inventory has remained at historically low levels in many parts of the United States. Low inventory levels can harm our ability
to attract customers, inflate home prices, increase competition for homes, increase our operating expenses because of home touring and
offer-writing activities that do not result in closed home purchases, and reduce transaction volumes. As a result, our customers may be
unable to complete a sufficient number of real estate transactions to sustain or grow our transaction volume and revenue.
We are, and expect in the future to become,
subject to an increasing variety of federal, state and local laws and regulations, many of which are continuously evolving, which increases
our compliance costs and could subject us to claims or otherwise harm our business.
We are currently subject to
a variety of, and may in the future become subject to, additional, federal, state, and local laws that are continuously changing, including
laws related to: the real estate, brokerage, title, and mortgage industries; mobile- and Internet-based businesses; and data security,
advertising, privacy and consumer protection laws. For instance, we are subject to federal laws such as the Fair Housing Act of 1968,
or FHA, and the Real Estate Settlement Procedures Act of 1974. These laws can be costly to comply with, require significant
management attention, and could subject us to claims, government enforcement actions, civil and criminal liability, or other remedies,
including revocation of licenses and suspension of business operations.
In some cases, it is unclear
as to how such laws and regulations affect us based on our business model that is unlike traditional brokerages, and the fact that those
laws and regulations were created for traditional real estate brokerages. If we are unable to comply with and become liable for violations
of these laws or regulations, or if unfavorable regulations or interpretations of existing regulations by courts or regulatory bodies
are implemented, we could be directly harmed and forced to implement new measures to reduce our liability exposure. It could cause our
operations in affected markets to become overly expensive, time consuming, or even impossible. This may require us to expend significant
time, capital, managerial, and other resources to modify or discontinue certain operations, limiting our ability to execute our business
strategies, deepen our presence in our existing markets, or expand into new markets. In addition, any negative exposure or liability could
harm our brand and reputation. Any costs incurred as a result of this potential liability could harm our business.
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Further, due to the geographic
scope of our operations and the nature of the services we provide, we may be required to obtain and maintain additional real estate brokerage,
title insurance agency, and mortgage broker licenses in certain states where we operate. Additionally, if we enter new markets, we may
be required to comply with new laws, regulations, and licensing requirements. As part of licensing requirements, we are typically required
to designate individual licensees of record. We cannot assure you that we are, and will remain at all times, in full compliance with
all real estate, title insurance, and mortgage licensing laws and regulations, and we may be subject to fines or penalties, including
license revocation, for any non-compliance. If in the future a state agency were to determine that we are required to obtain additional
licenses in that state in order to transact business, or if we lose an existing license or are otherwise found to be in violation of
a law or regulation, our business operations in that state may be suspended until we obtain the license or otherwise remedy the compliance
issue.
Our failure to comply with the requirements
governing the licensing and conduct of real estate brokerage and brokerage-related businesses in the jurisdictions in which we operate
could adversely affect our business.
Linkhome, as a licensed real
estate brokerage firm, and our agents are required to comply with the requirements governing the licensing and conduct of real estate
brokerage and brokerage-related businesses in the markets where we operate. These laws and regulations contain general standards for and
limitations on the conduct of real estate brokerages and agents, including those relating to licensing of brokerages and agents, fiduciary
and agency duties, administration of trust funds, collection of commissions, advertising, and consumer disclosures. Under applicable laws
and regulations, our agents, managing brokers, designated brokers, and other individual licensees have certain duties and are responsible
for the conduct of real estate brokerage activities. If we or our agents fail to obtain or maintain the licenses and permits for conducting
our brokerage business required by law or fail to conduct ourselves in accordance with the associated regulations, the relevant government
authorities may order us to suspend relevant operations or impose fines or other penalties. There is no assurance that we will be able
to obtain or renew these licenses in a timely manner, or at all.
Our fee-based service offerings may require
additional real estate, mortgage, title, insurance, or other licenses, and failure to obtain or maintain such licenses could limit our
growth, subject us to penalties, or force us to discontinue certain services.
We currently derive revenue
from, and intend to expand, fee-based services such as mortgage referral, property management, title-related facilitation and other ancillary
products. Many of these activities are governed by complex and continuously evolving federal, state and local laws, including licensing
regimes administered by real estate commissions, departments of insurance and financial services regulators. We are not presently licensed
to offer title insurance or certain other regulated services in any jurisdiction, and there is no assurance that we will be able to obtain
or maintain the required approvals on a timely basis or at all. Operating without the appropriate licenses, or failing to comply with
associated conduct requirements, could result in civil or criminal penalties, monetary fines, cease-and-desist orders, rescission of contracts,
restitution to customers, reputational damage and the suspension or revocation of existing licenses. Any of these outcomes could impair
our ability to grow our fee-based revenue streams and could materially and adversely affect our business and financial performance.
We are subject to certain risks related
to litigation filed by or against us, and adverse results may harm our business and financial condition.
We are from time to time involved
in, and may in the future be subject to, claims, suits, government investigations, and proceedings arising from our business. We cannot
predict with certainty the cost of defense, the cost of prosecution, insurance coverage, or the ultimate outcome of litigation and other
proceedings filed by or against us, including remedies, damage awards, and penalties. Regardless of outcome, any such claims or actions
could require significant time, money, managerial and other resources, result in negative publicity, and harm our business and financial
condition. Such litigation and other proceedings may relate to:
● employment law claims, including claims regarding worker misclassification;
● compliance with wage and hour regulations;
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● privacy, cybersecurity incidents, and data breach claims;
● intellectual property disputes;
● consumer protection and fraud matters;
● disputes relating to our commercial relationships with third parties; and
In addition, class action lawsuits,
can often be particularly vexatious litigation given the breadth of claims, the large potential damages claimed, and the significant costs
of defense. The risks of litigation become magnified and the costs of settlement increase in class actions in which the courts grant partial
or full certification of a large class. Also, insurance coverage may be unavailable for certain types of claims and, even where available,
insurance carriers may dispute coverage for various reasons, including the cost of defense. Further, such insurance may not be sufficient
to cover the losses we incur.
Any failure to maintain, protect, and enhance
our brand could hurt our ability to grow our business, particularly in markets where we have limited brand recognition.
Maintaining, protecting, and
enhancing our brand is critical to growing our business, particularly in markets where we have limited brand recognition and compete with
well-known traditional brokerages with longer histories and established community presence. This will partially depend on our ability
to continue to provide high-value, customer-oriented, and differentiated services, and we may not be able to do so effectively. Enhancing
and maintaining the quality of our brand may require us to make substantial investments, such as in marketing and advertising, technology,
and agent training. If we do not successfully build and maintain a strong brand, our business could be harmed. In addition, despite these
investments, our brand could be damaged from other events that are or may be beyond our control, such as litigation and claims, our failure
to comply with local laws and regulations, and illegal activity such as phishing scams or cybersecurity attacks targeted at us, our customers,
or others.
We are subject to an array of employment-related
laws and regulations and failure to comply with these obligations could harm our business.
Our relationship with our employees
is subject to various tax, wage and hour, unemployment, workers’ compensation, right to organize, anti-discrimination, workplace
safety, and other employment-related laws. Each state has its own unique wage and hour laws, which have been the subject of growing litigation
nationwide. In addition, federal and state regulatory authorities have increasingly challenged the classification of workers as independent
contractors rather than as employees. Legislators have also proposed legislation to make it easier to reclassify independent contractors
as employees, including legislation to increase recordkeeping requirements for employers of independent contractors, and to abolish safe
harbors allowing certain individuals to be treated as independent contractors. Federal agencies and each state have their own rules and
tests for determining the classification of workers, as well as whether employees meet exemptions from minimum wages and overtime laws.
These tests consider many factors that also vary from state to state and have evolved based on case law, regulations, and legislative
changes and frequently involve factual analysis as well. We may face significant penalties and damages if we are found to be noncompliant
with any of these laws and regulations.
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If our technology and development efforts
are not successful, our business may be harmed.
We intend to continue investing
significant resources in developing technology, tools, features, and products. If we do not spend our development budget efficiently
or effectively on commercially successful and innovative technologies, we may not realize the expected benefits of our strategy. Moreover,
technology development is inherently challenging and expensive, and the nature of development cycles may result in delays between the
time we incur expenses and the time we make available new offerings and generate revenue, if any, from those investments. Anticipated
customer demand for an offering we are developing could also decrease after the development cycle has commenced, and we would not be
able to recoup substantial costs we incurred. In addition, there are many competitors in the markets we serve, including brokerages as
well as non-brokerage real estate websites, and we may not be able to effectively compete both as a brokerage and a developer of technology.
We cannot assure you that we will be able to identify, design, develop, implement, and utilize, in a timely and cost-effective manner,
technologies necessary for us to compete effectively, that such technologies will be commercially successful, or that products and services
developed by others will not render our offerings noncompetitive or obsolete. If we do not achieve the desired or anticipated customer
acquisition and transaction efficiency leverage from our technology investments, our business may be harmed.
Our introduction of new services, and the
expansion of existing services such as Cash Offer for customers and buying and selling homes directly, could fail to produce the desired
or predicted results or harm our reputation.
From time to time, we develop
new services. For example, in the third quarter of 2023, we began originating an underwritten cash offer service called Cash Offer for
customers in California through our wholly owned subsidiary, Linkhome Realty Group. Using this service incurs additional transfer fees,
increasing the cost of transactions. If the customer’s loan is not approved or approval times are delayed, or if for any reason
the customer does not close on the transaction, it could cause customers to fail to complete a contemplated Cash Offer transaction, increasing
the risk that Linkhome Realty Group would then own the property and need to re-list the contemplated property or sell it at a discount.
We plan in the future begin
testing an experimental new service called Linkhome Flash Sale, where we buy homes directly from home sellers through a wholly owned subsidiary
and resell them to homebuyers. Our estimates of what a home is worth and the algorithm we use to inform those estimates may not be accurate
and we may pay more for homes than their resale value. In determining whether a particular property meets our purchase criteria, we make
a number of additional assumptions, including the estimated time of possession, market conditions and proceeds on resale, renovation costs,
and holding costs. These assumptions may not be accurate, particularly because properties vary widely in terms of quality, location, need
for renovation, and property hazards. Unknown defects in any acquired properties may also affect their resale value. As a result, we may
pay more to buy these properties than their resale value, and we may not be able to resell them as anticipated or at all. Homes that we
own might suffer losses in value due to rapidly changing market conditions, natural disasters, or other forces outside our control.
We have limited experience
operating businesses outside of our core brokerage and forecasting our revenue for any new service is inherently uncertain; our actual
results may vary significantly from what we desire or predict. Additionally, our new services may fail to attract customers, reduce customer
confidence in our services, undermine our customer-first reputation, create real or perceived conflicts of interest between us and our
customers, expose us to increased market risks, subject us to claims related to undisclosed defects in homes that we sell, alleging that
we have breached our duties to our customers, or result in other disputes with our customers. Any of these events could harm our reputation
or mean that such new services will harm our business.
New services that we plan to introduce and
implement may subject us to new laws and regulations.
From time to time, we may introduce
and implement new services in highly regulated areas. For instance, our title and settlement services are subject to regulation by insurance
and other regulatory authorities on the federal level and in each state in which we provide such services. Compliance with new and existing
regulatory and compliance regimes is time consuming and may require significant time and effort, which may divert attention and resources
from our other offerings.
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Mortgage is subject to a wide
array of stringent federal and state laws, regulations, and agency oversight. These include laws and regulations governing the relationship
between us and mortgage lenders, the manner in which the Company conducts or may in the future conduct loan origination and servicing,
the fees that it may charge, procedures relating to real estate settlement, fair lending, fair credit reporting, truth in lending, loan
officer licensing, property valuation, escrow, payment processing, collection, foreclosure, and federal and state disclosure and licensing
requirements, as they may be applicable to services that we currently or may in the future offer. The sharing, use, disclosure, and protection
of information that Linkhome could collect in connection with the foregoing is governed by federal, state, and international laws regarding
privacy and data security, all of which are constantly evolving. Changes to or a failure to comply with these laws and regulations could
limit our ability to refer, originate or fund mortgage loans, require us to change our business practices, result in revocation or suspension
of our licenses and subject us to significant civil and criminal penalties. Any such events could harm our business.
Homes that we own are also
subject to federal, state, and local laws governing hazardous substances. These laws often impose liability without regard to whether
the owner was responsible for, or aware of, the release of such hazardous substances. If we take title to a property, the presence of
hazardous substances may adversely affect our ability to resell the property, and we may became liable to governmental entities or third
parties for various fines, damages, or remediation costs.
If our current or future technology developments
and service improvements do not meet customer or agent expectations, our business may be harmed.
Our technology-powered brokerage
model is relatively new and unproven, and differs significantly from traditional residential brokerages. Our success depends on our ability
to innovate and adapt our technology-powered brokerage to meet evolving industry standards and customer and agent expectations. We have
expended, and expect to continue to expend, substantial time, capital, and other resources to understand the needs of customers and agents
and to develop technology and service offerings to meet those needs. We cannot assure you that our current and future offerings will be
satisfactory to or broadly accepted by customers and agents, or competitive with the offerings of other businesses. If our current or
future offerings are unable to meet industry and customer and agent expectations in a timely and cost-effective manner, our business may
be harmed.
We could be required to cease certain activities
or incur substantial costs as a result of any claim of infringement of another party’s intellectual property rights.
From time to time, we may receive
claims from third parties, including our competitors, that our offerings or underlying technology infringe or violate that third party’s
intellectual property rights. We may be unaware of the intellectual property rights of others that may cover some or all of our technology.
If we are sued by a third party that claims our technology infringes on its rights, the litigation (with or without merit) could be expensive,
time-consuming, and distracting to management.
The results of such disputes
or litigation are difficult to predict. The results of any intellectual property litigation to which we might become a party may require
us to do one or more of the following:
● redesign our technology to avoid infringement.
If we are required to make
substantial payments or undertake any of the other actions noted above as a result of any intellectual property infringement claims against
us, such payments or costs could have an adverse effect on our business and financial results. Even if we were to prevail, such claims
and proceedings could harm our business.
Any failure to protect our intellectual
property rights could impair our ability to protect our proprietary technology and our brand.
Our success and ability to
compete depends in part on our intellectual property. We primarily rely on a combination of patent, trademark, trade secret, and copyright
laws, as well as confidentiality procedures and contractual restrictions with our employees, independent contractors and others to establish
and protect our intellectual property rights. However, the steps we take to protect our intellectual property rights may be inadequate
or we may be unable to secure intellectual property protection for all of our technology and methodologies.
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If we are unable to protect
our intellectual property, our competitors could use our intellectual property to market offerings similar to ours and our ability to
compete effectively would be impaired. Moreover, others may independently develop technologies that are competitive to ours or infringe
on our intellectual property. The enforcement of our intellectual property rights depends on our legal actions against these infringers
being successful, but we cannot be sure these actions will be successful, even when our rights have been infringed. In addition, defending
our intellectual property rights might entail significant expense and diversion of management resources. Any of our intellectual property
rights may be challenged by others or invalidated through administrative processes or litigation. Furthermore, legal standards relating
to the validity, enforceability, and scope of protection of intellectual property rights are uncertain and constantly changing. Accordingly,
despite our efforts, we may be unable to prevent third parties from infringing or misappropriating our intellectual property. Any intellectual
property that we own may not provide us with competitive advantages or may be successfully challenged by third parties.
Our efforts to enforce our
intellectual property rights may be met with defenses, counterclaims, and countersuits attacking the validity and enforceability of our
intellectual property rights. Litigation to protect and enforce our intellectual property rights could be expensive, time-consuming and
distracting to management, and could ultimately result in the impairment or loss of portions of our intellectual property.
We employ third-party licensed technology,
and the inability to maintain these licenses or errors in the software we license could result in increased costs, or reduced service
levels, which would harm our business.
Our technology employs certain
third-party software obtained under licenses from other companies. We anticipate that we will continue to rely on such third-party software
and tools in the future. Although we believe that there are commercially reasonable alternatives to the third-party software we currently
license, this may not always be the case, or it may be difficult or costly to replace. In addition, integration of our technology with
new third-party software may require significant work and require substantial investment of our time and resources. Also, to the extent
that our technology depends on the successful operation of third-party software, any undetected errors or defects in the third-party software
could prevent the deployment or impair the functionality of our technology, delay new offerings, result in a failure of our website or
mobile application, and harm our reputation. Our use of additional or alternative third-party software would require us to enter into
license agreements with third parties, which may not be available on commercially reasonable terms, or at all.
Some aspects of our technology include open
source software, and any failure to comply with the terms of one or more of these open source licenses could harm our business.
Our technology incorporates
software covered by open source licenses. The terms of various open source licenses have not been interpreted by U.S. courts, and
there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our technology.
If portions of our proprietary software are determined to be subject to an open source license, we could be required to publicly release
the affected portions of our source code, re-engineer all or a portion of our technologies or otherwise be limited in our use of such
software, each of which could reduce or eliminate the value of our technologies and harm our business. In addition to risks related to
license requirements, use of open source software can lead to greater risks than use of third-party commercial software, as open source
licensors generally do not provide warranties or controls on the origin of the software. Many of the risks associated with use of open
source software cannot be eliminated and, if such risks materialize, could harm our business.
Moreover, we cannot assure
you that our processes for controlling our use of open source software will be effective. If we are held not to have complied with the
terms of an applicable open source software license, we could be required to seek licenses from third parties to continue offering our
services on terms that are not economically feasible, to re-engineer our technology to remove or replace the open source software, to
discontinue the use of certain technology if re-engineering could not be accomplished on a timely basis, to pay monetary damages, to make
generally available the source code for our proprietary technology, or to waive certain intellectual property rights, any of which could
harm our business.
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Responding to any infringement
or other enforcement claim, regardless of its validity, could harm our business, results of operations, and financial condition, by, among
other things:
● resulting in time-consuming and costly litigation;
● diverting management’s time and attention from developing our business;
● requiring us to disclose our software source code; and
● requiring us to satisfy indemnification obligations.
Our business depends on third-party network
and mobile infrastructure and on our ability to maintain and scale the technology underlying our offerings.
Our brand, reputation, and
ability to attract homebuyers and home sellers and provide our offerings depend on the reliable performance of third-party network and
mobile infrastructure. As the number of homebuyers and home sellers, agents, and listings shared on our website and mobile application
and the extent and types of data grow, our need for additional network capacity and computing power will also grow. Operating our underlying
technology systems is expensive and complex, and we could experience operational failures. If we experience interruptions or failures
in these systems, whether due to system failures, computer viruses, physical or electronic break-ins, attacks on domain name servers or
other third parties on which we rely, or any other reason, the security and availability of our services and technologies could be affected.
Any such event could harm our reputation, result in a loss of consumers, customers and agents using our offerings, and cause us to incur
additional costs.
Our website is hosted at a single facility,
the failure of which would harm our business.
Our website is hosted at a
single facility in Phoenix, Arizona. We do not currently have a back-up web hosting facility in a different geographic area. Should this
facility experience outages or downtimes for any reason, including a natural disaster or some other event, such as human error, fire,
flood, power loss, telecommunications failure, physical or electronic break-ins, terrorist attacks, acts of war, and similar events, we
could suffer a significant interruption of our website and mobile application, which would harm our business. In addition, our website
and mobile application could be interrupted even if this facility experiences temporary outages, which could also negatively affect our
services and harm our business.
Cybersecurity incidents could disrupt our
business operations, result in the loss of critical and confidential information, and harm our business.
Global cybersecurity threats
and incidents directed at us or our third-party service providers can range from uncoordinated individual attempts to gain unauthorized
access to information technology systems to sophisticated and targeted measures known as advanced persistent threats. In the ordinary
course of our business, we and our third-party service providers collect and store sensitive data, including our proprietary business
information and intellectual property, and that of our customers, including personally identifiable information. Additionally, we rely
increasingly on third-party providers to store and process data, and to communicate and work collaboratively. The secure processing, maintenance,
and transmission of information are critical to our operations and we rely on the security procedures of these third-party providers.
Although we employ comprehensive measures designed to prevent, detect, address, and mitigate these threats (including access controls,
data encryption, vulnerability assessments, and maintenance of backup and protective systems), cybersecurity incidents, depending on their
nature and scope, could potentially result in the misappropriation, destruction, corruption, or unavailability of critical data and confidential
or proprietary information (our own or that of third parties, including personally identifiable information of our customers) and the
disruption of business operations. Any such compromises to our security, or that of our third-party providers, could cause customers to
lose trust and confidence in us, and stop using our website and mobile application in their entirety. In addition, we may incur significant
costs for remediation that may include liability for stolen assets or information, repair of system damage, and compensation to customers
and business partners. We may also be subject to legal claims, government investigation, and additional state and federal statutory requirements.
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Our software is highly complex and may contain
undetected errors.
The software and systems underlying
our technology and offerings are highly complex and may contain undetected errors or vulnerabilities, some of which may only be discovered
after their implementation. Our development and testing processes may not be sufficient to ensure that we will not encounter technical
problems. Any inefficiencies, errors, technical problems, or vulnerabilities discovered in our software and systems after release could
reduce the quality of our services or interfere with our agents’ and customers’ access to and use of our technology and offerings.
This could result in damage to our reputation, loss of revenue or liability for damages, any of which could harm our business.
Changes in privacy or consumer protection
laws could adversely affect our ability to attract customers and harm our business.
We collect information relating
to our customers as part of our business and marketing activities. The collection and use of personal data is governed by privacy laws
and regulations of the United States and other jurisdictions. Privacy regulations continue to evolve and, occasionally, may be inconsistent
from one jurisdiction to another. Compliance with applicable privacy regulations may increase our operating costs or adversely affect
our ability to market our services and products and serve our customers. In addition, non-compliance with applicable privacy regulations
by us, or a breach of security systems storing our data, may result in fines, payment of damages, or restrictions on our use or transfer
of data.
In addition, we are subject
to, and may become subject to additional, laws or regulations that restrict or prohibit use of emails, similar marketing or advertising
activities or other types of communication that we currently rely on. Such laws and regulations currently include the CAN-SPAM Act of 2003
and similar laws adopted by a number of states to regulate unsolicited commercial emails; the U.S. Federal Trade Commission guidelines
that impose responsibilities on companies with respect to communications with consumers; federal and state laws and regulations prohibiting
unfair or deceptive acts or practices; and the Telephone Consumer Protection Act that limits certain uses of automatic dialing systems,
artificial or prerecorded voice messages and SMS text messages. Any further restrictions under such laws that govern our marketing and
advertising activities could adversely affect the effectiveness of our marketing and advertising activities or other customer communications.
Furthermore, even if we can comply with existing or new laws and regulations, we may discontinue certain activities or communications
if we become concerned that our customers or potential customers deem them intrusive or they otherwise adversely affect our reputation.
If our marketing and advertising activities are restricted, our ability to attract customers could be adversely affected and harm our
business.
If our promotional emails are not delivered
and accepted, or are routed by email providers less favorably than other emails, our business may be harmed.
We rely on targeted email campaigns
to generate customer interest in our products and services. If email providers implement new or more restrictive email delivery policies
it may become more difficult to deliver emails to our customers. For example, certain email providers categorize commercial email as “promotional,”
and direct such emails to a less readily-accessible section of a customer’s inbox. If email providers materially limit or halt the
delivery of certain of our emails, or if we fail to deliver emails to customers in a manner compatible with email providers’, email
handling or authentication technologies, our ability to generate customer interest in our offerings using email may be restricted, which
could harm our business.
We rely on business data to make business
decisions and drive our machine-learning technology, and errors or inaccuracies in such data may adversely affect our business decisions
and the customer experience.
We regularly analyze business
data to evaluate growth trends, measure our performance, establish budgets, and make strategic decisions. Much of this data is internally
generated and calculated and has not been independently verified. While our business decisions are based on what we believe to be reasonable
calculations for the applicable period of measurement, there are inherent challenges in measuring and interpreting the data, and we cannot
be sure that the data, or the calculations using such data, are accurate. Errors or inaccuracies in the data could result in poor business
decisions, resource allocation, or strategic initiatives. For instance, if we overestimate traffic to our website and mobile application,
we may not invest an adequate amount of resources in attracting new customers. If we make poor decisions based on erroneous or inaccurate
data, our business may be harmed.
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We use our business data and
proprietary algorithms to inform our machine learning, such as in the calculation of our HomeGPT. If customers disagree with us or
if our HomeGPTfails to accurately reflect market pricing such that we are unable to attract homebuyers or help our customers
sell their homes at satisfactory prices, or at all, customers may lose confidence in us, and our brand and business may be harmed.
We have integrated, and may continue to
integrate in the future, AI in certain tools and features available on our platform. AI technology presents various operational,
compliance, and reputational risks and if any such risks were to materialize, our business and results of operations may be adversely