"RISKS ASSOCIATED WITH ESD; MARKET ACCEPTANCE OF ESD. The Company's success will depend in large part on end-user acceptance of ESD as a method of distributing software. ESD is a relatively new method of distributing software products and the growth and market acceptance of ESD is highly uncertain and subject to a number of risks. Factors that will influence market acceptance of ESD include: the availability of sufficient network bandwidth to enable purchasers to rapidly download software, the impact of time-based Internet access fees, the number of software products that are available for purchase through ESD as compared to those available through physical delivery, the level of end-user comfort with the process of downloading software via the Internet and the relative ease of such process and concerns about transaction security. If ESD does not achieve widespread market acceptance, the Company's business, financial condition and results of operations would be materially adversely affected. Even if ESD achieves widespread acceptance, there can be no assurance that the Company will overcome the substantial existing and future technical challenges associated with electronically delivering software reliably and consistently on a long-term basis. The failure by the Company to do so would
materially and adversely affect the Company's business, financial condition and results of operations."
DEPENDENCE ON SOFTWARE PUBLISHERS. The Company is entirely dependent upon the software publishers that supply it with software, and the availability of such software is unpredictable. The Company's contracts with its software publisher clients are generally one year in duration, with an automatic renewal provision for additional one-year periods, unless the Company is provided with a written notice at least 90 days prior to the termination of the contract. As is common in the industry, the Company has no long-term or exclusive contracts or arrangements with any software publisher that guarantees the availability of software products. There can be no assurance that the software publishers that currently supply software to the Company will continue to do so or that the Company will be able to establish new relationships with software publishers. If the Company is unable to develop and maintain satisfactory relationships with
software publishers on acceptable commercial terms, if the Company is unable to obtain sufficient quantities of software, if the quality of service provided by such software publishers falls below a satisfactory standard or if the Company's level of returns exceeds its clients' expectations, the Company's business, financial condition and results of operations could be materially adversely
affected.
DEPENDENCE ON ONLINE RETAILERS. The Company's strategy is dependent upon increasing its sales of software products through online retailers. The Company has historically generated substantially all of its sales from the sale of software to end-users that were initiated through its software publisher clients' Web stores. In 1997 and the six months ended June 30, 1998, less than 6% of the Company's sales were generated through online retailer clients' Web stores. While the Company plans to increase its sales and marketing efforts over time in an effort to generate increased sales from online retailer clients, there can be no assurance that the Company will be successful in entering into contractual relationships with additional online retailers or that its current contractual relationships will be renewed. The Company's failure to enter into contractual relationships with major online retailers or a substantial number of
smaller online retailers or the failure to renew its existing online retailer contracts could have a material adverse impact upon the Company's business,financial condition and results of operations." |
