BGST RISK FACTORS:
You should carefully consider the following risk factors, in addition to
the other information included in this prospectus, before purchasing shares of
common stock of BigStar. Each of these risk factors could adversely affect our
business, operating results and financial condition, which could adversely in
turn affect the value of an investment in our common stock. This investment
involves a high degree of risk.
BECAUSE WE HAVE A LIMITED OPERATING HISTORY, WE WILL FACE DIFFICULTIES
TYPICALLY ENCOUNTERED BY DEVELOPMENT STAGE COMPANIES IN NEW AND RAPIDLY EVOLVING
MARKETS. We commenced operations in March 1998. An investor purchasing our
common stock must therefore consider the risks and difficulties frequently
encountered by early stage companies in new and rapidly evolving markets, such
as online commerce. These risks include our ability to:
WE LACK SIGNIFICANT REVENUES AND EXPECT SIGNIFICANT CONTINUING LOSSES,
WHICH COULD DECREASE THE VALUE OF YOUR SHARES. We have not achieved
profitability and expect to continue to incur significant operating losses and
net losses for at least the next several years. As of March 31, 1999, our
accumulated deficit was approximately $6.2 million. See "Selected Financial
Data" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
We expect that our operating expenses will increase substantially as we
continue to expand our business. As a result, we will need to generate
significantly more revenues to achieve profitability. We may not be able to do
so. We may also require additional financing over the next 12 months. We may not
be able to obtain the financing or obtain it on terms acceptable to us. If
revenues grow slower than we anticipate, or if operating expenses exceed our
expectations or cannot be reduced accordingly, or if we cannot obtain additional
financing, our business, operating results and financial condition may be
materially harmed.
OUR SUCCESS DEPENDS ON THE CONTINUED GROWTH OF ONLINE COMMERCE. If online
commerce does not continue to grow or grows more slowly than expected, our
business will be materially harmed. A number of factors could slow the growth of
online commerce, including the following:
- the network infrastructure required to support a substantially larger
volume of transactions may not be developed;
WE COMPETE WITH OTHER ONLINE RETAILERS AND TRADITIONAL FILMED ENTERTAINMENT
RETAILERS WHO MAY BE MORE SUCCESSFUL THAN WE ARE IN ATTRACTING AND RETAINING
CUSTOMERS. The retail filmed entertainment industry is intensely competitive.
In addition, the online commerce market for retail filmed entertainment sales is
new, rapidly evolving and competitive. We expect that online competition will
further intensify since a competitor can launch a new site at relatively low
cost. If we are unable to successfully compete against other retailers of filmed
entertainment products, our business, operating results and financial condition
would be materially harmed.
Price competition in our industry also is intense, and price is one of the
principal factors on which consumers base their purchasing decisions. Price
competition may reduce our gross margins, which could materially harm our
business, operating results and financial condition. Some of our competitors use
aggressive pricing policies to build market share. Some also have adopted
business models that include selling filmed entertainment products for less than
their product cost and not charging customers for shipping and handling.
Software applications are also available that can determine which online site
has the lowest price for a particular title and direct customers to our
competitors' sites.
Many of our competitors have longer operating histories, larger customer
bases, greater brand recognition and significantly greater financial, marketing
and other resources than we have. In addition, we believe some of our
competitors devote substantially more resources to web site and systems
development than we do.
WE DEPEND UPON STRATEGIC MARKETING RELATIONSHIPS TO GENERATE SALES. We use
strategic marketing relationships to attract new customers, and this is an
important part of our growth strategy. These relationships may not generate
significant numbers of new customers. Alternatively, these relationships may be
successful at generating new customers, but we may not be able to maintain these
customer relationships or enter into more of them. If any of these events were
to occur, it could materially harm our business, operating results and financial
condition. See "Business -- Marketing and Promotion of Our Online Filmed
Entertainment Superstore -- Strategic Marketing Relationships" for a discussion
of these relationships.
OUR RELIANCE ON E-MAIL MARKETING COULD LEAVE US VULNERABLE IF CONSUMERS
REJECT THIS MARKETING TECHNIQUE OR ADDITIONAL GOVERNMENTAL REGULATION
ARISES. E-mail marketing is a significant part of our growth strategy. If the
acceptance or use of e-mail marketing is limited by consumer fear of e-mail
computer viruses or additional government regulation, it could harm our
business.
To date, Congress has not enacted any legislation regulating commercial
e-mail, but a number of bills are pending. One proposed law would prohibit
online operators from sending most unsolicited commercial e-mail where the
operators have no existing or personal relationship with the recipient and the
e-mail is not sent at the request of or with the express consent of the
recipient. Another proposed law would require operators of web sites and online
services to disclose to users the personal information
In the absence of federal legislation, many states, including California,
Connecticut, Delaware, Iowa, Nevada, North Carolina, Oklahoma, Rhode Island,
Tennessee, Virginia, Washington and West Virginia, have passed laws limiting the
use of e-mail marketing. Because these laws have focused primarily on
unsolicited e-mail marketing, BigStar's business has yet to be affected by
current legislation. Other states have begun to consider placing restrictions on
e-mail marketing. If Congress or additional states pass legislation restricting
commercial uses of e-mail, it could harm our ability to communicate with
existing customers and attract new customers. Our sales growth could be
affected, which could materially harm our business, operating results and
financial condition.
OUR RAPID GROWTH IS PLACING A SIGNIFICANT STRAIN ON OUR RESOURCES. We
anticipate continued rapid expansion of our operations. If we are unable to
manage our growth effectively, our business could be materially harmed. Our
rapid expansion has placed a significant strain on our ability to manage our
growth, including our ability to monitor operations, bill customers, control
costs and maintain effective quality controls. Our anticipated future expansion
will increase this strain.
Our senior management team has been assembled in a very short period. These
individuals have not previously worked together. The ability of our senior
managers to work together effectively as a team is critical to successfully
managing our growth.
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