1095079--4/15/2009--ARTISTDIRECT

related topics

{product, market, service}

{stock, price, share}

{customer, product, revenue}

{control, financial, internal}

{system, service, information}

{capital, credit, financial}

{regulation, change, law}

{personnel, key, retain}

{property, intellectual, protect}

{condition, economic, financial}

{stock, price, operating}

RISKS RELATED TO OUR BUSINESS It is difficult to evaluate our business and prospects because we have a limited operating history and a rapidly evolving business. The music industry is under extreme pressure to reduce costs. Our inability to retain and, as necessary, strengthen our executive management team would be detrimental to the success of our business. We have substantially reduced operating cash as a result of the debt restructuring, (see Recent Developments). The success of our Internet piracy prevention segment depends heavily on the continued success of MediaDefender s content protection technology. Global sales of recorded music have recently declined and this trend may continue in the future. We may not be able to develop or obtain sufficiently compelling content to attract and retain our target audience. We depend on a limited number of customers and if we were to lose any of these customers, our business could be adversely affected. If we do not build and maintain strong brands, we may not be able to attract a significant number of users to our websites. The market for online promotion and distribution of music and related merchandise is highly competitive and we may not be able to compete successfully against our current and future competitors. We depend on a limited number of suppliers for music merchandise, fulfillment and distribution and if we cannot secure alternate suppliers, our business may be harmed. Our media and e-commerce segments are subject to seasonality, which could adversely affect our operating results. We may be subject to system disruptions, which could reduce our revenue. If we are unable to protect our intellectual property rights, our competitive position could be harmed or we could be required to incur expenses to enforce our rights. Our access to copyrighted content depends upon the willingness of content owners to make their content available. If our online security measures fail, we could lose visitors to our sites and could be subject to claims for damage from our users, content providers, advertisers and merchants. We may be subject to liability if private information provided by our users were misused. We may be sued for content available or posted on our websites or products sold through our websites or for linking and framing of third-party websites. RISKS RELATED TO OUR CAPITAL STRUCTURE Our stock price is volatile and could decline in the future. The limited trading market may cause volatility in the market price of our common stock. Our common stock is considered a penny stock and may be difficult to sell. Standards for compliance with Section 404 of the Sarbanes-Oxley Act of 2002 are uncertain, and if we fail to comply in a timely manner, our business could be harmed and our stock price could decline. The securities issued by the Company in connection with the restructuring of our senior and subordinated debt could have a negative impact on the market price of our stock. Changes in financial accounting standards or interpretations of existing standards could affect reported results of operation.

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1095079--4/15/2009--ARTISTDIRECT_INC