934448--3/28/2006--DIGITAL_GENERATION_SYSTEMS

related topics

{product, market, service}

{system, service, information}

{customer, product, revenue}

{acquisition, growth, future}

{stock, price, share}

{stock, price, operating}

{control, financial, internal}

{provision, law, control}

{capital, credit, financial}

{competitive, industry, competition}

{personnel, key, retain}

{property, intellectual, protect}

{operation, international, foreign}

Risks Relating to the Industry The media distribution services and products industry is divided into several distinct markets, some of which are relatively mature while others are growing rapidly. If the mature markets begin to decline at a time when the developing markets fail to grow as anticipated, it will be increasingly difficult to achieve and maintain profitability. The industry is in a state of rapid technological change and we may not be able to keep up with the pace. The marketing and sale of media distribution services and media intelligence products each involve lengthy sales cycles. This makes business forecasting extremely difficult and can lead to significant fluctuations in quarterly results. Seasonality in buying patterns also makes forecasting difficult and can result in widely fluctuating quarterly results. The markets in which we operate are highly competitive, and competition may increase further as new entrants enter the market while more established companies with greater resources seek to expand their market share. Risks Related to the Company We have a history of losses which must be considered in assessing our future prospects. We may not be able to obtain additional financing to satisfy our future capital expenditure needs. Our business will be highly dependent on radio and television advertising. If demand for, or margins from, our radio and television advertising delivery services declines, our business results will decline. If we are not able to maintain and improve service quality, our business and results of operations will be susceptible to decline. The market price of our common stock is likely to continue to be volatile. If we are unable to maintain the current strategic relationships with broadcast and media outlets, this could adversely impact our operating results. Insiders have substantial control over us which could limit others' ability to influence the outcome of key transactions, including changes in control. Our business may be adversely affected if we are not able to protect our intellectual property rights from third-party challenges. We may enter into or seek to enter into business combinations and acquisitions that may be difficult to integrate, disrupt our business, dilute stockholder value or divert management attention. Failure to manage future growth could hinder the future success of our business. We will depend on key personnel to manage the business effectively, and if we are unable to retain our key employees or hire additional qualified personnel, our ability to compete could be harmed. Certain provisions of our bylaws may have anti-takeover effects that could prevent a change in control even if the change would be beneficial to our stockholders. Our board of directors may issue, without further stockholder approval, preferred stock with rights and preferences superior to those applicable to the common stock. Our business is highly dependent on electronic video advertising delivery service deployment. We are at risk of being delisted from the Nasdaq National Market. In the event that this cannot be avoided, the market price of our common stock could decline as certain institutional investors would need to sell our shares to comply with our contractual obligations, the liquidity of the stock would likely decline and our ability to obtain research coverage would be further impaired. We depend upon a number of single or limited-source suppliers, and our ability to produce audio and video distribution equipment could be adversely impacted if those relationships were discontinued. If we were no longer able to rely on our existing providers of transmissions services, our business and results of operations could be materially and adversely affected. We face various risks associated with purchasing satellite capacity. If the existing relationship with Clear Channel Satellite Services is terminated, or if Clear Channel Satellite Services fails to perform as required under its agreement with us, our business could be interrupted. Certain of our products depend on satellites; any satellite failure could result in interruptions of our service that could negatively impact our business and reputation. We determined our disclosure controls and procedures were not effective as of December 31, 2004. In the event a material weakness occurs again in the future, our financial statements and results of operations could be materially impacted.

Full 10-K form ▸

934448--3/28/2006--DIGITAL_GENERATION_SYSTEMS_INC