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  As Of               Filer                 Filing     As/For/On Docs:Pgs              Issuer               Agent

 5/05/04  PRN Corp                          S-1                   18:582                                    RR Donnelley/FA

Document/Exhibit                   Description                      Pages   Size 

 1: S-1         Registration Statement (General Form)               HTML  1,675K 
 2: EX-3.(I).1  Amended and Restated Certificate of Incorporation   HTML    133K 
                          of the Registrant.                                     
 3: EX-3.(II).1  By-Laws of the Registrant.                         HTML     53K 
 4: EX-3.(II).2  Form of Amended and Restated Bylaws of the         HTML    105K 
                          Registrant,                                            
 5: EX-4.2      Form of Warrant to Purchase Class A Common Stock    HTML     72K 
                          of Prn Corporation, As Amended                         
 6: EX-4.3      Form of Warrant to Purchase Class A Common Stock    HTML     52K 
                          of Qorvis Media Group, Inc.                            
 7: EX-4.4      Form of Warrant to Purchase Class A Common Stock    HTML     55K 
                          of Prn Corporation                                     
 8: EX-4.5      Warrant to Purchase Series C Preferred Stock of     HTML     54K 
                          Qorvis Media Group, Inc. 4/15/99                       
 9: EX-4.6      Warrant to Purchase Series C Preferred Stock of     HTML     54K 
                          Qorvis Media Group, Inc., 6/4/99                       
10: EX-4.7      Warrant to Purchase Series C Preferred Stock of     HTML     52K 
                          Qorvis Media Group, Inc.12/13/99                       
11: EX-10.1     Form of Indemnification Agreement Btn the           HTML     62K 
                          Registrant & Officers and Directors                    
12: EX-10.2     1992 Stock Option Plan                              HTML     58K 
13: EX-10.3     1997 Stock Option Plan and Form of Agreements       HTML     71K 
                          Thereunder.                                            
14: EX-10.5     Form of 2004 Employee Stock Purchase Plan           HTML     81K 
15: EX-10.6     Restated Investor Rights Agreement, Dated As of     HTML    257K 
                          August 14, 2001 and Amendments.                        
16: EX-10.7     Sublease, Dated May 16, 2003, Between the           HTML  1,430K 
                          Registrant and Cmp Media Llc.                          
17: EX-21.1     List of Subsidiaries.                               HTML      8K 
18: EX-23.1     Consent of Ernst & Young Llp, Independent Auditors  HTML     10K 

Table of Contents

As filed with the Securities and Exchange Commission on May 5, 2004

Registration No. 333-          

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form S-1

REGISTRATION STATEMENT

Under

THE SECURITIES ACT OF 1933

PRN CORPORATION

(Exact name of registrant as specified in its charter)

600 Harrison Street

4^th Floor

San Francisco, CA 94107

(415) 808-3500

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Charles A. Nooney

Chief Executive Officer and Chairman of the Board

PRN Corporation

600 Harrison Street, 4^th Floor

San Francisco, CA 94107

(415) 808-3500

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Approximate date of commencement of proposed sale to the public:    As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.    ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ¨

If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box.    ¨

CALCULATION OF REGISTRATION FEE

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting any offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion, dated May 5, 2004

PROSPECTUS

             Shares

Common Stock

We are offering              shares of our common stock in this initial public offering. No public market currently exists for our common stock.

We have applied to have our common stock approved for quotation on the Nasdaq National Market under the symbol “PRNC.” We anticipate that the initial public offering price will be between $              and $              per share.

Investing in our common stock involves risks. See “ Risk Factors” beginning on page 8.

We have granted the underwriters a 30-day option to purchase up to an aggregate of              additional shares of common stock on the same terms and conditions set forth above to cover over-allotments, if any.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

Lehman Brothers, on behalf of the underwriters, expects to deliver the shares on or about                     , 2004.

LEHMAN BROTHERS

CREDIT SUISSE FIRST BOSTON

UBS INVESTMENT BANK

                    , 2004

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 TABLE OF CONTENTS

Until                     , 2004 (25 days after the commencement of this offering), all dealers that effect transactions in our shares, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information that is different from that contained in this prospectus. This prospectus is not an offer to sell or a solicitation of an offer to buy shares in any jurisdiction where such offer or any sales of shares would be unlawful. The information in this prospectus is complete and accurate only as of the date of the front cover regardless of the time of delivery of this prospectus or of any sale of shares.

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 PROSPECTUS SUMMARY

This summary highlights key aspects of the information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. You should read this entire prospectus carefully, especially the risks of investing in our common stock discussed under “Risk Factors” beginning on page 8.

PRN Corporation

Overview

We are the fifth largest broadcast network, after ABC, CBS, Fox and NBC, and the largest in-store television network in the United States based on monthly reach. Through our proprietary broadcasting network, the PRN Network, we enable national and local advertisers to target consumers in over 5,000 retail stores in all of the 210 designated market areas, or DMAs, in the United States. Based on information provided by several third-party research firms and retailers, we estimate that the PRN Network delivers approximately 180 million monthly gross impressions to consumers in the stores of leading national retailers including Best Buy, Circuit City, Costco, Ralphs, SAM’s Club, Sears and Wal-Mart Stores. For the year ended December 31, 2003, we generated $112 million of revenues and $10 million of net income.

The PRN Network is aired on video displays located in retail stores where we estimate consumers purchased over $250 billion in products and services in 2003. Programming on the PRN Network is targeted to a captive audience of shoppers in the stores of our retailers. Consumers can view and listen to our programming in high traffic areas, key departments, areas where consumers wait for service and check-out lanes. Over the last ten years, we have developed a television programming format that we believe improves the shopping experience by providing relevant, informative and entertaining content to consumers in the retail environment. Our programming consists primarily of traditional television advertising, custom advertising segments and other content supplied by leading media companies including Discovery, ESPN, the Food Network and Lifetime.

In 2003, more than 150 advertisers purchased airtime on the PRN Network, including consumer product companies such as Procter & Gamble, entertainment companies such as Walt Disney, consumer electronics companies such as Sony, satellite service providers such as DIRECTV and television networks such as NBC. The PRN Network enables advertisers to target busy, purchase-oriented consumers with relevant and timely advertising messages resulting in significant brand recall. In a March 2002 custom study of a major U.S. retailer, Nielsen Media Research reported average aided plus unaided brand recall of 66.4%, as a percentage of Modeled Claimed Commercial Audience, among viewers ten years of age and older.

We have developed software and other proprietary technologies for operating the PRN Network for which we have received eight patents. Our network consists of a media management center that is connected, primarily via a satellite network, to media servers in each retail store location that carries the PRN Network. Our patented technology enables us to cost-effectively manage, distribute and air thousands of media elements on a regular basis and manage media by store, by department and by day in order to reach our advertisers’ desired audience.

We believe our target addressable market is the $53 billion television advertising market, the largest segment of the $149 billion U.S. major media advertising market as defined by Zenith Optimedia. We believe the effectiveness of traditional network television advertising is weakening due to evolving viewing habits, emerging technologies and additional at-home entertainment alternatives. As television advertisers are seeking alternative and more effective ways to reach consumers, the PRN Network provides a solution to the challenges facing traditional broadcast television.

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Factors Driving Advertiser Adoption of the PRN Network

We believe we are well-positioned to take advantage of the anticipated shift of advertising dollars away from traditional broadcast television. The following factors should lead to increased adoption of the PRN Network:

Our Competitive Strengths

First Mover Advantage.    The PRN Network is the largest in-store network in the U.S. based on audience. In our retail locations there are over 5,000 installed media servers and approximately 34,000 consumer viewing areas, or CVAs, comprised of an estimated 250,000 video displays, and, generally, satellite equipment to receive our programming.

Established Advertiser Base.    In 2003, more than 150 advertisers spanning most major advertising categories, including apparel, consumer packaged goods, electronics, entertainment, financial services, office supplies, pharmaceutical, retail and telecommunication services, purchased airtime on the PRN Network.

Media Management Expertise.    Over the past ten years, we have invested in software and other proprietary technologies for operating the PRN Network. These technologies combined with our management know-how enable us to produce, manage and distribute thousands of media elements on a regular basis across the PRN Network.

Operating Leverage.    We believe our established retail distribution infrastructure and low variable cost operating model will lead to an increase in our operating income margin if we succeed in growing our revenues.

Acquisition and Integration Experience.    We have successfully completed three acquisitions in the past eight years, through which we have broadened our retailer base to include Best Buy, Circuit City, Ralphs and Sears.

Our Strategy

Our objective is to be the broadcast network that consumers look for while they shop, advertisers rely upon to build their brands, and retailers feature to differentiate the shopping experience. We believe that our strategy of expanding our reach, driving adoption of the PRN Network, investing in new network deployments and developing localized programming content will enable us to increase the distribution and viewership of our network, generate additional advertising revenues, enhance our profitability and maintain our position as the leading in-store broadcaster in the U.S.

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Corporate Information

We were incorporated in Delaware in February 1992 as JMC Acquisitions, Inc. We changed our name to PICS Previews, Inc. in January 1994, to Qorvis Media Group in April 1997 and to PRN Corporation in June 2000. Our principal executive offices are located at 600 Harrison Street, 4th Floor, San Francisco, California 94107 and our telephone number is (415) 808-3500. We maintain a web site at www.prn.com. The reference to our web address does not constitute incorporation by reference of the information contained on this web site.

PRN^®, and the PRN name and design logo are our registered trademarks. We also use the following trademarks, some of which are pending registration as intent-to-use applications: Interactive Department, Redefining Mass Media, Digital Department, The Mass Channel, Aisles vs. Miles, Premier Retail Networks, Media Where It Matters, HD A to Z, This is HD and Design, Supermarket Network and Design, and Sample Size. Other trade names, trademarks and service marks appearing in this prospectus are the property of their respective holders.

In this prospectus, “PRN,” “we,” “us” and “our” refer to PRN Corporation and its consolidated subsidiaries.

This prospectus contains statistical data that we obtained from industry publications and reports generated by IDC, Jack Myers Report, National Cable & Telecommunications Association, Nielsen Media Research, Point-Of-Purchase Advertising International, Veronis Suhler Stevenson and Zenith Optimedia. These industry publications generally indicate that they have obtained their information from sources believed to be reliable, but do not guarantee the accuracy and completeness of their information. While we believe these publications are reliable, we have not independently verified their data.

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The Offering

The number of shares of common stock that will be outstanding immediately after this offering is based on the number of shares outstanding on March 31, 2004 and excludes:

Unless otherwise stated, all information in this prospectus:

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Summary Consolidated Financial Data

The following table provides summary historical consolidated financial data for the periods indicated. You should read this information in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included elsewhere in this prospectus.

The summary consolidated statement of operations data for each of the fiscal years ended December 31, 2001, 2002 and 2003 and the summary consolidated balance sheet data as of December 31, 2002 and 2003 are derived from our audited consolidated financial statements, which are included elsewhere in this prospectus. The summary consolidated statements of operations data for each of the three-month periods ended March 31, 2003 and 2004 and the summary consolidated balance sheet data as of March 31, 2004 are derived from our unaudited consolidated financial statements, which are included elsewhere in this prospectus. The summary consolidated balance sheet data as of December 31, 2001 are derived from our audited consolidated financial statements not included in this prospectus and as of March 31, 2003 are derived from our unaudited consolidated financial statements not included in this prospectus.

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Various factors affect the comparability of the above summary consolidated financial data. As described further in Note 1 to the consolidated financial statements included elsewhere in this prospectus, in 2002 we recorded a $10.9 million impairment loss on PRN Network equipment. Also, as described further in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in the first quarter of 2003, we recorded a $900,000 gain in other income related to a short-term equipment financing arrangement with a retailer. Upon determination of the price range of this offering, we may effect a potential split of our common stock. The effect of such a potential stock split is not reflected in the accompanying share and per share data or consolidated financial statements.

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 RISK FACTORS

You should carefully consider the risks described below before making a decision to buy our common stock. If any of the following risks actually occur, our business, financial condition and results of operations could be harmed. In that case, the trading price of our common stock could decline and you might lose all or part of your investment in our common stock. You should also refer to the other information set forth in this prospectus, including our consolidated financial statements and the related notes. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also negatively impact us.

Risks Related to Our Business

We are highly dependent upon Wal-Mart, and our failure to maintain our relationship with Wal-Mart would substantially harm our business and prospects.

We are highly dependent on our relationship with Wal-Mart Stores, Inc., our largest retailer relationship, and we expect our reliance on this relationship to continue for the foreseeable future. Our dependence on Wal-Mart consists of two principal elements: (1) revenues earned under contracts entered into directly with Wal-Mart for media management services, advertising airtime and creative services and (2) revenues earned under contracts with third-party advertisers purchasing airtime or creative services for the PRN Network in Wal-Mart stores. Revenues from contracts entered into directly with Wal-Mart accounted for 35% of our total revenues for the year ended December 31, 2003 and 37% of our total revenues for the three months ended March 31, 2004. Revenues from contracts entered into with third-party advertisers purchasing airtime or creative services for the PRN Network in Wal-Mart stores accounted for an additional 54% of our total revenues for the year ended December 31, 2003 and 50% of our total revenues for the three months ended March 31, 2004.

As of March 31, 2004, Wal-Mart aired the PRN Network in 2,621 of its stores located throughout the United States, representing almost half of the aggregate number of retail stores where the PRN Network is aired. Our current agreement with Wal-Mart expires on March 31, 2005 followed by a six-month ramp-down period. Wal-Mart is under no obligation to renew its agreement with us, and we cannot assure you that our relationship with Wal-Mart will be maintained on satisfactory terms or at all. Wal-Mart may terminate the agreement prior to the end of the term upon the occurrence of certain events that are not remedied within a specific cure period. Changes within Wal-Mart, such as strategic or management changes, could cause Wal-Mart to not renew the agreement or be unwilling to renew the agreement on terms that are acceptable to us. A decision by Wal-Mart not to renew its agreement with us, to terminate its agreement with us, or to reduce the services that we provide related to the PRN Network, would cause our revenues to decline substantially and seriously harm our business. Any termination of the Wal-Mart relationship would also severely and adversely affect the revenues we receive from other advertisers that purchase advertising on the PRN Network aired in Wal-Mart stores. Termination of this relationship may also discourage advertisers from purchasing advertising on the PRN Network aired in the stores of our other retailers and may make it more difficult for us to attract new retailers and retain existing retailers. We cannot be certain if, when or to what extent Wal-Mart might terminate its agreement with us, cancel advertisement orders or elect not to renew the agreement upon the expiration of the term. In addition, SAM’s Club, one of our other retailer relationships operated under the terms of a separate agreement, is affiliated with Wal-Mart Stores, Inc., and decisions made by either entity or their parent company may affect our relationship with SAM’s Club or Wal-Mart Stores, Inc.

Our failure to maintain relationships with existing retailers or obtain new retailer relationships would harm our business and prospects.

Our ability to generate revenues from advertising sales and services depends upon our ongoing relationships with a limited number of retailers. In addition to our relationship with Wal-Mart Stores, Inc., we also maintain significant retailer relationships with other leading retailers, including Best Buy, Circuit City, Costco, Ralphs,

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SAM’s Club and Sears. Although we have entered into agreements with these retailers, we cannot assure you that the agreements will be renewed when the terms of the agreements expire or that our relationships with these retailers will be maintained on satisfactory terms or at all. Changes within our retailers, such as strategic or management changes, could cause them to not renew their agreements or be unwilling to renew their agreements on terms that are acceptable to us. If one or more of our existing retailers terminates its agreement with us, advertisers may find advertising on the PRN Network to be unattractive and may become unwilling to purchase advertising on the PRN Network, causing our revenues to decline and damage to our business and prospects. The loss of a retailer relationship would also eliminate any service revenues we receive from that retailer.

The loss of one or more retailer relationships may also impair our ability to secure new retailer relationships. As part of our business strategy, we intend to expand our retail distribution by adding other leading retailers. Our failure to maintain existing retailer relationships or to obtain new retailer relationships would harm our business.

The retail industry is highly competitive, and a substantial weakening of, or business failure by, any of our retailers could negatively affect our revenues and jeopardize any investment we make in deploying the PRN Network in our retailers’ stores.

The retail industry is highly competitive and has experienced substantial consolidation. Because our ability to generate revenues from advertising sales and services depends upon our ongoing relationships with a limited number of retailers, any substantial weakening or failure of the business of one or more of our existing retailers, or the consolidation of one or more of our retailers with a third party, could cause our revenues to decline, damaging our business and prospects.

We have in the past and plan in the future to make significant investments in the equipment, installation and support of the PRN Network within our retailers’ stores. We intend to pursue opportunities where we may invest in new retailer relationships, and the weakening, failure or acquisition of any of our retailers in the future could result in a loss of our investment and/or a negative return on our investment. In addition, we may incur additional expenses in recovering PRN Network equipment from these retailers.

For example, in 2001, we entered into an agreement with a national retailer to install the PRN Network in selected store locations throughout the United States. In connection with the planned deployment, we invested over $15 million in PRN Network equipment. In January 2002, and prior to the installation of the PRN Network, the retailer filed for Chapter 11 bankruptcy protection. After the retailer’s bankruptcy filing, the retailer rejected our distribution agreement, and as a result, we recorded an impairment charge of $10.9 million in 2002. If any of our other current or future retailers suffer any business failures, we could have negative returns on our investments and our business would suffer.

The process to develop a relationship with a retailer initially, and then to install the PRN Network throughout a retailer’s chain of stores, can be time-consuming and requires us to expend a substantial amount of resources, from which we may never recognize the anticipated benefits.

Our success depends in large part on our ability to establish relationships with large retailers that have a meaningful number of stores. The process to establish these relationships can be lengthy because in-store television is a relatively new form of media, and we often must inform retailers about the benefits of the PRN Network to the retailer and its customers. Potential retailer partners also typically engage in extensive internal reviews and analyses, including pilot programs, before making purchase decisions. We can expend a substantial amount of resources during this decision-making process, and a retailer may decide not to proceed with deployment. If retailers do not accept the PRN Network as effective media for their stores, we may not be able to grow our business or our revenues.

Once a retailer has agreed to install the PRN Network in a number of their stores, we must invest a substantial amount of time and resources in installation prior to the receipt of any revenues from such efforts. We

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may experience increased distribution and operations costs during or after deployment. We may also experience delays in the generation of revenues, if any, due to deployment delays or difficulties in selling advertising to be aired in these stores to new or current advertisers. We may be unable to generate sufficient revenues, if any, from advertising packages in these stores to offset the cost of securing a new retailer relationship and deploying and operating the PRN Network in the retailer’s stores.

We have relied, and expect to continue to rely, on a limited number of advertisers for a significant portion of our revenues, and our revenues could decline due to the delay of orders from, or the loss of, one or more significant advertisers.

In addition to the advertising relationship we have with Wal-Mart, we have relationships with other major advertisers, five of whom together accounted for approximately 18% of our revenues for the year ended December 31, 2003, and five of whom together accounted for approximately 27% of our revenues for the three months ended March 31, 2004. We expect that a small number of advertisers will constitute a significant portion of our revenues for the foreseeable future. Our relationships with these advertisers may not expand or may be disrupted. If a major advertiser purchases less advertising or defers orders in any particular period, or if a relationship with a major advertiser is terminated, our revenues could decline and our operating results may suffer.

If advertisers do not accept the PRN Network as a necessary component of their overall advertising strategies and budgets, our revenues may be negatively affected and our business may not expand or be successful.

The market for in-store television networks is relatively new and its potential is uncertain. We compete for advertising spending with many forms of major media advertising. Our success depends on the acceptance of the PRN Network by advertisers. Advertisers may elect not to participate if they believe that consumers are not receptive to the PRN Network or that the PRN Network does not provide sufficient value as an advertising medium. An advertiser visiting a store airing the PRN Network may not be satisfied with the experience provided to consumers, may not witness any consumers watching the PRN Network or may see a segment containing a technical error in presentation. This may lead the advertiser to cancel or not renew its advertising commitment with us. If advertisers do not consider advertising on the PRN Network as part of their overall advertising strategies and budgets, we may be unable to generate sufficient revenues for our business.

If consumers do not accept the PRN Network as a part of the shopping experience, we will be unable to grow or maintain our business.

The success of our business is dependent upon the long-term acceptance of in-store television by consumers. If consumer viewership of the PRN Network, or sentiment towards advertising in general, shifts such that consumers become less receptive to the PRN Network, advertisers may reduce their spending on the PRN Network and retailers may determine not to carry the PRN Network in their stores.

Advertisers may not accept our measurements of the PRN Network audience or the methodologies may change, which could negatively impact our ability to market and sell our advertising packages.

We engage third-party research firms to study the number of people viewing the PRN Network, consumer viewing habits and brand recall. Because the PRN Network is different from at-home broadcast media, third-party research firms have developed measuring standards and methodologies that differ from those used to measure the amount and characteristics of viewers for other broadcast media. We market and sell advertising packages to advertisers based on these measurements. If third-party research firms were to change the way they measure the viewers on the PRN Network or their viewing habits, it could have an adverse effect on our ability to sell advertising on the PRN Network. In addition, if advertisers do not accept or challenge the way third parties measure our viewers or their viewing habits, advertisers may be unwilling to purchase advertising at prices acceptable to us, if at all, and our revenues and operating results could be negatively impacted.

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We have a history of losses, have only recently become profitable and may not sustain or increase profitability in the future.

Although we first became profitable in the second quarter of 2002, as a result of a non-recurring impairment of PRN Network equipment, we had a net loss in the fourth quarter of 2002. Since that time, we have achieved profitability in each subsequent quarter. However, as of March 31, 2004, we had an accumulated deficit of approximately $95.8 million, the majority of which is related to non-operating accretion charges of $64.2 million related to our redeemable convertible preferred stock. We may not sustain or increase the profitability of our business on a quarterly or annual basis in the future. Our ability to remain profitable will be contingent, in part, on the amount of our operating expenses, which we plan to increase as we expand our business. If we fail to increase our revenues at historical or anticipated rates or our operating expenses increase without a commensurate increase in our revenues, our business, results of operations and financial condition will be negatively affected and the market price of our common stock will likely decline.

Our quarterly revenues and operating results are difficult to predict and may fluctuate significantly in the future, which may cause the market price of our common stock to decline.

Our quarterly revenues and operating results are difficult to predict and may fluctuate significantly from quarter to quarter as a result of a variety of factors, many of which are beyond our control. It is possible that our operating results in some quarters will be below market expectations, which would likely cause the market price of our common stock to decline. Our quarterly operating results may be adversely affected by many factors, including:

We base our planned operating expenses in part on our expectations of future revenues and our expenses are relatively fixed in the short term. If revenues for a particular quarter are lower than we expect, we may be unable to proportionately reduce our operating expenses for that quarter, which would harm our operating results for that quarter.

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The nature of advertising sales cycles and shifting needs of advertisers makes it difficult for us to forecast revenues and increases the variability of quarterly fluctuations, which could cause us to improperly plan for our operations and miss any guidance we provide, and could cause the market price of our common stock to decline.

A substantial amount of our advertising commitments are made months in advance of when the advertising airs on the PRN Network, resulting in a backlog of future advertising and creative services revenues not yet recorded. Between the time at which advertising commitments are made and the advertising is aired, the needs of our advertisers can change. Advertisers may desire to change the timing, level of commitment and other aspects of their advertising placements. As a result, our backlog at any particular date is not necessarily indicative of actual revenues for any succeeding period, making it more difficult to predict our financial performance. These changes could also negatively impact our financial performance, including quarterly fluctuations.

If we fail to manage our future growth to meet advertiser and retailer demands, our operations may be disrupted and our business may be harmed.

We have been expanding and plan to continue to expand our operations in the United States. We may also expand to include international operations in the future. We must continue to expand our operations in order to meet demands of advertisers for advertising packages and the demand of current and future retailers for installing and configuring in-store infrastructure for the PRN Network. This expansion has resulted and will continue to result in substantial demands on our management resources. To manage our growth, we must implement and improve additional and existing administrative, financial and operations systems, procedures and controls and expand, train and manage our work force. Our failure to manage growth could disrupt our operations and limit our ability to pursue potential market opportunities.

We may expand the PRN Network to include international operations, and if our revenues from these efforts do not exceed the expenses of establishing and maintaining international operations, our business could suffer.

We may consider expanding the PRN Network into international markets, including Canada, Europe and Latin America. We would incur costs and expend resources in connection with any expansion of our operations into international markets. We do not have experience in international operations and may not be able to compete effectively in international markets. If we do not generate enough revenues from any international operations to offset the expense of these operations, our business and our ability to increase revenues and enhance our operating results could suffer. Any expansion efforts would be subject to various risks associated with international operations, including:

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If we are unable to adapt to changing technology and the needs of retailers, advertisers and consumers, we will not be able to compete effectively and we will be unable to increase or maintain our revenues.

The market for in-store television advertising requires constant change and innovation in technology, including programming features. This requires us to continuously identify trends in advertiser, retailer and consumer needs, and to develop new features and enhancements for the PRN Network and the advertising that we offer to keep pace with these needs. Examples include the development of high definition television programs and advanced audio technologies. We will likely incur substantial development and acquisition costs in order to keep pace with these changing needs, and we may not have the financial resources necessary to fund future innovations. Furthermore, we may not be successful in responding to these needs or to competitive advertising offerings. If we are unsuccessful in enhancing the PRN Network and our advertising packages and defining, developing and introducing new features on a timely and cost-effective basis, the demand for the PRN Network by advertisers may decrease, we may not be able to compete effectively and we may be unable to increase or maintain our revenues.

If more shoppers make purchases outside of retail stores or if customers change the way they shop within stores, our revenues may decline and our business may suffer.

Our success in selling advertising depends, in part, on high traffic in retail stores, which increases the number of potential viewers for the PRN Network. The price at which we sell advertising aired on the PRN Network is a direct result of the number of viewers on our network. If the number of shoppers visiting retail stores and making purchases in retail stores decreases, advertisers may decide not to advertise on the PRN Network, may purchase less advertising on the PRN Network or may not be willing to pay for advertising at price points necessary for us to succeed. If alternative methods of out-of-store shopping such as the Internet and other forms of in-home shopping continue to increase in popularity, fewer consumers may visit retail stores. If consumers change the way they shop within stores, such as with shopping cart guides or other in-store services, they may not be receptive to our programming. In either case, our ability to generate revenues from advertisers could decrease and our operating results could decline.

The failure of our service providers to provide, install and maintain our in-store equipment could result in service interruptions and damage to our business.

We are and will continue to be significantly dependent upon third-party service providers to provide, install and maintain relevant computer and video display equipment at each retail location. The failure of any third-party provider to continue to perform these services adequately and timely could interrupt our business and damage our relationship with our retailers and their relationship with consumers.

If third-party content and programming costs increase significantly or become unavailable, our business and our operating results may be negatively impacted.

Our ability to access quality programming on a regular, long-term basis on terms favorable to us is important to our future success and profitability. We have entered into relationships with various third-party programming providers and have developed some internal content production and editing capabilities. Our planned expansion of the PRN Network into additional stores and new retailers will create greater demands on our third-party content relationships and our internal resources for content creation, editing and management. Our existing third-party content relationships are generally made pursuant to short-term written agreements or without contracts and most of our programming suppliers could stop providing us their programming with very little or no advance notice. Termination of our programming relationships or our inability to expand third-party content relationships or internal content capabilities adequately would harm our business.

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In addition, a significant amount of our programming from network and cable programmers, video news release providers and independent producers is currently provided to us at no charge or for a nominal charge. Should the costs of either externally produced or internally produced programming significantly increase in the future, our operating results would be adversely affected.

We rely on third parties for data transmission, and the interruption or unavailability of adequate bandwidth for transmission could prevent us from distributing our programming as planned.

We transmit the majority of the content that is aired on the PRN Network using satellites through a variety of third-party network providers, such as Echostar and Hughes. We also rely on the networks of some of our retailers to transmit content to individual stores. If we or our retailers experience failures or limited capacity in the satellite or other networks, we may be unable to maintain programming and meet our advertising commitments. Problems with data transmission may be due to hardware failures, operating system failures or other causes beyond our control. Although we currently have agreements with satellite providers to provide transmission services, we may have limited access, or no access at all, to adequate bandwidth or satellite technology in the future. If such bandwidth and technology is available to us, it may not be available on terms favorable to us, such as pricing. The equipment we must use for satellite transmission is specifically designed for each satellite provider and cannot be used with other satellite providers; therefore, any change in satellite provider would require significant time, technical support and expense. In addition, there are a limited number of satellite providers with whom we could contract, and we may be unable to replace our current providers on favorable terms, if at all. If the transmission of data over our networks becomes unavailable, limited due to bandwidth constraints or is interrupted or delayed because of necessary equipment changes, our relationship with retailers and our ability to obtain revenues from current and new advertisers would suffer.

We may not obtain sufficient patent protection for our systems, processes and technology, which could harm our competitive position and increase our expenses.

Our success and ability to compete depends to a significant degree upon the protection of our proprietary technology. As of March 31, 2004, we held eight issued patents in the United States. Any patents issued may provide only limited protection for our technology and the rights that may be granted under any future issued patents may not provide competitive advantages to us. Any patent applications may not result in issued patents. Also, patent protection in foreign countries may be limited or unavailable where we need this protection. It is possible that competitors may independently develop similar technologies, design around our patents or successfully challenge any issued patent that we hold.

We rely upon trademark, copyright and trade secret laws and contractual restrictions to protect our proprietary rights, and if these rights are not sufficiently protected, our ability to compete and generate revenues could be harmed.

We rely on a combination of trademark, copyright and trade secret laws, and contractual restrictions, such as confidentiality agreements and licenses, to establish and protect our proprietary rights. Our ability to compete and expand our business could suffer if these rights are not adequately protected. We seek to protect our source code for our software, design code for our networks, documentation and other written materials under trade secret and copyright laws. We license our software under signed license agreements, which impose restrictions on the licensee’s ability to utilize the software. We also seek to avoid disclosure of our intellectual property by requiring employees and consultants with access to our proprietary information to execute confidentiality agreements. The steps taken by us to protect our proprietary information may not be adequate to prevent misappropriation of our technology. Our proprietary rights may not be adequately protected because:

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The laws of other countries in which we may extend the PRN Network in the future may offer little or no protection of our proprietary technologies. Reverse engineering, unauthorized copying or other misappropriation of our proprietary technologies could enable third parties to benefit from our technologies without paying us for doing so, which would harm our competitive position and market share.

We may face intellectual property infringement claims that could be time-consuming, costly to defend and result in our loss of significant rights.

Other parties may assert intellectual property infringement claims against us, and our products may infringe the intellectual property rights of third parties. From time to time, we receive letters alleging infringement of intellectual property rights of others. We may also initiate claims against third parties to defend our intellectual property. Intellectual property litigation is expensive and time-consuming and could divert management’s attention from our business. If there is a successful claim of infringement against us, we may be required to pay substantial damages to the party claiming infringement, develop non-infringing technology or enter into royalty or license agreements that may not be available on acceptable terms, if at all. Our failure to develop non-infringing technologies or license the proprietary rights on a timely basis would harm our business. Also, we may be unaware of filed patent applications that relate to our products. Parties making infringement claims may be able to obtain an injunction, which could prevent us from operating the PRN Network or using technology that contains the allegedly infringing intellectual property. Any intellectual property litigation could have a material adverse effect on our business, operating results or financial condition.

We may be held liable for information made available on the PRN Network.

The information we make available on the PRN Network could subject us to claims for defamation, negligence, copyright or trademark infringement or other theories of liability based on the nature and content of the information provided. We may not prevail in any of these claims. Even if these claims do not result in liability to us, we could incur significant costs in investigating and defending against them and in implementing measures to reduce our exposure to this kind of liability. Our insurance may not cover potential claims of this type or may not be adequate to cover all costs incurred in defense of potential claims or to indemnify us for any liability that may be imposed. If we violate the content standards of our retailer relationships or if consumers find the content aired on the PRN Network to be offensive, retailers may seek to hold us responsible for any consumer claims or may terminate their relationship with us. Computer hackers invading our network with inappropriate content could harm our relationship and reputation with retailers and consumers. If we use content in our broadcasts for which we or our retailers are not authorized, we may face claims and potentially be liable.

The law relating to the liability of the operators of media networks for information carried on, stored on or disseminated through their networks is evolving and few clear legal precedents have been established. Similarly, the law regarding in-store media remains unsettled. Claims for defamation, negligence, copyright and trademark infringement have been brought, sometimes successfully, against operators in the past. We could be exposed to liability because of third-party content that may be broadcast on the PRN Network, including broadcasts by our advertisers, retailers or other third parties. For example, if any third-party content provided through the PRN Network contains errors, consumers who view this content could make claims against us for losses incurred in reliance on this content.

If retailers determine that the PRN Network should not include audio elements, we may be unable to grow or maintain our business.

The success of our business is dependent upon retailers carrying the PRN Network and advertisers purchasing air-time on the PRN Network. If retailers, whether as a result of consumer sentiment or otherwise, determine that audio elements should be eliminated from the PRN Network, the advertising opportunities that we present to advertisers and their agencies will be fundamentally different. If advertisers and agencies do not view the PRN Network as a dynamic and valuable advertising medium, they may reduce or cease their spending on the

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PRN Network. As a result, our revenues would decline, and we would be unable to grow or maintain our business.

Computer viruses could cause significant downtime for the PRN Network, decreasing our revenues and damaging our relationships with retailers, advertisers and consumers.

We generate revenues from the sales of advertising that is aired in our retailers’ stores. Computer hackers infecting our network, or the networks of the stores in which our network is integrated, with viruses could cause our network to be unavailable. Significant downtime could decrease our revenues and harm our relationships and reputation with retailers, advertisers and consumers.

The PRN Network within some retailers’ stores operates on the same network used by the retailers for other aspects of the retailers’ businesses, and we may be held responsible for defects or breakdowns in our retailers’ networks caused by the PRN Network.

In some cases, the PRN Network is operated across a retailer’s proprietary network, which is used to operate other aspects of the retailer’s business, such as check-out cashier systems. In these circumstances, any defect or virus that occurs on the PRN Network may enter a retailer’s network, which could impact other aspects of the retailer’s business. The impact on a retailer’s business could be severe, and if we were held responsible, it could have an adverse affect on our retailer relationships and on our operating results.

Defects in our in-store infrastructure could result in a loss of advertisers and retailers, unexpected expenses and a decrease in our market share.

The in-store infrastructure of the PRN Network is complex and must meet stringent quality and reliability requirements. We have in the past discovered defects and errors in certain elements of our infrastructure. Due to the complexity of our infrastructure and our inability to test all possible operating scenarios prior to implementation, we may not be able to detect certain errors or defects until we establish the in-store infrastructure or initially broadcast content. This may result in loss of, or delay in, acceptance of the PRN Network by retailers and consumers. In addition, our retailers could cancel their agreements with us if we experience sustained downtime. Any errors or defects in our in-store infrastructure could also damage our reputation, result in lost revenues, divert development resources and increase service and support costs and warranty claims.

Because competition for qualified personnel is intense in our industry and in our geographic regions, we may not be able to recruit and retain necessary personnel, which could negatively impact the growth of our business.

Our success will depend on our ability to attract and retain senior management, engineering, sales, marketing and other key personnel. Because of the intense competition for these employees, particularly in the San Francisco Bay Area, we may be unable to attract and retain key technical and managerial personnel. If we are unable to retain our existing personnel, or attract, train and assimilate additional qualified personnel, our growth may be limited. All of our key employees are employed on an “at will” basis. The loss of any of these key employees could slow our programming, distribution and sales efforts or harm the perception of advertisers, retailers and investors. We may also incur increased operating expenses and be required to divert the attention of other senior executives to recruit replacements for key personnel. Also, we may experience more difficulty attracting personnel after we become a public company because of the perception that the stock option component of our compensation package may not be as valuable.

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Shortages of components or a loss of, or problems with, a supplier could result in a disruption in the installation or operation of the PRN Network.

From time to time, we have experienced delays in configuring and maintaining the in-store infrastructure of the PRN Network for several reasons, including component delivery delays, component shortages and component quality deficiencies. Component shortages, including video displays and video cards, delays in the delivery of components, and supplier product quality deficiencies may occur in the future. These delays or problems have in the past and could in the future result in installation delays, reduced revenues, strained relations with retailers and advertisers and loss of business. Also, in an effort to avoid actual or perceived component shortages, we may purchase more components than we may otherwise require. Excess inventory resulting from over-purchases, obsolescence, installation cancellations or a decline in the demand for the PRN Network by retailers could result in PRN Network equipment impairment, which in the past has had and in the future would have a negative effect on our financial results.

We obtain several of the components used in the in-store infrastructures of the PRN Network, including video cards, audio equipment and other equipment, from single or limited sources. We rarely have guaranteed supply arrangements with our suppliers, and we cannot be sure that suppliers will be able to meet our current or future component requirements. If component manufacturers do not allocate a sufficient supply of components to meet our needs or if current suppliers do not provide components of adequate quality or compatibility, we may have to obtain these components at a higher cost from distributors or on the spot market. If we are forced to use alternative suppliers of components, we may have to alter our in-store infrastructure to accommodate these components. Modification of our in-store infrastructure to use alternative components could cause significant delays and reduce our ability to generate revenues.

We may make acquisitions or investments in technologies, products and businesses, and we may not realize the anticipated benefits of these acquisitions or investments.

As part of our business strategy, we may make acquisitions of, or investments in, technologies, products and businesses that we believe could complement or expand our business, enhance our technical capabilities or offer growth opportunities. We may be unable to identify suitable acquisition candidates in the future or make these acquisitions on a commercially reasonable basis, or at all. In addition, we may spend significant management time and resources in analyzing and negotiating acquisitions or investments that do not come to fruition. Any future acquisitions and investments would have several risks, including:

If we are unable to integrate acquired companies or businesses successfully or to create new or enhanced services, we might not achieve the anticipated benefits from our acquisitions. If we fail to achieve the anticipated benefits from acquisitions, we might incur increased expenses and experience a shortfall in our anticipated revenues and we might not obtain a satisfactory return on our investment.

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Our ability to raise capital in the future may be limited and our failure to raise capital when needed could materially impact our business.

We believe that our existing cash and equivalents together with the net proceeds from this offering, will be sufficient to meet our anticipated cash needs for at least the next 12 months. The timing and amount of our working capital and capital expenditure requirements may vary significantly depending on numerous factors, including:

If our capital resources are insufficient to satisfy our liquidity requirements, we may seek to sell additional equity securities or debt securities or obtain debt financing. The sale of additional equity securities or convertible debt securities could result in additional dilution to our stockholders. Additional debt would result in increased expenses and could result in covenants that would restrict our operations. We have not made arrangements to obtain additional financing and there is no assurance that financing, if required, will be available in amounts or on terms acceptable to us, if at all.

Our operations are primarily located in California and, as a result, could be negatively impacted by earthquakes and other catastrophes.

Our business operations depend on our ability to maintain and protect our facilities, computer systems, and personnel, which are primarily located in San Francisco, California. In addition, we create, compile and distribute our programming material and manage our networks from our headquarters in San Francisco, California. San Francisco exists on or near known earthquake fault zones. Should an earthquake or other catastrophes, such as fires, floods, power loss, communication failure, terrorist acts or similar events, disable our facilities, our operations would be disrupted because we do not have readily available alternative facilities from which to conduct our business.

Changes to financial accounting standards may affect our results of operations and cause us to change our business practices.

We prepare our financial statements to conform with generally accepted accounting principles, or GAAP. These accounting principles are subject to interpretation by the Financial Accounting Standards Board, or FASB, the American Institute of Certified Public Accountants, the Securities and Exchange Commission and various bodies formed to interpret and create appropriate accounting policies. A change in those policies could have a significant effect on our reported results and may affect our reporting of transactions completed before a change is announced. Changes to those rules or the questioning of current practices may adversely affect our reported financial results or the way we conduct our business. For example, accounting policies affecting many aspects of our business, including rules relating to employee stock option grants, have recently been revised or are under review. There has been ongoing public debate regarding whether shares granted under employee stock option and employee stock purchase plans should be treated as a compensation expense and, if so, how to properly value such charges. If we elected or were required to record an expense for our stock-based compensation plans using the fair value method, we could have significant accounting charges. Although standards have not been finalized and the timing of a final statement has not been established, FASB has announced its support for recording expense for the fair value of stock options granted. We have computed pro forma amounts that take current accounting pronouncements into account in valuing pro forma stock-based compensation. See Note 1 to our consolidated financial statements.

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Risks Related to Our Industry

We must compete successfully against major media companies and a variety of companies that provide in-store media products and services to retailers.

The major media advertising market, including the television segment in particular, is highly competitive, and the market for in-store media networks is rapidly developing and marked by intense competition and change. We compete for advertising commitments with a number of established media outlets, including ABC, CBS, Fox and NBC in the television segment. As we expand our sales efforts to include regional and local advertisers, we expect to compete for television revenues with regional and local broadcasters and for other local advertising dollars allocated to radio and outdoor media. We may also compete with print, Internet and other major media outlets.

The weakening or elimination of our retailer relationships by the actions of competitors will harm our ability to maintain and continue to attract advertisers. We compete with vendors that may offer in-store media products and services to retailers with features that compete with specific elements of our in-store media networks. With respect to programming services we provide retailers, there are a number of companies that provide customized programs for retail stores. Media companies that currently purchase advertising from us could establish and offer their own in-store media networks to our current or potential retailers. In addition, our current and potential retailers have developed or may develop their own in-store media networks or choose other forms of in-store advertising.

Increased competition may result in price reductions, reduced margins or loss of market share. Many of our competitors have significantly greater financial, technical, manufacturing, marketing, sales and other resources than we do and we, therefore, may be unable to compete successfully against current or future competitors.

Declines in market demand for advertising media may cause our prices to decline, which could reduce our revenues and profitability.

Market demand in the advertising industry is difficult to predict and can be affected by general economic and other conditions. If advertisers spend less money on major media or if major media supply significantly exceeds advertisers’ demand, we may be unable to obtain favorable pricing for our advertising packages, particularly for premiums we charge for targeted audience advertising packages. Our financial results will suffer if we experience reductions in our prices or in the amount of advertising we are able to sell and are unable to offset these reductions by reducing our costs.

Government regulation of the telecommunications and advertising industries could require us to change our business practices and expose us to legal action.

The Federal Communications Commission, or the FCC, has broad jurisdiction over the telecommunications industry. FCC licensing, program content and related regulations generally do not currently affect us because we operate a private network within retail locations. However, the FCC could promulgate new regulations that impact our business directly or indirectly or interpret existing laws in a manner that would cause us to incur significant compliance costs or force us to alter our business strategy.

FCC regulations also affect many of our content providers and satellite providers and, therefore, these regulations may indirectly affect our business. In particular, the satellite industry is highly regulated by the FCC and, in the United States, the operation and use of satellites require licenses from the FCC. Our satellite access providers may not be able to obtain all U.S. licenses and authorizations necessary to operate effectively. The failure of our satellite providers to obtain some or all necessary licenses or approvals could impose significant additional costs and restrictions on our business or require us to change our operating methods.

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In addition, the advertising industry is subject to regulation by the Federal Trade Commission, the Food and Drug Administration and other federal and state agencies, and to review by various civic groups and trade organizations, including the National Advertising Division of the Council of Better Business Bureaus. New laws or regulations governing advertising could have a material adverse effect on our business.

We may also be required to obtain various regulatory approvals from local, state or federal governmental bodies before we are permitted to expand the PRN Network in particular industries. We may not be able to obtain any required approvals, and any approval may be granted on terms that are unacceptable to us or that adversely affect our business.

We may experience a decrease in market demand due to declines in the advertising industry and uncertain economic conditions in the United States and in international markets, which have been further exacerbated by terrorism, war and social and political instability.

Economic growth in the United States and international markets has slowed significantly and the United States economy has recently been in a recession. The timing of a full economic recovery is uncertain. In addition, the terrorist attacks in the United States and turmoil in the Middle East and around the world have increased the uncertainty and instability in the United States economy and may contribute to a decline in economic conditions, both domestically and internationally. Terrorist acts and similar events, or war in general, could contribute further to a slowdown of the market demand for goods and services, including demand for the products of our advertisers and our retailers. The PRN Network operates in large retail chains where we are dependent on high-volume foot traffic by shoppers. Shopping habits and consumer comfort in high-density shopping environments may be adversely affected by terrorist attacks should they begin to occur in similar venues. If the economy declines as a result of the recent economic, political and social turmoil, or if there are further terrorist attacks in the United States or elsewhere, we may experience decreases in the demand for advertising packages on the PRN Network and our related services and decreases in the willingness of retailers to carry the PRN Network, any of which may harm our operating results.

Risks Related to this Offering

Our stock price may be volatile, and you may not be able to resell shares of our common stock at or above the price you paid, or at all.

Prior to this offering, there has been no public market for our common stock. We cannot predict the extent to which a trading market will develop or how liquid that market might become. The initial public offering price for our common stock will be determined by negotiations between us and the representatives of the underwriters and may not be indicative of prices that will prevail in the trading market. See the section of this prospectus entitled “Underwriting” for a discussion of the factors considered in determining the initial public offering price. The trading price of our common stock could be subject to wide fluctuations due to the factors discussed in this risk factors section and elsewhere in this prospectus. In addition, the stock markets in general, and the Nasdaq National Market and technology and media companies in particular, have experienced extreme price and volume fluctuations. The trading price and volume of our common stock may also be affected by research reports and analyst recommendations. These broad market and industry factors may decrease the market price of our common stock regardless of our actual operating performance.

Substantial future sales of our common stock in the public market could cause our stock price to decline.

Additional sales of our common stock in the public market after this offering, or the perception that these sales could occur, could cause the market price of our common stock to decline. Upon completion of this offering, we will have              shares of common stock outstanding. All shares sold in this offering will be freely transferable without restriction or additional registration under the Securities Act of 1933. The remaining shares of common stock outstanding after this offering will be available for sale, assuming the effectiveness of lock-up

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agreements under which our directors, executive officers and most of our stockholders have agreed not to sell or otherwise dispose of their shares of common stock in the public market, as follows:

Any or all of these shares may be released prior to expiration of the 180-day lockup period at the discretion of Lehman Brothers. To the extent shares are released before the expiration of the lock-up period and these shares are sold into the market, the market price of our common stock could decline. Immediately following the 180-day lockup period,            shares of our common stock outstanding after this offering will become available for sale. The remaining shares of our common stock will become available for sale at various times thereafter upon the expiration of one-year holding periods.

After this offering, we intend to register 6,648,080 shares of our common stock that are reserved for issuance upon the exercise of options granted or reserved for grant under our 1992 stock option plan, 1997 stock option plan, 2004 stock incentive plan and 2004 employee stock purchase plan. Once we register these shares of our common stock, stockholders can sell them in the public market upon issuance, subject to restrictions under the securities laws and any applicable lock-up agreements.

In addition, after this offering, the holders of 11,305,001 shares of common stock will be entitled to rights to cause us to register the sale of those shares under the Securities Act. Registration of these shares under the Securities Act would result in these shares, other than shares purchased by our affiliates, becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of the registration.

Purchasers in this offering will immediately experience substantial dilution in net tangible book value.

Because our common stock has in the past been sold at prices substantially lower than the initial public offering price that you will pay, you will suffer immediate dilution of $             per share in pro forma net tangible book value, based on an assumed initial offering price of $             per share of common stock, the mid-point of the initial public offering price range. The issuance of additional common stock in the future or the exercise of outstanding options may result in further dilution.

Our corporate actions are substantially controlled by officers, directors, principal stockholders and affiliated entities.

After this offering, our directors, executive officers and their affiliated entities will beneficially own approximately         % of our outstanding common stock. These stockholders, if they acted together, could exert substantial influence over matters requiring approval by our stockholders, including electing directors and approving mergers or other business combination transactions. This concentration of ownership may also discourage, delay or prevent a change in control of our company, which could deprive our stockholders of an opportunity to receive a premium for their stock as part of a sale of our company and might reduce our stock price. These actions may be taken even if they are opposed by our other stockholders, including those who purchase shares in this offering.

Delaware law and our corporate charter and bylaws contain anti-takeover provisions that could delay or discourage takeover attempts that stockholders may consider favorable.

Provisions in our certificate of incorporation, as amended and restated upon the closing of this offering, may have the effect of delaying or preventing a change of control or changes in our management. These provisions include the following:

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In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law. These provisions may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us. These provisions in our certificate of incorporation, bylaws and under Delaware law could discourage potential takeover attempts and could reduce the price that investors might be willing to pay for shares of our common stock in the future and result in the market price being lower than they would without these provisions.

We will incur increased costs as a result of being a public company.

As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002, as well as new rules subsequently implemented by the Securities and Exchange Commission and the Nasdaq Stock Market, have required changes in corporate governance practices of public companies. We expect these new rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly. For example, as a result of becoming a public company, we are required to create additional board committees and adopt policies regarding internal controls and disclosure controls and procedures. In addition, we will incur additional costs associated with our public company reporting requirements. We also expect these new rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers.

We may spend or invest a substantial portion of the net proceeds of this offering in ways with which you might not agree.

We have broad discretion to determine how we spend or invest the net proceeds from this offering, other than the approximately $44.6 million to be used to redeem 2,361,276 shares of our series E redeemable convertible preferred stock. You will not have an opportunity to evaluate the economic, financial or other information upon which we base our decisions regarding how to use these proceeds, and, subject to certain exceptions, we will be able to use and allocate the net proceeds without first obtaining stockholder approval.

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 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that involve risks and uncertainties. Many of these statements appear, in particular, in the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” Forward-looking statements include, but are not limited to, statements about:

In some cases, you can identify forward-looking statements by terms such as “may,” “might,” “will,” “objective,” “intend,” “should,” “could,” “can,” “would,” “expect,” “believe,” “estimate,” “predict,” “potential,” “plan,” “is designed to” or the negative of these terms, and similar expressions intended to identify forward-looking statements. These statements reflect our current views with respect to future events and are based on assumptions and subject to known and unknown risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. We discuss many of these risks in this prospectus in greater detail under the heading “Risk Factors.” Also, these forward-looking statements represent our estimates and assumptions only as of the date of this prospectus. Unless required by U.S. federal securities laws, we do not intend to update any of these forward-looking statements to reflect circumstances or events that occur after the statement is made.

You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from any future expressed or implied by forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements.

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 USE OF PROCEEDS

We estimate that the net proceeds to us from our sale of the              shares of common stock in this offering will be approximately $             million based on an assumed initial public offering price of $             per share, the midpoint of the initial public offering price range indicated on the cover of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters’ over-allotment option is exercised in full, we estimate that our net proceeds will be approximately $             million. We intend to use approximately $44.6 million to redeem an aggregate of 2,361,276 outstanding shares of our series E redeemable convertible preferred stock. From this redemption consideration, consistent with a prior agreement with holders of our series E redeemable convertible preferred stock, approximately $1.1 million will be further distributed to holders of our series B, C and D redeemable convertible preferred stock and approximately $1.1 million will be further distributed to members of our management and other key employees. See “Certain Relationships and Related Party Transactions.”

We intend to use the remaining $             of the net proceeds from this offering for general corporate purposes, including working capital. We do not otherwise have more specific plans for the net proceeds from this offering. We may also use a portion of the net proceeds to acquire businesses, products and technologies that we believe will complement our business. We are not currently engaged in any negotiations for any acquisitions.

The amounts and timing of any expenditures will vary depending on the amount of cash generated by our operations, competitive and technological developments and the rate of growth, if any, of our business. We will retain broad discretion in the allocation of the net proceeds of this offering.

Pending the uses described above, we will invest the net proceeds of this offering in short-term, interest-bearing, investment-grade securities. We may not invest the proceeds to yield a favorable return.

 DIVIDEND POLICY

We have never declared or paid any cash dividends on our capital stock, and we do not currently intend to pay any cash dividends on our common stock in the foreseeable future. We expect to retain future earnings, if any, to fund the development and growth of our business. Any future determination related to dividend policy will be made at the discretion of our board of directors.

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 CAPITALIZATION

The following table summarizes our capitalization as of March 31, 2004:

You should read this table in conjunction with “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.

The actual, pro forma and pro forma as adjusted information set forth in the table:

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 DILUTION

If you invest in our common stock, your interest will be diluted to the extent of the difference between the public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after this offering. Pro forma net tangible book value per share represents the amount of our total tangible assets less total liabilities, divided by the pro forma number of shares of our common stock outstanding. Our pro forma net tangible book value as of March 31, 2004 was approximately $             million, or $             per share of common stock, after giving effect to the issuance of warrants to purchase 1,400,000 shares of our common stock before the completion of this offering and, upon the completion of this offering, the exercise of these warrants, the exercise of warrants to purchase 1,141,898 shares of our common stock, the redemption of 2,361,276 shares of our series E redeemable convertible preferred stock, the automatic conversion of all of our outstanding shares of series A convertible preferred stock and all of our remaining shares of redeemable convertible preferred stock outstanding, except for all shares of our series D redeemable convertible preferred stock which will remain outstanding, into shares of our common stock and the automatic conversion of all of our outstanding shares of class A common stock into shares of common stock.

Assuming the sale by us of the shares of common stock offered in this offering at an assumed initial public offering price of $             per share, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma net tangible book value as of March 31, 2004 would have been $            , or             per share of common stock. This amount represents an immediate increase in net tangible book value of $             per share of common stock to existing common stockholders and an immediate dilution of $             per share to the new investors purchasing shares in this offering. The following table illustrates the dilution in pro forma net tangible book value per share to new investors:

The following table sets forth on a pro forma as adjusted basis, as of March 31, 2004, the number of shares of common stock purchased from us, the total consideration paid and the average price per share paid by existing holders of common stock and by the new investors purchasing shares of common stock in this offering, before deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The table above assumes no exercise of any outstanding stock options, or the exercise of warrants to purchase 917,150 shares of our common stock at a weighted average exercise price of $8.10 per share. As of March 31, 2004, there were 3,867,849 shares of common stock issuable upon exercise of outstanding stock options at a weighted average exercise price of $4.55 per share and there were 380,231 shares of common stock available for future issuance under our 1997 stock option plan. In April 2004, our board of directors approved a 2004 employee stock purchase plan under which they reserved 300,000 shares for future issuance. In May 2004, our board of directors approved a new 2004 stock incentive plan under which they reserved 2,100,000 shares for future grant or issuance. To the extent that any of these options or warrants are exercised, there will be further dilution to new investors.

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 SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes, which are included elsewhere in this prospectus. The selected consolidated statements of operations data for each of the fiscal years ended December 31, 2001, 2002 and 2003 and the selected consolidated balance sheet data as of December 31, 2002 and 2003 are derived from our audited consolidated financial statements, which are included elsewhere in this prospectus. The selected consolidated statements of operations data for the three-month periods ended March 31, 2003 and 2004 and the selected consolidated balance sheet data as of March 31, 2004 are derived from our unaudited consolidated financial statements, which are included elsewhere in this prospectus. The selected consolidated statements of operations data for the fiscal years ended December 31, 1999 and 2000 and the selected consolidated balance sheet data as of December 31, 1999, 2000 and 2001 are derived from our audited consolidated financial statements not included in this prospectus. The selected consolidated balance sheet data as of March 31, 2003 are derived from our unaudited consolidated financial statements not included in this prospectus.