Russell Beattie Notebook

Our carrier agreements are not exclusive and generally have a limited term of one or two years with evergreen, or automatic renewal, provisions upon expiration of the initial term. These agreements set out the terms of our distribution relationships with the carriers but generally do not obligate the carriers to market or distribute any of our applications. In addition, the carriers can terminate these agreements early, and in some instances, without cause.

Many other factors outside our control could impair our carrier relationships, including the following:

Next-generation mobile phones may significantly reduce or eliminate the wireless carriers' control over delivery of our applications.

Some next-generation mobile phone models currently available use an open platform operating system that allows for Internet browsing. By using these browsers, wireless subscribers could avoid their carrier's branded e-commerce service and access data applications directly from third parties. If this practice increases, our primary distribution channel could be significantly harmed and, accordingly, our business may suffer.

Sources of Revenues

We principally derive revenues from the licensing of our applications to wireless subscribers for a one-time purchase fee or a monthly subscription fee. Substantially all of these fees appear on our customers' monthly mobile phone bill. In accordance with our carrier agreements, the carriers perform billing and collection functions and remit a percentage of the fees to us. We recognize the net amount of revenues due to us from the wireless carrier. See "—Application of Critical Accounting Policies and Estimates—Revenue Recognition." We generate the vast majority of our revenues through our carrier distribution channel when wireless subscribers download our applications to their mobile phones, typically through a carrier's branded e-commerce service. Our customers may also initiate the purchase of our applications from various Internet portal sites or through other delivery mechanisms with carriers continuing to be responsible for billing, collecting and remitting to us a percentage of those fees. We also generate revenues from mobile phone manufacturers when they embed one of our applications directly into a mobile phone. We generally receive payment from the manufacturer on a per mobile phone basis. Finally, we generate limited revenues from the sale of some of our applications, including PC and PDA products, through Internet portal sites and retail stores.