| SENTO CORP Item 1A Risk Factors |
| There are a number of factors that may affect our operating results, including the risks and uncertainties identified in the following paragraphs |
| If any of the risks we describe below occur, or if any unforeseen risk develops, our operating results may suffer, our financial condition may deteriorate, the market price of our common stock may decline and investors could lose all or part of their investment in us |
| In addition to other information set forth in this Report, readers should review and carefully consider the following factors |
| 9 ______________________________________________________________________ We are experiencing revenue growth and our future operations will require skilled management of growth |
| Our current and future revenue growth must be considered in light of the risks, expenses, delays, problems and difficulties frequently encountered in the establishment of a new business concept, the development and commercialization of products based on new technologies, and the competitive environment in which we operate |
| As our operations expand, our success will depend on our ability to manage continued growth, including integration of our executive officers, directors and consultants into an effective management and technical team; to formulate strategic alliances, joint ventures, or other collaborative arrangements with third parties; to commercialize and market our proposed products and services; and to monitor and manage these relationships on a long-term basis |
| If our management is unable to integrate these resources and manage growth effectively, the quality of our products and services, our ability to retain key personnel, and the results of our operations could be materially and adversely affected |
| Inflation and wage pressure have caused, and will likely continue to cause, our labor costs to increase which can negatively impact our margins |
| Our operations were impacted during fiscal 2006 by rising personnel costs |
| The increasing personnel costs relate primarily to short supplies of qualified personnel in some of our customer contact solutions centers |
| We have been able to pass on some, but not all, of the increased personnel costs to our clients |
| It is not possible to predict the future trend of supplies of qualified personnel at reasonable rates, or our ability to pass on future price increases to clients |
| Managing the utilization level of our resources is necessary in order to achieve our desired profitability |
| Our business strategy requires us to efficiently utilize personnel and physical facilities in an effort to increase our profitability |
| As we expand our operations, we may not always be able to manage the level of personnel and facilities to reach our desired levels of utilization, which may affect our profitability |
| Also, if we lose existing clients, we may have excess personnel and physical facilities that would have an adverse effect on our business operations and our profitability |
| Volatile economic conditions have affected and will likely continue to affect our operations and financial results |
| Volatile economic conditions have adversely affected our operations and financial results |
| In certain sectors serviced by us in recent years, economic slowdowns have caused us to lose some clients and also resulted in increased pricing pressures and lower call volumes from some existing clients |
| Slower economic conditions may limit our ability to attract new clients or retain existing clients |
| The slower economy also resulted in excess capacity to service call volumes |
| A substantial percentage of our expenses is attributable to labor costs associated with staffing customer contact solutions centers, which we may not be able to significantly reduce on short notice in order to compensate for unexpected shortfalls in call volumes |
| We cannot forecast future fluctuations in economic conditions, and our operations and financial results may be materially and adversely affected by economic volatility |
| If we do not keep up with the rapid technological change experienced by the customer contact service industry, our products and services may become obsolete and we may lose clients |
| The customer contact service industry is characterized by rapid technological change, alterations in customer requirements and preferences, and the emergence of new industry standards and practices |
| Our operating results and financial condition will depend, in part, on our ability to develop solutions that keep pace with continuing changes in information technology, evolving industry standards, and changing client requirements |
| There can be no assurance that we will be successful in adequately addressing these developments on a timely basis or that, if these developments are addressed, we will be successful in the marketplace |
| In addition, products or technologies developed by others could render our services non- 10 ______________________________________________________________________ competitive or obsolete |
| Our failure to address these developments could have a material negative effect on our business and financial condition |
| We may be unable to attract, train and retain key technical, managerial and marketing personnel |
| Our success will depend, in large part, on our ability to attract, retain and train highly qualified technical, managerial and marketing personnel with the expertise required to successfully conduct our operations |
| We have entered into employment agreements with certain of our key managerial personnel; however, those agreements are subject to termination under various circumstances and we have not entered into employment agreements with any of our key technical personnel other than our Chief Technology Officer |
| If we lose any key personnel or are unable to attract, retain, train or motivate qualified personnel, our business operations and financial condition may be materially and adversely affected |
| Several key clients represent a significant portion of our revenues, and the loss of a key client could affect our revenues and profitability |
| Four clients accounted for approximately 63prca of our revenues with 24prca, 15prca, 14prca and 10prca of revenues for fiscal 2006 |
| A key client, who accounted for 28prca of our revenues in fiscal 2002, cancelled their contract with us early in fiscal 2003 |
| The loss of this client had a significant negative impact on our revenue and profitability in fiscal 2003 and for the first nine months of fiscal 2004, until we generated replacement business |
| It can take a significant amount of time to develop and obtain new clients and retrain employees to replace revenue from a lost client |
| Thus, the loss of any of our key clients could have a significant effect on our revenues and profitability |
| In addition, our future revenue growth is dependent upon our ability to attract and retain new clients and to generate additional business from existing clients |
| We have a history of losses and may continue to experience losses |
| We have historically experienced net losses in several quarters prior to our second quarter in fiscal 2006 |
| In the fiscal years ended March 31, 2006 and 2005, we had net losses of $(154cmam090) and $(1cmam836cmam160), respectively, and we had an accumulated deficit of $(12cmam432cmam253) as of March 31, 2006 |
| We may continue to incur net losses if we lose clients, are unable to attract and retain new clients or do not properly utilize our resources |
| We cannot ensure that we will be able to achieve or maintain consistent profitable operations |
| Implementation of our growth plans will be dependent on our ability to market and sell our services to new and existing clients |
| Our growth plans are dependent upon our ability to attract and retain new clients and to generate additional business from existing clients |
| Our efforts to market and sell our services will be affected by fluctuations in technology and industry standards, changes in customer requirements and preferences, and general economic conditions, among other factors |
| If we are incorrect in our assessment of the feasibility of our growth plans, if we are not effective in our efforts to market and sell our services or if circumstances change in a way that we did not foresee or anticipate, we may not grow as planned or our growth strategy may have an adverse effect on business operations and our profitability |
| Our revenues and quarterly results can be volatile, which makes evaluating our business difficult |
| Individual client revenue transactions can constitute a substantial percentage of our quarterly revenue, and some revenue transactions may generate a substantial portion of the operating profits for a quarter |
| Our revenues also are a function of the number of support requests we receive, and the time we 11 ______________________________________________________________________ spend on such requests |
| Thus, if we receive fewer support requests than anticipated or the time spent in resolving inquiries is greater than anticipated, our revenues may fluctuate |
| Further, delays in the receipt of customer orders can cause significant fluctuation in revenues from quarter to quarter |
| Because our staffing and other operating expenses are based on anticipated revenue levels, and a high percentage of our expenses are fixed, the volatility in our revenues can cause significant variations in operating results from quarter to quarter and we may not be able to achieve or sustain profitability on a quarterly basis |
| In addition, we may expend significant resources pursuing potential sales that will not be consummated |
| Furthermore, we may choose to reduce prices or to increase spending in response to competition or to pursue new market opportunities, which may adversely affect our operating results |
| For the reasons identified above, we believe that period-to-period comparisons of our revenues and operating results may not be meaningful and should not be considered an indication of future performance |
| We are subject to credit risks and may be unable to collect our accounts receivable balances |
| Based on credit evaluations and other information gathered by our employees, we establish credit terms for each client; however, there can be no assurance that our future credit losses will be consistent with our expectations |
| A significant change in the liquidity or financial condition of one or more key clients, or a larger number of smaller clients, or further deterioration in the economic environment, in general, could have an adverse impact on the collectability of our accounts receivable and our future operating results |
| Market volatility and fluctuations in our stock price and trading volume may cause sudden decreases in the value of an investment in our common stock |
| The market price of our common stock has historically been, and we expect it to continue to be, volatile |
| This price has ranged between dlra1dtta41 and dlra17dtta89 in the three year period ended May 31, 2006 |
| The market for our common stock has, from time-to-time, experienced extreme price and volume fluctuations, which have often appeared to be unrelated to our operating performance |
| Our stock price also has been affected by our own public announcements regarding such things as quarterly earnings, changes in clients, obtaining financing and corporate partnerships |
| Consequently, events both within and beyond our control may cause shares of our common stock to lose their value rapidly |
| We are susceptible to business and political risks from international operations that could result in reduced revenues or earnings |
| We operate businesses or have contractual relationships in the Netherlands, France, India, Sweden and Brazil and are looking to expand in other countries |
| Additionally, there is increasing demand for offshore customer care outsourcing capacity from North American companies |
| Expansion of our existing international operations and entry into additional countries will require management attention and financial resources |
| In addition, there are certain risks inherent in conducting business internationally including: exposure to currency fluctuations, longer payment cycles, greater difficulties in accounts receivable collection, difficulties in complying with a variety of foreign laws, unexpected changes in legal or regulatory requirements, difficulties in staffing and managing foreign operations, political instability and potentially adverse tax consequences |
| To the extent we do not manage our international operations successfully, our business could be adversely affected and our revenues and/or earnings could be reduced |
| If companies reduce their reliance on outsourced services, our revenues and financial condition may be adversely affected |
| Our business depends in large part on the trend within the several industries we serve to outsource certain services |
| We cannot provide any assurance that this trend will continue or that, if the trend 12 ______________________________________________________________________ continues, it will continue at the same rate of growth |
| The failure of this trend to continue could have a material adverse effect on our business, financial condition, and results of operations |
| Competitive pressures could harm our financial performance |
| The market for customer contact services is highly fragmented and very competitive |
| In certain segments of the market, however, the customer contact services industry has begun to experience a degree of consolidation, and the development of major customer contact center companies has resulted in an additional level of competition from service providers that have greater name recognition, larger installed customer bases, and significantly greater financial, technical, and marketing resources than we have |
| Large established enterprise software companies may leverage their existing relationships and capabilities to offer customer service applications |
| Also, a number of existing companies have experienced rapid internal growth, and several of these companies have been active in acquiring smaller regional customer contact services companies and are becoming major competitors with a measurable share of this rapidly expanding market |
| If our competitors provide more efficient or less expensive services, we may lose market share and revenues |
| A failure of our computers, telecommunications equipment or software systems could interrupt our ability to provide our services |
| Our business depends to a large extent on computers, telecommunications equipment and software systems (both equipment and systems maintained by us and equipment and systems maintained by third parties) |
| A natural disaster, human error, equipment malfunction or inadequacy, or multiple other events could result in a prolonged interruption in our ability to provide support services to clients or their customers |
| The temporary or permanent loss of computer or telephone equipment or software systems, through casualty, operating malfunctions or otherwise, could have a material adverse effect on our operations, property or financial condition, and business interruption insurance may not be adequate to compensate for all losses that may be incurred |
| We rely on a third-party software company for our chat and email applications |
| We contract with a third-party software company to provide chat and email tools used with our CRM software, reporting and management services |
| If this software company fails in its business efforts, we may lose our access to these software tools |
| Our failure to obtain adequate replacement software tools would cause us to experience service delays, interruptions or cancellations |
| Provisions of our Articles of Incorporation, Bylaws and Shareholder Rights Plan could impair or delay shareholders’ ability to replace or remove our management and could discourage takeover transactions that shareholders might consider to be in their best interests |
| Our Articles of Incorporation and Bylaws, the Utah Revised Business Corporation Act, and the Utah Control Shares Acquisition Act each contain certain provisions that may have the effect of inhibiting a non-negotiated merger or other business combination |
| Our Articles of Incorporation grant to our Board of Directors the authority, without further action by our shareholders, to fix the rights and preferences of, and issue shares of preferred stock |
| Our recently adopted Bylaws provide advance notice requirements that may limit the opportunity for our shareholders to advance nominees for election to our Board of Directors or submit matters from the floor at the meetings of our shareholders |
| In addition, the Board has adopted a Shareholder Rights Plan which imposes constraints on transactions which could result in a change of management control over Sento |
| These provisions may deter hostile takeovers or delay or prevent changes in control of Sento or changes in our management, including transactions in which shareholders might otherwise receive a premium for their shares over the then-current market prices |
| In addition, these provisions may limit the ability of our shareholders to approve transactions that they may deem to be in their best interest |
| 13 ______________________________________________________________________ We have never declared a dividend on our common stock and we do not anticipate paying dividends in the foreseeable future |
| No dividends have ever been declared or paid on our common stock |
| We intend to retain any future earnings for use in our business and do not anticipate paying any dividends on our common stock in the foreseeable future |