| In addition to the other information contained in this report, you should consider the following risk factors before investing in our securities |
| Our quarterly results may fluctuate, which may cause our stock price to decline |
| Our quarterly revenue and operating results may fluctuate from quarter to quarter |
| As a result, we believe that quarter-to-quarter and year-to-year comparisons of our revenue and operating results are not necessarily meaningful, and that these comparisons may not be accurate indicators of future performance |
| Several factors that have contributed or may in the future contribute to fluctuations in our operating results include: • demand for our real-time service management software; • size and timing of customer orders and our ability to receive payment and recognize revenue in a given quarter; • our reliance on a small number of customers for a substantial portion of our revenue; • the price and mix of products and services we or our competitors offer; • our ability to attract and retain customers; • the amount and timing of operating costs and capital expenditures relating to expansion of our business, infrastructure and marketing activities; • the exercise of judgment by our management in making accounting decisions in accordance with our accounting policies, such as when to recognize certain tax assets and the impairment of goodwill or identifiable intangible assets; and • general economic conditions and their effect on our operations |
| Historically, we licensed a significant portion of our software on a term basis in which revenue was recognized ratably over the length of the agreement with the customer |
| Recently, however, we typically license our software on a perpetual basis in which we recognize the license revenue upfront, assuming all criteria for revenue recognition have been met |
| As we shifted to a perpetual licensing model, we have received less ratable revenue and have therefore become more dependent on a few customer contracts with upfront license revenue for 14 ______________________________________________________________________ [45]Table of Contents a substantial portion of our revenue in any one quarter |
| In addition, a significant portion of our total revenue each quarter come from a number of orders received in the last month of a quarter |
| If we fail to close orders expected to be completed toward the end of a quarter, particularly if these orders are for perpetual licenses with immediate revenue, or if there is any cancellation of or delay in the closing of orders, particularly any large customer orders, our quarterly results would suffer |
| Because a small number of customers have historically accounted for and may in future periods account for substantial portions of our revenue, our revenue could decline because of delays of customer orders |
| A small number of customers have historically accounted for, and may in future periods account for, substantial portions of our revenue |
| For the quarter ended December 31, 2005, two customers accounted for 20prca and 15prca of our total revenue for the quarter |
| Although there were no customers that accounted for 10prca or more of our total annual revenue in 2005, for the year ended December 31, 2004, two customers accounted for 13prca and 10prca of our total annual revenue |
| Because a small number of customers are likely to continue to account for a significant portion of our revenue in any given quarter, our revenue could decline because of the loss or delay of a single customer order |
| Additionally, we may not obtain new customers |
| The failure to obtain significant new customers, particularly customers that purchase perpetual licenses with upfront payments, the loss or delay of significant customer orders and the failure of existing customers to pay ongoing fees when due would harm our operating results |
| Our inability to meet future financial performance targets that we announce or that are published by research analysts could cause the price of our common stock to decline |
| From time to time, we provide guidance related to our future financial performance |
| In addition, financial analysts publish their own expectations of our future financial performance |
| Because our quarterly revenue and our operating results fluctuate, future financial performance is difficult to predict |
| In early 2004 and 2005, we provided guidance related to our expected annual and quarterly performance |
| Our actual financial results in the third quarter of 2004 and 2005 fell short of our guidance |
| Future negative adjustments of our guidance or the failure to meet our guidance or those expectations of research analysts could likely cause the market price of our common stock to decline |
| Management’s ability to accurately predict performance is affected in large part by the increasing number of perpetual licenses that we typically enter into in a quarterly period |
| As a result, a significant portion of our total revenue is dependant upon the closing of new large customer orders |
| In addition, our guidance is based in part upon the expectation of new product sales with which we have a limited history and as a result it is difficult to evaluate our future revenue from these products |
| In the event we fail to close orders expected or forecasted to be completed, our results will not meet our guidance or the expectations of securities analysts or investors, which would likely cause the market price of our common stock to decline |
| We expect to lose the services of two of our key personnel and recruiting and integrating new management may affect our ability to achieve our business goals |
| Our success depends on the skills, experience and performance of our senior management, engineering, sales, marketing and other key personnel |
| The loss of the services of any of our senior management or other key personnel could harm the market’s perception of our business and our ability to achieve our business goals |
| We recently announced that Radha R Basu has expressed her intention to retire as our President and Chief Executive Officer, although she will continue in her position until a suitable successor is in place and remain a part-time employee on an as-needed basis to help the successor’s transition for a period of one year |
| In addition, John Van Siclen, our Senior Vice President of Worldwide Field Operations, recently announced that he will depart from SupportSoft effective March 31, 2006 |
| The efforts in recruiting and integrating new management may divert attention from other business concerns and disrupt our ongoing business, especially in the short term until successors are appointed |
| In addition, Ken Owyang was only recently appointed Chief Financial Officer, 15 ______________________________________________________________________ [46]Table of Contents transitioning from his role as our Vice President of Finance which he has held since 2004 |
| We have also recently initiated reductions in our workforce |
| Reductions in our workforce as well as changes in senior management could make it difficult to motivate and retain remaining key employees or attract new employees, and provide distractions affecting our ability to manage our business |
| We were not profitable for the third quarter of 2005 and may not continue to be profitable |
| Although we have been profitable on an annual basis since 2003, we were not profitable for the third quarter of 2005 |
| We reached profitability again in the fourth quarter of 2005, but our expenditures could once again exceed our revenues in future periods, thus preventing us from achieving or maintaining profitability on a quarterly or annual basis |
| To achieve and maintain profitability, we will need to generate and sustain substantially higher revenues while maintaining reasonable cost and expense levels |
| If we fail to achieve or maintain profitability, the market price of our common stock will likely decline |
| We may not achieve profitability if our revenues do not increase or if they increase more slowly than we expect |
| In addition, our operating expenses are largely fixed and any shortfall in anticipated revenues in any given period could harm our results |
| Our product innovations may not achieve the market penetration necessary for us to expand our market share |
| If we fail to develop enhanced versions of our real-time service management software in a timely manner or to provide products and services that achieve rapid and broad market acceptance, we may not maintain or expand our market share |
| We may fail to identify new product and service opportunities for our current market or new markets that we enter into in the future |
| In addition, our existing products may become obsolete if we fail to introduce new products or product enhancements that meet new customer demands, support new standards or integrate with new or upgraded versions of packaged applications |
| We have limited control over factors that affect market acceptance of our product and services, including: • the willingness of enterprises, including management service providers, to transition to real-time service management solutions; and • acceptance of competitors’ solutions or other similar technologies |
| If the growth of demand for triple play services or multi-play services by subscribers of digital services does not continue, our ability to increase our revenue could suffer |
| Our ability to increase our revenue will depend on increased demand for digital services |
| If this demand does not grow as rapidly or to the extent we anticipate, our business could suffer |
| The growth of digital services is uncertain and will depend in particular upon the availability, at a reasonable price, of such digital services, the building of infrastructure to support such services, the availability of competitive products, and the reliability of such services |
| We are becoming increasingly more dependent upon our international operations and if our revenue from this effort does not exceed the expense of establishing and maintaining international operations, our business could suffer |
| We are becoming increasingly more dependent upon our international operations including the sales and distribution of our products and services and our research and development resources in India and Canada |
| We have limited experience in international operations and may not be able to compete effectively in international markets or effectively manage our operations in various countries |
| If we do not generate enough revenue from international operations to offset the expense of these operations, our business and our ability to increase revenue and enhance our operating results could suffer |
| Risks we face in conducting business internationally include: • costs of staffing and managing international operations; • differing technology standards and legal considerations; 16 ______________________________________________________________________ [47]Table of Contents • longer sales cycles; • dependence on local vendors and consultants; • difficulties in staffing and managing international operations, including the difficulty in managing a geographically dispersed workforce in compliance with diverse local laws and customs and difficulty in motivating and retaining qualified individuals; • potential adverse tax consequences; • changes in currency exchange rates and controls; • difficulties in maintaining effective internal control over financial reporting as a result of a geographically-dispersed workforce and customers; • longer collection cycles for accounts receivable; and • the effects of external events such as terrorist acts and any related conflicts or similar events worldwide |
| If we do not expand our professional services organization, especially internationally, our customers may become dissatisfied and our operating results could suffer |
| Also, as we expand our professional services organization, it may not operate in a profitable manner |
| Clients that license our software typically engage our professional services organization to assist with installation and implementation of our software and related consulting services |
| Revenue from professional services has increased from 2004 to 2005 by 29prca and represented a substantial portion of our total revenue |
| We plan to further increase the number of services personnel, especially internationally, to meet customer needs |
| We may not be able to recruit the services personnel we need or retain our current services personnel because competition for qualified services personnel is intense |
| New services personnel will require training and education and take time to reach full productivity |
| In addition, we cannot be certain that our professional services business will operate in a profitable manner |
| We have generally billed our customers for professional services on a time and material basis using an agreed upon daily rate |
| However, increasingly customers have requested various contract structures |
| If unanticipated factors in a project are encountered and the contract structure prevents us from billing additional amounts, the profitably of our professional services business would suffer |
| Our failure to establish and expand third-party alliances would harm our ability to sell our real-time service management software |
| We have several alliances with third parties that are important to our business |
| Our existing relationships include those with software and hardware vendors, and relationships with companies who provide outsourced support and service capabilities to enterprise customers |
| If these relationships fail, we may have to devote substantially more resources to the sales and marketing of our products and services than we would otherwise, and our efforts may not be as effective |
| For example, companies that provide outsourced support and services often have extensive relationships with our existing and potential customers and significant input in the purchase decisions of these customers |
| In addition, we intend to establish relationships with third party resellers and other sales partners as we expand into geographic regions such as Europe and Asia |
| Our failure to maintain existing relationships, or to establish new relationships with key third parties, could significantly harm our ability to sell our products and services |
| Our exposure to the credit risks of our customers and resellers may make it difficult to collect receivables and could adversely affect our operating results and financial condition |
| Industry and economic conditions have weakened the financial position of some of our customers and the cable and telecommunications industries, from which we derive a substantial portion of our total revenue, have 17 ______________________________________________________________________ [48]Table of Contents traditionally been highly leveraged businesses |
| To sell to some of these customers, we may be required to take risks of uncollectible accounts |
| We may be exposed to similar risks relating to third party resellers and other sales partners, as we intend to increasingly utilize such parties as we expand into new geographic regions |
| Additionally, as we have expanded our business internationally we have experienced longer payment terms and collection cycles from customers outside the United States |
| While we monitor these situations carefully and attempt to take appropriate measures to protect ourselves, it is possible that we may have to write down or write off doubtful accounts |
| Such write-downs or write-offs would negatively affect our operating results for the period in which they occur, and, if large, could have a material adverse effect on our operating results and financial condition |
| Our products depend on and work with products containing complex software and if our products fail to perform properly due to errors in the software, we may need to devote resources to correct the errors or compensate for losses from these errors and our reputation could be harmed |
| Our products depend on complex software, both internally developed and licensed from third parties |
| Also, our customers may use our products with other companies’ products which also contain complex software |
| Complex software often contains errors and may not perform properly |
| These errors could result in: • delays in product shipments; • unexpected expenses and diversion of resources to identify the source of errors or to correct errors, whether or not the error is later determined to be related to our software; • damage to our reputation; • lost sales; • contractual penalties, demands, claims and litigation and related defense costs; and • warranty claims |
| If our products fail to perform properly due to errors, bugs or similar problems in the software, we could be required to devote valuable resources to correct the errors or compensate for losses from these errors |
| Furthermore, if our products are found to contain errors or bugs, whether resulting from internally developed or third-party licensed software, our reputation with our customer base could be harmed and our business could suffer |
| Our reported results of operations will be materially and adversely affected by our adoption of SFAS 123R Statement of Financial Accounting Standards Nodtta 123 (revised 2004), Share-Based Payment (SFAS 123R), which will be effective in our first quarter of 2006, will result in our recognition of substantial compensation expense relating to our employee stock options and employee stock purchase plans |
| Historically, we generally have not recognized in our statement of income any compensation expense related to stock option grants we issue under our stock option plans or the discounts we provide under our employee stock purchase plans |
| Under the new rules, we will be required to adopt a fair value-based method for measuring the compensation expense related to employee stock awards, which will lead to substantial additional compensation expense and will have a material adverse effect on our reported results of operations |
| Our sales cycle is lengthy and if revenue forecasted for a particular quarter is not realized in that quarter, significant expenses incurred may not be offset by corresponding revenues |
| Our sales cycle for our software typically ranges from three to nine months or more and may vary substantially from customer to customer |
| The purchase of our products and services generally involves a significant commitment of capital and other resources by a customer |
| This commitment often requires significant 18 ______________________________________________________________________ [49]Table of Contents technical review, assessment of competitive products and approval at a number of management levels within a customer’s organization |
| In addition, in the wake of Sarbanes-Oxley, companies have enhanced their approval processes making sales more difficult or protracted |
| While our customers are evaluating our products and services, we may incur substantial sales and marketing expenses and spend significant management effort to complete these sales |
| Any delay in completing sales in a particular quarter or the failure to complete a sale after expending resources during the sales cycle could cause our operating results to suffer |
| We must achieve broad adoption and acceptance of our real-time service management products and services or we will not increase our market share or expand our business |
| We must achieve broad market acceptance and adoption of our products and services or our business and operating results will suffer |
| Specifically, we must encourage our customers to transition from using traditional or competitive support and service methods to our support and service automation solutions |
| To accomplish this, we must: • continually improve the performance, features and reliability of our products and services to address changing industry standards and customer needs; and • develop integration with other support-related technologies |
| If we fail to manage our business effectively, then our infrastructure, management and resources might be strained |
| As we expand our business operations, this will likely place a significant strain on our resources especially in light of the recent reduction in our workforce |
| With less personnel, or in the event we are unable to retain the required personnel, we may be unable to meet our business objectives |
| In addition, if we experience significant and rapid growth or a change in the complexity of our operations, including through acquisitions of businesses or technologies, we may need to expand and otherwise improve our internal systems, including our internal control over financial reporting, disclosure controls and procedures, management information systems, customer relationship and support systems, and other operating and administrative systems and controls |
| This effort may cause us to make significant capital expenditures or incur significant expenses, and divert the attention of management, sales, support and finance personnel from our business operations, which may adversely affect our financial performance in one or more quarters |
| Moreover, growth in the future will result in increased responsibilities of management personnel |
| Managing growth will require substantial resources that we may not have or otherwise be able to obtain |
| If we are unable to maintain our disclosure controls and procedures, including our internal control over financial reporting, our ability to report our financial results on a timely and accurate basis may be adversely affected |
| We have evaluated our “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as well as our internal control over financial reporting as required by Section 404 of the Sarbanes-Oxley Act of 2002 |
| Our independent registered public accounting firm has performed a similar evaluation of our internal control over financial reporting |
| Effective controls are necessary for us to provide reliable financial reports and effectively prevent fraud |
| If we cannot provide reliable financial reports or prevent fraud, our operating results could be harmed |
| As of December 31, 2005, we concluded that our internal control over financial reporting were effective, as further described below in Item 9A, Controls and Procedures |
| However, in 2004 we had material weaknesses in our internal controls and we cannot be certain that we will continue to have adequate controls over our financial processes and reporting in the future |
| If weaknesses are identified, our ability to report our financial results on a timely and accurate basis may be adversely affected |
| In addition, if we cannot maintain internal control over financial reporting and disclosure controls and procedures, investors may lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock |
| 19 ______________________________________________________________________ [50]Table of Contents If our existing customers do not renew maintenance services or purchase additional products, our operating results could suffer |
| Historically, we have derived, and expect to continue to derive, a significant portion of our total revenue from existing customers who purchase additional products or renew maintenance services |
| Our customers may not renew maintenance services or purchase additional products and may not expand their use of our products |
| In addition, as we introduce new products, our current customers may not require or desire the functionality of our new products and may not ultimately purchase these products |
| If our customers do not renew maintenance services or do not purchase additional products, our revenue levels and operating results could suffer |
| Our software may not operate with the hardware and software platforms that are used by our customers now or in the future, and as a result our business and operating results may suffer |
| We currently serve a customer base with a wide variety of constantly changing hardware, packaged software applications and networking platforms |
| If we fail to release versions of our software that are compatible with operating systems, software applications or hardware devices used by our customers, our business and operating results would suffer |
| Our future success also depends on: • the continuing ability of our products to inter-operate with multiple platforms and packaged applications used by our customer base; and • our management of software being developed by third parties for our customers or for use with our products |
| We may engage in investments or acquisitions or other strategic matters that could divert management attention and prove difficult to integrate with our business and technology |
| We may engage in acquisitions of other companies, products or technologies or in other strategic initiatives |
| If we fail to integrate successfully any future acquisitions, or the technologies associated with such acquisitions, into our company, or if we fail to consummate various strategic initiatives, the revenue and operating results of the combined company could decline |
| The process of integrating businesses, technologies, services or products may result in unforeseen operating difficulties and expenditures |
| Acquisitions involve a number of other potential risks to our business, including the following: • potential adverse effects on our operating results, including unanticipated costs and liabilities, unforeseen accounting charges or fluctuations resulting from failure to accurately forecast the financial impact of an acquisition; • failure to integrate products or technologies with our existing products, technologies and business model; • failure to integrate management information systems, personnel, research and development and marketing, sales and support operations; • potential loss of key employees; • diversion of management’s attention from other business concerns and disruption of our ongoing business; • difficulty in maintaining controls and procedures; • potential loss of customers; • uncertainty on the part of our existing customers about our ability to operate on a combined basis; • failure to realize the potential financial or strategic benefits of the acquisition; and • failure to successfully further develop the combined technology, resulting in the impairment of amounts recorded as goodwill or other intangible assets |
| 20 ______________________________________________________________________ [51]Table of Contents In addition, our capital resources may be insufficient to acquire businesses, technology, services or products and we may require additional financing |
| This financing may not be available in sufficient amounts or on terms acceptable to us and may be dilutive to existing stockholders |
| We rely on third-party technologies and our inability to use or integrate third-party technologies could delay product or service development |
| We intend to continue to license technologies from third parties, including applications used in our research and development activities and technologies such as third-party search engine technology, which are integrated into our products and services |
| Our inability to obtain or integrate any of these technologies with our own products could delay product and service development until equivalent technology can be identified, licensed and integrated |
| These technologies may not continue to be available to us on commercially reasonable terms or at all |
| We may fail to successfully integrate any licensed technology into our products or services, which would harm our business and operating results |
| Third-party licenses also expose us to increased risks that include: • risks of product malfunction after new technology is integrated; • the diversion of resources from the development of our own proprietary technology; and • our inability to generate revenue from new technology sufficient to offset associated acquisition and maintenance costs |
| We must compete successfully in the real-time service management market or we will lose market share and our business will suffer |
| We compete in markets that are highly competitive, subject to rapid change and significantly affected by new product introductions and other market activities of industry participants |
| We compete with a number of companies in the market for automated delivery of support and service automation and other vendors who may offer products or services with features that compete with specific elements of our software products |
| In addition, our customers and potential customers have developed or may develop internally real-time service management software systems |
| We expect that internally developed applications will continue to be a principal source of competition in the foreseeable future |
| The markets for our products are still rapidly evolving, and we may not be able to compete successfully against current and potential competitors |
| Our ability to expand our business will depend on our ability to maintain our technological advantage, introduce timely enhanced products to meet the growing support needs, deliver on-going value to our customers and scale our business |
| Our potential competitors may have longer operating histories, significantly greater financial, technical and other resources or greater name recognition than we do |
| Competition in our markets could reduce our market share or require us to reduce the price of products and services, which could harm our business, financial condition and operating results |
| We may need additional capital and if funds are not available on acceptable terms, we may not be able to hire and retain employees, fund our expansion or compete effectively |
| We believe that our existing capital resources will enable us to maintain our operations for at least the next 12 months |
| However, if our capital requirements vary materially from those currently planned, we may require additional financing sooner than anticipated |
| This financing may not be available in sufficient amounts or on terms acceptable to us and may be dilutive to existing stockholders |
| If adequate funds are not available or are not available on acceptable terms, our ability to hire, train or retain employees, fund our expansion, take advantage of business opportunities, develop or enhance services or products or respond to competitive pressures would be significantly limited |
| 21 ______________________________________________________________________ [52]Table of Contents Our system security is important to our customers and we may need to spend significant resources to protect against or correct problems caused by security breaches |
| A fundamental requirement for online communications, transactions and support is the secure transmission of confidential information |
| Third parties may attempt to breach our security or that of our customers |
| We may be liable to our customers for any breach in security and any breach could harm our business and reputation |
| Also, computers are vulnerable to computer viruses, physical or electronic break-ins and similar disruptions, which could lead to interruptions, delays or loss of data |
| We may be required to expend significant capital and other resources to further protect against security breaches or to correct problems caused by any breach |
| Failure to resolve pending securities claims and other lawsuits may lead to continued costs and expenses and divert management’s attention from our business, which could cause our revenues and our stock price to decline |
| In the past, securities class action litigation has often been brought against public companies after periods of volatility in the market price of securities |
| The market price of our common stock has been subject to significant fluctuations and may continue to fluctuate or decline |
| In addition, the anti-takeover provisions we have adopted in the past, such as prohibiting stockholder action by written consent, or may adopt in the future may be perceived negatively by the market causing a decline in our stock price or litigation against us |
| Securities class action lawsuits were filed against us in November 2001 and again in December 2004 |
| In addition, a derivative shareholder lawsuit was filed against us in December 2005 |
| Should these lawsuits linger for a long period of time, whether ultimately resolved in our favor or not, or further lawsuits be filed against us, coverage limits of our insurance or our ability to pay such amounts may not be adequate to cover the fees and expenses and any ultimate resolution associated with such litigation |
| The size of these payments, if any, individually or in the aggregate, could seriously impair our cash reserves and financial condition |
| The continued defense of these lawsuits also could result in continued diversion of our management’s time and attention away from business operations, which could cause our financial results to decline |
| A failure to resolve definitively current or future material litigation in which we are involved or in which we may become involved in the future, regardless of the merits of the respective cases, could also cast doubt as to our prospects in the eyes of customers, potential customers and investors, which could cause our revenues and stock price to decline |
| Privacy concerns and laws or other domestic or foreign regulations may reduce the effectiveness of our solution or harm our reputation and cause us to lose customers |
| Our software contains features which allow our customers to control, monitor or collect information from computers running the software |
| Federal, state and foreign government bodies and agencies, however, have adopted or are considering adopting laws and regulations regarding the collection, use and disclosure of personal information obtained from consumers and individuals |
| The costs of compliance with, and other burdens imposed by, such laws and regulations that are applicable to the businesses of our customers may limit the use and adoption of our solutions and reduce overall demand for it |
| Furthermore, privacy concerns may cause our customers’ customers to resist providing the data necessary to allow our customers to use our solutions effectively |
| Even the perception of privacy concerns, whether or not valid, may inhibit adoption of our solutions |
| In addition, we may face claims about invasion of privacy or inappropriate disclosure, use or loss of this information |
| Any imposition of liability could harm our reputation, cause us to lose customers and cause our operating results to suffer |
| Any system failure that causes an interruption in our customers’ ability to use our products or services or a decrease in their performance could harm our relationships with our customers and result in reduced revenue |
| Our software is vulnerable to damage or interruption from computer viruses, human error, natural disasters, electricity grid failures and intentional acts of vandalism and similar events |
| These problems could interrupt our customers’ ability to use our real-time service management products or services, which could harm our reputation and cause us to lose customers and revenue |
| 22 ______________________________________________________________________ [53]Table of Contents We may not obtain sufficient patent protection, which could harm our competitive position, increase our expenses and harm our business |
| Our success and ability to compete depend to a significant degree upon the protection of our software and other proprietary technology |
| It is possible that: • our pending patent applications may not be issued; • competitors may independently develop similar technologies or design around any of our patents; • patents issued to us may not be broad enough to protect our proprietary rights; and • our issued patents could be successfully challenged |
| We rely upon patents, trademarks, copyrights and trade secrets to protect our proprietary rights and if these rights are not sufficiently protected, it could harm our ability to compete and to generate revenue |
| We rely on a combination of laws, such as patents, copyright, trademark 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 grow our business could suffer if these rights are not adequately protected |
| Our proprietary rights may not be adequately protected because: • laws and contractual restrictions may not adequately prevent misappropriation of our technologies or deter others from developing similar technologies; and • policing unauthorized use of our products and trademarks is difficult, expensive and time-consuming, and we may be unable to determine the existence or extent of this unauthorized use |
| Also, the laws of other countries in which we market our products 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 them, which would harm our competitive position and market share |
| We may face intellectual property infringement claims that could be costly to defend and result in our loss of significant rights |
| Other parties may assert intellectual property infringement claims against us or our customers and our products may infringe the intellectual property rights of third parties |
| 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, we may be required to develop non-infringing technology or enter into royalty or license agreements which 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 |
| We have recorded long-lived assets, and our results of operations would be adversely affected if their value becomes impaired |
| Goodwill and identifiable intangible assets were recorded as a result of our acquisition of substantially all of the assets of Core Networks Incorporated on September 2, 2004 |
| We assess the impairment of goodwill annually or more often if events or changes in circumstances indicate that the carrying value may not be recoverable |
| We assess the impairment of acquired product rights and other identifiable intangible assets whenever events or changes in circumstances indicate that its carrying amount may not be recoverable |
| An impairment loss would be recognized when the sum of the discounted future net cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount |
| Such impairment loss would be measured as the difference between the carrying amount of the asset and its fair value |
| Material differences may result in write-downs of net long-lived and intangible assets, which would cause our operating results to suffer |
| 23 ______________________________________________________________________ [54]Table of Contents If securities analysts stop publishing research or reports about us or our business or if they downgrade our stock, the price of our stock could decline |
| The trading market for our common stock relies in part on the research and reports that industry or financial analysts publish about us or our business |
| If one or more of the analysts who currently cover us downgrade our stock, our stock price would likely decline rapidly |
| Furthermore, if one or more of these analysts cease coverage of us, we could lose visibility in the market, which in turn could cause our stock price to decline |
| Risks Related To Our Industry We may experience a decrease in market demand due to uncertain economic conditions in the United States and in international markets, which has been further exacerbated by the concerns of terrorism, war and social and political instability |
| The United States and international economies have recently experienced a period of slow economic growth |
| A sustained economic recovery is uncertain |
| In addition, the terrorists attacks in the United States and turmoil in the Middle East have increased the uncertainty in the United States economy and may further exacerbate the 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 real-time service management solutions |
| If the economy declines as a result of 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 our products and services, which may harm our operating results |
| Governmental regulation and legal changes could impair the growth of the Internet and decrease demand for our products or increase our cost of doing business |
| The laws and regulations that govern our business and the business of our customers can change rapidly |
| Any change in laws and regulations could impair the growth of the Internet and could reduce demand for our products, subject us to liability or increase our cost of doing business |
| The United States government and the governments of states and foreign countries have attempted to regulate activities on the Internet and the distribution of software |
| Also, in 1998, the Internet Freedom Act was enacted into law, which imposed a three-year moratorium on state and local taxes on Internet-based transactions |
| Congress has extended this moratorium on several occasions, including the most recently approved extension to the moratorium until November 1, 2007 |
| Failure to renew this moratorium once again or to pass a bill that would permanently prohibit state and local taxes on Internet-based transactions would allow states to impose taxes on Internet-based commerce |
| This might harm our business directly and indirectly by harming the businesses of our customers, potential customers and the parties to our technology relationships |
| The applicability to the Internet of existing laws is uncertain and may take years to resolve |
| Evolving areas of law that are relevant to our business include privacy laws, intellectual property laws, proposed encryption laws, content regulation and sales and use tax laws and regulations |
| We may be required to change our business practices if there are changes in accounting regulations and related interpretations and policies |
| Accounting standards groups and regulators are actively re-examining various accounting policies, guidelines and interpretations related to revenue recognition, expensing stock options, income taxes, investments in equity securities, facilities consolidation, accounting for acquisitions, allowance for doubtful accounts and other financial reporting matters |
| These standards groups and regulators could promulgate interpretations and guidance that could result in material and potentially adverse changes to our business practices and accounting policies |
| 24 ______________________________________________________________________ [55]Table of Contents New rules and regulations for public companies have increased and may continue to increase our administrative costs |
| The Sarbanes-Oxley Act of 2002, as well as new rules subsequently implemented by the Securities and Exchange Commission and the Nasdaq National Market, have required changes in corporate governance practices of public companies |
| These rules and regulations are increasing our legal and financial compliance costs, and making some activities more time-consuming and costly |
| These rules and regulations make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage |
| These new rules and regulations could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee, and qualified executive officers |