| CLICK COMMERCE INC Item 1A Risk Factors Risks Related to Our Business Acquisitions or investments in other technology companies or related businesses may disrupt or otherwise have a negative impact on our business and dilute shareholder value |
| We have and may continue to acquire or make investments in complementary businesses, technologies, services or products, or enter into relationships with parties who can provide access to those assets, if appropriate opportunities arise |
| From time to time we have had discussions and negotiations with companies regarding our acquiring, investing in or partnering with their businesses, products, services or technologies, and we regularly engage in these discussions and negotiations in the ordinary course of our business |
| We may not identify suitable acquisition, investment or relationship candidates, or if we do identify suitable candidates, we may not complete those transactions on commercially acceptable terms or at all |
| If we acquire another company, we could have difficulty in assimilating that company’s personnel, operations, technology and software |
| In addition, the personnel of the acquired company may decide not to work for us |
| If we make other types of acquisitions, we could have difficulty in integrating the acquired products, services or technologies into our operations |
| These difficulties could disrupt our ongoing business, distract our management and employees and increase our expenses |
| Furthermore, we may incur indebtedness or issue equity securities to pay for any future acquisitions |
| The issuance of equity securities would dilute the ownership interests of the holders of our common stock |
| Integration of recent acquisitions may result in a significant use of capital |
| Our recent acquisitions have required various expenditures and the assumption of indebtedness |
| Integration of these acquisitions may result in further cash outlays |
| We are dependent on the success of our suite of applications and related services for our success |
| To date, substantially all of our revenues have been attributable to sales of licenses and related services, consisting of hosting, site administration, implementation, integration with a customer’s existing back-office computer systems and maintenance and support of our software products |
| We currently expect our suite of applications and related services to account for a substantial portion of our future revenues |
| Accordingly, factors adversely affecting the pricing of or demand for our suite of applications, such as competition or technological change, could have a material adverse effect on our business, financial condition, and operating results |
| Our future financial performance will depend, in significant part, on the successful development, introduction and customer acceptance of new and enhanced versions of our suite of applications and of new products and services that we develop or acquire |
| We can provide no assurance that we will be successful in upgrading and continuing to market our suite of applications or that we will successfully develop or acquire new products and services or that any new products and services will achieve market acceptance |
| 12 ______________________________________________________________________ Our business is subject to quarterly fluctuations in operating results, which may negatively impact the price of our common stock |
| While our growing base of recurring maintenance, hosting and subscription revenues provides revenues which are more predictable than sales of software licenses and related implementation services, we still have significant revenues that are not recurring or accurately predictable in succeeding quarters |
| Our quarterly operating results have varied significantly in the past, and we expect that they will continue to vary significantly from quarter to quarter in the future due to variations in sales of software licenses and related implementation services and the additional results of operations from acquired businesses |
| We have difficulty predicting the volume and timing of contracts, and short delays in closing contracts or in implementation of products can cause our operating results to fall substantially short of anticipated levels for any particular quarter |
| This is, in part, due to the fact that our products tend to have long sales cycles, which makes it difficult to predict the periods in which we will recognize revenue and may cause operating results to vary significantly |
| As a result of these and other factors, we believe that period-to-period comparisons of our historical results of operations are not necessarily meaningful and are not a reliable predictor of our future performance |
| We may not be successful in generating and sustaining recurring revenue streams to offset the above effects |
| In addition, we regularly incur expenses to develop products and service offerings ancillary to our existing line of products and services |
| These expenses are variable and may affect our earnings and may result in losses in particular quarterly or annual periods |
| Finally, the Company may incur costs related to the investigation of acquisitions If we are unable to complete a substantial number of sales contracts when anticipated or experience delays in the process or problems with satisfying contract terms, we may have to defer or withhold recognition of revenue, causing our quarterly results to fluctuate and fall below anticipated levels |
| For contracts in which revenue is recognized using the percentage-of-completion method, we may not be able to recognize all or a portion of the revenue because milestones were not achieved or the level of hours incurred fell short of expectations |
| If we are unable to complete one or more substantial anticipated license sales or experience problems with satisfying contract terms required for revenue recognition in a particular quarter, we may not be able to recognize revenue when anticipated |
| We may, nonetheless, recognize marketing and other expenses, causing our quarterly results to fluctuate and fall below anticipated levels |
| For all of these reasons, in some future quarters or years our operating results may be below the expectations of investors, which could cause volatility or a decline in the price of our common stock |
| An economic slowdown, particularly in information technology, may adversely impact our business |
| Our business has been adversely impacted by past economic slowdowns that resulted in a decline in information technology spending by our customers and potential customers |
| The adverse impacts from an economic slowdown include longer sales cycles, lower average selling prices and reduced bookings and revenue |
| Any future economic slowdowns could adversely impact our business |
| We license certain software from third parties |
| We license a small amount of software from third parties |
| These third party software licenses may not continue to be available to us on acceptable terms |
| The loss of, or inability to maintain, any of these software licenses could result in shipment delays or reductions in revenue |
| This could adversely affect our business, operating results and financial condition |
| 13 ______________________________________________________________________ We will not be able to achieve desired growth in our business if we cannot increase our direct and indirect sales channels |
| Our products and services require a sophisticated sales effort targeted at several people within our prospective clients’ organizations |
| We believe that our success is dependent upon developing more economical sales efforts which may include establishing strategic relationships with third parties |
| We cannot be sure that we will be successful in achieving these economies in our direct or indirect sales or in establishing these desired relationships or that these third parties will devote adequate resources or have the technical and other sales capabilities to sell our products |
| The failure to achieve expected sales could adversely affect the market price of our common stock |
| We face competition and may face future competition |
| The market for software products and services that enable business-to-business e-commerce is intensely competitive, rapidly changing |
| There are relatively few barriers to entry in many of the markets in which we operate |
| We expect competition to persist and intensify, which could result in our losing market share or lowering our prices |
| In addition, some of our customers are software companies that use certain of our software products, particularly our master data management solutions, as components or modules of their larger and more comprehensive enterprise resource management software systems or bundle our software products with their products to complete the range of functionality required by their customers |
| These software companies may design and develop their own software solutions to replace our software products or could acquire alternative solutions from third parties |
| If our customers develop or acquire alternative software solutions, we could lose sales or be forced to lower our prices to maintain these customer relationships |
| Some of our competitors have advantages over us |
| Some of our existing competitors, as well as potential future competitors, are multi-billion dollar, international, software providers with longer operating histories in markets related to ours, greater name recognition, larger customer bases and significantly greater financial, technical and marketing resources than our Company |
| These advantages may allow them to respond more quickly and effectively to new or emerging technologies and changes in customer requirements |
| It may also allow them to engage in more extensive research and development, undertake farther-reaching marketing campaigns, adopt more aggressive pricing policies, implement their products and services more rapidly, and make more attractive offers to potential employees and other business associates |
| One or more of these companies could adopt a different business strategy for achieving profitability, which could allow them to charge fees that are lower than ours, in order to attract clients |
| In addition, current and potential competitors have established or may establish cooperative relationships among themselves or with third parties to increase the ability of their products or services to address the needs of our current and prospective clients |
| Our chief executive officer is critical to our business |
| Our future success depends to some extent upon the continued service of our chief executive officer |
| The services of Michael W Ferro, Jr, our founder, chairman of the board of directors and chief executive officer would be difficult to replace |
| If we fail to protect our intellectual property rights or face a claim of intellectual property infringement by a third party, we could lose our intellectual property rights or be liable for significant damages |
| Our success depends significantly upon our proprietary technology |
| We have a small number of patents, and limited plans to initiate applications for any new patents |
| Unauthorized parties could copy aspects of our products or services or obtain and use information that we regard as proprietary |
| Our means of protecting our proprietary rights may not be adequate, and our competitors may independently develop 14 ______________________________________________________________________ similar technology or duplicate our products or our other intellectual property rights |
| Our failure to protect our proprietary rights adequately, or our competitors’ successful duplication of our technology, could negatively affect our operating results and cause the price of our common stock to decline |
| In addition, we have agreed, and may agree in the future, to indemnify certain of our customers against claims that our software infringes upon the intellectual property rights of others |
| We could incur substantial costs in defending ourselves and our customers against infringement claims |
| In the event of a claim of infringement, we and our customers could be required to obtain one or more licenses from third parties |
| We or our customers may be unable to obtain necessary licenses from third parties at a reasonable cost, or at all |
| Defense of any lawsuit or failure to obtain any such required licenses could harm our business, operating results and financial condition |
| Litigation over intellectual property rights could disrupt or otherwise have a negative impact on our business |
| There has been frequent litigation in the computer industry regarding intellectual property rights |
| Third parties may make claims of infringement by us with respect to current or future products, trademarks or other proprietary rights |
| These claims could be time-consuming, result in costly litigation, divert management’s attention, cause product release or service delays, require us to redesign our products or services or require us to enter into costly royalty or licensing agreements |
| Any of these events could have a material and adverse effect on our financial condition and results of operations |
| If we become subject to product liability litigation, it could be costly and time consuming to defend |
| Since our products are used for company-wide, integral computer applications with significant potential impact on our customers’ sales of their products, any errors, defects or other performance problems with our products could result in financial or other loss for our customers |
| Although we have contractual limits to our liability, product liability litigation would be time consuming and costly to defend, even if we are successful |
| We have disclosed pro forma financial information |
| We prepare and release quarterly unaudited financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) |
| We also have disclosed and discussed certain pro forma financial information in certain previous earnings releases and related investor conference calls |
| This pro forma financial information excluded certain non-cash charges, consisting primarily of amortization of stock-based compensation, restructuring charges, accretion related to preferred stock, amortization of intangible assets and certain income tax expense or benefit |
| Disclosure of pro forma results of operations was also required in relation to our acquisitions to present certain results as if these acquisitions had occurred at the beginning of the related reporting periods presented |
| Although we believe the disclosure of pro forma information may have helped investors more meaningfully evaluate the results of our ongoing operations and although we provided a reconciliation of the pro forma information to our GAAP financial statements, we urge investors to carefully review the GAAP financial information included as part of our quarterly reports on Form 10-Q, annual reports on Form 10-K and our quarterly earnings releases and compare that GAAP financial information with the pro forma financial results previously disclosed in the related earnings releases and investor calls |
| Risks Related to Our Industry We are highly dependent on the acceptance and effectiveness of the Internet as a medium for business-to-business commerce |
| Our future revenues and the success of a number of our products and services are dependent in large part on an increase in the use of the Internet for business-to-business commerce |
| The acceptance and use of the Internet for business-to-business e-commerce could be limited by a number of factors, such as the growth and the use of the Internet in general, the threat of illegal activity that causes performance degradations at unprotected sites across the Internet, the relative ease of conducting business on the Internet, the efficiencies and improvements that conducting commerce on the Internet provides, concerns about transaction security and taxation of transactions on the Internet |
| We depend on the speed and reliability of the Internet |
| The growth in Internet traffic has occasionally caused periods of decreased performance |
| If Internet usage continues to grow rapidly, its infrastructure may not be able to support these demands and its performance and reliability may decline |
| Decreased performance at some unprotected Internet sites has also been attributed to illegal attacks by third parties |
| If outages or delays on the Internet occur more frequently or businesses are not able to protect themselves adequately from such illegal attacks, business-to-business e-commerce could grow more slowly or decline, which might reduce demand for our software products and services |
| The ability of our products to satisfy our customers’ needs is ultimately limited by, and depends upon, the speed and reliability of the Internet |
| Consequently, the emergence and growth of the market for our software products and services depends upon improvements being made to the entire Internet to improve security and alleviate overloading and congestion |
| If these improvements are not made, the ability of our customers to benefit from our products and services will be hindered, and our business, operating results and financial condition could suffer |
| Increased security risks of the Internet may deter future use of our software products and services |
| A fundamental requirement of Internet-based, business-to-business software is the secure transmission of confidential information over public networks |
| Advances in computer capabilities, new discoveries in the field of cryptography, or other developments might result in a compromise or a breach of the security features contained in our software or the algorithms used by our customers and their business partners to protect content and transactions on Internet e-commerce marketplaces or proprietary information in our customers’ and their business partners’ databases |
| Anyone who is able to circumvent security measures could misappropriate proprietary, confidential customer information or cause interruptions in our customers’ and their business partners’ operations |
| Our customers and their business partners may be required to incur significant costs to protect against security breaches or to alleviate problems caused by breaches, reducing the demand for our software products and services |
| Further, a well-publicized compromise of security could deter businesses from using the Internet to conduct transactions that involve transmitting confidential information |
| The failure of the security features of our software to prevent security breaches, or well-publicized security breaches affecting the Internet in general, could significantly harm our business, operating results and financial condition |
| Internet-related laws could adversely affect our business |
| Regulation of the Internet is largely unsettled |
| The adoption of laws, regulations or taxes that increase the costs or administrative burdens of doing business using the Internet could cause companies to seek an alternative means of transacting business |
| If the adoption of new Internet laws, regulations or taxes causes companies to seek alternative methods for conducting business, the demand for our software products and services could decrease and our business could be adversely affected |