| PEERLESS SYSTEMS CORP Item 1A Risk Factors Certain Factors and Trends Affecting Us and Our Business We rely on relationships with certain customers and any adverse change in those relationships will harm our business |
| A limited number of OEM customers continue to provide a substantial portion of our revenues |
| Presently, there are only a small number of OEM customers in the digital document product market to which we can market our technology and services |
| Therefore, our ability to offset a significant decrease in the revenues from a particular customer or to replace a lost customer is severely constrained |
| During fiscal year 2006, three customers, Kyocera-Mita Corporation, Konica Minolta Corporation and Seiko Epson Corporation, each generated greater than 10prca of our revenues, and collectively contributed 60prca of revenues |
| Block license revenues during the same period were dlra15dtta8 million, or 44prca of revenues |
| During fiscal year 2005, four customers, Konica Minolta Corporation, Novell Inc, Seiko Epson Corporation, and Kyocera Mita Corporation each generated greater than 10prca of our revenues and collectively contributed 63prca of our revenues |
| Block license revenues for the same time period totaled dlra12dtta8 million, or 56prca of revenues |
| Our existing capital resources may not be sufficient and if we are unable to raise additional capital, our business may suffer |
| Our principal source of liquidity is our cash and cash equivalents, which, as of January 31, 2006 were approximately dlra13dtta2 million in the aggregate |
| The current ratio of current assets to current liabilities was 2dtta4:1 |
| For the fiscal year ended January 31, 2006, our operations provided dlra6dtta1 million in cash |
| On March 1, 2005, we entered into a binding Memorandum of Understanding, or MOU, with Kyocera-Mita Corporation to provide a range of non-exclusive engineering services and product development services |
| Pursuant to the MOU, Kyocera-Mita has agreed to pay us an aggregate of dlra24dtta0 million, which will be paid in dlra2dtta0 million quarterly payments over the initial three-year term of the MOU Our long term liquidity is dependent upon this MOU Should the MOU be terminated and we not enter into definitive agreements on similar terms with Kyocera-Mita, our cash flow assumptions would be materially affected |
| 15 _________________________________________________________________ [62]Table of Contents If we do not generate anticipated cash flow from licensing and services, or if expenditures are greater than expected, we most likely will reduce discretionary spending, which could require a delay, scaling back or elimination of some or all of our development efforts, any of which could have a material adverse effect on our business, results of operations and prospects |
| Furthermore, if we do not experience positive cash flows as is anticipated, and we are unable to increase revenues or cut costs so that revenues generated from operating activities are sufficient to meet our obligations, we will be required to obtain additional capital from other sources |
| Such sources might include issuances of debt or equity securities, bank financing or other means that might be available to increase our working capital |
| Under such circumstances, there is substantial doubt as to whether we would be able to obtain additional capital on commercially reasonable terms or at all |
| The inability to obtain such resources on commercially acceptable terms could have a material adverse effect on our operations, liquidity and financial condition, our prospects, and the scope of strategic alternatives and initiatives available to us |
| We rely on relationships with Adobe Systems Incorporated and Novell Inc, and any adverse change in those relationships will harm our business |
| We have licensing agreements with Adobe Systems Incorporated and Novell Inc |
| These relationships accounted for dlra16dtta7 million in revenues and an associated dlra5dtta8 million in cost of revenues during fiscal year 2006 |
| Should the agreements with either of these vendors be terminated or canceled, there is no assurance that we could replace that source of revenue within a short period of time, if at all |
| We have negotiated with Adobe Systems Incorporated and Canon Inc |
| to remedy a contract dispute, which, if not remedied, could result in the loss of the Adobe agreement and harm to our business |
| We have negotiated with Canon Inc |
| regarding the PostScript sublicense agreement between us and Canon executed as of April 1, 2001 |
| The sublicense did not include several terms required to be included in all OEM sublicenses by our license with Adobe |
| Although Adobe has indicated to us that it has no current intention to pursue claims for alleged breach of the Adobe Peerless PostScript Sublicensing Agreement, Adobe has not agreed to waive the requirement that the missing terms be included in the Canon sublicense |
| To date, we have been unable to amend the Canon sublicense in a manner acceptable to both Canon and Adobe |
| Furthermore, there is no assurance that we will be able to resolve the issues in a manner acceptable to both Adobe and Canon |
| Thus, Adobe may exercise its right to terminate its license agreement with us and take other legal action against us, if it so chooses |
| Termination of the Adobe agreement would have a material adverse effect on our future operating results |
| Approximately 46prca of our revenue for the fiscal year ended January 31, 2006 and approximately 31prca of Peerless’ revenue for the fiscal year ended January 31, 2005 were derived from its licensing arrangement with Adobe Systems Incorporated |
| See “We rely on relationships with Adobe Systems Incorporated and Novell Inc, and any adverse change in those relationships will harm our business” above |
| If we do not enter into definitive agreements relating to the Memorandum of Understanding, or MOU, with Kyocera Mita Corporation, it may harm our financial results |
| We may never come to agreement with Kyocera Mita on the terms of definitive agreements regarding the development of Kyocera Mita products by us or enter into definitive agreements relating to their relationship with us described in the MOU If the parties do not enter into definitive agreements, our financial results may be harmed |
| We have not yet defined with Kyocera-Mita the products that will utilize our technologies, and we have not negotiated the terms and conditions associated with the licensing of our and any third party’s technologies arising out of this development relationship |
| We may be unable to implement our business plan effectively |
| Our ability to implement our business plan, develop and offer products and manage expansion in rapidly developing and disparate marketplaces requires comprehensive and effective planning and management |
| The 16 _________________________________________________________________ [63]Table of Contents growth in the complexity of business relationships with current and potential customers and third parties has placed, and will continue to place, a significant strain on management systems and resources |
| Our failure to continue to improve upon the operational, managerial and financial controls, reporting systems and procedures in our imaging business or our failure to expand and manage our workforce could have a material adverse effect on our business and financial results |
| The increased use of low-cost offshore engineering and test labor by our customers and competitors poses significant risks to our competitive position |
| Our OEM customers, potential customers and competitors continue to seek lower cost alternatives for their engineering needs |
| Some of our OEM customers, potential customers and competitors have developed extensive offshore operations that may be capable of delivering lower cost solutions than we are able to deliver |
| The expanding use of lower cost offshore engineering and test labor may make it difficult for us to compete based on the price of our services and result in a significant loss of sales |
| Similarly, our research and development costs may be higher than those of our OEM customers, potential customers and competitors who are using lower cost offshore engineering services, which may result in our development of less technology for a given research and development budget than our OEM customers, potential customers and/or competitors |
| Either, or both of these trends could have a negative impact on our competitive position and financial results |
| Our increased use of low-cost offshore engineering and test labor could significantly harm our business |
| We continue to investigate ways to effectively increase our use of offshore engineering and test labor |
| In addition to the general risks of doing international business as noted below, our relationships with off shore companies pose specific risks |
| For example, although we have entered into confidentiality agreements with these off shore companies, we cannot ensure that they will not end their relationships with us and use information they gain from their relationship with us to launch competing products or offer competing services |
| Similarly, we cannot assure you that key personnel of these off shore companies will not be successfully solicited by our competitors especially in geographic regions where aggressive solicitation of skilled personal is common, such as India and China |
| Should these companies, their personnel or others with specific knowledge of our business and technology, decide to compete with us, it could significantly harm our business |
| The impact of Microsoft’s Vista^tm operating system could have an adverse impact on our future licensing revenues |
| Among the changes announced for Microsoft’s Vista^tm operating system are fundamental changes to the printing and networking subsystems within the operating system |
| Of particular relevance to us is Microsoft’s development of a new page description language, or PDL, and peripheral device connectivity methods, the format of which would be licensed by Microsoft on a royalty-free basis to both OEMs and 3rd party technology providers such as us |
| Should we fail to support these technologies on a timely basis, or should OEMs decide to support these technologies on their own without the use of our products, it could have an adverse impact on our potential licensing revenues from these enhanced products |
| In addition, to the extent that our current PDL products are perceived as being gradually rendered obsolete over the long term by these new Microsoft technologies, it could have an adverse impact on our ability to generate new sales of our current PDL products |
| Our near term revenue may drop as a result of the timing of licensing revenues and the reduced demand for our existing monochrome technologies |
| We have traditionally generated our revenue from the licensing and sale of monochrome solutions to OEMs |
| While we are continuing to provide monochrome solutions to OEM customers and continuing to seek out additional distribution channels and customers for our monochrome solutions, we continue to focus our research and development and marketing efforts on our Peerless Sierra Technologies product line of high performance, high speed, color imaging solutions |
| Until our Peerless Sierra Technologies becomes accepted in the marketplace — if such technology does become accepted in the marketplace — our overall license revenue 17 _________________________________________________________________ [64]Table of Contents may stagnate or even decrease and result in a material adverse effect on our business and financial results |
| We recently decided to end production of our first product based on Peerless Sierra Technologies, the Everest controller, due to poor customer acceptance |
| If we are unable to achieve our expected level of sales of Peerless Sierra Technologies on a timely basis, our future revenue and operating results may be harmed |
| Our future operating results will depend to a significant extent on the success of our new Peerless Sierra Technologies |
| We have spent a significant amount of time and capital developing our new Peerless Sierra Technologies |
| Any delay in licensing Peerless Sierra Technologies in the future could harm our financial results |
| If the marketplace does not accept Peerless Sierra Technologies, our future revenue and operating results may be harmed |
| Peerless Sierra Technologies may not be accepted by the marketplace for many reasons including, among others, incompatibility with existing or forthcoming systems, lack of perceived need by customers, uncertainty whether the benefits exceed the cost, the availability of alternatives and the unwillingness to use new or unproven products |
| If the marketplace does not accept Peerless Sierra Technologies or if the marketplace takes additional time to accept Peerless Sierra Technologies than we expect, our future revenues and operating results may be harmed |
| Our licensing revenue is subject to significant fluctuations |
| Our recurring licensing revenue model has shifted from per-unit royalties paid upon OEM shipment of our product and guaranteed quarterly minimum royalties to a model that results in revenues associated with the sale of SDKs and block licenses |
| The reliance on block licenses has occurred due to aging OEM products in the marketplace, OEM demands in negotiating licensing agreements, reductions in the number of OEM products shipping and a design win mix that changed from object code licensing arrangements to SDKs |
| Revenues may continue to fluctuate significantly from quarter to quarter as the number and value of design wins vary, or if the signing of block licenses are delayed or the licensing opportunities are lost to competitors |
| Our revenue from engineering services is subject to significant fluctuations |
| We have experienced a significant reduction in the financial performance of our engineering services that has been caused by many factors, including: • product development delays; • potential non-recurring engineering reduction for product customization; • third party delays; and • loss of new engineering services contracts |
| There can be no assurance that these and similar factors will not continue to impact future engineering services results adversely |
| We may be unable to deploy our employees effectively in connection with changing demands from our OEM customers |
| The industry in which we operate has experienced significant downturns, both in the United States and abroad, often in connection with, or in anticipation of, maturing product cycles and declines in general economic conditions |
| Over the past two years, we have experienced a shift in OEM demand from the historically prevailing requirement for turnkey solutions toward SDKs |
| Because Peerless has experienced a general decrease in demand for engineering services, engineering services resources have been re-deployed to 18 _________________________________________________________________ [65]Table of Contents research and development |
| Should this trend abruptly change, we may be unable to re-deploy labor effectively and in a timely manner, which inability could have a material adverse effect on our operating results |
| The future demand for our products is uncertain |
| Our monochrome technology and products have been in the marketplace for an average of 33 months as of January 31, 2006 |
| The average age of current technology and products in the marketplace reflects the aging of our monochrome technology and products |
| Although we continue to license our current technology and products to certain OEMs, there can be no assurance that the OEMs will continue to need or utilize the products and technology we currently offer |
| Although we were profitable in fiscal year 2006, we had been unprofitable in four of the previous five fiscal years |
| There is no assurance that we will continue to be profitable at any time in the future |
| We may be unable to develop additional new and enhanced products that achieve market acceptance |
| Our future success also depends in part on our ability to address the rapidly changing needs of potential customers in the marketplace, to introduce high-quality, cost-effective products, product enhancements and services on a timely basis, and to keep pace with technological developments and emerging industry standards |
| Our failure to achieve our business plan to develop and to successfully introduce new products and product enhancements in our prime markets is likely to materially and adversely affect our business and financial results |
| If we are not in compliance with our licensing agreements, we may lose our rights to sublicense technology; our competitors are aggressively pursuing the sale of licensed third party technology |
| We currently sublicense third party technologies to our OEM customers, which sublicenses account for a significant amount of our gross revenues |
| Such sublicense agreements are non-exclusive |
| If Peerless is determined not to be in compliance with agreements between us and our licensors, we may forfeit our right to sublicense these technologies |
| Likewise, if such sublicense agreements were canceled, we would lose our right to sublicense the affected technologies |
| Additionally, the licensing of these technologies has become very competitive, with competitors possessing substantially greater financial and technical resources and market penetration than us |
| As competitors are pursuing aggressive strategies to obtain similar rights as held by us to sublicense these third party technologies, there is no assurance that we can remain competitive in the marketplace if one or more competitors are successful |
| See “We have negotiated with Adobe Systems Incorporated and Canon, Inc |
| to remedy a contract dispute, which, if not remedied, could result in the loss of the Adobe agreement and harm our business |
| ” The industry for imaging systems for digital document products involves intense competition and rapid technological changes, and our business may suffer if our competitors develop superior technology |
| The market for imaging systems for digital document products is highly competitive and characterized by continuous pressure to enhance performance, to introduce new features and to accelerate the release of new products |
| We compete on the basis of technology expertise, product functionality, development time and price |
| Our technology and services primarily compete with solutions developed internally by OEMs |
| Virtually all of our OEM customers have significant investments in their existing solutions and have the substantial resources necessary to enhance existing products and to develop future products |
| These OEMs possess or may develop competing imaging systems technologies and may implement these systems into their products, thereby replacing our current or proposed technologies, eliminating a need for our services and products and limiting our future opportunities |
| Therefore, we must persuade these OEMs to outsource the development of their imaging systems to us and to provide products and solutions to these OEMs that cost-effectively compete with their internally developed products |
| We also compete with software and engineering services provided in the digital document product marketplace by other systems suppliers to OEMs |
| 19 _________________________________________________________________ [66]Table of Contents As the digital document printing industry continues to develop, competition and pricing pressures will increase from OEMs, existing competitors and other companies that may enter our existing or future markets with similar or substitute solutions that may be less costly or provide better performance or functionality |
| We anticipate increasing competition for our color products under development, particularly as new competitors develop and sell competing products |
| Some of our existing competitors, many of our potential competitors, and virtually all of our OEM customers have substantially greater financial, technical, marketing and sales resources than we have |
| If price competition increases, competitive pressures could require us to reduce the amount of royalties received on new licenses and to reduce the cost of our engineering services in order to maintain existing business and generate additional product licensing revenues |
| This could reduce profit margins and result in losses and a decrease in market share |
| We cannot assure you that we have the ability to compete favorably with the internal development capabilities of our current and prospective OEM customers or with other third party digital imaging system suppliers and the failure to compete effectively would have a material adverse effect on our operating results |
| Our reserves for accounts receivable may not be adequate |
| Our net trade accounts receivable was dlra2dtta1 million as of January 31, 2006, a slight decrease from dlra2dtta0 million as of January 31, 2005 |
| Although we believe that our reserves for accounts receivable are adequate for the remainder of fiscal year 2007, our reserves may prove to be inadequate |
| If our reserves for accounts receivable are inadequate, it could have a material adverse effect on our results of operations |
| If we fail to adequately protect our intellectual property or face a claim of intellectual property infringement by a third party, we could lose our intellectual property rights or be liable for damages |
| Our success is heavily dependent upon our proprietary technology |
| To protect our proprietary rights, we rely on a combination of patent, copyright, trade secret and trademark laws, as well as the early implementation and enforcement of nondisclosure and other contractual restrictions |
| As part of our confidentiality procedures, we enter into written nondisclosure agreements with our employees, consultants, prospective customers, OEMs and strategic partners and take affirmative steps to limit access to and distribution of our software, intellectual property and other proprietary information |
| Despite these efforts, we may be unable to effectively protect our proprietary rights and the enforcement of our proprietary rights may be cost prohibitive |
| Unauthorized parties may attempt to copy or otherwise obtain, distribute, or use our products or technology |
| Monitoring unauthorized use of our products is difficult |
| We cannot be certain that the steps we take to prevent unauthorized use of our technology, particularly in countries where the laws may not protect proprietary rights as fully as in the United States, will be effective |
| Our source code also is protected as a trade secret |
| However, from time to time we license our source code to OEMs, which subjects us to the risk of unauthorized use or misappropriation despite the contractual terms restricting disclosure, distribution, copying and use |
| In addition, it may be possible for unauthorized third parties to copy our products or to reverse engineer our products in order to obtain and subsequently use and distribute our proprietary information |
| We hold patents issued in the United States, France, Germany, Great Britain, Japan, Taiwan and Hong Kong |
| The issued patents relate to techniques developed by us for generating output for continuous synchronous raster output devices, such as laser printers, compressing data for use with output devices, filtering techniques for use with output devices and communicating with peripheral devices over a network |
| We also have patent applications pending in the United States, the European Patent Office, Japan, Hong Kong, Taiwan, China, Australia, Korea, and India |
| There can be no assurance that patents we hold will not be challenged or invalidated, that patents will issue from any of our pending applications or that any claims allowed from existing or pending patents will be of sufficient scope or strength (or issue in the countries where products incorporating our technology may be sold) to provide meaningful protection or be of any commercial advantage to us |
| In any event, effective protection of intellectual property rights may be unavailable or limited in certain countries |
| The status of United States patent protection in the software industry will evolve as the United States Patent and Trademark Office grants additional patents |
| Patents have been granted to 20 _________________________________________________________________ [67]Table of Contents fundamental technologies in software after the development of an industry around such technologies and patents may be issued to third parties that relate to fundamental technologies related to our technology |
| As the number of patents, copyrights, trademarks and other intellectual property rights in our industry increases, products based on our technologies may become the subjects of infringement claims |
| There can be no assurance that third parties will not assert infringement claims against us in the future |
| Any such claims, regardless of merit, could be time consuming, divert the efforts of our technical and management personnel from productive tasks, result in costly litigation, cause product shipment delays or require us to enter into royalty or licensing agreements |
| Such royalty or licensing agreements, if required, may not be available on terms acceptable to us, or at all, which could have a material adverse effect on our operating results |
| In addition, we may initiate claims or litigation against third parties for infringement of our proprietary rights or to establish the validity of our proprietary rights |
| Litigation to determine the validity of any claims, whether or not such litigation is determined in our favor, could result in significant expenses and divert the efforts of our technical and management personnel from productive tasks |
| In addition, we may lack sufficient resources to initiate a meritorious claim |
| In the event of an adverse ruling in any litigation regarding intellectual property, we may be required to pay substantial damages, discontinue the use and sale of infringing products and expend significant resources to develop non-infringing technology or obtain licenses to infringing or substituted technology |
| Our failure to develop, or license on acceptable terms, a substitute technology, if required, could have a material adverse effect on our operating results |
| Our international activities may expose us to risks associated with international business |
| We are substantially dependent on our international business activities |
| Risks inherent in these international business activities include: • major currency rate fluctuations; • changes in the economic condition of foreign countries; • the imposition of government controls; • tailoring of products to local requirements; • trade restrictions; • changes in tariffs and taxes; and • the burdens of complying with a wide variety of foreign laws and regulations, any of which could have a material adverse effect on our operating results |
| If we are unable to adapt to international conditions, our business may be adversely affected |
| Our stock price may experience extreme price and volume fluctuations |
| Our common stock has experienced price volatility |
| In the 60-day period ending April 24, 2006, the closing price of the stock ranged from dlra6dtta51 per share to dlra9dtta91 per share, and, since the beginning of fiscal year 2006, the stock has closed as low as dlra1dtta31 per share |
| Such price volatility may occur in the future |
| Factors that could affect the trading price of our common stock include: • macroeconomic conditions; • actual or anticipated fluctuations in quarterly results of operations; • announcements of new products or significant technological innovations by us or our competitors; • developments or disputes with respect to proprietary rights; • losses of major OEM customers; • general trends in the industry; and • overall market conditions and other factors |
| 21 _________________________________________________________________ [68]Table of Contents In addition, the stock market historically has experienced extreme price and volume fluctuations, which have particularly affected the market price of securities of many related high technology companies and which at times have been unrelated or disproportionate to the operating performance of such companies |
| Our common stock was moved to the Nasdaq SmallCap Market and may not provide adequate liquidity |
| On July 30, 2004, we announced that our common stock had been transferred from the Nasdaq National Market to the Nasdaq SmallCap Market |
| There can be no assurance, however, that we will be able to maintain compliance with the continued listing standards of the Nasdaq SmallCap Market |
| For example, if the minimum bid price of our common stock falls below dlra1dtta00, and remains below dlra1dtta00 for thirty consecutive business days, we will not be in compliance with the Nasdaq SmallCap Market minimum bid requirements under Marketplace Rule 4310(c)(4) |
| If we are not able to maintain compliance, our common stock may be subject to removal from listing on the Nasdaq SmallCap Market |
| Trading in our common stock after a delisting, if any, would likely be conducted in the over-the-counter markets in the so-called “pink sheets” or the National Association of Securities Dealers’ Electronic Bulletin Board and could also be subject to additional restrictions |
| As a consequence of a delisting, our stockholders would find it more difficult to dispose of, or to obtain accurate quotations as to the market value of, our common stock |
| In addition, a delisting would make our common stock substantially less attractive as collateral for margin and purpose loans, for investment by financial institutions under their internal policies or state legal investment laws or as consideration in future capital raising transactions |
| Our business may suffer if our third party distributors are unable to distribute our products and address customer needs effectively |
| We have developed a “fabless” distribution model for the sale of ASICs |
| We have no direct distribution experience and we rely on third party distributors to maintain inventories to address OEM needs, manage manufacturing logistics and distribute our products in a timely manner |
| There can be no assurance that these distribution agreements will be maintained or will prove adequate to meet our needs and contractual requirements |
| We rely on certain third party providers for applications to develop our ASICs |
| As a result, we are vulnerable to any problems experienced by these providers, which may delay product shipments to our customers |
| We rely on two independent parties, IBM Microelectronics and NEC Microelectronics, each of which provides unique ASICs incorporating our imaging technology for use by our OEM partners |
| These sole source providers are subject to materials shortages, excess demand, reduction in capacity and/or other factors that may disrupt the flow of goods to our customers thereby adversely affecting our customer relationships |
| Any such disruption could limit or delay production or shipment of the products incorporating our technology, which could have a material adverse effect on our operating results |
| We, as a sublicensor of third party intellectual property, are subject to audits of our licensing fee costs |
| Certain of our licensing agreements include third party intellectual property and result in royalties contractually due and payable to the third parties |
| The rates are subject to the language of the contract and intent of the contracting parties, and may result in disputes as to the correct rates |
| We are subject to audits of our data serving as the basis for the royalties due |
| Such audits may result in adjustments to the royalty amounts due |
| 22 _________________________________________________________________ [69]Table of Contents Under new regulations required by the Sarbanes-Oxley Act of 2002 (SOX), an adverse opinion on internal controls over financial reporting could be issued by our independent registered public accounting firm, and this could have a negative impact on our stock price |
| Section 404 of SOX requires that we establish and maintain an adequate internal control structure and procedures for financial reporting and assess on an on-going basis the design and operating effectiveness of the internal control structure and procedures for financial reporting |
| Our independent registered public accounting firm will be required to attest audit both the design and operating effectiveness of our internal controls and management’s assessment of the design and the effectiveness of our internal controls beginning with the fiscal year ending January 31, 2007 |
| Although no known material weaknesses exist at this time, both a material weakness and significant deficiency were discovered during the preparation of the Form 10-Q for the period ended July 31, 2005, both of which have been remediated |
| It is possible that material weaknesses may be found in the future |
| If we are unable to remediate the weaknesses, the independent registered public accounting firm would be required to issue an adverse opinion on our internal controls |
| Because opinions on internal controls have not been required in the past, it is uncertain what impact an adverse opinion would have upon our stock price |
| Recent and proposed regulations related to equity incentives could adversely affect our ability to attract and retain key personnel |
| Since our inception, we have used stock options and other long-term equity incentives as a fundamental component of our employee retention packages |
| We believe that stock options and other long-term equity incentives directly motivate our employees to maximize long-term stockholder value and, through the use of vesting, encourage employees to remain with us |
| The Financial Accounting Standards Board has announced changes that, when implemented by us in the first fiscal 2007 quarter ending April 30, 2006, will require us to record a charge to earnings for employee stock option grants and issuances of stock under employee stock purchase plans |
| This regulation could negatively impact our results of operations |
| In addition, new regulations implemented by the Nasdaq National Market requiring shareholder approval for all stock option plans could make it more difficult for us to grant options to employees in the future |
| To the extent that new regulations make it more difficult or expensive to grant options to employees, we may incur increased costs, change our equity incentive strategy or find it difficult to attract, retain and motivate employees, each of which could materially and adversely affect our business |