| QAD INC ITEM 1A RISK FACTORS FACTORS THAT MAY AFFECT FUTURE RESULTS, THE MARKET PRICE OF STOCK, HISTORICAL FLUCTUATIONS IN QUARTERLY RESULTS AND POTENTIAL FUTURE SIGNIFICANT FLUCTUATIONS Introduction Our quarterly revenue, expenses and operating results have varied significantly in the past |
| We anticipate that such fluctuations will continue in the future as a result of a number of factors, many of which are outside our control |
| Factors affecting these fluctuations include demand for our products and services, the size, timing and structure of significant licenses purchased by customers, market acceptance of new or enhanced versions of our software products and products that operate with our products, the publication of opinions about us, our products and technology and about our competitors by industry and financial analysts, the entry of new competitors and technological advances by competitors, delays in localizing our products for new markets, delays in sales as a result of lengthy sales cycles, changes in operating expenses, foreign currency exchange rate fluctuations, changes in accounting principles and regulatory requirements, changes in pricing policies by us or our competitors, customer order deferrals in anticipation of new product offerings by us or our competitors, the timing of the release of new or enhanced versions of our software products and products that operate with our products, changes in the method of product distribution and licensing and delivery of services (including the mix of direct and indirect channels), product life cycles, changes in the mix of products and services licensed or sold by us, customer budgetary timing or constraints, cancellation of maintenance contracts and general, regional or market economic factors and the global political environment |
| 14 _________________________________________________________________ [62]Table of Contents RISK OF FLUCTUATIONS IN REVENUE AND EXPENSES We have historically recognized a substantial portion of our revenue from sales booked and shipped in the last month of a quarter |
| As a result, the magnitude of quarterly fluctuations in license fees may not become evident until the end of a particular quarter |
| Our revenue from license fees in any quarter is substantially dependent on orders booked and shipped in that quarter |
| Sales derived through indirect channels are more difficult to predict and may have lower profit margins than direct sales |
| Because of the significant fluctuations in our revenue, period-to-period comparisons of our revenue or profit may not be meaningful |
| As a result, these comparisons should not be relied upon as indications of future performance |
| Moreover, there can be no assurance that our revenue will grow in future periods or that we will be profitable on a quarterly or annual basis |
| In addition, continuous engagement services, such as Application Management Services (“AMS”), may involve fixed price arrangements and significant staffing which inherently involve certain risks |
| A significant portion of our revenue in any quarter may be derived from a limited number of large, non-recurring license sales |
| We expect to continue to experience large, individual license sales, which may cause significant variations in license fees |
| We also believe that the purchase of our products is relatively discretionary and generally involves a significant commitment of a customer’s capital resources |
| Therefore, a downturn in any potential customer’s business could have a significant adverse impact on our revenue and results |
| Moreover, actual or perceived declines in general economic conditions or worsening of the global political or economic environment may result in significant reductions in corporate spending for information technology, which could adversely affect us |
| The services business may fluctuate |
| Services revenue remains a substantial part of our business |
| Services revenue increased in fiscal 2004 and 2005, due primarily to certain acquisitions and an increase in license sales in fiscal 2004 |
| Services revenue declined in fiscal 2006, due in part to lower than expected license sales |
| Services revenues are dependent upon the timing and size of customer orders to provide the services |
| To the extent that we are not successful in securing orders from customers to provide services, our results may be negatively affected |
| Services staffing expenses are predictable but increase our overhead and the services business reduces our overall gross margins |
| Fixed expense level is based on expected revenues |
| Our expense level is relatively fixed and is based, in significant part, on expectations of future revenue |
| If revenue levels are below expectations, expense could be disproportionately high as a percentage of total revenue which would immediately adversely affect our operating results and losses could occur |
| Our recently announced continuous engagement strategy by Global Services may involve some risks |
| While we believe it is of strategic importance to continuously engage the customer in managing their business operations through our global services offerings, this strategy may not be successful and may involve significant expense to implement |
| RISKS ASSOCIATED WITH SALES CYCLE Our products involve a long sales cycle and the timing of sales is difficult to predict |
| Because the licensing of our primary products generally involves a significant commitment of capital or a long term commitment by our customers, the sales cycle associated with a customer’s purchase of our products is generally lengthy and takes several months, which varies from customer to customer and is subject to a number of significant risks over which we have little or no control |
| These risks include those set forth in the Introduction to this risk factors section |
| The decision to license our products generally requires us to provide a significant level of education to prospective customers regarding the uses and benefits of our products and services which may result in an expensive and lengthy sales cycle even if successful |
| 15 _________________________________________________________________ [63]Table of Contents While we believe we have established a robust global support and services organization over the past several years, we continue to rely on third-parties for a portion of our implementation and systems support services, which in the past caused sales cycles to be lengthened and may have resulted in the loss of sales |
| If sales forecasted for a particular quarter are not realized in that quarter, then we are unlikely to be able to generate revenue from alternative sources in time to compensate for the shortfall |
| DEPENDENCE ON THIRD-PARTY PRODUCTS We are dependent on third-party products, particularly Progress software |
| The majority of QAD applications, and MFG/PRO software in particular, are written in a programming language that is proprietary to Progress Software Corporation (Progress) |
| We have entered into a license agreement with Progress that provides us and each of our subsidiaries, among other things, with the perpetual, worldwide, royalty-free right to use the Progress programming language to develop and market our software products |
| Effective July 2002, we entered into a three-year extension of the agreement with Progress under which Progress provides support to us at no charge |
| We are in the process of extending our current relationship with Progress |
| MFG/PRO software employs Progress programming interfaces that allow MFG/PRO software to operate with Oracle Corporation database software |
| However, MFG/PRO software does not run within programming environments other than Progress and our customers must acquire rights to Progress software in order to use MFG/PRO software |
| Our success is dependent upon Progress continuing to develop, support and enhance its programming language, its toolset and database, as well as the continued market acceptance of Progress as a standard database program and continuing our relationship with them |
| We have in the past, and may in the future, experience product release delays because of delays in the release of Progress products or product enhancements |
| We also maintain development and product alliances with other third-parties |
| These alliances include software developed to be sold in conjunction with QAD applications, technology developed to be included in or encapsulated within QAD applications, joint development efforts with partners or customers, products and numerous third-party software programs that generally are not sold with QAD applications but interoperate directly with QAD applications |
| Our strategy may include additional investment in research and development efforts as well as a greater focus on potential acquisitions to aid in expanding the breadth of the product line |
| Our partner agreements, including development, product acquisition or reseller agreements, contain appropriate confidentiality, indemnity and non-disclosure provisions for the third party and end-user |
| Failure to establish or maintain successful relationships with these third-parties or failure of these parties to develop and support their software, provide appropriate services and fulfill all other agreement obligations could have an adverse effect on us |
| We have been in the past, and expect to be in the future, party to disputes about ownership, license scope and royalty or fee terms with respect to intellectual property |
| RAPID TECHNOLOGICAL CHANGE The market for QAD applications is characterized by rapid technological change |
| Customer requirements for products can change rapidly as a result of innovations or changes within the computer hardware and software industries, the introduction of new products and technologies and the emergence, adoption of, or changes to, industry standards including those related to consolidation in the industry |
| Our future success will depend upon our ability to continue to enhance our current product line and to develop and introduce new products that keep pace with technological developments, satisfy increasingly sophisticated customer requirements, keep pace with industry and compliance standards and achieve market acceptance |
| Our failure to successfully develop or acquire rights to product enhancements or new products, and further to successfully market such, could have an adverse effect on us |
| 16 _________________________________________________________________ [64]Table of Contents New software releases and enhancements may adversely affect our software sales |
| The actual or anticipated introduction of new products, technologies and industry standards can cause customers to delay decisions and can also render existing products obsolete or unmarketable or result in delays in the purchase of those products |
| Failure by us to anticipate or respond to developments in technology or customer requirements, significant delays in the introduction of new products or failure by us to maintain overall customer satisfaction could have an adverse effect |
| PROPRIETARY RIGHTS AND LICENSING Our success is dependent upon our proprietary technology and other intellectual property |
| We rely on a combination of the protections provided by applicable copyright, trademark and trade secret laws, as well as on confidentiality procedures and licensing arrangements, to establish and protect our rights in our software and related materials and information |
| We enter into license agreements with each of our customers |
| Our license agreements provide for the non-exclusive license of QAD applications |
| These licenses generally are perpetual and contain confidentiality and non-disclosure provisions, a limited warranty covering our applications and indemnification for the customer from infringement actions related to our applications |
| Our pricing policy is based on a standard price list and may vary based on a number of parameters including the number of end-users, number of sites, number of modules, number of languages, the country in which the license is granted and level of ongoing support, training and services to be provided by QAD In fiscal 2006, we introduced a new enterprise pricing and licensing model for some of our solutions |
| Currently, our applications are priced and licensed primarily on a per user basis or on a per employee basis with the new enterprise model |
| There are no assurances that such a licensing model will be accepted in the market place or will yield revenue comparable to the current licensing method |
| We generally license our software to end-users in both object code (machine-readable) and source code (human-readable) formats |
| While this practice facilitates customization, making software available in source code also makes it possible for third-parties to copy or modify our software for impermissible purposes |
| Our license agreements generally allow the use of our software solely by the customer for internal purposes without the right to sublicense or transfer the software to third-parties |
| Although we currently have no patents, we have two pending patent applications |
| We believe that the measures we take to protect our intellectual property afford only limited protection |
| Despite our efforts, it may be possible for third-parties to copy portions of our products, to reverse engineer them or to obtain and use information that we regard as proprietary all of which could adversely affect our competitive position |
| Furthermore, there can be no assurance that our competitors will not independently develop technology similar to ours |
| In addition, the laws of certain countries do not protect our proprietary rights to the same extent as the laws of the United States |
| The success of our business is highly dependent on maintenance of intellectual property rights |
| The unauthorized use of our intellectual property rights may increase the cost of protecting these rights or reduce our revenues |
| We may initiate, or be subject to, claims or litigation with or against third-parties for infringement of our proprietary rights or to establish the validity of our proprietary rights, which could result in significant expense to us, cause product shipment delays, require us to enter royalty or licensing agreements and divert the efforts of our technical and management personnel from productive tasks, whether or not such litigation were determined in our favor |
| We may be exposed to product liability claims |
| While our license agreements with our customers typically contain provisions designed to limit our exposure to potential material product liability claims including appropriate warranty, indemnification, waiver and limitation of liability provisions, it is possible that such provisions may not be effective under the laws of some jurisdictions |
| We have an errors and omissions insurance policy |
| However, this insurance may not continue to be available to us on commercially reasonable terms, or at all |
| We may be subject to product liability or errors or omissions claims that could have an adverse effect on us |
| Moreover, defending a suit, regardless of its merits, could entail substantial expense and require the time and attention of key management personnel |
| 17 _________________________________________________________________ [65]Table of Contents ENTERPRISE APPLICATION SOLUTIONS The market for Enterprise Applications is uncertain |
| A significant element of our strategy is the acceptance of our Enterprise Application, a series of solutions targeted at enabling manufacturers to communicate with customers and suppliers |
| We have devoted substantial resources to developing our Enterprise Applications, such as the MFG/PRO Software, Customer Self Service (CSS), Electronic Data Interchange (EDI), and Supply Visualization hosted on MFGx |
| However, we cannot ensure our other planned releases for such Enterprise Applications, whether developed by us or third-parties, will achieve the performance standards required for commercialization |
| In addition, our Enterprise Applications may not achieve market acceptance or be profitable |
| The underlying technology for our applications is regularly updated and is dependent on specific technologies |
| Our solutions are designed using updated Progress Software technology, as well as the object-oriented technology of Sun Microsystems and certain other technologies |
| Our enterprise solutions depend on the commercial success of platforms that support Progress Software, Enterprise Java Beans, and our recent |
| NET UI development in application server environments |
| NET UI development offers an alternative to our dependence on an Enterprise Java Beans environment for our customers |
| The failure to successfully incorporate the |
| NET UI interface or Java Beans interface, or the failure of our software interface choices to receive market acceptance could have an adverse effect on us |
| We also believe that the flexibility inherent in our object-based design will play a key role in the strategy of customers in our targeted industry segments |
| In addition, we have embarked on an opportunistic strategy of acquiring certain products to extend and enhance our product offering |
| The success of our Enterprise Applications will depend on our ability to successfully develop, enhance and globalize these technologies and distribute, service and support them internationally and failure to do any of these may have an adverse effect on us |
| MARKET CONCENTRATION We are dependent upon achieving success in certain concentrated markets |
| We have made a strategic decision to concentrate our product development and sales and marketing in certain primary vertical industry segments—automotive, consumer products, electronics, food and beverage, industrial and life sciences |
| An important element of our strategy is to achieve technological and market leadership recognition for our software products in these segments |
| The failure of our products to achieve or maintain substantial market acceptance in one or more of these segments could have an adverse effect on us |
| If any of these targeted industry segments experience a material slowdown in expansion or in prospects for future growth, that downturn would adversely affect the demand for our products |
| A discussion of concentration of our credit risk is contained in note 1 within the Notes to Consolidated Financial Statements included in Item 15 of this Annual Report on Form 10-K DEPENDENCE UPON DEVELOPMENT AND MAINTENANCE OF THIRD PARTY RELATIONSHIPS TO PROVIDE SALES, SERVICES AND MARKETING FUNCTIONS We are dependent upon the development and maintenance of sales and marketing channels |
| We sell and support our products through direct and indirect sales, services and support organizations throughout the world |
| We cannot ensure that we will be successful in hiring appropriate sales and marketing personnel in accordance with our plans |
| Neither can there be assurance that our recent and planned expenses in sales and marketing will ultimately prove to be successful |
| In addition, our sales and marketing organization may not be able to compete successfully against the significantly more extensive and better funded sales and marketing operations of many of our current and potential competitors |
| Our indirect sales channel consists of over 40 distributors and sales agents worldwide that we refer to as sales channels |
| We do not grant exclusive distribution rights to our sales channels |
| Our sales channels primarily sell independently to companies within their geographic territory but may also work in conjunction with our direct sales organization |
| 18 _________________________________________________________________ [66]Table of Contents We have separate agreements with our alliances, channels and service providers |
| These agreements make available to our distributors and service providers the non-exclusive right to promote and market QAD software products and to provide training, installation, implementation and other services for QAD software products within a defined territory for a specified period of time |
| They are generally permitted to set their own rates for their services |
| Our distributors receive a discount for the distribution of our software products |
| We have certain relationships with a number of consulting and systems integration organizations that we believe are important to our worldwide sales, marketing, service and support activities and the implementation of our products |
| Our providers generally do not receive fees for the sale of our software products unless they participate actively in a sale as a sales agent or distributor |
| We are aware that these third-party providers do not provide system integration services exclusively for our products and in many instances these firms have similar, and often more established, relationships with our principal competitors |
| We designed QAD Global Services so that we can subcontract our services to third-party providers on a global basis to meet our capacity requirements |
| We believe this method allows for additional flexibility in ensuring our customers’ needs for services are met in a cost effective, timely and quality manner |
| Our intellectual property rights may be significantly affected by third-party relationships and actions |
| We have in the past, and may in the future, resell certain software which we license from third-parties |
| In addition, we have in the past, and may in the future, jointly develop software in which we will have co-ownership or cross-licensing rights or grant rights for the resulting software to interoperate with our products |
| There can be no assurance that these third-party software arrangements and licenses will continue to be available to us on terms that provide us with the third-party software we require, provide adequate functionality in our products on terms that adequately protect our proprietary rights, or are commercially favorable to us |
| Our third-party development agreements contain restrictions on the use of our technology outside of the development process |
| Failure to establish or maintain successful relationships with these third-parties as appropriate or failure of these third-parties to fulfill their responsibilities could have an adverse effect on us |
| In addition, if these third-parties exclusively adopt a product or technology other than QAD software products or technology, or if these third-parties reduce their support of QAD software products and technology or increase such support for competitive products or technology, we could be adversely affected |
| INTEGRATION OF ACQUIRED BUSINESS AND INTELLECTUAL PROPERTY We have continued an opportunistic strategy of acquiring certain rights to products to extend and enhance our product offering |
| These acquisitions involve third-party products, or software developed by a customer, that were already in use with our software but only on a limited basis geographically |
| These include products such as our Customer Self Service (CSS) module, our Advanced Inventory Management (AIM) solution, our Electronic Data Interchange (EDI) solution, our financial solution enhancement, our Just-In-Time Sequencing (JIT/S) solution, our Business Intelligence (BI) solution and our Demand Management solution |
| In addition, we recently acquired sole intellectual property rights to an advanced financial application, as well as rights to a component builder solution to support our service oriented architecture |
| These are integrated with QAD Applications |
| We expect this to be available in early adopter phase during this financial year and generally available early next financial year |
| The failure to successfully incorporate these acquired technologies, or the failure of them to receive market acceptance could have an adverse effect on us |
| At this point these products are at various stages of being integrated into our product offering |
| There is no assurance that we will be successful in integrating these acquisitions, or any future acquisitions, into our business and any failure to do so may adversely affect our results |
| 19 _________________________________________________________________ [67]Table of Contents RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS Our operations are international in scope, which exposes us to additional risk, including currency-related risk |
| For the last three fiscal years, we derived approximately 60prca of our total revenue from sales outside the United States |
| A significant aspect of our strategy is to focus on developing business in emerging markets |
| Of more than 5cmam500 licensed sites as of January 31, 2006, approximately 75prca are outside the United States, spread over 90 countries |
| Our foreign exchange risk is discussed in Item 7A of this Annual Report on Form 10-K Our operating results could also be negatively affected by a variety of other factors affecting our foreign operations, many of which are beyond our control |
| These factors include currency fluctuations, economic, political or regulatory conditions in a specific country or region, trade protection measures and other regulatory requirements |
| Additional risks inherent in international business activities generally include, among others: • Longer accounts receivable collection cycles; • The costs and difficulties of managing international operations and alliances; • Greater difficulty enforcing intellectual property rights; • Import or export requirements; • Changes in political or economic conditions; and • Changes in regulatory requirements or tax law |
| Economic, political and market conditions can adversely affect our revenue growth and profitability |
| Our business is influenced by a range of factors that are beyond our control and that we have no comparative advantage in forecasting |
| These include: (i) the overall demand for enterprise computer software and services; (ii) conditions in the high technology and manufacturing industry sectors; (iii) general economic and business conditions; and (iv) general political developments, such as the war on terrorism |
| Recovery in the global economic environment has been modest and uneven |
| A general weakening of the global economy could delay and decrease customer purchases |
| In addition, the war on terrorism and the potential for other hostilities in various parts of the world continue to contribute to a climate of economic and political uncertainty that could adversely affect our revenue growth and results of operations |
| Labor laws vary by country exposing us to potential costs not typically borne in the United States |
| The nature of our international business, and that of our customers, is such that we have to regularly review the composition of our workforce on a country by country basis and determine if we have the appropriate workforce in place |
| We have in the past, and may in the future, be subject to costs associated with reorganizing our workforce in a given country |
| The costs of such actions, should they be necessary, may be significant and could adversely affect our results |
| RISKS DUE TO BUSINESS INTERRUPTIONS A substantial portion of our facilities, including our corporate headquarters and other critical business operations, are located near major earthquake faults |
| Although the facilities in which we host our computer systems are designed to be fault tolerant and disaster recovery procedures are in place, the systems are susceptible to damage from fire, floods, earthquakes, power loss, telecommunications failures, and similar events |
| In addition, terrorist acts or acts of war may cause damage or disruption to us and our employees, facilities, suppliers, distributors and customers, which could have a material adverse effect on our operations and financial results |
| If a business interruption occurs, our business could be seriously harmed |
| MARKET CONSOLIDATION The ERP software market has experienced significant consolidation |
| This consolidation has included numerous mergers and acquisitions including hostile takeovers such as the Oracle/Peoplesoft transaction |
| As a 20 _________________________________________________________________ [68]Table of Contents result, some prospective buyers are experiencing reluctance in purchasing applications that could have a short lifespan due to an acquisition resulting in the application’s life being abruptly cut short |
| In addition, increased competition and consolidation in these markets is likely to result in price reductions, reduced operating margins and changes in market share, any one of which could adversely affect us |
| QAD’s controlled company status makes it highly unlikely that a hostile takeover of the company would occur |
| THE MARKET FOR OUR STOCK IS VOLATILE The market prices for securities of technology companies, such as QAD, have been quite volatile |
| The market price of our common stock and the number of shares traded each day have varied greatly |
| Such fluctuations may continue due to numerous factors, including: • quarterly fluctuations in operating results; • announcements of new products by us or our competitors; • gains or losses of significant customers; • the presence of short-selling of our common stock; • sales of a high volume of shares of our common stock by our large stockholders; • events affecting other companies that the market deems comparable to us; • general economic conditions in the United States and abroad; • changes in financial guidance or analyst estimates; and • changes in accounting or regulatory requirements in the US or abroad |
| In addition, the securities of many technology companies have experienced extreme price and volume fluctuations, which have often been unrelated to the companies’ operating performance |
| Because of these and other factors affecting our operating results, past financial performance should not be considered as an indicator of future stock performance |
| As of January 31, 2006, QAD had 32dtta5 million shares of common stock outstanding and 5dtta1 million outstanding stock options under stock option plans |
| As a result, a substantial number of shares of common stock will be eligible for sale in the public market at various times in the future |
| Sales of substantial amounts of such shares could adversely affect the market price of our stock |
| INTERNAL CONTROL OVER FINANCIAL REPORTING Failure to maintain effective internal controls can adversely effect our ability to meet our reporting requirements |
| Effective internal controls are necessary for us to provide reasonable assurance with respect to our financial reports and to effectively prevent fraud |
| If we cannot provide reasonable assurance with respect to our financial reports and effectively prevent fraud, our operating results could be harmed |
| Pursuant to the Sarbanes-Oxley Act of 2002, we are required to furnish a report by management on internal control over financial reporting, including management’s assessment of the effectiveness of such control |
| Internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud |
| Therefore, even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements |
| In addition, projections of any evaluation of effectiveness of internal control over financial reporting to future periods are subject to the risk that the control may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate |
| If we fail to maintain the adequacy of our internal controls, including any failure to implement required new or improved controls, or if we experience difficulties in their implementation, our business and operating results could be harmed, we could fail to meet its reporting obligations, and there could be a material adverse effect on our stock price |
| 21 _________________________________________________________________ [69]Table of Contents PRINCIPAL STOCKHOLDERS AND DEPENDENCE UPON KEY PERSONNEL Our principal stockholders are also directors |
| As of March 31, 2006, Pamela and Karl Lopker jointly and beneficially owned approximately 55prca of our outstanding common stock |
| Pamela and Karl Lopker currently constitute two of the five members of the board of directors and are also officers of QAD in their capacity as President and CEO, respectively |
| On a combined basis, current directors and executive officers beneficially owned approximately 55prca of the common stock |
| Pamela and Karl Lopker are generally not prohibited from selling a controlling interest in us to a third party |
| Their concentrated control could discourage others from initiating any potential merger, takeover or other change of control transaction that might be beneficial to our business |
| As a result, the market price of our common stock could be adversely affected |
| Pamela and Karl Lopker, as husband and wife, own a majority of our common stock and we are a “controlled company” within the meaning of the rules of the NASDAQ We are not required to comply with certain corporate governance rules of the NASDAQ that would otherwise apply to us as a listed company on the NASDAQ Specifically, we are not required to have a majority of independent directors on our board of directors and we are not required to have nominating and corporate governance and compensation committees composed of independent directors |
| Should the interests of Pamela and Karl Lopker differ from those of other shareholders, the other shareholders will not be afforded the protections of having a majority of directors on the board who are independent from our principal shareholders or our management |
| We are dependent upon key personnel |
| Our future operating results depend in significant part upon the continued service of a relatively small number of key technical and senior management personnel, including Founder, Chairman of the Board and President, Pamela M Lopker, and Chief Executive Officer, Karl F Lopker, neither of whom is bound by an employment agreement |
| Our future success also depends on our continuing ability to attract and retain other highly qualified technical and managerial personnel |
| The loss of any member of our key technical and senior management personnel or the inability to attract and retain additional qualified personnel could have an adverse effect on us |
| We do not currently have key-person insurance covering any of our employees |
| IMPACT OF LEGISLATION Concern about corporate governance in the US has caused government agencies to enact more stringent controls, primarily including requirements associated with the Sarbanes-Oxley Act of 2002 |
| These changes impact the public accounting profession, public companies, including corporate duties and responsibilities, and securities analysts |
| The impact of these changes has been significant and will likely continue to sustain increased costs of securities law compliance for publicly traded companies such as ours |
| The cost and effort necessary to comply with these changes, and in particular The Sarbanes-Oxley Act, especially Section 404 of the Act, has imposed a significant burden on us and remains a potential risk |
| These compliance requirements also impose a demand that our software provide the ability to enable our customers to meet these requirements |
| Any failure by us to keep pace with such requirements could impact our ability to continue to market our products |
| We are aware that our current and potential customers could choose another software vendor’s solution if they perceive greater benefit from a compliance perspective |