| SAFLINK CORP Item 1A Risk Factors Factors That May Affect Future Results This annual report on Form 10-K contains forward-looking statements that involve risks and uncertainties |
| Our business, operating results, financial performance, and share price may be materially adversely affected by a number of factors, including but not limited to the following risk factors, any one of which could cause actual results to vary materially from anticipated results or from those expressed in any forward-looking statements made by us in this annual report on Form 10-K or in other reports, press releases or other statements issued from time to time |
| Additional factors that may cause such a difference are set forth elsewhere in this annual report on Form 10-K We have accumulated significant losses and may not be able to generate significant revenue or any net income in the future, which would negatively impact our ability to run our business |
| We have accumulated net losses of approximately dlra161dtta2 million from our inception through December 31, 2005 |
| We have continued to accumulate losses after December 31, 2005, to date and we may be unable to generate significant revenue or net income in the future |
| We have funded our operations primarily through the 17 ______________________________________________________________________ [44]Table of Contents issuance of equity securities to investors and may not be able to generate a positive cash flow in the future |
| If we are unable to generate sufficient cash flow from operations, we will need to seek additional funds through the issuance of additional equity or debt securities or other sources of financing |
| We may not be able to secure such additional financing on favorable terms, or at all |
| Any additional financings will likely cause substantial dilution to existing stockholders |
| If we are unable to obtain necessary additional financing, we may be required to reduce the scope of, or cease, our operations |
| We have not generated any significant sales of our products within the competitive commercial market, nor have we demonstrated sales techniques or promotional activities that have proven to be successful on a consistent basis, which makes it difficult to evaluate our business performance or our future prospects |
| We are in an emerging, complex and competitive commercial market for digital commerce and communications security solutions |
| Potential customers in our target markets are becoming increasingly aware of the need for security products and services in the digital economy to conduct their business |
| Historically, only enterprises that had substantial resources developed or purchased security solutions for delivery of digital content over the Internet or through other means |
| Also, there is a perception that security in delivering digital content is costly and difficult to implement |
| Therefore, we will not succeed unless we can educate our target markets about the need for security in delivering digital content and convince potential customers of our ability to provide this security in a cost-effective and easy-to-use manner |
| Even if we convince our target markets about the importance of and need for such security, there can be no assurance that it will result in the sale of our products |
| We may be unable to establish sales and marketing operations at levels necessary for us to grow this portion of our business, especially if we are unsuccessful at selling our products into vertical markets |
| We may not be able to support the promotional programs required by selling simultaneously into several markets |
| If we are unable to develop an efficient sales system, or if our products or components do not achieve wide market acceptance, then our operating results will suffer and our earnings per share will be adversely affected |
| A significant number of shares of our common stock are or will be eligible for sale in the open market, which could reduce the market price for our common stock and make it difficult for us to raise capital |
| As of March 6, 2006, 88cmam908cmam229 shares of our common stock were outstanding |
| In addition, there were a total of 18cmam563cmam212 shares of our common stock issuable upon exercise or conversion of outstanding options, warrants, and a convertible promissory note |
| These convertible securities to acquire shares of common stock are held by our employees and certain other persons at various exercise or conversion prices, 9cmam927cmam119 of which have exercise or conversion prices below the market price for our common stock of dlra0dtta89 as of March 6, 2006 |
| Options to acquire 9cmam589cmam600 shares of our common stock were outstanding as of March 6, 2006, and our existing stock incentive plan had 1cmam731cmam228 shares available for future issuance as of that date |
| The issuance of a large number of additional shares of our common stock upon the exercise or conversion of outstanding options, warrants or convertible promissory notes would cause substantial dilution to existing stockholders and could decrease the market price of our common stock due to the sale of a large number of shares of common stock in the market, or the perception that these sales could occur |
| These sales, or the perception of possible sales, could also impair our ability to raise capital in the future |
| If we do not generate significant revenue from our participation in large government security initiatives or increase the level of our participation in these initiatives, our business performance and future prospects may suffer |
| We play various roles in certain large government security initiatives, which includes being a part of the consortium of companies, led by Accenture, that was awarded the Department of Homeland Security’s US-VISIT contract, and our involvement in the Transportation Security Administration’s TWIC program, led by BearingPoint, where our credentialing solutions account for a significant portion of the technology deployment for the prototype or limited deployment phase |
| We have invested a substantial amount of time and resources in 18 ______________________________________________________________________ [45]Table of Contents our efforts to participate in these and other government security initiatives, but we have not generated significant revenue from our participation in these security initiatives to date |
| If we are not able to generate significant revenue from our participation in these or other government programs, or if we incur substantial additional expenses related to government programs before we earn associated revenue, we may not have adequate resources to continue to operate or to compete effectively in the government or the commercial marketplace |
| If our common stock is delisted from the Nasdaq Capital Market, the sale price may suffer and you may not be able to sell your shares quickly at the market price or at all |
| On December 16, 2005, we received a Nasdaq staff deficiency letter indicating that we are not in compliance with the dlra1dtta00 per share minimum closing bid price requirement for continued listing on the Nasdaq Capital Market as set forth in Marketplace Rule 4310(c)(4) |
| We received the letter because the bid price of our common stock closed below dlra1dtta00 per share for 30 consecutive business days |
| The deficiency letter also stated that, in accordance with Marketplace Rule 4310(c)(8)(D), we will be provided 180 calendar days, or until June 14, 2006, to regain compliance with the bid price requirement |
| We can regain compliance with the bid price requirement if, at any time before June 14, 2006, the bid price of our common stock closes at or above dlra1dtta00 per share for a minimum of ten consecutive business days |
| If we cannot demonstrate compliance by June 14, 2006, Nasdaq will determine whether we meet the Nasdaq Capital Market initial listing criteria set forth in Marketplace Rule 4310(c), except for the bid price requirement |
| If we meet the initial listing criteria, we will be provided an additional 180 calendar-day period to comply with the bid price requirement |
| If we are not eligible for this additional compliance period, we will be provided written notice that our securities will be delisted |
| At that time, we would have the right to appeal Nasdaq’s determination to delist our securities to a listing qualifications panel, which would postpone the effect of the delisting pending a hearing on the matter before the panel |
| If our common stock is delisted from the Nasdaq Capital Market, it may trade on the over-the-counter market, which may be a less liquid market |
| In such case, your ability to trade, or obtain quotations of the market value of, shares of our common stock could be severely limited because of lower trading volumes and transaction delays |
| These factors could contribute to lower prices and larger spreads in the bid and ask prices for our common stock |
| In addition, the delisting of our common stock from the Nasdaq Capital Market would significantly impair our ability to raise capital in the public markets in the future |
| If the market for our products and services does not experience significant growth or if our biometric, token and smart card products do not achieve broad acceptance in this market, our ability to generate significant revenue in the future would be limited and our business would suffer |
| A substantial portion of our product revenue and a portion of our service revenue are derived from the sale of biometric, token and smart card products and services |
| Biometric, token and smart card solutions have not gained widespread acceptance |
| It is difficult to predict the future growth rate of this market, if any, or the ultimate size of the biometric, token and smart card technology market |
| The expansion of the market for our products and services depends on a number of factors such as: • the cost, performance and reliability of our products and services compared to the products and services of our competitors; • customers’ perception of the benefits of biometric, token and smart card solutions; • public perceptions of the intrusiveness of these solutions and the manner in which organizations use the biometric information collected; • public perceptions regarding the confidentiality of private information; • customers’ satisfaction with our products and services; and • marketing efforts and publicity regarding our products and services |
| 19 ______________________________________________________________________ [46]Table of Contents Even if biometric, token and smart card solutions gain wide market acceptance, our products and services may not adequately address market requirements and may not gain wide market acceptance |
| If biometric or smart card solutions or our products and services do not gain wide market acceptance, our business and our financial results will suffer |
| Because they own approximately 36prca of our common stock, five stockholders could significantly influence our affairs, which may preclude other stockholders from being able to influence stockholder votes or corporate actions |
| Five of our stockholders (together with their affiliates) beneficially own approximately 36prca of our outstanding common stock as of March 6, 2006 |
| Given this substantial ownership, if they decided to act together, they would be able to significantly influence the vote on those corporate matters to be decided by our stockholders |
| In addition, these stockholders hold options, warrants and a convertible promissory note representing the right to acquire an additional 2cmam700cmam629 shares of our common stock |
| If these stockholders exercised their options and warrants and converted the promissory note in full, they would own approximately 38prca of our outstanding common stock |
| Such concentrated ownership may decrease the value of our common stock and could significantly influence our affairs, which may preclude other stockholders from being able to influence stockholder votes |
| Any acquisition we make in the future could disrupt our business and harm our financial condition |
| To date, most of our revenue growth has been created by acquisitions |
| In any future acquisitions or business combinations, we are subject to numerous risks and uncertainties, including: • dilution of our current stockholders’ percentage ownership as a result of the issuance of stock; • incurrence or assumption of debt; • assumption of unknown liabilities; or • incurrence of expenses related to the future impairment of goodwill and the amortization of other intangible assets |
| We may not be able to successfully complete the integration of the businesses, products or technologies or personnel in the businesses or assets that we might acquire in the future, and any failure to do so could disrupt our business and seriously harm our financial condition |
| We have depended on a limited number of customers for a substantial percentage of our revenue, and due to the non-recurring nature of these sales, our revenue in any quarter may not be indicative of future revenue |
| Two customers accounted for 16prca and 10prca of our revenue for the twelve months ended December 31, 2005, while the same customer, who accounted for 10prca of our revenue in 2005, accounted for 15prca of our revenue for the twelve months ended December 31, 2004 |
| A substantial reduction in revenue from any of our significant customers would adversely affect our business unless we were able to replace the revenue received from those customers |
| As a result of this concentration of revenue from a limited number of customers, our revenue has experienced wide fluctuations, and we may continue to experience wide fluctuations in the future |
| Many of our sales are not recurring sales, and quarterly and annual sales levels could fluctuate and sales in any period may not be indicative of sales in future periods |
| 20 ______________________________________________________________________ [47]Table of Contents Doing business with the United States government entails many risks that could adversely affect us by decreasing the profitability of government contracts we are able to obtain and interfering with our ability to obtain future government contracts |
| Government sales accounted for 84prca and 72prca of our revenue for the twelve months ended December 31, 2005, and 2004, respectively |
| Our sales to the US government are subject to risks that include: • early termination of contracts; • disallowance of costs upon audit; and • the need to participate in competitive bidding and proposal processes, which are costly and time consuming and may result in unprofitable contracts |
| In addition, the government may be in a position to obtain greater rights with respect to our intellectual property than we would grant to other entities |
| Government agencies also have the power, based on financial difficulties or investigations of their contractors, to deem contractors unsuitable for new contract awards |
| Because we will engage in the government contracting business, we will be subject to audits and may be subject to investigation by governmental entities |
| Failure to comply with the terms of any government contracts could result in substantial civil and criminal fines and penalties, as well as suspension from future government contracts for a significant period of time, any of which could adversely affect our business by requiring us to spend money to pay the fines and penalties and prohibiting us from earning revenues from government contracts during the suspension period |
| Furthermore, government programs can experience delays or cancellation of funding, which can be unpredictable |
| For example, the US military’s involvement in Iraq has caused the diversion of some Department of Defense funding away from certain projects in which we participate, thereby delaying orders under certain of our government contracts |
| This makes it difficult to forecast our revenues on a quarter-by-quarter basis |
| Our efforts to expand our international operations are subject to a number of risks, including our potential inability to obtain government authorization regarding exports of our products, any of which could adversely affect our future international sales |
| We must comply with US laws regulating the export of our products in order to ship internationally |
| In some cases, authorization from the US government may be needed in order to export our products |
| The export regimes applicable to our business are subject to frequent changes, as are the governing policies |
| Although we have obtained approvals to export certain of our products, we cannot assure you that such authorizations to export will be available to us or for our products in the future |
| If we cannot obtain the required government approvals under these regulations, we may not be able to sell products abroad or make products available for sale internationally |
| Additionally, our international operations could be subject to a number of risks, any of which could adversely affect our future international sales, including: • increased collection risks; • trade restrictions; • export duties and tariffs; • uncertain political, regulatory and economic developments; and • inability to protect our intellectual property rights |
| If third parties, on whom we partly depend for our product distribution, do not promote our products, our ability to generate revenue may be limited and our business and financial condition could suffer |
| We utilize third parties such as resellers, distributors and other technology manufacturers to augment our full-time sales staff in promoting sales of our products |
| If these third parties do not actively promote our 21 ______________________________________________________________________ [48]Table of Contents products, our ability to generate revenue may be limited |
| We cannot control the amount and timing of resources that these third parties devote to marketing activities on our behalf |
| Some of these business relationships are formalized in agreements that can be terminated with little or no notice, which may further decrease the willingness of such third parties to act on our behalf |
| We also may not be able to negotiate acceptable distribution relationships in the future and cannot predict whether current or future distribution relationships will be successful |
| The lengthy and variable sales cycle of some of our products makes it difficult to predict operating results |
| Certain of our products have lengthy sales cycles while customers complete in-depth evaluations of the products and receive approvals for purchase |
| In addition, new product introduction often centers on key trade shows and failure to deliver a product prior to such an event can seriously delay introduction of a product |
| As a result of the lengthy sales cycles, we may incur substantial expenses before we earn associated revenues because a significant portion of our operating expenses is relatively fixed and based on expected revenues |
| The lengthy sales cycles make forecasting the volume and timing of orders difficult |
| In addition, the delays inherent in lengthy sales cycles raise additional risks that customers may cancel or change their minds |
| If customer cancellations or product delays occur, we could lose anticipated sales |
| Our failure to maintain the proprietary nature of our technology and intellectual property could adversely affect our business, operating results, financial condition and stock price and our ability to compete effectively |
| We principally rely upon patent, trademark, copyright, trade secret and contract law to establish and protect our proprietary rights |
| There is a risk that claims allowed on any patents or trademarks we hold may not be broad enough to protect our technology |
| In addition, our patents or trademarks may be challenged, invalidated or circumvented, and we cannot be certain that the rights granted thereunder will provide competitive advantages to us |
| Further, because we do business with the government, we may already have granted, or we may in the future have to grant, greater rights with respect to our intellectual property than we would grant to other entities |
| Moreover, any current or future issued or licensed patents, or trademarks, or existing or future trade secrets or know-how, may not afford sufficient protection against competitors with similar technologies or processes, and the possibility exists that certain of our already issued patents or trademarks may infringe upon third party patents or trademarks or be designed around by others |
| In addition, there is a risk that others may independently develop proprietary technologies and processes that are the same as, or substantially equivalent or superior to ours, or become available in the market at a lower price |
| There is a risk that we have infringed or in the future will infringe patents or trademarks owned by others, that we will need to acquire licenses under patents or trademarks belonging to others for technology potentially useful or necessary to us, and that licenses will not be available to us on acceptable terms, if at all |
| We may have to litigate to enforce our patents or trademarks or to determine the scope and validity of other parties’ proprietary rights |
| Litigation could be very costly and divert management’s attention |
| An adverse outcome in any litigation could adversely affect our financial results and stock price |
| We also rely on trade secrets and proprietary know-how, which we seek to protect by confidentiality agreements with our employees, consultants, service providers and third parties |
| There is a risk that these agreements may be breached, and that the remedies available to us may not be adequate |
| In addition, our trade secrets and proprietary know-how may otherwise become known to or be independently discovered by others |
| We may be unable to keep pace with rapid technological change in network operating environments, which could lead to an increase in our costs, a loss of customers or a delay in market acceptance of our products |
| Network operating environments are characterized by rapid development and technological improvements |
| Because of these changes, our success will depend in part on our ability to keep pace with a changing marketplace, integrate new technology into our core software and hardware and introduce new products and 22 ______________________________________________________________________ [49]Table of Contents product enhancements that build off of our existing technologies to address the changing needs of the marketplace |
| Various technical problems and resource constraints may impede the development, production, distribution and marketing of our products and services |
| In addition, laws, rules, regulations or industry standards may be adopted in response to these technological changes, which in turn, could materially and adversely affect how we will do business |
| Our future success will also depend upon our ability to develop and introduce a variety of new products and services, and enhancements to these new products and services, to address the changing and sophisticated needs of the marketplace |
| Frequently, technical development programs in the biometric and smart card industry require assessments to be made of the future directions of technology and technology markets generally, which are inherently risky and difficult to predict |
| Delays in introducing new products, services and enhancements, the failure to choose correctly among technical alternatives or the failure to offer innovative products and services at competitive prices may cause customers to forego purchases of our products and services and purchase those of our competitors |
| Our continued participation in the market for governmental agencies may require the investment of our resources in upgrading our products and technology for us to compete and to meet regulatory and statutory standards |
| We may not have adequate resources available to us or may not adequately keep pace with appropriate requirements to compete effectively in the marketplace |
| Our reliance on third party technologies for some specific technology elements of our products and our reliance on third parties for manufacturing may delay product launch, impair our ability to develop and deliver products or hurt our ability to compete in the market |
| Our ability to license new technologies from third parties will be critical to our ability to offer a complete suite of products that meets customer needs and technological requirements |
| Some of our licenses do not run for the full duration of the third party’s patent for the licensed technology |
| We may not be able to renew our existing licenses on favorable terms, or at all |
| If we lose the rights to a patented technology, we may need to stop selling or may need to redesign our products that incorporate that technology, and we may lose a competitive advantage |
| In addition, competitors could obtain licenses for technologies for which we are unable to obtain licenses, and third parties may develop or enable others to develop a similar solution to digital communication security issues, either of which events could erode our market share |
| Also, dependence on the patent protection of third parties may not afford us any control over the protection of the technologies upon which we rely |
| If the patent protection of any of these third parties were compromised, our ability to compete in the market also would be impaired |
| We face intense competition and pricing pressures from a number of sources, which may reduce our average selling prices and gross margins |
| The markets where we offer our products and services are intensely competitive |
| As a result, we face significant competition from a number of sources |
| We may be unable to compete successfully because many of our competitors are more established, benefit from greater name recognition and have substantially greater financial, technical and marketing resources than we have |
| In addition, there are several smaller and start-up companies with which we compete from time to time |
| We expect competition to increase as a result of consolidation in the information security technology industry |
| The average selling prices for our products may decline as a result of competitive pricing pressures, promotional programs and customers who negotiate price reductions in exchange for longer-term purchase commitments |
| The pricing of products depends on the specific features and functions of the products, purchase volumes and the level of sales and service support required |
| As we experience pricing pressure, the average selling prices and gross margins for our products may decrease over product lifecycles |
| These same competitive pressures may require us to write down the carrying value of any inventory on hand, which would adversely affect our operating results and adversely affect our earnings per share |
| 23 ______________________________________________________________________ [50]Table of Contents Any compromise of public key infrastructure, or PKI, technology would adversely affect our business by reducing or eliminating demand for many of our information security products |
| As a result of the Litronic acquisition, many of our products are now based on PKI technology, which is the standard technology for securing Internet-based commerce and communications |
| The security afforded by this technology depends on the integrity of a user’s private key, which depends in part on the application of algorithms, or advanced mathematical factoring equations |
| The occurrence of any of the following could result in a decline in demand for our information security products: • any significant advance in techniques for attacking PKI systems, including the development of an easy factoring method or faster, more powerful computers; • publicity of the successful decoding of cryptographic messages or the misappropriation of private keys; and • government regulation limiting the use, scope or strength of PKI A security breach of our internal systems or those of our customers due to computer hackers or cyber terrorists could harm our business by adversely affecting the market’s perception of our products and services |
| Since we provide security for Internet and other digital communication networks, we may become a target for attacks by computer hackers |
| The ripple effects throughout the economy of terrorist threats and attacks and military activities may have a prolonged effect on our potential commercial customers, or on their ability to purchase our products and services |
| Additionally, because we provide security products to the United States government, we may be targeted by cyber terrorist groups for activities threatened against United States-based targets |
| We will not succeed unless the marketplace is confident that we provide effective security protection for Internet and other digital communication networks |
| Networks protected by our products may be vulnerable to electronic break-ins |
| Because the techniques used by computer hackers to access or sabotage networks change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques |
| Although we have never experienced any act of sabotage or unauthorized access by a third party of our internal network to date, if an actual or perceived breach of security for Internet and other digital communication networks occurs in our internal systems or those of our end-user customers, it could adversely affect the market’s perception of our products and services |
| This could cause us to lose customers, resellers, alliance partners or other business partners |
| Our financial and operating results often vary significantly from quarter to quarter and may be adversely affected by a number of factors |
| Our financial and operating results have fluctuated in the past and our financial and operating results could fluctuate in the future from quarter to quarter for the following reasons: • reduced demand for our products and services; • price reductions, new competitors, or the introduction of enhanced products or services from new or existing competitors; • changes in the mix of products and services we or our distributors sell; • contract cancellations, delays or amendments by customers; • the lack of government demand for our products and services or the lack of government funds appropriated to purchase our products and services; • unforeseen legal expenses, including litigation costs; 24 ______________________________________________________________________ [51]Table of Contents • expenses related to acquisitions; • impairments of goodwill and intangible assets; • other financial charges; • the lack of availability or increase in cost of key components and subassemblies; and • the inability to successfully manufacture in volume, and reduce the price of, certain of our products that may contain complex designs and components |
| Particularly important is our need to invest in planned technical development programs to maintain and enhance our competitiveness, and to develop and launch new products and services |
| Improving the manageability and likelihood of success of such programs requires the development of budgets, plans and schedules for the execution of these programs and the adherence to such budgets, plans and schedules |
| The majority of such program costs are payroll and related staff expenses, and secondarily materials, subcontractors and promotional expenses |
| These costs will be very difficult to adjust in response to short-term fluctuations in our revenue, compounding the difficulty of achieving profitability |
| We may be exposed to significant liability for actual or perceived failure to provide required products or services |
| Products as complex as those we offer may contain undetected errors or may fail when first introduced or when new versions are released |
| Despite our product testing efforts and testing by current and potential customers, it is possible that errors will be found in new products or enhancements after commencement of commercial shipments |
| The occurrence of product defects or errors could result in adverse publicity, delay in product introduction, diversion of resources to remedy defects, loss of or a delay in market acceptance, or claims by customers against us, or could cause us to incur additional costs, any of which could adversely affect our business |
| Because our customers rely on our products for critical security applications, we may be exposed to claims for damages allegedly caused to an enterprise as a result of an actual or perceived failure of our products |
| An actual or perceived breach of enterprise network or information security systems of one of our customers, regardless of whether the breach is attributable to our products or solutions, could adversely affect our business reputation |
| Furthermore, our failure or inability to meet a customer’s expectations in the performance of our services, or to do so in the time frame required by the customer, regardless of our responsibility for the failure, could result in a claim for substantial damages against us by the customer, discourage customers from engaging us for these services, and damage our business reputation |
| Delays in deliveries from suppliers or defects in goods or components supplied by vendors could cause our revenues and gross margins to decline |
| We rely on a limited number of vendors for certain components for certain hardware products we are developing |
| Any undetected flaws in components supplied by our vendors could lead to unanticipated costs to repair or replace these parts |
| We currently purchase some of our components from a single supplier, which presents a risk that the components may not be available in the future on commercially reasonable terms, or at all |
| For example, Atmel Corporation has completed the masks for production of specially designed Forte and jForte microprocessors for which we developed the Forte and jForte operating systems |
| Commercial acceptance of the Forte and jForte microprocessors will depend on continued development of applications to service customer requirements |
| Any inability to receive or any delay in receiving adequate supplies of the Forte and jForte microprocessors, whether as a result of delays in development of applications or otherwise, would adversely affect our ability to sell the Forte and jForte PKI cards |
| We do not anticipate maintaining a supply agreement with Atmel Corporation for the Forte and jForte microprocessors |
| If Atmel Corporation were unable to deliver the Forte and jForte microprocessors for a lengthy period of time or were to terminate its relationship with us, we would be unable to produce the Forte and jForte PKI cards until we could design a replacement computer chip for the Forte and jForte microprocessors |
| This could take substantial time and resources to complete, resulting in delays or reductions in product shipments that could adversely affect our business by requiring us to expend resources while preventing us from selling the Forte and jForte PKI cards |
| 25 ______________________________________________________________________ [52]Table of Contents Government regulations affecting security of Internet and other digital communication networks could limit the market for our products and services |
| The United States government and foreign governments have imposed controls, export license requirements and restrictions on the import or export of some technologies, including encryption technology |
| Any additional governmental regulation of imports or exports or failure to obtain required export approval of encryption technologies could delay or prevent the acceptance and use of encryption products and public networks for secure communications and could limit the market for our products and services |
| In addition, some foreign competitors are subject to less rigorous controls on exporting their encryption technologies |
| As a result, they may be able to compete more effectively than us in the United States and in international security markets for Internet and other digital communication networks |
| In addition, governmental agencies such as the Federal Communications Commission periodically issue regulations governing the conduct of business in telecommunications markets that may adversely affect the telecommunications industry and us |
| We have outsourced a portion of our commercial software development to India, which could prove to be unprofitable due to risks inherent in international business activities |
| We have outsourced portions of our commercial software development activities to India in an effort to reduce operating expenses |
| We are subject to a number of risks associated with international business activities that could adversely affect any operations we may develop in India and could slow our growth |
| These risks generally include, among others: • difficulties in managing and staffing Indian operations; • difficulties in obtaining or maintaining regulatory approvals or in complying with Indian laws; • reduced or less certain protection for intellectual property rights; • negative public perception of outsourcing and its consequences; • trade restrictions; • foreign currency fluctuations; • civil unrest and hostilities among neighboring countries; and • general economic conditions, including instability, in the Indian economy |
| Any of these risks could adversely affect our business and results of operations |
| Conflicts involving India could adversely affect any operations we may establish in India, which could interfere with our ability to conduct any or all of our other operations |
| If we fail to attract and retain qualified senior executive and key technical personnel, our business will not be able to expand |
| We will be dependent on the continued availability of the services of our employees, many of whom are individually keys to our future success, and the availability of new employees to implement our business plans |
| Although our compensation program is intended to attract and retain the employees required for us to be successful, there can be no assurance that we will be able to retain the services of all of our key employees or a sufficient number to execute our plans, nor can there be any assurance that we will be able to continue to attract new employees as required |
| Our personnel may voluntarily terminate their relationship with us at any time, and competition for qualified personnel, especially engineers, is intense |
| The process of locating additional personnel with the combination of skills and attributes required to carry out our strategy could be lengthy, costly and disruptive |
| 26 ______________________________________________________________________ [53]Table of Contents If we lose the services of key personnel, or fail to replace the services of key personnel who depart, we could experience a severe negative impact on our financial results and stock price |
| In addition, there is intense competition for highly qualified engineering and marketing personnel in the locations where we will principally operate |
| The loss of the services of any key engineering, marketing or other personnel or our failure to attract, integrate, motivate and retain additional key employees could adversely affect on our business and financial results and stock price |
| Provisions in our certificate of incorporation may prevent or adversely affect the value of a takeover of our company even if a takeover would be beneficial to stockholders |
| Our certificate of incorporation authorizes our board of directors to issue up to 1cmam000cmam000 shares of preferred stock, the issuance of which could adversely affect our common stockholders |
| We can issue shares of preferred stock without stockholder approval and upon terms and conditions, and having those types of rights, privileges and preferences, as our board of directors determines |
| Specifically, the potential issuance of preferred stock may make it more difficult for a third party to acquire, or may discourage a third party from acquiring, voting control of our company even if the acquisition would benefit stockholders |