| SKILLSOFT PUBLIC LIMITED CO Item 1A Risk Factors Investors should carefully consider the risks described below before making an investment decision with respect to shares of the Company |
| 19 _________________________________________________________________ RISKS RELATED TO LEGAL PROCEEDINGS IN CONNECTION WITH OUR RESTATEMENT OF THE HISTORICAL FINANCIAL STATEMENTS OF SMARTFORCE, CLASS ACTION LAWSUITS HAVE BEEN FILED AGAINST US AND ADDITIONAL LAWSUITS MAY BE FILED, AND WE ARE THE SUBJECT OF A FORMAL ORDER OF PRIVATE INVESTIGATION ENTERED BY THE SEC While preparing the closing balance sheet of SmartForce as at September 6, 2002, the date on which we closed our merger with SkillSoft Corporation (the Merger), certain accounting matters were identified relating to the historical financial statements of SmartForce (which, following the Merger, are no longer our historical financial statements) |
| On November 19, 2002, we announced our intent to restate the SmartForce financial statements for 1999, 2000, 2001 and the first two quarters of 2002 |
| We have settled several class action lawsuits that were filed following the announcement of the restatement |
| We are the subject of a formal order of private investigation entered by the SEC We may incur substantial costs in connection with the SEC investigation, which could cause a diversion of management time and attention |
| In addition, we could be subject to substantial penalties, fines or regulatory sanctions or claims by our former officers, directors or employees for indemnification of costs they may incur in connection with the SEC investigation, which could adversely affect our business and operating results |
| On June 2, 2005, the Boston District Office of the SEC informed us that it had made a preliminary determination to recommend that the SEC bring a civil injunctive action against us |
| Under the SEC’s rules, we are permitted to make a so-called Wells Submission in which we seek to persuade the SEC that no such action should be commenced |
| In the event we are unable to resolve the SEC’s potential claims by agreement, we intend to make such a submission |
| We continue to cooperate with the SEC in this matter |
| CLAIMS THAT WE INFRINGE UPON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS COULD RESULT IN COSTLY LITIGATION OR ROYALTY PAYMENTS TO THIRD PARTIES, OR REQUIRE US TO REENGINEER OR CEASE SALES OF OUR PRODUCTS OR SERVICES Third parties have in the past and could in the future claim that our current or future products infringe their intellectual property rights |
| Any claim, with or without merit, could result in costly litigation or require us to reengineer or cease sales of our products or services, any of which could have a material adverse effect on our business |
| Infringement claims could also result in an injunction in the use of our products or require us to enter into royalty or licensing agreements |
| Licensing agreements, if required, may not be available on terms acceptable to the combined company or at all |
| From time to time we learn of parties that claim broad intellectual property rights in the e-learning area that might implicate our offerings |
| These parties or others could initiate actions against us in the future |
| WE COULD INCUR SUBSTANTIAL COSTS RESULTING FROM PRODUCT LIABILITY CLAIMS RELATING TO OUR CUSTOMERS’ USE OF OUR PRODUCTS AND SERVICES Many of the business interactions supported by our products and services are critical to our customers’ businesses |
| Any failure in a customer’s business interaction or other collaborative activity caused or allegedly caused in the future by our products and services could result in a claim for substantial damages against us, regardless of our responsibility for the failure |
| Although we maintain general liability insurance, including coverage for errors and omissions, there can be no assurance that existing coverage will continue to be available on reasonable terms or will be available in amounts sufficient to cover one or more large claims, or that the insurer will not disclaim coverage as to any future claim |
| 20 _________________________________________________________________ WE COULD BE SUBJECTED TO LEGAL ACTIONS BASED UPON THE CONTENT WE OBTAIN FROM THIRD PARTIES OVER WHOM WE EXERT LIMITED CONTROL It is possible that we could become subject to legal actions based upon claims that our course content infringes the rights of others or is erroneous |
| Any such claims, with or without merit, could subject us to costly litigation and the diversion of our financial resources and management personnel |
| The risk of such claims is exacerbated by the fact that our course content is provided by third parties over whom we exert limited control |
| Further, if those claims are successful, we may be required to alter the content, pay financial damages or obtain content from others |
| RISKS RELATED TO THE OPERATION OF OUR BUSINESS SOME OF OUR INTERNATIONAL SUBSIDIARIES HAVE NOT COMPLIED WITH REGULATORY REQUIREMENTS RELATING TO THEIR FINANCIAL STATEMENTS AND TAX RETURNS We operate our business in various foreign countries through subsidiaries organized in those countries |
| Due to our restatement of the historical SmartForce financial statements, some of our subsidiaries have not filed their audited statutory financial statements and have been delayed in filing their tax returns in their respective jurisdictions |
| As a result, some of these foreign subsidiaries may be subject to regulatory restrictions, penalties and fines and additional taxes |
| WE HAVE EXPERIENCED NET LOSSES IN THE PAST, AND WE MAY BE UNABLE TO MAINTAIN PROFITABILITY We recorded a net loss of dlra113dtta3 million for the fiscal year ended January 31, 2004, dlra20dtta1 million for the fiscal year ended January 31, 2005 and net income of dlra35dtta2 million for the fiscal year ended January 31, 2006 |
| While we achieved profitability in the fiscal year ending January 31, 2006, we cannot guarantee that our business will sustain profitability in any future period |
| OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY THIS LIMITS YOUR ABILITY TO EVALUATE HISTORICAL FINANCIAL RESULTS AND INCREASES THE LIKELIHOOD THAT OUR RESULTS WILL FALL BELOW MARKET ANALYSTS’ EXPECTATIONS, WHICH COULD CAUSE THE PRICE OF OUR ADSs TO DROP RAPIDLY AND SEVERELY We have in the past experienced fluctuations in our quarterly operating results, and we anticipate that these fluctuations will continue |
| As a result, we believe that our quarterly revenue, expenses and operating results are likely to vary significantly in the future |
| If in some future quarters our results of operations are below the expectations of public market analysts and investors, this could have a severe adverse effect on the market price of our ADSs |
| Our operating results have historically fluctuated, and our operating results may in the future continue to fluctuate, as a result of factors, which include (without limitation): • the size and timing of new/renewal agreements and upgrades; • royalty rates; • the announcement, introduction and acceptance of new products, product enhancements and technologies by us and our competitors; • the mix of sales between our field sales force, our other direct sales channels and our telesales channels; • general conditions in the US or the international economy; • the loss of significant customers; • delays in availability of new products; 21 _________________________________________________________________ • product or service quality problems; • seasonality — due to the budget and purchasing cycles of our customers, we expect our revenue and operating results will generally be strongest in the second half of our fiscal year and weakest in the first half of our fiscal year; • the spending patterns of our customers; • litigation costs and expenses, including the costs related to the restatement of the SmartForce financial statements; • non-recurring charges related to acquisitions; • growing competition that may result in price reductions; and • currency fluctuations |
| Most of our expenses, such as rent and most employee compensation, do not vary directly with revenue and are difficult to adjust in the short-term |
| As a result, if revenue for a particular quarter is below our expectations, we could not proportionately reduce operating expenses for that quarter |
| Any such revenue shortfall would, therefore, have a disproportionate effect on our expected operating results for that quarter |
| DEMAND FOR OUR PRODUCTS AND SERVICES MAY BE ESPECIALLY SUSCEPTIBLE TO ADVERSE ECONOMIC CONDITIONS Our business and financial performance may be damaged by adverse financial conditions affecting our target customers or by a general weakening of the economy |
| Companies may not view training products and services as critical to the success of their businesses |
| If these companies experience disappointing operating results, whether as a result of adverse economic conditions, competitive issues or other factors, they may decrease or forego education and training expenditures before limiting their other expenditures or in conjunction with lowering other expenses |
| INCREASED COMPETITION MAY RESULT IN DECREASED DEMAND FOR OUR PRODUCTS AND SERVICES, WHICH MAY RESULT IN REDUCED REVENUES AND GROSS PROFITS AND LOSS OF MARKET SHARE The market for corporate education and training solutions is highly fragmented and competitive |
| We expect the market to become increasingly competitive due to the lack of significant barriers to entry |
| In addition to increased competition from new companies entering into the market, established companies are entering into the market through acquisitions of smaller companies, which directly compete with us, and this trend is expected to continue |
| We may also face competition from publishing companies, vendors of application software and HR outsourcers, including those vendors with whom we have formed development and marketing alliances |
| Our primary sources of direct competition are: • third-party suppliers of instructor-led information technology, business, management and professional skills education and training; • technology companies that offer e-learning courses covering their own technology products; • suppliers of computer-based training and e-learning solutions; • internal education, training departments and HR outsourcers of potential customers; and • value-added resellers and network integrators |
| Growing competition may result in price reductions, reduced revenue and gross profits and loss of market share, any one of which would have a material adverse effect on our business |
| Many of our current and potential competitors have substantially greater financial, technical, sales, marketing and other resources, as well as greater name recognition, and we expect to face increasing price pressures from competitors as 22 _________________________________________________________________ managers demand more value for their training budgets |
| Accordingly, we may be unable to provide e-learning solutions that compare favorably with new instructor-led techniques, other interactive training software or new e-learning solutions |
| WE RELY ON A LIMITED NUMBER OF THIRD PARTIES TO PROVIDE US WITH EDUCATIONAL CONTENT FOR OUR COURSES AND REFERENCEWARE, AND OUR ALLIANCES WITH THESE THIRD PARTIES MAY BE TERMINATED OR FAIL TO MEET OUR REQUIREMENTS We rely on a limited number of independent third parties to provide us with the educational content for a majority of our courses based on learning objectives and specific instructional design templates that we provide to them |
| We do not have exclusive arrangements or long-term contracts with any of these content providers |
| If one or more of our third party content providers were to stop working with us, we would have to rely on other parties to develop our course content |
| In addition, these providers may fail to develop new courses or existing courses on a timely basis |
| We cannot predict whether new content or enhancements would be available from reliable alternative sources on reasonable terms |
| In addition, our subsidiary, Books 24x7 |
| com (Books) relies on third party publishers to provide all of the content incorporated into its Referenceware products |
| If one or more of these publishers were to terminate their license with us, we may not be able to find substitute publishers for such content |
| In addition, we may be forced to pay increased royalties to these publishers to continue our licenses with them |
| In the event that we are unable to maintain or expand our current development alliances or enter into new development alliances, our operating results and financial condition could be materially adversely affected |
| Furthermore, we will be required to pay royalties to some of our development partners on products developed with them, which could reduce our gross margins |
| We expect that cost of revenues may fluctuate from period to period in the future based upon many factors, including the revenue mix and the timing of expenses associated with development alliances |
| In addition, the collaborative nature of the development process under these alliances may result in longer development times and less control over the timing of product introductions than for e-learning offerings developed solely by us |
| Our strategic alliance partners may from time to time renegotiate the terms of their agreements with us, which could result in changes to the royalty or other arrangements, adversely affecting our results of operations |
| The independent third party strategic partners we rely on for educational content and product marketing may compete with us, harming our results of operations |
| Our agreements with these third parties generally do not restrict them from developing courses on similar topics for our competitors or from competing directly with us |
| As a result, our competitors may be able to duplicate some of our course content and gain a competitive advantage |
| OUR SUCCESS DEPENDS ON OUR ABILITY TO MEET THE NEEDS OF THE RAPIDLY CHANGING MARKET The market for education and training software is characterized by rapidly changing technology, evolving industry standards, changes in customer requirements and preferences and frequent introductions of new products and services embodying new technologies |
| New methods of providing interactive education in a technology-based format are being developed and offered in the marketplace, including intranet and Internet offerings |
| In addition, multimedia and other product functionality features are being added to educational software |
| Our future success will depend upon the extent to which we are able to develop and implement products which address these emerging market requirements in a cost effective and timely basis |
| Product development is risky because it is difficult to foresee developments in technology, coordinate technical personnel and identify and eliminate design flaws |
| Any significant delay in releasing new products could have a material adverse effect on the ultimate success of our products and could reduce sales of predecessor products |
| We may not be successful in introducing new products on a timely basis |
| In addition, new products introduced by us may fail to achieve a significant degree of market acceptance or, once accepted, may fail to sustain viability in the market for any significant period |
| If we are unsuccessful in addressing the changing needs of the marketplace due to resource, technological or other constraints, or in anticipating and responding 23 _________________________________________________________________ adequately to changes in customers’ software technology and preferences, our business and results of operations would be materially adversely affected |
| We, along with the rest of the industry, face a challenging and competitive market for IT spending that has resulted in reduced contract value for our formal learning product lines |
| This pricing pressure is having a negative impact on revenue for these product lines and may have a continued or increased adverse impact in the future |
| THE E-LEARNING MARKET IS A DEVELOPING MARKET, AND OUR BUSINESS WILL SUFFER IF E-LEARNING IS NOT WIDELY ACCEPTED The market for e-learning is a new and emerging market |
| Corporate training and education have historically been conducted primarily through classroom instruction and have traditionally been performed by a company’s internal personnel |
| Many companies have invested heavily in their current training solutions |
| Although technology-based training applications have been available for several years, they currently account for only a small portion of the overall training market |
| Accordingly, our future success will depend upon the extent to which companies adopt technology-based solutions for their training activities, and the extent to which companies utilize the services or purchase products of third-party providers |
| Many companies that have already invested substantial resources in traditional methods of corporate training may be reluctant to adopt a new strategy that may compete with their existing investments |
| Even if companies implement technology-based training or e-learning solutions, they may still choose to design, develop, deliver or manage all or part of their education and training internally |
| If technology-based learning does not become widespread, or if companies do not use the products and services of third parties to develop, deliver or manage their training needs, then our products and service may not achieve commercial success |
| NEW PRODUCTS INTRODUCED BY US MAY NOT BE SUCCESSFUL An important part of our growth strategy is the development and introduction of new products that open up new revenue streams for us |
| Despite our efforts, we cannot assure you that we will be successful in developing and introducing new products, or that any new products we do introduce will meet with commercial acceptance |
| The failure to successfully introduce new products will not only hamper our growth prospects but may also adversely impact our net income due to the development and marketing expenses associated with those new products |
| POTENTIAL FUTURE ACQUISITIONS MAY NOT PRODUCE THE BENEFITS WE ANTICIPATE AND COULD HARM OUR CURRENT OPERATIONS One aspect of our business strategy is to pursue acquisitions of businesses or technologies that will contribute to our future growth |
| However, we may not be successful in identifying or consummating attractive acquisition opportunities |
| Moreover, any acquisitions we do consummate may not produce benefits commensurate with the purchase price we pay or our expectations for the acquisition |
| In addition, acquisitions involve numerous risks, including: • difficulties in integrating the technologies, operations, financial controls and personnel of the acquired company; • difficulties in transitioning customers of the acquired company; • diversion of management time and focus; • the incurrence of unanticipated expenses associated with the acquisition or the assumption of unknown liabilities or unanticipated problems of the acquired company; and • accounting charges related to the acquisition, including restructuring charges, write-offs of in-process research and development costs, and subsequent impairment charges relating to goodwill or other intangible assets acquired in the transaction |
| 24 _________________________________________________________________ THE SUCCESS OF OUR E-LEARNING STRATEGY DEPENDS ON THE RELIABILITY AND CONSISTENT PERFORMANCE OF OUR INFORMATION SYSTEMS AND INTERNET INFRASTRUCTURE The success of our e-learning strategy is highly dependent on the consistent performance of our information systems and Internet infrastructure |
| If our Web site fails for any reason or if it experiences any unscheduled downtimes, even for only a short period, our business and reputation could be materially harmed |
| We have in the past experienced performance problems and unscheduled downtime, and these problems could recur |
| We currently rely on third parties for proper functioning of computer infrastructure, delivery of our e-learning applications and the performance of our destination site |
| Our systems and operations could be damaged or interrupted by fire, flood, power loss, telecommunications failure, break-ins, earthquake, financial patterns of hosting providers and similar events |
| Any system failures could adversely affect customer usage of our solutions and user traffic results in any future quarters, which could adversely affect our revenues and operating results and harm our reputation with corporate customers, subscribers and commerce partners |
| Accordingly, the satisfactory performance, reliability and availability of our Web site and computer infrastructure is critical to our reputation and ability to attract and retain corporate customers, subscribers and commerce partners |
| We cannot accurately project the rate or timing of any increases in traffic to our Web site and, therefore, the integration and timing of any upgrades or enhancements required to facilitate any significant traffic increase to the Web site are uncertain |
| We have in the past experienced difficulties in upgrading our Web site infrastructure to handle increased traffic, and these difficulties could recur |
| The failure to expand and upgrade our Web site or any system error, failure or extended down time could materially harm our business, reputation, financial condition or results of operations |
| Any factors that adversely affect Internet usage could disrupt the ability of those users to access our e-learning solutions, which would adversely affect customer satisfaction and therefore our business |
| For example, our ability to increase the effectiveness and scope of our services to customers is ultimately limited by the speed and reliability of both the Internet and our customers’ internal networks |
| Consequently, the emergence and growth of the market for our products and services depends upon the improvements being made to the entire Internet as well as to our individual customers’ networking infrastructures to alleviate overloading and congestion |
| If these improvements are not made, and the quality of networks degrades, the ability of our customers to use our products and services will be hindered and our revenues may suffer |
| Additionally, a requirement for the continued growth of accessing e-learning solutions over the Internet is the secure transmission of confidential information over public networks |
| Failure to prevent security breaches into our products or our customers’ networks, or well-publicized security breaches affecting the Internet in general could significantly harm our growth and revenue |
| Advances in computer capabilities, new discoveries in the field of cryptography or other developments may result in a compromise of technology we use to protect content and transactions, our products or our customers’ proprietary information in our databases |
| Anyone who is able to circumvent our security measures could misappropriate proprietary and confidential information or could cause interruptions in our operations |
| We may be required to expend significant capital and other resources to protect against such security breaches or to address problems caused by security breaches |
| The privacy of users may also deter people from using the Internet to conduct transactions that involve transmitting confidential information |
| OUR RESTRUCTURING PLANS MAY BE INEFFECTIVE OR MAY LIMIT OUR ABILITY TO COMPETE In the fiscal year ended January 31, 2005 we recorded approximately dlra13dtta4 million of restructuring charges related to the reorganization of our content development organization as well as the shut down of our 25 _________________________________________________________________ German facility |
| There are several risks inherent in these efforts to transition to a new cost structure |
| These include the risk that we will not be successful in maintaining profitability, and hence we may have to undertake further restructuring initiatives that would entail additional charges and create additional risks |
| In addition, there is the risk that cost-cutting initiatives will impair our ability to effectively develop and market products and remain competitive |
| Each of the above measures could have long-term effects on our business by reducing our pool of talent, decreasing or slowing improvements in our products, making it more difficult for us to respond to customers, limiting our ability to increase production quickly if and when the demand for our products increases and limiting our ability to hire and retain key personnel |
| These circumstances could cause our earnings to be lower than they otherwise might be |
| WE DEPEND ON A FEW KEY PERSONNEL TO MANAGE AND OPERATE THE BUSINESS AND MUST BE ABLE TO ATTRACT AND RETAIN HIGHLY QUALIFIED EMPLOYEES Our success is largely dependent on the personal efforts and abilities of our senior management |
| Failure to retain these executives, or the loss of certain additional senior management personnel or other key employees, could have a material adverse effect on our business and future prospects |
| We are also dependent on the continued service of our key sales, content development and operational personnel and on our ability to attract, train, motivate and retain highly qualified employees |
| In addition, we depend on writers, programmers, Web designers and graphic artists |
| We may be unsuccessful in attracting, training, retaining or motivating key personnel |
| In particular, the negative consequences (including litigation) of having to restate SmartForce’s historical financial statements, uncertainties surrounding the Merger, and our recent adverse operating results and stock price performance could create uncertainties that materially and adversely affect our ability to attract and retain key personnel |
| The inability to hire, train and retain qualified personnel or the loss of the services of key personnel could have a material adverse effect upon our business, new product development efforts and future business prospects |
| CHANGES IN ACCOUNTING STANDARDS REGARDING STOCK OPTION PLANS COULD LIMIT THE DESIRABILITY OF GRANTING STOCK OPTIONS, WHICH COULD HARM OUR ABILITY TO ATTRACT AND RETAIN EMPLOYEES, AND COULD ALSO REDUCE OUR PROFITABILITY The Financial Accounting Standards Board has determined to require all companies to treat the value of stock options granted to employees as an expense commencing in our first quarter of fiscal 2007 |
| This change will require companies to record a compensation expense equal to the value of each stock option granted |
| This expense will be spread over the vesting period of the stock option |
| Due to the fact that we will be required to expense stock option grants, it could reduce the attractiveness of granting stock options because the additional expense associated with these grants would reduce our profitability |
| However, stock options are an important employee recruitment and retention tool, and we may not be able to attract and retain key personnel if we reduce the scope of our employee stock option program |
| Accordingly, either our profitability, or our ability to use stock options as an employee recruitment and retention tool would be adversely impacted |
| OUR BUSINESS IS SUBJECT TO CURRENCY FLUCTUATIONS THAT COULD ADVERSELY AFFECT OUR OPERATING RESULTS Due to our multinational operations, our operating results are subject to fluctuations based upon changes in the exchange rates between the currencies in which revenues are collected or expenses are paid |
| In particular, the value of the US dollar against the euro and related currencies will impact our operating results |
| Our expenses will not necessarily be incurred in the currency in which revenue is generated, and, as a result, we will be required from time to time to convert currencies to meet our obligations |
| These currency conversions are subject to exchange rate fluctuations, and changes to the value of the euro, pound sterling and other currencies relative to the US dollar could adversely affect our business and results of operations |
| 26 _________________________________________________________________ WE MAY BE UNABLE TO PROTECT OUR PROPRIETARY RIGHTS UNAUTHORIZED USE OF OUR INTELLECTUAL PROPERTY MAY RESULT IN DEVELOPMENT OF PRODUCTS OR SERVICES THAT COMPETE WITH OURS Our success depends to a degree upon the protection of our rights in intellectual property |
| We rely upon a combination of patent, copyright, and trademark laws to protect our proprietary rights |
| We have also entered into, and will continue to enter into, confidentiality agreements with our employees, consultants and third parties to seek to limit and protect the distribution of confidential information |
| However, we have not signed protective agreements in every case |
| Although we have taken steps to protect our proprietary rights, these steps may be inadequate |
| Existing patent, copyright, and trademark laws offer only limited protection |
| Moreover, the laws of other countries in which we market our products may afford little or no effective protection of our intellectual property |
| Additionally, unauthorized parties may copy aspects of our products, services or technology or obtain and use information that we regard as proprietary |
| Other parties may also breach protective contracts we have executed or will in the future execute |
| We may not become aware of, or have adequate remedies in the event of, a breach |
| Litigation may be necessary in the future to enforce or to determine the validity and scope of our intellectual property rights or to determine the validity and scope of the proprietary rights of others |
| Even if we were to prevail, such litigation could result in substantial costs and diversion of management and technical resources |
| OUR NON-US OPERATIONS ARE SUBJECT TO RISKS WHICH COULD NEGATIVELY IMPACT OUR FUTURE OPERATING RESULTS We expect that international operations will continue to account for a significant portion of our revenues |
| Operations outside of the United States are subject to inherent risks, including: • difficulties or delays in developing and supporting non-English language versions of our products and services; • political and economic conditions in various jurisdictions; • difficulties in staffing and managing foreign subsidiary operations; • longer sales cycles and account receivable payment cycles; • multiple, conflicting and changing governmental laws and regulations; • foreign currency exchange rate fluctuations; • protectionist laws and business practices that may favor local competitors; • difficulties in finding and managing local resellers; • potential adverse tax consequences; and • the absence or significant lack of legal protection for intellectual property rights |
| Any of these factors could have a material adverse effect on our future operations outside of the United States, which could negatively impact our future operating results |
| THE MARKET PRICE OF OUR ADSs MAY FLUCTUATE AND MAY NOT BE SUSTAINABLE The market price of our ADSs has fluctuated significantly since our initial public offering and is likely to continue to be volatile |
| In addition, in recent years the stock market in general, and the market for shares of technology stocks in particular, have experienced extreme price and volume fluctuations, which have often been unrelated to the operating performance of affected companies |
| The market price of our ADSs may continue to experience significant fluctuations in the future, including fluctuations that are unrelated to our performance |
| As a result of these fluctuations in the price of our ADSs, it is difficult to predict what the price 27 _________________________________________________________________ of our ADSs will be at any point in the future, and you may not be able to sell your ADSs at or above the price that you paid for them |
| OUR SALES CYCLE MAY MAKE IT DIFFICULT TO PREDICT OUR OPERATING RESULTS The period between our initial contact with a potential customer and the purchase of our products by that customer typically ranges from three to twelve months or more |
| Factors that contribute to our long sales cycle, include: • our need to educate potential customers about the benefits of our products; • competitive evaluations by customers; • the customers’ internal budgeting and approval processes; • the fact that many customers view training products as discretionary spending, rather than purchases essential to their business; and • the fact that we target large companies, which often take longer to make purchasing decisions due to the size and complexity of the enterprise |
| These long sales cycles make it difficult to predict the quarter in which sales may occur |
| Delays in sales could cause significant variability in our revenues and operating results for any particular period |
| OUR BUSINESS COULD BE ADVERSELY AFFECTED IF OUR PRODUCTS CONTAIN ERRORS Software products as complex as ours contain known and undetected errors or “bugs” that result in product failures |
| The existence of bugs could result in loss of or delay in revenues, loss of market share, diversion of product development resources, injury to reputation or damage to efforts to build brand awareness, any of which could have a material adverse effect on our business, operating results and financial condition |