EXHIBIT 99.1
CAUTIONARY STATEMENT UNDER PRIVATE SECURITIES LITIGATION REFORMACT OF 1995
- "SAFE HARBOR" FOR FORWARD LOOKING STATEMENTS
Certain "forward-looking statements" (within the meaning of the Private
Securities Litigation Reform Act of 1995) are included in this Form 10-Q and may
be made by Company spokespersons based on current expectations of management.
This Cautionary Statement is for the purpose of qualifying for the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995 with respect
to forward-looking statements. Certain factors, including but not limited to
those listed below, may cause actual results to differ materially from current
expectations, historical results and those contained in forward-looking
statements.
SEASONALITY
The Company has experienced, and may experience in the future,
significant seasonality in its business. The Company's business, operating
results and financial condition may be affected by such trends in the future.
Revenues have historically increased at higher rates in the fourth quarter of
the year and at lower rates in the next succeeding quarter, except for the
fourth quarter of 1999 discussed below. The Company believes such seasonality is
due to a number of factors, including the Company's quota-based compensation
arrangements, typical of those used in software companies, and year-end
budgetary pressures on the Company's customers. The Company believes revenues
for the fourth quarter of 1999 were not consistent with the historical trend
previously discussed principally as a result of a delay in closing year-end
license business due to companies' unique focus on their year 2000 issues.
Excluding the impact of the fourth quarter of 1999, the Company believes that
the seasonal trend that the Company has experienced in the past may continue in
the foreseeable future.
QUARTERLY FLUCTUATIONS
The Company's quarterly revenues and operating results have varied
significantly in the past and are likely to vary substantially from quarter to
quarter in the future. The Company's operating results may fluctuate as a result
of a number of factors, including, but not limited to, increased expenses
(especially as they relate to product development and sales and marketing),
timing of product releases, increased competition, variations in the mix of
revenues, announcements of new products by the Company or its competitors and
capital spending patterns of the Company's customers. The Company establishes
its expenditure levels based upon its expectations as to future revenues, and,
if revenue levels are below expectations, expenses can be disproportionately
high. A drop in near term demand for the Company's products could significantly
affect both revenues and profits in any quarter. Profitability achieved in
previous fiscal quarters is not necessarily indicative of operating results for
the full fiscal years or for any future periods. As a result of these factors,
there can be no assurance that the Company will be able to maintain
profitability on a quarterly basis. The Company believes that, due to the
underlying factors for quarterly fluctuations, period-to-period comparisons of
its operations are not necessarily meaningful and that such comparisons should
not be relied upon as indications of future performance.
PRODUCT CONCENTRATION
Until 1997, substantially all of the Company's revenues were derived
from its Ultipro for Lan product and related services. The Company has shifted
its focus from a product based on DOS and local area network technologies,
Ultipro for Lan, to a product based on Windows, client/server and Web-based
technologies, UltiPro HRMS/Payroll. As a result of this shift and the decrease
in general market demand for
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DOS-based products, the Company's revenues from its Ultipro for Lan product have
been declining and are expected to decline for the foreseeable future. There can
be no assurance that the decline in revenues from sales of Ultipro for Lan will
not have a material adverse effect on the Company's business, operating results
and financial condition. While the Company still derives revenues from the
support and service of the Ultipro for Lan product line, its UltiPro
HRMS/Payroll product and related services are expected to account for
substantially all of the Company's revenues for the foreseeable future.
Accordingly, the Company's future success will depend on maintaining and
increasing acceptance of UltiPro HRMS/Payroll and related services and its
ability to successfully implement the product. There can be no assurance that
UltiPro HRMS/Payroll will gain broad market acceptance or that the Company will
be able to successfully implement UltiPro HRMS/Payroll in a timely manner. Any
factors adversely affecting the demand for UltiPro HRMS/Payroll would have a
material adverse effect on the Company's business, operating results and
financial condition.
MANAGEMENT OF GROWTH
The Company has experienced a period of rapid growth. For example, the
number of the Company's employees has increased from 227 as of December 31, 1996
to 422 as of June 30, 2000. The growth of the Company's business and expansion
of its customer base has placed, and is expected to continue to place, a
significant strain on the Company's management and operations. The Company
expects to continue to increase its research and development, professional
services, sales and marketing and administrative operations. Accordingly, the
Company's future operating results will depend on the ability of its management
and other key employees to continue to implement and improve its systems for
operations, financial control and information management and to recruit, train,
manage and retain its employee base. There can be no assurance that the Company
will be able to manage or continue to manage its recent or any future growth
successfully, and any inability to do so would have a material adverse effect on
the Company's business, operating results and financial condition.
RISKS ASSOCIATED WITH SALES CHANNELS
The Company sells its products and services primarily through a direct
sales force. The Company's ability to achieve significant revenue growth in the
future will depend, in part, on its success in recruiting, training and
retaining sufficient direct sales personnel. The Company also markets its
products and services through a network of national, local and regional
strategic partners, and is attempting to establish more of such relationships.
Historically, a significant portion of the Company's revenues had been derived
from sale of the Company's products by certain third-party resellers. By March
1998, the Company had acquired the businesses of all of its third-party
resellers in order to gain greater control over its distribution channel. There
can be no assurance that the Company's shift to a direct distribution channel
will be successful. The Company's ability to achieve significant revenue growth
in the future will depend, in large part, upon the success of its direct sales
force, its ability to establish and maintain relationships with strategic
partners and its ability to adapt its sales channels to address the evolving
markets for its products. Failure to do so could have a material adverse effect
on the Company's business, operating results and financial condition.
RAPID TECHNOLOGICAL CHANGE; DEPENDENCE ON NEW PRODUCTS
The market for the Company's products is characterized by rapid
technological advancements, changes in customer requirements, frequent new
product introductions and enhancements and changing industry standards. The life
cycles of the Company's products are difficult to estimate. Rapid technological
changes and the introduction of new products and enhancements could undermine
the Company's current market position by new or existing competitors. The
Company's growth and future success will depend, in part, upon its ability to
enhance its current products and introduce new products in order to keep pace
with products offered by the Company's competitors, adapt to technological
advancements and changing industry
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standards and expand the functionality of its products to address the
increasingly sophisticated requirements of its customers. There can be no
assurance that the Company will have sufficient resources to make the necessary
investments or that it will not experience difficulties that could delay or
prevent the successful development, introduction or marketing of new products or
enhancements. In addition, there can be no assurance that such products or
enhancements will meet the requirements of the marketplace or achieve market
acceptance or that the Company's existing and potential customers will migrate
to client/server environments at the rate expected by the Company. Any failure
by the Company to anticipate or respond adequately to technological
advancements, customer requirements and changing industry standards, or any
significant delays in the development, introduction or availability of new
products or enhancements, could have a material adverse effect on the Company's
business, operating results and financial condition.
COMPETITION
The Company's future success will depend significantly upon its ability
to increase its share of its target market, to maintain and increase its renewal
revenues from existing customers and to sell additional products, product
enhancements, maintenance and support agreements and training and consulting
services to existing and new customers. The HRMS/payroll market is intensely
competitive. The Company has a variety of competitors, including (i) a number of
companies, such as Cyborg Systems, Inc., Genesys Software Systems, Inc., Lawson
Software, Inc., Oracle Corporation, PDS Software, Inc., PeopleSoft, Inc. and SAP
America, Inc. which offer HRMS/payroll software products for use on mainframes
and/or client/server systems; (ii) large service bureaus, such as Automatic Data
Processing, Inc. and Ceridian Corporation; and (iii) the internal payroll/human
resources departments of potential customers which use custom-written software.
The Company believes that existing competitors and new market entrants will
attempt to develop in-house systems that will compete with the Company's
products. Many of the Company's current and potential competitors have
significantly greater financial, technical, marketing and other resources than
the Company. As a result, they may be able to respond more quickly to new or
emerging technologies and to changes in customer requirements, or to devote
greater resources to the development, promotion and sale of their products than
can the Company. There can be no assurance that the Company will be able to
compete successfully against current or future competitors or that competitive
pressures will not materially adversely affect the Company's business, operating
results and financial condition. In addition, current and potential competitors
have established or may establish cooperative relationships among themselves or
with third parties to increase the ability of their products to address the
needs of the Company's prospective customers. Accordingly, it is possible that
new competitors or alliances among competitors may emerge and rapidly acquire
significant market share. There can be no assurance that competitors will not
develop products that are superior to the Company's products or achieve greater
market acceptance.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant extent upon a limited
number of members of senior management and other key employees, including Scott
Scherr, the Company's Chairman of the Board, President and Chief Executive
Officer, and Alan Goldstein, M.D., the Company's Executive Vice President and
Chief Technology Officer and a director of the Company. The Company does not
have employment contracts with any of its key personnel other than certain
non-competition and confidentiality agreements entered into with Mr. Scherr and
Dr. Goldstein. The Company maintains key man life insurance for Scott Scherr in
the amount of $2.0 million. The loss of the service of one or more key managers
or other employees could have a material adverse effect upon the Company's
business, operating results and financial condition.
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RELIANCE ON MICROSOFT CORPORATION AND OTHER THIRD-PARTY TECHNOLOGIES
The Company's software products are designed primarily to operate with
Microsoft Corporation ("Microsoft") technologies and the Company's strategy
requires that its products and technology be compatible with new developments in
Microsoft technology. Although the Company believes that Microsoft technologies
are currently widely utilized by businesses of all sizes, there can be no
assurance that businesses will continue to adopt such technologies as
anticipated, will migrate from older Microsoft technologies (such as DOS or
earlier versions of Windows) to newer Microsoft technologies or will not adopt
alternative technologies that are incompatible with the Company's products. If
businesses do not migrate from older technologies and adopt the Microsoft
technologies with which the Company's products are compatible, the Company's
business, operating results and financial condition could be materially and
adversely affected. In addition, the Company's products utilize certain software
licensed to it by other third-party software developers. Although the Company
believes that there are alternatives for these products, any significant
interruption in the availability of such third-party software could have a
material adverse impact on the Company's sales unless and until the Company can
replace the functionality provided by these products. Moreover, the Company is
to a certain extent dependent upon such third parties' abilities to enhance
their current products, to develop new products on a timely and cost-effective
basis and to respond to emerging industry standards and other technological
changes. There can be no assurance that the Company would be able to replace the
functionality provided by the third-party software currently offered in
conjunction with the Company's products in the event that such software becomes
obsolete or incompatible with future versions of the Company's products or is
otherwise not adequately maintained or updated. The absence of or any
significant delay in the replacement of that functionality could have a material
adverse effect on the Company's business, operating results and financial
condition.
TIMELY RELEASE OF PERIODIC UPDATES TO REFLECT TAX LAW AND OTHER REGULATORY
CHANGES
The Company's products are affected by changes in laws and regulations
and generally must be updated annually or periodically to maintain their
accuracy and competitiveness. There can be no assurance that the Company will be
able to release these annual or periodic updates on a timely basis in the
future. Failure to do so could have a material adverse effect on market
acceptance of the Company's products, which could have a material adverse effect
on the Company's business, operating results and financial condition. In
addition, significant changes in tax laws and regulations or other regulatory
provisions applicable to the Company's products could require the Company to
make a significant investment in product modifications, which could have a
material adverse effect on the Company's business, operating results and
financial condition.
PROTECTION OF INTELLECTUAL PROPERTY; RISKS OF INFRINGEMENT
The Company's success is dependent in part on its ability to protect
its proprietary rights. The Company generally licenses its products in object
code form only, although it has source code escrow arrangements when required by
customers. The Company relies on a combination of copyright, trademark and trade
secret laws, as well as confidentiality agreements and licensing arrangements,
to establish and protect its proprietary rights. The Company does not have any
patents or patent applications pending, and existing copyright, trademark and
trade secret laws afford only limited protection. Accordingly, there can be no
assurance that the Company will be able to protect its proprietary rights
against unauthorized third party copying or use, which could materially
adversely affect the Company's business, operating results and financial
condition. Despite the Company's efforts to protect its proprietary rights,
attempts may be made by unauthorized parties to copy or reverse engineer aspects
of the Company's products or to obtain and use information that the Company
regards as proprietary. Moreover, there can be no assurance that others will not
develop products that perform comparably to the Company's proprietary products.
Policing the
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unauthorized use of the Company's products is difficult. Litigation may be
necessary in the future to enforce the Company's intellectual property rights,
to protect the Company's trademarks, copyrights or trade secrets or to determine
the validity and scope of the proprietary rights of others. Such litigation
could result in substantial costs and diversion of resources and could have a
material adverse effect on the Company's business, operating results and
financial condition.
As is common in the software industry, the Company from time to time
may become aware of third-party claims of infringement by the Company's
operations or products of third-party proprietary rights. While the Company is
not currently aware of any such claim, the Company's software products may
increasingly be subject to such claims as the number of products and competitors
in the Company's industry grows and the functionality of products overlaps and
as the issuance of software patents becomes increasingly common. Any such
claims, with or without merit, can be time consuming and expensive to defend,
cause product shipment delays or require the Company to enter into royalty or
licensing agreements. Such royalty agreements, if required, may not be available
on terms acceptable to the Company, or at all, which could have a material
adverse effect on the Company's business, operating results and financial
condition.
PRODUCT ERRORS; PRODUCT LIABILITY
Software products such as those offered by the Company frequently
contain undetected errors or failures when first introduced or as new versions
are released. Testing of the Company's products is particularly challenging
because it is difficult to simulate the wide variety of computing environments
in which the Company's customers may deploy these products. Despite extensive
testing, the Company from time to time has discovered defects or errors in its
products. There can be no assurance that such defects, errors or difficulties
will not cause delays in product introductions and shipments, result in
increased costs and diversion of development resources, require design
modifications or decrease market acceptance or customer satisfaction with the
Company's products. In addition, there can be no assurance that, despite testing
by the Company and by current and potential customers, errors will not be found
after commencement of commercial shipments, resulting in loss of or delay in
market acceptance, which could have a material adverse effect upon the Company's
business, operating results and financial condition. The Company has included
security features in its products that are intended to protect the privacy and
integrity of customer data. Despite the existence of these security features,
the Company's software products may be vulnerable to break-ins and similar
disruptive problems. Addressing these evolving security issues may require
significant expenditures of capital and resources by the Company, which may have
a material adverse effect on the Company's business, operating results and
financial condition.
Although the Company has not experienced any material product liability
claims to date, the sale and support of software products and the performance of
related services by the Company entails the risk of such claims. Customers in
connection with the preparation and filing of tax returns and other regulatory
reports use the Company's products. If any of the Company's products contain
errors that produce inaccurate results upon which users rely, or cause users to
misfile or fail to file required information, the Company could be subject to
liability claims from users which could, in turn, materially adversely affect
the Company's business, operating results and financial condition. The Company's
license agreements with its customers typically contain provisions intended to
limit the Company's exposure to such claims, but such provisions may not be
effective in limiting the Company's exposure. There can be no assurance that the
contractual limitations used by the Company will be enforceable or will provide
the Company with adequate protection against product liability claims in certain
jurisdictions. A successful claim for product or service liability brought
against the Company could result in substantial cost to the Company and divert
management's attention from the Company's operation, which could have a material
adverse effect upon the Company's business, operating results and financial
condition.
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