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EXHIBIT 99.1
CAUTIONARY STATEMENTS FOR PURPOSES OF THE SAFE HARBOR PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995 ("Act"), ShowCase Corporation (the "Company") is
filing cautionary statements identifying important factors that could cause the
Company's actual results to differ materially from those projected in forward-
looking statements made by, or on behalf of the Company. When used in this
Annual Report on Form 10-K for the fiscal year ended March 31, 2000 and in
future filings by the Company with the Securities and Exchange Commission, in
the Company's press releases, other communications, and in oral statements made
by or with the approval of an authorized executive officer, the words or
phrases "will likely result", "are expected to", "will continue", "is
anticipated", "estimate", "project", "believe" or similar expressions are
intended to identify forward-looking statements within the meaning of the Act.
The following cautionary statements are for use as a reference to a readily
available written document in connection with forward looking statements as
defined in the Act. These factors are in addition to any other cautionary
statements, written or oral, which may be made or referred to in connection
with any such forward-looking statement.
We have a history of losses and we may not be able to achieve profitability
We incurred net losses from operations of approximately $3.6 million for the
fiscal year ended March 31, 1998, $559,000 for the fiscal year ended March 31,
1999 and $4.8 million for the fiscal year ended March 31, 2000. We expect to
continue to incur significant sales and marketing, product development and
general and administrative expenses. In particular, we intend to substantially
increase our direct field sales force, and accordingly increase our sales and
marketing expenses. As a result, we may experience losses and negative cash
flows. If we do achieve profitability, we may not sustain or increase
profitability on a quarterly or annual basis in the future.
Our future operating results may not follow past trends due to many factors
The relatively recent introduction of a substantial portion of our current
product suite and our history of losses make prediction of future results
difficult. In the past, our revenues and operating results have varied
significantly, and we expect these fluctuations to continue. Although our
revenues have grown significantly in recent periods, you should not rely on
past performance as any indication of future growth rates or operating results.
Future operating results will depend on many factors, including:
. demand for the IBM AS/400 platform;
. growth of the market for business intelligence solutions;
. demand for and acceptance of our products, product enhancements and
services;
. maintenance and development of our strategic relationships with
application vendors, resellers and distributors;
. the introduction, timing and competitive pricing of products and
services by us and our competitors;
. the level of non-proprietary products as a percentage of total revenue;
. expansion and rate of success of our direct sales force and indirect
distribution channels both domestically and internationally;
. integration of web-based content management into our operating strategy;
and
. attraction and retention of key personnel.
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Our quarterly operating results fluctuate significantly and are difficult to
predict
Quarterly operating results. Our operating results have varied and in the
future are likely to vary significantly from quarter to quarter for a number of
reasons, including:
. the size and timing of significant orders;
. the length of our sales cycles and the sales cycles of our distribution
partners;
. the mix of products and services that we sell and the mix between direct
and indirect sales of our products;
. our ability to control costs;
. our ability to introduce new products and enhancements in a timely
manner;
. the rate of success of our international expansion and the effect of
foreign currency exchange rate fluctuations;
. the discovery of software defects; and
. general economic conditions as well as those specific to our customers
and markets.
Revenues. We cannot predict our quarterly revenues with any significant
degree of accuracy for several reasons. We have historically operated with a
low software order backlog because we generally ship our software products
shortly after we receive orders. Accordingly, our product license revenues for
any quarter depend significantly on orders booked and shipped during that
quarter. In recent periods, we have experienced an increase in the average size
of our licenses, and we expect this trend to continue. Moreover, we often
recognize a substantial portion of our quarterly product license revenues in
the last few weeks of a quarter. As a result, delays in booking customer orders
can adversely affect our reported revenues for a particular quarter. Finally, a
significant percentage of our sales are through indirect channels that are less
predictable than sales through our direct sales force.
We have often realized a greater percentage of our license revenue and
operating income in our third fiscal quarter than in other quarters due to
client purchasing patterns. In addition, due to seasonal factors, our sales
often tend to slow during the summer months. We expect these trends to
continue.
Product license revenues also vary because the market for our products is
evolving rapidly and because sales cycles, which may last many months, vary
widely from client to client. Sales cycles are affected by many factors,
including:
. our clients' budgetary constraints;
. the timing of our clients' budget cycles;
. our clients' decisions as to whether, and on what scale, to adopt
business intelligence solutions;
. our clients' concerns about the introduction of new products by us or
our competitors; and
. potential downturns in the economy, which may reduce demand for our
products.
Maintenance and support fees depend largely on revenues from our existing
clients and vary with their maintenance and support needs. Professional service
revenues are often unpredictable because they depend in part on the scope of
the services we provide and whether our customers utilize those services.
Expenses. Because we plan to expand our business, we anticipate substantial
increases in operating costs and expenses, including administration, consulting
and training, maintenance and technical support, product development and sales
and marketing expenses. In general, we base our operating expense budgets on
anticipated revenue trends, and we may not be able to reduce these expenses in
the short term. Because our expenses are relatively fixed in the near term, any
shortfall from anticipated revenues or any delay in recognition of revenues
could result in significant variations in quarterly operating results.
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For the foregoing reasons, we believe that quarter-to-quarter comparisons of
our operating results are not a good indication of our future performance. It
is likely that in one or more future quarters, our operating results may not
meet the expectations of analysts and investors. In this event, the price of
our common stock may fall.
The growth of our business depends on the growth of the market for business
intelligence software
All of our revenues to date have been attributable to the sale of business
intelligence software and related maintenance, support, consulting and
professional services. Business intelligence software enables organizations to
transform data from disparate sources into accessible, understandable and
useful information. We expect such software and services to continue to account
for substantially all of our revenues for the foreseeable future. Although
demand for business intelligence software has grown in recent years, we cannot
assure that the market will continue to grow or that, even if the market does
grow, businesses will adopt our products. If such growth does not materialize,
our business and operating results would be seriously harmed.
We believe that future growth in the market for business intelligence
software will depend in large part on the growth of e-business--business-to-
business, business-to-employee and business-to-customer communications and
transactions over the Internet, corporate intranets and extranets. E-business
has only recently emerged, and may not continue to grow. Continued grow in e-
business depends on a number of factors, including the Internet's ability to
efficiently handle increased activity and to operate as a fast, reliable and
secure network. Critical issues concerning the commercial use of the Internet,
including data corruption, security, bandwidth availability and quality of
service, remain and may negatively affect the growth of e-business, and
accordingly, the demand for business intelligence software.
If the current levels of use of the IBM AS/400 and IBM's support of the AS/400
do not continue, we may not be able to increase our sale
The server components of our products currently operate only on the IBM
AS/400. To date, virtually all of our revenues have been derived from the
AS/400 customer base. Therefore, our ability to increase sales of our products
will depend on the continued use of the AS/400 and the continued support of the
AS/400 by IBM. Instead of using the AS/400, many computer users have
implemented client/server computer systems based on the UNIX or Windows NT
platforms. The current levels of use by AS/400 customers and support of the
AS/400 by IBM may not continue and the use of the AS/400 may not increase in
the future. To develop products that operate on platforms other than the AS/400
would require us to commit a substantial investment of resources, and we may
not successfully introduce these products on a timely or cost-effective basis
or at all.
We may lose existing clients or be unable to attract new clients if we do not
develop new products and enhance our current products
We compete in markets where technology changes rapidly, competitors make
frequent new product introductions and enhancements, products have uncertain
life cycles and customer demands change unexpectedly. Our future success
depends on our ability to satisfy diverse and evolving customer requirements
and achieve market acceptance. It will also depend on our ability to improve
and expand our product line to keep pace with our competitors' product
introductions and technological developments. We cannot be certain that we will
be successful in developing and marketing product enhancements or new products
on a timely or cost-effective basis, or that these products, if developed, will
achieve market acceptance.
As a result of the complexities of business intelligence software, major new
products and product enhancements can require long development and testings
periods. In addition, clients may delay their purchasing decisions in
anticipation of the general availability of new or enhanced versions of our
products and services. We have experienced delays in releasing new products and
product enhancements and may experience similar delays in the future. Delays or
problems in releasing our new products, or significant problems in the
installation or implementation of our products, may cause clients to delay or
cancel purchases or to purchase products from our competitors, which would
seriously harm our business and operating results.
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If our relationships with distribution partners are not successful and if we
cannot recruit additional channel partners we may not be able to expand our
sales
In addition to our direct sales force, we rely on distribution partners
including application vendors, resellers and distributors to license and
support our products in the United States and internationally. Our ability to
expand the sales of our products and our future success will depend in part
upon recruiting distribution partners and maintaining successful relationships
with these partners. Our distribution partners may offer products of several
different companies, including, in some cases, products that compete with our
products. In addition, in the future, our distribution partners may develop
products that compete with our products. Our existing and potential
distribution partners may be influenced to scale back or end their
relationships with us by our competitors who may have significantly greater
resources and market clout than we do. These distribution partners may not
devote adequate resources to selling our products. If we are unable to retain
our existing distribution partners or enter into additional relationships, we
may have to devote substantially more resources to the distribution, sale and
marketing of our products and services.
Sales through distribution partners typically are at lower margins for us
than those through direct sales. Therefore, if we are successful in increasing
the amount of sales through our distribution partners our operating margins
could decrease.
Our relationships with Hyperion Solutions Corporation and IBM are important to
our revenue, which would be harmed by a deterioration in these relationships
Maintaining our strategic relationships with Hyperion Solutions Corporation
and IBM is important to our continued success, and a deterioration in or
termination of these relationships could seriously harm our business and
operating results. We have a contractual relationship with Hyperion Solutions
that grants us the exclusive right to distribute its analytical online
processing product, Essbase, as ported by us to the AS/400, subject to limited
distribution rights retained by Hyperion Solutions. Licensing fees for this
product, Essbase/400, have been a significant percentage of our total license
fees and are expected to continue. Hyperion Solutions has retained the right,
upon twelve months notice, to terminate the exclusivity of our distribution
rights. Furthermore, we must pay Hyperion Solutions minimum royalty payments,
which increase over the term of our license agreement, to maintain our
distribution rights to Essbase/400. The loss of our right to distribute
Essbase/400 would seriously harm our business and operating results. Finally,
our Analyzer and Analyzer for the Web products are based on technology licensed
from Hyperion Solutions under a non-exclusive 1996 license agreement that
expires in January 2001. In order to continue to offer products with the
capabilities provided by our Analyzer and Analyzer for the Web products after
January 2001, we would need to develop the necessary technology internally,
extend or replace our license agreement with Hyperion Solutions or license
technology from a third party. If we are unable to do so, the capabilities of
our product suite would be significantly reduced, which would seriously harm
our business and operating results.
We entered into an expanded agreement with IBM in December 1998, which was
amended in February 2000, under which certain products are marketed and sold as
OEM IBM products by IBM. This agreement has a term of seven years, and expands
the scope of our reseller relationship with IBM. Also, we have engaged in joint
marketing campaigns and research and development projects with IBM since our
inception. We believe our relationship with IBM has been a significant factor
in our success to date, and any deterioration or termination of this
relationship would seriously harm our business and operating results.
We need to increase the size of our direct sales force, which has a limited
operating history, to grow our sales
We intend to increase sales of our products by growing our direct sales
force. Because it has only existed since September 1996, our direct field sales
force has a limited operating history and may be unsuccessful in implementing
our strategy of focusing sales efforts on potential clients that will deploy
our product suite on a large scale. Typically, our salespeople have taken
approximately six months from their respective hiring dates to become
productive selling our products. Furthermore, we believe that there is
significant competition for
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direct sales personnel with the advanced sales skills and technical knowledge
we need. Our inability to hire or develop competent sales personnel who are
successful at generating business application oriented sales, or our failure to
retain them, would seriously harm our business and operating results.
Our markets are highly competitive which may lead to lower prices, reduced
gross margins and loss of market share
The markets for our products are intensely competitive and subject to
rapidly changing technology. We compete primarily against providers of decision
support software and data warehousing and data mart software. Our competitors
providing business intelligence solutions for AS/400 customers include Silvon
and Infomanager. We also compete with vendors that provide business
intelligence products implemented on Unix or Windows NT platforms and then
connected to the AS/400. These vendors include Brio Technology, Business
Objects, Cognos, Computer Associates, Hyperion Solutions, MicroStrategy,
Microsoft, Oracle, Sagent Technology and SAS Institute. In addition, enterprise
resource planning software vendors including Baan Company, PeopleSoft and SAP
are beginning to offer decision support and analytical modules primarily to
support the analysis of data from its own operational systems. One or more of
these companies may expand their technologies to support greater business
intelligence functionality. Application service providers and companies
offering web-based content management solutions may become additional sources
of competition. Finally, in the future, IBM may expand the functionality of the
operating system for the AS/400, or of its database products, to provide some
of the functions provided by our products.
Many of our competitors have longer operating histories, significantly
greater financial, technical, marketing or other resources and greater name
recognition than we do. As a result, they may be able to respond more quickly
to new or emerging technologies and changes in customer requirements. Increased
competition may harm our ability to sell additional software and maintenance
and support renewals on terms favorable to us and lead to price cuts, reduced
gross margins and loss of market share, which may seriously harm our business
and operating results.
Our competitors may make strategic acquisitions or establish cooperative
relationships among themselves or other parties that may increase their ability
to meet the needs of our current and potential clients. The business
intelligence software industry has recently experienced consolidation and may
industry analysts expect this trend to continue. This consolidation may provide
our competitors with expanded sales, distribution and marketing capabilities
and broader product offerings. In addition, our current or future distribution
partners may establish cooperative relationships with our competitors, which
may limit our ability to sell our products through various distribution
channels.
Our length sales cycles can result in uncertainty and delays with regard to our
product licenses and expected revenues
Our clients often take an extended time evaluating our products before
licensing them. The period of time between initial client contact and a
purchase order may span from one month to over twelve months. During this
period, clients may decide not to purchase or may scale down their orders of
our products for various reasons, including:
. reductions in demand for business intelligence solutions;
. new products introduced or announced by competitors;
. price competition;
. decisions to use hardware platforms other than the AS/400 for their
business intelligence solutions;
. changes in our clients' budgets and purchasing priorities; and
. diversion of clients' resources and management's attention to other
information technology issues, including Year 2000 compliance issues.
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In addition, we often must provide a significant level of education to our
prospective clients regarding the use and benefit of our products, which may
cause additional delays during the evaluation and acceptance process. These and
other factors make it difficult for us to forecast the timing and recognition
of revenues from sales of our products and services. In recent periods, we have
experienced an increase in the average size of our licenses, and we expect this
trend to continue. This focus on larger licenses will lengthen our average
sales cycle.
We need to expand our management systems and controls to support our
anticipated growth
Our operations are growing rapidly, and we expect this expansion to continue
as we execute our business strategy. Our total number of employees grew from
125 on March 31, 1996 to 300 on March 31, 2000, and we anticipate further
increases in the number of employees. Sustaining our growth has placed
significant demands on management and our administrative, operational,
personnel and financial resources.
We may not be able to successfully manage our growth which could lead to
customer dissatisfaction. Therefore, the inability to sustain or manage our
growth could seriously harm our business and operating results
Difficulties presented by international economic, political, legal, accounting
and business factors could negatively affect our business in international
markets
Sales to clients outside North America historically have represented a
significant percentage of our total revenues. We currently have wholly-owned
subsidiaries in Belgium, Germany, France and the United Kingdom. We plan to
expand our existing international operations and enter into additional
international markets, which will require significant management attention and
financial resources. In order to expand our international operations
successfully, we will have to hire additional personnel and recruit additional
international resellers and distributors. Our failure to do so in a timely
manner may limit the growth of our international operations. We may not be able
to maintain or increase international market demand for our products. In
addition, our products must be localized--customized to meet user needs--in
order to be sold in particular foreign countries.
Our international operations also are subject to other inherent risks,
including:
. the impact of recessions in economies outside the United States;
. greater difficulty in collecting accounts receivable and longer
collection periods;
. unexpected changes in regulatory requirements, tariffs or other trade
barriers;
. difficulties and costs in staffing and managing foreign operations;
. weaker intellectual property right protection in some countries;
. potentially adverse tax consequences;
. political and economic instability;
. costs of localizing products for foreign countries;
. the effect of foreign currency exchange rate fluctuations; and
. the burden of complying with a wide variety of foreign laws.
Any of these risks could seriously harm our future international sales and
therefore our business.
Our international revenues and expenses are subject to fluctuations in foreign
currency exchange rates may lead to reduced operating margins
Our international revenues and expenses are denominated in foreign
currencies. The functional currency of each of our foreign subsidiaries is its
local currency. We currently do not engage in foreign exchange hedging
activities. Therefore, our international revenues and expenses currently are
subject to foreign currency
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fluctuations. Our foreign currency translation gains and losses have so far
been immaterial. However, future fluctuations in exchange rates between the
U.S. dollar and foreign currencies may seriously harm our business and
operating results, particularly our operating margins.
We are currently unable to predict the possible consequences of euro conversion
on our business and operating results
On January 1, 1999, eleven of the fifteen member countries of the European
Union set fixed conversion rates between their existing sovereign currencies
and the euro, the only currency that will be used in the European Union
countries starting July 1, 2002, and adopted the euro as their legal currency.
Currently, we are assessing the impact of these events on our company. In
addition to tax and accounting issues, we are considering:
. the technical challenges of adapting our systems to accommodate euro-
denominated transactions;
. the impact on currency exchange costs and currency exchange rate risk;
and
. the impact on existing contracts.
At this time, we cannot yet predict the consequences of euro conversion on
our business and operating results.
Our executive officers and key personnel are critical to our business and these
officers and key personnel may not remain with us in the future
Our future success depends on our ability to hire, train, assimilate and
retain highly qualified employees. Competition for these individuals is
intense, and we may not be able to attract, assimilate or retain additional
highly qualified personnel in the future. Because our executive offices are
located in Rochester, Minnesota, with a population of approximately 80,000, we
must frequently recruit qualified employees from outside the vicinity of our
headquarters, which may put us at a competitive disadvantage.
Our success is highly dependent upon the continued service and skills of key
management, technical, sales and marketing personnel, none of whom, except
Patrick Dauga and Kenneth H. Holec, are bound by formal employment agreements.
If we lose the services of any of these key personnel, it may have a negative
impact on our business. Mr. Holec's employment agreement is a year-to-year
agreement which either party may elect not to renew by giving the other party
notice at least 30 days before the termination of any one-year term. Mr. Dauga
may terminate his employment agreement at any time by giving us notice at least
three months before this termiation. We do not maintain life insurance policies
covering any of our employees.
We may face increased competition if we are unable to protect our intellectual
property rights, and we may be subject to intellectual property infringement
claims
Our success and ability to compete depend substantially upon our internally
developed technology. We attempt to protect our software, documentation and
other written materials primarily through a combination of trade secret,
trademark and copyright laws, confidentiality procedures and contractual
provisions, which afford only limited protection. We have one patent issued and
one patent application pending in the United States with respect to aspects of
our software. The pending patent application may not be issued, or, if issued,
it and our previously issued patent may not survive a legal challenge to their
validity or provide us significant protection.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or otherwise obtain and use our
products and technology. Policing unauthorized use of our products is
difficult, particularly in foreign countries where the laws may not protect our
proprietary rights as fully as in the United States. Our means of protecting
our intellectual property rights may not be adequate or our competitors may
independently develop similar technology.
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We anticipate that software product developers will increasingly be subject
to infringement claims as the number of products and competitors in our
industry segment grows and the functionality of products in different industry
segments overlaps. As a result, we may become involved in these claims from
time to time. Any of these claims, with or without merit, could result in
costly litigation, divert our management's time, attention and resources,
delay our product shipments, or require us to enter into royalty or licensing
agreements. A third party may not be willing to enter into a royalty or
licensing agreement on acceptable terms, or at all. If a claim of product
infringement against us is successful and we fail to obtain a license or to
develop or license non-infringing technology, our business and operating
results could be seriously harmed.
If we discover software defects, we may have product-related liabilities and
marketing difficulties which may lead to a loss of revenue or delay in market
acceptance for our products
Our software products are complex and may contain errors, defects or
failures, especially when first introduced or when new versions are released.
In the past we have discovered software errors in some of our products after
their introduction. Despite extensive testing, we may not be able to detect
and correct errors in products or releases before commencing commercial
shipments, which may result in harm to our reputation and loss of revenue or
delay in market acceptance.
Our license agreements with customers typically contain provisions designed
to limit our exposure to potential product liability claims. Various domestic
and international jurisdictions may not enforce these limitations. Although we
have not experienced any product liability claims to date, we may encounter
such claims in the future. Product liability claims, whether or not
successful, brought against us could have a material adverse effect on our
business. Defending a suit, regardless of its merits, could entail substantial
expense and require the time and attention of key management personnel.
Concentration of ownership of our company may give some shareholders
substantial influence and may prevent or delay a change in control
Our executive officers and directors, together with their affiliates, in
the aggregate, beneficially own over 37% of our outstanding common stock.
These shareholders may be able to exercise substantial influence over all
matters requiring shareholder approval, including the election of directors
and approval of significant corporate transactions. This concentration of
ownership may also have the effect of delaying or preventing a change in
control of ShowCase.
Our shareholders may be adversely affected by provisions of our charter
documents and Minnesota law may discourage an acquisition of our company
Provisions of our articles of incorporation, bylaws and Minnesota law could
make it more difficult for a third party to acquire us, even if doing so would
be beneficial to our shareholders. For instance, our bylaws provide for a
classified board of directors with each class of directors subject to re-
election every three years. This will make it more difficult for third parties
to insert their representatives on our board of directors and gain control of
our company. These provisions could also discourage proxy contests and make it
more difficult for shareholders to elect directors and take other corporate
actions.
The price of our common stock could be highly volatile due to a number of
variables
The trading price of our common stock may fluctuate widely as a result of a
number of factors, including:
. quarterly variations in our operating results;
. technological innovations or new products;
. market perception and customer acceptance of business intelligence
software;
. increased competition;
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. disputes concerning intellectual property rights;
. demand for the IBM AS/400 platform;
. general conditions in the software industry; and
. changes in earnings estimates by analysts.
In addition, the stock market has experienced extreme price and volume
fluctuations, which have particularly affected the market prices of many
computer software companies and which have often been unrelated to the
operating performance of such companies.
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