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EXHIBIT 99.1
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES REFORM ACT OF 1995
Tanning Technology Corporation ("Tanning" or the "Company") cautions
readers that the important factors set forth below, as well as factors discussed
in other documents filed by the Company with the Securities and Exchange
Commission (the "SEC"), among others, could cause the Company's actual results
to differ materially from forward looking statements contained in this report,
future filings by the Company with the SEC, the Company's press releases and
oral statements made by or on behalf of the Company. The words "estimate,"
"project," "anticipate," "expect," "intend," "believe," "target" and similar
expressions are intended to identify forward looking statements.
Inability to manage our growth could have a material adverse effect on the
quality of our services, our ability to retain key personnel, and our business
Our growth has placed significant demands on our management and other
resources. Our revenues for the first six months of 2000 increased approximately
68% over revenues in the same period in 1999. Our staff increased from 148 full-
time employees at December 31, 1998 to 281 at December 31, 1999, and to 386 at
June 30, 2000. Our future success will depend on our ability to manage our
growth effectively, including:
. continuing to train, motivate, manage and retain our existing employees
and attract and integrate new employees;
. improving our business development capabilities;
. maintaining high rates of employee utilization;
. accurately estimating time and resources for engagements;
. developing and improving our operational, financial, accounting and
other internal systems and controls; and
. maintaining project quality.
Our management has limited experience managing a business of Tanning's
size. If we are unable to manage our growth and projects effectively, it could
have a material adverse effect on the quality of our services, our ability to
retain key personnel, and our business and results of operations.
If our revenues do not increase proportionately with our planned increases in
costs and capital expenditures, then our results of operations and liquidity
will suffer
In anticipation of business growth, we expect to incur costs and expend
capital. We can give no assurances that we will continue to grow, or that we
will grow at a pace that will support these costs and expenditures. To the
extent revenues do not increase at a rate commensurate with these additional
costs and expenditures, our results of operations and liquidity could be
materially and adversely affected.
The loss of our professionals, or the inability to recruit additional
professionals, would make it difficult to complete existing projects and bid for
new projects, which could cause our business to suffer
Our business is labor intensive, and our success depends on identifying,
hiring, training and retaining experienced, knowledgeable professionals. If a
significant number of our current employees or any of our project managers or
senior technical personnel leave, we may be unable to complete or retain
existing projects or bid for new projects of similar scope and revenue. In
addition, former employees may compete with us in the future.
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Even if we retain our current employees, our management must continually
recruit talented professionals in order for our business to grow. There is
currently a shortage of qualified project managers and senior technical
personnel in the information technology services field, and this shortage is
likely to continue. Furthermore, there is significant competition for employees
with the skills required to perform the services we offer. We cannot give any
assurances that we will be able to attract a sufficient number of qualified
employees in the future, or that we will be successful in motivating and
retaining the employees we are able to attract. If we cannot attract, motivate
and retain qualified professionals, our business, financial condition and
results of operations will suffer.
We depend on our key personnel, and the loss of any key personnel may harm our
ability to obtain and retain client engagements, maintain a cohesive culture and
compete effectively
We believe that our success will depend on the continued employment of our
key management personnel. This dependence is particularly important to our
business because personal relationships are critical to obtaining and
maintaining client engagements and maintaining a cohesive culture. If one or
more members of our key management personnel were unable or unwilling to
continue in their present positions, such persons would be very difficult to
replace and our business could be seriously harmed. In addition, if any of these
key employees joins a competitor or forms a competing company, some of our
clients might choose to use the services of that competitor or new company
instead of our own. Furthermore, clients or other companies seeking to develop
in-house information technology services capabilities may hire away some of our
key employees. This would not only result in the loss of key employees but could
also result in the loss of a client relationship or a new business opportunity.
Any of the foregoing could seriously harm our business.
We depend heavily on our principal clients; a significant reduction in the work
we perform for any of them could harm our revenues and earnings
We derive a large portion of our services revenue from a limited number of
clients. Services revenue constitutes substantially all of our revenues. In
1998, our five largest clients accounted for approximately 70% of our services
revenue. In 1999, our five largest clients accounted for approximately 71% of
our services revenue. In the first six months of 2000, our five largest clients
accounted for approximately 72% of our services revenue. The volume of work
performed for our principal clients may not be sustained from year to year, and
there is a risk that these principal clients may not retain us in the future.
Any cancellation, deferral or significant reduction in work performed for these
principal clients or a significant number of smaller clients could have a
material adverse effect on our financial condition and results of operations.
For example, during the second quarter of 2000 we reached an agreement to
terminate a contract with British Sky Broadcasting ("BSkyB"), a client
accounting for 6% of our total revenues during 1999 and 8% of our total revenues
for the first quarter of 2000. We did not recognize any revenue from BSkyB in
the second quarter of 2000, and our results of operations will be adversely
impacted if we do not effectively re-deploy the employee project personnel that
were staffed on the BSkyB project.
We may fail to accurately estimate or manage the time and resources necessary
for the performance of our services, which could reduce the profitability of, or
result in a loss on, our projects and damage our customer relationships
To date, we have generally provided services to our clients on a time and
materials basis, although we sometimes work on a fixed-fee or capped fee basis.
In the future, we anticipate that a portion of our client engagements will
continue to be subject to arrangements that are not solely based on time and
materials, including fixed-fee, value-based or other arrangements. Our fixed-
fee, fixed-time arrangements may provide for significant penalties for late
delivery. Because we work with complex technologies in compressed timeframes and
because we have limited experience in pricing and managing engagements on these
terms, it can be difficult to judge the time and resources necessary to complete
a project and properly manage delivery within agreed time and cost limitations.
Our failure to accurately estimate the time and resources required for a
project, or our failure to complete our obligations in a manner consistent with
the project plan upon which our fixed-fee or other arrangements are based, could
reduce the profitability of, or result in a loss on, our projects if we are
required to devote additional resources to project engagements for which we will
not receive additional compensation or are assessed penalties, and could damage
our customer relationships and our reputation. For example, difficulties
encountered in performing the BSkyB project engagement entered into in 1999 on a
fixed-fee, fixed-time basis resulted in an adverse effect on our gross profits,
because we were required to devote more resources to perform the work than we
had originally anticipated. The parties have agreed to terminate this project
engagement, resulting in a $5.8 million loss.
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Our clients may terminate projects before completion; this could adversely
affect our revenues and earnings
In general, our clients may terminate project engagements upon limited
notice and without significant penalty. This makes our results of operations
difficult to predict. Our clients' termination of our project engagements would
result in lower revenues and underutilized employees and, as a result, would
negatively affect our earnings. For example, a client's termination of a
significant project in the fourth quarter of 1997 adversely affected revenues,
employee utilization and earnings in the first half of 1998.
Our international operations and expansion involve risks relating to
difficulties in complying with foreign laws and regulations, staffing
difficulties, currency related risks, difficulties in collecting accounts
receivable, and seasonal reductions in business activity; these risks could
result in increased costs, unanticipated liabilities, operational difficulties
and decreases in revenues and earnings
We currently have significant operations in Europe and intend to expand our
business to other regions, as attractive opportunities arise. Revenues from our
existing international operations represented 35% of services revenue in 1998,
34% of services revenue in 1999, and 26% of services revenue in the first six
months of 2000. We may incur significant costs in connection with our
international expansion.
We also encounter risks in doing business in foreign countries, including:
. increased costs due to the need to comply with visa or other work permit
requirements, which may impair our ability to move personnel between
countries and properly staff our projects;
. to the extent we bill for our services in the functional currency of our
foreign subsidiaries, any depreciation of such currencies against the
dollar would negatively impact our results of operations;
. expenses incurred to modify our accounting systems as we do more
business in the countries that are converting their currencies to the
euro;
. difficulties in staffing and managing foreign offices, such as our
office in Chertsey, England, as a result of, among other things,
distance and time zone differences;
. seasonal reductions in business activity, such as the August slowdown in
Europe, which may adversely impact our business and results of
operations;
. longer payment cycles and problems in collecting accounts receivable,
which may adversely impact our results of operations due to required
allowances for doubtful accounts and increased cost of collection
efforts; and
. lack of ability to determine the taxation to which we may be subject in
foreign countries, including the failure to evaluate complex payroll tax
regulations of foreign countries, which could cause us to underestimate
our tax liabilities.
Any of these factors could result in increased costs, unanticipated
liabilities, operational difficulties and decreases in revenues and earnings.
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Quarter to quarter fluctuations in our revenues and earnings could affect the
market price of our common stock
Our revenues and earnings may vary from quarter to quarter as a result of a
number of factors, including:
. number, size and scope of client engagements commenced or completed
during a quarter;
. employee utilization rates;
. unanticipated project terminations, delays or deferrals;
. the accuracy of estimates of resources required to complete ongoing
projects; and
. the contractual terms and degree of completion of projects in which we
are engaged.
Because a high percentage of our expenses, particularly compensation and
rent, are fixed in advance of any particular quarter, any of the factors listed
above could cause significant variations in our earnings in any given quarter.
Any decline in revenues or earnings or a greater than expected loss for any
quarter could materially adversely affect the market price of our common stock,
even if not reflective of any long-term problems with our business.
Competition from bigger, more established competitors who have greater financial
and technical resources, and from new entrants, could cause us to lose current
or future business opportunities and harm our business, results of operations
and ability to grow
The business areas in which we compete are intensely competitive and
subject to rapid technological change. We expect competition to continue and
intensify. Our competitors fall into four major categories:
. large information technology consulting services providers, such as
Andersen Consulting, KPMG, PricewaterhouseCoopers, IBM, EDS and CSC;
. mid-tier information technology services providers, such as Cambridge
Technology Partners and Sapient;
. Internet professional service providers, such as Modem Media, Poppe
Tyson, US Interactive, Proxicom, Viant and Scient; and
. internal information technology departments of current and potential
clients.
Many of our competitors have longer operating histories and client
relationships, greater financial, technical, marketing and public relations
resources, larger client bases and greater brand or name recognition than we
have. Our competitors may be able to respond more quickly to technological
developments and changes in clients' needs.
Further, there are low barriers to entry into our business. We do not own
any technologies that preclude or inhibit competitors from entering our
industry. Existing or future competitors may independently develop and patent or
copyright technologies that are superior or substantially similar to our
technologies. The costs to develop and provide information technology consulting
services are relatively low. Therefore, we expect to continue to face additional
competition from new entrants into our industry.
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Expansion of our solutions and service offerings may not be successful and we
may lose opportunities to expand our business
In addition to growing our business within the disciplines on which we
currently focus, an element of our strategy is to expand our solutions in the
area of supply chain management and our service offerings in areas such as
business consulting, process innovation and creative design. Successful
expansion in these areas will require:
. attracting, integrating and retaining talented personnel;
. successfully marketing and delivering these services; and
. successfully establishing relationships with vendors and technology
providers.
Failure to develop additional solutions and service offerings on a timely
basis could cause us to lose opportunities for business with both existing and
potential clients. We cannot assure you that this expansion will be successful.
We may have difficulty responding to changing technology, industry standards and
client preferences, which could cause us to lose business
Our success will depend in part on our ability to develop information
technology solutions that keep pace with continuing changes in technology,
involving industry standards and changing client preferences. We cannot give any
assurances that we will be successful in addressing these developments on a
timely basis or at all. Our failure to respond quickly and cost-effectively to
new developments could cause us to lose current and potential business
opportunities and have a material adverse effect on our business and results of
operations.
In particular, we have derived a significant portion of our revenues from
projects based primarily on:
. open system technologies, which are standards-based, non-proprietary
technologies;
. multi-tier software architecture, in which the key layers of an
application system are separated and optimized independently to
improve performance, scalability and reliability;
. web-based architectures; and
. electronic commerce, generally.
These areas are continuing to develop and are subject to rapid change. Any
factors negatively affecting the acceptance of information processing systems
using client/server and web-based architectures could have a material adverse
effect on our business, especially if we are unable to develop skills and
replacement technologies for these types of information processing systems.
Our business may suffer if growth in the use of the Internet declines
Because Internet technologies are central to many of our solutions, our
business depends upon continued growth in the use of the Internet by our
clients, prospective clients and their customers and suppliers. Capacity
constraints caused by growth in Internet usage may, unless resolved, impede
further growth in Internet use. If the number of users on the Internet does not
increase and commerce over the Internet does not become more accepted and
widespread, demand for our services may decrease and our business and results of
operations could suffer. Factors which may affect Internet usage or electronic
commerce adoption include:
. actual or perceived lack of security of information;
. lack of access and ease of use;
. congestion of Internet traffic or other usage delays;
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. inconsistent quality of service;
. increases in access costs to the Internet;
. excessive government regulation;
. uncertainty regarding intellectual property ownership;
. reluctance to adopt new business methods;
. costs associated with the obsolescence of existing infrastructure; and
. economic viability of the Internet commerce model.
If we are unable to maintain our reputation and expand our name recognition, we
may have difficulty attracting new business and retaining current clients, and
our business may suffer
We believe that establishing and maintaining a good reputation and name
recognition are critical for attracting and expanding our client base. We also
believe that the importance of reputation and name recognition will increase due
to the growing number of information technology services providers. If our
reputation is damaged or if potential clients are not familiar with us or the
services we provide, we may become less competitive or lose our market position.
Promotion and enhancement of our name will depend largely on our success in
continuing to provide large, complex, integrated information technology
solutions. If clients do not perceive our solutions or our delivery approach to
be effective or of high quality, our brand name and reputation will suffer. In
addition, if solutions we provide have defects, critical business functions of
our clients may fail, and we would likely suffer adverse publicity and could
suffer economic liability.
Misappropriation of our intellectual property could harm our reputation, affect
our competitive position and cost us money
We believe our intellectual property, including our proprietary
methodologies, is important to our success and competitive position. If we are
unable to protect our intellectual property against unauthorized use by others,
our reputation among existing and potential clients could be damaged and our
competitive position adversely affected.
Our strategies to deter misappropriation could be inadequate in light of
the following risks:
. non-recognition of the proprietary nature of or inadequate protection
of our methodologies in the United States or foreign countries;
. undetected misappropriation of our proprietary methodologies;
. development of similar software or applications by our competitors;
and
. unenforceability of the non-competition and confidentiality agreements
entered into by our key employees.
If any of these risks materialize, we could be required to spend
significant amounts to defend our rights and our managerial resources could be
diverted. In addition, our proprietary methodologies may decline in value or our
rights to them may not be enforceable.
Others could claim that we infringe on their intellectual property rights, which
may result in substantial costs, diversion of resources and management attention
and harm to our reputation
Although we believe that our services do not infringe on the intellectual
property rights of others, we cannot give any assurances that an infringement
claim will be successfully defended. A successful infringement claim against us
could materially and adversely affect us in the following ways:
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. we may be liable for damages and litigation costs, including
attorneys' fees;
. we may be enjoined from further use of the intellectual property;
. we may have to license the intellectual property, incurring licensing
fees;
. we may have to develop a non-infringing alternative, which could be
costly and delay projects; and
. we may have to indemnify clients with respect to losses incurred as a
result of our infringement of the intellectual property.
Regardless of the outcome, an infringement claim could result in
substantial costs, diversion of resources and management attention, clients'
termination of project engagements and harm to our reputation.
Our business and our client relationships may suffer if we have disputes over
our right to resell or reuse intellectual property developed for specific
clients
A portion of our business involves the development of software applications
for specific client engagements. Ownership of client-specific software is
generally retained by the client, although we retain rights to some of the
applications, processes and other intellectual property developed in connection
with client engagements. Issues relating to the rights to intellectual property
can be complicated. We cannot give any assurances that disputes will not arise
that affect our ability to resell or reuse such applications, processes and
other intellectual property, damage our relationships with our clients, divert
our management's attention or have a material adverse effect on our business,
financial condition and results of operations.
Potential acquisitions may result in, among other things, increased expenses,
difficulties in integrating target companies and diversion of management's
attention
An element of our strategy includes expanding our solutions and service
offerings and gaining access to new technologies through strategic acquisitions
and investments when attractive opportunities arise. Some of the risks that we
may encounter in implementing this element of our strategy include:
. expenses and difficulties in identifying potential targets and the
costs associated with acquisitions that are abandoned before
completion;
. expenses, delays and difficulties of integrating the acquired company
into our existing organization and our company's culture;
. diversion of management's attention during the acquisition process;
. diversion of management's attention following the acquisition process
where management has options or other equity incentive rights in the
acquired company;
. expenses of amortizing the acquired company's intangible assets, which
could be significant in light of the high valuations of many companies
in the information technology industry;
. impact on our financial condition due to the timing of the
acquisition; and
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. expenses of any undisclosed or potential legal liabilities of the
acquired company, including intellectual property, employment, and
warranty and product liability-related problems.
If realized, any of these risks could have a material adverse effect on our
business, financial condition and results of operations.
Lack of detailed written contracts could impair our ability to collect fees,
protect our intellectual property and protect ourselves from liability to others
We try to protect ourselves by entering into detailed written contracts
with our clients covering the terms and contingencies of the project engagement.
In some cases, however, consistent with what we believe to be industry practice,
work is performed for clients on the basis of a limited statement of work or
verbal agreements before a detailed written contract can be finalized. To the
extent that we fail to have detailed written contracts in place, our ability to
collect fees, protect our intellectual property and protect ourselves from
liability to others may be impaired, although we believe that our clients are
legally obligated to pay for our services even in the absence of written
contracts, or on the basis of a limited statement of work.
Government regulation and legal uncertainties relating to the Internet could
result in decreased demand for our services, increased costs, or otherwise harm
our business
Increased regulation of the Internet might slow the growth in use of the
Internet, which could decrease demand for our services, increase our cost of
doing business or otherwise harm our business. Congress, federal regulatory
agencies and the states have recently passed legislation or taken other actions
regulating certain aspects of the Internet, including:
. on-line content;
. interaction with children;
. copyright infringement;
. user privacy;
. taxation;
. access charges;
. liability for third-party activities;
. transmission of sexually explicit material;
. defamation;
. consumer protection; and
. jurisdiction.
Foreign governments have also taken actions to regulate aspects of the
Internet, including user privacy and on-line content. In addition, federal,
state and local governmental organizations as well as foreign governments are
considering other legislative and regulatory proposals that would regulate these
and other aspects of the Internet. We do not know how courts will interpret laws
governing the Internet or the extent to which they will apply existing laws to
the Internet. Therefore, we are not certain how existing or future laws
governing the Internet or applied to the Internet will affect our business.
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
(6-30-2000) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
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