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EXHIBIT 99.1
SAFE HARBOR COMPLIANCE STATEMENT
WE HAVE RECENTLY EXPERIENCED LOSSES, AND WE EXPECT TO INCUR LOSSES IN THE NEAR
TERM.
We experienced a net loss of approximately $4.4 million, or 34.0% of
our total revenue, in the year ended December 31, 1999, and a net loss of
approximately $12.0 million, or 143.6% of our total revenue, in the nine months
ended September 30, 2000. At September 30, 2000, we had an accumulated deficit
of $22.3 million. Our recent history of losses began as a result of our shift
from developing and marketing call accounting products only to also developing
and marketing an Internet usage management solution. We anticipate that planned
expenditures on sales, marketing and product development will result in
additional losses in the near term. We also expect to incur short-term losses as
a result of our restructuring in July 2000 and our reduction in force in October
2000. The reduction in force was designed to lower our projected long-term
operating expenses. However, our ability to decrease our future expenditures on
sales, marketing and product development will be driven primarily by our ability
to achieve our targeted revenue goals.
Our recent history of rapid growth continues to place a significant
demand on management and operational resources. In order to manage our
development effectively, it is necessary to implement and improve operational
systems, procedures and controls on a timely basis. In addition, we expect that
future development will continue to challenge our ability to hire, train,
motivate, retain and manage our employees. Competition is intense for highly
qualified technical, sales and marketing and management personnel. If total
revenue does not increase relative to operating expenses, and management systems
do not expand to meet increasing demands, and if the we fail to attract,
assimilate and retain qualified personnel or our management otherwise fails to
manage our development effectively, there will be a material adverse effect on
our business, financial condition and operating results.
We are not certain when we will regain profitability. Even if we do
regain profitability, we may not sustain or increase profitability on a
quarterly or annual basis.
WE HAVE RECENTLY ADOPTED A NEW AND UNPROVEN BUSINESS MODEL.
In July 2000, we restructured our business into two distinct business
divisions - the Internet division and the Call Accounting division. Although we
were incorporated in 1986, our adoption of this new and unproven business model
imposes upon us many of the risks inherent in a company with a more limited
operating history. These risks include the failure of the new business model to
allow us to retain existing customers, attract new customers and maintain
customer satisfaction with our products. In addition, we will expend significant
management and financial resources on the restructuring of our business. While
we believe that focusing our employees on specific product lines will allow us
to provide better service to our customers, we cannot assure investors that the
restructuring will be successful. If our new business model does not provide us
with the ability to increase sales of our products, our business, results or
operation and financial condition will all be adversely affected.
OUR OPERATING RESULTS ARE LIKELY TO FLUCTUATE, WHICH COULD ADVERSELY AFFECT OUR
STOCK PRICE.
During our operating history, we have experienced quarterly
fluctuations in our operating results, and we expect this trend to continue.
These fluctuations are caused by several factors described below and elsewhere
in this "Safe Harbor Compliance Statement" section, many of which are beyond our
control. Factors that affect our operating results include:
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- the timing and release of new products or enhancements
- unexpected delays in introducing new products or enhancements
- the timing of shipment and installation of products ordered
- delays of purchases of our products by customers who anticipate the
release of a new product or enhancement
- the amount and timing of our sales and marketing, product development,
or administrative expenses
Due to these factors, we believe that quarter to quarter comparisons of
our operating results may not be meaningful. Therefore, you should not rely on
the results of one quarter as an indication of our future performance.
Furthermore, we plan to expand our sales operations, develop new distribution
channels, fund greater levels of research and development, and improve
operational and financial systems. Failure of our revenue to increase along with
these expenses could create fluctuations in our quarterly results of operations.
WE HAVE DERIVED LIMITED REVENUES FROM OUR INTERNET PRODUCTS TO DATE, AND WE MAY
NOT BE SUCCESSFUL IN ACHIEVING SUBSTANTIAL REVENUE FROM THESE PRODUCTS.
We released the initial version of our Internet usage management
product in May 1997 and the initial version of our Web analytics product in
April 2000. We have incurred significant costs in the development of this
product and expect to incur significant costs related to further sales,
distribution and development of our Internet products in the near term. We
cannot guarantee that our Internet products will achieve broad market acceptance
and generate substantial revenue. If our Internet products do not gain market
acceptance or if we do not introduce enhanced versions of our products on a
timely basis, or at all, to meet the needs of our customers, our business,
results of operations and financial condition would all suffer.
OUR SUCCESS DEPENDS ON CONTINUED ACCEPTANCE AND GROWTH OF THE INTERNET.
Sales of our Internet usage management solutions depend on the
continued acceptance and growth of the Internet. Because the Internet has only
recently become a viable medium for commerce and communications, demand and
market acceptance for Internet-related products are subject to high levels of
uncertainty and risk. The Internet has experienced, and is expected to continue
to experience, significant growth in the number of users and amount of traffic.
The Internet infrastructure may not be able to support the demands placed on it
by this continued growth. Furthermore, the Internet has experienced a variety of
outages and other delays as a result of damage to portions of its
infrastructure, and such outages and delays could adversely affect the Internet
usage of organizations utilizing our solutions. Additionally, the Internet could
lose its viability due to delays in the development or adoption of new standards
and protocols to handle increased levels of Internet activity or due to
increased governmental regulation. Moreover, critical issues concerning the
commercial use of the Internet remain unresolved and may negatively affect the
growth of Internet use and the attractiveness of commerce and communication on
the Internet. If critical issues concerning the commercial use of the Internet
are not resolved in our favor, if the necessary infrastructure and complementary
products are not developed, or if the Internet does not become a viable
commercial marketplace, the demand for our Internet usage management solutions
could be significantly reduced, which would have a material adverse effect on
our business, results of operations and financial condition.
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WE MAY NOT BE ABLE TO CONTINUE TO COMPETE SUCCESSFULLY WITH OTHER COMPANIES THAT
PROVIDE SIMILAR PRODUCTS.
We currently compete with providers of Internet management software and
web analytics software, including WebSense, JSB Software Technologies PLC,
WebTrends, Accrue Software, Elron Software, Talley Systems and providers of call
accounting software, including IntegraTrak, ISI, MicroTel, Switchview, Telco
Research, Verimark, Xiox and Xtend. The market in which we compete is intensely
competitive, increasingly subject to rapid changes, and significantly affected
by new product introductions and other activities of market participants. In
addition, the market is highly fragmented, and our competitors vary depending
upon the segment of the market that our network usage management solutions
address.
In addition to current competition from producers of network usage
management solutions, in the future we may experience competition from vendors
of network devices, such as AXENT Technologies, Inc., Check Point Software
Technologies Ltd., Cisco Systems, Inc., Lucent Technologies, Inc., Microsoft
Corporation, Netscape Communications Corp., Nortel Networks Corporation, Siemens
Corporation and others, that could bundle network usage management solutions
with their network products. The bundling of competing products with network
devices could make it more difficult for us to market our products or render our
products obsolete. Even if the functionality, ease of use, and performance of
the products included with network devices is inferior to that of our products,
a significant number of customers may elect to accept these products instead of
purchasing additional software from us. In addition, we believe that additional
competitors will continue to enter the market as the size and visibility of the
market opportunity increases. These new market entrants may include traditional
system and network management software developers.
We also face competition from Internet management service providers,
such as consulting firms, web design firms, Internet audit firms, site
management vendors, Internet service providers and independent software vendors.
These service providers may use our solutions, our competitors' solutions or
custom-developed solutions to provide network usage management for their
customers who otherwise would have been sale opportunities for us. In addition,
certain larger potential customers may rely on their IT departments to
internally develop Internet usage management solutions.
Many of our current and potential competitors have longer operating
histories, greater name recognition, access to larger customer bases, and
substantially greater financial, technical, marketing, distribution, service,
support and other resources than we have. As a result, they may be able to
respond more quickly than we can to new or changing opportunities, technologies,
standards or customer requirements. Our inability to develop products that are
technologically competitive, responsive to customer needs and competitively
priced could have a material adverse effect on our business, results of
operations and financial condition.
WE MUST INCREASE BRAND AWARENESS OF OUR PRODUCT TO REMAIN COMPETITIVE.
Due in part to the emerging nature of the market for Internet usage
management and web analytics solutions and the substantial resources available
to many of our competitors, we may have limited time to achieve and maintain a
significant market share. Developing and maintaining awareness of the
Telemate.Net, eSpective and NetSpective brand names is critical to achieving
widespread acceptance of our network usage management and reporting solutions.
Furthermore, the importance of brand recognition will increase as competition in
the market for our products increases. Successfully promoting and positioning
the Telemate.Net, eSpective and NetSpective brands will depend largely on the
effectiveness of our marketing efforts and our ability to develop reliable and
useful products at competitive prices. Therefore, we plan to increase our
financial commitment to create and maintain brand awareness among potential
customers. If we fail to successfully promote our brand names or if we incur
significantly greater expenses than planned in promoting and maintaining our
brand names, it could have a material adverse effect on our business, results of
operations, and financial condition.
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IF WE DO NOT CONTINUE TO EXPAND THE DISTRIBUTION OF OUR PRODUCTS THROUGH DIRECT
AND INDIRECT SALES CHANNELS, OUR OPERATING RESULTS WILL SUFFER.
In order to increase our market share and revenue, we will need to
expand our direct and indirect sales operations and channels of distribution. We
have a broad base of customers, most of whom license a limited number of our
products. To improve our results of operations, we must increase our base of
customers and the number of products that each customer licenses. This may
require an increasingly sophisticated sales effort. In order to increase sales,
we must maintain an effective sales force. Maintaining an effective sales force
will require us to maintain effective sales personnel and hire new sales staff.
Any new hires will require training and take time to achieve full productivity.
We may not be able to hire enough qualified individuals when needed, or at all.
Failure to do so could have a material adverse effect on our business, results
of operations, and financial condition.
Our future success also depends upon our ability to expand our
relationships with domestic and international distributors, value-added
resellers, systems integrators, on-line and other resellers, Internet service
providers and original equipment manufacturers to build our indirect sales
channels. We currently maintain non-exclusive relationships with leading
networking and network security vendors that help market and distribute our
products, but we do not have written agreements with most of these companies. We
must also continue to expand and maintain our non-exclusive relationships with
key hardware and software vendors, distributors and resellers. We may not be
successful in these efforts. Moreover, because we do not have written agreements
with most of these parties, we cannot guarantee that these relationships will
continue at all or on terms acceptable to us.
IF OUR SOFTWARE CONTAINS DEFECTS, OUR SALES ARE LIKELY TO SUFFER AND WE MAY BE
EXPOSED TO LEGAL CLAIMS.
Our products and product enhancements are very complex and from time to
time contain defects or result in failures that we did not detect or anticipate
when introducing such products or enhancements to the market. In addition, the
computer and Internet environments in which our products are used are
characterized by a wide variety of standard and non-standard configurations and
by errors, failures and bugs in third-party platforms that can impede proper
operation of our products. Despite our testing, defects may still be discovered
in some new products or enhancements after the products or enhancements are
delivered to customers. The occurrence of these defects could result in:
- product returns;
- adverse publicity;
- loss of or delays in market acceptance of our products;
- delays or cessation of service to our customers; or
- legal claims by customers against us.
Our end-user licenses contain provisions that limit our exposure to
legal claims, but these provisions may not be enforceable in all jurisdictions.
Additionally, we maintain limited products liability insurance. To the extent
that our contractual limitations are unenforceable or such claims are not
covered by insurance, a successful products liability claim could have a
material adverse effect on our business, results of operations and financial
condition.
OUR BUSINESS IS DEPENDENT ON OUR CHIEF EXECUTIVE OFFICER AND PRESIDENT.
Our success depends largely upon the continued services of our Chief
Executive Officer and President, Richard L. Mauro. We cannot guarantee that Mr.
Mauro will continue to remain an employee.
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We have insurance on the life of Mr. Mauro, but there can be no assurance that
the proceeds of this insurance would be adequate to compensate us for the loss
of his services.
IF WE FAIL TO HIRE AND RETAIN QUALIFIED PERSONNEL, WE WILL BE UNABLE TO SUCCEED
INOUR BUSINESS.
Our future success depends on our ability to attract and retain highly
qualified personnel. The competition for qualified personnel in the computer
software and Internet markets is intense, and we may be unable to attract,
assimilate or retain highly qualified personnel in the future. This could have a
material adverse effect on our business, results of operations and financial
condition.
WE MUST EFFECTIVELY MANAGE THE LONG-TERM GROWTH OF OUR BUSINESS.
The expansion of our operations since our initial public offering has
placed a significant strain on our management and on our operational and
financial resources. If we are unable to manage our growth effectively, our
business will be materially and adversely affected. To successfully manage our
long-term growth, we will need to upgrade our resources and systems as well as
expand our employee base ahead of such growth. Our future performance will
depend, in part, on our ability to accurately predict future levels of growth,
expand infrastructure and personnel at levels in line with such growth, and
effectively integrate newly-hired executive officers into our management team.
We cannot be certain that our management, operational and financial resources
will be adequate to support our future operations.
INFRINGEMENT OR DUPLICATION OF OUR PROPRIETARY TECHNOLOGY COULD HARM OUR
BUSINESS.
We currently rely on a combination of patent, trademark, service mark,
trade dress, copyright and trade secret laws, as well as confidentiality
provisions and contractual provisions to protect our proprietary technology.
However, we cannot guarantee that third parties will not infringe or duplicate
this technology and offer competing products that are substantially similar to
ours.
We currently have registered trademarks in Telemate and Telemate.Net,
trademark applications pending in several marks, including NetSpectives and
eSpectives, and one patent application pending on our Telemate.Net integrated
network usage management product. We cannot guarantee that these applications or
any future applications to protect our intellectual property will not be
rejected. Even if they are not rejected, trademark, patent, copyright and trade
secret protection may not be effective or available in every country in which
our products are distributed or made available through the Internet. Despite
taking steps to protect our rights, third parties could infringe or
misappropriate our proprietary rights. Also, most protections do not preclude
competitors from independently developing products with functionality or
features substantially equivalent or superior to our products. Any infringement,
misappropriation or third-party development could have a material adverse effect
on our business, results of operations and financial condition.
In the future, litigation may be necessary to enforce and protect our
trade secrets, copyrights and other intellectual property rights. Legal
standards relating to the validity, enforceability and scope protection of
intellectual property rights in Internet-related industries are uncertain and
still evolving, and the future viability or value of any of our intellectual
property rights is uncertain. Litigation, regardless of its outcome, would
divert management resources, be expensive and may not effectively protect our
intellectual property.
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OUR BUSINESS COULD BE HARMED IF WE ARE SUBJECTED TO INFRINGEMENT CLAIMS BROUGHT
BY THIRD PARTIES.
In addition to the technology we have developed internally, we also use
code libraries developed and maintained by Greenleaf Software, Stingray Software
and Microsoft and have acquired or licensed technologies from other companies.
Our integrated network management solutions are built around an embedded
Microsoft SQL 7.0 database and Seagate Software, Inc.'s custom report writing
tool. Our internally developed technology, the code libraries or the technology
we acquired or licensed may infringe on a third party's intellectual property
rights, and such third parties may bring claims against us. Such claims and any
resulting litigation could subject us to significant liability for damages and
invalidate our proprietary rights. Any infringement claims against us could also
force us to do one or more of the following:
- cease selling, incorporating or using products or services
that incorporate the challenged intellectual property;
- obtain from the holder of the infringed intellectual property
right a license to sell or use the relevant technology, which
license may not be available on reasonable terms or at all; or
- redesign those products or services that incorporate the
disputed technology.
Any of these results could have a material adverse effect on
our business, results of operations and financial condition.
OUR PRODUCTS COULD BE TAMPERED WITH AND RENDERED INEFFECTIVE BY COMPUTER
HACKERS.
Because our products access a wide range of information relating to our
customers' businesses, computer hackers may attempt to infiltrate our software
systems to obtain sensitive data and information regarding our customers. In
addition, some of our products monitor network security. There is a risk that
those products will be targets of attacks by computer hackers who create bugs or
viruses or otherwise breach the security of those products in an attempt to
sabotage their functionality. Although we know of no material infiltration of
our products by hackers to date, our Internet usage products are new and we
cannot guarantee that we will be able to respond to such attacks in a timely or
effective manner. Any failure to do so could result in claims against us and
make it difficult for us to market and sell our products.
GOVERNMENT REGULATION COULD INCREASE THE COSTS OF DOING BUSINESS ON THE INTERNET
AND NEGATIVELY AFFECT SALES OF OUR PRODUCTS.
As Internet commerce continues to evolve, increasing regulation by
federal, state or foreign agencies becomes more likely. Such laws and
regulations could affect the network usage management activities of our
customers. Regulation, if imposed, is likely to be in the areas of user privacy,
pricing, content, and quality of products and services. Taxation of Internet
use, or other charges imposed by government agencies or by private organizations
for accessing the Internet, may also be imposed. Furthermore, any regulation
imposing fees for Internet use could result in a decline in the use of the
Internet and the viability of Internet commerce, which could have a material
adverse effect on our business, results of operations and financial condition.
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OUR CHARTER DOCUMENTS AND GEORGIA LAW MAY PREVENT OR DELAY A FUTURE MERGER OR
ACQUISITION, THUS LOWERING OUR STOCK PRICE OR PREVENTING OUR SHAREHOLDERS FROM
REALIZING A PREMIUM OVER OUR STOCK PRICE.
Our Articles of Incorporation and Bylaws may have the effect of
delaying, preventing or making a merger or acquisition less desirable to a
potential acquirer, even where shareholders may consider the acquisition or
merger favorable. In addition, the issuance of preferred stock may have the
effect of delaying, deferring or preventing a change in control without further
action by the shareholders. Any such issuance may materially adversely affect
the market price of our common stock and the voting rights of the holders of our
common stock. The issuance of our preferred stock may also result in the loss of
voting control by the holders of our common stock to the holders of our
preferred stock. In addition, provisions of the Georgia Business Corporation
Code also may delay, prevent or discourage someone from acquiring or merging
with us. The prevention or delay of a merger or acquisition could reduce our
stock price or prevent our shareholders from realizing a premium over our stock
price.
