Attached files
Exhibit
99.1
FORWARD-LOOKING
STATEMENTS DISCLOSURE
Certain
statements contained in Management’s Discussion and Analysis of Financial
Condition and Results of Operation, information included or incorporated by
reference in our future filings with the SEC, and information contained in
written material, releases and oral statements issued by us, or on our behalf,
are forward-looking statements including, without limitation, statements with
respect to growth plans, projected sales, revenues, earnings and costs, product
development schedules and plans, future cash requirements and sources and
sufficiency of capital resources. Generally, the words “anticipates,”
“believes,” “expects,” “intends” and similar expressions identify
forward-looking statements. The Company’s actual results may differ materially
from those contained in the forward looking statements identified above. Factors
which may cause such a difference to occur, include, but are not limited to,
those factors set forth below.
The economic environment in general
and the manufacturing sector in particular are weak, which has and may continue
to adversely affect our business. Our manufacturing customers
produce capital goods, the demand for which is highly dependent on both
disposable income and the attitude of companies and individuals regarding their
economic prospects. Many of these goods are discretionary leisure
expenditures, such as boats, motorcycles, RVs or snowmobiles. The
on-going weakness in the markets for these goods, and in the economy as a whole,
has had a negative impact on our business and results in fewer new projects for
us, which could have a material adverse affect on our results of
operations.
We may have problems raising money in
the future. Historically, we have funded our substantial
network development costs, acquisitions and negative cash flow from operations
principally from the sale of securities. We now also have a
$1,500,000 line of credit. In recent years we have generated positive
cash flow from operations, but we may need to raise additional financing in the
future in order to continue to make acquisitions or to increase our investments
in areas such as marketing and new product development. In this
event, we may need to obtain additional financing and issue securities to
outside sources with greater rights than those currently possessed by holders of
our common stock. Recent turmoil in the capital and credit markets
has increased the difficulty and expense of obtaining financing. Any
additional financing may not be available to us, and if it is, may be dilutive
to existing shareholders or may be on terms that are not favorable to
us.
We may have problems funding our debt
obligations. We now have a $5,000,000 term note payable with
principal payments beginning in July 2011. We may not generate
sufficient cash from operations to fund our debt obligations.
We may experience difficulties in
pursuing acquisitions. We desire long-term to continue to
expand through the acquisitions of businesses, technologies, products and
services from third parties. There can be no assurance that we will
successfully locate and complete such acquisitions in a timely manner or at
all. In addition, acquisitions can involve a number of unique
problems, including:
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difficulty
in integrating acquired technologies, operations and personnel with our
existing business;
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diversion
of management attention in connection with negotiating the acquisitions
and integrating the assets;
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strain
on managerial, internal control, and operational resources as we oversee
larger and/or more geographically dispersed
operations;
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exposure
to unforeseen liabilities of acquired
companies;
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the
need to incur or assume additional
debt;
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the
assumption of contracts which may be unfavorable to us under which we are
obligated to perform.
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We may
not be able to successfully address these problems. Moreover, our
long-term future operating results will depend to a significant degree on our
ability to successfully manage internal growth and integrate new
acquisitions.
We are subject to intense
competition. The market for electronic catalog
and
e-commerce
products and services is highly competitive. Several companies offer
e-commerce services or software products that are similar to those offered by
us. Because the market for Internet products and services lacks
significant barriers to entry, new competitors could enter our market relatively
easily. Our competitive environment is characterized by rapid
technological changes, dynamic customer demands and frequent product
enhancements and product introductions. The pace of technological
changes, such as developments in Internet commerce, is so great that new
competitors may emerge quickly based on these new technologies.
Future acquisitions may result in
additional dilution of our common stock. As we continue to
expand through acquisitions, it is likely that future acquisitions could require
us to issue substantial numbers of shares of our common stock as all or a
portion of the consideration paid for the acquired
businesses. Issuances of additional shares of our common stock will
dilute the ownership interest of our existing shareholders and could result in a
decline in the market price of our common stock.
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Our competitors have greater
resources than we do. We must compete with companies that
possess greater financial, technical and marketing resources than we do. These
advantages may enable them to respond more quickly to new or emerging
technologies and changes in customer preferences. These advantages
may also allow them to engage in more extensive product development, undertake
far-reaching marketing campaigns, adopt more aggressive pricing policies and
make more attractive offers to potential employees and strategic
partners. In addition, competition may result in price reductions,
reduced gross margin and loss of market share. We may not be able to compete
successfully, and competitive pressures may adversely affect our business,
results of operations and financial condition.
Our success depends on new product
development and responding to technological change. The market
for our products and services is characterized by technological advances,
changes in customer requirements and frequent new product introductions and
enhancements. Our growth and future financial performance will depend
in part upon our ability to enhance existing products and services and develop
and introduce new products and services that meet technological advances,
respond to evolving customer requirements, respond to competitive products or
announcements and achieve market acceptance. There can be no
assurance that we will be successful in developing and marketing products or
services on a timely basis, or that our products and services will adequately
address the changing needs of the marketplace and achieve market acceptance,
particularly given our financial limitations and previous workforce
reductions. The e-commerce industry in general is also characterized
by evolving standards and technology. The widespread adoption of new
standards or technologies could require substantial expenditures to modify or
adapt our products and services and which could have a material adverse effect
on our business, financial condition and results of
operations. Furthermore, our new software enhancements may contain
design flaws or other defects that limit their marketability. Our
ability to anticipate or guide these standards in our targeted sectors and to
fund advances in computer and telecommunications technology and software will be
a significant factor in our ability to grow and remain competitive.
Technological developments by others
may render some or all of our products and services noncompetitive or
obsolete. There can also be no assurance that research and
development and discoveries by others will not render some or all of our
products or potential product offerings noncompetitive or
obsolete. We compete with a number of entities that develop and
produce software products and services that compete with our current and
proposed products and services. Many of these competitors have
substantially greater capital resources, research and development capabilities,
and production and marketing resources, capabilities and experience than we have
available to us. These competitors may succeed in developing products that are
more effective or less costly than any products that we may develop, or that
gain market acceptance prior to any of our products and services, making market
penetration more difficult for us.
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Our services are subject to system
failure and security risks. Our operations are dependent upon
our ability to protect our network infrastructure against damage from natural
disasters, such as fire, earthquakes and floods, as well as power loss,
telecommunications failures and similar events. Notwithstanding
precautionary measures that we have taken, the occurrence of a natural disaster
or other unanticipated system or power failure could cause interruptions in the
services we provide. In addition, failure of our telecommunications
providers to provide the data communications capacity we require as a result of
natural disasters, bankruptcy, operational disruptions or for any other reason
could cause interruptions in the services we provide. Any damage or
failure that causes interruptions in our operations could have a material
adverse effect on our business, financial condition and results of
operations.
Despite
the implementation of security measures, the core of our network infrastructure
is vulnerable to unauthorized access, computer viruses, equipment failure and
other disruptive problems, including the following:
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We
and our users may experience interruptions in service as a result of the
accidental or intentional actions of Internet users, current and former
employees or others.
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Unauthorized
access may jeopardize the security of confidential information stored in
our computer systems and our customers’ computer systems, which may result
in liability to our customers and also may deter potential
customers.
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We
may face liability for transmitting viruses to third parties that damage
or impair their access to computer networks, programs, data or
information.
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There
may be a systemic failure of Internet communications, leading to claims
associated with the general unavailability of some of our
products.
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Eliminating
computer viruses and alleviating other security or technical problems may
require interruptions, delays or cessation of service to our
customers.
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The
occurrence of any unauthorized access, computer virus, equipment failure or
other disruptive problem could have a material adverse affect on our business,
financial condition and results of operations.
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Our historical losses have resulted
in our weak balance sheet. While we have been profitable in
recent years, we have experienced net losses in numerous fiscal years, resulting
in an accumulated deficit of $92.0 million at July 31, 2009, since our
organization in 1981. We may not be able to maintain profitability or
increase profitability in the future. As a result of our historical
losses, our financial position has been weakened, and our ability to finance our
growth is constrained.
The costs of compliance with recent
developments in corporate governance regulation may affect our business,
operating results and financial condition in ways that presently cannot be
predicted. Beginning with the enactment of the Sarbanes-Oxley
Act of 2002, a significant number of new corporate governance requirements have
been adopted or proposed through legislation and regulation by the Securities
and Exchange Commission. We may not be successful in complying with
these requirements at all times in the future. Additionally, these
requirements have increased our cost of doing business, particularly our fees
for internal and external audit, consulting, and legal services. We
expect these developments to continue to increase our legal compliance and
accounting costs, and potentially to affect the cost of director and officer
liability insurance and/or an ability to attract and retain qualified directors
and officers.
Our operating results fluctuate from
quarter to quarter. We expect that a portion of our revenue in
the future will be derived from non-recurring fee income, which consists
primarily of revenues from professional services such as software customization
and training, software sales and one-time network installation
fees. The timing of receipt of this revenue is dependent upon several
factors that we cannot predict. These factors include:
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The
time required to close large license fee and development
agreements. These agreements can be delayed due to customer
requirements and decision-making
processes.
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The
seasonality of certain sectors of the equipment industry in which we
operate.
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Delays
in the introduction of new products or services and their acceptance by
customers.
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Delays
in delivering customized software to our
customers.
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Recurring
revenues are also difficult to estimate. Recurring revenues from
maintenance and subscription fees may be estimated based on the number of
subscribers to our services, but will be affected by the renewal rate which
cannot be determined in advance. Renewal revenues can vary based
on:
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closures
or acquisitions of our dealer
customers,
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competitive
technologies or procedures,
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specific
economic conditions in e-commerce and in our target
markets,
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general
economic conditions, and
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delays
in delivering customized software to our
customers.
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Our cash
flows will also vary from quarter to quarter, depending on the timing of
disbursements and customer payments, which exhibit considerable
seasonality.
The
emerging nature of commercial use of the Internet makes predictions concerning
our future revenues difficult. We believe that period-to-period
comparisons of our results of operations will not necessarily be meaningful and
should not be relied upon as indicative of our future performance. It is also
possible that in some future quarters our operating results will be below the
expectations of securities analysts and investors, although we do not have any
analysts following our stock at this time. In such circumstances, the
price of our stock may decline.
We face risks in pursuing our
growth. Our ability to pursue and sustain significant revenue
growth is affected by many factors including the following:
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our
access to financing to fund the
growth;
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the
growth rate of our selected
markets;
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specific
economic conditions in e-commerce and our target
markets;
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general
economic conditions;
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the
positioning of our products and services in our selected
markets;
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variations
in demand for and cost of customer services and technical
support;
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customer
adoption of Internet applications and their willingness to upgrade from
client-server versions of software;
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our
ability to release new software applications and upgrades on a timely
basis;
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our
ability to establish and maintain strategic
alliances;
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our
ability to continue to make and successfully integrate acquisitions;
and
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our
ability to attract and retain a high-performance sales
team.
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We could be adversely affected by
infringement claims. A third party could claim that our
technology infringes its proprietary rights. Although we do not
believe that our product infringes any patents, if certain software and
technology patents were interpreted broadly, claims of infringement against us,
if successful, could have a material adverse effect on our business, financial
condition and results of operations. Infringement claims, even those
without merit, can be time consuming and expensive to defend. A third
party asserting infringement claims against us or our customers with respect to
our current or future products or services may require us to enter into costly
royalty arrangements or litigation, or otherwise materially and adversely affect
our business, financial condition, and results of operations. If a
negotiated resolution of any matter is required, it could involve payment of
license fees, which would increase our costs. We make no assurance
that the terms of any licensing arrangement would be favorable to
us. A resolution could also require a redesign of our product or the
removal of some of our product features. If a negotiated resolution
were not achieved, we would vigorously defend ourselves. If we did
not prevail, damages could be awarded and an injunction could be issued
requiring us to cease certain activities. If infringement is deemed
to be willful, a court may triple the awarded damages. Any of these
activities could have a material adverse effect on our business.
Our pricing models may be negatively
affected by increased competition. The markets in which we
operate have been, and we believe will continue to be, affected by competitors
that sell products and services at very low prices in order to increase their
market share. We may have to lower our prices to levels which would
negatively affect our net income in order to compete with these competitors and
maintain our customer base. Alternatively, we may have to exit
certain market segments and/or product lines if we are unable to provide
products and services at competitive prices.
We are heavily dependent on our
senior management, and the loss of the services of any of our executive officers
could harm our business. Our continued success depends to a significant
extent upon the continued services of our senior management, who are responsible
for development and execution of our strategy and business model. The
loss of services of any of our executive officers could harm our
business.
We face risks with our international
strategy. Our business strategy includes increasing our
presence in the non-U.S. equipment markets. This strategy presents a
number of special risks, including:
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managing
more geographically diverse
operations;
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dealing
with currency fluctuations;
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the
increased costs of operation;
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only
having a small number of employees in these
markets;
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our
dependence on value-added resellers and contractors to sell and service
our products;
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a
much smaller and more concentrated current customer base;
and
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the
assumption that U.S. international policy will remain favorable towards
the countries in which we sell our products and
services.
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Our costs are not entirely
predictable. We are highly dependent on software development
to obtain new customers and maintain those we already have. We may
substantially underestimate the time and expense necessary to create the
software we sell and use to deliver services. Furthermore,
competition for skilled software developers may cause our employee costs to rise
more rapidly than planned, even in a slowing economy.
Trading in our common stock is thin,
and there is a limit to the liquidity of our common stock. The
volume of trading in our common stock is limited and may be dominated by a few
individuals. Because of the thinness of the market for our stock, the
price of our common stock may be subject to manipulation. In
addition, the limited volume of trading limits significantly the number of
shares that one can purchase or sell in a short period of
time. Consequently, an investor may find it more difficult to dispose
of shares of our common stock or obtain a fair price for our common stock in the
market.
Our shareholder rights plan may
permit our board to block a takeover attempt and adversely affect the value of
our common stock. Our board of directors adopted a shareholder
rights plan, and declared a dividend of an associated right, which together are
expected to have the effect deterring any takeover of the Company that is not
preceded by board approval of the proposed transaction. The existence
of such shareholder rights plan may deter potential tender offers for our common
stock or other acquisition offers and may have the effect of delaying or
preventing a change of control.
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Our stock price is
volatile. The stock market can experience significant price
and volume fluctuations affecting the market prices of equity securities of many
companies including those providing Internet-related products and
services. Some of these fluctuations may reflect reaction to world
events and appear unrelated or disproportionate to the operating performance of
such companies. Future market movements may adversely affect the
market price of our stock. Our stock price may change dramatically as
the result of various factors, including the following:
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Manipulation
of our stock price by existing or future
shareholders,
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The
purchase or sale of a large number of shares by a single shareholder in a
short period of time,
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Announcements
by us or competitors concerning technological innovations, new products or
procedures developed by us or our
competitors,
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A
general lack of trust in the financial markets as a
result of accounting scandals or for other reasons,
and
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Economic
and other external factors, as well as period-to-period fluctuations in
financial results.
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