1042173--3/14/2006--SCIENTIFIC_LEARNING

related topics

{control, financial, internal}

{stock, price, operating}

{financial, litigation, operation}

{competitive, industry, competition}

{product, market, service}

{product, candidate, development}

{cost, operation, labor}

{regulation, government, change}

{customer, product, revenue}

{personnel, key, retain}

{property, intellectual, protect}

{stock, price, share}

{system, service, information}

{debt, indebtedness, cash}

To grow our business, we need to increase acceptance of our products among K-12 education purchasers. Failure to do so would materially and adversely impact our revenue, profitability and growth prospects. It is difficult to accurately forecast our future financial results, and we believe that in 2006, our quarterly revenue has become more difficult to predict. This may cause us to fail to achieve the financial performance anticipated by investors and financial analysts, which could cause the price of our stock to decline. Our current liquidity resources may not be sufficient to meet our needs. Our sales cycle tends to be long and somewhat unpredictable, which may result in delayed or lost revenue, which could materially and adversely impact our revenue and net income. The restatement of our financial statements has increased the possibility of legal or administrative proceedings against us. We may be unable to continue to be profitable. We rely on studies of student performance results to demonstrate the effectiveness of our products. If the validity of these studies or the conclusions that we draw from them are challenged, our reputation could be harmed and our business prospects and financial results could be materially and adversely affected. Claims relating to data collection from our user base may subject us to liabilities and additional expense. We may experience difficulties in launching new products efficiently, without significant technical issues, and on schedule. This could materially slow booked sales or decrease profitability. Booked sales of our products depend on the availability of government funding for public school reading intervention purchases, which is variable and outside the control of both us and our direct customers. If such funding becomes less available, our public school customers may be unable to purchase our products and services on a scale or at prices that we anticipate, which would materially and adversely impact our revenue and profitability. We compete for sales with companies that have longer histories and greater resources than we do. We may not be able to compete effectively in the education market. We are not yet required to comply with Sarbanes-Oxley Section 404. We are presently engaged in a process of evaluating and documenting our internal control over financial reporting with the goal of achieving compliance no later than the end of 2007. The process is very costly and requires significant internal resources. If we are unable to comply with Section 404 when we are required to do so or are unable to conclude that our internal control over financial reporting is effective, such non compliance or ineffective controls could have a materially adverse effect on us. If we lose key personnel or are unable to hire additional qualified personnel as necessary, we may not be able to achieve our business goals, which could materially and adversely affect our financial results and share price. If we are unable to adequately protect our intellectual property rights or if we infringe on the rights of others, we could become subject to significant liabilities, need to seek licenses or lose our rights to sell our products. Our directors and executive officers and their affiliates effectively control the voting power of our company. Our common stock is thinly traded and its price is volatile.

Full 10-K form ▸

1042173--3/14/2006--SCIENTIFIC_LEARNING_CORP