1110903--12/14/2009--NETWORK_ENGINES

related topics

{product, market, service}

{customer, product, revenue}

{personnel, key, retain}

{stock, price, share}

{control, financial, internal}

{stock, price, operating}

{condition, economic, financial}

{system, service, information}

{loss, insurance, financial}

{interest, director, officer}

{property, intellectual, protect}

{tax, income, asset}

{debt, indebtedness, cash}

{provision, law, control}

{cost, operation, labor}

Risks of dependence on one strategic customer. We derive a significant portion of our revenues from sales of application platform solutions directly to EMC and our revenues may decline significantly if this customer reduces, cancels or delays purchases of our products, terminates its relationship with us or exercises certain of its contractual rights. Risks related to business strategy. Our future success is dependent upon our ability to generate significant revenues from application platform design relationships. We may not be able to effectively commercialize our application platform solutions and services or may be at a competitive disadvantage if we cannot license or integrate third-party applications that are essential for the functionality of certain platforms. Our business could be harmed if we fail to adequately integrate new technologies into our application platform solutions or if we invest in technologies that do not result in the desired effects on our current and/or future product offerings. Risks related to the application platform markets. If application platforms are not increasingly adopted as a solution to meet a significant portion of companies' software application needs, the market for application platform solutions may not grow, which could negatively impact our revenues. The products that we sell are subject to rapid technological change and our sales will suffer if these products are rendered obsolete by new technologies. Risks related to financial results. We have a history of losses and may continue to experience losses in the future, which could cause the market price of our common stock to decline. We may not be able to borrow funds under our credit facility or secure future financing if there is a material adverse change in our business. If our estimates or judgments relating to our critical accounting policies are based on assumptions that change or prove to be incorrect, our operating results could fall below expectations of securities analysts and investors, resulting in a decline in our stock price. Our quarterly revenues and operating results may also fluctuate for various reasons, which could cause our operating results to fall below expectations and thus impact the market price of our common stock. If the products and services that we sell become more commoditized and competition in the data storage, network security, carrier communications and enterprise communications markets continues to increase, then our gross profit as a percentage of net revenues may decrease and our operating results may suffer. An intangible asset represents a significant portion of our assets, and any impairment of the intangible asset would adversely impact our operating results. Competition in the application platform market is significant and if we fail to compete effectively, our financial results will suffer. Risks related to marketing and sales efforts and customer service. We need to effectively manage our sales and marketing operations to increase market awareness and sales of our products and to promote our brand recognition. If we fail to do so, our growth will be limited. If we are unable to effectively manage our customer service and support activities, we may not be able to retain our existing customers or attract new customers. Risks related to product manufacturing. Our dependence on sole source and limited source suppliers for key application platform components makes us susceptible to supply shortages and potential quality issues that could prevent us from shipping customer orders on time, or at all, and could result in lost sales and customers. Tighter management of inventories across global supply chains may lead to longer lead times for our purchases of certain inventory components. If we are unable to manage our supply chain and maintain sufficient inventories to meet customer demand, this could result in lost sales and customers. If our application platform solutions fail to perform properly and conform to specifications, our customers may demand refunds, assert claims for damages or terminate existing relationships with us, and our reputation and operating results may suffer materially. If we do not accurately forecast our application platform materials requirements, our business and operating results could be adversely affected. Other risks related to our business. Our operating results would suffer if we or our customers were subject to an infringement claim that resulted in protracted litigation, the award of significant damages against us or the payment of substantial ongoing royalties. If we fail to retain and attract appropriate levels of qualified employees and members of senior management, we may not be able to successfully execute our business strategy. If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results. As a result, current and potential stockholders could lose confidence in our financial reporting, which could have a negative market reaction. If either of the sites of our manufacturing operations were to experience a significant disruption in its operations, it could have a material adverse effect on our financial condition and results of our operations. The market price for our common stock may be particularly volatile, and our stockholders may be unable to resell their shares at a profit. If the market price of our common stock is not quoted on a national exchange, our ability to raise future capital may be hindered and the market price of our common stock may be negatively impacted. A continued or prolonged downturn in the economy could have a material adverse effect on our financial performance and other aspects of our business. We have anti-takeover defenses that could delay or prevent an acquisition and could adversely affect the market price of our common stock. Class action lawsuits have been filed against us, our board of directors, our former chairman and certain of our executive officers and other lawsuits may be instituted against us from time to time.

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1110903--12/14/2009--NETWORK_ENGINES_INC