Support.com 2006 Annual Report Download - page 25

• our inability to generate revenue from new technology sufficient to offset associated acquisition and maintenance costs.
Our system security is important to our customers and we may need to spend significant resources to protect against or
correct problems caused by security breaches.
A fundamental requirement for online communications, transactions and support is the secure transmission of confidential
information. Third parties may attempt to breach our security or that of our customers. We may be liable to our customers for any
breach in security and any breach could harm our business and reputation. Also, computers are vulnerable to computer viruses,
physical or electronic break−ins and similar disruptions, which could lead to interruptions, delays or loss of data. We recently
released a security advisory and a patch for a remote code execution vulnerability in several of our ActiveX components. We may be
required to expend significant capital and other resources to further protect against security breaches or to correct problems caused by
any breach.
Our reported results of operations will continue to be materially and adversely affected by our adoption of SFAS 123R.
Statement of Financial Accounting Standards No. 123 (revised 2004), Share−Based Payment (SFAS 123R), became effective in
our first quarter of 2006, and has resulted in our recognition of substantial compensation expense relating to our employee stock
options and employee stock purchase plans. Historically, we generally have not recognized in our statement of operations any
compensation expense related to stock option grants we issue under our stock option plans or the discounts we provide under our
employee stock purchase plans. Under the new rules, we are required to measure the compensation expense related to employee stock
awards on a fair value basis, which leads to substantial additional compensation expense and a material adverse effect on our reported
results of operations.
If we are unable to successfully address the material weakness in our disclosure controls and procedures or otherwise
maintain effective disclosure controls and procedures, including our internal control over financial reporting, our ability to
report our financial results on a timely and accurate basis may be adversely affected.
We have evaluated our “disclosure controls and procedures” as such term is defined in Rule 13a−15(e) under the Securities
Exchange Act of 1934, as well as our internal control over financial reporting as required by Section 404 of the Sarbanes−Oxley Act
of 2002. Our independent registered public accounting firm has performed a similar evaluation of our internal control over financial
reporting. Effective controls are necessary for us to provide reliable financial reports and effectively prevent fraud. If we cannot
provide reliable financial reports or prevent fraud, our operating results would be harmed. For the period ended December 31, 2006,
we concluded that we had a material weakness in our internal control over financial reporting, as further described in Item 8, Report of
Management on Internal Control over Financial Reporting. Our independent registered public accounting firm reached the same
conclusion. We are implementing corrective actions, which we believe will remediate this material weakness. However, we cannot be
certain that these measures will remediate the material weakness we have identified or, if we are successful in remediating this
material weakness, whether we will be able to maintain adequate controls over our financial processes and reporting in the future. If
these actions are not successful in addressing this material weakness, our ability to report our financial results on a timely and accurate
basis may be adversely affected. In addition, if we cannot establish effective internal control over financial reporting and disclosure
controls and procedures, investors may lose confidence in our reported financial information, which could cause the market price of
our common stock to decline.
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Source: SUPPORTSOFT INC, 10−K, March 16, 2007