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PeopleSupport, Inc. – IPO: ‘S-1/A’ on 7/12/04

On:  Monday, 7/12/04, at 9:54pm ET   ·   As of:  7/13/04   ·   Accession #:  950148-4-978   ·   File #:  333-115328

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 7/13/04  PeopleSupport, Inc.               S-1/A                  7:1.6M                                   Bowne of Century City/FA

Document/Exhibit                   Description                      Pages   Size 

 1: S-1/A       Peoplesupport, Inc.- Amend.#2 - Reg.No.333-115328   HTML   1.29M 
 2: EX-3.1.1    Cert.Of Amendment to Certificate of Incorporation      2±     7K 
 3: EX-10.4     Amended Customer Support Services Agreement           41    117K 
 4: EX-10.7     Master Services Agreement                             36    141K 
 5: EX-10.8     Professional Services Contract                        55    145K 
 6: EX-23.2     Consent of Bdo Seidman, LLP                         HTML      6K 
 7: EX-23.3     Consent of Pricewaterhousecoopers LLP                  1      5K 

Table of Contents

SECURITIES AND EXCHANGE COMMISSION

Amendment No. 2

PeopleSupport, Inc.

1100 Glendon Ave., Suite 1250

Lance Rosenzweig

Copies to:

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.    o

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o 

If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box.    o

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

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PROSPECTUS (Subject to Completion)
Dated                          , 2004

                             Shares

Common Stock

We are selling                      shares of common stock. The selling stockholders are offering                      shares of common stock. This is an initial public offering of shares of our common stock. Prior to this offering, there has been no public market for the common stock of PeopleSupport, Inc. The estimated initial public offering price of our common stock will be between $          and $          per share. We have applied to have our common stock approved for quotation on the Nasdaq National Market under the symbol “PSPT.”

Our business and an investment in our common stock involve significant risks. These risks are described under the caption “Risk Factors” beginning on page 8 of this prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters may also purchase up to                 shares of our common stock from us and                 shares of our common stock from the selling stockholders at the public offering price, less underwriting discounts and commissions, to cover over allotments. We will not receive any of the proceeds from the sale of shares by the selling stockholders.

SG Cowen & Co.

                        , 2004

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      You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized anyone to provide you with additional information or information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where those offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock.

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PROSPECTUS SUMMARY

      This summary highlights selected information contained elsewhere in this prospectus, including a description of the material terms of the offering. You should carefully read the entire prospectus, including the material risks associated with our business and this offering, and the consolidated financial statements and the related notes, before making an investment decision.

Our Business

      We provide business process outsourcing, or BPO, services from our facilities in the Philippines. We believe that we are one of the largest outsourced service providers in the Philippines based on the size of our workforce, which consists of over 2,700 college educated, fluent English speaking Philippine personnel. From our Philippine facilities, we provide customer management services for U.S.-based clients who wish to outsource this function to a high quality, lower cost provider. We currently service 30 U.S.-based clients in a variety of industries, including travel and hospitality, technology, telecommunications, retail, consumer products and financial services. We primarily provide inbound customer management services, which includes handling calls and e-mails from our clients’ customers to order goods and services, make and change travel reservations, address billing questions, submit warranty claims and obtain technical support. We manage over a million customer communications per month, including inbound calls, e-mails, and web chats. Our largest clients in 2003 were Expedia, Network Solutions and EarthLink, which accounted for 88% of our 2003 revenues. These clients and another client, StarNumber (a subsidiary of InPhonic), have been our largest clients in 2004 and accounted for 83% of our revenues for the six months ended June 30, 2004. Expedia, our largest client, and EarthLink, our second largest client, together accounted for 62% of our revenues for the six months ended June 30, 2004. In July 2003, we began providing accounts receivable management services in which we use specially trained Philippine personnel to collect overdue consumer receivables from U.S. debtors.

      Our revenues and net income for the year ended December 31, 2003 were $30.0 million and $8.0 million, respectively, as compared with revenues of $19.8 million and a net loss of $2.9 million for the year ended December 31, 2002. Our revenues and net income for the six months ended June 30, 2004 were $20.0 million and $3.3 million, respectively, as compared to $13.7 million and $2.8 million for the six months ended June 30, 2003. Substantially all of our revenues in 2003 and the six months ended 2004 were derived from our customer management business, and less than one percent from our accounts receivable management business. At June 30, 2004, we had an accumulated deficit of $58.1 million as the result of net losses in prior years.

      In March 2002, we restructured our operations to relocate our existing outsourcing centers to the Philippines. Through our operations in the Philippines, we believe we provide significant value to our clients by offering services at a substantially lower cost than U.S. outsourcing centers and at a quality level that is often higher than other offshore locations. The Philippines has the third largest English-speaking population in the world and a large pool of college graduates who are attuned to U.S. culture and speak fluent English with minimal accents. We believe this offers significant advantages over other offshore outsourcing locations, particularly for providing services that require complex voice interaction. Our telecommunications network and information systems enable us to provide seamless voice, e-mail and web-based interaction between customers in the United States and our personnel in the Philippines, and can be expanded to meet increases in demand.

      To attain high quality outsourced services at a lower cost, many companies are moving selected front and back office processes to providers with offshore delivery capabilities. According to Gartner, Inc., worldwide spending on offshore business process outsourcing services is expected to exceed $3 billion in 2004 and grow to $24 billion by 2007. India currently accounts for the largest share of the offshore outsourcing market. However, offshore capacity is expanding beyond India to countries such as China, Russia and the Philippines. The Philippine outsourcing market is relatively new and we believe that our early leadership position will provide us with an opportunity for continued growth and competitive strength.

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Our Competitive Strengths

      We believe our competitive strengths will allow us to successfully create a sustainable position as a leading offshore outsourced services provider.

      Philippine-based Delivery Model. The Philippines is a growing market for outsourced service providers and we are one of the market leaders in the Philippines. We believe the English speaking workforce and modern telecommunications infrastructure in the Philippines enable us to provide consistently high quality services at costs generally comparable to other offshore locations and substantially lower than the United States.

      Strong Industry Expertise. We have particular expertise in several industries that have a high demand for complex customer management services, such as travel and hospitality, technology and telecommunications. This expertise has enabled us to provide customized, high quality services in these industries quickly and efficiently that we believe enhances our ability to attract major clients.

      Collaborative Client Relationships. We work closely with our clients to improve customer satisfaction by creating solutions for managing our clients’ customer interaction needs. We work with our clients to jointly train our professionals, and integrate our clients’ processes and technologies with ours. We believe our collaborative approach will foster long-term relationships with our clients.

      Sales Centric Focus. We train our professionals in sales techniques, including how to encourage customers to purchase higher value, additional or complementary products and services offered by our clients. We believe this focus on generating additional revenue for our clients differentiates us from many of our competitors.

      Attractive Employment Culture. We have established a corporate culture that enables us to attract and retain talented professionals. In 2003, we achieved an annual voluntary turnover rate of 17% of employees who have completed a six-month probation period. We believe that our employee retention enables us to lower our recruiting costs and provide consistent quality to our clients.

      We intend to use our competitive strengths to address the challenges we face as our business evolves. Our competitive challenges include current negative public perception in the United States of offshore outsourcing, and the availability of low priced outsourcing providers in India. In addition, we face the challenge that potential clients may choose to perform their customer management functions themselves. We intend to address these challenges by providing our clients with a compelling value proposition through our growth strategies discussed below.

Our Growth Strategy

      In order to build a leading position in the offshore BPO services market, we are focusing on the following strategies.

      Attract Additional Large Customer Management Clients. Our primary focus is to attract clients with large customer bases and complex customer management needs. We believe our track record with our existing clients will enable us to continue to add major clients. We recently entered into a contract with a Fortune 500 travel and hospitality company to design and implement a pilot program for customer management services.

      Expand Accounts Receivable Management Services. The accounts receivable management industry is highly fragmented with approximately 6,500 providers in the United States. We believe there is a limited number of providers outside of North America serving U.S. credit originators and that most domestic providers do not presently have the resources or experience to establish operations offshore. We believe we are well positioned to expand our accounts receivable management operations to collect defaulted consumer receivables on behalf of national credit originators, such as credit card companies and banks, and on behalf of telecommunications and utility companies.

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      Broaden Service Offerings. We intend to optimize our platform by providing additional BPO services that draw on our cost-effective, skilled workforce. We currently provide the majority of our services during Philippine nighttime hours (U.S. daytime hours). We intend to use our existing infrastructure to provide services during the daytime in the Philippines that do not require live customer interaction, such as document processing and other back office services.

      Continue to Attract and Retain Top Professional Talent. We intend to continue to use a variety of recruiting methods to attract a high quality Philippine workforce, including joint programs with major universities, and to continue to stress professional development through continuing education and our management training program.

      Expand to Additional Countries. We will explore expanding our operations into new countries to enhance geographic diversification, provide new services and enter new markets. We believe that countries that have an educated, English speaking workforce at reasonable wage rates, such as South Africa and Caribbean countries, would be the most likely areas for geographic diversification of our operations. However, we are still assessing these opportunities and have not identified any specific location for expanding our outsourcing operations.

      Pursue Selective Strategic Acquisitions. We will consider acquiring complementary BPO businesses or assets, such as companies focused on back office services, companies located in new geographic regions, or client contracts of distressed domestic outsourcing companies.

      Our principal executive office is located at 1100 Glendon Ave., Suite 1250, Los Angeles, California 90024, and our telephone number is (310) 824-6200. Our website is www.peoplesupport.com. Information on our website is not part of this prospectus. All references to “we,” “us,” “our” and “our company” refer to PeopleSupport, Inc. and its subsidiaries.

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The Offering

      The underwriters expect to deliver the shares in New York, New York on                     , 2004.

      The number of shares of common stock to be outstanding immediately after this offering excludes:

      Unless otherwise indicated, all information contained in this prospectus assumes:

      After this offering, our directors, executive officers and their affiliated entities will beneficially own approximately      % of our outstanding common stock. This concentration of ownership will enable them to influence matters requiring stockholder approval, including the election of directors, mergers and other business combinations.

      See “Risk Factors” beginning on page 8 for a discussion of factors you should carefully consider before deciding to buy our common stock.

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Summary Consolidated Financial Data

      The following table presents historical financial data as of, and for the years ended, December 31, 1999, 2000, 2001, 2002 and 2003, which has been derived from our audited consolidated financial statements. The consolidated statement of operations data for each of the six months ended June 30, 2003 and 2004, and the consolidated balance sheet data as of June 30, 2004 are derived from our unaudited consolidated financial statements. You should read this information together with “Selected Historical Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and related notes for the years ended December 31, 2001, 2002 and 2003 and the six months ended June 30, 2003 and 2004, which are included elsewhere in this prospectus.

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      The following table presents a summary of our balance sheet data as of June 30, 2004:

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RISK FACTORS

      You should carefully consider the risks described below before making a decision to buy our common stock. As a result of any of the following risks, our business, financial condition and results of operations could be harmed. In that case, the trading price of our common stock could decline and you might lose all or part of your investment in our common stock. You should also refer to the other information set forth in this prospectus, including our consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Risks Related to Our Business

Our revenues are highly dependent on four major clients that collectively accounted for 83% of our revenues in the first six months of 2004, and any loss of business from our major clients would reduce our revenues and seriously harm us.

      In recent years, we have generated, and expect that at least for the near term we will continue to generate, almost all of our revenues from a limited number of clients. In 2003, our top three clients, Expedia, Network Solutions and EarthLink, accounted for 88% of our revenues. These clients and another client, StarNumber (a subsidiary of InPhonic), have been our largest clients in 2004 and accounted for 83% of our revenues for the six months ended June 30, 2004. Expedia, our largest client, and EarthLink, our second largest client, together accounted for 62% of our revenues for the six months ended June 30, 2004. Our contract with Expedia expires in May 2007, our contract with StarNumber expires in November 2005, and our contract with Network Solutions expires in December 2004. Our contract with EarthLink expires in January 2005, but will automatically renew each year for a one year period unless terminated by EarthLink or us prior to the end of the term. If we fail to renew or extend our contracts with our clients, or if these contracts are terminated, our clients will have no obligation to purchase services from us.

      The loss of, or any significant decline in business from, one or more of these clients likely would lead to a significant decline in our revenues and operating margins, particularly if we are unable to make corresponding reductions in our expenses in the event of any such loss or decline. We may not be able to retain our major clients or, if we were to lose any of our major clients, we may not be able to timely replace the revenue generated by the lost clients. In addition, the revenue we generate from our major clients may decline or grow at a slower rate in future periods than it has in the past. If we lose any of our major clients, we may suffer from the costs of underutilized capacity because of our inability to eliminate all of the costs associated with conducting business with that client, which could exacerbate the harm that the loss of a major client would have on our operating results and financial condition.

A reversal of industry trends toward offshore outsourcing due to negative public reaction in the United States and recently proposed legislation may adversely affect demand for our services.

      Our customer management and accounts receivable management services and our growth depend in large part on U.S. industry trends towards outsourcing these business processes offshore. The trend to outsource business processes may not continue and could reverse. Offshore outsourcing has become a politically sensitive topic in the United States, particularly in the light of the upcoming Presidential election. Recently, many organizations and public figures have publicly expressed concerns about a perceived association between offshore outsourcing providers and the loss of jobs in the United States. In addition, there has been recent publicity about the negative experience of certain companies that use offshore outsourcing, particularly in India. Current or prospective clients may elect to perform such services themselves or may be discouraged from transferring these services to offshore providers to avoid any negative perception that may be associated with using an offshore provider. Any slowdown or reversal of existing industry trends would harm our ability to compete effectively with competitors that operate out of facilities located in the United States. Estimates of the growth in the offshore outsourcing market in this prospectus do not assume any such slowdown or reversal of recent trends.

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      A variety of federal and state legislation has been proposed that, if enacted, could restrict or discourage U.S. companies from outsourcing their services to companies outside the United States. For example, legislation has been proposed that would require offshore providers to identify where they are located. In addition, it is possible that legislation could be adopted that would restrict U.S. private sector companies that have federal or state government contracts from outsourcing their services to offshore service providers. Any expansion of existing laws or the enactment of new legislation restricting offshore outsourcing may adversely impact our ability to do business with U.S. clients, particularly if these changes are widespread.

      Estimates of third party sources such as those of Gartner, Inc. and International Data Corporation presented in this prospectus may not take into account the possible adverse impact of any significant changes in trends toward outsourcing that might result from those described in this risk factor.

Our clients may adopt technologies that decrease the demand for our services, which could reduce our revenues and seriously harm our business.

      We target clients with a high need for our customer management services and we depend on their continued need of our services, especially our major clients who generate the substantial majority of our revenues. However, over time, our clients may adopt new technologies that decrease the need for live customer interaction, such as interactive voice response, web-based self-help and other technologies used to automate interactions with customers. The adoption of such technologies could reduce the demand for our services, pressure our pricing, cause a reduction in our revenues and harm our business. For example, in 2003, one of our major clients, Network Solutions, which accounted for over 10% of our 2003 revenues, improved its web-based self-help technology and automated its telephone inquiry system, which we believe was a primary reason for reducing its volume of business with us by 37% during the second half of 2003.

Our revenues are highly dependent on a few industries and any decrease in demand for outsourced services in these industries could reduce our revenues and seriously harm our business.

      Our major clients are concentrated in the travel and hospitality, technology and telecommunications industries. Our business and growth largely depends on continued demand for our services from clients in these industries and other industries we may target in the future and on trends in these industries to purchase outsourced business process services. A downturn in any of our targeted industries, particularly the travel and hospitality industry, or a slowdown or reversal of the trend in any of these industries to outsource business processes could result in a decrease in the demand for our services. Rapid change in and competition between technology clients, particularly Internet service providers, could result in a decrease in demand for our services within the technology industry. Other adverse changes also may lead to a decline in the demand for our services in these industries. For example, consolidation in any of these industries, particularly involving our clients, may decrease the potential number of buyers of our services. Any significant reduction in or the elimination of the use of the services we provide within any of these industries would result in reduced revenues and harm our business. Our clients, particularly those in the technology and telecommunications industries, have frequently experienced rapid changes in their prospects, substantial price competition and pressure on their profitability. Although such pressures can encourage outsourcing as a cost reduction measure, they may also result in increasing pressure on us from clients in these key industries to lower our prices, which could negatively affect our operating results and harm our business.

We serve markets that are highly competitive and we may be unable to compete with businesses that have greater resources than we do.

      We currently face significant competition for outsourced business process services and expect that competition will increase. We believe that, in addition to prices, the principal competitive factors in our markets are service quality, sales and marketing skills, the ability to develop customized solutions and technological and industry expertise. While numerous companies provide a range of outsourced business process services, we believe our principal competitors include our clients’ own in-house customer service

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      We have existing competitors, and may in the future have new competitors, with greater financial, personnel and other resources, longer operating histories, more technological expertise, more recognizable brand names and more established relationships in industries that we currently serve or may serve in the future. Increased competition, our inability to compete successfully against current or future competitors, pricing pressures or loss of market share could result in increased costs and reduced operating margins, which could harm our business, operating results, financial condition and future prospects.

Many of our contracts can be terminated by our clients on short notice and in many cases without penalty. We also generally do not have exclusive arrangements with our clients or a minimum revenue commitment from our clients, which creates uncertainty about the volume of services we will provide and the amount of revenues we will generate from any one of our clients.

      We typically enter into written agreements with each client for our services. We seek to sign multi-year contracts with our clients, but many of our contracts permit our clients to terminate the contracts upon short notice. The volume and type of services we perform for specific clients may vary from year to year, particularly since in many cases we are not the exclusive provider of outsourcing services to our clients. A client in one year may not provide the same level of revenues in a subsequent year. Many of our clients may terminate their contracts with us before their expiration with no penalties or limited penalties.

      Many of our clients could terminate their relationship with us or reduce their demand for our services due to a variety of factors, including factors that are unpredictable and outside of our control. The services we provide to a client could be reduced if the client were to change its outsourcing strategy. Clients may move more customer management functions in-house, to an affiliated outsourcing provider or to one of our competitors. Clients may reduce spending on outsourcing services due to changing economic conditions or financial challenges, or political or public relations pressures to reduce or eliminate offshore outsourcing of business processes. If our clients are not successful or if they experience any significant decrease in their businesses, the amount of business they outsource and the prices that they are willing to pay for such services may be diminished and likely would result in reduced revenues for us. Any reduction in revenues would harm our business, negatively affect operating results and may lead to a decline in the price of our common stock.

We often encounter a long sales and implementation cycle requiring significant resource commitments by our clients, which they may be unwilling or unable to make.

      The implementation of our customer management service involves significant resource commitments by us and our clients. Potential clients require that we expend substantial time and money educating them as to the value of our services and assessing the feasibility of integrating our systems and processes with theirs. Decisions relating to outsourcing business processes generally involve the evaluation of the service by our clients’ senior management and a significant number of client personnel in various functional areas, each having specific and often conflicting requirements. We may expend significant funds and management resources during the sales cycle and ultimately the client may not engage our services. Our sales cycle

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      If we are unsuccessful in closing sales after expending significant funds and management resources, or if we experience delays in the sales cycle, it could have a negative impact on our revenues and margins. This occupies important personnel resources that could otherwise be assisting other new clients. When we are engaged by a client after the sales process, it takes from four to six weeks to integrate the client’s systems with ours, and up to three months thereafter to ramp-up our services to the client’s requirements.

We have incurred substantial losses in the past and may not be profitable in the future.

      We did not become profitable until 2003 and incurred significant losses in each of the five fiscal years through 2002. This was mainly the result of excess capacity and high costs of our former U.S. outsourcing centers. We found it necessary to restructure our operations and move to the Philippines in order to become profitable. We may incur significant operating losses in the future. As a result of our operating losses, we had an accumulated deficit of $58.1 million at June 30, 2004. We expect our marketing, sales and other operating expenses to increase in the future as we seek to expand our business. If our revenues do not grow at a faster rate than these expected increases in our expenses or if our operating expenses are higher than we anticipate, we may not be profitable and we may incur additional losses.

We have a limited operating history and our business and future prospects are difficult to evaluate.

      Due to our limited operating history, especially in the Philippines where we consolidated our operations in 2002 and in our accounts receivable management services, which we commenced in April 2003, our business and future prospects are difficult to evaluate. We have limited experience providing accounts receivable management services and we are exploring opportunities to provide other outsourced services that we have not provided to date. You should consider the challenges, risks and uncertainties frequently encountered by early-stage companies using new and unproven business models in rapidly evolving markets. These challenges include our ability to:

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Our operating results may fluctuate significantly and could cause the market price of our common stock to fall rapidly and without notice.

      Our revenues and operating results are difficult to predict and may fluctuate significantly from quarter to quarter due to a number of factors, including:

      Results of operations in any quarterly period should not be considered indicative of the results to be expected for any future period. In addition, our future quarterly operating results may fluctuate and may not meet the expectations of securities analysts or investors. If this occurs, the trading price of our common stock could fall substantially, either suddenly or over time.

If we fail to manage our growth effectively, our business may not succeed.

      We have expanded significantly since our formation and intend to maintain our growth focus. However, our growth will place demands on our resources and we cannot be sure that we will be able to manage our growth effectively. In order to manage our growth successfully, we must:

      Continued growth could place a strain on our management, operations and financial resources. Our infrastructure, facilities and personnel may not be adequate to support our future operations or to adapt effectively to future growth. As a result, we may be unable to manage our growth effectively, in which case our operating costs may increase at a faster rate than the growth in our revenues, our margins may decline and we may incur losses.

We may experience significant employee turnover rates in the future and we may be unable to hire and retain enough sufficiently trained employees to support our operations, which could harm our business.

      The business process outsourcing industry is very labor intensive and our success depends on our ability to attract, hire and retain qualified employees. We compete for qualified personnel with companies in our industry and in other industries and this competition is increasing in the Philippines as the BPO industry expands. Our growth requires that we continually hire and train new personnel. The BPO industry, including the customer management services industry, has traditionally experienced high employee turnover. A significant increase in the turnover rate among our employees would increase our recruiting and training costs and decrease operating efficiency and productivity, and could lead to a decline in demand for our services. If this were to occur, we would be unable to service our clients effectively and

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Our senior management team is important to our continued success and the loss of members of senior management could negatively affect our operations.

      The loss of the services of Lance Rosenzweig, our Chief Executive Officer; Caroline Rook, our Chief Financial Officer; Rainerio Borja, our President of PeopleSupport (Philippines); or Parham Farahnik, our Vice President of Sales and Marketing, could seriously impair our ability to continue to manage and expand our business. Our success depends on the continued service and performance of our executive officers, and we cannot guarantee that we will be able to retain these individuals. Our executive officers are “at-will” employees that are not subject to employment agreements providing for any specified term of employment. We do not have “key man” insurance, nor are our U.S.-based executive officers subject to non-compete restrictions.

The planned move of our operations to our new facility in Manila could result in interruptions in service, which could reduce our revenues and harm our business.

      We plan to relocate our corporate headquarters in the Philippines and at least one of our outsourcing locations to a facility to be built in Manila, which we expect to be operational in 2005. The relocation of our operations to this new facility will involve a number of logistical and technical challenges. We may encounter complications associated with the migration of our systems and computing equipment to our new facility, which could result in interruptions of our services. If such interruptions occur, they could result in financial or other damages to our clients, for which we could incur claims and liabilities and which could damage our reputation and cause us to lose significant business from one or more of our major clients. This would harm our business and operating performance.

Our facilities are at risk of damage by earthquakes and other natural disasters.

      We currently rely on the availability and condition of our leased Los Angeles, Manila and Cebu facilities to provide service and support to our clients. These facilities are located in regions that are susceptible to earthquakes and other natural disasters, which may increase the risk of disruption of information systems and telephone service for sustained periods. Damage or destruction that interrupts our provision of outsourcing services could damage our relationship with our clients and may cause us to incur substantial additional expense to repair or replace damaged equipment or facilities. While we currently have commercial liability insurance, our insurance coverage may not be sufficient. Furthermore, we may be unable to secure such insurance coverage or to secure such insurance coverage at a premium or premiums acceptable to us in the future. Prolonged disruption of our services as a result of natural disasters may entitle our clients to terminate their contracts with us.

Our operations could suffer from telecommunications or technology downtime, disruptions or increased costs.

      We are highly dependent on our computer and telecommunications equipment and software systems. In the normal course of our business, we must record and process significant amounts of data quickly and accurately to access, maintain and expand the databases we use for our services. We are also dependent on continuous availability of voice and electronic communication with customers. If we experience interruptions of our telecommunications network with our clients, we may experience data loss or a reduction in revenues. These disruptions could be the result of errors by our vendors, clients or third parties, electronic or physical attacks by persons seeking to disrupt our operations, or the operations of our vendors, clients or others. For example, we currently depend on two significant vendors for facility storage and related maintenance of our main technology equipment and data at our U.S. data centers. Any failure of these vendors to perform these services could result in business disruptions and impede our ability to provide services to our clients. A significant interruption of service could have a negative impact on our

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We could cause disruptions to our clients’ business from inadequate service. Our insurance coverage may be inadequate.

      Most of our contracts with our clients contain service level and performance requirements, including requirements relating to the timing and quality of responses to customer inquiries. The quality of services that we provide is measured by quality assurance ratings, which in part, are based on the results of customer satisfaction surveys and direct monitoring of interactions between our professionals and customers. Failures to meet service requirements of a client could disrupt the client’s business and result in a reduction in revenues or an increase in charges or a claim for substantial damages against us. For example, some of our agreements may have standards for service that, if not met by us, may result in lower payments to us. In addition, because many of our projects are business-critical projects for our clients, a failure or inability to meet a client’s expectations could seriously damage our reputation and affect our ability to attract new business. Under our contracts with our major clients and many of our contracts with other clients, our liability for breaching our obligations is generally limited to actual damages up to a portion of the fees paid to us. To the extent that our contracts contain limitations on liability, such contracts may be unenforceable or otherwise may not protect us from liability for damages. While we maintain general liability insurance coverage, including coverage for errors and omissions, this coverage may be inadequate to cover one or more large claims, and our insurer may deny coverage.

Unauthorized disclosure of sensitive or confidential client and customer data, whether through breach of our computer systems or otherwise, could expose us to protracted and costly litigation and cause us to lose clients.

      We are typically required to collect and store sensitive data in connection with our services, including names, addresses, social security numbers, credit card account numbers, checking and savings account numbers and payment history records, such as account closures and returned checks. If any person, including any of our employees, penetrates our network security or otherwise misappropriates sensitive data, we could be subject to liability for breaching contractual confidentiality provisions or privacy laws. Penetration of the network security of our data centers could have a negative impact on our reputation and could lead our present and potential clients to choose other service providers.

Our ability to use net operating loss carryforwards in the United States may be limited.

      We intend to use our U.S. net operating loss carryforwards to reduce the U.S. corporate income tax liability associated with our operations. Section 382 of the U.S. Internal Revenue Code of 1986 generally imposes an annual limitation on the amount of net operating loss carryforwards that may be used to offset taxable income when a corporation has undergone significant changes in stock ownership. Based on our analysis, which includes assumptions regarding the respective values of classes of our stock, we do not believe our net operating losses are currently subject to Section 382 limitations and will not become subject to such limitations solely as a result of this offering. However, no assurance can be given that future events (including, but not limited to, significant increases during the applicable testing period in the percentage of our stock owned directly or constructively by (i) any stockholder who owns 5% or more of our stock or (ii) some or all of the group of stockholders who individually own less than 5% of our stock) will not trigger Section 382 limitations and, as a result, adversely affect our ability to use our net operating loss carryforwards. To the extent our use of net operating loss carryforwards is significantly limited, our income could be subject to U.S. corporate income tax earlier than it would if we were able to use net operating loss carryforwards, which could result in lower profits.

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The current tax holidays in the Philippines will expire within the next several years.

      We currently benefit from income tax holiday incentives in the Philippines pursuant to our Philippine subsidiary’s registrations with the Board of Investments and Philippine Economic Zone Authority, which provide that we pay no income tax in the Philippines for four years pursuant to our Board of Investments non-pioneer status and Philippine Economic Zone Authority registrations, and six years pursuant to our Board of Investments pioneer status registration. Our current income tax holidays expire at staggered dates beginning in 2006 and ending in 2008, and we intend to apply for extensions. However, these tax holidays may or may not be extended. We believe that as our Philippine tax holidays expire, (i) gross income (defined for this purpose to mean the amount of our cost-plus transfer payments to our Philippine subsidiary in excess of certain allowable deductions) attributable to activities covered by our Philippine Economic Zone Authority registrations will be taxed at a 5% preferential rate, and (ii) our Philippine net income attributable to all other activities (including activities previously covered by our Board of Investments registrations) will be taxed at the regular Philippine corporate income tax rates of 32%. Our effective overall Philippine income tax rate will vary as the revenue generating activity at each outsourcing center becomes taxable upon expiration of the income tax holiday applicable to that center.

We may choose to expand operations outside of the Philippines and may not be successful.

      We may consider expanding to countries other than the Philippines. We cannot predict the extent of government support, availability of qualified workers, or monetary and economic conditions in other countries. Although some of these factors may influence our decision to establish operations in another country, there are inherent risks beyond our control, including exposure to currency fluctuations, political uncertainties, foreign exchange restrictions and foreign regulatory restrictions. One or more of these factors or other factors relating to international operations could result in increased operating expenses and make it more difficult for us to manage our costs and operations, which could harm our business and negatively impact our operating results.

We may make acquisitions that prove unsuccessful or divert our resources.

      We intend to consider acquisitions of other companies in our industry that could complement our business, including the acquisition of companies with expertise in other businesses and clients that we do not currently serve. We have little experience in completing acquisitions of other businesses, and we may be unable to successfully complete an acquisition. If we acquire other businesses, we may be unable to successfully integrate these businesses with our own and maintain our standards, controls and policies. Acquisitions may place additional constraints on our resources by diverting the attention of our management from existing operations. Through acquisitions, we may enter markets in which we have little or no experience. Any acquisition may result in a potentially dilutive issuance of equity securities, the incurrence of debt and amortization of expenses related to intangible assets, all of which could lower our margins and harm our business.

We are subject to extensive laws and regulation that could limit or restrict our activities and impose financial requirements or limitations on the conduct of our business.

      The BPO industry has become subject to an increasing amount of federal and state regulation in the past five years. Despite our focus on inbound customer management, we are subject to regulations governing communications with consumers due to the activities we undertake on behalf of our clients to encourage customers to purchase higher value, additional or complementary products and services offered by our clients. For example, the Federal Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994 broadly authorizes the Federal Trade Commission to issue regulations prohibiting misrepresentations in telephone sales. In addition, limits on the transport of personal information across international borders such as those now in place in the European Union (and proposed elsewhere) may limit our ability to obtain customer data.

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      We are also subject to significant federal and state laws and regulations applicable to our accounts receivable management services, including the Fair Debt Collection Practices Act, which impose significant limitations and restrictions on our debt collection practices including licensing requirements. These laws and regulations may limit our ability to recover and enforce defaulted consumer receivables regardless of any act or omission on our part. Some laws and regulations applicable to credit cards, debit cards, checks and other negotiable items may preclude us from collecting on defaulted consumer receivables we purchase or obtain through contingency placements from originators if they or others failed to comply with applicable law in generating or servicing those receivables. Additional federal, state, local or international legislation, or changes in regulatory implementation, could further limit our activities or those of our clients in the future or significantly increase the cost of regulatory compliance.

We will be required to use almost all of our cash on hand before this offering to make payments of up to $11.1 million to senior management and other key employees upon completion of this offering.

      Effective July 2002, to incentivize management, our board of directors and stockholders approved a plan under which we are obligated to make one-time payments to senior management and other key employees upon the completion of an initial public offering of our common stock. Under the plan, management employees designated by our board who are employed by us at the time of this offering will receive one-time cash payments of $11.1 million in total if the aggregate net proceeds from the offering received by us and the selling stockholders exceed $74.0 million. The required payment will be reduced, according to a formula, if the offering proceeds are less than $74.0 million. Pursuant to agreements between us and certain executive officers, 75% of the aggregate amount payable under the plan will be allocated among these executives. Our board of directors will be entitled to use its discretion to allocate the remaining 25% among these executives or among other employees or service providers.

      As of June 30, 2004, we had approximately $13.0 million cash on hand. The required one-time maximum payment of up to $11.1 million to senior management and other key personnel upon the closing of the offering will use substantially all of our available cash. A portion of the proceeds of the offering will therefore replace working capital used to make our contractually required payments to management.

Our ability to raise capital in the future, if and when needed, may be limited, and could prevent us from executing our business strategy. The sale of additional equity securities would result in further dilution to our stockholders.

      We believe that our existing cash and cash equivalents, together with the net proceeds of this offering, will be sufficient to support our anticipated cash needs through 2005, even after we make one-time payments of up to $11.1 million to satisfy our obligations to senior management and other key employees upon completion of this offering. However, the timing and amount of our working capital and capital expenditure requirements may vary significantly depending on numerous factors, including:

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      If our capital resources are insufficient to satisfy our liquidity requirements, we may seek to sell additional equity or debt securities or obtain other debt financing. The sale of additional equity securities or convertible debt securities would result in additional dilution to our stockholders. Additional debt would result in increased expenses and could result in covenants that restrict our operations. We may be unable to secure financing in sufficient amounts or on terms acceptable to us, if at all, in which case we may not have the funds necessary to finance our ongoing capital requirements or execute our business strategy.

Options granted under our 1998 stock plan may not have complied with federal and state securities laws, and we intend to offer to repurchase the options.

      For the first time at the end of any fiscal year, on December 31, 2002, options granted under our 1998 stock plan were held by more than 500 holders. As a result, we became subject to the registration requirements under Section 12(g) of the Securities Exchange Act of 1934, as amended. Because we did not register our securities under Section 12 and did not file periodic and other reports under Section 13(a) of the Exchange Act beginning in 2003, grants of certain options under our 1998 stock plan between January 1, 2003 through April 28, 2004 may not have been exempt from registration or qualification under federal and state securities laws, and we did not obtain any required registration or qualification. As a result, we intend to make a rescission offer to the U.S. holders of these options, which we intend to complete before or shortly after the completion of this offering. In order to comply with California securities law, we will offer to repurchase these options, and have applied to the California Department of Corporations for approval of the terms of the repurchase offer. We intend to offer to repurchase the options at 20% of the option exercise price multiplied by the number of shares underlying the option, plus interest at an annual rate of 7% from the grant date. The proposed repurchase price is subject to approval by California Department of Corporations. If our proposed repurchase price is approved, we would be required to pay approximately $0.1 million, plus statutory interest at an annual rate of 7% if all persons entitled to have their options repurchased elect to do so. There is no assurance, however, that the terms of the repurchase offer will be approved by the California Department of Corporations and we could be required to offer a higher repurchase price or to extend the offer to a greater number of optionees. Federal securities laws do not expressly provide that a rescission offer will terminate a purchaser’s right to rescind a sale of stock that was not registered as required. If any or all of the offerees reject our offer to repurchase the options, we may continue to be liable under federal and state securities laws.

Risks Related to Doing Business in the Philippines

We may face wage inflation and additional competition in the Philippines for our professionals, which could increase the cost of qualified employees and the amount of employee turnover.

      Wages for our employees in the Philippines are increasing at a faster rate than for our U.S. employees, which could result in increased costs to employ our outsourcing center professionals. We also are faced with competition in the Philippines for outsourcing center professionals, and we expect this competition to increase as additional outsourcing companies enter the market and expand their operations. In particular, there may be limited availability of qualified middle and upper management candidates. We have benefited from an excess of supply over demand for college graduates in the Philippines. If this favorable imbalance changes due to increased competition, it could affect the availability or cost of qualified professionals, who are critical to our performance. This could increase our costs and turnover rates.

The Philippines may experience economic instability, which could increase our costs and harm our business.

      The Philippines continues to experience low growth in its gross domestic product, significant inflation, currency declines and shortages of foreign exchange. We are exposed to the risk of rental and other cost increases due to inflation in the Philippines, which has historically been at a much higher rate than in the

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Currency fluctuations in the Philippine peso relative to the U.S. dollar could increase our expenses.

      All of our revenues are denominated in U.S. dollars, and a substantial portion of our costs are incurred and paid in Philippine pesos. We are therefore exposed to the risk of an increase in the value of the Philippine peso relative to the U.S. dollar, which would increase our expenses. We do not currently engage in any transactions as a hedge against risk of loss due to foreign currency fluctuations.

Terrorist attacks could adversely affect the Philippine economy, disrupt our operations and cause our business to suffer.

      The Philippines periodically experiences civil unrest and terrorism and U.S. companies in particular may experience greater risk. We are not insured against terrorism risks. Terrorist attacks, such as the attacks of September 11, 2001 in the United States, have the potential to directly impact our clients and the Philippine economy by making travel more difficult, interrupting lines of communication and curtailing our ability to deliver our services to our clients. These obstacles may increase our expenses and harm our business.

We benefit from Philippine laws granting preferential tax treatment which, if eliminated, could result in increased operating expenses.

      We have benefited from significant government assistance in the Philippines, including the grant of income tax holidays and preferential tax treatments under our registrations with the Philippine Board of Investments and Philippine Economic Zone Authority, and changes to the country’s educational curriculum in order to attract foreign investment in specified sectors including the outsourcing industry. Despite these benefits, the Philippine national and local governments could alter one or more of these beneficial policies and the Philippine legislature could amend the laws granting preferential tax treatment. The elimination of any of the benefits realized by us from our Philippine operations, including tax incentives, could result in increased operating expenses and impair our competitive advantages over BPO companies based outside of the Philippines.

Risks Related to This Offering

Our stock price may be volatile, and you may not be able to resell shares of our common stock at or above the price you paid, or at all.

      Before this offering, our common stock was not traded in a public market. We cannot predict the extent to which a trading market will develop or how liquid that market might become. The initial public offering price for the shares sold in this offering will be determined by negotiations between us, the selling stockholders and the representatives of the underwriters and may not be indicative of prices that will prevail in the trading market. Prices for our common stock after this offering could be influenced by a variety of factors, including the depth and liquidity of the market for our common stock, investor perception of us, our business and our industry, the consumer credit and outsourcing industries, and general economic and market conditions. The trading price of our common stock could be subject to wide fluctuations due to the factors discussed in this risk factors section and elsewhere in this prospectus. In addition, the stock market in general and the Nasdaq National Market have experienced extreme price and volume fluctuations. Trading prices and valuations may not be sustainable. Broad market and industry factors may decrease the market price of our common stock, regardless of our actual operating performance. In addition, following periods of volatility in the overall market and a decline in the market price of a company’s stock, securities class action litigation has often been instituted. This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.

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If securities or industry analysts do not publish research or reports about our business or if they change negatively their recommendations regarding our stock, our stock price and trading volume could decline.

      The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. If one or more of the analysts who cover us publishes negative research on us or our industry, or downgrades our stock, our stock price would likely decline. If one or more of these analysts cease or limit coverage of us or our industry, or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

Purchasers in this offering will immediately experience substantial dilution in net tangible book value.

      Because our common stock has in the past been sold at prices substantially lower than the initial public offering price that you will pay, you will suffer immediate dilution of $           per share in net tangible book value, based on an assumed initial offering price of $           per share of common stock. The exercise of options and warrants may result in further dilution.

Substantial future sales of our common stock in the public market could cause our stock price to fall.

      Additional sales of our common stock in the public market after this offering, or the perception that these sales could occur, could cause the market price of our common stock to decline. Upon completion of this offering, we will have                      shares of common stock outstanding and                      shares that may be acquired upon the exercise of outstanding warrants and options. All shares sold in this offering will be freely transferable without restriction or additional registration under the U.S. Securities Act of 1933, as amended, or the Securities Act. The remaining shares of common stock outstanding after this offering will be available for sale, subject to volume and other restrictions as applicable under Rule 144 and 701 under the Securities Act. Additionally, our directors, executive officers and certain principal stockholders have agreed to enter into “lock up” agreements with the underwriters, in which they will agree to refrain from selling their shares for a period of 180 days after this offering. Approximately                     of these shares will become available for sale at various times after this offering upon the expiration of holding periods and lock-up agreements. We also may be required to issue additional shares upon the exercise of previously granted options or warrants that are currently outstanding.

      Increased sales of our common stock in the market 180 days after this offering could exert significant downward pressure on our stock price. These sales also may make it more difficult for us to sell equity or equity-related securities in the future at a time and price we deem appropriate.

Our management will have broad discretion over the use of the net proceeds of this offering and you may disagree with the way these funds are used.

      We intend to use the net proceeds from this offering for unspecified general corporate purposes, including working capital. We may use a portion of the net proceeds to invest in or acquire businesses, products and technologies that we believe will complement our business. However, depending on future developments and circumstances, we may use some of the proceeds for other purposes. We do not have more specific plans for the net proceeds from this offering. Our management will have significant flexibility in using the proceeds of this offering. You will be relying on the judgment of our management with respect to the use of the proceeds and you may disagree with the way these funds are used. The funds could be applied in ways that do not improve our operating results. The actual amounts and timing of these expenditures will vary significantly depending on a number of factors, including the amount of cash used in or generated by our operations.

We will incur increased costs as a result of being a public company.

      As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. We estimate that these costs will be approximately $2.0 million annually, but they could be higher. The Sarbanes-Oxley Act of 2002, as well as new rules subsequently implemented by

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Delaware law and our amended and restated certificate of incorporation and by-laws will contain anti-takeover provisions that could delay or discourage business combinations and takeover attempts that stockholders may consider favorable.

      Our amended and restated certificate of incorporation and by-laws which, we intend to adopt prior to the completion of this offering, will contain provisions that may make it more difficult, expensive or otherwise discourage a tender offer or a change in control or takeover attempt by a third-party that is opposed by our board of directors. These provisions may have the effect of delaying or preventing a change of control or changes in management that stockholders consider favorable. In particular, our amended and restated certificate of incorporation and by-laws include provisions that:

      Additionally, because we are incorporated in Delaware, we are subject to Section 203 of the Delaware General Corporation Law. These provisions may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us. These provisions in our

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Our corporate actions could be substantially influenced by officers, directors, principal stockholders and affiliated entities.

      After this offering, our directors, executive officers and their affiliated entities will beneficially own approximately      % of our outstanding common stock. These stockholders, if they acted together, could exert substantial influence over matters requiring approval by our stockholders, including electing directors and approving mergers or other business combination transactions. This concentration of ownership may also discourage, delay or prevent a change in control of our company, which could deprive our stockholders of an opportunity to receive a premium for their stock as part of a sale of our company and might reduce our stock price. These actions may be taken even if they are opposed by our other stockholders, including those who purchase shares in this offering.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

      Many of the statements included in this prospectus contain forward-looking statements and information relating to our company. We generally identify forward-looking statements by the use of terminology such as “may,” “will,” “could,” “should,” “potential,” “continue,” “expect,” “intend,” “plan,” “estimate,” “anticipate,” “believe,” or similar phrases or the negatives of such terms. We base these statements on our beliefs as well as assumptions we made using information currently available to us. Such statements are subject to risks, uncertainties and assumptions, including those identified in “Risk Factors,” as well as other matters not yet known to us or not currently considered material by us. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. Important factors that may affect these projections or expectations include, but are not limited to:

      Given these risks and uncertainties, prospective investors are cautioned not to place undue reliance on such forward-looking statements. Forward-looking statements do not guarantee future performance and should not be considered as statements of fact.

      These forward-looking statements speak only as of the date of this prospectus and, unless required by law, we undertake no obligation to publicly update or revise any forward-looking statements to reflect new information or future events or otherwise. You should, however, review the factors and risks we describe in our annual, quarterly and other reports we will file with the SEC after the date of this prospectus. See “Where You Can Find Additional Information.”

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INDUSTRY DATA

      This prospectus contains statistical data that we obtained for a fee from industry publications and reports including Gartner, Inc. and International Data Corporation. These industry publications generally indicate that they have obtained their information from sources believed to be reliable, but do not guarantee the accuracy and completeness of their information. Although we believe that the publications are reliable, we have not independently verified their data. None of these industry reports were prepared in contemplation of this offering.

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USE OF PROCEEDS

      We estimate that the net proceeds to us from the sale of the shares of common stock that we are selling in this offering will be $           million, assuming an initial public offering price of $           per share after deducting the underwriting discounts and commissions and estimated expenses payable by us. If the underwriters exercise their over-allotment option in full, we estimate the net proceeds to us will be approximately $           million after deducting the underwriting discounts and commissions and estimated expenses payable by us. We will not receive any of the net proceeds from the sale of the shares by the selling stockholders.

      We expect to use the net proceeds from this offering as follows:

      We have not yet determined all of our anticipated expenditures and cannot estimate the amounts to be used for each of the purposes discussed above. We presently have no commitment or agreement relating to any acquisitions or to expand our operations into any other country. The amounts and timing of any expenditure will vary depending on the amount of cash generated by our operations, competitive and technological developments and the rate of growth, if any, of our business. Accordingly, our management will have significant flexibility in applying the net proceeds from this offering. Pending the uses described above, we intend to invest the net proceeds from this offering in money market funds or short-term, investment-grade, interest-bearing securities.

DIVIDEND POLICY

      We have never declared or paid cash dividends on our common stock and do not expect to pay any cash dividends in the foreseeable future. We anticipate that we will retain any future earnings to finance the operation and expansion of our business. Any future determination to declare and pay dividends will depend on a number of factors, including our future earnings, financial condition, results of operations, capital requirements, business prospects and other factors that our board of directors may deem relevant, including any contractual or statutory restrictions on our ability to pay dividends.

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CAPITALIZATION

      The following table sets forth our capitalization as of June 30, 2004:

      You should read the following table together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the notes to those statements appearing elsewhere in this prospectus.

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DILUTION

      If you invest in our common stock, your interest will be diluted immediately to the extent of the difference between the public offering price per share of our common stock and the pro forma net tangible book value per share of our common stock after this offering.

      Our pro forma net tangible book value as of June 30, 2004 was approximately $7.9 million or $           per share of common stock. Pro forma net tangible book value per share represents the amount of our total tangible assets reduced by the amount of our deferred offering costs and the amount of our total liabilities, divided by the number of shares of common stock outstanding on a pro forma basis after giving effect to the one time payments to senior management of $11.1 million, a                     stock split of our common and preferred stock before the closing of this offering, and the automatic conversion of 28.7 million outstanding shares of our preferred stock into shares of our common stock following the stock split and before the closing of this offering.

      After giving effect to the sale of the                      shares of common stock offered by us at an assumed initial public offering price of $           per share, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of June 30, 2004 would have been approximately $           million or $           per share. This represents an immediate increase in pro forma as adjusted net tangible book value of $           per share to existing stockholders and an immediate dilution of $           per share to new investors. The following table illustrates this dilution:

      If the underwriters exercise their over-allotment option in full, our pro forma as adjusted net tangible book value as of June 30, 2004 would have been $           per share, representing an immediate increase in pro forma as adjusted net tangible book value of $           per share to existing stockholders and an immediate dilution of $           per share to new investors.

      The following table sets forth on a pro forma as adjusted basis as of June 30, 2004:

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      These pro forma numbers give effect to a                      stock split of our common and preferred stock before the closing of this offering and the automatic conversion of 28.7 million outstanding shares of our preferred stock into an equal number of shares of our common stock following the stock split and before the closing of this offering.

      The outstanding share information in the table above excludes:

      If the underwriters exercise their over-allotment option in full, the following will occur:

      The table below assumes the exercise of all outstanding stock options and the exercise of warrants to purchase shares of our common and preferred stock outstanding at June 30, 2004:

      Your investment may be further diluted if we grant more options or issue more warrants in the future.

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

      The following table presents selected historical consolidated financial data as of, and for the years ended, December 31, 1999, 2000, 2001, 2002 and 2003, which has been derived from our audited consolidated financial statements. The consolidated statements of operations data for each of the six months ended June 30, 2003 and 2004, and the consolidated balance sheet data as of June 30, 2004 are derived from our unaudited consolidated financial statements. Our consolidated financial statements as of, and for the years ended, December 31, 2002 and 2003 were audited by BDO Seidman, LLP, and our consolidated financial statements as of, and for the years ended, December 31, 1999, 2000 and 2001 were audited by another auditor. You should read this information together with “Summary Historical Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and related notes for the years ended December 31, 2001, 2002 and 2003 and the six months ended June 30, 2003 and 2004, which are included elsewhere in this prospectus. Historical results are not necessarily indicative of the results to be expected in the future.