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                                                                    EXHIBIT 99.1

         SAFE HARBOR COMPLIANCE STATEMENT FOR FORWARD LOOKING-STATEMENTS

         Our future operating results may vary substantially from period to
period. The price of our common stock will fluctuate in the future, and an
investment in our common stock is subject to a variety of risks, including but
not limited to the specific risks identified below. Inevitably, some investors
in our securities will experience gains while others will experience losses
depending on the prices at which they purchase and sell securities. Prospective
and existing investors are strongly urged to carefully consider the various
cautionary statements and risks set forth in this report and our other public
filings.

         The annual report on Form 10-K, to which this statement is attached as
an exhibit, contains forward-looking statements that are not historical facts
but rather are based on current expectations, estimates and projections about
our business and industry, our beliefs and assumptions. Words such as
"anticipates", "expects", "intends", "plans", "believes", "seeks", estimates"
and variations of these words and similar expressions are intended to identify
forward-looking statements. These statements are not guarantees of future
performance and are subject to risks, uncertainties and other factors, some of
which are beyond our control, are difficult to predict and could cause actual
results to differ materially from those expressed or forecasted in the
forward-looking statements. Forward-looking statements that were true at the
time made may ultimately prove to be incorrect or false. Readers are cautioned
not to place undue reliance on forward-looking statements, which reflect our
management's view only as of the date of this report. Except as required by law,
we undertake no obligation to update any forward-looking statement, whether as a
result of new information, future events or otherwise.

         Important factors currently known to our management that could cause
actual results to differ materially from those in forward-looking statements
include the disclosures contained in the Annual Report on Form 10-K to which
this statement is attached as an exhibit and also include the following risks:

ALTHOUGH WE HAVE ACHIEVED NET PROFITABILITY, WE HAVE NOT YET ACHIEVED
PROFITABILITY FROM OPERATIONS AND WE MAY EXPERIENCE LOSSES IN THE FUTURE

         We have incurred substantial losses since our inception and we may
continue to suffer losses in the future. As a result of our accumulated
operating losses, as of December 31, 2000, we had an accumulated deficit of
approximately $22.8 million. In addition, we expect to continue to devote
substantial resources to research and development, professional services and
sales and marketing activities. As a result, we will need to generate
significant revenues to sustain profitability in any future period, and we may
never be able to do so. If we do not achieve profitability from operations, or
if we do not remain profitable on a net basis, we will need to obtain additional
financing. The financing from other sources upon which we have historically
relied may not be available to us on acceptable terms. If we fail to remain
profitable, it will materially and adversely affect the market price of our
stock.

WE MAY MAKE ACQUISITIONS OR INVESTMENTS THAT ARE NOT SUCCESSFUL AND THAT
ADVERSELY AFFECT OUR ONGOING OPERATIONS

         We may acquire or make investments in companies, products, services and
technologies which complement our software and services. Because of the
proliferation of new customer interaction mediums such as the Internet and
e-mail, we believe that it may be important for us to acquire complementary
technology to quickly bring new products to market. We have very limited
experience in making acquisitions and investments. As a result, our ability to
identify prospects, conduct acquisitions and to properly manage the integration
of acquisitions is unproven. If we fail to properly evaluate and execute
acquisitions or investments, it may seriously harm our business and operating
results. In making or attempting to make acquisitions or investments, we face a
number of risks, including:

         -        the difficulty of identifying suitable acquisition or
                  investment candidates, performing appropriate due diligence
                  and negotiating acceptable terms for acquisitions and
                  investments;

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         -        the potential distraction of our management, diversion of our
                  resources and disruption of our business;

         -        our retention and motivation of key employees of the acquired
                  companies;

         -        our entry into geographic markets in which we have little or
                  no prior experience;

         -        competition for acquisition opportunities with competitors
                  that are larger than us or have greater financial and other
                  resources than we have;

         -        our inability to accurately forecast the financial impact of
                  an acquisition or investment; and

         -        our inability to maintain good relations with the customers
                  and suppliers of the acquired company; and o our inability to
                  effectively integrate acquisition or investments into the
                  company and achieve expected synergies.

         In addition, if we make acquisitions using convertible debt or equity
securities, our existing stockholders may be diluted, which could cause the
market price of our stock to decline.

OUR QUARTERLY REVENUES, EXPENSES AND OPERATING RESULTS HAVE FLUCTUATED AND ARE
LIKELY TO CONTINUE TO FLUCTUATE, WHICH MAY CAUSE OUR STOCK PRICE TO DECLINE

         Our quarterly revenues, expenses and operating results could vary
significantly from period to period. In particular, we derive a significant
portion of our software license revenue in each quarter from a small number of
relatively large orders. A delay in the recognition of revenues from one of
these orders may cause our results of operations during a quarter to be lower
than we expect. The delay or failure to close anticipated sales in a particular
quarter could reduce our revenues in that quarter and subsequent quarters over
which revenues for the sale would likely be recognized. In addition, because our
revenues from implementation, maintenance and training services largely
correlates with our license revenues, a decline in license revenues could also
cause a decline in our services revenues in the same quarter or in subsequent
quarters. Our revenues, expenses and operating results may vary significantly in
response to the risk factors described in this section, as well as the following
factors, some of which are beyond our control:

         -        a decrease in demand for our software or, more generally, for
                  products that record and analyze the interactions between a
                  business and its customers and/or provide electronic learning;

         -        announcements or introductions of new products and services by
                  our competitors;

         -        product pricing decisions by our competitors;

         -        the timely payment of fees due to us by our customers;

         -        our ability to develop, market and manage new software,
                  software enhancements and services;

         -        the deferral of orders for our software or delays in the
                  implementation of our software from one quarter to a later
                  quarter;

         -        how quickly we are able to develop new software, software
                  enhancements and services that our customers require;

         -        how much money we have to spend to improve our software,
                  services and operations;

         -        delays in installments of our software;

         -        the lengthiness and unpredictability of sales cycles for our
                  software;

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         -        the mix of revenue generated by software licenses and related
                  services;

         -        spending limitations imposed on our customers or potential
                  customers because of economic factors and decreased capital
                  spending budgets, including limitations imposed after the
                  sales cycle has begun but before a deal is consummated;

         -        the timing and size of our capital expenditures and changes in
                  our working capital; and

         -        general economic factors and changes in technology that could
                  cause our existing and potential customers to decrease what
                  they spend on customer relationship management software.

         Due to the foregoing factors, we believe that quarter-to-quarter
comparisons of our operating results may not be a good indication of our future
performance, and you should not rely on them to predict our future performance
or the future performance of our stock price. Historically, our revenue growth
has fluctuated from as low as 1% to as high as 58% from one quarter to the next.
If our future revenues or operating results fall below the expectations of
investors or securities analysts, the price of our common stock would likely
decline.

OUR SOFTWARE HAS A LONG SALES CYCLE WHICH MAKES IT DIFFICULT TO PLAN OUR
EXPENSES AND FORECAST OUR RESULTS

         Although it typically takes three to twelve months from the time we
qualify a sales lead until we sign a contract with the customer, we occasionally
experience a longer sales cycle. It is therefore difficult to predict the
quarter in which a particular sale will occur. If our sales cycle unexpectedly
lengthens for one or more large orders or a significant number of small orders,
it would adversely affect the timing of our revenues and the timing of our
corresponding expenditures. This could harm our ability to meet our financial
forecasts for a given quarter. Our customers' decisions regarding their purchase
of our software and services is relatively long due to several factors,
including:

         -        the complex nature of our software;

         -        our need to educate potential customers about the uses and
                  benefits of our software;

         -        competition for a shrinking amount of corporate resources
                  because of a slowing economy;

         -        the investment of money and other resources required by
                  customers to purchase and implement our software;

         -        customers' budget cycles and operating activities, which
                  affect the timing of their purchases;

         -        the competitive evaluation and internal approval process many
                  of our customers undertake before purchasing our software and
                  services;

         -        delayed purchases due to announcements or planned
                  introductions of new software or software enhancements by us
                  or our competitors; and

         -        the length of time some of our larger customers require to
                  make a decision to purchase our software and services.

SEASONAL TRENDS IN SALES OF BUSINESS SOFTWARE OR CUSTOMER INTERACTION LEVELS
MAY AFFECT OUR QUARTERLY REVENUES

         The market for business software has experienced seasonal fluctuations
in demand. The first and third quarters of the year have been typically
characterized by lower levels of revenues. We believe that these fluctuations
are caused in part by customer buying patterns, which are influenced by year-end
budgetary

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pressures and by sales force commission structures. Customer interaction centers
typically experience much higher volumes of customer contact during and
immediately following the year-end holiday season. As a result, many customers
may elect to defer installation of our software during this time. This has
caused us to experience, and we expect to continue to experience, seasonal
fluctuations in our revenues. As our revenues grow, seasonal fluctuations in our
revenues may become more evident.

WE FACE INTENSE COMPETITION THAT COULD ADVERSELY AFFECT OUR REVENUES,
PROFITABILITY AND MARKET SHARE

         The market for products that record and analyze customer interactions
and/or provide electronic learning is intensely competitive, evolving and
experiences rapid changes in technology. We believe our principal competitors
include, but are not limited to:

         -        quality monitoring suppliers to the contact center industry;

         -        traditional call-logging vendors;

         -        systems integrators and consulting firms; and

         -        new, larger and more established entities that may acquire,
                  invest in or form joint ventures with providers of recording
                  or performance enhancing software solutions.

         Many of our current and potential competitors have longer operating
histories, more established business relationships, larger customer bases, a
broader range of products and services, greater name recognition and
substantially greater financial, technical, marketing, personnel, management,
service, support and other resources than we do. This could allow our current
and potential competitors to respond more quickly than we can to new or emerging
technologies and changes in customer requirements, take better advantage of
acquisitions and other opportunities, devote greater resources to the marketing
and sale of their products and services and adopt more aggressive pricing
policies. These competitors may distinguish themselves from us on the basis of
their longer operating histories and ability to withstand difficult economic
conditions. Our competitors may also be able to offer products at lower prices
or with other incentives that we cannot match. Additionally, the scope of our
products and services may be viewed as too narrow because some of our
competitors offer a broader range of products and services.

         In addition, many of our competitors market their products through
resellers and companies that integrate their technology and products with those
of the competitor. These resellers and technology partners of our competitors
often have strong business relationships with our customers and potential
customers. For example, some of our competitors have a better and more long
standing relationship with telephone switch vendors. Our competitors may use
these business relationships to market and sell their products and compete for
customers with us. We cannot assure you that our competitors will not offer or
develop products and services that are superior to ours. In addition, it is
possible that resellers or technology partners, such as certain telephone switch
vendors, may acquire one or more of our competitors, which would further
solidify their business relationships.

         In addition, we have developed, and intend to continue to develop,
relationships with companies that resell our software and companies that provide
us with customer referrals or leads, some of which may become competitors.
Revenues from our resellers accounted for approximately 8% of our total revenues
for the year ended December 31, 2000. We expect revenues from our resellers, and
accordingly our dependence on resellers, to increase as we establish more
relationships with companies to resell our software worldwide. We engage in
joint marketing and sales efforts with our resellers, and rely on them for
recommendations of our software during the evaluation stage of the purchase
process. When we enter into agreements with these companies, the agreements are
not exclusive and may ordinarily be terminated by either party. Some of these
companies have similar, and often more established, relationships with our
competitors, and may recommend the products and services of our competitors to
customers instead of our software and services. In addition, through their
relationships with us, these companies could learn about our software and the
market for our software and services and could develop and sell competing
products and services. As a result, our relationships with these companies could
lead to increased competition for us.

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         Our software must integrate with software and hardware solutions
provided by a number of our existing and potential competitors. These
competitors or their business partners could alter their products so that our
software no longer integrates well with them, or they could delay or deny our
access to software releases that allow us to timely adapt our software to
integrate with their products. They could thus effectively prevent us from
modifying our software to keep pace with the changing technology of their
products. If we cannot adapt our software to changes in our competitors'
technology, it may significantly impair our ability to compete effectively,
particularly if our software must integrate with the software and hardware
solutions of our competitors.

         We expect that competition will increase as other established and
emerging companies enter our market and as new products, services and
technologies are introduced. Increased competition may result in price
reductions, lower gross margins and loss of our market share. This could
materially and adversely affect our business, financial condition and results of
operations.

IF WE FAIL TO DEVELOP NEW SOFTWARE OR IMPROVE OUR EXISTING SOFTWARE TO MEET OR
ADAPT TO THE CHANGING NEEDS AND STANDARDS OF OUR TARGET MARKET, SALES OF OUR
SOFTWARE AND SERVICES MAY DECLINE

         Our future success depends upon our ability to develop and introduce
new software and software enhancements which meet the needs of companies seeking
to record and analyze their interactions with customers. To achieve increased
market acceptance of our software and services, we must, among other things,
continue to:

         -        improve our existing software and introduce new software
                  solutions;

         -        incorporate new technology into our software and services on a
                  timely and cost-effective basis;

         -        keep pace with the products and services of our competitors;

         -        satisfy the changing requirements of our current and potential
                  customers;

         -        improve the effectiveness of our software, particularly in
                  implementations involving very large databases and large
                  numbers of simultaneous users;

         -        enhance our software's ease of administration;

         -        improve our software's ability to extract data from existing
                  software systems; and

         -        adapt to rapidly changing computer operating system, database
                  and software platform standards and Internet technology.

         In addition, industry standards may not be established, or we may not
be able to conform to new standards in a timely fashion to remain competitive.
Our failure to conform to prevailing technology standards in our industry could
limit our ability to compete and adversely affect our business.

         We may require substantial product development expenditures and
lead-time to keep pace and ensure compatibility with new technology in our
industry. If we fail to develop and introduce new software and enhancements for
our existing software, our software and services may not achieve market
acceptance and we may be unable to attract new customers. We may also lose
existing customers, to whom we seek to sell additional software and services.
During the year ended December 31, 2000, we introduced four new eQuality product
modules--eQuality Interactive, Response, Connect, and Now. These new modules
generated less than 5% of our total revenues during the year. The success of
these modules is dependent upon contact centers, adoption of new technologies
that will enable them to interact with their customers via e-mail and
collaborative web-chat sessions and the adoption of electronic learning
applications in the customer contact center. We cannot predict how quickly, if
ever, contact centers will adopt this new

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technology. If this does not happen, it could materially and adversely affect
our business, financial condition, and results of operations.

         In September 1999, we acquired technology to store and retrieve
substantially larger volumes of data than our software is currently capable of
storing and retrieving. As of December 31, 2000, this technology had not yet
progressed to a stage where it had reached technological feasibility, and we are
currently working on a project to develop this technology. We cannot assure you
that we will successfully complete this project in a timely manner. If we are
unable to develop this technology in a timely manner, it may adversely affect
our ability to compete and our ability to attract new customers.

WE BELIEVE THAT OUR FUTURE SUCCESS ALSO DEPENDS UPON THE CONTINUED ABILITY OF
OUR SOFTWARE TO BE COMPATIBLE WITH THE PRODUCTS AND OTHER TECHNOLOGIES OFFERED
BY OTHER SOFTWARE AND HARDWARE COMPANIES.

         New products may not be compatible with our software, but may be
compatible with the products of our competitors. For example, our products must
integrate with phone switches made by the telephone switch vendors, and computer
telephony software applications offered by other by other software providers. If
our products are not compatible with the technologies offered by other software
and hardware companies, it would have a material adverse effect on our business
and results of operations.

IF THE MARKET IN WHICH WE SELL OUR SOFTWARE AND SERVICES DOES NOT GROW AS WE
ANTICIPATE, WE WILL BE UNABLE TO CONTINUE OUR GROWTH

         The market for customer relationship management software, including
software that records and analyzes customer interactions, is still emerging. In
addition, we are continuing to expand our product offering with products such as
eQualityNow. If the market for this software does not grow as quickly or become
as large as we anticipate, we may not be able to continue our growth or may grow
more slowly than expected. Continued growth in demand for this software remains
uncertain because our potential customers may:

         -        not understand the benefits of using customer relationship
                  management software generally or, more specifically, software
                  which records and analyzes the interactions between a business
                  and its customers;

         -        not achieve favorable results using this software;

         -        experience technical difficulty in implementing this software;
                  or

         -        use alternative methods such as online self-help to solve the
                  same business problems this software is intended to address.

         In addition, our software is designed to address the needs of contact
centers. If the number of contact centers does not increase as we expect, or if
it grows more slowly than we anticipate, we may not be able to continue our
growth or may grow more slowly than expected.

WE RELY HEAVILY ON SALES OF OUR EQUALITY BALANCE AND EQUALITY EVALUATION
SOFTWARE

         Our financial performance has depended, and will continue to depend, on
our ability to develop and maintain market acceptance of our eQuality Balance
software and new and enhanced versions of it. Historically, nearly all of our
license revenues have been derived from the sale of our eQuality Balance and
eQuality Evaluation software, and we expect revenues from these two products to
continue to account for most of our revenues for the foreseeable future. Through
December 31, 2000, we have recognized less than 5% of our revenues from products
other than eQuality Balance and eQuality Evaluation. As a result, factors which
adversely affect the pricing or demand for our eQuality Balance and eQuality
Evaluation software, such as competitive pressures, technological change or
evolution in customer preferences, could materially

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and adversely affect our business, financial condition and results of
operations. Many of these factors are beyond our control and difficult to
predict.

IF OUR INTERNAL PROFESSIONAL SERVICES EMPLOYEES DO NOT PROVIDE INSTALLATION
SERVICES EFFECTIVELY AND ACCORDING TO SCHEDULE, OUR CUSTOMERS MAY NOT USE OUR
IMPLEMENTATION SERVICES OR MAY STOP USING OUR SOFTWARE

         Customers that license our products ordinarily purchase installation,
training and maintenance services, which they typically obtain from our internal
professional services organization. Because our software must be installed to
work with a number of computer and telephone network systems, installation of
our software can be difficult. These systems vary greatly from one customer site
to another, and the versions and integration requirements of these third party
systems change frequently. We believe that the speed and quality of installation
services are competitive factors in our industry. If our installation services
are not satisfactory to our customers, the customers may choose to not use our
implementation services to install software they license from us. In addition,
these customers may determine that they will not license our software and
instead will use the products and services of one of our competitors. If this
happens, we would lose licensing and services revenues from these customers, and
it would likely harm our reputation in the industry in which we compete. This
could materially and adversely affect our business, financial condition and
results of operations.

IF WE NEED ADDITIONAL FINANCING TO MAINTAIN OR EXPAND OUR BUSINESS, IT MAY NOT
BE AVAILABLE ON FAVORABLE TERMS, OR AT ALL

         Although we believe our current cash and borrowing capacity will be
sufficient to meet our anticipated cash needs for working capital and capital
expenditures for at least the next 12 months, we may need additional funds to
expand or meet all of our operating needs. If we need additional financing, we
cannot be certain that it will be available to us on favorable terms, or at all.
If we raise additional funds by issuing equity securities, the ownership
interest of our stockholders would be significantly diluted, and any additional
equity securities we issue may have rights, preferences or privileges senior to
the rights of our stockholders. Also, the terms of any additional financing we
obtain may significantly limit our future financing and operating activities. If
we need funds and cannot raise them on acceptable terms, we may be forced to
sell assets or seek to refinance our outstanding obligations. We may also be
unable to:

         -        develop and enhance our software to remain competitive;

         -        take advantage of future opportunities, such as acquisitions;

         -        respond to changing customer needs and our competitors'
                  innovations; or

         -        attract and retain qualified key personnel.

         Any of these events could significantly harm our business and financial
condition and limit our growth.

IF WE DO NOT CONTINUE TO EXPAND THE DISTRIBUTION OF OUR PRODUCTS THROUGH DIRECT
AND INDIRECT SALES CHANNELS, WE MAY BE UNABLE TO EXPAND OUR MARKET SHARE OR
INCREASE OUR REVENUES

         To expand our market share and revenues, attract new customers and
increase sales to existing customers, we will need to expand our direct and
indirect channels of distribution. Although we have historically received
approximately 92% of our revenues from direct sales through December 31, 2000,
we will require an increase in our direct sales to achieve our growth plans. To
accomplish this, we will need to expand our direct sales force by hiring
additional sales personnel and management, and increase the number of
relationships we have with companies that provide us with customer referrals or
leads for new business. Historically, it has taken us up to six months to train
new sales personnel before they reach an acceptable level of productivity. We
have also experienced difficulty in finding new sales personnel with experience
in computer and telephone integration technologies. We cannot assure you that we
will be able to continue to find an adequate number of new sales personnel
meeting our specific needs. If the personnel

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we hire are less qualified, it may take us more time to train them and they may
take a longer time to reach an acceptable level of productivity. We cannot
assure you that we will be able to hire the necessary sales personnel and
management on reasonable terms, or at all. Moreover, we will be required to
train any new personnel, and the new personnel may not reach full productivity
for a long period of time.

         We also intend to derive revenues from our indirect sales channel
through relationships with companies that resell our software. In particular, we
intend to use resellers to increase our sales internationally and to market our
software to small and medium contact centers.

         Through December 31, 2000, we have entered into agreements with only a
small number of companies that resell our software and companies that provide us
with customer referrals. For the year ended December 31, 2000, approximately 8%
of our revenues were generated through these resellers. When we enter into
agreements with these companies, they are not exclusive and may ordinarily be
terminated by either party. Some of these companies have similar, and often more
established, relationships with our competitors, and may recommend the products
and services of our competitors to customers instead of our software and
services. Maintaining reseller relationships in today's rapidly evolving
marketplace has proven to be difficult. For example, during the year ended
December 31, 1998, we incurred a $900,000 charge to terminate a distributor
agreement that we believed had become counterproductive. We cannot assure you
that we will be able to maintain productive relationships or that we will be
able to establish similar relationships with additional companies on a timely
basis, or at all. In addition, we cannot be certain that these distribution
partners will devote adequate resources to selling our software and services. If
we are unable to maintain and expand our direct sales force and indirect
distribution channels, we will not be able to increase our revenues and our
business will suffer.

WE EXPECT TO FACE DIFFICULTY IN ATTRACTING AND RETAINING KEY PERSONNEL, WHICH
ARE NECESSARY TO EFFECTIVELY MANAGE AND EXPAND OUR BUSINESS

         Our future success will depend in large part on our ability to hire,
train, retain and motivate a sufficient number of qualified personnel,
particularly in sales, marketing, research and development, service and support.
In particular, competition for research and development personnel with computer
and telephone integration skills is intense, and turnover of technical personnel
is particularly high in our industry. We expect to face additional difficulties
retaining personnel who have stock options with exercise prices above the fair
market value of our stock. In order to retain some of our personnel, we will
need to grant additional options to purchase common stock to these employees
with exercise prices equal to the fair market value of our stock, which will
cause dilution to our stockholders. If we are unable to attract and retain
qualified personnel or if we experience high personnel turnover, it would
increase our costs of operations and could prevent us from effectively managing
and expanding our business.

         Our future success also depends upon the continued service of our
executive officers, particularly our Chairman and Chief Executive Officer, David
Gould. We have an employment agreement with Mr. Gould and non-compete agreements
with all of our executive officers. However, any of our executive officers and
other employees could terminate his or her relationship with us at any time. The
loss of the services of our executive officers or other key personnel could
materially and adversely affect our business. In addition, if one or more of our
executive officers or key employees were to join one of our competitors or
otherwise compete with us, it could harm our business.

OUR FAILURE TO PROPERLY MANAGE OUR RAPID GROWTH COULD STRAIN OUR RESOURCES AND
MAKE IT DIFFICULT TO SUPPORT OUR FUTURE OPERATIONS

         Our business could suffer if we fail to effectively manage our growth.
Our revenues increased approximately 91% during the year ended December 31, 2000
from the previous year. Although we expect revenues to grow on an annual basis,
we do not expect to maintain this same rate of revenue growth year over year.
From December 31, 1999 to December 31, 2000, the number of our employees
increased from 178 to 275. This growth in our revenues and number of employees
has placed, and will continue to place, a significant strain on our management,
personnel, systems, controls and other resources. If we are unable to
<PAGE>   9

effectively manage our growth, it may be difficult to support our future
operations. To manage growth effectively, we must:

         -        accurately predict the growth in demand for our software and
                  expand our capacity and implementation services to meet that
                  demand;

         -        expand and improve our operating and financial systems,
                  procedures and controls;

         -        attract, train, motivate, manage and retain key personnel;

         -        expand our facilities;

         -        successfully integrate the operations and personnel of any
                  businesses we acquire; and

         -        respond quickly and effectively to unanticipated changes in
                  our industry.

IF WE FAIL TO EXPAND AND MANAGE OUR INTERNATIONAL OPERATIONS, WE MAY BE UNABLE
TO REACH OR MAINTAIN OUR DESIRED LEVELS OF REVENUE OR PROFITABILITY

         Revenues from customers located outside of North America accounted for
approximately 6% of our total revenues for the year ended December 31, 2000. We
intend to continue to expand our international operations through internal
business expansion and strategic business relationships. Our operations outside
of North America currently consist of approximately 22 dedicated employees
located in the United Kingdom, Canada, Sweden, The Netherlands, Mexico,
Australia and Japan. Most of our international revenues through December 31,
2000 have come from international branches of our customers based in North
America. We have established relationships with a small number of international
resellers, but through December 31, 2000 we have not recognized a material
amount of revenues from these relationships. In addition to general risks
associated with international expansion, such as foreign currency fluctuations
and political and economic instability, our plans to expand internationally may
be adversely affected by a number of risks, including:

         -        limited development of an international market for our
                  software and services;

         -        the challenges we face in expanding and training our
                  international sales force and support operations;

         -        expenses associated with customizing products for multiple
                  countries;

         -        longer payment cycles, different accounting procedures and
                  difficulties in collecting accounts receivable; and

         -        multiple, conflicting and changing governmental laws and
                  regulations governing intellectual property, call monitoring
                  and the recording of employees.

         As we further expand our operations outside the United States, we will
face new competitors and competitive environments. In addition to the risks
associated with our domestic competitors, foreign competitors may pose an even
greater risk, as they may possess a better understanding of their local markets
and better working relationships with local infrastructure providers and others.
In particular, because telephone protocols and standards are unique to each
country, local competitors will have more experience with, and may have a
competitive advantage in, these markets. We may not be able to obtain similar
levels of local knowledge or similar relationships in foreign markets, which
could place us at a significant competitive disadvantage.


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OUR FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY MAY LEAD TO THIRD PARTIES USING
OUR TECHNOLOGY FOR THEIR OWN BENEFIT AND OUR FAILURE TO ACCESS THIRD PARTY
TECHNOLOGY COULD DELAY THE DEVELOPMENT OR SALE OF OUR SOFTWARE

         Our success depends to a significant degree upon the legal protection
of our software and other proprietary technology rights. We rely on a
combination of patent, trade secret, copyright and trademark laws and
confidentiality and non-disclosure agreements with employees and third parties
to establish and protect our proprietary rights. These measures may not be
sufficient to protect our proprietary rights, and we cannot be certain that
third parties will not misappropriate our technology and use it for their own
benefit. Also, most of these protections do not preclude our competitors from
independently developing products with functionality or features substantially
equivalent or superior to our software. Any failure to protect our intellectual
property could have a material adverse effect on our business.

         As of December 31, 2000, we have three United States registered
trademarks, one patent generally relating to our voice and data synchronization
technology and data capture technique and seven pending copyright registrations
protecting our software source code. We cannot assure you that we will file
further patent, trademark or copyright applications, that any future
applications will be approved, that any existing or future patents, trademarks
or copyrights will adequately protect our intellectual property or that any
existing or future patents, trademarks or copyrights will not be challenged by
third parties. Furthermore, one or more of our existing or future patents,
trademarks or copyrights may be found to be invalid or unenforceable.

         We are aware of certain uses, United States trademark registrations,
and United States trademark applications for the trademark "eQuality" and its
variations that predate our use of, and United States trademark application for,
our trademarks eQuality and Bringing eQuality to eBusiness. It is possible that
the United States Patent and Trademark Office will deny our United States
trademark applications. In addition, it is possible that the owner of legal
rights resulting from one or more of these prior uses, United States trademark
registrations, or United States trademark applications will bring legal action
to prevent us from registering and/or using the trademarks eQuality and Bringing
eQuality to eBusiness, and may also seek compensation for damages resulting from
our use of these trademarks. As a result, we cannot assure you that our efforts
to use and register these trademarks will ultimately be successful, or that this
use will not result in liability for trademark infringement, trademark dilution,
and/or unfair competition.

         We are also currently evaluating whether to revise one aspect of the
patent for our synchronization techniques. If we are unsuccessful, we may not be
able to enforce any aspect of that patent against third parties who infringe it.
We also have two patent applications pending in the United States Patent and
Trademark Office. There is no guarantee that our pending applications will
result in issued patents or, if issued, that they will provide us with any
competitive advantages.

         Moreover, the laws of other countries in which we market our products
may afford little or no effective protection of our proprietary technology. If
we resort to litigation to enforce our intellectual property rights, the
proceedings could be burdensome and expensive, would likely divert valuable
management and product development resources and could involve a high degree of
risk, regardless of whether we win or lose the litigation.

         We rely on technology licensed from third parties, including databases,
application programming interfaces, developmental tools and software necessary
to integrate our software with third party technology and products. In addition,
third party products are bundled with our software. If we lose access to this
technology, or if it is not available to us on reasonable terms, it could cause
delays in our development and introduction of new and enhanced software until we
can obtain equivalent or replacement technology, if available, or develop this
technology internally, if feasible. If we lost access to technology that is
bundled with our software, this would require us to modify or redesign our
software and could cause a delay in our ability to market and sell our current
software, or a delay in our ability to develop, market and sell new or enhanced
software. This delay or a failure to obtain replacement technology could have a
material adverse effect on our business, financial condition and results of
operations.

<PAGE>   11

CLAIMS BY OTHER COMPANIES THAT OUR SOFTWARE INFRINGES THEIR INTELLECTUAL
PROPERTY COULD REQUIRE US TO INCUR SUBSTANTIAL EXPENSES OR PREVENT US FROM
SELLING OUR SOFTWARE OR SERVICES

         If any of our software violates the intellectual property rights of
others, we may be required to reengineer or redevelop our software, seek to
obtain licenses from third parties to continue offering our software without
substantial reengineering, or conduct studies of such intellectual property
rights so as to evaluate whether such intellectual property rights are valid or
enforceable. Any efforts to reengineer our software or obtain licenses from
third parties may not be successful, could be extremely costly and would likely
divert valuable management and product development resources. Any efforts to
study the intellectual property rights of third parties may not be successful
and could reveal that such intellectual property rights are valid and
enforceable, could be extremely costly and would likely divert valuable
management and product development resources.

         In addition, in the rapidly developing technological environment in
which we operate, third parties may have filed a number of patent applications,
many of which are confidential when filed. If our software is found to violate
these patents when they are issued or any other intellectual property of others,
we may become subject to claims for infringement. An infringement claim against
us could result in the loss of our proprietary rights and, whether meritorious
or not, could be time-consuming, result in costly litigation or require us to
pay damages or enter into royalty or licensing agreements on terms that are
unfavorable to us. Royalty or licensing agreements might not be available to us
on reasonable terms or at all. In addition, our customers may become subject to
claims if the software they license from us infringes the intellectual property
of others. Our license agreements with our customers generally provide that we
will indemnify the customers for liability they incur as a result of these
infringement claims. As a result, any infringement claim could materially and
adversely affect our business, financial condition and results of operations.

         Approximately three years ago, we were accused of infringing a patent
owned by a third party. We undertook to study the matter, concluded that the
asserted patent was not infringed, and informed the third party of our belief
that the patent was not infringed. Following an exchange of correspondence
between September 1996 and January 1998, nothing further was heard from the
patent owner.

         Although we have not exchanged correspondence with this third party
since January 1998, we cannot assure you that a renewed claim of infringement by
this third party, either in connection with the patent referred to above or
another patent or other intellectual property, or a claim of infringement by a
different patent or other intellectual property owner, will not be asserted
against us in the future. Furthermore, we expect that we and other participants
in our industry and related industries will be increasingly subject to
infringement claims as the number of competitors with patent and other
intellectual property portfolios in these industries grows. Although patent and
intellectual property disputes may be settled through licensing or similar
arrangements, costs associated with these arrangements may be substantial and we
cannot assure you that necessary licenses or similar arrangements will be made
available to us on a reasonable basis or at all. Consequently, if we become
subject to an adverse determination in a judicial or administrative proceeding
or we fail to obtain necessary licenses it could prevent us from producing and
selling our software. This would have a material adverse effect on our business,
financial condition and results of operations.

         In addition, if we decide to, or are forced to, litigate any of these
claims, the litigation could be expensive and time-consuming, could divert our
management's attention from other matters, and could otherwise materially and
adversely affect our business, financial condition and results of operations,
regardless of the outcome of the litigation. Litigation and intellectual
property claims against us could also disrupt our sale of software.
Additionally, it could lead to claims by third parties against our customers and
others using our software. Our customers and these other users of our software
would likely hold us responsible for these claims and any resulting harm they
suffer.
<PAGE>   12



GOVERNMENT REGULATION OF TELEPHONE AND INTERNET MONITORING COULD CAUSE A DECLINE
IN THE USE OF OUR SOFTWARE, RESULT IN INCREASED EXPENSES FOR US OR SUBJECT US
AND OUR CUSTOMERS TO LIABILITY

         As the telecommunications industry continues to evolve, state, federal
and foreign governments may increasingly regulate the monitoring of
telecommunications and telephone and Internet monitoring and recording products,
such as our software. We believe that increases in regulation could come in the
form of a number of different kinds of laws, including privacy and employment
regulations. The adoption of new laws governing the use of our software or
changes made to existing laws could cause a decline in the use of our software
and could result in increased expenses for us, particularly if we are required
to modify our software to accommodate these new or changing laws. Moreover, new
laws or changes to existing laws could subject us and our customers to
liability. In addition, whether or not these laws are adopted, if we do not
adequately address the privacy concerns of consumers, companies may be hesitant
to use our software. If any of these events occur, it could materially and
adversely affect our business.

OUR PRODUCTS MAY FAIL TO PERFORM PROPERLY, WHICH MAY CAUSE US TO INCUR
ADDITIONAL EXPENSES OR LOSE SALES

         Our software is used in a complex operating environment that requires
its integration with computer and telephone networks and other business software
applications. Furthermore, the hardware, software and network systems generally
used in conjunction with our software, particularly telephone standards and
protocols, change rapidly. The evolution of these standards may cause our
products to function slowly or improperly. Poor product performance may
necessitate redevelopment of our product or other costly reengineering measures
which may divert our management and product development resources and funds. Due
to the large number of, and variations in, computer and telephone network
systems and applications, as well as the rapid changes in these products, our
testing process may be unable to duplicate all possible environments in which
our software is expected to perform. Any errors or defects that are discovered
after we release new or enhanced software could cause us to lose revenue, cause
a delay in the market acceptance of our software, damage our customer
relationships and reputation and increase our service and warranty costs.

OUR MANAGEMENT AND AFFILIATES CONTROL A LARGE PERCENTAGE OF OUR VOTING STOCK AND
COULD EXERT SIGNIFICANT INFLUENCE OVER MATTERS REQUIRING STOCKHOLDER APPROVAL.

         At March 1, 2001, our executive officers and directors and their
affiliates together control approximately 41% of our outstanding common stock.
As a result, these stockholders, if they act together, will be able to exert
significant control over all matters requiring stockholder approval, including
the election of our directors and the approval of significant corporate
transactions. This control may have the effect of delaying, preventing or
deterring a change in control of Witness Systems and could deprive our
stockholders of an opportunity to receive a premium for their common stock as
part of any sale or acquisition.

FUTURE SALES OF COMMON STOCK AND THE RIGHTS OF SOME OF OUR STOCKHOLDERS TO
REGISTER SALES OF THEIR STOCK COULD ADVERSELY AFFECT THE MARKET PRICE OF OUR
STOCK

         Sales of a substantial number of shares of our common stock can cause
the market price of our common stock to decline or can make it more difficult
for us to raise funds through the sale of equity in the future. The shares of
common stock sold in our initial public offering generally are freely tradable
without restriction. At March 21, 2001, approximately 12,813,738 shares of
common stock outstanding are restricted securities as defined in Rule 144 under
the Securities Act. The holders of these shares of common stock may sell them in
the future without registration under the Securities Act if they comply with
Rule 144, Rule 701 or any other applicable exemption under the Securities Act.

         Some of our existing stockholders have the right to require us to
register under the Securities Act shares of their common stock at any time. Once
we register these shares, they can be freely sold in the public market, subject
to these lock-up agreements.

<PAGE>   13

OUR STOCK PRICE HAS BEEN VOLATILE

         The market price of our common stock could be subject to significant
fluctuations in response to variations in quarterly operating results and other
factors. In addition, the securities markets have experienced significant price
and volume fluctuations from time to time that have often been unrelated or
disproportionate to the operating performance of particular companies. Any
announcement with respect to any adverse variance in revenue or earnings from
levels generally expected by securities analysts or investors for a given period
could have an immediate and significant adverse effect on the trading price of
our common stock. In addition, factors such as announcements of technological
innovations or new products by us, our competitors or third parties, changing
conditions in the market for products that record and analyze customer
interactions, changes in estimates by securities analysts, announcements of
extraordinary events, such as acquisitions or litigation, or general economic
conditions may have an adverse effect on the market price of the common stock.

OUR CERTIFICATE OF INCORPORATION AND BYLAWS, AS WELL AS DELAWARE LAW, MAY
PREVENT OR DELAY A FUTURE TAKEOVER

         Our amended and restated certificate of incorporation and bylaws
contain provisions which could make it harder for a third party to acquire us
without consent of our board of directors. For example, if a potential acquirer
were to make a hostile bid for us, the acquirer would not be able to call a
special meeting of stockholders to remove our board of directors or act by
written consent without a meeting. In addition our board of directors has
staggered terms which makes it difficult to remove all our directors at once.
The acquirer would also be required to provide advance notice of its proposal to
remove directors at an annual meeting.

         Our board of directors has the ability to issue preferred stock which
would significantly dilute the ownership of a hostile acquirer. In addition,
Delaware law limits business combination transactions with 15% stockholders that
have not been approved by the board of directors. These provisions and other
similar provisions make it more difficult for a third party to acquire us
without negotiation.