| AXS ONE INC Item 1A Risk Factors We have a previous history of net losses |
| AXS-One incurred a net loss of dlra9dtta0 and dlra5dtta2 million for 2005 and 2004, respectively, after having generated net income of dlra2dtta3 million during the year ended December 31, 2003 |
| Although AXS-One generated revenues and reduced costs sufficient to be profitable in 2003, we were not able to sustain profitability in 2005 or 2004 and may not be able to on a quarterly or annual basis in the future |
| As of December 31, 2005, we had an accumulated deficit of dlra90dtta7 million |
| AXS-One’s revenue and operating results have fluctuated and may continue to fluctuate significantly from quarter to quarter in the future, causing our common stock price to be quite volatile and may cause the market price to fall |
| A variety of factors, many of which are not in our control, cause these fluctuations and include, among others: [spacer |
| gif] • the proportion of revenues we earn from license fees versus fees for the services we provide, [spacer |
| gif] • the number of partners selling our products and their continued willingness to do so, [spacer |
| gif] • the number of third parties we use to perform services, [spacer |
| gif] • the amount of revenues we generate from our sale of third party software, [spacer |
| gif] • changes in our product mix, [spacer |
| gif] • the size and timing of individual license transactions, [spacer |
| gif] • the products and enhancements that we, or our competitors, introduce, [spacer |
| gif] • changes in our customers’ budgets, [spacer |
| gif] • potential customers’ unwillingness to undertake major expenditures with us due to our past operating results, [spacer |
| gif] • competitive conditions in the industry and general economic conditions and [spacer |
| gif] • unrest in the Middle East or other world events |
| Additionally, clients’ licensing of our products is often delayed because: [spacer |
| gif] • our clients must commit a significant amount of capital, [spacer |
| gif] • frequently, a license purchase must be authorized through the multiple channels within a client’s organization and, 10 _________________________________________________________________ [spacer |
| gif] • sales are increasingly driven through our partners, reducing our control over the sales cycle |
| Because of these reasons, as well as others, our products’ sales cycles are typically lengthy and subject to a number of significant risks over which we often have little or no control which include a customer’s budgetary constraints and internal authorization reviews |
| Historically, AXS-One has operated with a small license backlog, since products are generally shipped as we receive orders |
| Because our license fees in any quarter substantially depend on orders booked and shipped in the last month, and often during the last week, of a given quarter our revenues have been back end loaded and subject to fluctuation |
| Delays in the timing of when we recognize specific revenues may adversely and disproportionately affect our operating results because: [spacer |
| gif] • a high percentage of our operating expenses are relatively fixed, and [spacer |
| gif] • only a small percentage of our operating expenses vary with our revenues |
| Because of these factors, we believe that period-to-period comparisons of our operating results are not necessarily meaningful and one should not rely on quarter-to-quarter comparisons of our operating results to be indicative of our future performance |
| Additionally, our business has experienced, and we expect to continue to experience, significant seasonality, due, in part, to our customers’ buying patterns, caused primarily by: [spacer |
| gif] • our customers’ budgeting and purchasing patterns, and [spacer |
| gif] • our sales commission policies |
| Generally, we compensate our sales personnel based on quarterly and annual performance quotas |
| We expect that these patterns will likely continue in the future |
| As a result of these factors, in future quarters, our operating results may be significantly lower than the estimates of public market analysts and investors |
| Any discrepancy could cause the price of our common stock to be volatile and to decline significantly |
| We can give no assurance that we will be profitable in any future quarter |
| The markets in which we compete are intensely competitive |
| AXS-One can give no assurance that we will be able to compete successfully against current or future competitors or that competitive pressures will not have a material adverse effect on our business, operating results and financial condition |
| Our markets are intensely competitive and changing rapidly |
| A number of companies offer products similar to ours and target the same customers |
| We believe that our ability to compete depends upon many factors, many of which are not in our control, including, among others, [spacer |
| gif] • timing and market acceptance of new products and enhancements developed by us, as well as by our competitors, [spacer |
| gif] • whether our products are reliable, how they function, perform, and are priced, [spacer |
| gif] • our customer service and support, [spacer |
| gif] • our sales and marketing efforts, and [spacer |
| gif] • our product distribution |
| AXS-One solutions are positioned in a highly dynamic market, with competition from traditional ERP vendors such as the financial applications software offered by SAP, Oracle Corporation (which recently acquired PeopleSoft) SSA Global and others |
| Additionally, many traditional enterprise resource planning software providers have entered into the e-business marketplace |
| Traditional competitors for our digital solution are IBM, Systemware, Mobius and others |
| The principal competitors in the area of statement presentment include Mobius, and others |
| The Company’s competitors for records and compliance management products include IBM, HP, EMC (Legato), CA (iLumin), OpenText (IXOS), Zantaz and Symantec (KVS) |
| There are also a growing number of smaller, niche vendors targeting specific areas of this market worldwide |
| 11 _________________________________________________________________ Most of our competitors are substantially larger than us, and have significantly greater financial, technical and marketing resources, and extensive direct and indirect distribution channels |
| As a result, our competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements or to devote greater resources to developing, promoting and selling their products than we can |
| Our products also compete with those offered by other vendors and with proprietary software developed by third-party professional service organizations, as well as by potential customers’ management information systems departments |
| As our markets continue to develop and expand, we expect established and emerging companies to compete with us due to the relatively low barriers necessary to enter the software market |
| We expect that competition will also increase as the software industry consolidates |
| During 2005, we saw the acquisition trend continue with competitors in the records and compliance management market acquired by large companies with significantly greater financial and marketing resources than us |
| Furthermore, we cannot assure anyone that any of the companies with whom we currently have relationships, most of which may have significantly greater financial and marketing resources than we do, will not, in the future, develop or market software products that compete with our products, or discontinue their relationship or support of us |
| Additionally, our current and potential competitors have established, or may establish in the future, cooperative relationships among themselves or with third parties to increase their products’ ability to address the needs of our prospective customers |
| Therefore, new competitors or alliances among competitors could emerge and rapidly acquire a significant market share |
| Increased competition is likely to result in [spacer |
| Any of these factors would adversely affect our business, our operating results and financial condition |
| AXS-One depends on a few principal products for its revenues |
| Substantially all of our revenues are derived from licensing and fees from related services of: [spacer |
| gif] • AXS-One Enterprise Financials We expect that these products and services will continue to account for substantially all of our revenues during 2006 |
| Accordingly, our future operating results will depend, in part, on: [spacer |
| gif] • achieving broader market acceptance of our products and services, [spacer |
| gif] • expanding our relationships with vendors in the emerging subscription market as well as our Value-Added Reseller network worldwide, [spacer |
| gif] • expanding our relationships with systems integrators, [spacer |
| gif] • maintaining our customer base, as well as [spacer |
| gif] • enhancing these products and services to meet our customers’ evolving needs |
| During 2005, certain Enterprise Financials customers did not renew their annual maintenance, primarily due to our customers being acquired or merged with companies using other software |
| We can give no assurance that this trend will not continue or that we will be able to maintain our existing customers |
| Additionally, during 2006, our AXS-One Compliance Platform solutions need to gain greater market acceptance |
| gif] • competition increases, or 12 _________________________________________________________________ [spacer |
| gif] • sales of such products or services decline, any of these factors could have a material adverse affect on our business, operating results and financial condition |
| AXS-One has a concentration of revenues from certain customers During the last three years, AXS-One has generated a significant amount of revenues from a select number of customers |
| Because of the size of certain of our customers, it is likely that they will continue to generate a significant portion of our revenues especially in our services revenue area |
| If any of these customers should discontinue their business with us it could have a material adverse affect on our business, operating results and financial condition |
| There is no assurance that we would be able to replace these lost revenues with revenues from new or other existing customers |
| For the year ended December 31, 2005, no one customer represented more than 10prca of total revenues |
| For the year ended December 31, 2004, two customers represented 14dtta6prca and 10dtta1prca, individually, of total revenues |
| For the year ended December 31, 2003, two customers represented 18dtta7prca and 12dtta1prca, individually, of total revenues |
| For the year ended December 31, 2005, two customers represented 20dtta2prca and 12dtta2prca, individually, of license revenue |
| No one customer represented more than 10prca of license revenues for the year ended December 31, 2004 |
| License revenues included 29dtta5prca (or 18dtta2prca and 11dtta3prca individually) of revenue from two customers in 2003 |
| No one customer represented more than 10prca of service revenues for the year ended December 31, 2005 |
| Services revenues included 27dtta2prca (or 16dtta1prca and 11dtta1prca individually) and 31dtta9prca (or 19dtta0prca and 12dtta9prca individually) of revenue from the same two customers in 2004 and 2003, respectively |
| AXS-One’s market is characterized by new products frequently being introduced, rapid technology changes, product defect risks, and development delays |
| If AXS-One is unable, for technological, financial or other reasons, whether or not within its control, to timely develop and introduce new products or enhancements to respond to changing customer requirements, technological change or emerging industry standards, our business, operating results and financial condition could suffer |
| Our software performance, customization, reporting capabilities, or other business objectives may or may not be affected by these changes and may or may not render us incapable of meeting future customer software demands |
| Introducing products embodying new technologies and emerging new industry standards can render existing products obsolete and unmarketable |
| Accordingly, it is difficult to estimate our products’ life cycles |
| Our future success will depend in part on our ability to maintain our AXS-One Enterprise products and to develop and introduce new AXS-One Compliance Platform products that respond to evolving customer requirements and keep pace with technological development and emerging industry standards, such as new: [spacer |
| gif] • hardware platforms, [spacer |
| gif] • new environments such as subscription and ASP providers, [spacer |
| gif] • third party hardware and application software |
| We can give no assurance that: [spacer |
| gif] • we will be successful in developing and marketing product enhancements or new products that respond to: [spacer |
| gif] • technological change, [spacer |
| gif] • changes in customer requirements, or [spacer |
| gif] • emerging industry standards |
| gif] • we will not experience difficulties that could delay or prevent our successfully developing, introducing and marketing new products and enhancements, or [spacer |
| gif] • any new products or enhancements that we may introduce will be accepted by our targeted market |
| Software products as complex as those we offer often encounter development delays and, when introduced or when new versions are released, may contain undetected errors or may simply fail |
| These delays, errors or failures create a risk that the software will not operate correctly and could cause our future operating results to fall short of expectations published by certain public market financial analysts or others |
| From time to time, we develop products that are intended to be compatible with various new computer operating systems, although we make no assurances that we will successfully develop software products that will be compatible with additional operating systems or that will perform as we intend |
| Additionally, our products, technologies and our business in general rely upon third-party products from various sources including, among others: [spacer |
| gif] • hardware and software vendors, [spacer |
| gif] • relational database management systems vendors, [spacer |
| gif] • ERP software vendors [spacer |
| gif] • reporting software vendors [spacer |
| gif] • IM software vendors, or [spacer |
| gif] • e-mail system vendors |
| In the future, it is unclear whether our dependence upon these third-party products will affect our ability to support or make our products readily available |
| Despite testing by our current and potential customers, as well as by us, errors may be found in new products or enhancements after we ship them that can delay or adversely affect market acceptance |
| We cannot assure anyone that any of these problems would not adversely affect our business, operating results and financial condition |
| We risk being de-listed from the American Stock Exchange, which could reduce our ability to raise funds |
| Although we are currently in compliance with the continued listing requirements of the American Stock Exchange, that has not always been true in the past, and no assurances can be made that we will continue to be in compliance with those requirements in the future |
| In the event that we were to cease being in compliance with those requirements at some time in the future, the American Stock Exchange could choose to de-list our stock from trading on that Exchange |
| If our common stock were to be de-listed by the American Stock Exchange, we might be unable to list our common stock with another stock exchange |
| In that event, trading of our common stock might be limited to the OTC Bulletin Board or similar quotation system |
| Inclusion of our common stock on the OTC Bulletin Board or similar quotation system could adversely affect the liquidity and price of our common stock and make it more difficult for AXS-One to raise additional capital on favorable terms, if at all |
| In addition, de-listing by the American Stock Exchange might negatively impact AXS-One’s reputation and, as a consequence, its business |
| In the future, AXS-One may not have sufficient capital resources to fully carry out its business plans |
| Our ability to carry out our future business plans and achieve the anticipated results will be affected by the amount of cash generated from operations |
| There is also the risk that cash held by our foreign subsidiaries will not be readily available for use in our US operations as the transfer of funds is sometimes delayed due to various foreign government restrictions |
| Accordingly, we may in the future be required to seek new sources of financing or future accommodations from our existing lender or other financial institutions, or we may seek equity infusions from private investors |
| We may also be required to further reduce operating costs in order to meet our obligations |
| 14 _________________________________________________________________ On June 17, 2005, the Company entered into a definitive agreement with a number of investors as well as members of AXS-One Management and Board members to sell 4cmam534cmam461 shares of its common stock for total consideration of dlra6dtta8 million |
| On June 21, 2005, the initial closing date, the Company received net proceeds of approximately dlra5dtta8 million from the investors and issued 4cmam081cmam015 shares of common stock |
| This excluded amounts due from members of the Company’s management and Board members which together represented 10prca of the investment |
| The closing with respect to the shares being offered to members of the Company’s management and Board members was subject to shareholder approval |
| The Company also issued, at the same time, warrants to purchase an aggregate of 408cmam103 shares of common stock at dlra1dtta90 per share and warrants to purchase 408cmam095 shares of common stock at dlra2dtta15 per share |
| These warrants are exercisable for a period of three years beginning June 21, 2005 |
| Warrants to purchase an additional 45cmam347 shares of common stock at dlra1dtta90 per share and 45cmam342 shares of common stock at dlra2dtta15 per share were issuable to members of the Company’s management and Board member investors upon approval of the shareholders |
| On September 20, 2005, the shareholders approved the above sale of the Company’s common stock and warrants to members of the Company’s management and Board members |
| On September 21, 2005, the closing date, the Company received net proceeds of dlra0dtta6 million, issued 453cmam446 shares of common stock and warrants to purchase 45cmam347 shares of common stock at dlra1dtta90 per share and 45cmam342 shares of common stock at dlra2dtta15 per share |
| On August 11, 2004, we entered into a two-year Loan and Security Agreement (‘‘Agreement’’) with a financial institution which contains a revolving line of credit under which we can borrow the lesser of dlra4 million or 80prca of eligible accounts, as defined in the Agreement (see Note 2 to the Consolidated Financial Statements) |
| The Agreement contains certain restrictive financial covenants |
| On January 27, March 28 and September 13, 2005 we amended the Loan and Security Agreement in order to revise certain terms of the Agreement |
| As of September 30, 2005, the Company was in compliance with all covenants with the exception of a monthly ‘‘transition event’’ covenant which requires the Company to maintain an adjusted quick ratio greater than or equal to 1dtta6 to 1dtta0 |
| The Company’s adjusted quick ratio at September 30, 2005 was 1dtta592 to 1dtta0 |
| On November 7, 2005, the bank granted a waiver on the transition event covenant as of September 30, 2005 and therefore did not require the Company to transition to the higher-interest debt facility |
| The waiver was for the September 30, 2005 date only |
| As of December 31, 2005, the Company was in compliance with the adjusted quick ratio covenant of 1dtta35 to 1dtta0 and transition event covenant, but was not in compliance with the quarterly earnings before interest, taxes, depreciation, amortization and stock compensation expense (‘‘EBITDAS’’) covenant, which requires the Company to achieve EBITDAS of the lesser of dlra1 better than the immediate preceding quarter EBITDAS or dlra1 |
| Additionally, as of November 30, 2005, the Company did not achieve its monthly ‘‘transition event’’ covenant which requires the Company to maintain an adjusted quick ratio greater than or equal to of 1dtta6 to 1dtta0 |
| The Company’s adjusted quick ratio at November 30, 2005 was 1dtta44 to 1dtta0 |
| On February 6, 2006, the bank granted a waiver on the quarterly EBITDAS covenant and the November transition event covenant |
| The EBITDAS covenant waiver was for the quarter ended December 31, 2005 only |
| The transition event waiver was for the November 30, 2005 date only |
| On March 14, 2006, the Company and the Bank agreed to extend the loan to February 15, 2007 |
| In each of June 2005 and 2004 we initiated cost reduction efforts designed to reduce our operating costs and reduce our need for additional capital |
| In the future, if we are unsuccessful with increasing revenues and operating cash flow, we may be required to further reduce our operating costs |
| We believe we can successfully reduce the Company’s cost structure in the event of a shortage of capital; however, there can be no assurance that we will be able to reduce operating costs quickly enough or in amounts sufficient to avoid the need to find additional sources of financing |
| No assurance can be given that management’s initiatives to generate profitable operations will be successful or that any additional necessary sources of financing, lender accommodations or equity infusions will be available |
| As a result our business, operating results and financial condition could be adversely impacted |
| 15 _________________________________________________________________ AXS-One depends upon its proprietary technology and if we were unable to protect our technology, our competitive position would be adversely affected |
| We believe that our success greatly depends on our proprietary technology and software |
| We rely primarily on a combination of trademark and copyright law, trade secret protection and contractual agreements with our employees, customers, partners and others to protect our proprietary rights |
| Despite our efforts to protect our proprietary rights, unauthorized third parties may attempt to copy all or part of our products or reverse engineer or obtain and use information that we regard as proprietary |
| We make our source code available to certain of our customers, which may increase the likelihood of misappropriation or other misuse of our software |
| Additionally, the laws of some foreign countries do not protect our proprietary rights to the same extent as do the laws of the United States |
| We cannot assure anyone that the steps we take to protect our proprietary rights will be adequate or that our competitors will not independently develop technologies that are substantially equivalent or superior to ours |
| Although we believe that the trademarks and service marks we use are distinct, there can be no assurance that we will be able to register or protect such trademarks and service marks |
| Our products may become subject to infringement claims |
| We believe that none of our products, trademarks, or service marks, technologies or other proprietary rights infringe upon the proprietary rights of any third parties |
| However, as the number of software products in our industry increases and the functionality of these products further overlap, we believe that software developers like us may become increasingly subject to infringement claims |
| Additionally, the market in which we compete has seen an increase in the number of ‘‘business method’’ patents issued, and infringement claims asserted, based on these issued patents |
| Any claims asserted, regardless of their merit, can be time consuming and expensive to defend, could cause delays in shipping our products or require us to enter into royalty or licensing agreements that may not be available on terms acceptable to us |
| Any of these factors would significantly impact our operating results and financial conditions or materially disrupt the conduct of our business |
| We cannot assure anyone that third parties will not assert infringement claims against us in the future with respect to our current or future products or services |
| A security breach could harm our business |
| Our products provide security features designed to protect its users’ data from being retrieved or modified without being authorized |
| While AXS-One continues to review and enhance the security features in its products, we can make no assurances concerning the successful implementation of security features and their effectiveness within a customer’s operating environment |
| A variety of risks associated with AXS-One’s international operations could adversely affect our business |
| Risks inherent in international revenue include the impact of longer payment cycles, greater difficulty in accounts receivable collection, unexpected changes in regulatory requirements, tariffs and other trade barriers, and difficulties in staffing and managing foreign operations |
| In addition, most of our international license fees and services revenues are denominated in foreign currencies which can have an impact on our consolidated revenues as exchange rates fluctuate |
| Currently, we do not hedge against foreign currency exchange risks but in the future we may commence hedging against specific foreign currency transaction risks |
| We may be unable to hedge all of our exchange rate exposure economically and exchange rate fluctuations may have a negative effect on our ability to meet our obligations |
| With respect to our international sales that are US dollar denominated, decreases in the value of foreign currencies relative to the US dollar could make our products less price competitive |
| These factors may have a material adverse effect on our future international revenue |
| We believe that our continued growth and profitability will require AXS-One to expand its sales in international markets, which require significant management attention and financial resources |
| As a 16 _________________________________________________________________ result, we expect that revenues from customers outside the United States will continue to represent a significant percentage of our total revenues in the future |
| We cannot assure anyone, however, that we will be able to maintain or increase international market demand for our products and services |
| In 2005, 2004 and 2003 the Companyapstas total revenues generated by the Company’s foreign offices were as follows: [spacer |
| gif] Percentage of Total Revenues 2005 [spacer |
| gif] AXS-One is subject to additional risks related to operating in foreign countries |
| These risks generally include: [spacer |
| gif] • unexpected changes in tariffs, trade barriers and regulatory requirements, [spacer |
| gif] • costs of localizing products for foreign countries, [spacer |
| gif] • lack of acceptance of localized products in foreign markets, [spacer |
| gif] • longer accounts receivable payment cycles, [spacer |
| gif] • difficulties managing international operations, [spacer |
| gif] • potentially adverse tax consequences, [spacer |
| gif] • restrictions on repatriation of earnings, [spacer |
| gif] • reduced legal protection of our intellectual property, and [spacer |
| gif] • the burden of complying with a wide variety of foreign laws |
| Any of these factors, or others, could adversely affect our future international revenues and, consequently, our business, operating results and financial condition |
| Our business, product development, operating results and financial condition could be adversely impacted if we fail to maintain our existing relationships or establish new relationships, in the future, with third parties because of diverging interests, one or more of these third parties is acquired, or for any other reason, whether or not within our control |
| We rely on third-party relationships with a number of consultants, systems integrators and software vendors to: [spacer |
| gif] • enhance our product development, [spacer |
| gif] • implement our software products, and [spacer |
| These relationships assist our product development process and assist us in marketing, servicing and implementing our products |
| A number of these relationships are not memorialized in formal written agreements |
| Our products also incorporate software that we license from third parties |
| These licenses expire from time to time and generally, we do not have access to the source code for the software that a third party will license to us |
| Certain of these third parties are small companies without extensive financial resources |
| If any of these companies terminate relationships with us, cease doing business, or stop supporting their products, we may be forced to expend a significant amount of time and development resources to try to replace the licensed software |
| We may also find that replacement is not possible or commercially feasible |
| If that were to occur, our business, operating results and financial condition could be adversely impacted |
| 17 _________________________________________________________________ We rely on strategic partners and resellers for a large portion of our new license revenue |
| Our strategy has shifted over the past several years to reliance on strategic partners such as Sun Microsystems and other resellers around the world |
| A loss of a strategic partner or the inability to maintain productive reseller relationships could have a significant negative effect on our ability to generate new license and related service revenue |
| AXS-One’s executive officers, directors and affiliates own a significant amount of its common stock |
| This stock ownership may prevent or discourage tender offers for our common stock unless these controlling stockholders approve the terms of any such offers |
| As of March 6, 2006, AXS-One’s executive officers, directors and affiliates together beneficially own approximately 20prca of our outstanding common stock |
| As a result, these stockholders are able to exercise significant influence over matters requiring stockholder approval including: [spacer |
| gif] • electing directors, and [spacer |
| gif] • mergers, consolidations, and sale of all or substantially all of our assets |
| AXS-One relies on its key personnel and may have difficulty attracting and retaining the skilled employees it needs to operate successfully |
| AXS-One’s future success will depend, in large part, on the continued service of its key executives, and if we fail to attract and maintain those executives, the quality of our products, our business, financial condition and operating results could suffer |
| We cannot provide assurances that turnover of our key executives will not continue, and that such turnover would not adversely affect our business, operating results and financial condition |
| We also believe that our future success will depend, in large part, on our ability to attract, retain and motivate highly skilled employees, and, particularly, technical, management, sales and marketing personnel |
| Competition for qualified employees in our industry is intense |
| AXS-One has from time to time in the past experienced, and expects to continue experiencing, difficulty in hiring and retaining employees with appropriate qualifications |
| We cannot assure anyone that we will be able to retain our employees or attract or retain highly qualified employees to develop, market, service and support our products and conduct our operations |
| AXS-One’s common stock trading price may be volatile for reasons over which it may have little or no control |
| AXS-One’s common stock trading price has, from time to time, experienced, and is likely to continue to experience, significant price and volume fluctuations, often responding to, among other factors: [spacer |
| gif] • quarterly variations in our operating results, [spacer |
| gif] • the gain or loss of significant contracts, [spacer |
| gif] • changes in earnings estimates by securities analysts, [spacer |
| gif] • announcements of technological innovations by us or our competitors, [spacer |
| gif] • announcements of new products or services by us or our competitors, [spacer |
| gif] • general conditions in the software and computer industries, and [spacer |
| gif] • general economic and market conditions |
| Additionally, the stock market, in general, frequently experiences extreme price and volume fluctuations |
| In particular, the market prices of the securities of companies such as ours have been especially volatile recently, and often these fluctuations have been unrelated or disproportionate to the operating performance of the affected companies |
| The market price of our common stock may be adversely affected by these market fluctuations |
| Also, the low market price of our common stock may make it prohibitive to obtain additional equity funding |
| 18 _________________________________________________________________ AXS-One has never paid or declared dividends and does not expect to in the foreseeable future |
| AXS-One has never paid or declared any cash dividends and we do not expect to pay any cash dividends in the foreseeable future |
| We currently intend that future earnings, if any, will be retained for business use |
| Changes in laws and regulations that affect the governance of public companies have increased our operating expenses and will continue to do so |
| Changes in the laws and regulations affecting public companies included in the Sarbanes-Oxley Act of 2002 have imposed new duties on us and on our executives, directors, attorneys and independent registered public accounting firm |
| In order to comply with these new rules, we hired a consulting advisory firm to assist us in the process and we also expect to use additional services of our outside legal counsel, both of which will increase our operating expenses |
| In particular, we expect to incur additional administrative expenses as we implement Section 404 of the Sarbanes-Oxley Act, which requires management to report on, and our Independent Registered Public Accounting Firm to attest to, our internal controls |
| For example, we expect to incur significant expenses in connection with the implementation, documentation and testing of our existing control systems and possible establishment of new controls |
| Management time associated with these compliance efforts necessarily reduces time available for other operating activities, which could adversely affect operating results |
| If we are unable to achieve full and timely compliance with these regulatory requirements, we could be required to incur additional costs, expend additional management time on remedial efforts and make related public disclosures that could adversely affect our stock price |