| COMPUTER HORIZONS CORP Item 1A Risk Factors Our operating results have varied, and are likely to continue to vary significantly |
| This may result in volatility in the market price of our common stock |
| Our revenues and operating results have varied in the past and are likely to vary significantly from year to year |
| This may lead to volatility in the share price |
| Some other factors that may cause the market price of the common stock to fluctuate substantially, include: · the failure to be awarded a significant project on which we have bid; · the termination by a client of a material project or the decision by a client not to proceed to the stage of a project that we anticipated; · announcement of new services by us or the competitors; · announcement of acquisitions or other significant transactions by us or our competitors; · changes in or failure to meet earnings estimates by us and/or securities analysts; · sales of common stock by us or the existing shareholders or the perception that such sales may occur; · adverse judgments or settlements obligating us to pay liabilities; · changes in management; and · general economic conditions and overall stock market volatility |
| The current trend of companies moving technology jobs and projects offshore has caused and could continue to cause revenues to decline |
| In the past few years, more companies are using or are considering using low cost offshore outsourcing centers, particularly in India, to perform technology related work and projects |
| This trend has contributed to the decline in domestic IT staff augmentation revenue as well as on-site solutions oriented projects |
| We now have our own outsourcing centers in India and Canada to compete for this business, but this new business has not been sufficient to offset the revenue decline |
| Additionally, the equivalent amount of work in low cost centers will generate substantially less revenue due to the lower billing rates that are charged in these offshore outsourcing centers |
| The failure to be successful in retaining existing and future highly-skilled technical personnel and attracting a sufficient number of IT professionals and project managers could adversely affect our business |
| Our business is labor intensive and depends to a large extent on its ability to attract, train, motivate and retain highly-skilled IT professionals and project managers |
| Our ability to win and retain new business is significantly affected by client relationships and the quality of service rendered |
| The loss of key IT professionals and project managers may jeopardize existing client relationships with businesses that continue to use our services based upon past relationships with key IT professionals and project managers |
| We derive a significant portion of revenues from a limited number of large clients and the loss of any large client could have an adverse effect on our business |
| We have derived, and we believe we will continue to derive, a significant portion of our revenues from a limited number of large clients |
| For the years ended December 31, 2005, 2004 and 2003, our ten largest 7 ______________________________________________________________________ clients accounted for approximately 32prca, 24prca and 38prca of our revenues, respectively |
| The loss of any large client could have an adverse effect on our business, results of operations and financial condition |
| For the year ended December 31, 2005, approximately 6prca of RGII’s revenues were derived from restricted contracts (minority based contracts, etc) These contracts may be terminated pursuant to the Federal government’s rights under the Federal Acquisition Regulations |
| In addition, as a result of RGII’s acquisition by us, RGII will not be eligible to compete for these types of contracts in the future and will have to replace this revenue stream with new contracts |
| If these contracts are terminated or we are not able to enter new contracts on acceptable terms, our business could be adversely affected |
| Changes in Federal government programs and requirements, or budgetary changes affecting Federal government spending in agencies specific to us, or changes in fiscal policies or available funding, may adversely affect our results of operations |
| We acquired RGII Technologies, Inc |
| RGII receives substantially all its revenue from contracts with the Federal government |
| For the year ended December 31, 2005, we received approximately 17prca of our total revenue from RGII Significant changes in RGII’s revenues may adversely affect our results of operations |
| Projects performed by RGII are subject to Defense Contract Audit Agency audits and compliance with government cost accounting standards |
| The results of such audits may result in adjustments to RGII’s reported financial results |
| RGII has cost reimbursable type contracts with the US Government, whereby RGII is reimbursed based upon direct expenses attributable to the contract, plus a percentage based upon indirect expenses |
| The indirect rates are estimated |
| Accordingly, if the actual rates as determined by the Defense Contract Audit Agency, or DCAA are below the estimated rates, a refund for the difference will be due to the US Government |
| A significant refund due to the US Government may adversely affect our results of operations |
| DCAA has completed its incurred cost audits for all fiscal years for RGII through December 31, 2004 and through December 31, 2002 for AIM Past audits have not resulted in significant adjustments |
| We face competition from a number of existing competitors, as well as potential new competitors, which could result in loss of market share and adversely affect business |
| The markets for our services are highly competitive |
| We compete with large providers of IT staffing services, including Comsys IT Partners Inc |
| In addition, we compete for staffing projects with the information systems groups of prospective clients |
| In the Solutions business, we compete with consulting and system integration firms, including Analysts International Corporation, iGATE Corp, Covansys Corp, Accenture, Bearingpoint, CIBER, Inc, Computer Sciences Corporation, Computer Task Group, Electronic Data Systems Corp, IBM Corp |
| We also compete in the IT solutions market with vendors of application software |
| There are relatively low barriers to entry in the markets that we compete in and we have faced and expect to continue to face, additional competition from other established and emerging companies |
| Increased competition may result in greater pricing pressure which could have an adverse effect on our business, results of operations and financial condition |
| Many of our current and potential competitors have significantly greater financial, technical, marketing and other resources and generate greater revenues than we do |
| As a result, they may be able to respond more quickly to new or emerging technologies and changes in clients’ requirements, or to devote greater resources to the development, promotion, sale and support of their services and products |
| In addition, current and potential competitors may establish cooperative relationships among themselves or with third parties to increase the ability of their services or products to address the staffing and solution needs of prospective clients |
| Accordingly, it is possible that new competitors, alliances among competitors or alliances between 8 ______________________________________________________________________ competitors and third parties may emerge and acquire significant market share |
| If this were to occur, it could have an adverse effect on our business, results of operations and financial condition |
| The introduction of competitive IT solutions embodying new technologies and the emergence of new industry standards may render our existing IT solutions or underlying technologies obsolete or unmarketable which could have an adverse effect on its business |
| The IT solutions industry is characterized by rapid technological change, changing client requirements and new service and product introductions |
| The introduction of competitive IT solutions embodying new technologies and the emergence of new industry standards may render our existing IT solutions or underlying technologies obsolete or unmarketable |
| As a result, it is dependent in large part upon its ability to develop new IT solutions that address the increasingly sophisticated needs of our clients, keep pace with new competitive service and product offerings and emerging industry standards and achieve broad market acceptance |
| The business will be adversely affected if we are not successful in developing and marketing new IT solutions that respond to technological change, changing client requirements or evolving industry standards |
| The failure to estimate accurately the resources and time required for a project or failure to complete our contractual obligations within the time frame committed could have an adverse effect on our business |
| We offer some of our services on a fixed-price rather than on a time-and-materials, or best efforts, basis |
| Under the terms of these contracts we bear the risk of cost overruns and inflation in connection with these projects |
| In the event that we fail to estimate accurately the resources and time required for a project or fail to complete our contractual obligations within the time frame committed, our business, operating results and financial condition could be adversely affected |
| Our international operations subject us to additional risks that can adversely affect operating results |
| Our international operations, which comprised 13dtta5prca, 10dtta7prca, and 10dtta5prca of consolidated revenues for the years ended December 31, 2005, 2004, and 2003, respectively, depend greatly upon business, immigration and technology transfer laws in those countries in which we have international operations and upon the continued development of technology infrastructure |
| As a result, our business is subject to the risks generally associated with non-US operations including: · unexpected changes in regulatory environments; · the costs and difficulties relating to geographically diverse operations; · differences in, and uncertainties arising from changes in, foreign business culture and practices; · fluctuations in currency exchange rates; · restrictions on the movement of cash; · longer accounts receivable payment cycles and greater difficulties in collecting accounts receivable; · potential foreign tax consequences, including the impact of repatriation of earnings, tariffs and other trade barriers; and · political unrest and changing conditions in countries in which our services are provided or facilities are located |
| If any of these factors were to render the conduct of business in a particular country undesirable or impracticable, there could be an adverse effect on our business, operating results and financial condition |
| 9 ______________________________________________________________________ If we fail to protect our intellectual property rights, competitors may be able to use our technology and this could weaken our competitive position, reduce revenue and increase costs |
| We rely primarily upon a combination of copyright and trademark laws, trade secrets, confidentiality procedures and contractual arrangements to protect proprietary rights |
| The steps taken to protect proprietary rights may not prevent misappropriation of our proprietary rights, particularly in foreign countries where laws or law enforcement practices may not protect proprietary rights as fully as in the United States |
| If third parties were to use or otherwise misappropriate our copyrighted materials, trademarks or other proprietary rights without consent or approval, our competitive position could be harmed, or we could become involved in litigation to enforce our rights |
| Third parties could assert that our services infringe their intellectual property rights, which, if successful, could adversely affect our business |
| Third parties may assert trademark, copyright, patent and other types of infringement or unfair competition claims against us |
| If we are forced to defend against any such claims, whether they are with or without merit or are determined in our favor, we may face costly litigation, loss of access to, and use of software and diversion of technical and management personnel |
| As a result of such dispute, we may have to develop non-infringing technology or enter into royalty or licensing arrangements |
| Such royalty or licensing agreements, if required, may be unavailable on terms acceptable to us, or at all |
| If there is a successful claim of infringement against us and it is unable to develop non-infringing technology or license the infringed or similar technology on a timely basis, it could adversely affect our business |
| In the event of a failure in a client’s computer system, a claim for substantial damages may be made against us regardless of our responsibility for the failure, which if successful, could adversely affect our business |
| Much of our business involves projects that are critical to the operations of our clients’ businesses and provide benefits that may be difficult to quantify |
| Any failure in a client’s system could result in a claim for substantial damages against us, regardless of our responsibility for such failure |
| Limitations of liability set forth in service contracts may not be enforceable in all instances and may not otherwise protect us from liability for damages |
| We maintain general liability insurance, including coverage for errors and omissions, however, we may not be able to avoid significant claims and resulting publicity |
| Furthermore, there can be no assurance that the insurance coverage will be adequate or that coverage will remain available at acceptable costs |
| Successful claims brought against us in excess of our insurance coverage could have an adverse effect on business, operating results and financial condition |
| As a provider of staffing services, there are risks associated with placing employees (and independent contractors) at clients’ businesses, which could result in costly and time-consuming litigation |
| We could be subject to liability if any of the following risks associated with placing our employees (and independent contractors) at clients’ businesses occurs: · possible claims of discrimination and harassment; · liabilities for errors and omissions by our employees (and independent contractors); · misuse of client proprietary information or intellectual property; · injury to client employees; · misappropriation of client property; · other criminal activity; and · torts and other similar claims |
| 10 ______________________________________________________________________ Any claims made against us could result in costly and time-consuming litigation |
| In addition, under some circumstances, we may be held responsible for the actions of persons not under our direct control |
| We have adopted anti-takeover defenses that could make it difficult for another company to acquire control of us or limit the price investors might be willing to pay for our stock |
| Certain provisions of our Certificate of Incorporation and Bylaws could make a merger or tender offer involving us more difficult, even if such events would be beneficial to the interests of the shareholders |
| These provisions include adoption of a Preferred Shares Rights Agreement, commonly known as a “poison pill” and giving the Board the ability to issue preferred stock and determine the rights and designations of the preferred stock at any time without shareholder approval |
| The rights of the holders of our common stock will be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future |
| The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from acquiring, a majority of our outstanding voting stock |
| The above factors and certain provisions of the New York Business Corporation Law may have the effect of deterring hostile takeovers or otherwise delaying or preventing changes in our control or management, including transactions in which the shareholders might otherwise receive a premium over the fair market value of our common stock |