| EPIQ SYSTEMS INC ITEM 1A RISK FACTORS This report, other reports to be filed by us with the SEC, press releases made by us and other public statements by our officers, oral and written, contain or will contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended, including those relating to the possible or assumed future results of operations and financial condition |
| Because those statements are subject to a number of uncertainties and risks, actual results may differ materially from those expressed or implied by the forward-looking statements |
| Listed below are risks associated with an investment in our securities that could cause actual results to differ from those expressed or implied |
| A significant reduction in the amount of Chapter 7 liquidated asset proceeds on deposit by our Chapter 7 bankruptcy trustee customers or in the number of pending bankruptcy cases would cause our revenues and earnings to drop significantly |
| Our bankruptcy deposit based fees are highly dependent on the amount of liquidated asset proceeds deposited by Chapter 7 bankruptcy trustees and the number of bankruptcy filings in the United States |
| Consumer and business debt combined with economic fluctuations in the United States affect the number of bankruptcy filings and the dollar volume flowing through the federal bankruptcy system |
| A significant reduction in Chapter 7 liquidated asset proceeds on deposit by our bankruptcy trustee customers with our Chapter 7 depository banks would likely have a material adverse effect on our results of operations |
| Substantially all of our Chapter 7 revenues are collected through a single financial institution, and the termination of that marketing arrangement could cause uncertainty and adversely affect our future Chapter 7 revenue and earnings |
| The application of Chapter 7 bankruptcy regulations discourages Chapter 7 trustees from incurring direct administrative costs for computer system expenses |
| As a result, we provide our products and services to Chapter 7 trustee customers at no direct charge, and our Chapter 7 trustee customers agree to deposit the cash proceeds from liquidations of debtors’ assets with a designated financial institution with which we have a Chapter 7 marketing arrangement |
| We have arrangements with several financial institutions under which our Chapter 7 trustees deposit the Chapter 7 liquidated assets at one of those financial institutions |
| Under these arrangements: · we license our proprietary software to the trustee and furnish hardware, conversion services, training and customer support, all at no cost to the trustee; · the financial institution provides certain banking services to the joint trustee customers; and · we collect from the financial institution monthly revenues based primarily upon a percentage of the total liquidated assets on deposit at that financial institution |
| Previously, we promoted our Chapter 7 product exclusively through a marketing arrangement established with Bank of America in November 1993 |
| Substantially all of our Chapter 7 revenues are collected through this relationship |
| On April 1, 2004, this exclusive marketing arrangement became a non-exclusive arrangement |
| During February 2006, the parties agreed to extend the non-exclusive arrangement indefinitely |
| Either party may, with appropriate notice, wind down the arrangement over a period of three years, including the notice period |
| If either party were to give notice of termination of this arrangement, we could experience uncertainty relating to the transfer of Chapter 7 trustee deposits to other financial institutions, and we could experience a decline in revenues and earnings as those deposits were transferred during the wind-down period |
| 6 ______________________________________________________________________ We have established new arrangements with additional financial institutions, and changes in or terminations of those marketing arrangements could cause uncertainty and adversely affect our future Chapter 7 revenue and earnings |
| We also have marketing arrangements with several other financial institutions under which our Chapter 7 trustees may deposit the Chapter 7 liquidated assets |
| Additionally, we may seek to establish additional Chapter 7 depository bank relationships in the future |
| Changes in the terms of one or more of those marketing arrangements or the termination of any of those marketing arrangements could create uncertainty with current and prospective trustee customers or operational difficulties for trustees, which could adversely affect our relationships with those joint customers and our Chapter 7 revenues and earnings |
| Some of our pricing models for Chapter 7 trustee clients have or are scheduled to have a component of pricing tied to prevailing interest rates, and a significant decline in interest rates would adversely affect our revenues and earnings |
| Under the Chapter 7 marketing arrangements we have with each depository financial institution, certain fees we earn for deposits placed with those financial institution could have, within certain limits, variability based on fluctuations in short-term interest rates |
| A significant decline in short-term interest rates would adversely affect our Chapter 7 revenues and earnings |
| If a financial institution with which we have a marketing arrangement for Chapter 7 products and services is perceived negatively by current or prospective trustee clients, our case management revenue and earnings could be adversely affected |
| The Chapter 7 depository banks, with which we have joint marketing arrangements, provide banking products and services directly to our trustee clients |
| If the financial institution provides ineffective banking products or services to the joint customers or has errors or omissions in its processing, we could experience collateral damage to our reputation |
| We cannot control the quality of products and services provided by the Chapter 7 depository banks to the joint customers |
| Additionally, if a depository bank arrangement is discontinued, it could disrupt the effective delivery of banking services to trustees |
| If the migration to a successor depository bank is not completed smoothly or if we were unable to move the trustee customer’s deposits to a different banking arrangement prior to the expiration, we could lose trustee customers, which could adversely affect our case management revenues and our results of operations |
| Bankruptcy reform legislation could alter the market for our products and services, which could cause a reduction in our revenues and earnings |
| In April 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was passed and signed by President Bush |
| The intent of this legislation, which became effective October 2005, is to move certain individual bankruptcy filings from Chapter 7, which liquidates most of the debtor’s assets and discharges most of the debtor’s liabilities, to Chapter 13 bankruptcy filings, which do not liquidate the debtor’s assets but which requires a debtor to pay disposable income to their creditors |
| The legislation also affects corporate restructuring bankruptcy filings, in part by placing more strict limits on the period of time in which the debtor has an exclusive right to propose a reorganization plan, accelerating the time frame in which a debtor must determine whether to reject a lease, and potentially increasing certain priority claims |
| The legislation appears to have had the effect of increasing bankruptcy filings prior to the effective date of the legislation |
| It is unclear what impact, if any, the legislation will have on bankruptcy filings after the legislation’s October 2005 effective date |
| As a result, we cannot predict the effect, if any, that this legislation will have on our business |
| 7 ______________________________________________________________________ Tort reform legislation could reduce the number and scope of class action and mass action cases, thus reducing our business prospects in the class action market |
| In February 2005, new federal class action and tort reform legislation was passed and signed by President Bush |
| The primary impact of the new federal legislation is to require that certain types of class action lawsuits be brought in federal court rather than state courts |
| We believe the new federal legislation will likely result in fewer class action lawsuits in state courts, which are generally perceived as faster and more plaintiff-friendly than federal courts |
| The slower processing of class action lawsuits in federal courts could delay the ultimate settlement of those cases, which could adversely affect the timing of services we provide in those cases |
| Likewise, the new federal legislation could have the effect of lowering the overall number of class action cases, whether filed in federal or state courts |
| The goal of certain state tort reform proposals has been to reduce the number and scope of class action and mass action cases |
| While we cannot predict whether any tort reform legislation will pass at the state levels or the substance of any future changes, any legislative efforts that are successful in reducing the number or scope of class action or mass action cases would likely have an adverse effect on our results of operations |
| We have a limited number of bankruptcy trustee clients and a limited number of significant referral sources for corporate restructuring and class action and mass tort engagements |
| The loss of even a limited number of our trustee customers or referral sources could result in a loss of revenue and earnings |
| There is a limited number of Chapter 7 and Chapter 13 bankruptcy trustees to whom we can market our bankruptcy products and services |
| Additionally, we rely heavily on a limited number of corporate restructuring and class action referral sources to earn new business engagements |
| Our future financial performance will depend on our ability to maintain existing trustee customer accounts, to attract business from trustees that are currently using a competitor’s software product, to maintain our existing referral relationships, and to develop new referral relationships |
| The loss of even a limited number of trustee customers or a reduction in referral sources could result in a material loss of revenue and earnings |
| We encounter competition for our products and services from other third party providers and we could lose existing customers and fail to attract new business |
| The markets for case and document management products and services are competitive, continually evolving and subject to technological change |
| We believe that the principal competitive factors in the markets we serve include the breadth and quality of system and software solution offerings, the stability of the information systems provider, the features and capabilities of the product and service offerings, and the potential for enhancements |
| Our success will depend upon our ability to keep pace with technological change and to introduce, on a timely and cost-effective basis, new and enhanced software solutions and services that satisfy changing client requirements and achieve market acceptance |
| The fluctuations in quarterly projects for clients have affected and may affect in the future the timing of our quarterly revenues and earnings and are likely to affect our future quarterly results |
| The initiation or termination of a large corporate restructuring, class action or mass tort engagement can directly affect our revenues and earnings for a particular quarter, and the levels of services, particularly services related to document management required for an ongoing corporate restructuring or class action engagement can fluctuate quarter to quarter during the time that the debtor is in Chapter 11 corporate restructuring or the class action lawsuit is active |
| 8 ______________________________________________________________________ Our quarterly results have fluctuated in the past and may fluctuate in the future |
| If they do, our operating results may not meet the expectations of securities analysts or investors |
| This could cause fluctuations in the market price of our common stock |
| Our quarterly results have fluctuated during the last year and may fluctuate in the future |
| As a result, our quarterly revenues and operating results are increasingly difficult to forecast |
| It is possible that our future quarterly results from operations from time to time will not meet the expectations of securities analysts or investors |
| This could cause a material drop in the market price of our common stock |
| Our business will continue to be affected by a number of factors, any one of which could substantially affect our results of operations for a particular fiscal quarter |
| Specifically, our quarterly results from operations can vary due to: · fluctuations in bankruptcy trustees’ deposit balances or caseloads; · unanticipated expenses related to software maintenance or customer service; · the timing, size, cancellation or rescheduling of customer orders; and · the timing and market acceptance of new software versions or support services |
| Our stock price may be volatile even if our quarterly results do not fluctuate significantly |
| If our quarterly results fluctuate, the market price for our common stock may fluctuate as well and those fluctuations may be significant |
| Even if we report stable or increased earnings, the market price of our common stock may be volatile |
| There are a number of factors, beyond earnings fluctuations, that can affect the market price of our common stock, including the following: · a decrease in market demand for our stock; · downward revisions in securities analysts’ estimates; · announcements of technological innovations or new products developed by us or our competitors; · the degree of customer acceptance of new products or enhancements offered by us; · general market conditions and other economic factors; and · actual or perceived improvements in the national economy and the corresponding assumption that our bankruptcy business will decline as the economy improves |
| In addition, the stock market has experienced significant price and volume fluctuations that have particularly affected the market prices of stocks of technology companies and that have often been unrelated to the operating performance of particular companies |
| The market price of our common stock has been volatile and this is likely to continue |
| If corporate restructuring cases on which we are retained convert to Chapter 7, we may not be paid for the products and services we have provided |
| In corporate restructuring engagements we provide services directly to the debtor and we are paid directly by the debtor |
| If a debtor’s corporate restructuring case converts to Chapter 7 liquidation, we might not be paid for products and services previously provided and we would most likely lose all future revenue from the case |
| We have had corporate restructuring cases convert to Chapter 7 cases in the past |
| The conversion of a major corporate restructuring case to Chapter 7 could have a material adverse effect on our results of operations |
| 9 ______________________________________________________________________ If the bankruptcy court reduces or eliminates our fees in major corporate restructuring cases, our results of operations could be impaired |
| In corporate restructuring cases, the bankruptcy court may reduce or eliminate fees paid for administrative services such as those we provide |
| If the court reduced or eliminated fees due to us in a major corporate restructuring case, our results of operations could be materially affected |
| If we are unable to develop new technologies, we could lose existing customers and fail to attract new business |
| We regularly undertake new projects and initiatives in order to meet the changing needs of our customers |
| In doing so, we invest substantial resources with no assurance of the ultimate success of the project or initiative |
| We believe our future success will depend, in part, upon our ability to: · enhance our existing products; · design and introduce new solutions that address the increasingly sophisticated and varied needs of our current and prospective customers; · maintain our technology skills; and · respond to technological advances and emerging industry standards on a timely and cost-effective basis |
| We may not be able to incorporate future technological advances into our business, and future advances in technology may not be beneficial to or compatible with our business |
| In addition, keeping abreast of technological advances in our business may require substantial expenditures and lead-time |
| We may not be successful in using new technologies, adapting our solutions to emerging industry standards, or developing, introducing and marketing new products or enhancements |
| Furthermore, we may experience difficulties that could delay or prevent the successful development, introduction or marketing of these products |
| If we incur increased costs or are unable, for technical or other reasons, to develop and introduce new products or enhancements in a timely manner in response to changing market conditions or customer requirements, we could lose existing customers and fail to attract new business |
| New releases of our software products may have undetected errors, which could cause litigation claims against us or damage to our reputation |
| We intend to continue to issue new releases of our software products periodically |
| Complex software products, such as those we offer, can contain undetected errors when first introduced or as new versions are released |
| Any introduction of new products and future releases has a risk of undetected errors |
| These undetected errors may be discovered only after a product has been installed and used by our customers |
| Likewise, the software products we acquire in business acquisitions have a risk of undetected errors |
| Errors may be found in our software products in the future |
| Any undetected errors, as well as any difficulties in installing and maintaining our new software and releases or difficulties training customers and their staffs on the utilization of new products and releases, may result in a delay or loss of revenue, diversion of development resources, damage to our reputation, increased service costs, increased expense for litigation and impaired market acceptance of our products |
| Security problems with, or product liability claims arising from, our software products and business processes could cause increased expense for litigation, increased service costs and damage to our reputation |
| Security for our products is critical given the highly confidential nature of the information 10 ______________________________________________________________________ our software processes |
| Our software products and the servers on which the products are used may not be impervious to intentional break-ins (“hacking”) or other disruptive problems caused by the internet or by other users |
| Hacking or other disruptive problems could result in the diversion of development resources, damage to our reputation, increased service costs or impaired market acceptance of our products, any of which could result in higher expenses or lower revenues |
| Additionally, we could be exposed to potential liability related to hacking or other disruptive problems |
| Defending these liability claims could result in increased expenses for litigation and a significant diversion of our management’s attention |
| Furthermore, we administer claims for third parties |
| Errors or fraud related to the processing or payment of these claims could result in the diversion of management resources, damage to our reputation, increased service costs or impaired market acceptance of our services, any of which could result in higher expenses and/or lower revenues |
| Additionally, such errors or fraud related to the processing or payment of claims could result in lawsuits alleging damages |
| Defending such claims could result in increased expenses for litigation and a significant diversion of our management’s attention |
| Interruptions or delays in service from our third-party Web hosting facility could impair the delivery of our service and harm our business |
| We provide certain of our services through computer hardware that is currently located in a third-party Web hosting facility operated by a third party vendor |
| We do not control the operation of this facility, and it is subject to damage or interruption from earthquakes, floods, fires, power loss, terrorist attacks, telecommunications failures and similar events |
| It is also subject to break-ins, sabotage, intentional acts of vandalism and similar misconduct |
| The occurrence of a natural disaster, a decision to close the facility without adequate notice or other unanticipated problems at the facility could result in lengthy interruptions in our service |
| In addition, the failure by our vendor to provide our required data communications capacity could result in interruptions in our service |
| Any damage to, or failure of, our systems could result in interruptions in our service |
| Interruptions in our service may reduce our revenue, cause us to issue credits or pay penalties, cause customers to terminate their agreements with us and adversely affect our ability to secure business in the future |
| If our security measures are breached and unauthorized access is obtained to a customer’s data, our service may be perceived as not being secure, customers may curtail or stop using our service and we may incur significant liabilities |
| Our service involves the storage and transmission of customers’ proprietary information, and security breaches could expose us to a risk of loss of this information, litigation and possible liability |
| If our security measures are breached as a result of third-party action, employee error, malfeasance or otherwise and, as a result, someone obtains unauthorized access to one of our customers’ data, our reputation will be damaged, our business may suffer and we could incur significant liability |
| Because techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures |
| If an actual or perceived breach of our security occurs, the market perception of the effectiveness of our security measures could be harmed and we could lose sales and customers |
| We may be sued by third parties for alleged infringement of their proprietary rights |
| The software and internet industries are characterized by the existence of a large number of patents, trademarks, and copyrights and by frequent litigation based on allegations of infringement or other violations of intellectual property rights |
| We have received in the past, and may receive in the future, communications from third parties claiming that we have infringed on the intellectual property rights of others |
| Our technologies may not be able to withstand any third-party claims or rights against their use |
| 11 ______________________________________________________________________ Any intellectual property claims, with or without merit, could be time-consuming and expensive to resolve, could divert management attention from executing our business plan, and could require us to pay monetary damages or enter into royalty or licensing agreements |
| In addition, certain customer agreements require us to indemnify our customers for third-party intellectual property infringement claims, which would increase the cost to us of an adverse ruling on such a claim |
| An adverse determination could also prevent us from offering our service to others |
| We rely on third-party hardware and software that may be difficult to replace or which could cause errors or failures of our service |
| We rely on hardware purchased or leased and software licensed from third parties in order to offer certain services |
| This hardware and software may not continue to be available on commercially reasonable terms, or at all |
| Any loss of the right to use any of this hardware or software could result in delays in the provisioning of our service until equivalent technology is either developed by us or, if available, is identified, obtained and integrated, which could harm our business |
| Any errors or defects in third-party hardware or software could result in errors or a failure of our service which could harm our business |
| Our intellectual property is not protected through patents or formal copyright registration |
| Therefore, we do not have the full benefit of patent or copyright laws to prevent others from replicating our software |
| Our intellectual property rights are not protected through patents or formal copyright registration |
| We may not be able to protect our trade secrets or prevent others from independently developing substantially equivalent proprietary information and techniques or from otherwise gaining access to our trade secrets |
| In addition, foreign intellectual property laws may not protect our intellectual property rights |
| Moreover, litigation may be necessary to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringements |
| Litigation of this nature could result in substantial expense for us and diversion of management and other resources, which could result in a loss of revenue and profits |
| Our failure to develop and maintain products and services that assist our customers in complying with significant government regulation could result in decreased demand for our products and services |
| Our products and services are not directly regulated by the government |
| Our bankruptcy customers are, however, subject to significant regulation, including the United States Bankruptcy Code, the Federal Rules of Bankruptcy Procedure and local rules and procedures established by bankruptcy courts |
| The Executive Office for United States Trustees, a division of the United States Department of Justice, oversees bankruptcy trustees and establishes administrative rules governing trustees’ activities |
| Additionally, the process of administering the settlement of class action or mass tort cases is subject to court supervision and review by opposing plaintiffs’ and defendants’ counsel |
| The success of our business has been, and will continue to be, partly dependent on our ability to develop and maintain products and provide services that allow clients to perform their duties within applicable regulatory and judicial rules and procedures and that allow corporate restructuring debtors to make filings and send required notices on a timely and accurate basis |
| Future regulation and court practices or procedures may limit or eliminate the ability of clients to utilize the types of products and services that we currently provide |
| Our failure to adapt our products and services to changes in the Bankruptcy Code and applicable legislative and judicial rules and procedures could cause us to lose existing customers or fail to attract new customers |
| 12 ______________________________________________________________________ The integration of acquired businesses is time consuming, may distract our management from our other operations, and can be expensive, all of which could reduce or eliminate our expected earnings |
| In November 2005, we acquired nMatrix for approximately dlra126 million in cash and stock |
| In January 2004, we acquired Poorman-Douglas for approximately dlra116 million in cash |
| In addition to these acquisitions, during the five years ended December 31, 2005, we acquired five other businesses at a combined cost of approximately dlra90 million |
| We may consider additional opportunities to acquire other companies, assets or product lines that complement or expand our business |
| If we are unsuccessful in integrating these companies or product lines with our existing operations, or if integration is more difficult than anticipated, we may experience disruptions to our operations |
| A difficult or unsuccessful integration of an acquired business would likely have a material adverse effect on our results of operations |
| Some of the risks that may affect our ability to integrate or realize any anticipated benefits from companies we acquire include those associated with: · unexpected losses of key employees or customers of the acquired company; · conforming the acquired company’s standards, processes, procedures and controls with our operations; · increasing the scope, geographic diversity and complexity of our operations; · difficulties in transferring processes and know-how; · difficulties in the assimilation of acquired operations, technologies or products; · diversion of management’s attention from other business concerns; · adverse effects on existing business relationships with customers; and · the challenges of operating internationally after the nMatrix acquisition |
| Our business and results of operations may be adversely affected if we are unable to manage our growth effectively |
| Certain businesses we have acquired, including most recently the nMatrix business, have experienced substantial growth immediately prior to the time we acquired the business |
| The success of those types of acquisitions is dependent upon a number of factors, including the ability to hire, train and retain an adequate number of experienced managers and employees for those rapidly growing businesses, the establishment of policies, procedures and internal controls to allow us to monitor the growth of those businesses, and other factors that are beyond our control |
| Expansion internationally will increase demands on management and divert their attention, which could have an adverse impact on our business and financial results |
| The challenges of managing the growth of an acquired business may distract our management from their normal duties associated with our historical core businesses |
| We have non-US operations which are subject to certain inherent risks |
| As a result of our recent acquisition of nMatrix, we now maintain small offices in the United Kingdom and Australia |
| We anticipate that we will seek to expand our currently limited global operations and may enter new global markets |
| Our foreign business is transacted in the local functional currency, but we do not currently have any material exposure to foreign currency transaction gains or losses |
| All other business transactions are in US dollars |
| To date, we have not entered into any derivative financial instruments to manage our foreign currency risk |
| Our current and proposed international activities are subject to certain inherent risks, including specific country economic conditions, exchange rate fluctuation, changes in regulatory requirements, reduced protection of intellectual property rights, potential adverse tax consequences, different or additional product functionality requirements, and cultural differences |
| 13 ______________________________________________________________________ The use of our common stock to fund acquisitions or to refinance debt incurred for acquisitions could dilute existing shares |
| We have used our common stock to refinance debt incurred for several prior acquisitions |
| During June 2004, we issued dlra50 million of convertible notes, which are convertible into approximately 2dtta9 million shares of common stock, to refinance a portion of the purchase price for the January 2004 Poorman-Douglas acquisition |
| During November 2005, we issued approximately 1dtta2 million shares of common stock and incurred approximately dlra101 million of bank indebtedness in connection with our nMatrix acquisition |
| We may consider issuing additional common shares and using the proceeds to pay part or all of this additional indebtedness |
| We may consider further opportunities to acquire companies, assets or product lines that complement or expand our business |
| We expect that future acquisitions, if any, could provide for consideration to be paid in cash, shares of our common stock, or a combination of cash and shares |
| If the consideration for an acquisition is paid in common stock, existing shareholders’ investments could be diluted |
| Furthermore, we may decide to issue convertible debt or additional shares of common stock and use part or all of the proceeds to finance or refinance the costs of any past or future acquisitions |
| We depend upon our key personnel and we may not be able to retain them or to attract, assimilate and retain highly qualified employees in the future |
| Our future success will depend in significant part upon the continued service of our senior management and certain of our key technical personnel and our continuing ability to attract, assimilate and retain highly qualified technical, managerial, and sales and marketing personnel |
| We do not have employment agreements with our Chief Executive Officer, President, or Chief Financial Officer |
| We do have employment agreements with our Chief Executive Officer—Poorman-Douglas Corporation, our President—Bankruptcy Services LLC, and key executives of nMatrix |
| We maintain key-man life insurance policies on our Chief Executive Officer and our President |
| The loss of the services of any of these executives or other key personnel or the inability to hire or retain qualified personnel in the future could have a material adverse impact on our results of operations |
| We do not pay cash dividends on our common stock and our common stock may not appreciate in value or even maintain the price at which you purchased your shares |
| We presently do not intend to pay any cash dividends on our common stock |
| Subject to any financial covenants in current or future financing agreements that directly or indirectly restrict the payment of dividends, the payment of dividends is within the discretion of our board of directors and will depend upon our future earnings, if any, our capital requirements, our financial condition and any other factors that the board of directors may consider |
| In addition, certain terms of our convertible notes and certain provisions in our credit agreement may restrict our ability to pay dividends in the future |
| We currently intend to retain all earnings to reduce our debt and for use in the operation and expansion of our business |
| As a result, the success of your investment in our common stock will depend entirely upon its future appreciation |
| Our common stock may not appreciate in value or even maintain the price at which you purchased your shares |
| Our articles of incorporation contain a provision that could be used by us, without shareholder approval, to discourage or prevent a takeover of our company |
| Some provisions of our articles of incorporation could make it more difficult for a third party to acquire control of our company, even if the change of control would be beneficial to certain shareholders |
| In the event of a change in control of our company, vesting of previously issued equity awards could be automatically accelerated |
| 14 ______________________________________________________________________ Compliance with changing regulation of corporate governance and public disclosure may result in additional expenses |
| Compliance with changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations, and Nasdaq National Market rules, are time consuming and expensive |
| Since 2002, we have spent substantial amounts of management time and have incurred substantial legal and accounting expense in complying with the Sarbanes-Oxley Act and regulatory initiatives resulting from that Act |
| Complying with these new laws and regulations also creates uncertainty for companies such as ours |
| These new or changed laws, regulations and standards are subject to varying interpretations in many cases due to their lack of specificity |
| As a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices |
| We are committed to maintaining high standards of corporate governance and public disclosure |
| As a result, our efforts to comply with evolving laws, regulations and standards have resulted in, and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities |
| In particular, our efforts to comply with Section 404 of the Sarbanes-Oxley Act of 2002 and the related regulations regarding our required assessment of our internal controls over financial reporting and our external auditors’ certification of that assessment have required the commitment of significant financial and managerial resources |
| We expect these efforts to require the continued commitment of significant resources |
| SEC rules implementing Section 404 of Sarbanes-Oxley require disclosure of the remediation of significant deficiencies or material weaknesses in internal controls over financial reporting and the existence, at year-end, of material weaknesses related to our internal control over financial reporting |
| If we are required to make any of these types of disclosures in the future, these disclosures could adversely affect the price of our common stock |