| I MANY INC ITEM 1A RISK FACTORS In addition to other information in this Annual Report on Form 10-K, the following factors could cause actual results to differ materially from those indicated by forward-looking statements made in this Annual Report on Form 10-K and presented elsewhere by management from time to time |
| WE EXPERIENCED CHANGES OF SENIOR MANAGEMENT IN 2005 AND 2006, WHICH MAY AFFECT OUR BUSINESS, PARTICULARLY IN THE SHORT TERM In August 2005, we announced the departure of our Chief Executive Officer and Chief Operating Officer and the appointment of a new Chairman of the Board with certain executive powers and a new Acting President and Chief Executive Officer |
| In February 2006, our Acting President and Chief Executive Officer resigned, and our Chairman of the Board assumed his duties on an interim basis |
| Each of our Acting Chief Executive Officers was and remains a member of the Board of Directors |
| The Board of Directors is currently conducting a search for a permanent President and Chief Executive Officer |
| Changes of this nature can create a level of uncertainty and 10 ______________________________________________________________________ [36]Table of Contents potential disruption to relationships with customers, prospective customers, employees and business partners, particularly in the short term |
| Our new leadership will need time to become more familiar with the Company and its culture |
| For at least the next several quarters, this leadership change could have an adverse effect on our business, financial condition and results of operations |
| WE MAY NEED TO GROW IN MARKETS OTHER THAN THE LIFE SCIENCES MARKET FOR OUR FUTURE GROWTH To be successful, we intend to reduce our reliance on the health and life sciences market, which has traditionally been the primary source of our revenues |
| Revenues from our non-life sciences customers have comprised 34dtta0prca, 27dtta3prca and 24dtta4prca, respectively, of our consolidated revenues for the years ended December 31, 2003, 2004 and 2005 |
| We have not been successful in generating the revenue growth we expected from these markets and we cannot assure you that we will be successful in the future |
| WE HAVE INCURRED SUBSTANTIAL LOSSES IN RECENT YEARS AND OUR RETURN TO PROFITABILITY IS UNCERTAIN We incurred net losses of dlra39dtta5 million in the year ended December 31, 2003, dlra7dtta3 million in the year ended December 31, 2004 and dlra9dtta3 million in the year ended December 31, 2005, and we had an accumulated deficit at December 31, 2005 of dlra134dtta4 million |
| Our recent results have been impacted by a number of factors that caused current and prospective customers to defer, or otherwise not make, purchases from us, and we cannot assure you that we will not be affected by these or other factors in future periods |
| We cannot assure you that we will achieve sufficient revenues to become profitable in the future |
| IT IS DIFFICULT FOR US TO PREDICT WHEN OR IF SALES WILL OCCUR AND WHICH LICENSING MODEL OUR CUSTOMERS WILL CHOOSE, AND WE OFTEN INCUR SIGNIFICANT SELLING EXPENSES IN ADVANCE OF OUR RECOGNITION OF ANY RELATED REVENUE Our clients view the purchase of our software applications and related professional services as a significant and strategic decision |
| As a result, clients carefully evaluate our software products and services |
| The length of this evaluation process is affected by factors such as the client’s need to rapidly implement a solution and whether the client is new or is extending an existing implementation |
| The license of our software products may also be subject to delays if the client has lengthy internal budgeting, approval and evaluation processes, which are quite common in the context of introducing large enterprise-wide technology solutions |
| We may incur significant selling and marketing expenses during a client’s evaluation period, including the costs of developing a full proposal and completing a rapid proof of concept or demonstration, before the client places an order with us |
| Clients may also initially purchase a limited number of licenses before expanding their implementations |
| Larger clients may purchase our software products as part of multiple simultaneous purchasing decisions, which may result in additional unplanned administrative processing and other delays in the recognition of our license revenues |
| Moreover, our customers have shown a growing interest in licensing our software on a subscription basis, which results in deferral of revenues that would otherwise be reportable if a traditional perpetual license were executed |
| If revenues forecasted from a significant client for a particular quarter are not realized or are delayed, as has occurred in recent quarters, we may experience an unplanned shortfall in revenues during that quarter |
| This may cause our operating results to be below the expectations of public market analysts or investors, which could cause the value of our common stock to decline |
| OUR INABILITY TO PREDICT REVENUE AND OUR FIXED COSTS HAVE LED, AND WILL CONTINUE TO LEAD, TO FLUCTUATIONS IN OPERATING RESULTS WHICH HAVE RESULTED, AND COULD IN THE FUTURE RESULT, IN A DECLINE OF OUR STOCK PRICE A significant percentage of our expenses, particularly personnel costs and rent, are fixed costs and are based in part on expectations of future revenues |
| We may be unable to reduce spending in a timely manner to 11 ______________________________________________________________________ [37]Table of Contents compensate for any significant fluctuations in revenues |
| Accordingly, shortfalls in revenues, as we experienced in recent quarters, may cause significant variations in operating results in any quarter |
| Our stock price has been impacted by the failure of our quarterly results to meet the expectations of market analysts and investors, and it could decline further |
| WE MAY NOT BE SUCCESSFUL IN DEVELOPING OR ACQUIRING NEW TECHNOLOGIES OR BUSINESSES AND THIS COULD HINDER OUR EXPANSION EFFORTS Despite our intentions to reduce our product research and development efforts to levels more customary for our industry, in the near term we may find it necessary to continue our product research and development efforts at levels similar to current expenditures |
| We may also consider additional acquisitions of or new investments in complementary businesses, products, services or technologies |
| We cannot assure you that we will be successful in our product development efforts or that we will be able to identify appropriate acquisition or investment candidates |
| Even if we do identify suitable candidates, we cannot assure you that we will be able to make such acquisitions or investments on commercially acceptable terms |
| Furthermore, we may incur debt or issue equity securities to pay for any future acquisitions |
| The issuance of equity securities could be dilutive to our existing stockholders and the issuance of debt could limit our available cash and accordingly restrict our activities |
| WE MAY MAKE ADDITIONAL ACQUISITIONS AND WE MAY HAVE DIFFICULTY INTEGRATING THEM Any company that we acquire will have a culture different from ours as well as technologies, products and services that our employees will need to understand and integrate with our own |
| We have assimilated the employees, technologies and products of the companies that we have previously acquired and will need to do the same with any new companies we may acquire, and that effort has been, and will likely continue to be difficult and time-consuming and may be unsuccessful |
| If we are not successful, our investment in the acquired entity may be impaired or lost, and even if we are successful, the process of integrating an acquired entity may divert our attention from our core business |
| IF WE DO ACQUIRE NEW TECHNOLOGIES OR BUSINESSES, OUR RESULTS OF OPERATIONS MAY BE ADVERSELY AFFECTED In connection with our acquisitions, we have recorded substantial goodwill and other purchased intangible assets |
| In addition, we recorded charges for write-offs of a portion of the purchase prices of acquired companies as in-process research and development |
| The carrying values of intangible assets and goodwill are reviewed for impairment on a periodic basis |
| In the year ended December 31, 2003, we recorded impairment charges of dlra16dtta8 million in connection with the write-off of goodwill and other purchased intangible assets |
| We cannot assure you that future write-downs of any such assets will not affect future operating results |
| WE HAVE MANY COMPETITORS AND POTENTIAL COMPETITORS AND WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY The market for our products and services is competitive and subject to rapid change |
| We encounter significant competition for the sale of our contract management software from the internal information systems departments of existing and potential clients, software companies that target the contract management markets and professional services organizations |
| Our competitors vary in size and in the scope and breadth of products and services offered |
| We anticipate increased competition for market share and pressure to reduce prices and make sales concessions, which could materially and adversely affect our revenues and margins |
| Many of our existing competitors, as well as a number of potential new competitors, have longer operating histories, greater name recognition, larger customer bases and significantly greater financial, technical and marketing resources than we do |
| Such competitors may also engage in more extensive research and development, undertake more far-reaching marketing campaigns, adopt more aggressive pricing policies and make more 12 ______________________________________________________________________ [38]Table of Contents attractive offers to existing and potential employees and strategic partners |
| Our competitors could develop products or services that are equal or superior to our solutions or that achieve greater market acceptance than our solutions |
| In addition, current and potential competitors have established or may establish cooperative relationships among themselves or with third parties |
| We may not be able to compete successfully, and competitive pressures may require us to make concessions that will adversely affect our revenues and our margins, or reduce the demand for our products and services |
| THE BID PRICE OF OUR COMMON STOCK ON THE NASDAQ NATIONAL MARKET HAS BEEN BELOW dlra1dtta00 PER SHARE, AND IF THE BID PRICE AGAIN FALLS BELOW dlra1dtta00 PER SHARE FOR AN EXTENDED PERIOD, OUR COMMON STOCK MAY BE DELISTED FROM THE NASDAQ NATIONAL MARKET WHICH COULD REDUCE THE LIQUIDITY OF OUR COMMON STOCK AND ADVERSELY AFFECT OUR ABILITY TO RAISE ADDITIONAL NECESSARY CAPITAL In April 2003 we received written notification from Nasdaq that we were not in compliance with Nasdaq Marketplace Rule 4450(b)(4) because the closing bid price of our common stock was below dlra1dtta00 for 30 consecutive trading days |
| We subsequently regained compliance when the bid price of our common stock closed at dlra1dtta00 per share or more for 10 consecutive trading days |
| This process occurred again in September 2004, when we received a similar notice of deficiency, and for which we regained compliance in November 2004 |
| If the closing bid price of our common stock again falls below dlra1dtta00 per share for 30 consecutive trading days and we do not regain compliance, we would be delisted from the Nasdaq National Market |
| The delisting of our common stock may result in the trading of the stock on the Nasdaq SmallCap or the OTC Bulletin Board |
| Consequently, a delisting of our common stock from the Nasdaq National Market may reduce the liquidity of our common stock, adversely affect our ability to raise additional necessary capital and could adversely affect our sales efforts |
| WE HAVE MULTIPLE FACILITIES AND WE MAY EXPERIENCE DIFFICULTIES IN OPERATING FROM THESE DIFFERENT LOCATIONS We will continue to operate out of our corporate headquarters in Edison, New Jersey, our primary engineering office in Redwood City, California and facilities in Portland, Maine and London, England |
| The geographic distance between our offices makes it more difficult for our management and other employees to collaborate and communicate with each other than if they were all located in a single facility, and, as a result, increases the strain on our managerial, operational and financial resources |
| Also, a significant number of our sales and professional services employees work remotely out of home offices, which will potentially add to this strain |
| WE MAY NOT BE SUCCESSFUL IN RETAINING AND ATTRACTING TALENTED AND KEY EMPLOYEES We depend on the services of our senior management and key technical personnel |
| The loss of the services of key employees, and the inability to attract new employees to fill crucial roles, could have a material adverse effect on our business, financial condition and results of operations |
| OUR EFFORTS TO PROTECT OUR INTELLECTUAL PROPERTY MAY NOT BE FULLY EFFECTIVE, AND WE MAY INADVERTENTLY INFRINGE ON THE INTELLECTUAL PROPERTY OF OTHERS Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain the use of information that we regard as proprietary |
| In addition, the laws of some foreign countries do not protect our proprietary rights to as great an extent as do the laws of the United States |
| We cannot assure investors that our means of protecting our proprietary rights will be adequate or that our competitors will not independently develop similar technology |
| We are not aware that any of our products infringe the proprietary rights of third parties |
| We cannot assure investors, however, that third parties will not claim infringement by us with respect to current or future products |
| 13 ______________________________________________________________________ [39]Table of Contents We expect that software product developers will increasingly be subject to infringement claims as the number of products and competitors in our industry segment grows and the functionality of products in different industry segments overlaps |
| Any such claims, with or without merit, could be time-consuming, result in costly litigation, cause product shipment delays or require us to enter into royalty or licensing agreements |
| Such royalty or licensing agreements, if required, may not be available on terms acceptable to us or at all, which could have a material adverse effect upon our business, operating results and financial condition |