Item 1A. Risk Factors
Item 1A.
Risk Factors
Investing in our common stock involves a high degree of risk. As a result, there can be no assurance that we will achieve our business objectives. You should consider carefully the risks described below. In addition to the risk factors
described below, other factors that could cause actual results to differ materially include:
Changes in the economy;
Changes in the market for technology transfer and innovation services;
Risks associated with possible disruption in our operations due to terrorism;
Future regulatory actions and conditions in our operating areas; and
Other risks and uncertainties as may be detailed from time to time in our public announcements and SEC filings.
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Our business, financial condition and results of operations may be materially impacted by economic
conditions and related fluctuations in customer demand for innovation consulting, technology licensing, patent analysis and other consulting services.
The market for our consulting services tends to fluctuate with economic cycles. During economic cycles in which many companies are experiencing financial difficulties or uncertainty, clients and potential
clients may cancel or delay spending on technology, intellectual property and other business initiatives. In particular, current uncertainty in global economic conditions may cause companies to cancel or delay consulting initiatives for which they
have engaged us. Further, if the rate of project cancellations or delays significantly increases, our business, financial condition and results of operations could be materially and adversely impacted.
It is important to our future success that we expand the breadth and depth of our service offerings to stay abreast of the competition and to enhance our
potential for growth of revenues and profits.
We are primarily a service business. It is important to our future success
to expand the breadth and depth of our service offerings to stay abreast of the competition and to enhance our potential for growth of revenues and profits. Expansion of our service categories and service offerings in this manner will require
significant additional expenditures and could strain our management, financial and operational resources. For example, we are currently seeking to build up our intellectual property analysis service business. We cannot be certain that we will be
able to do so in a cost-effective or timely manner or that we will be able to offer certain services in demand by our clients, or to do so in a quality manner. Furthermore, any new service offering that is not favorably received by our clients could
damage our reputation. The lack of market acceptance of new services or our inability to generate satisfactory revenues from expanded service offerings to offset their costs could harm our business. If we do not successfully expand our operations,
our revenues may fall below expectations. If we do not successfully expand our operations on an ongoing basis to accommodate increases in demand, we will not be able to fulfill our clients needs in a timely manner, which would harm our
business.
Our growth strategy is partially dependent on completing additional acquisitions of innovation services companies.
As part of our strategy for growth, we have made and may continue to make acquisitions of complementary innovation
services companies. However, we may not be able to identify suitable acquisition candidates, complete acquisitions, or integrate acquisitions successfully. In this regard, acquisitions involve numerous risks, including difficulties in the
integration of the operations, technologies, services and products of the acquired companies and the diversion of managements attention from other business concerns. Although our management will endeavor to evaluate the risks inherent in any
particular transaction, there can be no assurance that we will properly ascertain all such risks. In addition, prior acquisitions have resulted, and future acquisitions could result, in the incurrence of substantial additional indebtedness and other
expenses. Future acquisitions may also result in potentially dilutive issuances of equity securities. There can be no assurance that difficulties encountered with acquisitions will not have a material adverse effect on our business, financial
condition and results of operations.
Our quarterly and annual results fluctuate significantly.
Our quarterly and annual operating results fluctuate significantly due to a number of factors. These factors include fluctuations in the
amount of consulting services we provide, the degree to which we encounter competition in our markets, and general economic conditions. As a result of these factors, quarterly and annual results are not necessarily indicative of our performance in
future quarters and years.
The agreements we have with universities, medical research centers, corporate research laboratories and federal
research laboratories do not guarantee that such entities will grant licenses to us or other companies.
We do not invent
new technologies or products. We depend on relationships with universities, corporations, government agencies, research institutions, inventors, and others to provide technology-based opportunities that
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we can develop into profitable royalty-bearing licenses. Failure to maintain these relationships or to develop new relationships could adversely affect our operating results and financial
condition. If we are unable to forge new relationships or to maintain current relationships, we may be unable to identify new technology-based opportunities and enter into royalty-bearing licenses. We also are dependent on our clients
abilities to develop new technologies, introduce new products, and adapt to changes in technology and economic needs.
We
cannot be certain that current or new relationships will provide the volume or quality of available new technologies necessary to sustain our business. In some cases, universities and other sources of new technologies may compete against us as they
seek to develop and commercialize these technologies themselves, or through entities that they develop, finance and/or control. In other cases, universities receive financing for basic research from companies in exchange for the exclusive right to
commercialize any resulting inventions. These and other strategies may reduce the number of technology sources, potential clients, to whom we can market our services. If we are unable to secure new sources of technology, it could have a material
adverse effect on our operating results and financial condition.
We are focusing our business on providing innovation services to our
clients which is a new and uncertain trend in our industry.
We are focused on providing innovation services to our
clients. While these services utilize our well established technology transfer capabilities, they also incorporate additional products and services which in their entirety are as yet unproven in their ability to generate consistent significant
revenue. As a result, if our innovation services are not well received by our clients or if industry changes its focus off of innovation, this may result in reduced revenue and profitability for us.
The consulting services business is highly competitive, and we may not be able to compete effectively.
The innovation consulting services business in which we operate includes a large number of participants and is intensely competitive. We face
competition from other business operations and financial consulting firms, general management consulting firms, the consulting practices of major accounting firms, technical and economic advisory firms, regional and specialty consulting firms and
the internal professional resources of organizations. In addition, because there are relatively low barriers to entry, we expect to continue to face additional competition from new entrants into the business operations and financial consulting
industries. Many of our competitors have a greater national and international presence, as well as have significantly greater personnel, financial, technical and marketing resources. In addition, these competitors may generate greater revenues and
have greater name recognition than we do. Our ability to compete also depends in part on the ability of our competitors to hire, retain and motivate skilled professionals, the price at which others offer comparable services and our competitors
responsiveness to their clients. If we are unable to compete successfully with our existing competitors or with any new competitors, it could negatively affect our operating results.
Our inability to hire and retain talented people in an industry where there is great competition for talent could have a serious negative effect on our services and results of operations.
Our innovation consulting services business involves the delivery of professional services and is highly labor-intensive.
Our success depends largely on our general ability to attract, develop, motivate and retain highly skilled professionals. The loss of a significant number of our professionals or the inability to attract, hire, develop, train and retain additional
skilled personnel could have a serious negative effect on us, including our ability to manage, staff and successfully complete our existing engagements and obtain new engagements. Qualified professionals are constantly in demand, and we face
significant competition for both senior and junior professionals with the requisite credentials and experience. Our principal competition for talent comes from other research and consulting firms, as well as from organizations seeking to staff their
internal professional positions. Many of these competitors may be able to offer significantly greater compensation and benefits or more attractive lifestyle choices, career paths or geographic locations than we do. Therefore, we may not be
successful
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in attracting and retaining the skilled consultants we require to conduct and expand our operations successfully. Increasing competition for these revenue-generating professionals may also
significantly increase our labor costs, which could negatively affect our operating results.
The profitability of our fixed-fee
engagements with clients may not meet our expectations if we underestimate the cost of these engagements.
When making
proposals for fixed-fee engagements, we estimate the costs and timing for completing the engagements. These estimates reflect our best judgment regarding the efficiencies of our methodologies and consultants as we plan to deploy them on engagements.
Any increased or unexpected costs or unanticipated delays in connection with the performance of fixed-fee engagements, including delays caused by factors outside our control, could make these contracts less profitable or unprofitable, which could
negatively affect our operating results.
A significant portion of our revenue is derived from a limited number of clients, which may cause
our operating results to be unpredictable.
As an innovation services firm, we have derived, and expect to continue to
derive, a significant portion of our revenue from a limited number of clients. Our clients typically retain us on an engagement-by-engagement basis, rather than under fixed-term contracts; the volume of work performed for any particular client is
likely to vary from year to year and a major client in one fiscal period may not require or decide not to use our services in any subsequent fiscal period. Moreover, a large portion of our new engagements comes from existing clients. Accordingly,
the failure to obtain new large engagements or multiple engagements from existing or new clients could have a material adverse effect on the amount of revenues we generate. In addition, if we fail to collect a large trade receivable or group of
receivables, we could be subject to significant financial exposure.
Our ability to maintain and attract new business depends upon our
reputation, the professional reputation of our revenue-generating employees and the quality of our services.
As an
innovation services firm, our ability to secure new engagements depends heavily upon our corporate brand and reputation and the individual reputations of our professionals. Any factor that diminishes our reputation or that of our employees,
including not meeting client expectations, misconduct by our employees, or dissemination of inappropriate information from outside sources, could make it substantially more difficult for us to attract new engagements and clients. Similarly, because
we obtain many of our new engagements from former or current clients or from referrals by those clients or by law firms that we have worked with in the past, any client that questions the quality of our work or that of our consultants could impair
our ability to secure additional new engagements and clients.
We depend on non-recurring consulting engagements and our failure to secure
new engagements could lead to a decrease in our revenues.
Innovation consulting segment revenues constituted approximately
70% of our total revenues for 2009. These consulting engagements typically are project-based and non-recurring. Our ability to replace consulting engagements is subject to numerous factors, including the following:
Delivering consistent, high-quality consulting services to our clients;
Tailoring our consulting services to the changing needs of our clients; and
Our ability to match skills and competencies of our consulting staff to the skills required for the fulfillment of existing or potential innovation
consulting engagements.
Any material decline in our ability to replace consulting arrangements could have
an adverse impact on our revenues and our financial condition.
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The absence of long-term contracts with our clients reduces the predictability of our revenue.
Our clients are generally able to reduce or cancel their use of our professional services without penalty and, in some
circumstances, with little notice. As a result, we believe that the number of clients or the number and size of our existing projects are not reliable indicators or measures of future revenue. We will need to continuously acquire new clients and/or
new projects to meet our expenses. When a client defers, modifies or cancels a project, there is no assurance that we will be able to rapidly redeploy our professionals to other projects in order to minimize the underutilization of employees and the
resulting adverse impact on operating results. We may not be able to replace cancelled or reduced contracts with new business while at the same time our expenses are generally longer term in nature with the result that our revenue and profits may
decline.
Our revenue growth depends on our ability to understand the technology requirements of our customers in the context of their
markets. If we fail to understand their technology needs or markets, we limit our ability to meet those needs and to generate revenue.
We believe that by focusing on the technology needs of our customers, we are better positioned to generate revenues by providing technology solutions to them. The market demands of our customers drive our
revenues. The better we understand their markets and requirements, the better we are able to identify and obtain effective technology solutions for our customers. We rely on our professional staff and contract business development consultants to
understand our customers technical, commercial, and market requirements and constraints, and to identify and obtain effective technology solutions for them.
Additional hiring and business acquisitions could disrupt our operations, increase our costs or otherwise harm our business.
Our business strategy is dependent in part upon our ability to grow by hiring individuals or groups of individuals and by acquiring
complementary businesses. However, we may be unable to identify, hire, acquire or successfully integrate new employees and acquired businesses without substantial expense, delay or other operational or financial obstacles. Competition for future
hiring and acquisition opportunities in our markets could increase the compensation we offer to potential employees or the prices we pay for businesses we wish to acquire. In addition, we may be unable to achieve the financial, operational and other
benefits we anticipate from any hiring or acquisition, including those we have completed so far. Hiring additional employees or acquiring businesses could also involve a number of additional risks, including:
The diversion of managements time, attention and resources from managing the Company;
The failure to retain key acquired personnel;
The adverse short-term effects on reported operating results from the amortization or write-off of acquired goodwill and other intangible assets;
The potential impairment of existing relationships with our clients, such as client satisfaction or performance problems, whether as a result of
integration or management difficulties or otherwise;
The creation of conflicts of interest that require us to decline or resign from engagements that we otherwise could have accepted;
The potential need to raise significant amounts of capital to finance a transaction or the potential issuance of equity securities that could be
dilutive to our existing stockholders;
Increased costs to improve, coordinate or integrate managerial, operational, financial and administrative systems;
The usage of contingent earnouts based on the future performance of our business acquisitions may deter the acquired company from fully integrating
into our existing business; and
A decision not to fully integrate an acquired business may lead to the perception of inequalities if different groups of employees are eligible for
different benefits and incentives or are subject to different policies and programs.
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If we fail to successfully address these risks, our ability to compete may be impaired.
The failure to integrate or negotiate successfully any future acquisitions could harm our business and operating results.
If we acquire businesses in the future and are unable to integrate successfully these businesses, it could harm our business and operating
results. In order to remain competitive or to expand our business, we may find it necessary or desirable to acquire other businesses, products or technologies. We may be unable to identify appropriate acquisition candidates. If we identify an
appropriate acquisition candidate, we may not be able to negotiate the terms of the acquisition successfully, finance the acquisition or integrate the acquired businesses, products or technologies into our existing business and operations. Further,
completing a potential acquisition and integrating an acquired business may strain our resources and require significant management time. In addition, we may revalue or write-down the value of goodwill and other intangible assets in connection with
future acquisitions, which would negatively affect our operating results.
Changes in the laws or regulations that govern us could have a
material impact on our operations.
Any change in the laws or regulations that govern our business could have a material
impact on us or on our operations. Laws and regulations may be changed from time to time, and the interpretations of the relevant laws and regulations also are subject to change.
We are subject to certain risks associated with our foreign operations.
We
have operations in the United Kingdom and may seek to expand our operations in other countries.
Certain risks are inherent in
foreign operations, including:
difficulties in enforcing agreements and collecting receivables through certain foreign legal systems;
foreign clients may have longer payment cycles than clients in the US;
tax rates in certain foreign countries may exceed those in the US and foreign earnings may be subject to withholding requirements, exchange controls or
other restrictions;
general economic and political conditions in countries where we operate may have an adverse effect on our operations;
exposure to risks associated with changes in foreign exchange rates;
difficulties associated with managing a large organization spread throughout various countries;
difficulties in enforcing intellectual property rights; and
required compliance with a variety of foreign laws and regulations.
Investing in foreign companies, including innovation services firms, may expose us to additional risks not typically associated with
investing in US companies. These risks include changes in foreign exchange rates, exchange control regulations, political and social instability, expropriation, imposition of foreign taxes, less liquid markets and less available information than is
generally the case in the US, higher transaction costs, less government supervision of exchanges, brokers and issuers, less developed bankruptcy laws, difficulty in enforcing contractual obligations, lack of uniform accounting and auditing standards
and greater price volatility.
As we continue to expand our business globally, our success will depend, in part, on our
ability to anticipate and effectively manage these and other risks. We cannot assure you that these and other factors will not have a material adverse effect on our international operations or our business as a whole.
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We may issue shares of our common stock and warrants at a discount to the market price for such shares,
which may put downward pressure on the market price for shares of our common stock.
If we issue shares of our common stock
at a discount to the market price for such shares, it may put downward pressure on the market price for shares of our common stock. Such downward pressure could in turn encourage short sales or similar trading with respect to shares of our common
stock, which could in itself, place further downward pressure on the market price for shares of our common stock.
We may issue shares of
our common stock and warrants in conjunction with the acquisition of other businesses, which may put downward pressure on the market price for shares of our common stock and create additional dilution of the current shares outstanding.
Consistent with our current strategy, we may seek to acquire other businesses through the issuances of common stock and or
cash. If common stock is used in these transactions, it would create additional dilution of the current shares outstanding. Further, such issuances may result in downward pressure on our share price as a result of these additional shares being
issued. Also, there is the potential that the market may not respond favorably to potential new acquisitions, which could also negatively affect our share price.
We may need additional capital in the future and it may not be available on acceptable terms.
We have historically relied on equity financing and, to a lesser extent, cash flow from operations including the sale of our investments and debt financing to fund our operations, capital expenditures and
expansion. However, we may require additional capital in the future to fund our operations or respond to competitive pressures or strategic opportunities. We cannot assure that additional financing will be available on terms favorable to us, or at
all. In addition, the terms of available financing may place limits on our financial and operating flexibility. If we are unable to obtain sufficient capital in the future, we may:
be forced to reduce our operations;
not be able to expand or acquire complementary businesses; and
not be able to develop new services or otherwise respond to changing business conditions or competitive pressures.
Our common stock price may be volatile.
The trading price of our common stock has fluctuated significantly and may continue to fluctuate substantially, depending on many factors, many of which are beyond our control and may not be directly
related to operating performance. These factors include the following:
price and volume fluctuations in the overall stock market from time to time;
significant volatility in the market price and trading volume of securities of innovation services firms and technology transfer companies;
changes in regulatory policies, accounting or tax guidelines with respect to innovation services firms and technology transfer companies;
actual or anticipated changes in our sales or earnings or fluctuations in our operating results;
actual or anticipated changes in the value of our investments;
changes in financial reporting requirements;
general economic conditions and trends;
loss of a major funding source;
departures of key personnel;
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changes to the market or shareholders acceptance of our unique technology transfer business; or
the consummation of mergers or acquisitions of related businesses.
As a publicly held company, we have significantly higher administrative costs.
The Sarbanes-Oxley Act of 2002, as well as new rules implemented by the SEC and new listing requirements adopted by the American Stock Exchange in response to the Sarbanes-Oxley Act of 2002, has required changes in corporate governance
practices, internal control policies and audit control practices of public companies. These new rules, regulations, and requirements have increase our legal, audit, financial, compliance and administrative costs, and have made certain other
activities more time consuming and costly. The additional costs are expected to continue. These rules and regulations may make it more difficult and more expensive for us to obtain directors and officers liability insurance in the future, and could
make it more difficult for us to attract and retain qualified members for our Board of Directors, particularly to serve on our audit committee.
We may experience outages and disruptions in connection with our online licensing services if we fail to maintain an adequate operations infrastructure.
We have spent and expect to continue to spend substantial amounts to maintain equipment and to upgrade our technology and network infrastructure relating to our online licensing services. However, any
inefficiencies or operational failures could diminish the quality of our services, and client experience, resulting in damage to our reputation and loss of current and potential users, and subscribers, harming our operating results and financial
condition.
The agreements relating to our indebtedness may restrict our current and future operations.
Our debt agreements contain, and any future agreements may include, a number of restrictive covenants that impose significant operating and
financial restrictions on, among other things, our ability to:
incur additional debt, including guarantees;
incur liens;
sell or otherwise dispose of assets;
make investments, loans or advances;
make some acquisitions;
engage in mergers or consolidations;
make capital expenditures; and
pay dividends.
Any future debt could contain financial and other covenants more restrictive than those that are currently applicable.
Our
failure to comply with the agreements relating to our outstanding indebtedness, including as a result of events beyond our control, could result in an event of default that could materially and adversely affect our operating results and our
financial condition.
If there were an event of default under any of the agreements relating to our outstanding
indebtedness the holders of the defaulted debt could cause all amounts outstanding with respect to that debt to be due and payable immediately. We cannot assure you that our assets or cash flow would be sufficient to fully repay borrowings under our
outstanding debt instrument, either upon maturity or if accelerated upon an event of default. Further, if we were unable to repay, refinance or restructure our indebtedness under our secured debt, the holders of such
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debt could proceed against the collateral securing that indebtedness. In addition, any event of default or declaration or acceleration under one debt instrument could also result in an event of
default under one or more of our other debt instruments.
We may not be able to generate sufficient cash flow to meet our debt service
obligations.
Our ability to generate sufficient cash flow from operations to make scheduled payments on our debt
obligations will depend on our future financial performance, which will be affected by a range of economic, competitive and business factors, many of which are outside our control. If we do not generate sufficient cash flow from operations to
satisfy our debt obligations, we may have to undertake alternative financing plans, such as refinancing or restructuring our debt, selling assets, reducing or delaying capital investments or seeking to raise additional capital. We cannot assure you
that any refinancing would be possible, that any assets could be sold, or, if sold, of the timing of the sales and the amount of proceeds realized from those sales, or that additional financing could be obtained on acceptable terms, if at all, or
would be permitted under the terms of our various debt agreements then in effect. Our inability to generate sufficient cash flow to satisfy our debt obligations, or to refinance our obligations on commercially reasonable terms, would have an adverse
effect on our business, financial condition and results of operations, as well as on our ability to satisfy our debt obligations.
Item 1B.
Unresolved Staff Comments
None.