| AMERICAN SCIENCE & ENGINEERING INC but not limited to those set forth below under ITEM 1A RISK FACTORS, one-time events and other important factors disclosed previously and from time to time in our other filings with the SEC We disclaim any obligation to update any forward-looking statements contained herein after the date of this Annual Report |
| BUSINESS American Science and Engineering, Inc, a Massachusetts corporation formed in 1958 (together with its subsidiary, the “Company” or “AS&E”), develops, manufactures, markets, and sells X-ray inspection and other inspection solutions and provides maintenance, warranty, research, engineering, and training services related to these solutions |
| The Company’s sophisticated X-ray inspection products are used for critical detection and security applications by seaport and border authorities, military, airport, federal facility and corporate security providers in the United States and around the globe |
| These security applications include X-ray inspection and screening systems for combating terrorism, drug and weapon smuggling, trade fraud, and illegal immigration |
| The Company’s objective is to distinguish itself from its competitors through technical innovations and a superior approach to detection |
| The Company’s patented Z® Backscatter™ technology detects plastic explosives, plastic weapons, illegal drugs, and other contraband, even when concealed by complex backgrounds |
| AS&E’s Shaped Energy™ X-ray technology provides the penetration capability of high energy X-rays for dense cargos, without the problems caused by excessive radiation |
| Radioactive Threat Detection (RTD) technology detects dirty bombs and nuclear devices simultaneous to the production of Z Backscatter and transmission images |
| Historically, the Company has focused its product development and marketing efforts on two broad markets: (i) the protection of high-risk government or military personnel and facilities; and (ii) the inspection and clearance of cargo, trucks and cars at seaports and borders |
| These markets are driven by domestic and global trends in terrorism, the continuing spread of drugs and people smuggling, and the ongoing increase in global trade which creates greater incentives for duty evasion and trade fraud utilizing false cargo shipping manifests |
| Beginning with the terrorist attacks on September 11, 2001, and continuing with the proliferation of global terrorism, as well as the ongoing threat of terrorism posed by the war in Iraq, homeland security and force protection concerns are of paramount importance in the United States and around the world |
| The Company believes that homeland defense, force protection and military security initiatives will continue to provide new revenue opportunities, with additional growth in the seaports and borders, federal and military facilities, and corporate security markets |
| Technology The Company’s products utilize a variety of technologies including proprietary Z Backscatter technology, traditional transmission X-ray technology, Shaped Energy technology and Radioactive Threat Detection (RTD) |
| 3 ______________________________________________________________________ Z Backscatter Technology Most of the Company’s X-ray systems utilize AS&E’s patented Z Backscatter technology |
| Backscattered X-rays refer to those X-rays that are directed toward an object and are scattered, rather than absorbed by that object |
| Z Backscatter detectors capture these scattered X-rays and use them to create highly readable, photo-like images |
| A key aspect of Z Backscatter is that objects organic in content (low atomic number or “low Z”), such as drugs, explosives, plastic weapons, or people, scatter X-rays effectively |
| These organic items stand out as bright objects in the Z Backscatter images, making them easy to identify in even the most complex X-ray backgrounds |
| As a result, the Z Backscatter images show these potential threats clearly |
| When used in combination with transmission X-ray technology, Z Backscatter adds significant interpretability to a transmission image enabling an inspector to perform a quicker and more thorough examination of the object in question |
| Transmission X-ray Technology Transmission X-rays are used in combination with Z Backscatter in many of the Company’s products |
| A standard transmission X-ray image results when X-rays are absorbed by or pass through the object under examination |
| When transmission X-rays pass through the parcel, container or vehicle being scanned, and are viewed on the transmission monitor, they create a “shadowgram” image, similar to the result of a medical X-ray exam |
| Shadowgram images are generally high resolution and result from the X-ray beam penetrating through objects of varying densities |
| With transmission technology, the more objects or clutter in the path of the beam, the less differentiation of those objects is achieved |
| The combination of proprietary Z Backscatter X-ray images and transmission X-ray images gives inspectors more information about the contents of the parcel or container by differentiating dense objects, such as metal, from low Z materials such as explosives |
| Shaped Energy Technology This patented high energy technology is specifically designed for use in examining densely loaded cargo containers at seaports, high threat facilities, and border crossings |
| Shaped Energy’s technology “shapes” the X-ray beam by filtering unnecessary lower dose radiation—allowing for high penetration with safe radiation levels |
| The systems that utilize Shaped Energy (SE) technology combine the penetration capability of a high-energy X-ray source with the photo-like quality and material discrimination features of the Company’s Z Backscatter imaging technology |
| An important characteristic of Shaped Energy technology is that it allows for optimal penetration while maintaining a compact footprint and radiation exclusion zone |
| Historically, high-energy X-ray systems were constrained by the necessity for large exclusion zones and heavy shielding in order to protect against the hazards of excessive radiation |
| The SE linear accelerator incorporates an X-ray system design that reduces the need for cumbersome shielding and large exclusion zones |
| Radioactive Threat Detection Technology An AS&E cargo inspection system enhanced with Radioactive Threat Detection (RTD) can be used to find radioactive threats in vehicles and cargo containers |
| RTD is highly sensitive to both gamma rays and neutrons-typically associated with dirty bomb materials (such as Cesium 137) or fissile material, such as weapons grade plutonium |
| RTD is particularly important in light of the potential terrorist threat of explosives packaged with radioactive material that scatters upon deployment, commonly referred to as “dirty bombs |
| ” AS&E’s Z Backscatter Van (ZBV) and MobileSearch X-ray systems, when equipped with RTD, are unique in their ability to perform radioactive material detection while simultaneously producing Z Backscatter and/or transmission X-ray images thereby maintaining optimum throughput |
| Products and Systems The Company’s products and services can be grouped into five different areas including CargoSearch™ Inspection Systems, Z Backscatter Systems, ParcelSearch™ Inspection Systems, Personnel Inspection, and Service and Support |
| 4 ______________________________________________________________________ CargoSearch™ Inspection Systems The CargoSearch family of systems includes high-energy and medium-energy non-intrusive inspection and screening devices |
| The systems are primarily used for the inspection of trucks, cars, cargo containers, pallets, and air cargo at locations including border crossings, seaports, military bases, railroad centers, airports, and cargo and transportation hubs |
| The CargoSearch systems are designed to combat trade fraud, drug trafficking, weapons smuggling and terrorism |
| The CargoSearch family includes: OmniView™ Gantry System: a multi-view, relocatable high-energy cargo and vehicle inspection system |
| This system combines up to 6 MeV high-energy transmission inspection plus three Z Backscatter X-ray views for left, right and top-side imaging of cargo |
| OmniView Gantry provides high penetration into inspected objects—up to 14 inches (350 mm) of steel—yet the system does not require an exterior building or heavy shielding |
| The OmniView Gantry System’s scanning platform operates by moving on rails past stationary vehicles and cargo |
| The system is bi-directional allowing for a high throughput of approximately 35 trucks per hour |
| OmniView Gantry is ideal for ports, borders, and high-threat facilities |
| Shaped Energy CargoSearch™ System: a fixed site high-energy transmission X-ray inspection system with optional Z Backscatter imaging, ideal for ports, borders and high-threat facilities |
| The Shaped Energy CargoSearch configuration provides the stability of a permanent inspection location, within a very small footprint |
| MobileSearch™ System: a truck-mounted cargo and vehicle X-ray inspection system that adds flexibility, mobility and the ability to inspect cars (from one or both sides) to the basic CargoSearch concept |
| PalletSearch™ System: a conveyorized X-ray inspection system designed to perform non-intrusive inspection of mixed cargo shipped on large pallets or in air cargo containers |
| The system is especially useful for inspecting large, irregularly shaped containers and cargo |
| Z Backscatter Systems Z Backscatter technology can be used as a stand-alone technology, or in combination with other technologies, including transmission, Shaped Energy, and Radioactive Threat Detection |
| Z Backscatter-only scanning can be implemented without the use of boom-mounted detectors, allowing for drive-by screening of containers and vehicles in a variety of applications without impeding the flow of commerce |
| Z® Backscatter Van™ (ZBV): a mobile X-ray screening system built into a commercially available delivery van |
| It utilizes AS&E’s patented Z Backscatter X-ray technology to produce photo-like images of the contents of a vehicle or cargo container, highlighting organic materials such as plastic explosives or other anomalies |
| With one-sided, backscatter-only imaging and the option for Radioactive Threat Detection (RTD), security officials can use ZBV for screening vehicles, sea containers, and other cargo for terrorist threats, trade fraud, and contraband, simply by driving past the subjects |
| Z® Portal™: a multi-view, drive-through inspection system capable of scanning cars, vans, trucks, and their cargoes for threats and contraband |
| The relocatable screening system can be configured with one, two or three Z Backscatter X-ray detectors, allowing for left, right and/or top-side imaging of the vehicle under examination |
| Ruggedized Detection Imaging Module (RDIM): a relocatable Z Backscatter imaging system for screening vehicles at a security checkpoint or border crossing |
| Security officials can screen vehicles and vehicle-borne cargo containers for terrorist threats and contraband simply by directing vehicles to drive past the system |
| RDIM employs AS&E’s patented Z Backscatter technology, which produces photo-like images of the contents of a vehicle, providing manifest verification information and highlighting organic materials, such as explosives or drugs |
| 5 ______________________________________________________________________ ParcelSearch™ Inspection Systems ParcelSearch systems are designed for the non-intrusive X-ray scanning of parcels, baggage, and mail |
| They are primarily located in government facilities, airports, commercial office buildings, high-security federal facilities (research facilities and military bases) and convention centers |
| The ParcelSearch family includes: Model 66ZPlus™: a compact system designed to handle small packages, including briefcases, carry-on luggage and mail |
| Models 101Z™, 101ZZ™, 101GT™ and 101XL™: conveyor-based systems allowing rapid inspection of high volumes of luggage and other packages |
| Model 101VAN™: a self-contained conveyor-based parcel inspection system housed in a standard van; designed and built to the rigorous specifications of US Customs and Border Protection |
| Personnel Inspection Personnel inspection is a crucial part of any threat detection effort |
| Today, threats can take the smallest of forms and are often easily hidden on a person |
| Personnel screening is also important in the effort to intercept prohibited substances, such as drugs and alcohol |
| SmartCheck™: a personnel screening system for the effective screening for contraband and threats hidden under a person’s clothing |
| SmartCheck simultaneously detects both metallic and non-metallic objects, such as guns and knives, plastic explosives, composite weapons, drugs and other hidden threats and contraband |
| Its easily interpreted Z Backscatter image gives the operator an easy-to-read display of where the threat or contraband is hidden, thus eliminating the need for intrusive and time-consuming pat-downs and strip searches |
| SmartCheck employs advanced image processing algorithms to enhance privacy, while maintaining a high level of threat detection |
| Service and Support AS&E’s highly skilled Field Service Engineers (FSEs) provide support services and comprehensive technical training on all of AS&E’s X-ray inspection systems worldwide |
| FSEs are located at AS&E offices in Asia, Europe, the Middle East and North America |
| In addition, Technical Support is provided at the Company’s headquarters in Billerica, Massachusetts |
| AS&E provides comprehensive, cost-effective spare parts solutions customized for each system |
| Intellectual Property The Company relies on a combination of patent, copyright, trademark, contract and trade secret laws to establish and protect its proprietary rights in its technology |
| The Company has patents either issued and/or pending in the United States, Germany, Japan, the United Kingdom, China, Austria, France, Ireland, Italy, Switzerland, Australia, Canada, Hong Kong, India, Israel, The Republic of Korea, New Zealand, Mexico, Norway, The Russian Federation, Ukraine, United Arab Emirates, Malaysia, Thailand and Egypt and under the Gulf Cooperation Council and the Patent Cooperation Treaty |
| In general, the Company pursues a policy of obtaining patent protection both in the United States and in selected foreign countries for subject matter we consider patentable and important to our business strategy |
| The Company has 51 unexpired patents issued by, and 48 patent applications pending with, the US Patent and Trademark Office, as well as with the respective patent offices of the foreign countries noted above |
| Over half of our issued patents have been issued in the last five years |
| Generally, patents issued in the United States are effective for the longer of 17 years from the date of issue or 20 years from the earliest effective filing date of the corresponding patent application if filed prior to June 8, 1995 |
| The duration of foreign patents varies in accordance with applicable local law |
| 6 ______________________________________________________________________ The Company believes that its patents, proprietary technology, know-how, and trademarks provide substantial protection for the Company’s competitive position and the Company intends to aggressively protect its intellectual property assets, by litigation or other means, as appropriate |
| Nevertheless, there can be no assurances that the steps taken by the Company in this regard will be adequate to prevent misappropriation or infringement of its technology or that the Company’s competitors will not independently develop technologies that are substantially equivalent or superior to the Company’s technology |
| Effective protection of intellectual property rights may be ITEM 1A RISK FACTORS The Company’s reliance on a small number of customers for a large portion of its revenues could harm its business and prospects |
| The Company’s business is heavily dependent on sales to a small number of customers, which include agencies of the United States government |
| During fiscal 2006, two customers accounted for 56prca of the Company’s total revenues |
| During fiscal 2005, three customers accounted for 43prca of the Company’s total revenues and during fiscal 2004, two customers accounted for 34prca of the Company’s total revenues |
| Certain of the Company’s government contracts may be terminated at the government’s discretion |
| The termination of the Company’s relationship with one or more of its significant customers or the reduction or delay of orders of its systems by these customers would substantially reduce the Company’s revenues, and its business and prospects may be harmed |
| The Company conducts its business worldwide, which exposes it to a number of difficulties in coordinating its international activities and dealing with multiple regulatory environments |
| The Company’s revenues to international customers, including foreign governments, accounted for approximately 14prca, 15prca and 12prca of its net revenues for the fiscal years ended March 31, 2006, March 31, 2005 and March 31, 2004, respectively, and a significant number of domestic customer orders require shipments to, and services provided in, overseas locations |
| In addition, the Company transacts business internationally with a number of its key suppliers |
| As a result of the Company’s worldwide business operations, it is subject to various risks, including: · international regulatory requirements and policy changes; · lengthy sales cycles; 10 ______________________________________________________________________ · longer payment cycles by foreign customers; · difficulties in inventory management, accounts receivable collection and the management of distributors or representatives; · difficulties in staffing and managing foreign operations; · geopolitical instability; · political and economic changes and disruptions; · favoritism towards local suppliers; · governmental currency controls; · interruption to transportation flow for delivery of parts to us and finished goods to our customers; · currency exchange rate fluctuations; and · tariff regulations |
| Although the Company’s international sales have been denominated primarily in US dollars, changes in currency exchange rates that increase the relative value of the US dollar may make it more difficult for the Company to compete with foreign manufacturers on price or otherwise have a material adverse effect on its sales and operating results |
| The Company’s lengthy sales cycle requires it to incur significant expenses with no assurance that it will generate revenue or recover such expenses |
| A substantial portion of the Company’s sales depends upon the decision of governmental agencies to upgrade or expand security at border crossing inspection sites, existing airports, seaports and other facilities |
| Accordingly, a portion of the Company’s product sales is subject to delays associated with the lengthy approval processes that often accompany such capital expenditures |
| During these approval periods, the Company expends significant financial and managerial resources in anticipation of future orders that may not occur |
| If the Company fails to receive an order after expending these resources, it may be unable to generate sufficient revenue to recover the costs incurred and its business and prospects may be harmed |
| The Company’s business is dependent upon governmental policies and appropriations |
| The Company’s largest customers are government agencies and demand for its products is dependent upon national priorities and governmental initiatives |
| These priorities and initiatives are subject to change from time to time in response to the economic and political environment |
| The Company is also exposed to the United States budget approval and appropriation cycle, which may be subject to significant and unpredictable delays |
| If demand for the Company’s products is reduced because of a change in economic or political conditions, or if there are delays in receiving governmental approvals and appropriations, sales of the Company’s products may be adversely affected, and its business and prospects may be harmed |
| Changes in governmental regulations may reduce demand for the Company’s products or increase its expenses |
| The Company competes in markets in which the Company or its customers must comply with federal, state, local and foreign regulations, such as health and safety regulations |
| The Company develops, configures and markets its products to meet its customers’ needs created by these regulations |
| Any significant change in these regulations could reduce demand for the Company’s products or increase its costs to comply with new regulations, both of which may adversely affect its operating results |
| 11 ______________________________________________________________________ The Company’s reliance on only a limited number of suppliers for some key components for its products could harm its business and prospects |
| The Company relies on only a limited number of suppliers for some key components for its products |
| The Company’s reliance on limited supply sources reduces its control over timely delivery, price increases, reliability, and quality of critical components |
| Obtaining alternative sources of supply of these key components could involve significant delays and other costs, and may not be available to the Company on reasonable terms, if at all |
| If the Company changes any of its suppliers, the potential new supplier would be required to go through a qualification process, creating potential delays or reductions in product shipments |
| The failure of any supplier to provide quality and timely components at an acceptable price, or an interruption of supplies from such a supplier could result in lost or deferred sales, which would harm the Company’s business and prospects |
| Fluctuations in the Company’s quarterly operating results may cause its stock price to fluctuate |
| Given the nature of the markets in which the Company participates, it cannot reliably predict future revenue and profitability |
| A high proportion of the Company’s costs are fixed, due in part to its significant sales, research and development, and manufacturing costs |
| As a result of its fixed costs, small declines in revenue could disproportionately affect the Company’s operating results and stock price in a quarter |
| Factors that may affect the Company’s quarterly operating results and the market price of its common stock include: · demand for and market acceptance of its X-ray inspection systems; · lengthy sales cycles and the effect of large orders; · changes in political agendas or national priorities; · adverse changes in the level of economic activity in regions in which the Company does business; · political unrest in the regions where the Company transacts business; · adverse changes in industries on which the Company is particularly dependent; · competitive pressures resulting in lower selling prices for its products; · delays or problems in the introduction of new products; · the Company’s competitors’ announcement or introduction of new products, services or technological innovations; · variations in the Company’s product mix; · the timing and amount of the Company’s expenditures in anticipation of future sales; · increased costs of raw materials or supplies; and · changes in the volume or timing of product orders |
| The Company could incur substantial costs as a result of product liability claims and adverse publicity if its X-ray inspection systems fail to detect bombs, explosives, weapons, contraband or other threats to personal safety |
| If the Company’s X-ray inspection systems fail to detect the presence of bombs, explosives, weapons, contraband or other threats to personal safety, the Company could be subject to product liability claims and negative publicity, which could result in increased costs, reduced sales, and a decline in the market price of the Company’s common stock |
| There are many factors beyond the Company’s control that could result in the failure of its products to detect the presence of bombs, explosives, weapons, contraband or 12 ______________________________________________________________________ other threats to personal safety |
| Examples of these factors include operator error or misuse of or malfunction of its equipment |
| The failure of the Company’s systems to detect the presence of these dangerous materials may lead to personal injury, loss of life, and extensive property damage and may result in potential claims against the Company |
| The Company’s insurance may be insufficient to protect it from product liability claims |
| The Company’s product liability and umbrella liability insurance may be insufficient to protect it from product liability claims |
| Moreover, there is a risk that product liability insurance will not continue to be available to the Company at a reasonable cost, if at all |
| If liability claims exceed the Company’s current or available insurance coverage, its business and prospects may be harmed |
| Regardless of the adequacy of the Company’s product liability insurance protection, any significant claim may have an adverse affect on its industry and market reputation, leading to a substantial decrease in demand for its products and reduced revenues |
| The Company may not be able to fund its research and development activities |
| The Company generates funds for its research and development activities from operations, private sources and the government |
| The Company may be unable to generate the funds necessary to support its research and development activities if it does not generate sufficient funds from operations, other potential private sources, or the government |
| The Company may not successfully compete with other companies and research institutions for government funding and funding from other private sources |
| Additionally, government-funding priorities are subject to frequent changes |
| For example, in fiscal 2006 and 2005, the Company recorded dlra2cmam804cmam000 and dlra2cmam534cmam000, respectively, for government-sponsored research and development |
| If the Company is unable to fund its research and development activities through its operations or from outside sources, the Company may be unable to continue to innovate or bring its innovations to market on a timely or cost effective basis, or its innovations may be surpassed by other competitors or new technologies |
| The Company’s success depends on new product development |
| The Company’s continuing research and development program is designed to develop new products and to enhance and improve its current products |
| The Company plans to expend significant resources on the development of its new products |
| The successful development of its products and product enhancements is subject to numerous risks, both known and unknown, including: · unanticipated delays; · access to capital; · budget overruns; · technical problems; and · other difficulties that could result in the abandonment or substantial change in the design, development and commercialization of new products and product enhancements, including for example, changes requested or required by governmental and regulatory agencies |
| Given the uncertainties inherent with product development and introduction of X-ray inspection systems, the Company cannot assure that its product development efforts will be successful on a timely basis or within budget, if at all |
| The Company’s failure to develop new products and product enhancements on a timely basis or within budget would harm its business and prospects |
| 13 ______________________________________________________________________ The Company’s success depends upon its ability to adapt to rapid changes in technology and customer requirements |
| The market for the Company’s products has been characterized by rapid technological changes, frequent product introductions and evolving industry standards and customer requirements |
| The Company believes that these trends will continue into the foreseeable future |
| The Company’s success will depend, in part, upon its ability to enhance its existing products, successfully develop new products that meet changing customer and regulatory requirements and gain market acceptance |
| If the Company fails to do so, its products may be rendered obsolete or uncompetitive by new industry standards or changing technology, in which case its revenue and operating results would suffer |
| In developing any new product, the Company may be required to make a substantial investment before it can determine the commercial viability of the new product |
| If the Company fails to accurately foresee its customers’ needs and future activities, it may invest heavily in research and development of products that do not lead to significant revenue |
| The Company may not be able to compete successfully |
| A number of companies have developed products that compete with the Company’s X-ray inspection products |
| Many of the Company’s competitors are larger and have greater financial resources than it does |
| Some of its competitors have more extensive research, marketing and manufacturing capabilities and greater technical and personnel resources than the Company does, and may be better positioned to continue to improve their technology in order to compete in an evolving industry |
| The Company’s failure to compete successfully could decrease demand for its products or make its products obsolete |
| In the inspection systems market, competition is based primarily on the following factors: · product performance, functionality and quality; · price; · the overall costs of the system; · prior customer relationships; · technological capabilities of the product; · certification by government authorities; · local market presence; and · breadth of the sales and service organization |
| To remain competitive, the Company must develop new products and periodically enhance its existing products in a timely manner |
| The Company anticipates that it may have to adjust the prices of some of its products to stay competitive |
| In addition, new competitors may emerge, and entire product lines may be threatened by new technologies or market trends that reduce the value of these product lines |
| The Company’s business could be harmed if it is unable to protect its intellectual property |
| The Company relies primarily on a combination of trade secrets, patents, copyrights, trademarks, licensing arrangements and confidentiality procedures to protect its technology |
| Despite its precautions, the steps the Company has taken to protect its technology may be inadequate |
| Existing trade secret, patent, trademark and copyright laws offer only limited protection |
| The Company’s patents could be invalidated or circumvented |
| The laws of some foreign countries in which the Company’s products are or may be developed, manufactured or sold may not protect its products or intellectual property rights to the same extent as do the laws of the United States |
| This may make the possibility of piracy of the Company’s technology and products more likely |
| The Company cannot assure that the steps it has taken to protect its 14 ______________________________________________________________________ intellectual property will be adequate to prevent misappropriation of its technology |
| The Company’s business could be harmed if it is unable to protect its intellectual property |
| The Company’s business may be materially and adversely affected by infringement claims initiated by the Company or its competitors |
| Initiating or defending against the enforcement of the Company’s intellectual property rights may result in significant, protracted, and costly litigation |
| The Company has previously been involved in various litigations involving its intellectual property and has been successful in protecting such interests to date |
| However, the Company is currently involved in civil litigation filed by a competitor seeking a declaratory judgment that the competitor’s product did not infringe upon certain of the Company’s patents |
| The Company expects intellectual property disputes to be an ordinary part of its business for the foreseeable future |
| The Company may initiate claims or litigation against third parties for infringement of its intellectual property rights, or to establish the validity of its property rights |
| There can be no assurance that the Company will prevail in any such action |
| Litigation by or against the Company could result in significant expense and divert the efforts of technical and management personnel, whether or not such litigation results in a favorable outcome for the Company |
| In the event of an adverse result in any such litigation, the Company could be required to pay substantial damages, cease the manufacture, use and sale of infringing products, expend significant resources to develop non-infringing technology, discontinue the use of certain processes, or obtain licenses for the infringing technology |
| If a license were required, the Company cannot assure that it would be able to obtain one on commercially reasonable terms, if at all |
| The Company cannot assure that it will be successful in developing non-infringing technology or that the cost or time required to develop such technology will be reasonable |
| The Company’s success depends on its ability to attract and retain qualified management professionals |
| During the fiscal years 2005 and 2004, the CEO and certain other members of our senior management team left the Company |
| The Company subsequently recruited what it believes to be a highly qualified team of executives to join the Company |
| The Company’s future success will continue to depend in large measure upon the continued contributions of its senior management team and other key personnel |
| If we lose professionals or are unable to attract new talent, we will not be able to maintain our position in the market or grow our business |
| Future sales of the Company’s common stock by existing stockholders could depress the market price of the Company’s common stock |
| Substantially all of the Company’s outstanding shares of common stock are freely tradable without restriction or further registration |
| Affiliates must sell all shares they own in compliance with the volume and other requirements of Rule 144, except for the holding period requirements |
| Nevertheless, sales of substantial amounts of common stock by the Company’s stockholders, or even the potential for such sales, may cause the market price of the Company’s common stock to decline and could impair the Company’s ability to raise capital through the sale of the Company’s equity securities |
| Existing external financing may not be available in the future |
| The Company may require additional capital to finance continuing operations |
| The Company cannot assure that operations will continue to be profitable, that it will generate levels of revenues and cash flows sufficient to fund operations, or, if necessary, that the Company will be able to obtain additional financing on satisfactory terms, if at all |
| Any existing financing arrangements may not be available or sufficient to meet the Company’s cash needs or may not be available in the future, or, if available, at a cost that the Company believes is reasonable |
| 15 ______________________________________________________________________ The volatility of the Company’s stock price could adversely affect an investment in the Company’s common stock |
| The market price of the Company’s common stock has been, and may continue to be, highly volatile |
| The Company believes that a variety of factors could cause the price of the Company’s common stock to fluctuate, perhaps substantially, including: · announcements of developments related to the Company’s business; · quarterly fluctuations in the Company’s actual or anticipated operating results and order levels; · general conditions in the worldwide economy; · announcements of technological innovations; · new products or product enhancements by the Company or its competitors; · developments in patents or other intellectual property rights and litigation; and · developments in the Company’s relationships with its customers and suppliers |
| In addition, in recent years the stock market in general and the markets for shares of small capitalization and “high-tech” companies in particular, have experienced extreme price fluctuations which have often been unrelated to the operating performance of affected companies |
| Any such fluctuations in the future could adversely affect the market price of the Company’s common stock |
| Provisions in the Company’s articles of organization and the Company’s shareholder rights plan may have the effect of discouraging advantageous offers for the Company’s business or common stock, and limit the price that investors might be willing to pay in the future for shares of the Company’s common stock |
| Provisions in the Company’s articles of organization and the Company’s shareholder rights plan may have the effect of discouraging or preventing a change in control |
| These provisions could limit the price that certain investors might be willing to pay in the future for shares of the Company’s common stock |
| Specifically, the Company’s articles of organization authorize its Board of Directors to issue up to 100cmam000 shares of preferred stock in one or more series, to fix certain rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued shares of preferred stock, to fix the number of shares constituting any such series, and to fix the designation of any such series, without further vote or action by its shareholders |
| The terms of any series of preferred stock, which may include priority claims to assets and dividends and special voting rights, could adversely affect the rights of the holders of common stock and thereby reduce the value of the Company’s common stock |
| The Company has no present plans to issue shares of preferred stock |
| The Company has in place a shareholder rights plan, adopted in 1998, under which its stockholders are entitled to purchase shares of its preferred stock under certain circumstances |
| These circumstances include the purchase of 15prca or more of the outstanding shares of common stock by a person or group, or the announcement of a tender or exchange offer to acquire 15prca or more of the outstanding common stock |
| The shareholder rights plan may have the effect of impeding or preventing certain types of transactions involving a change in control of the Company that could be beneficial to the stockholders |
| The Company does not plan to pay dividends on its common stock |
| The Company has not declared or paid a cash dividend on its common stock in recent years, and it does not expect to declare or pay any cash dividends in the foreseeable future |
| The Company intends to retain all earnings, if any, in order to expand its operations |
| Investors should not rely on dividends from the common stock as a possible source of income |