BALDWIN TECHNOLOGY CO INC Item 1A Risk Factors Set forth below and elsewhere in this Annual Report on Form 10-K and in other documents that the Company files with the SEC are risks that should be considered in evaluating the Company’s Common Stock, as well as risks and uncertainties that could cause the actual future results of the Company to differ from those expressed or implied in the forward-looking statements contained in this Report and in other public statements the Company makes |
Additionally, because of the following risks and uncertainties, as well as other variables affecting the Company’s operating results, the Company’s past financial performance should not be considered an indicator of future performance |
Company Risk Intellectual property and proprietary technology is important to the continued success of the Company’s business |
Failure to protect or defend this proprietary technology may impair the Company’s competitive position |
The Company’s success and ability to compete depend to a certain extent on the Company’s proprietary technology since that is one of the methods by which the Company persuades customers to buy its products, both present and future |
The Company currently relies on copyright and trademark laws, trade secrets, confidentiality procedures, contractual provisions and patents to protect proprietary technology |
The Company may have to engage in litigation to protect patents and other intellectual property rights, or to determine the validity or scope of the proprietary rights claimed by others |
This kind of litigation can be time-consuming and expensive, regardless of 5 _________________________________________________________________ whether the Company wins or loses |
Because it is important to the Company’s success that the Company is able to prevent competitors from copying the Company’s innovations, the Company will usually continue to seek patent and trade secret protection for the Company’s technologies |
The process of seeking patent protection can be long and expensive and the Company cannot be certain that any currently pending or future applications will actually result in issued patents, or that, even if patents are issued, they will be of sufficient strength and scope to provide it with meaningful protection or commercial advantage |
Further, others may develop technologies that are similar or superior to the Company’s technology or design around the Company’s patents |
The Company also relies on trade secret protection for its technology, in part through confidentiality agreements with the Company’s employees, consultants and third parties |
These agreements may be breached, and if they are, depending upon the circumstance, the Company may not have adequate remedies |
In any case, others may come to know about the Company’s trade secrets in various ways |
In addition, the laws of some countries in which the Company manufactures or sells products may not protect the Company’s intellectual property rights to the same extent as the laws of the United States |
Despite the Company’s efforts, intellectual property rights, particularly existing or future patents, may be invalidated, circumvented, challenged, rendered unenforceable or infringed or required to be licensed to others |
Furthermore, others may develop technologies that are similar or superior to the Company’s, duplicate or reverse engineer the Company’s technology or design around patents owned or licensed by the Company |
If the Company fails to protect technology so that others may use or copy it, the Company would be less able to differentiate its products and revenues could decline |
The Company’s operating results are subject to fluctuations from period-to-period, which could cause it to miss expectations about these results and, consequently, could adversely affect the trading price of the Company’s stock |
The results of the Company’s operations for any quarter are not necessarily indicative of results to be expected in future periods |
The Company’s operating results have in the past been, and will continue to be, subject to quarterly fluctuations as a result of factors such as increased competition in the printing equipment industry, the introduction and market acceptance of new technologies and standards, changes in general economic conditions and changes in economic conditions specific to the Company’s industry |
Further, the Company’s revenues may vary significantly from quarter to quarter as a result of, among other factors, the timing of shipments by customers, changes in demand and mix of the Company’s products and consumables, and the timing of new product announcements and releases by the Company or its competitors |
The Company relies on subcontractors to help manufacture its products and if they are unable to adequately supply components and products, the Company may be unable to deliver products to customers on time or without defects |
The Company employs a number of unaffiliated subcontractors to manufacture components for the Company’s products |
Because the Company relies on subcontractors, however, the Company cannot be sure that it will be able to maintain an adequate supply of components or products |
Moreover, the Company cannot be sure that the components the Company purchases will satisfy the Company’s quality standards and be delivered on time |
The Company’s business could suffer if it fails to maintain its relationships with its subcontractors or fails to develop sufficient alternative sources for its purchased components |
The Company’s business is subject to risks from international conditions |
A significant portion of the Company’s business is conducted internationally |
Accordingly, future results could be materially adversely affected by a variety of uncontrollable and changing factors including, among others, regulatory, political or economic conditions in a specific country or region, trade protection measures and other regulatory requirements, business and government spending patterns, and natural disasters |
Because the Company generates revenues and expenses in various currencies, including the US dollar, Euro, SEK and Yen, the Company’s financial results are subject to the effects of fluctuations of currency 6 _________________________________________________________________ exchange rates |
The Company cannot predict, however, when exchange or price controls or other restrictions on the conversion of foreign currencies could impact the Company’s business |
Any or all of these factors could have an adverse impact on the Company’s business and results of operations |
The Company’s growth strategy may include licenses or acquisitions of technologies or businesses, which entail a number of risks |
As part of the Company’s strategy to grow the business, the Company may pursue licenses of technologies from third parties or acquisitions of complementary product lines or companies, and such transactions entail a number of risks |
The Company may expend significant costs in investigating and pursuing such transactions, and such transactions may not be consummated |
If such transactions are consummated, the Company may not be successful in integrating the acquired technology or business into the existing business to achieve the desired synergies |
Integrating acquired technologies or businesses may also require a substantial commitment of the Company’s management’s time and attention |
The Company may expend significant funds to acquire such technologies or businesses, and may incur unforeseen liabilities in connection with any acquisition of a technology or business |
Any of the foregoing risks could result in an adverse effect on the Company’s business, results of operations and financial conditions |
The Company’s ability to maintain its competitive position depends to a certain extent on the efforts and abilities of its senior management and the ability to attract highly skilled employees |
The Company’s senior management possesses significant managerial, technical and other expertise in the printing industry |
Their expertise would be difficult to quickly replace, and if the Company loses the services of one or more of its executive officers, or if one or more of them decided to join a competitor or otherwise compete directly or indirectly with the Company, the Company’s business could be seriously harmed |
In addition, the Company’s ability to develop, market and sell its products and services and to maintain its competitive position depends on its ability to attract, retain and motivate highly skilled technical, sales and marketing and other personnel |
If the Company fails to recruit these personnel, its ability to develop new products and provide service could suffer |
Reliance on one significant customer |
In fiscal 2006, the Company had one significant customer that individually accounted for 18prca of net sales |
The Company anticipates, but cannot assure, that this customer will continue to be significant in fiscal 2007 |
The loss of, or a significant decrease in sales to, this customer could have a material adverse effect on the Company’s financial condition and results of operation |
Industry Risk If the United States and global economies slow down, the demand for the Company’s products could decrease and the Company’s revenue may be materially adversely affected |
The demand for the Company’s products is dependent upon various factors, many of which are beyond the Company’s control |
For example, general economic conditions may affect or delay expenditures for advertising and printing, which may in turn affect the overall capital spending by publishers and printers, particularly for capital equipment such as printing presses |
If, as a result of general economic uncertainty or otherwise, companies reduce their capital spending levels, such a decrease in spending could reduce demand for the Company’s products and have a material adverse effect on the Company’s business |
The Company may not be able to adequately respond to changes in technology affecting the printing industry |
The Company’s continuing product development efforts have focused on refining and improving the performance of the Company’s products as they related to printing and the Company anticipates that it will continue to focus its efforts in this area |
The printing and publishing industry has been characterized in recent years by rapid and significant technological changes and frequent new product introductions |
Current competitors or new market entrants could introduce new or enhanced products with features, which render the Company’s technologies, or products incorporating the 7 _________________________________________________________________ Company’s technologies, obsolete or less marketable |
The Company’s future success will depend, in part, on the Company’s ability to: • use leading technologies effectively; • continue to develop the Company’s technical expertise and patented position; • enhance the Company’s current products and develop new products that meet changing customer needs; • time new product introductions in a way that minimizes the impact of customers delaying purchases of existing products in anticipation of new product releases; • adjust the prices of the Company’s existing products to increase customer demand; • successfully advertise and market the Company’s products; and • influence and respond to emerging industry standards and other technological changes |
The Company may not be successful in effectively using new technologies, developing new products or enhancing its existing products and technology on a timely basis |
The Company’s new technologies or enhancements may not achieve market acceptance |
The Company’s pursuit of new technologies may require substantial time and expense |
The Company may need to license new technologies to respond to technological change |
These licenses may not be available to the Company on terms that the Company can accept |
Finally, the Company may not succeed in adapting the Company’s products to new technologies as they emerge |
Any of these factors, either individually or collectively could have an adverse impact on the Company’s business and results of operation |
Investment Risk If the Company fails to implement and maintain or improve effective internal controls over financial reporting, the Company’s business, operating results and share price could be materially adversely affected |
Beginning with the Company’s annual report for the fiscal year ending June 30, 2007 (2008 if the Company continues as a non-accelerated filer at December 31, 2006), Section 404 of the Sarbanes-Oxley Act of 2002 will require a report by the Company’s management of its internal controls over financial reporting |
This report must contain an assessment by management of the effectiveness of the Company’s internal controls over financial reporting as of the end of the Company’s fiscal year and a statement as to whether or not the Company’s internal controls are effective |
The report must also contain a statement that the Company’s independent auditors have issued an attestation report of management’s assessment of such internal controls |
Compliance by the Company with Section 404 is likely to result in significant costs, the commitment of time and operational resources and the diversion of management’s attention |
If by the time the Company is required to comply with Section 404, the Company’s annual report includes a report that identifies one or more material weaknesses in the Company’s internal controls over financial reporting, the Company will be unable to assert that the Company’s internal controls are effective |
If the Company is unable to assert that the Company’s internal controls over financial reporting are effective, or if the Company’s independent auditors are unable to attest that the Company’s management’s report is fairly stated or they are unable to express an opinion on the Company’s management’s evaluation or on the effectiveness of the Company’s internal controls, the Company’s stock price may fall |
Market perception of the Company’s financial condition and the trading price of the Company’s stock may be adversely affected and customer perception of the Company’s business may suffer |
The Company’s stock price has been and could continue to be volatile |
The market price of the Company’s common stock has been subject to significant fluctuations |
The securities markets have experienced, and are likely to experience in the future, significant price and volume fluctuations that 8 _________________________________________________________________ could adversely affect the market price of the Company’s common stock without regard to the Company’s operating performance |
In addition, the trading price of the Company’s common stock could be subject to significant fluctuations in response to: • actual or anticipated variations in the Company’s quarterly operating results; • significant announcements by industry participants; • changes in national or regional economic conditions; • changes in securities analysts’ estimates for the Company, the Company’s competitors or the Company’s industry, or the Company’s failure to meet analysts’ expectations; and • general market conditions |
These factors may materially and adversely affect the Company’s stock price, regardless of the Company’s operating performance |