| BRUKER BIOSCIENCES CORP ITEM 1A RISK FACTORS The following risk factors should be considered in conjunction with the other information included in this Annual Report on Form 10-K This report may include forward-looking statements that involve risks and uncertainties |
| In addition to those risk factors discussed elsewhere in this report, we identify the following risk factors, which could affect our actual results and cause actual results to differ materially from those in the forward-looking statements |
| If our products fail to achieve and sustain sufficient market acceptance across their broad intended range of applications, we will not generate expected revenue |
| Our business strategy depends on our ability to successfully commercialize a broad range of products based on mass spectrometry and X-ray technology for use in a variety of life science applications |
| Some of our products have only recently been commercially launched and have achieved only limited sales to date |
| The commercial success of our life science products depends on our obtaining continued and expanding market acceptance of our mass spectrometry and X-ray tools by pharmaceutical, biotechnology and proteomics companies and academic and government research laboratories, among others, across the wide range of applications covered by our product offerings |
| We may fail to achieve or sustain substantial market acceptance for our products across the full range of our intended life science applications or in one or more of our principal intended life science applications |
| Any such failure could decrease our sales and revenue |
| To succeed, we must convince substantial numbers of pharmaceutical and biotechnology companies and other laboratories to invest in new systems or replace their existing techniques with mass spectrometry and X-ray techniques employing our systems |
| Limited funding available for capital acquisitions by our customers, as well as our customers’ own internal purchasing approval policies, could hinder market acceptance of our products |
| Our intended life science customers may be reluctant to make the substantial capital investment generally needed to acquire our products or to incur the training and other costs involved with replacing their existing systems with our products |
| We also may not be able to convince our intended life science customers that our systems are an attractive and cost-effective alternative to other technologies and systems for the acquisition, analysis and management of molecular information |
| Because of these and other factors, our products may fail to gain or sustain market acceptance |
| 20 ______________________________________________________________________ Our products compete in markets that are subject to rapid technological change, and most of our products are based on a range of mass spectrometry and X-ray technologies one or more of which could be made obsolete by new technology |
| The market for life science discovery tools is characterized by rapid technological change and frequent new product introductions |
| Rapidly changing technology could make some or all of our life science product lines obsolete unless we are able to continually improve our existing products and develop new products |
| Because substantially all of our life science products are based on mass spectrometry and X-ray technology, we are particularly vulnerable to any technological advances that would make either mass spectrometry or X-ray technologies obsolete as the basis for bioanalytical systems in any of our life science markets |
| To meet the evolving needs of our customers, we must rapidly and continually enhance our current and planned products and services and develop and introduce new products and services |
| In addition, our product lines are based on complex technologies which are subject to rapid change as new technologies are developed and introduced in the marketplace |
| We may have difficulty in keeping abreast of the rapid changes affecting each of the different markets we serve or intend to serve |
| If we fail to develop and introduce products in a timely manner in response to changing technology, market demands or the requirements of our customers, our product sales may decline, and we could experience significant losses |
| If we are unable to recover significant development costs of one or more of our products or product lines, our business, results of operations and financial condition may suffer |
| We offer and plan to continue to offer a broad product line and incur and expect to continue to incur substantial expenses for the development of new products and enhanced versions of our existing products |
| Our business model calls for us to derive a significant portion of our revenues each year from products that did not exist in the previous two years |
| However, we may experience difficulties which may delay or prevent the successful development, introduction and marketing of new products or product enhancements |
| The speed of technological change in life science and other related markets we serve may prevent us from successfully marketing some or all of our products for the length of time required to recover their often significant development costs |
| If we fail to recover the development costs of one or more products or product lines, our business, results of operations and financial condition could be harmed |
| We face substantial competition |
| We face substantial competition and we expect that competition in all of our markets will increase further |
| Currently, our principal competition comes from established companies providing products using existing technologies, including mass spectrometry, X-ray technology, NBC detection technologies and other technologies, which perform many of the same functions for which we market our products |
| Other companies also may choose to enter our field in the future |
| In addition, some of our technologies indirectly compete for funding with technologies and products provided by some of our affiliates, such as Bruker BioSpin; this competition creates the potential for actual or perceived conflicts of interest |
| Our competitors may develop or market products that are more effective or commercially attractive than our current or future products or that may render our products obsolete |
| Many of our competitors have more experience in the life sciences market and substantially greater financial, operational, marketing and technical resources than we do which could give them a competitive edge in areas such as research and development, production, marketing and distribution |
| Our ability to compete successfully will depend, in part, on our ability to develop proprietary products that reach the market in a timely manner and are technologically superior to, less expensive than, or more cost-effective than, other currently marketed products |
| 21 ______________________________________________________________________ Our operations are dependent upon a limited number of suppliers and contract manufacturers |
| We currently purchase components used in our mass spectrometry and X-ray systems from a limited number of outside suppliers |
| Our reliance on a limited number of suppliers could result in time delays associated with redesigning a product due to an inability to obtain an adequate supply of required components and reduced control over pricing, quality and timely delivery |
| Any of these factors could adversely affect our revenues and profitability |
| For example, we currently purchase key components used in our mass spectrometry and X-ray systems from certain suppliers |
| In particular, Bruker AXS obtains a sophisticated chip for use in its CCD detectors from Fairchild Imaging which, to Bruker AXS’ knowledge, is the only source of a chip of this size and quality |
| The X-ray microanalysis business of Bruker AXS, which manufactures and sells accessories for electron microscopes, is partially dependent on cooperation from larger manufacturers of electron microscopes |
| Additionally, Bruker Daltonics purchases a substantial portion of its magnets from a single supplier, Varian/Magnex, and also obtains certain key components for the manufacture of its ion traps from Agilent, the sole supplier of these components |
| Because of the scarcity of some components, we may be unable to obtain an adequate supply of components, or we may be required to pay higher prices or to purchase components of lesser quality |
| Any delay or interruption in the supply of these or other components could impair our ability to manufacture and deliver our products, harm our reputation and cause a reduction in our revenues |
| In addition, any increase in the cost of the components that we use in our products could make our products less competitive and decrease our gross margins |
| We may not be able to obtain sufficient quantities of required components on the same or substantially the same terms |
| Additionally, consolidations among our suppliers could result in additional sole source suppliers for us in the future |
| Our business could be harmed if our collaborations fail to advance our product development |
| Demand for our products will depend in part upon the extent to which our collaborations with pharmaceutical, biotechnology and proteomics companies are successful in developing, or helping us to develop, new products and new applications for our existing products |
| In addition, we collaborate with academic institutions and government research laboratories on product development |
| We have limited or no control over the resources that any collaborator may devote to our products |
| Any of our present or future collaborators may not perform their obligations as expected |
| If we fail to enter into or maintain appropriate collaboration agreements, or if any of these events occur, we may not be able to develop some of our new products, which could materially impede our ability to generate revenue or profits |
| If we lose our strategic partners, our marketing efforts could be impaired |
| A substantial portion of our sales of selected products consists of sales to third parties who incorporate our products in their systems |
| We have little or no control over their marketing and sales activities or how they use their resources |
| Our present or future strategic partners may or may not purchase sufficient quantities of products from us or perform appropriate marketing and sales activities |
| In addition, if we are unable to maintain our relationships with strategic partners, our business may suffer |
| Failures by our present or future strategic partners, or our inability to maintain or enter into new arrangements with strategic partners for product distribution, could materially impede the growth of our business and our ability to generate sufficient revenue and profits |
| If we are unable to make or complete future mergers, acquisitions or strategic alliances as a part of our growth strategy or integrate any such mergers, acquisitions or strategic alliances, our business development may suffer |
| Our strategy includes potentially expanding our technology base through selected mergers, acquisitions and strategic alliances |
| In 2005, our indirect subsidiary, Bruker AXS GmbH, acquired Roentec AG, a broad-based X-ray analysis instrumentation company based in Berlin, Germany, and our direct 22 ______________________________________________________________________ subsidiary, Bruker AXS, acquired the microanalysis business of Princeton Gamma-Tech Instruments, Inc, a company located in Rocky Hill, New Jersey |
| The acquired businesses were combined to form a new group within Bruker AXS that will focus on the X-ray microanalysis market, a market not previously addressed by Bruker AXS In the first quarter of 2006, Bruker AXS GmbH completed its acquisition of SOCABIM SAS, a privately-held Paris, France based company focused on advanced X-ray materials research and analysis software |
| We may seek to continue to expand our technology base through mergers, acquisitions and strategic alliances |
| If we fail to effect mergers, acquisitions and strategic alliances, our technology base may not expand as quickly and efficiently as possible |
| Without such complementary growth from selected mergers, acquisitions and strategic alliances, our ability to keep up with the evolving needs of the market and to meet our future performance goals could be adversely affected |
| However, we may not be able to find attractive candidates, or enter into mergers, acquisitions or strategic alliances on terms that are favorable to us, or successfully integrate the operations of companies that we acquire |
| In addition, we may compete with other companies for these merger, acquisition or strategic alliance candidates, which could make such a transaction more expensive for us |
| If we are able to successfully identify and complete a merger, acquisition or strategic alliance, it could involve a number of risks, including, among others: · the difficulty coordinating or consolidating geographically separate organizations and integrating personnel with different business backgrounds and corporate cultures; · the difficulty of integrating previously autonomous departments in accounting and finance, sales and marketing, distribution, and administrative functions, and expanding and integrating information and management systems; · the diversion of resources and management time; · the potential disruption of our ongoing business; and · the potential impairment of relationships with customers as a result of changes in management or otherwise arising out of such transactions |
| If we are not able to successfully integrate acquired businesses, we may not be able to realize all of the cost savings and other benefits that we expect to result from the transactions |
| Goodwill and other intangible assets are subject to impairment |
| As a result of the merger of Bruker Daltonics and Bruker AXS in July 2003, we recorded goodwill and other intangible assets, which must be continually evaluated for potential impairment |
| In addition, the recent acquisitions of Roentec AG and the microanalysis business of Princeton Gamma-Tech Instruments, Inc |
| resulted in additional goodwill and other intangible assets |
| We assess the realizability of the goodwill and other intangible assets annually as well as whenever events or changes in circumstances indicate that the assets may be impaired |
| These events or circumstances generally include operating losses or a significant decline in the earnings associated with the business segment these acquisitions are reported within |
| Our ability to realize the value of the goodwill will depend on the future cash flows of the business segment in addition to how well we integrate the businesses |
| In addition to the risks applicable to our life science products, our NBC detection products are subject to a number of additional risks, including lengthy product development and contract negotiation periods and certain risks inherent in long-term government contracts |
| Our NBC detection products are subject to many of the same risks associated with our life science products, including vulnerability to rapid technological change, dependence on mass spectrometry and other technologies and substantial competition |
| In addition, our NBC detection products are generally sold to government agencies under long-term contracts |
| These contracts generally involve lengthy pre-contract 23 ______________________________________________________________________ negotiations and product development |
| We may be required to devote substantial working capital and other resources prior to obtaining product orders |
| As a result, we may incur substantial costs before we potentially recognize revenue from these products |
| Moreover, in return for larger, longer-term contracts, our customers for these products often demand more stringent acceptance criteria |
| Their criteria may also cause delays in our ability to recognize revenue from sales of these products |
| Furthermore, we may not be able to accurately predict in advance our costs to fulfill our obligations under these long-term contracts |
| If we fail to accurately predict our costs, due to inflation or other factors, we could incur significant losses |
| Any single long-term contract for our NBC detection products may represent a material portion of our total business volume, and the loss of any such contract could have a material adverse effect on our results of operations |
| Failure to increase other business or to obtain additional government contracts could cause our revenue to decline |
| Also, the presence or absence of such contracts may cause substantial variation in our results of operations between fiscal periods and, as a result, our results of operations for any given fiscal period may not be predictive of our results for subsequent fiscal periods |
| The resulting uncertainty may have an adverse impact on our stock price |
| If general health care spending patterns decline, our ability to generate revenue may suffer |
| We are dependent, both directly and indirectly, upon general health care spending patterns, particularly in the research and development budgets of the pharmaceutical and biotechnology industries, as well as upon the financial condition of various governments and government agencies |
| Since our inception, both we and our academic collaborators and customers have benefited from various governmental contracts and research grants |
| Whether we or our academic collaborators will continue to be able to attract these grants depends not only on the quality of our products, but also on general spending patterns of public institutions |
| The proposed federal budget for fiscal year 2007 freezes spending for the National Institute of Health (NIH) at dlra28dtta6 billion |
| Such a freeze or a potential decrease in the level of governmental spending allocated to scientific and medical research which could substantially reduce or even eliminate our grants as well as decrease demand for our products from academic and medical research customers |
| Any reduction in the capital resources or government funding of our customers could reduce our sales and impede our ability to generate revenue |
| A significant portion of our sales are capital purchases by our customers |
| The spending policies of our customers could have a significant effect on the demand for our products |
| These policies are based on a wide variety of factors, including the resources available to make purchases, the spending priorities among various types of equipment, policies regarding spending during recessionary periods and changes in the political climate |
| Any changes in capital spending or changes in the capital budgets of our customers could significantly reduce demand for our products |
| The capital resources of our biotechnology and other corporate customers may be limited by the availability of equity or debt financing |
| Any significant decline in research and development expenditures by our life science customers could significantly decrease our sales |
| In addition, we make a substantial portion of our sales to non-profit and government entities which are dependent on government support for scientific research |
| Any decline in this support could decrease the ability of these customers to purchase our products |
| We are subject to existing and potential additional regulation, which can impose burdens on our operations and narrow the markets for our products |
| We are subject, both directly and indirectly, to the adverse impact of existing and potential future government regulation of our operations and markets |
| For example, exportation of our products, particularly our NBC detection products, is subject to strict regulatory control in a number of jurisdictions |
| The failure to satisfy export control criteria or obtain necessary clearances could delay or prevent shipment 24 ______________________________________________________________________ of products, which could adversely affect our revenues and profitability |
| Moreover, the life sciences industry, which is the market for our principal products, has historically been heavily regulated |
| There are, for example, laws in several jurisdictions restricting research in genetic engineering, which can operate to narrow our markets |
| Given the evolving nature of this industry, legislative bodies or regulatory authorities may adopt additional regulations that adversely affect our market opportunities |
| Additionally, if ethical and other concerns surrounding the use of genetic information, gene therapy or genetically modified organisms become widespread, we may have less demand for our products |
| Our business is also directly affected by a wide variety of government regulations applicable to business enterprises generally and to companies operating in the life sciences industry in particular |
| Failure to comply with these regulations or obtain or maintain necessary permits and licenses could result in a variety of fines or other censures or an interruption in our business operations which may have a negative impact on our ability to generate revenues |
| In addition, our compliance with existing regulations, such as the Sarbanes-Oxley Act of 2002, may have a material adverse impact on us |
| Under Section 404 of Sarbanes-Oxley, we are required to evaluate and determine the effectiveness of our internal control structure and procedures for financial reporting |
| Compliance with this legislation may divert management’s attention and resources and cause us to incur significant expense |
| If we fail to maintain effective systems of internal controls, we may not be able to accurately report our financial results |
| As a result, current and potential stockholders could lose confidence in our financial reporting, which would harm our business and the trading price of our stock |
| Effective internal controls are necessary for us to provide reliable financial reports |
| If we cannot provide reliable financial reports, our business and operating results could be harmed |
| We have in the past discovered, and may in the future discover, areas of our internal controls that need improvement |
| For example, in our Annual Report on Form 10-K, for the year ended December 31, 2004, we identified and disclosed material weaknesses in our internal control over financial reporting at one significant subsidiary whose operations and financial condition are significant to the Company’s consolidated financial statements |
| In response to these material weaknesses identified, we have taken steps to strengthen our internal controls over financial reporting at this significant subsidiary |
| These steps have included the following: · We evaluated and continue to evaluate the roles and functions within the significant subsidiary’s accounting department and added additional resources to support the controls surrounding inventory valuation and the financial statement close process |
| Temporary staff had been used to perform additional procedures while management evaluated resources and systems and permanent resources were in place by the end of the third quarter of 2005 |
| Management believes that these additional resources together with the existing accounting staff will enable proper financial reporting |
| · In addition to augmenting the Company’s accounting personnel, management determined it was necessary to automate and establish certain preventative controls through the implementation of a fully integrated Materials Resource Planning (MRP) system |
| Management selected an MRP system during the third quarter of 2005, and expects the implementation to be completed during the second quarter of 2006 |
| Management believes that the above measures, when fully implemented, will address the material weaknesses described in our Annual Report on Form 10-K, for the year ended December 31, 2004, in the near and long-term |
| The material weaknesses identified and disclosed in the Annual Report on Form 10-K for the year ended December 31, 2004 have been remediated in 2005 (See Item 9A, Controls and Procedures) |
| The Audit Committee and management will continue to monitor the effectiveness of our internal controls and procedures on an ongoing basis and will take further action, as appropriate |
| 25 ______________________________________________________________________ As part of our ongoing monitoring of internal control we may discover material weaknesses or significant deficiencies in our internal control as defined under standards adopted by the Public Company Accounting Oversight Board, or PCAOB, that require remediation |
| Under the PCAOB standards, a “material weakness” is a significant deficiency or combination of significant deficiencies that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected |
| A “significant deficiency” is a control deficiency or combination of control deficiencies, that adversely affect a company’s ability to initiate, authorize, record, process, or report external financial data reliably in accordance with generally accepted accounting principles such that there is a more than remote likelihood that a misstatement of a company’s annual or interim financial statements that is more than inconsequential will not be prevented or detected |
| Management has concluded, and our independent registered public accounting firm has attested, that the Company maintained effective internal control over financial reporting as of December 31, 2005, based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework |
| Any failure to maintain improvements in the internal control over our financial reporting could cause us to fail to meet our reporting obligations |
| Our success depends on our ability to operate without infringing or misappropriating the proprietary rights of others |
| Our commercial success depends on avoiding the infringement of other parties’ patents and proprietary rights as well as avoiding the breach of any licenses relating to our technologies and products |
| Given that there may be patents of which we are unaware, particularly in the US where patent applications are confidential, avoidance of patent infringement may be difficult |
| Various third-parties hold patents which may relate to our technology, and we may be found in the future to infringe these or other patents or proprietary rights of third parties, either with products we are currently marketing or developing or with new products which we may develop in the future |
| If a third party holding rights under a patent successfully asserts an infringement claim with respect to any of our current or future products, we may be prevented from manufacturing or marketing our infringing product in the country or countries covered by the patent we infringe, unless we can obtain a license from the patent holder |
| We may not be able to obtain a license on commercially reasonable terms, if at all, especially if the patent holder is a competitor |
| In addition, even if we can obtain a license, it may be non-exclusive, which will permit others to practice the same technology licensed to us |
| We also may be required to pay substantial damages to the patent holder in the event of an infringement |
| Under some circumstances in the US, these damages could include damages equal to triple the actual damages the patent holder incurs |
| If we have supplied infringing products to third parties for marketing by them or licensed third parties to manufacture, use or market infringing products, we may be obligated to indemnify these third parties for any damages they may be required to pay to the patent holder and for any losses the third parties may sustain themselves as the result of lost sales or license payments they are required to make to the patent holder |
| Any successful infringement action brought against us may also adversely affect marketing of the infringing product in other markets not covered by the infringement action, as well as our marketing of other products based on similar technology |
| Furthermore, we will suffer adverse consequences from a successful infringement action against us even if the action is subsequently reversed on appeal, nullified through another action or resolved by settlement with the patent holder |
| The damages or other remedies awarded, if any, may be significant |
| As a result, any successful infringement action against us may harm our business |
| 26 ______________________________________________________________________ If we are unable to effectively protect our intellectual property, third parties may use our technology, which would impair our ability to compete in our markets |
| Our continued success will depend in significant part on our ability to obtain and maintain meaningful patent protection for our products throughout the world |
| We rely on patents to protect a significant part of our intellectual property and to enhance our competitive position |
| However, our presently pending or future patent applications may not issue as patents, and any patent previously issued to us may be challenged, invalidated, held unenforceable or circumvented |
| Furthermore, the claims in patents which have been issued, or which may be issued to us in the future, may not be sufficiently broad to prevent third parties from producing competing products similar to our products |
| In addition, the laws of various foreign countries in which we compete may not protect our intellectual property to the same extent as do the laws of the United States |
| Failure to obtain adequate patent protection for our proprietary technology could materially impair our ability to be commercially competitive |
| In addition to patent protection, we also rely on the protection of trade secrets, know-how and confidential and proprietary information |
| To maintain the confidentiality of trade secrets and proprietary information, we generally seek to enter into confidentiality agreements with our employees, consultants and strategic partners upon the commencement of a relationship with us |
| However, we may not obtain these agreements in all circumstances |
| In the event of unauthorized use or disclosure of this information, these agreements, even if obtained, may not provide meaningful protection for our trade secrets or other confidential information |
| In addition, adequate remedies may not exist in the event of unauthorized use or disclosure of this information |
| The loss or exposure of our trade secrets and other proprietary information would impair our competitive advantages and could have a material adverse affect on our operating results, financial condition and future growth prospects |
| Furthermore, others may have, or may in the future independently develop, substantially similar or superior know-how and technology |
| We may be involved in lawsuits to protect or enforce our patents that are brought by us which could be expensive and time consuming |
| In order to protect or enforce our patent rights, we may initiate patent litigation against third parties, and we may be similarly sued by others |
| We may also become subject to interference proceedings conducted in the patent and trademark offices of various countries to determine the priority of inventions |
| The defense and prosecution, if necessary, of intellectual property suits, interference proceedings and related legal and administrative proceedings is costly and diverts our technical and management personnel from their normal responsibilities |
| An adverse determination of any litigation or defense proceedings could put our patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing |
| Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation |
| In addition, during the course of this kind of litigation, there could be public announcements of the results of hearings, motions or other interim proceedings or developments in the litigation |
| If securities analysts or investors perceive these results to be negative, it could have a substantial negative effect on the trading price of our common stock |
| 27 ______________________________________________________________________ We have agreed to share our name, portions of our intellectual property rights and distribution channels with other entities under common control which could result in the loss of our name and to lock in the price of products we may sell to these entities which may not be the best price available for these products |
| We maintain a sharing agreement with 13 affiliated entities that requires us to share portions of our intellectual property as it existed on February 28, 2000 and our distribution channels with these affiliated companies and their affiliates |
| We also share the Bruker name with many of these affiliates |
| We could lose the right to use the Bruker name if (a) we declare bankruptcy, (b) we interfere with another party’s use of the name, (c) we take a material action which materially detracts from the goodwill associated with the name, or (d) we suffer a major loss of our reputation in our industry or marketplace |
| In addition, we have agreed to maintain the price of some products purchased from and sold to these affiliates for a period of up to twelve years, subject to yearly adjustments equal to the increase in the Consumer Price Index |
| Our manufacture and sale of products could lead to product liability claims for which we could have substantial liability |
| The manufacture and sale of our products exposes us to product liability claims if any of our products cause injury or are found otherwise unsuitable during manufacturing, marketing, sale or customer use |
| In particular, if one of our NBC detection products malfunctions, this could lead to civilian or military casualties in a time of unrest, exposing us to increased potential for high-profile liability |
| If our NBC detection products malfunction by generating a false-positive to a potential threat, we could be exposed to liabilities associated with actions taken that otherwise would not have been required |
| A successful product liability claim brought against us in excess of, or outside the coverage of, our insurance coverage could have a material adverse effect on our business, financial condition and results of operations |
| We may not be able to maintain product liability insurance on acceptable terms, if at all, and insurance may not provide adequate coverage against potential liabilities |
| Responding to claims relating to improper handling, storage or disposal of hazardous chemicals and radioactive and biological materials which we use could be time consuming and costly |
| We use controlled hazardous and radioactive materials in our business and generate wastes that are regulated as hazardous wastes under United States federal, and Massachusetts, California and Wisconsin state, environmental and atomic energy regulatory laws and under equivalent provisions of law in those jurisdictions in which our research and manufacturing facilities are located |
| Our use of these substances and materials is subject to stringent, and periodically changing, regulation that can impose costly compliance obligations on us and have the potential to adversely affect our manufacturing activities |
| The risk of accidental contamination or injury from these materials cannot be completely eliminated |
| If an accident with these substances occurs, we could be held liable for any damages that result, in addition to incurring clean-up costs and liabilities, which can be substantial |
| Additionally, an accident could damage our research and manufacturing facilities resulting in delays and increased costs |
| We are dependent upon various key personnel and must recruit additional qualified personnel for a number of management positions |
| Our success is highly dependent on the continued services of key management, particularly our chief executive officer, Frank H Laukien Ph |
| D, as well as technical and scientific personnel |
| Our management and other employees may voluntarily terminate their employment with us at any time upon short notice |
| The loss of the services of any member of our senior management, technical or scientific staff may significantly delay or prevent the achievement of product development and other business objectives |
| Our future success will also depend on our ability to identify, recruit and retain additional qualified scientific, technical and managerial personnel |
| Competition for qualified personnel is intense, particularly in the 28 ______________________________________________________________________ areas of information technology, engineering and science, and the process of hiring suitably qualified personnel is often lengthy |
| If we are unable to hire and retain a sufficient number of qualified employees, our ability to conduct and expand our business could be seriously reduced |
| Our chief executive officer maintains relationships with various affiliates which may impact his management of us |
| Our chief executive officer, Frank H Laukien, Ph |
| D, currently is, and has been for over 10 years, a management officer and director of certain of our affiliates and spends a considerable amount of time rendering services to these affiliates |
| Although Dr |
| Laukien spends the majority of his time attending to our business, his involvement with these affiliates reduces the time and attention he can devote to our management |
| Laukien beneficially owns directly or indirectly more than 10prca of our stock and more than 10prca of the stock of several affiliated companies |
| We collaborate with some of these affiliates in product development, and a portion of our customer base also does business with these affiliates |
| We believe that all agreements with our affiliates are at arm’s length commercial conditions and pricing |
| Laukien’s relationship with and to these affiliated companies could create an actual or perceived conflict of interest which could negatively impact our business, financial condition, results of operations or cash flows |
| We may not be able to maintain our sales and service staff to meet demand for our products and services |
| We need to expand our direct marketing and sales force as well as our service and support staff |
| Our future revenue and profitability will depend in part on our ability to maintain our team of marketing and service personnel |
| Because our products are technical in nature, we believe that our marketing, sales and support staff must have scientific or technical expertise and experience |
| Competition for employees with these skills is intense |
| We may not be able to continue to attract and retain sufficient qualified sales and service people, and we may not be able to maintain and develop an efficient and effective sales, marketing and support department |
| If we fail to continue to attract or retain qualified people, then our business could suffer |
| We plan significant growth, and there is a risk that we will not be able to manage this growth |
| Our success will depend on the expansion of our operations |
| Effective growth management will place increased demands on our management, operational and financial resources |
| To manage our growth, we must expand our facilities, augment our operational, financial and management systems, and hire and train additional qualified personnel |
| Our failure to manage this growth effectively could impair our ability to generate revenue or could cause our expenses to increase more rapidly than revenue, resulting in operating losses |
| We derive a significant portion of our revenue from international sales and are subject to the risks of doing business in foreign countries |
| International sales account and are expected to continue to account for a significant portion of our total revenues |
| Our international operations are, and will continue to be, subject to a variety of risks associated with conducting business internationally, many of which are beyond our control |
| These risks, which may adversely affect our ability to achieve and maintain profitability and our ability to sell our products internationally, include: · changes in foreign currency exchange rates; · changes in regulatory requirements; 29 ______________________________________________________________________ · legislation and regulation, including tariffs, relating to the import or export of high technology products; · the imposition of government controls; · political and economic instability, including international hostilities, acts of terrorism and governmental restrictions, inflation, trade relationships and military and political alliances; · costs and risks of deploying systems in foreign countries; · compliance with export laws and controls in multiple jurisdictions · limited intellectual property rights; and · the burden of complying with a wide variety of complex foreign laws and treaties, including unfavorable labor regulations, specifically those applicable to our European operations, as well as US laws affecting the activities of US companies abroad |
| While the impact of these factors is difficult to predict, any one or more of these factors could adversely affect our operations in the future |
| We may lose money when we exchange foreign currency received from international sales into US dollars |
| A significant portion of our business is conducted in currencies other than the US dollar, which is our reporting currency |
| As a result, currency fluctuations among the US dollar and the currencies in which we do business have caused and will continue to cause foreign currency transaction gains and losses |
| We recognize foreign currency gains or losses arising from our operations in the period incurred |
| In addition, currency fluctuations could cause the price of our products to be more or less competitive than our principal competitors’ products |
| Currency fluctuations will increase or decrease our cost structure relative to those of our competitors which could lessen the demand for our products and affect our competitive position |
| We cannot predict the effects of exchange rate fluctuations upon our future operating results because of the number of currencies involved, the variability of currency exposures and the potential volatility of currency exchange rates |
| Various international tax risks could adversely affect our earnings |
| We are subject to international tax risks |
| Distributions of earnings and other payments received from our subsidiaries may be subject to withholding taxes imposed by the countries where they are operating or are formed |
| If these foreign countries do not have income tax treaties with the United States or the countries where our subsidiaries are incorporated, we could be subject to high rates of withholding taxes on these distributions and payments |
| We could also be subject to being taxed twice on income related to operations in these non-treaty countries |
| Because we are unable to reduce the taxable income of one operating company with losses incurred by another operating company located in another country, we may have a higher foreign effective income tax rate than that of other companies in our industry |
| The amount of the credit that we may claim against our United States federal income tax for foreign income taxes is subject to many limitations which may significantly restrict our ability to claim a credit for all of the foreign taxes we pay |
| Armed hostilities could constrain our ability to conduct business internationally and could also disrupt our United States operations |
| The current world unrest, or the responses of the United States, may lead to further acts of terrorism and civil disturbances in the United States or elsewhere, which may further contribute to the economic instability in the United States |
| These attacks or armed conflicts may affect our physical facilities or those of our suppliers or customers and could have an impact on our domestic and international sales, our supply 30 ______________________________________________________________________ chain, our production capability, our insurance premiums or the ability to purchase insurance and our ability to deliver our products to our customers |
| The consequences of these risks are unpredictable, and their long-term effect upon us is uncertain |
| The unpredictability and fluctuation of our quarterly results may adversely affect the trading price of our common stock |
| Our revenues and results of operations have in the past and may in the future vary from quarter to quarter due to a number of factors, many of which are outside of our control and any of which may cause our stock price to fluctuate |
| The primary factors that may affect us include the following: · the timing of sales of our products and services; · the timing of recognizing revenue and deferred revenue under US GAAP; · changes in our pricing policies or the pricing policies of our competitors; · increases in sales and marketing, product development or administration expenses; · the mix of services provided by us and third-party contractors; · our ability to attain and maintain quality levels for our products; and · costs related to acquisitions of technology or businesses |
| Historically, we have experienced a decrease in revenue in the first quarter of each fiscal year relative to the prior fourth quarter, which we believe is due to our customers’ budgeting cycles |
| We also traditionally experience lower revenues in the third quarter than throughout the rest of the year as a result of the European holiday schedule |
| You should not rely on quarter-to-quarter comparisons of our results of operations as an indication of our future performance |
| It is likely that in some future quarters, our results of operations may be below the expectations of public market analysts and investors |
| In this event, the price of our common stock may fall |
| We face potential volatility of our stock price |
| There has only been a public market for our common stock since August 2000 |
| The market price of our common stock may fluctuate substantially in response to various factors, many of which are beyond our control, including: · quarterly fluctuations in results of operations, as described above; · our ability to successfully commercialize our products; · technological innovations or new commercial products by us or our competitors; · developments concerning government regulations or proprietary rights which could affect the potential growth of our markets; · material changes in our relationships with, or the viability of, strategic business partners; · market reaction to trends in revenues and expenses, especially research and development; · changes in earnings estimates by analysts; · volatility and uncertainty in the capital markets in general; · loss of key personnel; · changes in accounting principles; 31 ______________________________________________________________________ · lack of trading volume in our stock; · fluctuation within the life science sector; · sales of common stock by existing stockholders, particularly large institutional investors who cannot hold stock traded at less than dlra5 per share; and · economic and political conditions |
| The market price for our common stock may also be affected by our ability to meet analysts’ expectations |
| Any failure to meet such expectations, even slightly, could have an adverse effect on the market price of our common stock |
| In addition, the stock market, the NASDAQ National Market and the market for life science stocks in particular, has been and is subject to extreme price and volume fluctuations |
| This volatility has had a significant effect on the market prices of securities issued by many companies for reasons unrelated to the operating performance of these companies |
| In the past, companies that have experienced volatility in the market price of their securities have been the subjects of securities class action litigation |
| Any such litigation instigated against us could result in substantial costs and a diversion of managements’ attention and resources, which could significantly harm our business, financial condition and operating results |
| Future sales of our stock may impact its market price |
| Sales of substantial numbers of shares of our common stock in the public market, or the perception that significant sales are likely, could adversely affect the market price of our common stock |
| We cannot predict the effect that market sales of a large number of shares would have on the market price of our common stock |
| Existing stockholders have significant influence over us |
| As of March 1, 2006, our majority stockholders owned, in the aggregate, approximately 59prca of our outstanding common stock |
| As a result, these stockholders will be able to exercise substantial influence over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions |
| This could have the effect of delaying or preventing a change in control of our company and will make some transactions difficult or impossible to accomplish without the support of these stockholders |
| Other companies may have difficulty acquiring us, even if doing so would benefit our stockholders, due to provisions under our corporate charter and bylaws, as well as Delaware law |
| Provisions in our amended and restated certificate of incorporation and our bylaws, as well as Delaware law could make it more difficult for other companies to acquire us, even if doing so would benefit our stockholders |
| Our amended and restated certificate of incorporation and bylaws contain the following provisions, among others, which may inhibit an acquisition of our company by a third party: · a staggered board of directors, where stockholders elect only a minority of the board each year; · advance notification procedures for matters to be brought before stockholder meetings; · a limitation on who may call stockholder meetings; and · the ability of our board of directors to issue up to 5cmam000cmam000 shares of preferred stock without a stockholder vote |