| HARVARD BIOSCIENCE INC Item 1A Risk Factors |
| Our operating results may vary significantly from quarter to quarter and year to year depending on a number of factors, including: If we are unable to complete the divestiture of our Capital Equipment Business segment on attractive terms, our ability to implement our business strategy and our financial condition and results of operations may be materially adversely affected |
| We have decided to divest this business segment based on the fact that market conditions for our Capital Equipment Business segment have been such that this business has not met our expectations, and because we have made a decision to focus resources on our Apparatus and Instrumentation business |
| We cannot assure you that we will be able to complete the divestiture of our Capital Equipment Business segment on favorable terms, or at all |
| If we are unable to divest our Capital Equipment Business for more than current carrying value, we will record a loss in connection with the sale that could be significant |
| If we are unable to sell our Capital Equipment Business at all, we will be required to alter our current business strategy to determine how to proceed with this business segment |
| As a result, we may be required to engage in further restructuring activities or cease operating some or all of this business segment and liquidate its assets |
| In either case, we may incur additional expenses and additional asset impairments and management’s attention may be diverted from our current business strategy |
| Additionally, under the current terms of our existing credit facility, we will be required to obtain consent from our lenders upon the sale of our Capital Equipment Business segment |
| If we are unable to obtain this consent, sale of the Capital Equipment Business segment will trigger a default under the credit facility whereby our lenders could accelerate all of our outstanding indebtedness and terminate our credit facility |
| As of December 31, 2005, we had dlra8dtta5 million outstanding under our credit facility |
| As a result of any of these events, our ability to implement our business strategy and our financial condition and results of operations may be materially adversely affected |
| By completing the divestiture of the Capital Equipment Business, we will be losing a substantial source of our revenues |
| Our Capital Equipment Business segment represented 25prca, 30prca and 40prca of total revenues from continuing operations and discontinued operations in 2005, 2004 and 2003, respectively |
| By divesting our Capital Equipment Business segment, we will no longer have the assets that generated these revenues and, unless we are able to increase our revenues through organic growth or acquisitions, our revenues following the disposition will be lower than they have been for these historical periods |
| Our decision to divest of our Capital Equipment Business may cause potential customers to be less likely to commit to purchases of capital equipment from this business segment, which may materially adversely affect revenues generated from, and value that we may receive upon the sale of, our Capital Equipment Business segment |
| Our Capital Equipment Business segment relies on sales of capital products that are typically priced over dlra25cmam000 and supported, following their sale, by customer support, technical support and field application service support personnel |
| As a result of the uncertain future of our Capital Equipment Business segment, potential customers may be less likely to commit to purchases of expensive capital equipment from this business segment |
| Accordingly, the revenues generated from, and value that we may receive upon the divestiture of, our Capital Equipment Business segment may be materially adversely affected |
| In addition, we may lose key employees of the Capital Equipment Business segment that may in turn adversely affect the revenues and operating results of the division and may reduce the value we receive upon the divestiture of the Business segment |
| 11 ______________________________________________________________________ The divestiture of our Capital Equipment Business segment may disrupt our business or result in costs that could have a material adverse effect on our financial condition and results of operations |
| The divestiture of our Capital Equipment Business may disrupt our apparatus and instrumentation business and divert management’s attention away from our continuing operations |
| We will also incur expenses in connection with our attempted divestiture of this business segment, which could materially adversely affect our financial condition or results of operations |
| This divestiture will require management to utilize estimates related to realizable values of assets made redundant or obsolete and expenses for severances, lease cancellations and other exit costs |
| Actual results could differ materially from those estimated due to, among other things: inability to sell the businesses at prices, or within time periods, anticipated by management; unanticipated expenditures in connection with the effectuation of the disposition; costs and length of time required to comply with legal requirements applicable to the disposition; and unanticipated difficulties in connection with consolidation of manufacturing and administrative functions |
| Our quarterly revenues will likely be affected by various factors, including the timing of equipment purchases by customers and the seasonal nature of purchasing in Europe |
| Our quarterly revenues will likely be affected by various factors, including the volatile and seasonal nature of purchasing in Europe |
| Our revenues may vary from quarter to quarter due to a number of factors, including the timing of catalog mailings and new product introductions, the release of grant and budget funding, future acquisitions and our substantial sales to European customers, who in summer months often defer purchases |
| In particular, delays or reduction in purchase orders from the pharmaceutical and biotechnology industries could have a material adverse effect on us and could adversely affect our stock price |
| If we engage in any acquisition, we will incur a variety of costs, and may never realize the anticipated benefits of the acquisition |
| Our business strategy includes the future acquisition of businesses, technologies, services or products that we believe are a strategic fit with our business |
| If we undertake any acquisition, the process of integrating an acquired business, technology, service or product may result in unforeseen operating difficulties and expenditures and may absorb significant management attention that would otherwise be available for ongoing development of our business |
| Moreover, we may fail to realize the anticipated benefits of any acquisition as rapidly as expected or at all |
| Future acquisitions could reduce stockholders’ ownership, cause us to incur debt, expose us to future liabilities and result in amortization expenses related to intangible assets with definite lives |
| Uncertain economic trends may adversely impact our business |
| We have experienced, and may experience in the future, reduced demand for our products as a result of the uncertainty in the general economic environment in which our customers and we operate |
| We cannot project the extent of the impact of the economic environment specific to our industry |
| If economic conditions worsen or if an economic slowdown occurs, we may experience a material adverse effect on our business, operating results and financial condition |
| We may not realize the expected benefits from acquisitions due to difficulties integrating the businesses, operations and product lines |
| Our ability to achieve the benefits of acquisitions depends in part on the integration and leveraging of technology, operations, sales and marketing channels and personnel |
| The integration process is a complex, 12 ______________________________________________________________________ time-consuming and expensive process and may disrupt our business if not completed in a timely and efficient manner |
| We may have difficulty successfully integrating the acquired businesses, the domestic and foreign operations or the product lines, and as a result, we may not realize any of the anticipated benefits of the acquisitions |
| Additionally, we cannot assure that our growth rate will equal the growth rates that have been experienced by us and the acquired companies, respectively, operating as separate companies in the past |
| As an acquisitive company, we may be the subject of lawsuits from either an acquired company’s previous stockholders or our current stockholders |
| These lawsuits could result from the actions of the acquisition target prior to the date of the acquisition, from the acquisition transaction itself or from actions after the acquisition |
| Defending potential lawsuits could cost us significant expense and detract management’s attention from the operation of the business |
| Additionally, these lawsuits could result in the cancellation of or the inability to renew, certain insurance coverage that would be necessary to protect our assets |
| Accounting for goodwill and other intangible assets may have a material adverse effect on us |
| In accordance with the provisions of Statement of Financial Accounting Standards (SFAS) Nodtta 144, Accounting for the Impairment or Disposal of Long-Lived Assets, we assess the recoverability of identifiable intangibles with finite lives and other long-lived assets, such as property, plant and equipment, for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable |
| In accordance with SFAS Nodtta 142, Goodwill and Other Intangible Assets, goodwill and intangible assets with indefinite lives from acquisitions are evaluated annually, or more frequently, if events or circumstances indicate there may be an impairment, to determine whether any portion of the remaining balance of goodwill and indefinite lived intangibles may not be recoverable |
| If it is determined in the future that a portion of our goodwill and other intangible assets is impaired, we will be required to write off that portion of the asset according to the methods defined by SFAS Nodtta 144 and SFAS Nodtta 142, which could have an adverse effect on net income for the period in which the write off occurs |
| During 2005, the Company recorded abandonment, impairment and write-down charges of approximately dlra28dtta7 million on goodwill and other intangible assets, which are classified under the caption “Discontinued Operations, net of tax” |
| In addition, if any time prior to the sale of our Capital Equipment Business segment we determine that the fair value less cost to sell is below the current carrying value we will record additional impairment losses that could be significant |
| At December 31, 2005, our continuing operations had goodwill and intangible assets with indefinite lives of dlra21dtta1 million, or 24prca, of our total assets from continuing operations |
| Future changes in financial accounting standards may adversely affect our reported results of operations |
| A change in accounting standards can have a significant effect on our reported results |
| New accounting pronouncements and varying interpretations of accounting pronouncements have occurred and may occur in the future |
| These new accounting pronouncements may adversely affect our reported financial results |
| For example, under SFAS Nodtta 123R, Share-Based Payments, a revision of SFAS Nodtta 123, Accounting for Stock-Based Compensation, we will be required to account for our stock-based awards as a compensation expense and our net income and net income per share could be significantly reduced |
| Currently, we record compensation expense only in connection with option grants that have an exercise price below fair market value |
| For option grants that have an exercise price at fair market value, we calculate compensation 13 ______________________________________________________________________ expense and disclose their impact on net income (loss) and net income (loss) per share, as well as the impact of all stock-based compensation expense in a footnote to the consolidated financial statements |
| SFAS Nodtta 123R requires us to adopt the new accounting provisions beginning in our first quarter of 2006, and will require us to expense stock- based awards, including shares issued under our employee stock purchase plan, stock options, restricted stock and stock appreciation rights, as compensation cost |
| If our accounting estimates are not correct, our financial results could be adversely affected |
| Management judgment and estimates are necessarily required in the application of our Critical Accounting Policies |
| We discuss these estimates in the subsection entitled Critical Accounting Policies beginning on page 32 |
| If our estimates are incorrect, our future financial operating results and financial condition could be adversely affected |
| Our business is subject to economic, political and other risks associated with international revenues and operations |
| Since we manufacture and sell our products worldwide, our business is subject to risks associated with doing business internationally |
| Our revenues from our non-US operations represented approximately 51prca, of total revenues for 2005 |
| We anticipate that revenue from international operations will continue to represent a substantial portion of total revenues |
| In addition, a number of our manufacturing facilities and suppliers are located outside the United States |
| Accordingly, our future results could be harmed by a variety of factors, including: · changes in foreign currency exchange rates, which resulted in a foreign currency loss of approximately dlra55cmam000 for the year ended December 31, 2005 and a decrease in foreign equity of approximately dlra4dtta3 million for the year ended December 31, 2005, · changes in a specific country or region’s political or economic conditions, including Western Europe, in particular, · potentially negative consequences from changes in tax laws affecting the ability to expatriate profits, · difficulty in staffing and managing widespread operations, and · unfavorable labor regulations applicable to European operations, such as severance and the unenforceability of non-competition agreements in the European Union |
| We may lose money when we exchange foreign currency received from international revenues into US dollars |
| Approximately 47prca of our business from continuing operations during 2005 was conducted in functional 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 |
| Currently, we attempt to manage foreign currency risk through the matching of assets and liabilities |
| In the future, we may undertake to manage foreign currency risk through additional hedging methods |
| We recognize foreign currency gains or losses arising from our operations in the period incurred |
| We cannot guarantee that we will be successful in managing foreign currency risk or in predicting the effects of exchange rate fluctuations upon our future operating results because of the number of currencies involved, the variability of currency exposure and the potential volatility of currency exchange rates |
| 14 ______________________________________________________________________ Additional costs for complying with recent changes in Securities and Exchange Commission, NASDAQ Stock Market and accounting rules could adversely affect our profits |
| Recent changes in the Securities and Exchange Commission and NASDAQ rules including the Sarbanes-Oxley Act of 2002, as well as changes in accounting rules, will cause us to incur significant additional costs including professional fees, as well as additional personnel costs, in order to keep informed of the changes and attempt to operate in a compliant manner |
| These additional costs, which were approximately dlra1dtta5 million and dlra1dtta3 million during 2005 and 2004, respectively, may be significant enough to cause our growth targets to be reduced, and consequently, our financial position and results of operations may be negatively impacted |
| If we are not able to manage our growth, our operating profits or losses may be adversely impacted |
| Our success will depend on the expansion of our operations through both organic growth and acquisitions |
| Effective growth management will place increased demands on management, operational and financial resources and expertise |
| To manage growth, we must expand our facilities, augment our operational, financial and management systems, and hire and train additional qualified personnel |
| 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 or reduced profitability |
| If we fail to retain key personnel and hire, train and retain qualified employees, we may not be able to compete effectively, which could result in reduced revenue or increased costs |
| Our success is highly dependent on the continued services of key management, technical and scientific personnel |
| Our management and other employees may voluntarily terminate their employment at any time upon short notice |
| The loss of the services of any member of the senior management team, including the Chief Executive Officer, Chane Graziano, the President, David Green, the Chief Operating Officer, Susan Luscinski, the Chief Financial Officer, Bryce Chicoyne or any of the managerial, technical or scientific staff may significantly delay or prevent the achievement of product development and other business objectives |
| We maintain key person life insurance on Messrs |
| Graziano and Green |
| 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 in the technology area is intense, and we operate in several geographic locations where labor markets are particularly competitive, including Boston, Massachusetts and London and Cambridge, England, and where demand for personnel with these skills is extremely high and is likely to remain high |
| As a result, competition for qualified personnel is intense, particularly in the areas of general management, finance, information technology, engineering and science, and the process of hiring suitably qualified personnel is often lengthy and expensive, and may become more expensive in the future |
| 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 competitors and potential competitors may develop products and technologies that are more effective or commercially attractive than our products |
| We expect to encounter increased competition from both established and development-stage companies that continually enter the market |
| We anticipate that these competitors will include: · companies developing and marketing life sciences research tools, · health care companies that manufacture laboratory-based tests and analyzers, · diagnostic and pharmaceutical companies, · analytical instrument companies, and · companies developing life science or drug discovery technologies |
| 15 ______________________________________________________________________ Currently, our principal competition comes from established companies that provide products that perform many of the same functions for which we market our products |
| Our competitors may develop or market products that are more effective or commercially attractive than our current or future products |
| Many of our competitors have substantially greater financial, operational, marketing and technical resources than we do |
| Moreover, these competitors may offer broader product lines and tactical discounts, and may have greater name recognition |
| In addition, we may face competition from new entrants into the field |
| We may not have the financial resources, technical expertise or marketing, distribution or support capabilities to compete successfully in the future |
| Our products compete in markets that are subject to rapid technological change, and therefore one or more of our products could be made obsolete by new technologies |
| Because the market for life science tools is characterized by rapid technological change and frequent new product introductions, our product lines may be made obsolete unless we are able to continually improve existing products and develop new products |
| To meet the evolving needs of its customers, we must continually enhance our current and planned products and develop and introduce new products |
| However, we may experience difficulties that may delay or prevent the successful development, introduction and marketing of new products or product enhancements |
| In addition, our product lines are based on complex technologies that 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 |
| Our failure to develop and introduce products in a timely manner in response to changing technology, market demands or the requirements of our customers could cause our product sales to decline, and we could experience significant losses |
| We offer and plan to offer a broad product line and have incurred and expect to continue to incur substantial expenses for development of new products and enhanced versions of our existing products |
| The speed of technological change in our market may prevent us from being able to successfully market some or all of our products for the length of time required to recover development costs |
| Failure to recover the development costs of one or more products or product lines could decrease our profitability or cause us to experience significant losses |
| We entered into a dlra20 million credit facility in November 2003, which contains certain financial and negative covenants the breach of which may adversely affect our financial condition |
| During 2003, we entered into a dlra20 million credit facility with Brown Brothers Harriman & Co, under which we had drawn down dlra8dtta5 million as of December 31, 2005 |
| The credit facility contains various financial and other covenants, including covenants relating to income, debt coverage and cash flow and minimum working capital requirements |
| If we are not in compliance with certain of these covenants, in addition to other actions the creditor may require, the amounts drawn on the dlra20 million facility may become immediately due and payable |
| This immediate payment may negatively impact our financial condition and we may be forced by our creditor into actions, which may not be in our best interests |
| Failure to raise additional capital or generate the significant capital necessary to implement our acquisition strategy, expand our operations and invest in new products could reduce our ability to compete and result in lower revenue |
| We anticipate that our financial resources, which include available cash, cash generated from operations, and debt and equity capacity, will be sufficient to finance operations and capital expenditures for at least twelve months |
| However, this expectation is premised on the current operating plan, which may change as a result of many factors, including market acceptance of new products and future opportunities with collaborators |
| Consequently, we may need additional funding sooner than anticipated |
| Our inability to raise capital could seriously harm our business and product development and acquisition efforts |
| 16 ______________________________________________________________________ If we raise additional funds through the sale of equity or convertible debt or equity-linked securities, existing percentages of ownership in our common stock will be reduced |
| In addition, these transactions may dilute the value of our outstanding common stock |
| We may issue securities that have rights, preferences and privileges senior to our common stock |
| If we raise additional funds through collaborations or licensing arrangements, we may relinquish rights to certain of our technologies or products, or grant licenses to third parties on terms that are unfavorable |
| We may be unable to raise additional funds on acceptable terms or at all |
| In addition, our credit facility with Brown Brothers Harriman contains limitations on our ability to incur additional indebtedness and requires creditor approval for acquisitions funded with cash in excess of dlra6 million and acquisitions funded with equity in excess of dlra10 million |
| If future financing is not available or is not available on acceptable terms, we may have to curtail operations or change our business strategy |
| 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 certain of our products throughout the world |
| Patent law relating to the scope of claims in the technology fields in which we operate is still evolving |
| The degree of future protection for our proprietary rights is uncertain |
| In our continuing operations, we have 19 issued US patents and 7 pending applications |
| In our discontinued operations, we have 25 issued US patents and 35 pending applications |
| We also own numerous US registered trademarks and trade names and have applications for the registration of trademarks and trade names pending |
| 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 |
| If we fail to obtain adequate patent protection for our proprietary technology, our ability to be commercially competitive will be materially impaired |
| In addition to patent protection, we also rely on 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 |
| 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 effect on our operating results, financial condition and future growth prospects |
| We may be involved in lawsuits to protect or enforce our patents that would be expensive and time-consuming |
| In order to protect or enforce our patent rights, we may initiate patent litigation against third parties |
| We may also become subject to interference proceedings conducted in the patent and trademark offices of various countries to determine the priority of inventions |
| Several of our products are based on patents that are closely surrounded by patents held by competitors or potential competitors |
| As a result, we believe there is a greater likelihood of a patent dispute than would be expected if our patents were not closely surrounded by other patents |
| The defense and prosecution, if necessary, of intellectual property suits, interference proceedings and related legal and administrative proceedings would be costly and divert our 17 ______________________________________________________________________ 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 |
| For example, 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 |
| Securities analysts or investors may perceive these announcements to be negative, which could cause the market price of our stock to decline |
| Our success will depend partly on our ability to operate without infringing on or misappropriating the intellectual property rights of others |
| We may be sued for infringing on the intellectual property rights of others, including the patent rights, trademarks and trade names of third parties |
| Intellectual property litigation is costly and the outcome is uncertain |
| If we do not prevail in any intellectual property litigation, in addition to any damages we might have to pay, we could be required to stop the infringing activity, or obtain a license to or design around the intellectual property in question |
| If we are unable to obtain a required license on acceptable terms, or are unable to design around any third party patent, we may be unable to sell some of our products and services, which could result in reduced revenue |
| We are dependent upon our licensed technologies and may need to obtain additional licenses in the future to offer our products and remain competitive |
| We have licensed key components of our technologies from third parties |
| While we do not currently derive a material portion of our revenue from products that depend on these licensed technologies, we may in the future |
| If our license agreements were to terminate prematurely or if we breach the terms of any licenses or otherwise fail to maintain our rights to these technologies, we may lose the right to manufacture or sell our products that use these licensed technologies |
| In addition, we may need to obtain licenses to additional technologies in the future in order to keep our products competitive |
| If we fail to license or otherwise acquire necessary technologies, we may not be able to develop new products that we need to remain competitive |
| Many of our current and potential customers are from the pharmaceutical and biotechnology industries and are subject to risks faced by those industries |
| We derive a substantial portion of our revenues from pharmaceutical and biotechnology companies |
| We expect that pharmaceutical and biotechnology companies will continue to be one of our major sources of revenues for the foreseeable future |
| As a result, we are subject to risks and uncertainties that affect the pharmaceutical and biotechnology industries, such as pricing pressures as third-party payers continue challenging the pricing of medical products and services, government regulation, ongoing consolidation and uncertainty of technological change, and to reductions and delays in research and development expenditures by companies in these industries |
| In particular, the biotechnology industry has been faced with declining market capitalization and a difficult capital-raising and financing environment |
| If biotechnology companies are unable to obtain the financing necessary to purchase our products, our business and results of operations could be materially adversely affected |
| As it relates to both the biotechnology and pharmaceutical industries, many companies have significant patents that have expired or are about to expire, which could result in reduced revenues for those companies |
| If pharmaceutical companies suffer reduced revenues as a result of these patent 18 ______________________________________________________________________ expirations, they may be unable to purchase our products, and our business and results of operations could be materially adversely affected |
| In addition, 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 and purchasing patterns of various governments and government agencies |
| Many of our customers, including universities, government research laboratories, private foundations and other institutions, obtain funding for the purchase of products from grants by governments or government agencies |
| There exists the risk of a potential decrease in the level of governmental spending allocated to scientific and medical research, which could substantially reduce or even eliminate these grants |
| If government funding necessary to purchase our products were to decrease, our business and results of operations could be materially adversely affected |
| If GE Healthcare (formerly Amersham Biosciences) terminates its distribution agreements with us, fails to renew them on favorable terms or fails to perform its obligations under the distribution agreements, it could impair the marketing and distribution efforts for some of our products and result in lost revenues |
| During 2004, General Electric Company acquired Amersham plc, the parent of Amersham Biosciences |
| In connection with the acquisition, Amersham Biosciences was renamed GE Healthcare |
| While GE Healthcare has indicated its intention to continue Amersham’s presence in the life science market, and we believe our relationship with GE Healthcare is good, we cannot guarantee that the distribution agreements will be renewed, that GE Healthcare will aggressively market our products in the future or that GE Healthcare will continue the partnership |
| If any of these events occurs, our marketing and distribution efforts for some of our products may be impaired and our revenues may be adversely impacted |
| For 2005, approximately 23prca of our revenues were generated through two distribution agreements with GE In August 2001, we entered into an agreement with GE Healthcare |
| This agreement has a five year finite life, expiring in August 2006, and is currently under renegotiation |
| Under this agreement, GE Healthcare acts as the primary marketing and distribution channel for the majority of the products of our Biochrom subsidiary and, as a result, we are restricted from allowing another person or entity to distribute, market and sell the majority of the products of our Biochrom subsidiary into the life sciences market |
| We are also restricted from making or promoting sales of the majority of the products of our Biochrom subsidiary to any person or entity other than GE Healthcare or its authorized sub-distributors |
| We have little or no control over GE Healthcare’s marketing and sales activities or the use of its resources |
| GE Healthcare may fail to purchase sufficient quantities of products from us or perform appropriate marketing and sales activities |
| The failure by GE Healthcare to perform these activities could materially adversely affect our business and growth prospects during the term of this agreement |
| In addition, our inability to maintain our arrangement with GE Healthcare for product distribution could materially impede the growth of our business and our ability to generate sufficient revenue |
| Our agreement with GE Healthcare may be terminated with 30 days notice under certain circumstances |
| This agreement had an initial term of three years, commencing August 1, 2001, after which it automatically renewed for an additional two years, unless terminated earlier by either party |
| In addition, the agreement may be terminated in accordance with its terms by either party upon 18 months prior written notice |
| We are currently renegotiating this agreement |
| The second distribution agreement, between Hoefer, Inc, our subsidiary, and GE Healthcare was entered into in November 2003 in connection with our acquisition of certain assets of the Hoefer 1-D gel electrophoresis business, including the Hoefer name, from Amersham Bioscience |
| The agreement provides that Hoefer will be the exclusive supplier of 1-D gel electrophoresis products to GE Healthcare |
| Hoefer also has the right to develop, manufacture and market 2-D gel electrophoresis products, which would be offered to GE Healthcare for sale under the GE Healthcare’s brand name |
| Hoefer has the right to sell any 19 ______________________________________________________________________ of its products, under the Hoefer brand name or any other non-GE Healthcare brand name, through other distribution channels, both direct and indirect |
| This contract has a five year term with an automatic five-year renewal period, and may be terminated after five years with a one year advance notice |
| Additionally, upon breach of certain terms of the agreement, such as pricing, exclusivity and delivery, by either party, the agreement may be terminated with a 30 day notice period |
| Customer, vendor and employee uncertainty about the effects of any of our acquisitions could harm us |
| We and the customers of any companies we acquire may, in response to the consummation of the acquisitions, delay or defer purchasing decisions |
| Any delay or deferral in purchasing decisions by customers could adversely affect our business |
| Similarly, employees of acquired companies may experience uncertainty about their future role until or after we execute our strategies with regard to employees of acquired companies |
| This may adversely affect our ability to attract and retain key management, sales, marketing and technical personnel following an acquisition |
| Ethical concerns surrounding the use of our products and misunderstanding of the nature of our business could adversely affect our ability to develop and sell our existing products and new products |
| Genetic screening of humans is used to determine individual predisposition to medical conditions |
| Genetic screening has raised ethical issues regarding the confidentiality and appropriate uses of the resulting information |
| Government authorities may regulate or prohibit the use of genetic screening to determine genetic predispositions to medical conditions |
| Additionally, the public may disfavor and reject the use of genetic screening |
| Our products are designed and used for genomic and proteomic research and drug discovery and are generally not well suited for human screening |
| However, it is possible that government authorities and the public may fail to distinguish between the genetic screening of humans and genomic and proteomic research |
| If this occurs, our products and the processes for which our products are used may be subjected to government regulations intended to affect genetic screening |
| Further, if the public fails to distinguish between the two fields, it may pressure our customers to discontinue the research and development initiatives for which our products are used |
| Additionally, some of our products may be used in areas of research involving cloning, stem cells, human tissue, organ transplants, animal research and other techniques presently being explored in the life science industry |
| These techniques have drawn much negative attention recently in the public forum and could face similar risks to those identified above surrounding products for genomic and proteomic research |
| Our stock price has fluctuated in the past and could experience substantial declines in the future and, as a result, management’s attention may be diverted from more productive tasks |
| The market price of our common stock has experienced significant fluctuations and may become volatile and could decline in the future, perhaps substantially, in response to various factors including: · technological innovations by competitors or in competing technologies, · revenues and operating results fluctuating or failing to meet the expectations of management, securities analysts, or investors in any quarter, · termination or suspension of equity research coverage by securities’ analysts, · comments of securities analysts and mistakes by or misinterpretation of comments from analysts, · downward revisions in securities analysts’ estimates or management guidance, 20 ______________________________________________________________________ · investment banks and securities analysts may themselves be subject to suits that may adversely affect the perception of the market, · conditions or trends in the biotechnology and pharmaceutical industries, · announcements of significant acquisitions or financings or changes in strategic partnerships, · non-compliance with the internal control standards pursuant to the Sarbanes-Oxley Act of 2002, and · a decrease in the demand for our common stock |
| In addition, the stock market and the NASDAQ National Market in general, and the biotechnology industry and small cap markets in particular, have experienced significant price and volume fluctuations that at times may have been unrelated or disproportionate to the operating performance of those companies |
| These broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating performance |
| In the past, securities class action litigation has often been instituted following periods of volatility in the market price of a company’s securities |
| A securities class action suit against us could result in substantial costs, potential liabilities and the diversion of management’s attention and resources |
| Provisions of Delaware law and of our charter and bylaws may make a takeover more difficult, which could cause our stock price to decline |
| Provisions in our certificate of incorporation and bylaws and in the Delaware corporate law may make it difficult and expensive for a third party to pursue a tender offer, change in control or takeover attempt, which is opposed by management and the board of directors |
| Public stockholders who might desire to participate in such a transaction may not have an opportunity to do so |
| We also have a staggered board of directors that makes it difficult for stockholders to change the composition of the board of directors in any one year |
| These anti-takeover provisions could substantially impede the ability of public stockholders to change our management and board of directors |
| Such provisions may also limit the price that investors might be willing to pay for shares of our common stock in the future |
| An active trading market for our common stock may not be sustained |
| Although our common stock is quoted on the NASDAQ National Market, an active trading market for the shares may not be sustained |
| Future issuance of preferred stock may dilute the rights of our common stockholders |
| Our board of directors has the authority to issue up to 5cmam000cmam000 shares of preferred stock and to determine the price, privileges and other terms of these shares |
| The board of directors may exercise this authority without any further approval of stockholders |
| The rights of the holders of common stock may be adversely affected by the rights of future holders of preferred stock |
| Cash dividends will not be paid on our common stock |
| Currently, we intend to retain all of our earnings to finance the expansion and development of our business and do not anticipate paying any cash dividends in the near future |
| As a result, capital appreciation, if any, of our common stock will be a stockholder’s sole source of gain for the near future |
| 21 ______________________________________________________________________ The merger with Genomic Solutions may fail to qualify as a reorganization for federal income tax purposes, resulting in the recognition of taxable gain or loss in respect of our treatment of the merger as a taxable sale |
| Both we and Genomic Solutions intended the merger to qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended |
| Although the Internal Revenue Service, or IRS, will not provide a ruling on the matter, Genomic Solutions obtained a legal opinion from its tax counsel that the merger constitutes a non-taxable reorganization for federal income tax purposes |
| This opinion does not bind the IRS or prevent the IRS from adopting a contrary position |
| If the merger fails to qualify as a non-taxable reorganization, the merger would be treated as a deemed taxable sale of assets by Genomic Solutions for an amount equal to the merger consideration received by Genomic Solutions’ stockholders plus any liabilities assumed by us |
| As successor to Genomic Solutions, we would be liable for any tax incurred by Genomic Solutions as a result of this deemed asset sale |