| MOLECULAR DEVICES CORP Item 1A Risk Factors |
| Our business faces significant risks and the risks described below may not be the only risks we face |
| Additional risks that we do not know of or that we currently think are immaterial may also impair our business operations |
| If any of the events or circumstances described in the following risks actually occurs, our business, financial condition or results of operations could be harmed and the trading price of our common stock could decline |
| Variations in the amount of time it takes for us to sell our products and collect accounts receivable and the timing of customer orders may cause fluctuations in our operating results, which could cause our stock price to decline |
| The timing of capital equipment purchases by our customers has been and is expected to continue to be uneven and difficult to predict |
| Our products represent major capital purchases for our customers |
| Accordingly, our customers generally take a relatively long time to evaluate our products, and a significant portion of our revenue is typically derived from sales of a small number of relatively high-priced products |
| Purchases are generally made by 11 _________________________________________________________________ [77]Table of Contents purchase orders and not long-term contracts |
| Delays in receipt of anticipated orders for our relatively high-priced products could lead to substantial variability from quarter to quarter |
| Furthermore, we have historically received purchase orders and made a significant portion of each quarter’s product shipments near the end of the quarter |
| If that pattern continues, even short delays in the receipt of orders or shipment of products at the end of a quarter could have a material adverse affect on results of operations for that quarter |
| We expend significant resources educating and providing information to our prospective customers regarding the uses and benefits of our products |
| Because of the number of factors influencing the sales process, the period between our initial contact with a customer and the time when we recognize revenues from that customer, if ever, varies widely |
| Our sales cycles typically range from three to six months, but can be much longer |
| During these cycles, we commit substantial resources to our sales efforts in advance of receiving any revenues, and we may never receive any revenues from a customer despite our sales efforts |
| The relatively high purchase price for a customer order contributes to collection delays that result in working capital volatility |
| While the terms of our sales orders generally require payment within 30 days of product shipment and do not provide return rights, in the past we have experienced significant collection delays |
| We cannot predict whether we will continue to experience similar or more severe delays |
| The capital spending policies of our customers have a significant effect on the demand for our products |
| Those policies are based on a wide variety of factors, including resources available to make purchases, spending priorities, and policies regarding capital expenditures during industry downturns or recessionary periods |
| Any decrease in capital spending by our customers resulting from any of these factors could harm our business |
| We depend on orders that are received and shipped in the same quarter and therefore have limited visibility of future product shipments |
| Our net sales in any given quarter depend upon a combination of orders received in that quarter for shipment in that quarter and shipments from backlog |
| Our products are typically shipped within ninety days of purchase order receipt |
| As a result, we do not believe that the amount of backlog at any particular date is indicative of our future level of sales |
| Our backlog at the beginning of each quarter does not include all product sales needed to achieve expected revenues for that quarter |
| Consequently, we are dependent on obtaining orders for products to be shipped in the same quarter that the order is received |
| Moreover, customers may reschedule shipments, and production difficulties could delay shipments |
| Accordingly, we have limited visibility of future product shipments, and our results of operations are subject to significant variability from quarter to quarter |
| Many of our current and potential competitors have significantly greater resources than we do, and increased competition could impair sales of our products |
| We operate in a highly competitive industry and face competition from companies that design, manufacture and market instruments for use in the life sciences research industry, from genomic, pharmaceutical, biotechnology and diagnostic companies and from academic and research institutions and government or other publicly-funded agencies, both in the United States and elsewhere |
| We may not be able to compete effectively with all of these competitors |
| Many of these companies and institutions have greater financial, engineering, manufacturing, marketing and customer support resources than we do |
| As a result, our competitors may be able to respond more quickly to new or emerging technologies or market developments by devoting greater resources to the development, promotion and sale of products, which could impair sales of our products |
| Moreover, there has been significant merger and acquisition activity among our competitors and potential competitors |
| These transactions by our competitors and potential competitors may provide them with a competitive advantage over us by enabling them to rapidly expand their product offerings and service capabilities to meet a broader range of customer needs |
| Many of our customers and potential customers are large companies that require global support and service, which may be easier for our larger competitors to provide |
| We believe that competition within the markets we serve is primarily driven by the need for innovative products that address the needs of customers |
| We attempt to counter competition by seeking to develop new products and provide quality products and services that meet customers’ needs |
| We cannot assure you, however, that 12 _________________________________________________________________ [78]Table of Contents we will be able to successfully develop new products or that our existing or new products and services will adequately meet our customers’ needs |
| Rapidly changing technology, evolving industry standards, changes in customer needs, emerging competition and frequent new product and service introductions characterize the markets for our products |
| To remain competitive, we will be required to develop new products and periodically enhance our existing products in a timely manner |
| We are facing increased competition as new companies entering the market with new technologies compete, or will compete, with our products and future products |
| We cannot assure you that one or more of our competitors will not succeed in developing or marketing technologies or products that are more effective or commercially attractive than our products or future products, or that would render our technologies and products obsolete or uneconomical |
| Our future success will depend in large part on our ability to maintain a competitive position with respect to our current and future technologies, which we may not be able to do |
| In addition, delays in the launch of our new products may result in loss of market share due to our customers’ purchases of competitors’ products during any delay |
| If we are not successful in developing new and enhanced products, we may lose market share to our competitors |
| The life sciences research instrumentation market is characterized by rapid technological change and frequent new product introductions |
| In the twelve months ended December 31, 2005, 70prca of our revenues were derived from the sale of products that were introduced in the last three years, and our future success will depend on our ability to enhance our current products and to develop and introduce, on a timely basis, new products that address the evolving needs of our customers |
| We may experience difficulties or delays in our development efforts with respect to new products, and we may not ultimately be successful in developing or commercializing them, which would harm our business |
| Any significant delay in releasing new systems could cause our revenues to suffer, adversely affect our reputation, give a competitor a first-to-market advantage or cause a competitor to achieve greater market share |
| In addition, our future success depends on our continued ability to develop new applications for our existing products |
| If we are not able to complete the development of these applications, or if we experience difficulties or delays, we may lose our current customers and may not be able to attract new customers, which could seriously harm our business and our future growth prospects |
| We must expend a significant amount of time and resources to develop new products, and if these products do not achieve commercial acceptance, our operating results may suffer |
| We expect to spend a significant amount of time and resources to develop new products and refine existing products |
| In light of the long product development cycles inherent in our industry, these expenditures will be made well in advance of the prospect of deriving revenues from the sale of new products |
| Our ability to commercially introduce and successfully market new products is subject to a wide variety of challenges during this development cycle that could delay introduction of these products |
| In addition, since our customers are not obligated by long-term contracts to purchase our products, our anticipated product orders may not materialize, or orders that do materialize may be canceled |
| As a result, if we do not achieve market acceptance of new products, our operating results will suffer |
| Our products are also generally priced higher than competitive products, which may impair commercial acceptance |
| We cannot predict whether new products that we expect to introduce will achieve commercial acceptance |
| We obtain some of the consumables, components and subassemblies used with or included in our systems from a single source or limited group of suppliers, and the partial or complete loss of one of these suppliers could cause customer supply or production delays and a substantial loss of revenues |
| We rely on outside vendors to manufacture some of the consumables, components and subassemblies used with or included in our systems |
| Certain consumables, components, subassemblies and services necessary for the manufacture of our systems are obtained from a sole supplier or limited group of suppliers, some of which are our competitors |
| Additional components, such as optical, electronic and pneumatic devices, are currently purchased in configurations specific to our requirements and, together with certain other components, such as computers, are integrated into our products |
| We maintain only a limited number of long-term supply agreements with our suppliers, 13 _________________________________________________________________ [79]Table of Contents and some of these agreements provide that the supplier is the exclusive supplier of a particular consumable, component or subassembly |
| Our reliance on a sole or a limited group of suppliers involves several risks, including the following: • our suppliers may cease or interrupt production of required consumables, components or subassemblies or otherwise fail to supply us with an adequate supply of required consumables, components or subassemblies for a number of reasons, including contractual disputes with our suppliers or adverse financial developments at or affecting the supplier; • we have reduced control over the pricing of third party-supplied consumables, components and subassemblies, and our suppliers may be unable or unwilling to supply us with required consumables, components and subassemblies on commercially acceptable terms, or at all; • we have reduced control over the timely delivery of third party-supplied consumables, components and subassemblies; and • our suppliers may be unable to develop technologically advanced products to support our growth and development of new systems |
| Because the manufacturing of certain of these consumables, components and subassemblies involves extremely complex processes and requires long lead times, we may experience delays or shortages caused by suppliers |
| We believe that alternative sources could be obtained and qualified, if necessary, for most sole and limited source parts, subject in certain cases to the terms of exclusive supply agreements with suppliers |
| However, if we were forced to seek alternative sources of supply or to manufacture such consumables, components or subassemblies internally, we may be forced to redesign our systems, which could prevent us from shipping our systems to customers on a timely basis, and we may be liable to suppliers under the terms of existing supply agreements |
| Some of our suppliers have relatively limited financial and other resources |
| Any inability to obtain adequate deliveries, or any other circumstance that would restrict our ability to ship our products, could damage relationships with current and prospective customers and could harm our business, and any disputes with suppliers could have an adverse impact on our business, financial condition or results of operations |
| We may encounter manufacturing and assembly problems or delays, which could result in lost revenues |
| We manufacture our products at our facilities in Sunnyvale and Union City, both in California, and in Norway |
| We assemble the Discovery-1 system at our facility in Downingtown, Pennsylvania |
| Our manufacturing and assembly processes are highly complex and require sophisticated, costly equipment and specially designed facilities |
| As a result, any prolonged disruption in the operations of our manufacturing facilities could seriously harm our ability to satisfy our customer order deadlines |
| If we cannot deliver our systems in a timely manner, our revenues will likely suffer |
| Our product sales depend in part upon manufacturing yields |
| We currently have limited manufacturing capacity and experience variability in manufacturing yields |
| We are currently manufacturing high-throughput instruments in-house, in limited volumes and with largely manual assembly |
| If demand for our high-throughput instruments increases, we will either need to expand our in-house manufacturing capabilities or outsource to other manufacturers |
| If we fail to deliver our products in a timely manner, our relationships with our customers could be seriously harmed, and our revenues could decline |
| As we develop new products, we must transition the manufacture of a new product from the development stage to commercial manufacturing |
| We cannot predict whether we will be able to complete these transitions on a timely basis and with commercially reasonable costs |
| We cannot assure you that manufacturing or quality control problems will not arise as we attempt to scale-up our production for any future new products or that we can scale-up manufacturing and quality control in a timely manner or at commercially reasonable costs |
| If we are unable to consistently manufacture our products on a timely basis because of these or other factors, our product sales will decline |
| 14 _________________________________________________________________ [80]Table of Contents If we deliver products with defects, our credibility will be harmed and the sales and market acceptance of our products will decrease |
| Our products are complex and have at times contained errors, defects and bugs when introduced |
| If we deliver products with errors, defects or bugs, our credibility and the market acceptance and sales of our products would be harmed |
| Further, if our products contain errors, defects or bugs, we may be required to expend significant capital and resources to alleviate such problems |
| Defects could also lead to product liability as a result of product liability lawsuits against us or against our customers |
| We have agreed to indemnify our customers in some circumstances against liability arising from defects in our products |
| In the event of a successful product liability claim, we could be obligated to pay damages significantly in excess of our product liability insurance limits |
| We have significantly expanded our international operations, which exposes us to risks inherent in international business activities |
| We maintain facilities in the United Kingdom, Germany, Norway, Japan, South Korea, Australia and China |
| In addition to the increase in our international operations, we are also deriving an increasing portion of our revenues from customers located outside of the United States |
| Sales to customers outside of the United States accounted for approximately 44prca our revenues during the year ended December 31, 2005 and we anticipate that international sales will continue to account for a significant portion of our revenues |
| A key aspect of our business strategy has been and is to expand our sales and support organizations internationally in order to take advantage of increasing international market opportunities resulting from worldwide growth in the life sciences research industry |
| Our reliance on international sales and operations exposes us to a number of risks associated with conducting operations internationally, including: • political, social and economic instability; • trade restrictions and changes in tariffs; • the impact of business cycles and downturns in economies outside of the United States; • unexpected changes in regulatory requirements that may limit our ability to export our products or sell into particular jurisdictions; • import and export license requirements and restrictions; • difficulties and costs of staffing, managing and monitoring geographically disparate operations; • difficulties in maintaining effective communications with employees and customers due to distance, language and cultural barriers; • disruptions in international transport or delivery; • difficulties in protecting our intellectual property rights, particularly in countries where the laws and practices do not protect proprietary rights to as great an extent as do the laws and practices of the United States; • difficulties in enforcing agreements through non-US legal systems; • longer payment cycles and difficulties in collecting receivables; and • potentially adverse tax consequences |
| If any of these risks materialize, our international sales could decrease and our foreign operations could suffer |
| In addition, all of our sales to international distributors are denominated in US dollars |
| Most of our direct sales in the United Kingdom, Germany, France, the Benelux, Scandinavia, Canada, Japan, South Korea and China are denominated in local currencies and totaled dlra53dtta4 million (29prca of total revenues) for the year ended December 31, 2005 |
| To the extent that our sales and operating expenses are denominated in foreign currencies, our operating results may be adversely affected by changes in exchange rates |
| Owing to the number of currencies involved, the substantial volatility of currency exchange rates, and our constantly changing currency exposures, we cannot 15 _________________________________________________________________ [81]Table of Contents predict the effect of exchange rate fluctuations on our future operating results |
| We do not currently engage in foreign currency hedging transactions, but may do so in the future |
| Most 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 significant portion of our revenues from sales to pharmaceutical and biotechnology companies |
| We expect that sales to pharmaceutical and biotechnology companies will continue to be a primary source 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 availability of capital and reduction and delays in research and development expenditures by companies in these industries, pricing pressures as third-party payers continue challenging the pricing of medical products and services, government regulation, and the uncertainty resulting from technological change |
| In addition, our future revenues may be adversely affected by the ongoing consolidation in the pharmaceutical and biotechnology industries, which would reduce the number of our potential customers |
| Furthermore, we cannot assure you that the pharmaceutical and biotechnology companies that are our customers will not develop their own competing products or in-house capabilities |
| Our products could infringe on the intellectual property rights of others, which may cause us to engage in costly litigation and, if we are not successful, could also cause us to pay substantial damages and prohibit us from selling our products |
| Third parties may assert infringement or other intellectual property claims against us |
| We may have to pay substantial damages for infringement if it is ultimately determined that our products infringe on a third party’s proprietary rights |
| Further, any legal action against us could, in addition to subjecting us to potential liability for damages, prohibit us from selling our products before we obtain a license to do so from the party owning the intellectual property, which, if available at all, may require us to pay substantial royalties |
| Even if these claims are without merit, defending a lawsuit takes significant time, may be expensive and may divert management attention from other business concerns |
| There may be third-party patents that may relate to our technology or potential products |
| Any public announcements related to litigation or interference proceedings initiated or threatened against us could cause our stock price to decline |
| We believe that there may be significant litigation in the industry regarding patent and other intellectual property rights |
| If we become involved in litigation, it could consume a substantial portion of our managerial and financial resources |
| We may need to initiate lawsuits to protect or enforce our patents, which would be expensive and, if we lose, may cause us to lose some of our intellectual property rights, which would reduce our ability to compete in the market |
| We rely on patents to protect a large part of our intellectual property and our competitive position |
| In order to protect or enforce our patent rights, we may initiate patent litigation against third parties, such as infringement suits or interference proceedings |
| Litigation may be necessary to: • assert claims of infringement; • enforce our patents; • protect our trade secrets or know-how; or • determine the enforceability, scope and validity of the proprietary rights of others |
| Lawsuits could be expensive, take significant time and divert management’s attention from other business concerns |
| They would put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing |
| We may also provoke third parties to assert claims against us |
| Patent law relating to the scope of claims in the technology fields in which we operate is still evolving and, consequently, patent positions in our industry are generally uncertain |
| If initiated, we cannot assure you that we would prevail in any of these suits or that the damages or other remedies awarded, if any, would be commercially valuable |
| During the course of these suits, 16 _________________________________________________________________ [82]Table of Contents there could be public announcements of the results of hearings, motions and other interim proceedings or developments in the litigation |
| If securities analysts or investors were to perceive any of these results to be negative, our stock price could decline |
| The rights we rely upon to protect our intellectual property underlying our products may not be adequate, which could enable third parties to use our technology and would reduce our ability to compete in the market |
| Our success will depend in part on our ability to obtain commercially valuable patent claims and to protect our intellectual property |
| Our patent position is generally uncertain and involves complex legal and factual questions |
| Legal standards relating to the validity and scope of claims in our technology field are still evolving |
| Therefore, the degree of future protection for our proprietary rights is uncertain |
| The risks and uncertainties that we face with respect to our patents and other proprietary rights include the following: • the pending patent applications we have filed or to which we have exclusive rights may not result in issued patents or may take longer than we expect to result in issued patents; • the claims of any patents which are issued may not provide meaningful protection; • we may not be able to develop additional proprietary technologies that are patentable; • the patents licensed or issued to us or our customers may not provide a competitive advantage; • other companies may challenge patents licensed or issued to us or our customers; • patents issued to other companies may harm our ability to do business; • other companies may independently develop similar or alternative technologies or duplicate our technologies; and • other companies may design around the technologies we have licensed or developed |
| In addition to patents, we rely on a combination of trade secrets, nondisclosure agreements and other contractual provisions and technical measures to protect our intellectual property rights |
| Nevertheless, these measures may not be adequate to safeguard the proprietary technology underlying our products |
| If these measures do not protect our rights, third parties could use our technology, and our ability to compete in the market would be reduced |
| In addition, employees, consultants and others who participate in the development of our products may breach their agreements with us regarding our intellectual property, and we may not have adequate remedies for the breach |
| We also may not be able to effectively protect our intellectual property rights in some foreign countries |
| For a variety of reasons, we may decide not to file for patent, copyright or trademark protection or prosecute potential infringements of our patents |
| We also realize that our trade secrets may become known through other means not currently foreseen by us |
| Notwithstanding our efforts to protect our intellectual property, our competitors may design around our proprietary technologies or may independently develop similar or alternative technologies or products that are equal or superior to our technology and products without infringing on any of our intellectual property rights |
| We may have difficulty managing our growth |
| We expect to experience significant growth in the number of our employees and customers and the scope of our operations, including as a result of potential acquisitions |
| This growth may continue to place a significant strain on our management and operations |
| Our ability to manage this growth will depend upon our ability to broaden our management team and our ability to attract, hire and retain skilled employees |
| Our success will also depend on the ability of our officers and key employees to continue to implement and improve our operational and other systems, to manage multiple, concurrent customer relationships and to hire, train and manage our employees |
| Our future success is heavily dependent upon growth and acceptance of new products |
| If we cannot scale our business appropriately or otherwise adapt to anticipated growth and new product introductions, a key part of our strategy may not be successful |
| 17 _________________________________________________________________ [83]Table of Contents We rely upon distributors for product sales and support outside of North America |
| In the year ended December 31, 2005, approximately 11prca of our sales were made through distributors |
| We often rely upon distributors to provide customer support to the ultimate end users of our products |
| As a result, our success depends on the continued sales and customer support efforts of our network of distributors |
| The use of distributors involves certain risks, including risks that distributors will not effectively sell or support our products, that they will be unable to satisfy financial obligations to us and that they will cease operations |
| Any reduction, delay or loss of orders from our significant distributors could harm our revenues |
| We also do not currently have distributors under contract in a number of international markets and may need to establish additional international distribution relationships |
| There can be no assurance that we will engage qualified distributors in a timely manner, and the failure to do so could have a material adverse affect on our business, financial condition and results of operations |
| If we choose to acquire new and complementary businesses, products or technologies instead of developing them ourselves, we may be unable to complete these acquisitions or may not be able to successfully integrate an acquired business or technology in a cost-effective and non-disruptive manner |
| Our success depends on our ability to continually enhance and broaden our product offerings in response to changing technologies, customer demands and competitive pressures |
| To this end, from time to time we have acquired complementary businesses, products or technologies instead of developing them ourselves, and we may choose to do so in the future |
| For example, we acquired intellectual property relating to the Transfluor^® technology from Xsira Pharmaceuticals, Inc |
| (“Axon”) in July 2004 |
| We do not know if we will be able to complete any additional acquisitions, or whether we will be able to successfully integrate any acquired business, operate it profitably or retain its key employees |
| Integrating any business, product or technology we acquire involves considerable operational and financial risks and strains, including: • the potential disruption of our ongoing business and distraction of our management; • the potential strain on our financial and managerial controls and reporting systems and procedures; • unanticipated expenses and potential delays related to integration of the operations, technology and other resources of acquired businesses; • the impairment of relationships with employees, suppliers and customers as a result of any integration of new management personnel; • greater than anticipated costs and expenses related to restructuring, including employee severance or relocation costs and costs related to vacating leased facilities; and • potential unknown liabilities associated with any acquisition, including higher than expected integration costs, which may cause our quarterly and annual operating results to fluctuate |
| We may not succeed in addressing these risks or any other problems encountered in connection with the acquisition of complementary businesses, products or technologies |
| If we are unable to successfully integrate the operations, products, technology and personnel of acquired businesses in a timely manner or at all, or if we do not achieve the perceived benefits of any acquisition as rapidly as, or to the extent anticipated by, financial analysts or investors, the market price of our common stock could decline |
| In addition, in order to finance any acquisitions, we might need to raise additional funds through public or private equity or debt financings |
| In that event, we could be forced to obtain financing on terms that are not favorable to us and, in the case of equity financing, that may result in dilution to our stockholders |
| In addition, any impairment of goodwill and amortization of other intangible assets or charges resulting from the costs of acquisitions could harm our business and operating results |
| 18 _________________________________________________________________ [84]Table of Contents We depend on our key personnel, the loss of whom would impair our ability to compete |
| We are highly dependent on the principal members of our management, engineering and scientific staff |
| The loss of the service of any of these persons could seriously harm our product development and commercialization efforts |
| In addition, research, product development and commercialization will require additional skilled personnel in areas such as chemistry and biology, and software and electronic engineering |
| Our corporate headquarters are located in Sunnyvale, California, where demand for personnel with these skills is extremely high and is likely to remain high |
| As a result, competition for and retention of personnel, particularly for employees with technical expertise, is intense and the turnover rate for qualified personnel is high |
| If we are unable to hire, train and retain a sufficient number of qualified employees, our ability to conduct and expand our business could be seriously reduced |
| The inability to retain and hire qualified personnel could also hinder the planned expansion of our business |
| Changes to financial accounting standards may affect our results of operations and cause us to change our business practices |
| We prepare our financial statements to conform with US generally accepted accounting principles |
| These accounting principles are subject to interpretation by the American Institute of Certified Public Accountants, the Public Company Accounting Oversight Board, the SEC and various other bodies formed to interpret and create appropriate accounting principles |
| A change in those principles can have a significant effect on our reported results and may affect our reporting of transactions completed before a change is announced |
| Changes to those rules or the questioning of current practices may adversely affect our reported financial results or the way we conduct our business |
| For example, accounting principles affecting many aspects of our business, including rules relating to equity-related compensation, have recently been revised or are under review |
| The Financial Accounting Standards Board and other agencies have finalized changes to US generally accepted accounting principles that require us, starting in fiscal year 2006, to record a charge to earnings for employee stock option grants and other equity incentives |
| We will have significant and ongoing accounting charges resulting from option grant and other equity incentive expensing that could reduce our overall net income |
| In addition, since we historically have used equity-related compensation as a component of our total employee compensation program, the accounting change could make the use of equity-related compensation less attractive to us and therefore make it more difficult to attract and retain employees |
| See Note 1 of the Notes to Consolidated Financial Statements for a discussion of the impact on our financial results if we were to use the fair value method of accounting for equity awards to our employees |
| Changes in our effective income tax rate could reduce our earnings |
| Various factors may have favorable or unfavorable effects on our effective income tax rate |
| These factors include, but are not limited to, interpretations of existing tax laws, our adoption of the Financial Accounting Standards Board’s Statement Nodtta 123 (revised 2004), “Share-Based Payment” relating to the accounting for stock options and other share-based payments, changes in tax laws and rates, future levels of research and development spending, changes in accounting standards, future levels of capital expenditures, changes in the mix of earnings in the various tax jurisdictions in which we operate and changes in overall levels of pre-tax earnings |
| The impact on our income tax provision resulting from the above-mentioned factors may be significant and could have a negative impact on our results of operations |
| Our operating results fluctuate and any failure to meet financial expectations may disappoint securities analysts or investors and result in a decline in our stock price |
| We have experienced and in the future may experience a shortfall in revenues or earnings or otherwise fail to meet public market expectations, which could materially and adversely affect our business and the market price of our common stock |
| Our total revenues and operating results may fluctuate significantly because of a number of factors, many of which are outside of our control |
| These factors include: • customer confidence in the economy, evidenced, in part, by stock market levels; • changes in the domestic and international economic, business and political conditions; 19 _________________________________________________________________ [85]Table of Contents • economic conditions within the pharmaceutical and biotechnology industries; • levels of product and price competition; • the length of our sales cycle and customer buying patterns; • the size and timing of individual transactions; • the timing of new product introductions and product enhancements; • the mix of products sold; • levels of international transactions; • activities of and acquisitions by competitors; • the timing of new hires and the allocation of our resources; • changes in foreign currency exchange rates; • our ability to develop and market new products and control costs; and • changes in US generally accepted accounting principles |
| One or more of the foregoing factors may cause our operating expenses to be disproportionately high during any given period or may cause our revenues and operating results to fluctuate significantly |
| In particular, we typically experience a decrease in the level of sales in the first calendar quarter as compared to the fourth quarter of the preceding year because of budgetary and capital equipment purchasing patterns in the life sciences research industry |
| Our quarterly operating results have fluctuated in the past, and we expect they will fluctuate in the future as a result of many factors, some of which are outside of our control |
| In addition, we manufacture our products based on forecasted orders rather than on outstanding orders |
| Accordingly, our expense levels are based, in part, on expected future sales, and we generally cannot quickly adjust operating expenses |
| For example, research and development and general and administrative expenses are not directly affected by variations in revenues |
| As a result, if sales levels in a particular quarter do not meet expectations, we may not be able to adjust operating expenses in a sufficient timeframe to compensate for the shortfall, and our results of operations for that quarter may be seriously harmed |
| Likewise, our manufacturing processes may in certain instances create a risk of excess or inadequate inventory levels if orders do not match forecasts |
| Due to the preceding factors, we may experience a shortfall in revenues or earnings or otherwise fail to meet public market expectations, which could materially and adversely affect our business, financial condition, results of operations and the market price of our common stock |
| Because our revenues and operating results are difficult to predict, we believe that period-to-period comparisons of our results of operations are not a good indication of our future performance |
| Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could have a material adverse effect on our stock price |
| Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the SEC require annual management assessments of the effectiveness of our internal control over financial reporting and a report by our independent registered public accounting firm attesting to and reporting on these assessments |
| If we fail to maintain the adequacy of our internal control over financial reporting, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the SEC If we cannot favorably assess, or our independent registered public accounting firm is unable to provide an unqualified attestation report on our assessment of, the effectiveness of our internal control over financial reporting, investor confidence in the reliability of our financial reports may be adversely affected, which could have a material adverse effect on our stock price |
| 20 _________________________________________________________________ [86]Table of Contents Our stock price is volatile, which could cause stockholders to lose a substantial part of their investment in our stock |
| The stock market in general, and the stock prices of technology companies in particular, have recently experienced volatility which has often been unrelated to the operating performance of any particular company or companies |
| In the twelve months ended December 31, 2005, the closing sales price of our common stock ranged from dlra18dtta16 to dlra28dtta93 |
| Our stock price could decline regardless of our actual operating performance, and stockholders could lose a substantial part of their investment as a result of industry or market-based fluctuations |
| In the past, our stock has traded relatively thinly |
| If a more active public market for our stock is not sustained, it may be difficult for stockholders to resell shares of our common stock |
| Because we do not anticipate paying cash dividends on our common stock for the foreseeable future, stockholders will not be able to receive a return on their shares unless they sell them |
| The market price of our common stock will likely fluctuate in response to a number of factors, including the following: • domestic and international economic, business and political conditions; • economic conditions within the pharmaceutical and biotechnology industries; • our failure to meet our performance estimates or the performance estimates of securities analysts; • changes in financial estimates of our revenues and operating results by us or securities analysts; • changes in buy/sell recommendations by securities analysts; and • the timing of announcements by us or our competitors of significant products, contracts or acquisitions or publicity regarding actual or potential results or performance thereof |
| Provisions of our charter documents and Delaware law may inhibit a takeover, which could limit the price investors might be willing to pay in the future for our common stock |
| Provisions in our certificate of incorporation and bylaws may have the effect of delaying or preventing an acquisition or merger in which we are not the surviving company or which results in changes in our management |
| For example, our certificate of incorporation gives our Board of Directors the authority to issue shares of preferred stock and to determine the price, rights, preferences and privileges and restrictions, including voting rights, of those shares without any further vote or action by our stockholders |
| The rights of the holders of common stock will be subject to, and may be harmed by, the rights of the holders of any shares of preferred stock that may be issued in the future |
| The issuance of preferred stock may delay, defer or prevent a change in control, as the terms of the preferred stock that might be issued could potentially prohibit our consummation of any merger, reorganization, sale of substantially all of our assets, liquidation or other extraordinary corporate transaction without the approval of the holders of the outstanding shares of preferred stock |
| The issuance of preferred stock could also have a dilutive effect on our stockholders |
| In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law |
| These provisions may prohibit large stockholders, in particular those owning 15prca or more of the outstanding voting stock, from consummating a merger or combination involving us |
| Further, in October 2001, our Board of Directors adopted a stockholder rights plan, commonly known as a “poison pill |
| ” These provisions described above and our poison pill could limit the price that investors might be willing to pay in the future for our common stock |
| Our actual results could differ materially from those anticipated in our forward-looking statements |
| This report contains forward-looking statements within the meaning of the federal securities laws that relate to future events or our future financial performance |
| When used in this report, you can identify forward-looking statements by terminology such as “believes,” “anticipates,” “plans,” “predicts,” “expects,” “estimates,” “intends,” “will,” “continue,” “may,” “potential,” “should” and similar expressions |
| These statements are only predictions |
| Our actual results could differ materially from those anticipated in our forward-looking statements as a result of many factors, including those set forth above and elsewhere in this report |
| 21 _________________________________________________________________ [87]Table of Contents Although we believe that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements |
| Neither we nor any other person assumes responsibility for the accuracy and completeness of these statements |
| We assume no duty to update any of the forward-looking statements after the date of this report or to conform these statements to actual results |
| Accordingly, we caution readers not to place undue reliance on these statements |