| OMNICELL INC /CA/ ITEM 1A RISK FACTORS We have identified the following additional risks and uncertainties that may have a material adverse effect on our business, financial condition or results of operations |
| Additional risks not presently known to us or that we currently believe are immaterial may also significantly impair our business operations |
| If any of these risks occur, our business, results of operations or financial condition could suffer and the market price of our common stock could decline |
| 11 ______________________________________________________________________ Any reduction in the demand for or adoption of our medication and supply dispensing systems and related services would reduce our revenues |
| Our medication and supply dispensing systems represent only one approach to managing the distribution of pharmaceuticals and supplies at healthcare facilities |
| Many healthcare facilities still use traditional approaches that do not include automated methods of medication and supply dispensing management |
| As a result, we must continuously educate existing and prospective customers about the advantages of our products |
| Our medication and supply dispensing systems typically represent a sizeable initial capital expenditure for healthcare organizations |
| Changes in the budgets of these organizations and the timing of spending under these budgets can have a significant effect on the demand for our medication and supply dispensing systems and related services |
| In addition, these budgets are often characterized by limited resources and conflicting spending priorities among different departments |
| Any decrease in expenditures by these healthcare facilities, particularly our significant customers, could decrease demand for our medication and supply dispensing systems and related services and reduce our revenues |
| We cannot assure you that we will continue to be successful in marketing our medication and supply dispensing systems or that the level of market acceptance of such systems will be sufficient to generate operating income |
| If we experience delays in or loss of sales of, delays in installations of, or delays in the recognition of revenue associated with our medication and supply dispensing systems, our competitive position, results of operations and financial condition could be harmed |
| The purchase of our medication and supply dispensing systems is often part of a customer’s larger initiative to re-engineer its pharmacy, distribution and materials management systems |
| As a result, the purchase of our medication and supply dispensing systems has recently translated into larger strategic purchases by customers that frequently require more complex and stringent contractual requirements and generally involve a significant commitment of management attention and resources by prospective customers |
| These larger and more complex deals often require the input and approval of many decision-makers, including pharmacy directors, materials managers, nurse managers, financial managers, information systems managers, administrators, lawyers and boards of directors |
| For these and other reasons, the sales cycle associated with the sale of our medication and supply dispensing systems is often lengthy and subject to a number of delays over which we have little or no control |
| We cannot assure you that we will not experience delays in the future |
| A delay in, or loss of, sales of our medication and supply dispensing systems could cause our operating results to vary significantly from quarter to quarter and could harm our business |
| In addition, and in part as a result of the aforementioned complexities inherent in larger transactions, our average installation times have increased for reasons that are often outside of our control |
| Since we recognize revenue only upon installation of our systems at a customer’s site, any delay in installation by our customers could also cause a reduction in our revenue for a given quarter |
| In addition, the larger, more complex transactions often require us to include negotiated contractual terms that have the effect of delaying revenue recognition under the accounting rules that apply to us |
| For all the above reasons, we believe that period-to-period comparisons of our operating results are not necessarily indicative of our future performance |
| Fluctuation in our quarterly operating results may cause our stock price to decline |
| The medication management and supply chain solutions market is highly competitive and we may be unable to compete successfully against new entrants and established companies with greater resources |
| The medication management and supply chain solutions market is intensely competitive and is characterized by evolving technologies and industry standards, frequent new product introductions and 12 ______________________________________________________________________ dynamic customer requirements |
| We expect continued and increased competition from current and future competitors, many of whom have significantly greater financial, technical, marketing and other resources than we do |
| Our current direct competitors in the medication management and supply chain solutions market include Pyxis Corporation (a division of Cardinal Health, Inc |
| ), McKesson Automation Inc |
| (a business unit of McKesson Corporation) and AmerisourceBergen Corporation (through its acquisition of MedSelect, Inc |
| Pyxis Corporation, in particular, has a significantly larger installed base of customers than we do and over the last few years has developed and introduced to the market a significantly larger number of new products |
| With the acquisition of an automated pharmacy storage and retrieval system, the SafetyMed platform and ScanREQ, and with the entry of other companies into the automated dispensing systems market space, we have gained additional competitors |
| They include AutoMed (an AmerisourceBergen Corporation company), the Baxter Medication Delivery business of Baxter International Inc, Care Fusion, Incorporated, Cerner Corporation, Eclipsys Corporation, IDX Systems Corporation and Siemens Medical Solutions (a division of Siemens AG) |
| The competitive challenges we face in the medication management and supply chain solutions market include, but are not limited to the following: · our competitors may develop, license or incorporate new or emerging technologies or devote greater resources to the development, promotion and sale of their products and services; · certain competitors have greater name recognition and a more extensive installed base of medication and supply dispensing systems or other products and services than we do, and such advantages could be used to increase their market share; · other established or emerging companies may enter the medication management and supply chain solutions market; · current and potential competitors may make strategic acquisitions or establish cooperative relationships among themselves or with third parties, including larger, more established healthcare supply companies, thereby increasing their ability to develop and offer products and services to address the needs of our prospective customers; and · our competitors may secure products and services from suppliers on more favorable terms or secure exclusive arrangements with suppliers or buyers that may impede the sales of our products and services |
| Competitive pressures could result in price reductions of our products and services, fewer customer orders and reduced gross margins, any of which could harm our business |
| Competitive pressures could result in price reductions of our products and services, fewer customer orders and reduced gross margins, any of which could harm our business |
| Our current and potential customers may have other business relationships with our competitors and consider those relationships when deciding between our products and services and those of our competitors |
| Many of our competitors are large drug and medical-surgical supply distribution companies that sell their distribution services to our current and potential customers |
| As a result, if a customer is a distribution customer of one of our competitors, the customer may be motivated to purchase medication and supply dispensing systems or other automation solutions from our competitor in order to maintain or enhance their business relationship with that competitor |
| 13 ______________________________________________________________________ The healthcare industry faces financial constraints and consolidation that could adversely affect the demand for our products and services |
| The healthcare industry has faced, and will likely continue to face, significant financial constraints |
| For example, the shift to managed care in the 1990s put pressure on healthcare organizations to reduce costs, and the Balanced Budget Act of 1997 significantly reduced Medicare reimbursement to healthcare organizations |
| Our automation solutions often involve a significant financial commitment by our customers, and, as a result, our ability to grow our business is largely dependent on our customers’ information technology budgets |
| To the extent healthcare information technology spending declines or increases more slowly than we anticipate, demand for our products and services would be adversely affected |
| Many healthcare providers have consolidated to create larger healthcare delivery organizations with greater market power |
| If this consolidation continues, it could erode our customer base and reduce the size of our target market |
| In addition, the resulting organizations could have greater bargaining power, which may lead to price erosion |
| If we are unable to maintain our relationships with group purchasing organizations or other similar organizations, we may have difficulty selling our products and services |
| We have agreements with various group purchasing organizations, such as AmeriNet, Inc, Consorta, Inc, HealthTrust Purchasing Group, LP, MAGNET Group, Novation, LLC, and Premier, Inc, which enable us to sell more readily our products and services to customers represented by these organizations |
| Our relationships with these organizations are terminable at the convenience of either party |
| The loss of any of these relationships could impact the breadth of our customer base and could impair our ability to increase our revenues |
| We cannot guarantee that these organizations will renew our contracts on similar terms, if at all, and they may choose to terminate our contracts before they expire |
| Our quarterly operating results may vary in the future depending on many factors that include, but are not limited to, the following: · the ability to successfully install our products on a timely basis and meet other contractual obligations necessary to recognize revenue; · the size and timing of orders for our medication and supply dispensing systems, and their installation and integration; · the overall demand for healthcare medication management and supply chain solutions; · changes in pricing policies by us or our competitors; · the number, timing and significance of product enhancements and new product announcements by us or our competitors; · the relative proportions of revenues we derive from products and services; · our customers’ budget cycles; · changes in our operating expenses; · the performance of our products; · changes in our business strategy; and · economic and political conditions, including fluctuations in interest rates and tax increases |
| 14 ______________________________________________________________________ Due to the foregoing factors, our quarterly revenues and operating results are difficult to predict and fluctuate, which in turn may cause the market price of our stock to decline |
| We have a history of operating losses and we cannot assure you that we will maintain profitability |
| While we were profitable with net income of dlra10dtta6 million for the year ended December 31, 2004, we had a net loss of dlra2dtta1 million for the year ended December 31, 2005 |
| Therefore, we cannot assure you that we will be profitable in the future |
| Furthermore, we cannot assure you that if we again become profitable we will be able to maintain or increase profitability in the future on a quarterly or annual basis |
| If the market price of our stock continues to be highly volatile, the value of an investment in our common stock may decline |
| For the 12 months prior to December 31, 2005, our common stock has traded between dlra6dtta13 and dlra11dtta97 per share |
| The market price for shares of our common stock has been and may continue to be highly volatile |
| In addition, our announcements or external events may have a significant impact on the market price of our stock |
| These announcements or external events may include: · our operating results; · developments in our relationships with corporate customers; · changes in the ratings of our stock by securities analysts; · announcements by us or our competitors of technological innovations or new products; or · general economic and market conditions |
| Furthermore, the stock market as a whole from time to time has experienced extreme price and volume fluctuations, which have particularly affected the market prices for emerging companies |
| These broad market fluctuations may cause the market price of our common stock to decline irrespective of our performance |
| In addition, sales of substantial amounts of our common stock in the public market could lower the market price of our common stock |
| Failure to maintain effective internal control over financial reporting 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 For example, in 2004, we determined that we had a material weakness related to controls over the review of signed contracts prior to revenue recognition |
| Prior to year end 2004, we had interpreted our internal revenue recognition policy to require an enforceable contract as evidenced by a signature from our customer |
| During our year-end process we concluded that our internal revenue recognition policy should have been interpreted to require both the customer’s signature and our own signature prior to recognizing revenue |
| This material weakness in our interpretation of our internal revenue recognition policy arose from the lack of sufficient understanding of our internal policy |
| As a result of this material weakness, our management concluded that our internal control over financial reporting and our disclosure controls and procedures were not effective as of December 31, 2004 |
| If we cannot in the future favorably assess, or our 15 ______________________________________________________________________ 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 |
| We have outstanding options that have the potential to dilute shareholder value and cause our stock value to decline |
| We frequently grant stock options to our employees and other individuals |
| At December 31, 2005, we had options outstanding for 6cmam579cmam137 shares of our common stock at option exercise prices ranging from dlra1dtta80 to dlra20dtta00 per share |
| If some or all of such shares are sold into the public market over a short time period, the value of our stock may decline, as the market may not be able to absorb those shares at the prevailing market prices |
| Such sales may also make it more difficult for us to sell equity securities in the future on terms that we deem acceptable |
| Decreased effectiveness of equity compensation could negatively impact our ability to attract and retain employees, and a modification to our equity compensation strategy or recent changes in accounting for equity compensation could adversely affect our earnings |
| Accounting principles generally accepted in the United States are subject to interpretation by the Financial Accounting Standards Board, or FASB, the American Institute of Certified Public Accountants, the Public Company Accounting Oversight Board, the Securities and Exchange Commission, and various bodies formed to promulgate and interpret appropriate accounting principles |
| A change in these principles or interpretations could have a significant effect on our reported financial results, and could affect the reporting of transactions completed before the implementation of a new accounting principle |
| We currently account for stock options under APB Opinion Nodtta 25, “Accounting for Stock Issued to Employees,” and, accordingly, we record compensation expense related to stock options if the current market price of the underlying stock exceeds the exercise price of the stock option on the date of grant |
| In December 2004, the FASB issued a revision of Statement of Financial Accounting Standards Nodtta 123, “Accounting for Stock-Based Compensation |
| ” The revision, “SFAS 123R—Share-Based Payment,” is effective for reporting periods beginning after June 15, 2005 |
| On April 14, 2005, the Securities and Exchange Commission adopted a rule amendment that delayed the compliance dates for SFAS 123R such that we are now allowed to adopt the new standard no later than January 1, 2006 |
| SFAS 123R supersedes APB Opinion 25, and will require companies to recognize compensation, using the fair-value based method, for costs related to share-based payments including stock options and stock issued under our employee stock purchase plans |
| The impact of the adoption of SFAS 123R cannot be predicted at this time because it will depend on levels of share-based payments granted in the future |
| However, valuation of employee stock options under SFAS 123R is similar to SFAS 123, with minor exceptions |
| The impact on the results of operations and earnings per share had the Company adopted SFAS 123, is described more fully in Note 1, “Organization and Summary of Significant Accounting Policies |
| ” The Company expects that the adoption of SFAS 123R’s fair value method will have a significant impact on the Company’s results of operations, although it is not expected to have an impact on our overall financial position |
| SFAS 123R also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature |
| This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption |
| We are currently evaluating the impact of this statement on our consolidated financial statements |
| We have historically used stock options and other forms of equity compensation as key components of our employee compensation program in order to align employees’ interests with the interests of our 16 ______________________________________________________________________ stockholders, encourage employee retention, and provide competitive compensation packages |
| The changing regulatory landscape could make it more difficult and less favorable for us to grant stock options to employees in the future |
| In light of these changes, we anticipate that we may modify our equity compensation strategy to emphasize equity incentives other than stock options, including increased use of certain performance-related features |
| If employees believe that the incentives that they would receive under any such modified strategy are less attractive, we may find it difficult to attract, retain and motivate employees |
| To the extent that new regulations make it more difficult or expensive to grant equity instruments to employees, we may incur increased compensation costs, further change our equity compensation strategy or find it increasingly difficult to attract, retain and motivate employees, each of which could materially and adversely affect our business, financial condition or results of operations |
| We may not be able to successfully integrate acquired businesses or technologies into our existing business, which could negatively impact our operating results |
| As a part of our business strategy, during the past few years we acquired an automated pharmacy storage and retrieval system, the SafetyMed platform, and SecureVault and we may seek to acquire other businesses, technologies or products in the future |
| While we expect to analyze carefully all potential transactions before committing to them, we cannot assure you that any transaction that is completed will result in long-term benefits to us or our stockholders, or that our management will be able to integrate or manage the acquired business effectively |
| Acquisitions entail numerous risks, including difficulties associated with the integration of operations, technologies, products and personnel that, if realized, could harm our operating results |
| Risks related to potential acquisitions include, but are not limited to: · uncertain availability of suitable businesses, products or technologies for acquisition on terms acceptable to us; · difficulties in combining previously separate businesses into a single unit; · substantial diversion of management’s attention from day-to-day business when evaluating and negotiating such transactions and then integrating an acquired business; · discovery, after completion of the acquisition, of liabilities assumed from the acquired business or of assets acquired that are not realizable; · failure to achieve anticipated benefits such as cost savings and revenue enhancements; · difficulties related to assimilating the products of an acquired business; and · failure to understand and compete effectively in markets in which we have limited previous experience |
| If our US government customers do not receive their annual funding, our ability to recognize revenues on future sales to US government customers, to sell our US government receivables to third-party leasing companies or to collect payments on unsold receivables from US government customers could be impaired |
| In our judgment and based on our history with these accounts, we believe these receivables are collectible |
| However, in the future, the failure of any of our US government customers to receive their annual funding could impair our ability to sell to these customers or to sell our US government receivables to third-party leasing companies |
| In addition, the ability to collect payments on unsold receivables could be impaired and may result in a write down of our unsold receivables to US government customers |
| As of December 31, 2005, the balance of our unsold leases to US government customers was dlra3dtta6 million |
| 17 ______________________________________________________________________ If we are unable to recruit and retain skilled and motivated personnel, our competitive position, results of operations and financial condition could be harmed |
| Our success is highly dependent upon the continuing contributions of our key management, sales, technical and engineering staff |
| We believe that our future success will depend upon our ability to attract, train and retain highly skilled and motivated personnel |
| As our installed base of customers increases, we will also face additional demands on our customer service and support personnel, requiring additional resources to meet these demands |
| We may experience difficulty in recruiting qualified personnel |
| Competition for qualified technical, engineering, managerial, sales, marketing, financial reporting and other personnel can be intense and we cannot assure you that we will be successful in attracting and retaining qualified personnel |
| Competitors have in the past attempted, and may in the future attempt, to recruit our employees |
| Failure to attract and retain key personnel could harm our competitive position, results of operations and financial condition |
| We depend on a limited number of suppliers for our medication and supply dispensing systems, and our business may suffer if we are unable to obtain an adequate supply of components and equipment on a timely basis |
| Our production strategy for our medication and supply dispensing systems is to work closely with several key sub-assembly manufacturers and equipment providers and utilize lower cost manufacturers whenever possible |
| Although many of the components of our systems are standardized and available from multiple sources, certain components or subsystems are fabricated according to our specifications |
| At any given point in time, we may only use a single source of supply for certain components |
| Our failure to obtain alternative vendors, if required, for any of the numerous components used to manufacture our products would limit our ability to manufacture our products and could harm our business |
| In addition, any failure of a maintenance contractor to perform adequately could harm our business |
| If we are unable to successfully integrate our automation solutions with the existing information systems of our customers, they may choose not to use our products and services |
| For healthcare facilities to fully benefit from our automation solutions, our systems must integrate with their existing information systems |
| This may require substantial cooperation, investment and coordination on the part of our customers |
| There is little uniformity in the systems currently used by our customers, which complicates the integration process |
| If these systems are not successfully integrated, our customers could choose not to use or to reduce their use of our automation solutions, which would harm our business |
| Our failure to protect our intellectual property rights could negatively affect our ability to compete |
| We believe that our success depends in part on our ability to obtain patent protection for technology and processes and our ability to preserve our trademarks, copyrights and trade secrets |
| We have pursued patent protection in the United States and foreign jurisdictions for technology that we believe to be proprietary and for technology that offers us a potential competitive advantage for our products and we intend to continue to pursue such protection in the future |
| Our issued patents relate to various features of our medication and supply dispensing systems |
| There can be no assurance that we will file any patent applications in the future that any of our patent applications will result in issued patents or that, if issued, such patents will provide significant protection for our technology and processes |
| Furthermore, there can be no assurance that others will not develop technologies that are similar or superior to our technology or that others will not design around the patents we own |
| All of our system software is copyrighted and subject to the protection of applicable copyright laws |
| Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or obtain and use information that we regard as proprietary |
| 18 ______________________________________________________________________ Intellectual property claims against us could harm our competitive position, results of operations and financial condition |
| Although we have received no notice alleging infringement from this third party to date, there can be no assurance that such third party will not assert an infringement claim against us in the future |
| Other than this patent, we do not believe that any of our products infringe upon the proprietary rights of any third parties |
| In the future, third parties may claim that we have infringed upon their intellectual property rights with respect to current or future products |
| We expect that developers of medication and supply dispensing systems will be increasingly subject to infringement claims as the number of products and competitors in our industry grows and the functionality of products in different industry segments overlaps |
| We do not possess special insurance that covers intellectual property infringement claims; however, such claims may be covered under our traditional insurance policies |
| These policies contain terms, conditions and exclusions that make recovery for intellectual infringement claims difficult to guarantee |
| Any infringement claims, with or without merit, could be time-consuming to defend, result in costly litigation, divert management’s attention and resources, cause product shipment delays or require us to enter into royalty or licensing agreements |
| These royalty or licensing agreements, if required, may not be available on terms acceptable to us, or at all, which could harm our competitive position, results of operations and financial condition |
| Product liability claims against us could harm our competitive position, results of operations and financial condition |
| Our products provide medication management and supply chain solutions for the healthcare industry |
| Despite the presence of healthcare professionals as intermediaries between our products and patients, if our products fail to provide accurate and timely information or operate as designed, customers, patients or their family members could assert claims against us for product liability |
| Litigation with respect to liability claims, regardless of its outcome, could result in substantial cost to us, divert management’s attention from operations and decrease market acceptance of our products |
| Although we have not experienced any product liability claims to date, the sale and support of our products entail the risk of product liability claims |
| We possess a variety of insurance policies that include coverage for general commercial liability and technology errors and omissions liability |
| However, these policies may not be adequate against product liability claims |
| A successful claim brought against us, or any claim or product recall that results in negative publicity about us, could harm our competitive position, results of operations and financial condition |
| Changing customer requirements could decrease the demand for our products and services |
| The medication management and supply chain solutions market is intensely competitive and is characterized by evolving technologies and industry standards, frequent new product introductions and dynamic customer requirements that may render existing products obsolete or less competitive |
| As a result, our position in the medication management and supply chain solutions market could erode rapidly due to unforeseen changes in the features and functions of competing products, as well as the pricing models for such products |
| Our future success will depend in part upon our ability to enhance our existing products and services and to develop and introduce new products and services to meet changing customer requirements |
| The process of developing products and services such as those we offer is extremely complex and is expected to become increasingly more complex and expensive in the future as new technologies are introduced |
| If we are unable to enhance our existing products or develop new products to meet changing customer requirements, demand for our products could decrease |
| 19 ______________________________________________________________________ We may need additional financing in the future to meet our capital needs and such financing may not be available on favorable terms and may be dilutive to existing stockholders |
| We intend to continue to expend substantial funds for research and development activities, product development, expansion of sales and marketing activities and the potential acquisition and integration of complementary products and businesses |
| As a consequence, in the future we may need to seek additional financing to meet our working capital needs and to finance capital expenditures, as well as to fund operations or potential acquisitions |
| We may be unable to obtain any desired additional financing on terms favorable to us, if at all |
| If adequate funds are not available on acceptable terms, we may be unable to fund our expansion, successfully develop or enhance products, respond to competitive pressures or take advantage of acquisition opportunities, any of which could negatively affect our business |
| If we raise additional funds through the issuance of equity securities, our stockholders will experience dilution of their ownership interest |
| If we raise additional funds by issuing debt, we may be subject to limitations on our operations |
| We have an effective “shelf” registration statement which enables us to offer and sell, from time to time, up to a total dollar amount of dlra100 million of our debt and equity securities in one or more offerings, which could cause our stockholders to experience dilution of their ownership interest and may cause our stock price to decline |
| If our new product solutions do not achieve market acceptance, our sales and operating results will be affected |
| We market new products, historically added through acquisitions, which we believe are competitive in their respective markets and will meet the demands of our customers |
| Our ongoing business goals are dependent in part on customer acceptance of these new products |
| We cannot assure you that we will be successful in marketing these products, that these products will compete effectively with similar products sold by our competitors or that the level of market acceptance of such products will be sufficient to generate expected revenues and synergies with our other products |
| In addition, deployment of these new products typically require interoperability with other Omnicell products as well as with healthcare facilities’ existing information management systems |
| If these products fail to satisfy these demanding technological objectives, our customers will be dissatisfied and we may be unable to generate future sales |
| Failure to establish a significant base of customer references will significantly reduce our ability to sell these products to additional customers |
| Some of our products incorporate technologies owned by third parties that are licensed to us for use, modification and/or distribution, including but not limited to certain Commerce One procurement software products for use in our Web-based procurement product, OmniBuyer |
| If we lose access to, or the ongoing rights to modify and distribute, these technologies with our products we will either have to devote resources to independently develop, maintain and support the technologies ourselves or transition to another vendor |
| Any independent development, maintenance or support of these technologies by us or the transition to alternative technologies could be costly, time consuming and could delay our product releases and upgrade schedules |
| These factors could negatively and materially affect our ability to market, sell or distribute our products and in turn our business and prospects |
| Our international operations may subject us to additional risks that can adversely affect our operating results |
| We currently have operations outside of the United States, consisting of primarily software development and customer support, and in the future we may expand our international operations, particularly in India |
| Our international operations introduce a variety of risks, including: · the difficulty of managing an organization operating in various countries; · growing political sentiment against international outsourcing of support services and development; · reduced protection for intellectual property rights in some countries 20 ______________________________________________________________________ · changes in regulatory requirements; · the requirement to comply with a variety of international laws and regulations, including local labor ordinances and changes in tariff rates; · fluctuations in currency exchange rates and difficulties in transferring funds from certain countries; and · political unrest, terrorism and the potential for other hostilities in areas in which we have facilities |
| Our success depends, in part, on our ability to anticipate and address these risks |
| We cannot guarantee that these or other factors will not adversely affect our business or operating results |
| Government regulation of the healthcare industry could reduce demand for our products |
| While the manufacture and sale of our current products are not regulated by the United States Food and Drug Administration, or FDA, these products, or our future products, if any, may be regulated in the future |
| A requirement for FDA approval could reduce the demand for our products |
| Pharmacies are regulated by individual state boards of pharmacy that issue rules for pharmacy licensure in their respective jurisdictions |
| State boards of pharmacy do not license or approve our medication and supply dispensing systems; however, pharmacies using our equipment are subject to state board approval |
| The failure of such pharmacies to meet differing requirements from a significant number of state boards of pharmacy could decrease demand for our products and harm our competitive position, results of operations and financial condition |
| Similarly, hospitals must be accredited by the Joint Commission on Accreditation of Healthcare Organizations, or JCAHO, in order to be eligible for Medicaid and Medicare funds |
| JCAHO does not approve or accredit medication and supply dispensing systems; however, disapproval of our customers’ medication and supply dispensing management methods and their failure to meet JCAHO requirements could decrease demand for our products and harm our competitive position, results of operations and financial condition |
| While we have implemented a Privacy and Use of Information Policy and strictly adhere to established privacy principles, use of customer information guidelines and federal and state statutes and regulations regarding privacy and confidentiality, we cannot assure you that we will be in compliance with the Health Insurance Portability and Accountability Act of 1996, or HIPAA This legislation required the Secretary of Health and Human Services, or HHS, to adopt national standards for some types of electronic health information transactions and the data elements used in those transactions, to adopt standards to ensure the integrity and confidentiality of health information and to establish a schedule for implementing national health data privacy legislation or regulations |
| In August 2002, HHS published final modifications to its privacy regulations that took effect on April 14, 2003 |
| These regulations restrict the use and disclosure of personally identifiable health information by our customers who are ‘‘covered entities’’ under HIPAA Because Omnicell may be considered a ‘‘business associate’’ under HIPAA, many of our customers have required that we enter into written agreements governing the way we handle any patient information we may encounter in providing our products and services |
| In February 2003, HHS issued final security rules requiring covered entities to implement appropriate technical and physical safeguards of electronically transmitted personal health information by April 2005 |
| We cannot predict the potential impact of these rules, rules that have not yet been proposed or any other rules that might be finally adopted on our customers or on Omnicell |
| In addition, other federal and/or state privacy legislation may be enacted at any time |
| These laws and regulations could restrict the ability of our customers to obtain, use or disseminate patient information |
| This could reduce the demand for our products or force us to redesign our products in order to meet regulatory requirements |
| We adopted a stockholder rights plan that may discourage, delay or prevent a merger or acquisition that is beneficial to our stockholders |
| In February 2003, our Board of Directors adopted a stockholder rights plan that may have the effect of discouraging, delaying or preventing a change in control of our company that is beneficial to our 21 ______________________________________________________________________ stockholders |
| Pursuant to the terms of the plan, when a person or group, except under certain circumstances, acquires 15prca or more of our outstanding common stock (other than two current stockholders and their affiliated entities, which will not trigger the rights plan unless they acquire beneficial ownership of 17dtta5prca and 22dtta5prca or more, respectively, of our outstanding common stock) or ten business days after commencement or announcement of a tender or exchange offer for 15prca or more of our outstanding common stock, the rights (except those rights held by the person or group who has acquired or announced an offer to acquire 15prca or more of our outstanding common stock) would generally become exercisable for shares of our common stock at a discount |
| Because the potential acquiror’s rights would not become exercisable for our shares of common stock at a discount, the potential acquiror would suffer substantial dilution and may lose its ability to acquire us |
| In addition, the existence of the plan itself may deter a potential acquiror from acquiring us |
| As a result, either by operation of the plan or by its potential deterrent effect, a change in control of our company that our stockholders may consider in their best interests may not occur |
| Our facilities are located near known earthquake fault zones, and the occurrence of an earthquake or other natural disaster or any other catastrophic event could cause damage to our facilities and equipment, which could require us to cease or curtail operations |
| Our facilities are located near known earthquake fault zones and are vulnerable to significant damage from earthquakes |
| We are also vulnerable to damage from other types of disasters, including fires, floods, power loss, communications failures and similar events including the effects of war or acts of terrorism |
| If any disaster were to occur, our ability to operate our business at our facilities could be seriously or completely impaired or destroyed |
| The insurance we maintain may not be adequate to cover our losses resulting from disasters or other business interruptions |