EXHIBIT 99
CAUTIONARY STATEMENT
The statements contained in this Form 10-K include forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 ("PSLRA"). When used in this Form 10-K and in future filings by the Company
with the Securities and Exchange Commission, in the Company's press releases,
presentations to securities analysts or investors, or in oral statements made by
or with the approval of an executive officer of the Company, the words or
phrases "believes," "may," "will likely result," "estimates," "projects,"
"anticipates," "expects" or similar expressions and variations thereof are
intended to identify such forward-looking statements. Any forward-looking
statement involves risks and uncertainties that may have a material adverse
effect on the business, results of operations, financial condition or prospects,
financial or other, of the Company and may cause the Company's actual results to
differ materially from historical results or the results discussed in the
forward-looking statements.
The following discussions contain cautionary statements regarding the
Company's business that investors and others should consider. This discussion is
intended to take advantage of the "safe harbor" provisions of the PSLRA. In
making these cautionary statements, the Company is not undertaking to address or
update each factor in future filings or communications regarding the Company's
business or results.
RECENT OPERATING LOSSES; NEED FOR ADDITIONAL FINANCING
The Company incurred operating losses of $12,331,000 in fiscal 2000 and has
an accumulated deficit of $41,132,000 at March 31, 2000. In response to the
losses incurred, management has implemented certain corrective actions and has
taken steps to improve operations and provide for adequate resources to fund the
Company's capital needs for the next twelve months. In view of these matters,
management believes the Company has the ability to meet its financing
requirements on a continuing basis. However, if the Company's fiscal 2001
planned cash flow projections are not met, management could consider the
reduction of certain discretionary expenses and sale of certain assets. In the
event that these plans are not sufficient and the Company's credit facilities
are not available, the Company's ability to operate could be adversely affected.
DEPENDENCE ON PRODUCTS
The Company's revenues are primarily generated from sales of its CDR(R)
system and, to a lesser extent, other products, including the CDRCam(R),
CDRPan(TM) and accuDEXA(R). There can be no assurance that any of these devices
will not be rendered obsolete or inferior as a result of technological change,
changing customer needs or new product introductions, each of which would have a
material adverse effect on the Company. There can be no assurance that the
Company's competitors will not succeed in developing or marketing technologies
and products that are superior to and/or more commercially attractive than the
Company's. The Company's success will depend in part on its ability to improve
and enhance its products in a timely manner. There can be no assurance that the
Company will be able to do so. The failure to enhance any of the Company's
products in a timely manner could have a material adverse effect on the Company.
DEPENDENCE ON EXCLUSIVE NORTH AMERICAN DISTRIBUTOR
As of May 1, 2000, the Company markets and distributes its CDR(R) product
line in the United States and Canada exclusively through Patterson Dental
Company. The Company anticipates that Patterson Dental will be the single
largest contributor to the Company's revenues in the coming fiscal year. While
the Distributorship Agreement between the Company and Patterson Dental does
provide for a minimum purchase quota, there can be no assurance that Patterson
will meet any minimum purchase quota or that it will continue to purchase any
product at all from the Company. If Patterson fails to purchase a significant
volume of product from the Company, it would have a material adverse effect on
the Company.
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DEPENDENCE ON THIRD-PARTY DISTRIBUTORS
Outside of North America, the Company distributes its CDR(R) product line
through international third-party independent distributors. Historically, a
limited number of distributors have accounted for a significant portion of the
Company's revenues. In general, these distributors could discontinue marketing
the Company's products with little or no notice. Certain of the Company's
distributors also could market products which compete with the Company's
products. The loss of or significant reduction in sales volume of one or more of
the Company's distributors could have a material adverse effect on the Company.
DEPENDENCE ON DEVELOPING AND MARKETING NEW PRODUCTS AND ENHANCEMENTS TO EXISTING
PRODUCTS
The Company intends to develop and/or is currently developing new products
for the dental and medical markets. There can be no assurance that the Company
will continue with and/or succeed in its efforts to develop such products. The
Company expects to file 510(k) applications with the FDA in connection with its
future products. There can be no assurance that the Company will file
applications for or obtain regulatory approval from the FDA, either in the form
of a pre-market clearance or a 510(k) clearance, for any of its future products,
or that in order to obtain FDA clearance, the Company will not be required to
submit additional data or meet additional FDA requirements that may
substantially delay the application process and result in substantial additional
expense. Moreover, such pre-marketing clearance, if obtained, may be subject to
conditions on marketing or manufacturing which could impede the Company's
ability to manufacture and/or market its products. Furthermore, the anticipated
market for the Company's planned digital mammography sensor is unproven and
there can be no assurance that it will develop according to the Company's
expectations. While the Company is actively engaged in research and development
to develop new products, there can be no assurance that the Company will be
successful in such endeavors. There can be no assurance that the digital
mammography sensors or any other products to be developed by the Company will be
approved by or receive marketing clearance from applicable domestic and/or
international governmental or regulatory authorities. If the Company is unable
to develop, obtain regulatory approval for and market new products and
enhancements to existing products, it will have a material adverse effect on the
Company.
RAPID AND SIGNIFICANT TECHNOLOGICAL CHANGE
The market for the Company's products is characterized by rapid and
significant technological change, evolving industry standards and new product
introductions. The Company's products require significant planning, design,
development and testing which require significant capital commitments and
investment by the Company. There can be no assurance that the Company's products
or proprietary technologies will not become uncompetitive or obsolete as a
result of technological change, evolving industry standards or new product
introductions or that the Company will be able to generate any economic return
on its investment in product development. If the Company's products or
technologies become uncompetitive or obsolete, it would have a material adverse
effect on the Company.
DEPENDENCE ON KEY SUPPLIERS; VOLATILITY OF SEMICONDUCTOR MARKET
The Company relies on several key suppliers as sole sources for a number of
critical components. Of these, semiconductors are the most significant product
components the Company purchases. The availability and price of these components
may be subject to change due to interruptions in production, changing market
conditions and other events. Furthermore, availability may be adversely impacted
if the Company fails to make timely payments to its key suppliers. There can be
no assurance that, if the Company were to enter into purchase arrangements with
other suppliers, such suppliers would be able to deliver such semiconductors at
an acceptable price or in a timely manner. If the Company were unable to develop
reasonably-priced alternative sources in a timely manner, or if the Company
encountered delays or other difficulties in the supply of such products and
other materials from third parties, there could be a material adverse effect on
the Company. In past years, semiconductors have been subject to significant
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price fluctuations. There can be no assurance that the Company can mitigate the
effect of future price increases on its results of operations and financial
condition.
INTENSE COMPETITION
Competition relating to the Company's current products is intense and
includes various companies, both within and outside of the United States. The
Company anticipates that competition for its future products will also be
intense and include various companies, both within and outside of the United
States. Many of the Company's competitors are large companies with substantially
greater financial, sales and marketing, and technical resources, larger and more
experienced research and development staffs, more extensive physical facilities
and substantially greater experience in obtaining regulatory approvals and in
marketing products than the Company. In addition, there can be no assurance that
the Company's competitors are not currently developing, or will not attempt to
develop, technologies and products that are more effective than those being
developed by the Company or that would otherwise render the Company's existing
and new technology and products obsolete or uncompetitive. No assurance can be
given that the Company will be able to compete successfully. The inability of
the Company to compete successfully or the development by the Company's
competitors of technology and products that are more effective than those being
developed by the Company would have a material adverse effect on the Company.
RELIANCE ON PATENTS AND PROPRIETARY TECHNOLOGY; RISK OF PATENT INFRINGEMENT
The Company currently has issued patents and patent applications as
described in Item 1 - "Business," of this Form 10-K. There can be no assurance
that any of the Company's patents, any of the patents of which the Company is a
licensee or any patents which may issue to the Company or which the Company may
license in the future, will provide the Company with a competitive advantage or
afford the Company protection against infringement by others, or that the
patents will not be successfully challenged or circumvented by competitors of
the Company.
The Company is the licensee in certain fields of biomedical radiology of
certain patents, patent applications and other know-how related to APS
technology (collectively, the "APS Technology"), which was developed at the
California Institute of Technology. The Company has been advised by the licensor
of the APS Technology that the Company's rights to such technology are subject
to government rights to use, noncommercial educational rights to use by
California Tech and the right of a third party to obtain a nonexclusive license
from the California Institute of Technology with respect to such technology. The
Company believes that, as of the date of this filing, except for such third
party's exercise of its right to obtain a nonexclusive license to use APS
Technology in a field other than biomedical radiology, none of the foregoing
parties have given notice of their exercise of any of their respective rights to
the APS Technology. There can be no assurance that this will continue to be the
case, and any such exercise could have a material adverse effect on the Company.
In addition, the license to the APS technology is subject to certain
requirements relating to product introduction, improvement, marketing and
distribution. There can be no assurance that the Company will be able to meet
the requirements necessary to maintain its license, and any loss of or
restriction in its license may have a material adverse effect on the Company.
The Company is also the owner of certain trade secrets, which it protects
by, among other things, entering into non-disclosure, confidentiality,
non-solicitation and non-competition agreements. However, there can be no
assurance that the duties imposed by these agreements, such as the duty to
maintain confidentiality and the duty not to compete, will not be breached, or
that such breaches will not have a material adverse effect on the Company.
There also can be no assurance that the technology practiced by the Company
will not infringe upon the patents of others. The Company's CDR(R) system is
currently the subject of litigation regarding the patent rights of others. See
Item 3 - "Legal Proceedings." In the event that any such infringement claim is
successful, there can be no assurance that the Company would be able to
negotiate with the patent holder for a license, in which case the Company could
be prevented from practicing the subject matter claimed by such patent. In
addition, there can be no assurance that the Company would be able to redesign
its products
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to avoid infringement. The inability of the Company to practice the subject
matter of patents claimed by others or to redesign its products to avoid
infringement could have a material adverse effect on the Company.
LITIGATION AND INSURANCE
The Company and/or certain of its officers and former officers, are
involved in the proceedings described below:
I. The Company is a named defendant in two lawsuits instituted by Trophy
Radiologie, S.A. (`Trophy S.A.'), a subsidiary of Trex Medical Corporation. One
lawsuit was instituted in France and the other in the United States.
The French lawsuit was filed in November 1995, in the tribunal de Grande
Instance de Bobigny, the French patent court, and originally alleged that the
Company's CDR(R)system infringes French Patent No. 2,547,495, European Patent
No. 129,451 and French Certificate of Addition No. 2,578,737. These patents, all
of which are related, are directed to a CCD-based intra-oral sensor. Since
filing its lawsuit, Trophy S.A. has withdrawn its allegation of infringement
with respect to the Certificate of Addition. Trophy S.A. is seeking a permanent
injunction and unspecified damages, including damages for its purported lost
profits.
The lawsuit in the United States was filed in March 1996 by Trophy S.A.,
Trophy Radiology, Inc., a United States subsidiary of Trophy S.A. (`Trophy
Inc.') and the named inventor on the patent in suit, Francis Mouyen, a French
citizen. The suit was brought in the United States District Court for the
Eastern District of New York, and alleges that the Company's CDR(R)system
infringes United States Patent No. 4,593,400 (the `400 patent'), which is
related to the patents in the French lawsuit. Trophy S.A., Trophy Inc. and
Mouyen are seeking a permanent injunction and unspecified damages, including
damages for purported lost profits, enhanced damages for the Company's purported
willful infringement and an award of attorney fees.
In addition, the Company has counter-sued Trophy S.A. and Trophy Inc. for
infringement of United States Patent No. 4,160,997, an expired patent which was
exclusively licensed to the Company by its inventor, Dr. Robert Schwartz, and
for false advertising and unfair competition.
On September 12, 1997, after having been given permission to do so by the
Court, the Company served two motions for summary judgment seeking dismissal of
the action pending in the United States District Court for the Eastern District
of New York, on the grounds of non-infringement and patent invalidity. On
February 22, 2000, oral argument on these motions was heard by the Court. The
motions are currently pending.
There can be no assurance that the Company will be successful in its
defense of any of these actions, or in its counter-suit. If the Company is
unsuccessful in its defense of any of these actions, it could have a material
adverse effect upon the Company. Moreover, regardless of their outcome, the
Company may be forced to expend significant amounts of money in legal fees in
connection with these lawsuits.
II. In late 1998 through early 1999, nine shareholder complaints purporting
to be class action lawsuits were filed in the United States District Court for
the Eastern District of New York. Plaintiffs filed a Consolidated and Amended
Complaint on or about May 27, 1999 and, on or about November 24, 1999, filed a
Second Amended and Consolidated Complaint (the "Complaint"). The Complaint names
as defendants the Company, David B. Schick, Thomas E. Rutenberg, and David
Spector (collectively, the "Individual Defendants"), as well as
PricewaterhouseCoopers LLP.
The Complaint alleged, inter alia, that certain defendants issued false and
misleading statements concerning the Company's publicly reported earnings in
violation of the federal securities laws. The
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Complaint sought certification of a class of persons who purchased the Company's
Common Stock between July 1, 1997 and February 19, 1999, inclusive, and did not
specify the amount of damages sought.
On May 23, 2000, the Company entered into an agreement in principle with
the plaintiff for the settlement of the class action lawsuit. Under the
settlement agreement, reflected in a Memorandum of Understanding, all claims
against the Company and the Individual Defendants are to be dismissed without
presumption or admission of any liability or wrongdoing. The principal terms of
the settlement agreement call for payment to the Plaintiffs, for the benefit of
the class, of the sum of $3.4 million. The settlement amount will be paid in its
entirety by the Company's insurance carrier and is not expected to have any
material impact on the financial results of the Company. The settlement is
subject to approval by the Court.
III.In August 1999, the Company, through its outside counsel, contacted the
Division of Enforcement of the Securities and Exchange Commission ("SEC") to
advise it of certain matters related to the Company's restatement of earnings.
See "Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations - Matters Relating to Restatement of Financial Results."
The SEC has made a request for the voluntary production of certain documents.
The Company intends to cooperate fully with the SEC staff and has provided
responsive documents to it. This matter is in a preliminary stage and the
Company cannot predict its potential outcome.
The Company may be a party to a variety of legal actions (in addition to those
referred to above), such as employment and employment discrimination-related
suits, employee benefit claims, breach of contract actions, tort claims,
shareholder suits, including securities fraud, governmental investigations and
intellectual property related litigation. In addition, because of the nature of
its business, the Company is subject to a variety of legal actions relating to
its business operations. Recent court decisions and legislative activity may
increase the Company's exposure for any of these types of claims. In some cases,
substantial punitive damages may be sought. The Company currently has insurance
coverage for some of these potential liabilities. Other potential liabilities
may not be covered by insurance, insurers may dispute coverage, or the amount of
insurance may not be sufficient to cover the damages awarded. In addition,
certain types of damages, such as punitive damages, may not be covered by
insurance and insurance coverage for all or certain forms of liability may
become unavailable or prohibitively expensive in the future.
DILUTIVE EFFECT OF GREYSTONE TRANSACTION
The Company has entered into an agreement with Greystone Funding
Corporation whereby Greystone and its designees may exercise Warrants to
purchase up to 18 million shares of the Company's Common Stock. If Greystone
exercises such Warrants or a portion thereof, it can be expected to have a
significant dilutive effect on the percentage of shares held by the Company's
current shareholders.
RESTRICTIVE COVENANTS IN LOAN AGREEMENTS
The Loan Agreement, as amended, between the Company and Greystone Funding
Corporation as well as the Loan Agreement, as amended, between the Company and
DVI Financial Services, Inc. contain covenants that may inhibit the Company's
ability to manage its business and/or implement its strategic decisions. These
restrictions, among other things, will limit the Company's ability to incur
additional indebtedness; issue capital stock; create, incur or assume liens; and
merge, consolidate or sell assets.
PRODUCT WARRANTIES; RETURNS
The Company generally warrants each of its products against defects in
materials and workmanship for a period of one year from the date of shipment
(plus any extended warranty period purchased by the customer). The Company has
also generally allowed its customers to return products within 30 days of the
purchase date. The need for warranty service as well as product returns could
each have a material adverse effect on the Company by, among other things,
requiring additional expenditures for parts and personnel as well as damaging
the Company's reputation and goodwill.
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REGULATORY AND LEGISLATIVE RISKS
The Company must obtain certain approvals by and marketing clearances from
governmental authorities, including the FDA and similar health authorities in
foreign countries, to market and sell its products in those countries. The FDA
regulates the marketing, manufacturing, labeling, packaging, advertising, sale
and distribution of 'medical devices,' as do various foreign authorities in
their respective jurisdictions. The FDA enforces additional regulations
regarding the safety of equipment utilizing x-rays. Various states also impose
similar regulations. The Company's CDR(R) system is currently regulated by such
authorities and certain of the Company's new products will require approval by
or marketing clearance from various governmental authorities, including the FDA.
The FDA review process typically requires extended proceedings pertaining
to the safety and efficacy of new products. A 510(k) application is required in
order to market a new or modified medical device. If specifically required by
the FDA, a pre-market approval ("PMA") may be necessary. Such proceedings, which
must be completed prior to marketing a new medical device, are potentially
expensive and time consuming. They may delay or hinder a product's timely entry
into the marketplace. Moreover, there can be no assurance that the review or
approval process for these products by the FDA or any other applicable
governmental authorities will occur in a timely fashion, if at all, or that
additional regulations will not be adopted or current regulations amended in
such a manner as will adversely affect the Company. The FDA also regulates the
content of advertising and marketing materials relating to medical devices.
Failure to comply with such regulations may result in a delay in obtaining
approval for the marketing of such products or the withdrawal of such approval
if previously obtained. There can be no assurance that the Company's advertising
and marketing materials regarding its products are and will be in compliance
with such regulations. The Company is also subject to other federal, state and
local laws, regulations and recommendations relating to safe working conditions,
laboratory and manufacturing practices. The extent of government regulation that
might result from any future legislation or administrative action cannot be
accurately predicted. Failure to comply with regulatory requirements could have
a material adverse effect on the Company. International sales of the Company's
products are subject to the regulatory agency product registration requirements
of each country in which the Company's products are sold. The regulatory review
process varies from country to country and may in some cases require the
submission of clinical data. The Company typically relies on its distributors in
foreign countries to obtain the required regulatory approvals. There can be no
assurance, however, that such approvals will be obtained on a timely basis, if
at all, or that the failure to obtain such approval by a distributor will not
have a material adverse effect on the Company. The Company's customers operate
in the health care industry, which is highly regulated. Both existing and future
governmental regulations could adversely impact the Company. Additionally,
cost-containment efforts by health maintenance organizations may adversely
affect the potential market for the Company's devices.
POTENTIAL FOR PRODUCT RECALL AND PRODUCT LIABILITY CLAIMS
Products such as those sold by the Company may be subject to recall for
unforeseen reasons. In addition, certain applications, including projected
applications, of the Company's products entail the risk of product liability
claims. Such risks will exist even with respect to those products that have
received, or in the future may receive, regulatory approval for commercial sale.
These claims may be made by consumers, distributors, wholesalers or others.
Although the Company has maintained insurance coverage related to product
liability claims, no assurance can be given that product liability insurance
coverage will continue to be available or, if available, that it can be obtained
in sufficient amounts or at reasonable cost or that it will be sufficient to
cover any claims that may arise. The Company does not maintain any insurance
relating to potential recalls of its products. Costs associated with potential
product recalls or product liability claims could have a material adverse effect
on the Company.
DEPENDENCE ON THIRD-PARTY REIMBURSEMENT
Third-party payors, including government health administration authorities,
private health care insurers and other organizations regulate the reimbursement
of fees related to certain diagnostic procedures
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or medical treatments. Third-party payors are increasingly challenging the price
and cost-effectiveness of medical products and services. While the Company
cannot predict what effect the policies of government entities and other
third-party payors will have on future sales of the Company's products, there
can be no assurance that such policies would not have a material adverse effect
on the Company.
UNCERTAINTIES ASSOCIATED WITH INTERNATIONAL MARKETS
In fiscal 2000, 1999 and 1998, sales to customers outside of the United
States were approximately 32%, 13% and 18%, respectively, of the Company's
revenues, and the Company anticipates that international sales will continue to
account for a significant percentage of the Company's revenues. International
revenues are subject to a number of uncertainties, including the following:
agreements may be difficult to enforce and receivables difficult to collect;
foreign customers and distributors may have longer payment cycles, foreign
countries may impose additional withholding taxes or otherwise tax the Company's
foreign income, impose tariffs or adopt other restrictions on foreign trade;
fluctuations in exchange rates may affect product demand in relation to foreign
competitors that may achieve advantageous pricing based on the comparative
strength of the United States dollar; United States export licenses may be
difficult to obtain; and intellectual property rights in foreign countries may
be difficult to enforce. Moreover, many foreign countries have their own
regulatory approval requirements for the sale of the Company's products. As a
result, the Company's introduction of new products into international markets
could be costly and time-consuming, and there can be no assurance that the
Company will be able to obtain the required regulatory approvals on a timely
basis, if at all. There can be no assurance that any of these factors will not
have a material adverse effect on the Company.
DEPENDENCE UPON KEY PERSONNEL
The success of the Company is dependent, in part, upon its ability to hire
and retain management, sales, technical and research personnel who are in high
demand and are often subject to competing employment opportunities. The
inability of the Company to hire or retain key management, sales, technical or
research personnel could have a material adverse effect on the Company. There
can be no assurance that any of the Company's key employees will continue to be
active with the Company. The Company maintains and is the named insured party
under a $1,000,000 life insurance policy on Mr. David Schick, the Chief
Executive Officer of the Company. There is no assurance that such insurance can
be maintained or will be adequate to meet the Company's future needs.
HISTORY OF RAPID GROWTH; ABILITY TO MANAGE GROWTH
There are significant risks, expenses and difficulties associated with
managing the operation and sustaining the development of an expanding business.
The Company's previous growth placed significant demands on the Company's
financial and other resources. In the past, the Company has experienced certain
inadequacies in its operating and financial systems, infrastructure and controls
and was not able to improve internal controls and upgrade personnel as needed to
accommodate the Company's growth. The Company will be required to continually
improve operating, financial, and other systems, as well as to train, motivate,
and manage its employees. If the Company's management is unable to manage growth
effectively or new employees are unable to achieve appropriate levels of
performance, it could have a material adverse effect on the Company.
CONTROL OF THE COMPANY BY CERTAIN STOCKHOLDERS; CONFLICTS OF INTEREST
Currently, the executive officers and directors of the Company collectively
beneficially own approximately 35.5% of the outstanding shares of Common Stock.
Accordingly, they may effectively have the ability to elect all of the directors
of the Company and determine the outcome of all other matters submitted for the
approval of the stockholders. In particular, David B. Schick and members of his
immediate family beneficially own approximately 27% of the outstanding shares of
Common Stock and, accordingly, may be able to exert significant influence over
the Company. In addition, the Company has entered into an agreement with
Greystone Funding Corporation, which is a lender to the Company whereby
Greystone may ultimately control a majority of the Common Stock and up to one
half of the seats on the
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Company's Board of Directors and, accordingly, may be able to exert significant
influence over the Company. An employee of Greystone's parent company (which
pays such employee's salary) is serving as President of the Company, and a
designee of Greystone is serving as COO of the Company. Two of the Company's
current directors are designees of Greystone. Accordingly, the relationship with
Greystone involves potential conflicts of interest.
NASDAQ DELISTING
The Company's Common Stock has been delisted from The Nasdaq National
Market, effective at the close of business on September 15, 1999, and currently
trades over the counter. The delisting could have a material adverse effect upon
the Company in a number of ways, including its ability to raise additional
capital. In addition, the absence of a trading system may adversely affect the
ability of broker-dealers to sell the Company's Common Stock, and consequently
may limit the public market for such Stock and have a negative effect upon its
trading price. There can be no assurance that the Company's Common Stock will be
relisted on the Nasdaq National Market at any future date or that such stock
will be listed or traded on any market or trading system.
POSSIBLE VOLATILITY OF STOCK PRICE
The stock market historically has experienced volatility which has affected
the market price of securities of many companies and which has historically been
unrelated to the operating performance of such companies. The market prices for
securities of medical technology companies have historically been highly
volatile. Future technological innovations or new commercial products, results
of clinical testing, changes in regulation, litigation and public concerns as to
product safety as well as period-to-period fluctuations in financial performance
and fluctuations in securities markets generally could cause the market price of
the Common Stock to fluctuate substantially. These broad market fluctuations may
adversely affect the market price of the Common Stock.
POTENTIALLY SIGNIFICANT FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; SEASONALITY
Several factors may significantly affect the Company's revenues, expenses
and results of operations from quarter to quarter, including the timing of new
product introductions by the Company or its competitors, developments regarding
new treatments for osteoporosis, developments in government reimbursement
policies, product mix, the ability to supply products to meet customer demand
and fluctuations in manufacturing costs. In addition, the Company's CDR(R)
products are subject to seasonal variations. Consequently, quarterly results of
operations can be expected to fluctuate. Such fluctuations in quarterly results
of operation could adversely affect the market price of the Common Stock.
AUTHORIZATION OF PREFERRED STOCK
The Company's certificate of Incorporation authorizes the issuance of a
series or designation of Preferred Stock with such rights, preferences,
privileges and restrictions as may be determined from time to time by the
Company's Board of Directors. Accordingly, the Board of Directors is empowered,
without the need for shareholder approval, to issue Preferred Stock with
dividend, liquidation, conversion, voting or other rights which could adversely
affect the voting power or other rights of the holders of the company's Common
Stock. Other than the Series A Preferred Stock offered hereby, there are
currently no other shares of Preferred Stock designated or issued.
