What changed in this filing

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Item 1A. Risk Factors

2020-11-18 compared with 2019-12-17 · 52 added, 65 removed, 263 unchanged (31% of the section changed)

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In that event, the market price of our common stock could decline and you could lose all or part of your investment.

Risks Relating to the COVID-19 pandemic

Our financial condition and results of operations could be adversely affected by the COVID-19 Pandemic.

In December 2019, a novel strain of coronavirus, causing a disease referred to as COVID-19, was first identified in Wuhan, Hubei Province, China, resulting in shutdowns of manufacturing and commerce in the months that have followed.

Since then, COVID-19 has spread worldwide, including in the United States, and has resulted in authorities implementing numerous measures to try to contain the disease, such as travel bans and restrictions, quarantines, shelter-in-place orders and shutdowns.

We have followed the guidelines from the U.S.

Center for Disease Control (CDC) and implemented the recommended safety protocols, and the spread of COVID-19 has also caused us to modify our business practices (including curtailing employee travel and mandatory work-from-home policies where necessary), and we may take further actions as required by government authorities or that we determine are in the best interests of our employees, customers, partners and suppliers.

There is no certainty that such measures will be sufficient to mitigate the risks posed by the disease, and our ability to perform critical functions could be harmed.

As a result of the COVID-19 pandemic and the measures designed to contain its spread, our suppliers may not have the materials, capacity, or capability to supply our components according to our schedule and specifications.

Further, there may be logistics issues, including our ability and our supply chain’s ability to maintain production, as well as transportation demands that may cause further delays.

If our suppliers’ operations are curtailed, we may need to seek alternate sources of supply, which may be more expensive.

Alternate sources may not be available or may result in delays in shipments to us from our suppliers and subsequently to our customers.

In addition, the COVID-19 pandemic and the measures designed to stop the spread of the virus may have similar effects on our customers.

The current pandemic may also give rise to force majeure contractual protections being asserted by customers and/or suppliers that we maintain contracts with, potentially relieving contractual obligations these parties have to us.

In any case, any disruption of our suppliers’ or customers’ businesses would likely negatively impact our sales and operating results.

While the disruptions and restrictions on the ability to travel, quarantines and other measures taken as a result of the COVID-19 pandemic are expected to be temporary, the duration of any of these measures, and related financial impact, cannot be estimated at this time.

Should these measures continue for an extended period of time, the impact on our supply chain and customers could have a material adverse effect on our results of operations and cash flows.

Further, while the potential impact and duration of the COVID-19 pandemic on the global economy and our business in particular may be difficult to assess or predict, the COVID-19 pandemic has resulted in, and may continue to result in, significant disruption of global financial markets and an economic downturn that may affect demand for our products and services, reduce our ability to access capital or our customers’ ability to pay us for past or future purchases, impact our operating results, and have a negative impact on our liquidity and stock price.

In addition, an extended recession or an additional financial market correction resulting from the spread of COVID-19 could decrease overall technology manufacturing spending, adversely affecting demand for our products and services, in particular in the Brooks Semiconductor Solutions Group segment, our business and the value of our common stock.

The global pandemic of COVID-19 continues to rapidly evolve, and we will continue to monitor the COVID-19 situation closely.

Although the magnitude of the impact of the pandemic on our business and operations remains uncertain, the continued spread of COVID-19 and actions taken to mitigate such spread or the occurrence of other outbreaks of contagious diseases could adversely impact our business, financial condition, operating results and cash flows.

Risks Relating to Our Industries

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A significant portion of our business is largely dependent on capital expenditures in the semiconductor manufacturing industry and other businesses employing similar manufacturing technologies.

The semiconductor manufacturing industry in turn depends on current and anticipated demand for ICs and the products that use them.

The semiconductor manufacturing industry in turn depends on current and anticipated demand for integrated circuits and the products that use them.

These businesses have experienced unpredictable and volatile business cycles due in large part to rapid changes in demand and manufacturing capacity for semiconductors, and these cycles have had an impact on our business, sometimes causing declines in revenue and operating losses.

We could experience future operating losses during an industry downturn.

We could experience future operating losses

during an industry downturn.

If an industry downturn continues for an extended period of time, our business could be materially harmed.

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Negative developments in any of these areas in one or more countries could result in a reduction in demand for our products, the cancellation or delay of orders already placed, threats to our intellectual property, difficulty in collecting receivables, and a higher cost of doing business, any of which could materially harm our business and profitability.

The acquisition of GENEWIZ involves numerous risks, including the inability to effectively integrate GENEWIZ’s business and operations or realize the expected benefits from the acquisition, which could materially harm our operating results.

Our November 2018 acquisition of GENEWIZ has increased our service offerings within the Brooks Life Sciences segment, the number of end markets in which we operate, and the number of employees and facilities we need to efficiently manage.

GENEWIZ’s genomic services are significantly different from our historical offerings and experience.

Combining our businesses may make it more difficult to maintain relationships with customers, employees or suppliers.

The continued integration of GENEWIZ’s business and operations will require significant management attention, efforts and expenditures, and we may not be able to achieve the integration in an effective, complete timely or cost-efficient manner.

Potential risks related to our acquisition of GENEWIZ include our continued ability to:

● expand our financial and management controls and reporting systems and procedures to integrate and manage GENEWIZ;

● integrate our information technology systems to enable the management and operation of the combined business;

● identify and retain key GENEWIZ personnel;

● successfully integrate our respective corporate cultures such that we achieve the benefits of acting as a unified company.

Our inability to continue these tasks and successfully integrate the GENEWIZ business will have a material adverse effect on our business and financial results.

Our business could be materially harmed if we fail to adequately integrate the operations of the businesses that we have acquired or may acquire.

We have made in the past, and may make in the future, acquisitions or significant investments in businesses with complementary products, services and/or technologies.

In addition to the risks discussed above regarding our acquisition of GENEWIZ, our acquisitions, including the acquisition of GENEWIZ, present numerous risks, including:

Our acquisitions, including the acquisition of GENEWIZ in November 2018, present numerous risks, including:

● difficulties in integrating the operations, technologies, products and personnel of the acquired companies and realizing the anticipated synergies of the combined businesses;

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We cannot guarantee that we will be successful in leveraging our capabilities into the life sciences sample management and genomic services markets to meet all the needs of new customers and to compete favorably.

Because a significant portion of our growth potential may be dependent on our ability to increase sales within the Brooks Life Sciences segment, our inability to successfully expand within the markets serviced by this segment may adversely impact future financial results.

Because a significant portion of our growth potential may be dependent on our ability to increase sales within each of the Brooks Life Sciences Product and Brooks Life Sciences Services segments, our inability to successfully expand within the markets serviced by these segments may adversely impact future financial results.

Changes in key personnel could impair our ability to execute our business strategy.

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Our access to raw materials may be adversely affected if our suppliers’ operations were disrupted as a result of limited or delayed access to key raw materials and natural resources which may result in increased cost of these items.

While most of the raw materials used in our products and various manufacturing processes are commercially available, we rely in some cases on materials that have a limited supply and are considered rare Earth elements, such as helium.

If the supply of these elements is drastically reduced, it may lead to price increases which could result in higher costs of our products and corresponding revenue declines and have a material adverse impact on our business, financial condition and results of operations.

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Outsource providers have played and will continue to play a key role in our manufacturing operations and in many of our transactional and administrative functions, such as information technology and facilities management.

Although we attempt to select reputable providers and secure their performance on terms documented in written contracts, it is possible that one or more of these providers could fail to perform as we expect and such failure could have an adverse impact on our business.

Many of these outsourced service providers, including certain hosted software applications that we use for confidential data storage, employ cloud computing technology for such storage.

These providers’ cloud computing systems may be susceptible to “cyber incidents,” such as intentional cyber-attacks aimed at theft of sensitive data or inadvertent cyber-security compromises, which are outside of our control.

Although we attempt to select reputable providers and secure their performance on terms documented in written contracts, it is possible that one or more of these providers could fail to perform or adequately protect our data from cyber-related security breaches as we expect and any such failure could have an adverse impact on our business.

Our business relies on certain critical information systems and a failure or breach of such a system could harm our business and results of operations and, in the event of unauthorized access to a customer’s data or our data, incur significant legal and financial exposure and liabilities.

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Any security breach could result in a loss of confidence by our customers, damage our reputation, disrupt our business, lead to legal liability and negatively impact our future sales.

We have identified material weaknesses in our internal control over financial reporting at an individual business unit within our Brooks Life Sciences segment and an individual business unit within our Brooks Semiconductor Solutions Group segment and such weaknesses have led to a conclusion that our internal control over financial reporting and disclosure controls and procedures were not effective as of September 30, 2019.

Our ability to remediate the material weaknesses, our discovery of additional weaknesses, and our inability to achieve and maintain effective disclosure controls and procedures and internal control over financial reporting, could adversely affect our results of operations, our stock price and investor confidence in our company.

Section 404 of the Sarbanes-Oxley Act of 2002 requires that companies evaluate and report on the effectiveness of their internal control over financial reporting.

In addition, we engaged our independent registered public accounting firm to report on its evaluation of those controls.

As disclosed in more detail under Item 9A, “Controls and Procedures” below, we have identified two material weaknesses as of September 30, 2019 in our internal control over financial reporting resulting from (i) deficiencies in our controls at a business unit within our Brooks Life Sciences segment as we did not maintain effective controls to verify the accuracy of the price and quantity data for customer transactions entered into the business unit’s billing system, and to verify that the invoices generated from the billing system were based on the appropriate amounts, and (ii) a deficiency in our controls at a business unit within our Brooks Semiconductor Solutions Group segment as we did not design and maintain effective controls to verify that revenue from product shipments from contract manufacturers in this business unit were evaluated for proper revenue recognition at the point of transfer of control.

Due to the material weaknesses in our internal control over financial reporting, we have also concluded our disclosure controls and procedures were not effective as of September 30, 2019.

Failure to have effective internal control over financial reporting and disclosure controls and procedures could impair our ability to produce accurate financial statements on a timely basis and could lead to a restatement of our financial statements.

For example, the identified material weaknesses resulted in immaterial adjustments to the consolidated financial statements for the year ended September 30, 2019 and caused a difference between the financial results we reported in the press release we issued on November 6, 2019 and furnished to the SEC with our Current Report on Form 8-K on the same date and reported in this annual report.

Management, however, has concluded that the material weaknesses did not result in any misstatements that are material to our consolidated financial statements for any of the periods presented.

If, as a result of the ineffectiveness of our internal control over financial reporting and disclosure controls and procedures, we cannot provide reliable financial statements, our business decision processes may be adversely affected, our business and results of operations could be harmed, investors could lose confidence in our reported financial information and our ability to obtain additional financing, or additional financing on favorable terms, could be adversely affected.

In addition, failure to maintain effective internal control over financial reporting could result in investigations or sanctions by regulatory authorities.

Our management has taken immediate action to begin remediating the material weaknesses, however, certain remedial actions have not started or have only recently been undertaken, and while we expect to continue to implement our remediation plans throughout the fiscal year ended September 30, 2020, we cannot be certain as to when remediation will be fully completed.

Additional details regarding the initial remediation efforts are disclosed in more detail under Item 9A, “Controls and Procedures” below.

In addition, we may in the future identify additional internal control deficiencies that could rise to the level of a material weakness or uncover other errors in financial reporting.

During the course of our evaluation, we may identify areas requiring improvement and may be required to design additional enhanced processes and controls to address issues identified through this review.

In addition, there can be no assurance that such remediation efforts will be successful, that our internal control over financial reporting will be effective as a result of these efforts or that any such future deficiencies identified may not be material weaknesses that would be required to be reported in future periods.

In addition, we cannot assure you that our independent registered public accounting firm will be able to attest that such internal controls are effective when they are required to do so.

If we fail to remediate these material weaknesses and maintain effective disclosure controls and procedures or internal control over financial reporting, we may not be able to rely on the integrity of our financial results, which could result in inaccurate or late reporting of our financial results, as well as delays or the inability to meet our reporting obligations or to comply with SEC rules and regulations.

Any of these could result in delisting actions by the Nasdaq Stock Market, investigation and sanctions by regulatory authorities, stockholder investigations and lawsuits, and could adversely affect our business and the trading price of our common stock.

Our goodwill and intangible assets may become impaired.

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Although we believe our tax estimates are reasonable, there can be no assurance that any final determination will not be materially different from the treatment reflected in our historical income tax provisions and accruals, which could materially and adversely affect our financial condition and results of operations.

The implementation of tariffs and export controls on our products may have a material impact on our business.

Our global business operations and supply chain may be disrupted by the additional tariffs imposed on our products.

As of July 6, 2018, the United States imposed a 25% tariff on a list of products that included certain parts and components made in China and imported into the United States for incorporation with our products.

We are implementing operational changes that should mitigate the impact of the 25% tariff on our imports into the United States from China.

As a result of these operational changes, we do not expect that the increase in these tariffs will have a significant impact on our business, supply chain, operations or financial results.

However, if the United States increases the amount of these tariffs or adds additional items to the list of products subject to tariff, tariffs could materially adversely affect our business, financial results and operations.

In addition to the increased tariffs imposed by the United States, China has implemented additional retaliatory tariffs on products made in the United States.

While these tariffs currently do not materially impact us, if China increases its tariffs or places additional tariffs or other nations impose tariffs on our products, it could materially adversely affect our business, financial results and operations.

International trade disputes could result in additional or increased tariffs, export controls or other trade restrictions that may have a material impact on our business.

We sell a significant number of products outside the United States, including in China, Taiwan, Japan and South Korea.

Based on the complex relationships among these countries and the United States, there is inherent risk that political, diplomatic and national security influences might lead to trade disputes, impacts and/or disruptions, in particular, with respect to those affecting the semiconductor industry.

The United States and other countries have imposed and may continue to impose trade restrictions and have also levied tariffs and taxes on certain goods.

Increases in tariffs, additional taxes or other trade restrictions and retaliatory measures may increasingly impact customer demand and customer investment in manufacturing equipment, increase our manufacturing costs, decrease margins, reduce the competitiveness of our products, or inhibit our ability to sell products or purchase necessary equipment and supplies, which could have a material adverse effect on our business, results of operations, or financial condition.

In particular, China is a significant market for the semiconductor equipment industry, and the ongoing “trade war” between the United States and China is unpredictable.

may impose more restrictive measures, including increasing the requirement to obtain export licenses, and the Chinese government may impose measures against the U.S.

through its own import and export-related regulations.

If export licenses are required for any of the Company’s products, or for shipment of products to any particular customers in China, the failure of the U.S.

government to approve such export licenses could adversely affect our business, financial condition and results of operations, and may decrease our competitive position with our non-U.S.

We are subject to numerous governmental regulations.

We are subject to federal, state, local and foreign regulations, including environmental regulations, regulations relating to the design and operation of our products and control systems and regulations relating to certain of our service offerings in the Brooks Life Sciences segment.

We might incur significant costs as we seek to ensure that our products meet safety and emissions standards, many of which vary across the states and countries in which our products are used.

In the past, we have invested significant resources to redesign our products to comply with these directives.

Compliance with future regulations, directives, and standards could require us to modify or redesign some products, change our service offerings, make capital expenditures, or incur substantial costs.

Compliance with future regulations, directives, and standards could require us to modify or redesign some products, change our

service offerings, make capital expenditures, or incur substantial costs.

If we do not comply with current or future regulations, directives, and standards:

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Unfavorable currency fluctuations could require us to increase prices to foreign customers, which could result in lower net sales by us to such customers.

Alternatively, if we do not adjust the prices for our products in response to unfavorable currency fluctuations, our results of operations could be materially and adversely affected.

In addition, most sales made by our foreign subsidiaries are denominated in the currency of the country in which these products are sold and the currency they receive in payment for such sales could be less valuable as compared to the U.S.

Alternatively, if we do not adjust the prices for our products and services in response to unfavorable currency fluctuations, our results of operations could be materially and adversely affected.

In addition, most sales made by our foreign subsidiaries are denominated in the currency of the country in which these products are sold or these services are provided and the currency they receive in payment for such sales could be less valuable as compared to the U.S.

dollar at the time of receipt as a result of exchange rate fluctuations.

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However, we cannot be certain that our efforts will be adequate to protect us against significant currency fluctuations or that such efforts will not expose us to additional exchange rate risks, which could materially and adversely affect our results of operations.

Risk related to the referendum of the United Kingdom’s membership in the European Union

In June 2016, a majority of voters in the United Kingdom voted “for” the Referendum of the United Kingdom’s Membership in the European Union, referred to as Brexit, approving the exit of the United Kingdom from the European Union, which triggered volatility in exchange rate fluctuations of the U.S.

dollar against foreign currencies in which we conduct our business.

We may experience volatility in exchange rates as the United Kingdom continues to negotiate its exit from the European Union or as a result of the United Kingdom’s exit from the European Union with or without an agreement governing the exit.

As described in Item 7A, "Quantitative and Qualitative Disclosures About Market Risk", of this Form 10-K, most of our foreign currency denominated transactions are conducted in Euros, British Pounds and a variety of Asian currencies.

Sales in currencies other than the U.S.

dollar were approximately 35% and 34%, respectively, of our total sales during fiscal years 2019 and 2018.

If a dollar strengthens, our revenue denominated in foreign currencies may be adversely affected when translated into U.S.

Actions to implement Brexit, the potential terms of Brexit and the uncertainty of when Brexit will occur (the deadline for which has been extended a number of times), if at all, have also created global economic uncertainty, which may cause our customers to closely monitor their costs and reduce their spending on our products and services.

The effects of Brexit, if it occurs, depend on any agreements, if any, the United Kingdom makes to retain access to European Union and other markets either during a transitional period or more permanently.

The measures could potentially disrupt the markets we serve and may cause us to lose customers and employees.

In addition, Brexit could lead to legal uncertainty and potentially divergent national laws and regulations with respect to business and trade with and in the United Kingdom.

Any of these effects of Brexit, among others, could adversely affect our business, results of operations and financial condition.

Our indebtedness may adversely affect our ability to operate our business, generate cash flows and make payments on such indebtedness

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and Wells Fargo Securities, LLC pursuant to the terms of a credit agreement with the lenders.

At September 30, 2020, the outstanding term loan principal balance was $50.4 million, excluding unamortized deferred financing costs of $0.4 million.

The term loan matures and becomes fully payable on October 4, 2024.

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We have the ability to refinance the term loan and obtain additional indebtedness as long as we maintain a certain level of liquidity and earnings, as specified in the credit agreement for the term loan.

If our liquidity and earnings are reduced below a certain level, we will have limited ability to service the term loan and obtain additional debt financing.

If our liquidity and earnings

are reduced below a certain level, we will have limited ability to service the term loan and obtain additional debt financing.

Our failure to comply with the restrictive covenants under the term loan and our other indebtedness could also result in an event of default under the term loan which, if not cured or waived, could result in the acceleration of all or a portion of our indebtedness, including under the term loan.

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We also provide sample storage services to customers where we store their biological and chemical samples at our facilities and other genomic services at our facilities.

In any case, inaccurate or faulty testing services or damage to our customers’ materials attributed to a failure of our products or services could lead to claims for damages made by our customers and could also harm our relationship with our customers and damage our reputation in each of these industries, resulting in material harm to our business.

In any case, inaccurate or faulty testing services or damage to our customers’

materials attributed to a failure of our products or services could lead to claims for damages made by our customers and could also harm our relationship with our customers and damage our reputation in each of these industries, resulting in material harm to our business.

Risks Relating to Owning Our Securities

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● global economic conditions;

● political changes, hostilities or natural disasters such as hurricanes and floods;

● political changes, hostilities, the COVID 19 pandemic or similar events, or natural disasters such as hurricanes and floods;

● low trading volume of our common stock;

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Our restated certificate of incorporation makes us subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law.

In general, Section 203 prohibits publicly held Delaware corporations to which it applies from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner.

date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner.

This provision could discourage others from bidding for our shares of common stock and could, as a result, reduce the likelihood of an increase in the price of our common stock that would otherwise occur if a bidder sought to buy our common stock.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors