1295557--2/28/2008--BARE_ESCENTUALS

related topics

{acquisition, growth, future}

{customer, product, revenue}

{stock, price, operating}

{product, liability, claim}

{property, intellectual, protect}

{product, market, service}

{debt, indebtedness, cash}

{provision, law, control}

{system, service, information}

{cost, operation, labor}

{stock, price, share}

{cost, contract, operation}

{operation, natural, condition}

{competitive, industry, competition}

{condition, economic, financial}

{loss, insurance, financial}

{capital, credit, financial}

{product, candidate, development}

{financial, litigation, operation}

{control, financial, internal}

{personnel, key, retain}

{cost, regulation, environmental}

{operation, international, foreign}

Risks Relating to Our Business Our success is dependent on sales of our mineral-based foundation. A change in consumer preferences for such products could harm our business. We do not have long-term purchase commitments from our significant customers, and a decrease or interruption in their business with us would reduce our sales and profitability. The beauty industry is highly competitive, and if we are unable to compete effectively it could significantly harm our business, prospects, financial condition and results of operations. We may be unable to manage our growth effectively, which could cause our liquidity and profitability to suffer. We may be unable to sustain our growth or profitability, which could impair our future success and ability to make investments in our business. A decline in general economic conditions could lead to reduced consumer demand for our products and have an adverse effect on our liquidity and profitability. If we are unable to retain key executives and other personnel, particularly Leslie Blodgett, our Chief Executive Officer and primary spokesperson, and recruit additional executives and personnel, we may not be able to execute our business strategy and our growth may be hindered. Our senior management team has limited experience working together as a group, and may not be able to manage our business effectively. Our planned expansion of our boutique operations will result in increased expenses with no guarantee of increased earnings. In addition, we may close boutiques that are not profitable or incur other costs, which could cause our results of operations to suffer. Our media spending might not result in increased net sales or generate the levels of product and brand name awareness we desire, and we might not be able to increase our net sales at the same rate as we increase our advertising expenditures. In addition, our infomercials might not continue to be an effective distribution channel, which could harm our net sales. We depend on third parties to manufacture all of the products we sell and we do not have long-term contracts with all of these manufacturers. If we are unable to maintain these manufacturing relationships or enter into additional or different arrangements, we may fail to meet customer demand and our net sales and profitability may suffer as a result. Our third-party manufacturers may not continue to produce products that are consistent with our standards or applicable regulatory requirements, which could harm our brand, cause customer dissatisfaction and require us to find alternative suppliers of our products. We have depended on Datapak Services Corporation, or Datapak, for fulfillment of products sold through our infomercials, and we are planning to take over the fulfillment functions it has performed. Our manufacturers ship a significant portion of the product we order to our distribution centers in Obetz, Ohio and Hayward, California, and any significant disruption of the operations of the centers would hurt our ability to make timely delivery of our products. Our new distribution facility in Obetz, Ohio may not perform as planned. Our quarterly results of operations may fluctuate due to the timing of customer orders, the number of QVC appearances we make, new boutique openings, as well as limited seasonality and other factors. Our operations may be impaired as a result of disasters, business interruptions or similar events. We have recently replaced our core systems which might disrupt our supply chain operations. Our computer and communications hardware and software systems are vulnerable to damage and interruption, which could harm our business. We are required to evaluate our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002 and are exposed to future risks of non-compliance. Our indebtedness could limit our ability to plan for or respond to changes in our business, and we may be unable to generate sufficient cash flow to satisfy significant debt service obligations or to refinance the obligations on acceptable terms, or at all. Our debt obligations have variable interest rates, which makes us vulnerable to increases in interest rates and could cause our interest expense to increase and decrease cash available for operations and other purposes. We had a negative net worth as of December 30, 2007, which may make it more difficult and costly for us to obtain financing in the future. Our products may cause unexpected and undesirable side effects that could limit their use, require their removal from the market or prevent further development. In addition, we are vulnerable to claims that our products are not as effective as we claim them to be. We may face product liability claims and may be required to recall products, either of which could result in unexpected costs and damage to our reputation. We do not currently own any registered patents on our products. If we are unable to protect our intellectual property rights, our ability to compete could be harmed. Legal proceedings or third-party claims of intellectual property infringement may require us to spend time and money and could prevent us from developing or commercializing products. We currently sell our md formulations products in sales channels that arguably exceed the permitted field of use. We may be subject to liability for the content that we publish. The regulatory status of our cosmetics or skin care products could change, and we may be required to conduct clinical trials to establish efficacy and safety or cease to market these products. Regulatory matters governing our industry could decrease our net sales and increase our operating costs. We may need to raise additional funds to pursue our growth strategy or continue our operations, and we may be unable to raise capital when needed. Our plans to expand our product offerings and launch new brands or brand extensions may not be successful, and implementation of these plans may divert our operational, managerial and administrative resources, which could impact our competitive position. We may make acquisitions and strategic investments, which will involve numerous risks. We may not be able to address these risks without substantial expense, delay or other operational or financial problems. We are subject to risks related to our international operations. Our common stock has only been publicly traded since September 29, 2006, and the price of our common stock may fluctuate substantially. Our operating and financial performance in any given period might not meet the guidance that we have provided to the public. Our current principal stockholders have significant influence over us, and they could delay, deter, or prevent a change of control or other business combination or otherwise cause us to take action that advances their best interests and not necessarily those of other stockholders. We do not anticipate paying dividends on our capital stock in the foreseeable future. Anti-takeover provisions in our organizational documents and Delaware law may discourage or prevent a change in control, even if an acquisition would be beneficial to our stockholders, which could cause our stock price to decline and prevent attempts by our stockholders to replace or remove our current management.

Full 10-K form ▸

1295557--2/28/2008--BARE_ESCENTUALS_INC