Use these links to rapidly review the documentTable ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA PART IV

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-K

|ý                                                                       | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|----------------------------------------------------------------------- | ----------------------------------------------------------------------------------------
|For The Fiscal Year Ended December 31, 2002 Commission File Number 000-
|o                                                                       | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For the transition period
from                                    to   

Commission file number 000-

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BRUKER AXS INC.(Exact name of Registrant as specified in its charter)

|Delaware                                                       |  | 39-1908020                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of
incorporation or organization) |  | (IRS Employer Identification Number)

5465 East Cheryl Parkway
Madison, WI 53711(Address of principal executive offices, including zip code)

(608) 276-3000(Registrant's telephone number, including area code)

SECURITIES
REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock, $.01 par value

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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes ý    No o

Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o

Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the
Act.)  o No ý

The
aggregate market value of the voting stock held by non-affiliates of the registrant as of June 28, 2002 was $18,214,604 (based on the last reported sale price on
the Nasdaq National Market on that date). This amount excludes an aggregate of 44,037,269 shares of common stock held by officers and directors and each person known by the registrant to own
10% or more of the outstanding common stock of the registrant. Exclusion of shares held by any person should not be construed to indicate that such person possesses the power, direct or indirect, to
direct or cause the direction of management or policies of the Registrant, or that such person is controlled by or under common control with the Registrant.

The
number of shares outstanding of the registrant's Common Stock as of March 17, 2003 was 56,180,338.

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BRUKER AXS INC.
Annual Report on Form 10-K
Table of Contents



|           |  |                                                                                     
|---------- |  | ------------------------------------------------------------------------------------
|Part I     |  |                                                                                     
|Item 1.    |  | Business                                                                            
|Item 2.    |  | Properties                                                                          
|Item 3.    |  | Legal Proceedings                                                                   
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                 
|Part II    |  |                                                                                     
|Item 5.    |  | Market for Registrant's Common Equity and Related Stockholder Matters               
|Item 6.    |  | Selected Financial Data                                                             
|Item 7.    |  | Management's Discussion and Analysis of Financial Condition and Results of Operation
|Item 7A.   |  | Quantitative and Qualitative Disclosures about Market Risk                          
|Item 8.    |  | Financial Statements and Supplementary Data                                         
|Item 9.    |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
|Part III   |  |                                                                                     
|Item 10.   |  | Directors and Executive Officers of the Registrant                                  
|Item 11.   |  | Executive Compensation                                                              
|Item 12.   |  | Security Ownership of Certain Beneficial Owners and Management                      
|Item 13.   |  | Certain Relationships and Related Transactions                                      
|Item 14.   |  | Controls and Procedures                                                             
|Part IV    |  |                                                                                     
|Item 15.   |  | Exhibits, Financial Statements and Schedules and Reports on Form 8-K                
|Signatures

This
report contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and
uncertainties, including without limitation those discussed in the "Factors Affecting Our Business, Operating Results and Financial Condition" section herein. Such forward-looking statements speak
only as of the date on which they are made, and we caution readers not to place undue reliance on such statements.

References
to "we," "us," "our," the "Company" or "Bruker AXS" refer to Bruker AXS Inc. and, in some cases, its subsidiaries, as well as all predecessor entities.

Our
principal executive offices are located at 5465 East Cheryl Parkway, Madison, Wisconsin 53711, and our telephone number is (608) 276-3000. Information about Bruker
AXS is available at www.bruker-axs.com. The information on our website is not incorporated by reference into and does not form a part of this report. All trademarks, tradenames or
copyrights referred to in this report are the property of their respective owners.

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PART I

ITEM 1.BUSINESS

Overview

Bruker AXS is a leading worldwide developer and provider of advanced integrated X-ray systems which provide solutions for molecular and elemental
analysis by X-ray diffraction and X-ray fluorescence. Our products, which have particular application in the drug discovery and materials science fields, provide our customers
with the ability to determine the structure of specific molecules, such as proteins, and to characterize and determine the composition of materials. Our customers include biotechnology and
pharmaceutical companies, semiconductor companies, raw material manufacturers, chemical companies, academic institutions and other businesses involved in materials analysis.

Our
X-ray systems are sophisticated devices that use extremely short wavelengths of energy to determine the characteristics of matter. Depending on the customer-specific
application, our X-ray systems incorporate one of three core technology applications: single crystal X-ray diffraction, known as SCD or X-ray crystallography;
polycrystalline X-ray diffraction, known as XRD or X-ray diffraction; and X-ray fluorescence, known as XRF. Using our modular platform approach, we often combine
each of these three technology applications with sample preparation tools, automation, consumables and data analysis software. Our systems offer integrated solutions for applications in multiple
existing and emerging markets, including:



Bruker
AXS was incorporated in Massachusetts in September 1997 as Bruker AXS, Inc. and acquired the X-ray business of Siemens AG, our predecessor, in
October 1997. In March 2000, we reincorporated in Delaware as Bruker AXS Inc.

Market Opportunity

Drug discovery and developmentProteomics

Our X-ray systems address key needs in two related fields of drug discovery and development: protein structure determination and small molecule drug
development. The need for more effective and efficient methods of drug discovery is becoming increasingly important for a variety of reasons. Historically, drugs were discovered either through trial
and error, through application of detailed knowledge of a disease process, or by modifying known drugs. These discovery processes are expensive, labor intensive and susceptible to failure at any
stage. According to the Pharmaceutical Industry Profile 2002, or PIP, the average cost of developing a new drug is over $800 million, takes 10 to 15 years to develop and, could require
evaluation of over 10,000 compounds. Even though PIP estimates that the pharmaceutical industry spent over $30 billion in 2001 for drug discovery research, there are still a significant number
of major diseases that do not currently have safe, effective treatments. Additionally, many diseases that had been successfully treated by drugs now require the development of new drugs, as bacterial
strains are becoming more resistant to previously effective drugs.

The
recent sequencing of the human genome is leading to a new era of therapeutic research, providing opportunities for shorter, less expensive drug discovery cycles as well as for
development of more effective drugs with fewer side effects. Shortening the drug discovery cycle could aid in getting effective drugs to people who need them more quickly, reduce research and
development costs, enable

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a company to obtain a drug patent more quickly than a competitor and increase the useful life of a drug patent. The sequencing of the human genome also provides opportunities for treating diseases
for which there are currently no available drugs.

The
amount of information available as a result of the sequencing of the human genome is enormous. A human gene contains the information or instructions necessary to create one or more
proteins, which are the molecules that carry out a cell's biological function. An estimated 100,000 to 300,000 human proteins arise from the estimated 35,000 human genes. Further, most proteins are
substantially more complex than genes, both chemically and physically. Proteins consist of strings of building blocks known as amino acids, the sequence of which can be determined by analyzing the
gene responsible for encoding the protein. The biological activity of the protein is derived from the highly specific three-dimensional folds or loops in which the sequence of amino acids is arranged.
To perform functions within the body, proteins interact with other molecules, including other proteins, at the surface of these folds or loops in specific amounts, in specific ways and at specific
times. Abnormalities in the amount, shape or function of proteins within cells disrupt these interactions and can result in disease. Consequently, biotechnology and pharmaceutical companies attempt to
develop drugs that will bind to a desired protein and alter the cell's biological function.

The
study of proteins, or proteomics, involves the isolation, identification, expression and characterization of structure and function of proteins. Proteomics offers opportunities to
improve the drug development process by:



A
critical step in the characterization of proteins is the determination of their three-dimensional structure. A new field of research known as structural proteomics has emerged which
involves the determination of the structure of large numbers of proteins on an industrialized scale. Knowledge of a protein's three-dimensional structure is essential to:



In
order to determine the three-dimensional structure of a protein or other molecule, researchers use one of the following technologies:



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These
techniques, while functionally different, provide complementary information. For example, researchers can use X-ray crystallography to analyze a protein in solid form
and NMR to analyze the same protein in liquid form. Since proteins exhibit different characteristics in solid and liquid forms, combining these techniques allows researchers to get as much
information, and ideally a structural solution, as quickly as possible. Additionally, researchers can use in silico structure prediction to obtain a large number of protein structure models. These
structures, however, are not as accurate as those produced by X-ray crystallography and NMR.

Knowledge
of protein structure has facilitated the pursuit by biotechnology and pharmaceutical companies of a rapidly developing drug discovery method called structure-based drug design.
This method combines structural biology with computational and medicinal chemistry in order to rationally analyze the molecular structure of a target to design drugs. Structure-based drug design has
significant potential to reduce the costs and time commitments associated with traditional drug discovery methods.

The
demand for more efficient drug discovery, as well as the increased interest in structure-based drug design including the use of proteomics and small molecule drug development, is
causing a shift in the drug discovery research and development process and significant investment by both government and private entities.



Some
examples of effective, FDA-approved drugs developed using structure-based drug design include several HIV-1 protease inhibitors such as Merck's Crixivan,
Vertex's Agenerase, which is marketed in the U.S. by GlaxoSmithKline, and Pfizer subsidiary Agouron's Viracept. Other successes include two recently approved drugs to treat influenza:
GlaxoSmithKline's Relenza and Gilead Science's/Roche's Tamiflu.

Materials science and research

Our X-ray technology is also vital in the research of the properties and structure of materials and the determination and analysis of the composition
of elements. These fields, known as materials science, involve the discovery of catalysts and the characterization of materials used in the manufacture of chemicals, petrochemicals, pharmaceuticals,
semiconductors, steel, cement, plastics and rubber. The market for X-ray products for materials science can be separated into:



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Traditional
materials discovery has relied on an often expensive and time-consuming process of trial and error for the discovery and development of new catalysts and chemical
processes: making one material; testing it; then slightly modifying the material or making an entirely different one; re-testing it; and so on. These inefficient methods, which often do
not result in the desired outcome, are slow and often cannot keep pace with current product life cycles and expectations of product line growth. Chemicals and materials companies have generally lagged
behind other industries' investment in novel methods or technologies to improve materials discovery and development. This has been due to the low-margin nature of these industries and
strong earnings pressure. Despite these factors, the large amount of capital required to develop new products continually forces these traditional chemicals and materials companies to find ways to
improve the discovery and development of materials.

For
decades, materials scientists employed relatively low throughput experimentation using X-ray technology. More recently, researchers in the field of materials discovery
have been able to employ a high throughput, combinatorial approach to experimentation. This approach enables the investigation and screening of up to thousands of new product formulations obtained
from simultaneous variations of multiple process parameters. Unlike traditional discovery methods, high throughput combinatorial experimentation focuses on producing large numbers of discrete
chemicals in small quantities, testing the chemicals simultaneously and analyzing the test results in order to find the candidates that best meet the desired criteria. Combining the speed of high
throughput, combinatorial screening with the depth and accuracy of information provided using X-ray diffraction greatly improves this process, enabling scientists to discover novel
materials and chemical processes more efficiently. In addition, these technologies allow companies to reduce costs, increase technology innovation and develop new products based on proprietary
materials.

We
believe that combinatorial materials research is fueling significant growth in advanced materials markets such as:



High
throughput combinatorial screening using X-ray diffraction, together with combinatorial analysis, can provide cost-effective, non-destructive
solutions to accelerate materials discovery.

X-ray
technology is also used in the materials science market for quality control. X-ray diffraction and X-ray fluorescence are the leading
complementary technologies used for the quality control of elemental and compound composition. Industrial customers, who use these technologies to determine the composition of raw materials such as
cement, steel, copper and aluminum, are increasingly seeking complete laboratory and process automation solutions.

Limitations of Current Alternative Approaches

Many of the technologies available today have limitations when used for applications involving drug discovery, matter characterization and materials composition.

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Drug discovery and developmentProteomics

Protein structure determination methods currently have the following limitations:

|Method                |  |   |  | Limitation                                                                                                                                     
|--------------------- |  | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------
|NMR                   |  |  |  | Lower resolution and less precise structure than produced by crystallography.                                                                  
|                      |  |  |  | Inability to analyze large proteins.                                                                                                           
|                      |  |  |  | Slow rate of data collection.                                                                                                                  
|                      |  |  |  | Requires manual data interpretation.                                                                                                           
|                      |  |  |  | Needs operator expertise to determine a structure.                                                                                             
|In silico structure   |  |  |  | Accuracy of structures is dependent on the similarity between the known and unknown protein structure.                                         
|                      |  |  |  | Cannot be used for a large percentage of proteins which are sufficiently unique or which have no closely related, determined protein structure.
|                      |  |  |  | Provides less accurate data pertaining to surface structure of proteins than other methods.                                                    
|X-ray crystallography |  |  |  | Requires crystallization of sample.                                                                                                            
|                      |  |  |  | Not all samples are crystallizable.                                                                                                            
|                      |  |  |  | Can be expensive.                                                                                                                              

For
the determination of molecular structure, X-ray crystallography is the method of choice for obtaining unambiguous and complete three-dimensional representation of
crystallizable proteins and chemical compounds. There are currently 15,000 protein structures in the global database repository known as the Protein Database Bank. Over 80% of those proteins
structures have been identified using X-ray diffraction or X-ray crystallography. Within X-ray crystallography itself there are competing technologies, primarily
involving detector technology. For example, CCD detectors compete with imaging plate technology. In imaging plate technology, imaging plates, which work like photographic film, are exposed to
X-rays and then read with a laser scanner which produces the diffraction pattern in electronic format. Although they typically provide a large image capture area and are relatively
inexpensive, imaging plates cannot provide the required high-throughput capabilities due to their lengthy readout process. Also, due to the nature of the film plate and the readout
process, imaging plates have relatively low X-ray sensitivity. On the other hand, CCD detectors, which can provide the high-speed readout capabilities and increased sensitivity
demanded for high throughput proteomics applications, have traditionally been limited by their high cost and small image capture area.

Materials science and research

In materials analysis, there is no current technology, other than X-ray technology, which can adequately provide the necessary research and industrial
process control results. Electron microscopy is generally used in parallel with X-ray diffraction; however, electron microscopy provides detailed information about only a very small,
specific area of a sample. Atomic absorption and inductively coupled plasma, two methods also used to determine the elemental composition of materials, are not ideal as they require lengthy sample
preparation. Although X-ray technology may be more expensive than other technologies, we believe it provides the most expansive, accurate results.

Our Solutions

Our X-ray systems integrate powerful detectors with advanced X-ray sources, computer-controlled positioning systems, sample handling
devices and data collection and analysis software to acquire, analyze and manage elemental and molecular information. These integrated solutions address many of the matter characterization and
structure needs of the life science, pharmaceutical, raw material and research industries across a broad range of applications. We provide high speed, sensitive systems for a

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variety of areas, including three-dimensional structure determination, protein crystal screening and molecular structure determination for the emerging structural proteomics market as well as the
small molecule drug discovery market. Additionally, we provide high speed, automated systems for elemental analysis as well as high throughput, cost-effective systems for other areas,
including combinatorial screening.

All
of our X-ray systems incorporate one or more of our three core technology applications, X-ray crystallography, X-ray diffraction or
X-ray fluorescence, to provide our customers with the most efficient, highly-accurate solutions available. We provide our proteomics customers with integrated systems based on
X-ray crystallography, which we believe to be the most efficient method for obtaining precise, static molecular structures. X-ray crystallography allows scientists to analyze
large proteins, obtain a high-resolution, precise molecular structure, collect data quickly, interpret data automatically and determine a molecular structure with minimal operator
expertise. Additionally, X-ray crystallography offers highly accurate three-dimensional structure information and can be used to determine the structure of unique proteins as well as
proteins for which there is no known closely related structure.

Our
X-ray diffraction systems allow our materials science customers to combine high throughput combinatorial experimentation with X-ray technology for greater
efficiency at lower costs. Our X-ray diffraction and X-ray fluorescence-based systems enable our industrial customers to achieve results quickly with little sample preparation
time and with a high degree of automation throughout the process.

Our
dedication to innovation enables us to provide our customers with innovative systems based on these three core technology applications. For example, in 1994 we dramatically changed
the molecular structure determination market when we introduced the first CCD detector for use in X-ray diffraction. Our novel technology substantially reduced sample analysis time while
greatly improving the quality of the data gathered. We continue to improve the capabilities of CCD detectors and many of our detectors incorporate the largest scientific-grade chip available, which
increases the image capture area of the detector. We developed our new generation detectors jointly with Fairchild Imaging, Inc., formerly Lockheed Martin Fairchild Systems, who supplies us
with the latest large-size chip technology. See "BusinessStrategic Collaborations." We have the exclusive right to use this chip technology in various X-ray
diffraction fields.

For
structural proteomics applications, the latest innovation in CCD detectors has been the development of high-speed optical lenses coupled to a CCD detector. We have
developed such a lens with a proprietary design, which replaces expensive magnifying fiber optic technologies and extends the detector field of view further than the magnifying fiber optics do.
Although CCD detectors are generally more expensive than imaging plates and have a smaller field of view, with our proprietary lens-coupled CCD detector design, we believe we can provide
some of the largest, fastest, most sensitive CCD detectors on the market.

CCD
detectors have begun to replace imaging plate technology at synchrotron beam lines, substantially improving data collection efficiency. Synchrotron beam lines are X-ray
beam lines located at large research facilities which produce some of the world's most brilliant, intense X-ray beams, allowing for
extremely fast data collection. Because the synchrotrons produce X-ray beams that are more intense than those traditionally produced in laboratories, scientists travel to the beam lines,
bringing their samples for testing. We have been selling our CCD detectors for use at these synchrotron facilities since 1995. We recently introduced a new generation technology, which further
increases the speed of data collection at the beam lines.

In
order to increase X-ray beam intensity for laboratory-based systems, we introduced high-intensity optics, which significantly improve X-ray beam
intensity and quality. Since our introduction of these optics in 1994, they have been widely used by material scientists and protein

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crystallography X-ray diffraction researchers. Additionally, as a result of our continuing research and development efforts, we recently introduced the third generation of these optics,
which have again improved the brightness and quality of X-ray beams. Through our acquisition of Nonius, we acquired a rotating anode generator technology, which provides extremely
high-power X-ray beams that can be used in laboratories. More intense X-ray beams allow for faster collection of data and enable researchers to determine
X-ray structure in their own laboratories rather than at central facilities utilizing synchrotron beam lines. Combining our X-ray optics with our rotating anode generators
provides our customers with what we believe to be the ideal solution for high throughput structural proteomics.

In
addition to the specific technological advances discussed above, we believe that our products offer the following advantages to our customers:

Integrated solutions.We provide many of our customers with complete solutions by integrating our X-ray systems
with everything from front-end sample handling to back-end analysis software. We also increasingly provide these complete solutions in smaller, more compact designs to take up
less space in laboratories. Our systems also interface easily with other hardware and software in a customer's lab to allow our customers maximum flexibility in creating customized solutions.

Increased productivity.Our products, incorporating advanced detectors, X-ray optics, sample handling robots and
sophisticated analysis software, allow our customers to increase productivity by generating better results in a shorter time period.Our automated
sample and measurement technology and user-friendly software interfaces allow our customers to process high sample volumes with reduced reliance on highly-trained scientific personnel.

High quality results.Our automated X-ray systems generate highly accurate data with the speed, selectivity and
sensitivity our customers demand. The high sensitivity of our products enables some of our customers to analyze smaller quantities of samples as well as samples of increasingly smaller size. Our
systems provide customers with extremely accurate results, providing novel research information while reducing the need for repeat analysis to eliminate errors.

Cost efficiency.Our systems, which enable rapid collection and interpretation of highly accurate data, often require minimal
operator expertise and involvement and employ modular, integrated technology, offering our customers cost efficiency. Our technological advances serve to reduce our customers' costs of labor, costs of
repeating erroneous experiments, costs of longer experiment time, costs of replacing incompatible machinery or components and costs of traveling to synchrotrons; we believe these cost efficiencies
serve to off-set the often substantial cost of system acquisition. We believe we provide our customers with large volumes of highly accurate information at a relatively low cost.

Our Strategy

Our strategy is to continue to be a leading provider of X-ray systems for use in the life science, pharmaceutical, chemical, electronics and raw
material industries as well as for general research. Key elements of our strategy include:

Maintaining our position as a technology leader and innovator.We are a recognized leader and innovator in X-ray
technology. We plan to continue to invest in research and development, collaborations and strategic acquisitions in order to develop new and enhanced products, just as our prior efforts led to the
development and advancement of CCD detector and X-ray optics technologies. We intend to focus our business on technology particularly applicable to the life science market and to extend
our advances to the materials science and other markets.

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Providing integrated solutions.Our goal is to continue to focus on the overall needs of our customers, providing them with
complete solutions for the analysis of molecular structure and elemental composition, from sample preparation through analysis of results. Our focus will be not only to provide technologically
advanced X-ray components, but also to provide the components as part of systems that are fast, easy-to-use and compatible with a customer's overall data collection
and analysis systems. Our plan includes providing turnkey systems with open architecture that permits our systems to interface with other hardware and software components in the customer's lab.

Focusing on new and expanding markets.We intend to aggressively market a broad range of innovative products for applications
in new and expanding markets. For example, our current research and development, marketing and acquisition initiatives have been aimed at creating technologies and systems suited to the
technology-driven life sciences market, which we believe will continue to expand in the post-genomic era and represent an increasing part of our business. We intend to continue to identify
other market opportunities and apply our resources appropriately, as we recently did with small molecule material research applications.

Generating recurring revenue and customer loyalty through world-class customer support.We will continue to provide
world-class support to our customers as part of our strategy to enhance the Bruker AXS brand and maintain customer loyalty. The importance we place on customer support is evidenced by the fact that
our highly-educated, well-trained customer support personnel comprise approximately 27% of our work force. In addition to the benefits in brand enhancement and customer loyalty, customer
support generates significant recurring revenues. As our installed base of systems increases, we expect that the high-margin revenue generated from post-warranty customer
service will expand as well. We also plan to increase our recurring revenues as our installed base of systems increases by selling more consumables and replacement parts.

Providing complementary technologies.In life science and other areas, we plan to offer complementary X-ray
technologies to meet the full range of our customers' matter characterization needs. Our three core X-ray technology applications (SCD, XRD and XRF) complement each other, and we plan to
expand our customers' ability to use the various technologies in an integrated manner within the same laboratory.

Capitalizing on the benefits of our modular platform technology.We plan to continue to offer our customers a modular
technology approach. Our modular approach permits us to provide individual customers with a customized application through varied combinations of already existing product modules. By taking advantage
of the modular capabilities of our technology, we can respond quickly to the changing technological needs of the market and of our customers without having to incur significant development expenses or
delays.

Pursuing acquisitions and building alliances.We plan to continue to pursue acquisitions and build alliances with strategic
partners in order to expand our technology base and product offerings, increase our market share and strengthen other key corporate competencies. For example, through our recent MAC Science
acquisition, we gained high-powered rotating anode technology, high-quality research and development talent, and access to the Japanese market. See
"BusinessStrategic Collaborations."

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Our Products

X-ray systems

We base our systems on the following three core X-ray technology applications:



SCD systemsdetermine the three-dimensional structures of molecules in the chemical, mineral or biological substance being studied. SCD
systems have the capability to determine structure in both small chemical molecules and larger biomolecules. SCD systems direct an X-ray beam at a solid, single crystal sample. The atoms
in the crystal sample scatter the X-rays to create a precise diffraction pattern recorded by an electronic detector. Software then reconstructs a model of the structure and provides the
unique arrangement of the atoms in the sample. This information on the exact arrangement of atoms in the sample is a critical part of molecular analysis and can provide insight into a variety of
areas, including how a protein functions or interacts with a second molecule.

Our
SCD systems combine high sensitivity and rapid data collection to quickly generate accurate structures for use in the life sciences industry, academic research and a variety of other
applications. Additionally, using our modular platform approach, we combine elements from our basic APEX and PROTEUM products to provide our synchrotron customers with systems tailored for their
particular applications.

The
following chart summarizes our SCD product line:

|Product           |  | Description                                                                                                   |  | Application                                                                                                 |  | Customers                                                                |  | Product
Introduction
|----------------- |  | ------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------ |  | --------------------
|X8 APEX           |  | Most sensitive 4K CCD system with 4-axis kappa goniometer and novel user interface                            |  | 3D structure determination of small molecules such as drugs                                                 |  | Chemical and pharmaceutical companies, universities                      |  | 2002                
|X8 PROTEUM        |  | Rotating anode generator based lab system with highest sensitivity 4K CCD detector and 4-axis kappa goniostat |  | High-power protein screening and structure solutions                                                        |  | Pharmaceutical companies, protein structure factories, universities      |  | 2002                
|BruNo Robotics    |  | Robotic sample handling of frozen protein crystals                                                            |  | High throughput methods to mount and retrieve protein crystal samples for screening and data collection     |  | Protein structure factories, pharmaceutical companies, universities      |  | 2002                
|Montel 200 Optics |  | X-ray optics coupled to high power laboratory X-ray sources                                                   |  | High intensity, brilliant X-ray beam delivered to the crystal sample for structural proteomics applications |  | Pharmaceutical companies, protein structure factories, academic research |  | 2002                
|PROTEUM SW suite  |  | WINDOWS based software for protein data acquisition and analysis                                              |  | Protein structure determination                                                                             |  | Pharmaceutical companies, protein structure factories, academic research |  | 2001                

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|PROTEUM 300 |  | Large 300mm diameter lens-coupled CCD detector                                   |  | Structural proteomics at synchrotron facilities                            |  | Synchrotron facilities                                                                                       |  | 2001
|----------- |  | -------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------ |  | ----
|PROTEUM R   |  | Rotating anode generator based lab system with SMART 6000 detector system        |  | High-power protein screening and structure solution system                 |  | Pharmaceutical companies, protein structure factories, academic research                                     |  | 2000
|SMART APEX  |  | Most sensitive 4K CCD system with 3-axis D8 goniometer                           |  | 3D-structure determination of small molecules such as drugs                |  | Chemical and pharmaceutical companies, universities                                                          |  | 1999
|KAPPA CCD   |  | Kappa goniometer-based CCD system                                                |  | 3D-structure determination of small molecules such as drugs                |  | Chemical and pharmaceutical companies, universities                                                          |  | 1996
|FR 591      |  | 9 and 15 KW high power X-ray source used in our X8 PROTEUM and PROTEUM R systems |  | High-intensity, brilliant X-ray beam for structural proteomics application |  | Structural proteomics laboratories, pharmaceutical companies, protein structure factories, academic research |  | 1994

XRD systemsdirect single wavelength X-rays at a polycrystalline sample. The atoms in
the polycrystalline sample scatter the X-rays to create a unique diffraction pattern recorded by a detector. Computer software processes the pattern and produces many different types of
information, including stress, texture, qualitative and quantitative phase composition, crystallite size, percent crystallinity and layer thickness, composition, defects and density of thin films and
semiconductor material.

Our
XRD systems combine modular, high precision and high quality ergonomic designs with broad applications for use in basic research and industrial process control. They contribute to a
reduction in the development cycles for new products in the catalyst, polymer, electronic, optical material and semiconductor industries. Customers also use our XRD systems for analyses in a variety
of other fields, including forensics, art and archaeology.

The
following chart summarizes our XRD product line:

|Product                        |  | Description                                                                         |  | Application                                                                        |  | Customers                                                          |  | Product
Introduction
|------------------------------ |  | ----------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------- |  | ------------------------------------------------------------------ |  | --------------------
|D8 ADVANCE, Series II          |  | General purpose diffraction system                                                  |  | Qualitative and quantitative analysis of polycrystalline material                  |  | Chemical, minerals, pharmaceutical, academic and industry research |  | 2003                
|D8 DISCOVER MR, Series II      |  | High resolution diffraction system                                                  |  | Semiconductor and thin film analysis                                               |  | Semiconductor companies, coating industry, academic research       |  | 2002                
|D8 DISCOVER CST (TRANSMISSION) |  | Diffraction system with high-speed 2D detector system for transmission applications |  | Combinatorial screening of libraries in life science and materials research        |  | Chemical, pharmaceutical, biotechnology                            |  | 2002                
|D4 ENDEAVOR                    |  | Fully enclosed high throughput general purpose diffraction system                   |  | Qualitative and quantitative analysis of polycrystalline material                  |  | Cement, raw materials, chemical, pharmaceutical                    |  | 2001                
|D8 DISCOVER CSR (REFLECTION)   |  | Diffraction system with high-speed 2D detector system for reflection applications   |  | Combinatorial screening of material libraries for identification of lead compounds |  | Chemical, catalyst, pharmaceutical, petrochemical                  |  | 2000                

10

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|D8 DISCOVER with GADDS |  | Diffraction system with high-speed 2D detector system |  | Determination of material properties, such as stress, strain, texture                |  | Chemical, pharmaceutical, metals, automotive |  | 1999
|---------------------- |  | ----------------------------------------------------- |  | ------------------------------------------------------------------------------------ |  | -------------------------------------------- |  | ----
|NANOSTAR               |  | 2D detector based small angle scattering system       |  | Determination of the nanoscale structure of polymers, fibers and biological material |  | Academic research, chemical, pharmaceutical  |  | 1998

XRF systemsdetermine the elemental composition of a material and provide a full qualitative and
quantitative analysis. These systems direct X-rays at a sample, and the atoms in the sample absorb the X-ray energy. The elements in the sample then emit characteristic
X-rays which are unique for each element. The system collects the X-rays, and its software analyzes the resulting data to determine the elements which are present.

Our
XRF products provide complete analysis automation solutions on a turn-key basis in response to the industrial marketplace demand for automated, controlled production
processes that reduce product and process cost, increase output and improve product quality. Our XRF products cover substantially all of the periodic table and can analyze solid, powder or liquid
samples. In addition, our XRF products require minimal sample preparation.

The
following chart summarizes our XRF product line:

|Product     |  | Description                                                                                           |  | Application                          |  | Customers                      |  | Product
Introduction
|----------- |  | ----------------------------------------------------------------------------------------------------- |  | ------------------------------------ |  | ------------------------------ |  | --------------------
|S2 RANGER   |  | All-in-one benchtop ED-XRF spectrometer                                                               |  | Easy-to-use elemental analysis       |  | Cement, petrochemicals, food   |  | 2002                
|S4 PIONEER  |  | High performance spectrometer for use in demanding process control and quality assurance applications |  | Fast and accurate elemental analysis |  | Cement, petrochemicals, metals |  | 2001                
|S4 EXPLORER |  | High performance plug-and-analyze X-ray fluorescence spectrometer                                     |  | Fast and accurate elemental analysis |  | Cement, petrochemicals, metals |  | 1999                

Service, consumables and related products

In addition to new system sales, we generate revenues from sales of service, consumables and related products. We believe our high-quality customer
service gives us a competitive advantage by enhancing the Bruker AXS brand and customer loyalty. Approximately 27% of our employees are highly-trained customer support personnel.

Given
the demands our products face in the field, general maintenance and replacement of consumables such as X-ray tubes and other parts is routine. We supply a large
quantity of replacement X-ray tubes to customers over the lives of our systems. Following our standard twelve-month warranty, we also generate service revenues from our customers through
service contracts, repair calls, training and other support services. Service revenue is generated either through post-warranty service contracts or on-demand service calls.
The number of customers entering into service contracts varies by geographic region.

In
addition to providing service, consumables and replacement parts, we generate recurring revenue through the sale to our customers of a variety of accessory items, including sample
handling devices, temperature and pressure control devices, enhanced X-ray optics and software packages.

11

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Finally, we provide system upgrades to customers who desire to upgrade, rather than replace, older systems.

Research and Development

We commit substantial capital and resources to internal and collaborative research and development in order to provide innovative solutions to our customers. We
have a highly skilled research and development group; almost half of our 78 employees devoted to research and development have advanced degrees.

The
value of our investment in research and development is evident in many ways, but perhaps most obvious in our development and introduction of the first CCD detector for use in
X-ray diffraction, an innovation which dramatically changed the molecular structure determination market. We have also achieved a significant increase in X-ray beam intensity
and quality with our development of high-intensity optics. The following are examples of some of our recent technology research and development accomplishments, all of which have been
successfully incorporated into our systems:



We
intend to continue to stress our research and development activities, particularly for developments in the life science field and for items including robotic solutions, software
programs and next generation detectors. We plan to use these life science developments for our other markets as well. We have and will keep in place a strong focus on software development, as over 25%
of our research and development personnel devote their time to the software field.

Our
acquisitions of Nonius and MAC Science also have improved our research and development capabilities, giving us access to rotating anode generator technology as well as additional
high quality research and development talent. Thirteen of our research and development personnel joined us through the Nonius and MAC Science acquisitions.

We
spent $9.9 million in fiscal 2002, $7.7 million, excluding in-process research and development, in fiscal 2001, and $5.9 million in fiscal 2000, on
research and development.

Strategic Collaborations

We have several key technical collaborations and alliances for the development and distribution of new or existing products. These collaborations include:

Fairchild Imaging, Inc.In 1998, we commenced collaboration with Fairchild Imaging, Inc. for the development of
CCD array detectors for use in chemical and biological crystallography. While Fairchild Imaging owns the chip included in the detector, we have exclusive rights for use of the chip in the SCD
and XRD fields, subject to minimum purchase requirements. We also own the rights to the camera in which the chip is placed.

Siemens AG.We have a collaboration with the Siemens AG X-ray tube division (now Siemens Medical Solutions Vacuum
Technology Division) in Germany for the development of X-ray tubes. We are also cooperating with Siemens for the supply of varying types of high power X-ray tubes.

12

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Additionally, we have a joint development with Siemens for a lower-power high performance XRF X-ray tube. We have the exclusive right to purchase these lower-power tubes until
December 2006.

Affinium Pharmaceuticals.In March 2001, we entered into a strategic alliance with Affinium Pharmaceuticals, formerly
known as Integrative Proteomics, Inc. Affinium Pharmaceuticals is a leader in high-throughput structural proteomics. During the three-year term of our strategic alliance, we will
sell to Affinium Pharmaceuticals X-ray protein crystallography tools required by Affinium Pharmaceuticals for its proteomics facilities and collaborate in the development of
higher-throughput proteomics tools. As part of this alliance, in June 2001, we invested in the Series IIA financing of Affinium Pharmaceuticals.

GeneFormatics Incorporated.In October 2001, we entered into a strategic alliance with GeneFormatics Incorporated.
GeneFormatics is a leader in structural proteomics and offers an integrated approach to the determination and confirmation of the function and structure of genomically-derived protein targets. We have
agreed that during the three-year term of our strategic alliance, we will sell to GeneFormatics X-ray crystallography systems and support needed to incorporate
X-ray crystallography into its business. As part of this alliance, in October 2001, we invested in the Series C financing of GeneFormatics.

Incoatec GmbH.In February 2002, we entered into a joint venture with four former scientists of the GKSS Research
Center for the research, development and production of X-ray optics based on coating technologies. As part of this joint venture, we hold a 51% stake in Incoatec GmbH, a German limited
liability company.

We
also have collaborations with non-profit institutions as well as with individual experts in the X-ray field, including Professor B.C. Wang at the University of
Georgia and Professor George Sheldrick at the University of Göttingen.

Customers

We have a broad and diversified global customer base that included over 4,500 customers with over 7,000 installed systems as of March 1, 2003. Our
molecular structure customer base includes a variety of biotechnology, pharmaceutical and chemical companies, as well as various research institutes. We sell our materials research products to
academic institutions as well as to a number of semiconductor, polymer, automotive and combinatorial materials design companies. Cement, steel, aluminum and related industries are large purchasers of
our elemental analysis products.

Some
examples of customers who have purchased multiple systems from us for use in either life sciences, materials research or elemental analysis applications include:

Life Sciences

Material Analysis

Elemental Analysis

Astra-Zeneca



British Petroleum



Alcan-Pechiney

Aventis



Exxon Mobil



Alcoa

BASF



Fraunhofer Gesellschaft



BHP

Bayer



General Electric



Ciment Lafarge/Blue Circle

GlaxoSmithKline



General Motors



Cemex

Merck



IBM



Ciment Lafarge

Novartis



ICI



Heidelberger Cement

Pfizer



Infineon



Italcementi

Scripps



Lucent Technologies



Veitsch-Radex

Samsung

Siemens

UOP


We
also sell our systems to other industrial, academic and government customers. We believe our diverse categories of customers serve to moderate the effect of economic
downturns, which may occur in one or more of the markets we serve. In fiscal 2002, no single customer accounted for greater than 3% of our revenue.

13

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Sales and Marketing

Marketing activities

Our primary marketing strategy is to provide our customers X-ray systems that enable them to perform their desired activities. Cultivating strong
customer relationships to build future recurring sales is a key part of our marketing program. We emphasize our solutions and technology platforms, rather than simply the provision of instruments. We
pursue an active marketing program through a large number of activities during the year. Our key marketing vehicles include trade shows, scientific conferences, advertising, our website, direct mail
and related activities.

Direct sales channels

We have extensive sales and distribution capabilities. We generate over 80% of our revenues through our direct sales force of over 60 individuals, approximately
40% of whom have advanced degrees. During the last three years, we have committed significant resources to upgrade and expand our direct sales force and our distribution channels worldwide. We now
have direct sales coverage throughout most of the European Union and North America, as well as in China, Japan, South Africa, Brazil and Singapore.

In
addition to our direct sales force, we have well-equipped application and demonstration facilities and qualified application personnel who assist customers and provide
product demonstrations in specific application areas. The interaction of customers with our marketing specialists and research and development scientists at these facilities enables us to get feedback
on products and customer needs directly from the customers, aiding in the effectiveness and efficiency of our product development. We maintain our primary demonstration facilities in the United States
(Madison, Wisconsin), the Netherlands (Delft), Germany (Karlsruhe) and Japan (Yokohama). Demonstration systems and support facilities are also available in other locations.

Indirect sales channels

We have determined that for some of our smaller geographical markets it is not cost effective to have a direct sales force in place. For these countries, we use
various international distributors, our affiliates and independent sales representatives.

Sales Cycle

The typical sales cycle for our products is six to twenty-four months. The sales cycle is twelve to twenty-four months for academic
products and six to twelve months for industrial products. The length of our sales cycles is primarily dependent on the budgeting cycles of our customers.

Manufacturing

We perform high-level assembly, system integration and testing for the majority of our products in our principal facilities located in the U.S.,
Germany, the Netherlands and Japan. We have considerable flexibility at our various facilities, and each facility can handle multiple product lines at the same time. Our facility in Germany also
includes a machine shop for the machining of precision parts, and employees in our facility in the U.S. assemble detectors using proprietary methods. Generally, we purchase the components of our
systems from third parties and maintain preferred suppliers and secondary sources for key components that we do not manufacture in-house.

Intellectual Property

Our intellectual property consists of patents, copyrights, trade secrets, know-how and trademarks. We license our patent rights where appropriate. Our
patents generally relate to discrete aspects of our

14

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products and not to any product as a whole. We do not believe that any one of our patents is material to our business on an enterprise-wide basis.

Protection
of our intellectual property is a strategic priority for our business, and we will enforce our patent rights against all infringers as necessary. While we believe our patent
portfolio provides us with a competitive advantage, the patent positions of companies like ours involve complex legal and factual questions. As a result, we cannot predict the enforceability of our
patents with certainty. In addition, we are aware of the existence of patents in certain countries that, if valid, could impair our ability to manufacture and sell our products in these countries. We
have received letters from third parties
inquiring whether or not certain of our components infringe upon certain of their patents. We do not believe we infringe upon any valid claims of these patents.

We
also rely upon trade secrets, know-how, trademarks, copyright protection and licensing to develop and maintain our competitive position. We generally require the execution
of confidentiality agreements by our employees, consultants and other scientific advisors. These agreements provide that all confidential information made known during the course of a relationship
with us will be held in confidence and used only for our benefit. In addition, these agreements provide that we own all inventions generated during the course of the relationship.

Competition

Our markets are highly competitive, and we expect the competition to increase. Currently, we have competitors for most of our product lines. We believe that the
principal competitive factors in our markets are technological applications expertise, product functionality, quality after market service and support, marketing expertise, distribution capability,
proprietary patent portfolios, cost and cost effectiveness.

Our
existing products and any products that we develop may compete in multiple, highly competitive markets. Other companies may offer or succeed in developing products that would render
our products or those of our strategic partners obsolete, uneconomical or noncompetitive. In addition, some of these competitors have significantly greater experience in the life sciences market. Our
ability to compete successfully will depend on our ability to develop proprietary products that reach the market in a timely manner and are technologically superior to and/or are less expensive, or
more cost effective, than other currently marketed products. Current competitors or other companies may possess or develop technologies and products that are more effective than ours.

Employees

As of March 1, 2003, we employed over 560 full-time employees, with approximately 140 employees in the U.S. and more than 350 employees located
primarily in Europe. Over 75 of these employees hold doctorates in biology, chemistry, physics or other scientific areas.

Government Regulation

We possess low-level radiation materials licenses from the Nuclear Regulatory Commission for our facility in Madison, Wisconsin, from the local
radiation safety authority, Gewerbeaufsichtsamt Karlsruhe, for our facility in Karlsruhe, Germany, from the local radiation safety authority, Ministerie
van Volkshuisvesting, Ruimtelijke Ordening en Miliuebeheer, for our facility in Delft, the Netherlands, and from the local radiation safety authority, Kanagawa Prefecture, for our facility in
Yokohama, Japan, as well as from various other countries in which we sell our products. The U.S. Nuclear Regulatory Commission also has regulations concerning the exposure of our employees to
radiation.

Prior
to introducing a product in the U.S., we provide notice to the Food and Drug Administration, or FDA, in the form of a Radiation Safety Abbreviated Report, which provides
identification information and operating characteristics of the product. If the FDA finds that the report

15

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is complete, it provides us approval in the form of what is known as an accession number. We may not market a product until we have received an accession number. In addition, we submit an annual
report to the FDA that includes, among other things, the radiation safety history of all products we sell in the U.S. We are required to report to the FDA incidents of accidental exposure to radiation
arising from the manufacture, testing or use of any of our products. We also report to state governments products which we sell in their states. For sales in Germany, we register each system with the
local authorities. In some countries where we sell systems, we use the license we obtained from the federal authorities in Germany to assist us in obtaining a license from the country in which the
sale occurs. In addition, as indicated above, we are subject to various other foreign and domestic environmental, health and safety laws and regulations in connection with our operations. Apart from
these areas, we are subject to the laws and regulations generally applicable to businesses in the jurisdictions in which we operate.

Scientific Advisory Board

We have established an international Scientific Advisory Board to advise us on strategic research and development and strategic marketing issues. The members of
the Board include:



We
provide members of our Scientific Advisory Board a fee of $6,000 per year and options at fair market value for 1,500 shares of our common stock. These options vest after three years.
We also reimburse Scientific Advisory Board members for expenses reasonably incurred related to the services they provide us.

Financial Information about Geographic Areas

Financial Information about our geographic areas required by Item 1 of Form 10-K may be found in Note 23 to our Financial Statements in
this Form 10-K, included as part of Item 8 to this report. Financial information about our revenues from external customers, measure of profit and total assets required by Item 1 of
Form 10-K is included in our Financial Statements in this Form 10-K included as part of Item 8 to this report.

ITEM 2.PROPERTIES

Our four principal facilities incorporate manufacturing, research and development, application and demonstration, marketing and sales and administration
functions. These are:



We
lease additional centers for sales, applications and service support in: Congleton, United Kingdom (Bruker AXS Ltd.); Paris, France (Bruker AXS SA); Salzburg, Austria (Bruker
AXS GmbH); Milano, Italy (Bruker AXS S.r.L.); Johannesburg, South Africa (Bruker AXS (Pty) Ltd.); São Paulo,

16

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Brazil (Bruker AXS do Brasil Ltda.); Singapore (Bruker AXS Pte Ltd.); Geesthacht, Germany (Incoatec GmbH) and Beijing, People's Republic of China (Bruker AXS Representative Office).

ITEM 3.LEGAL PROCEEDINGS

We may, from time to time, be involved in legal proceedings in the ordinary course of business. We are not currently involved in any pending legal proceedings
that, either individually or taken as a whole, could materially harm our business, prospects, results of operations or financial condition.

ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

17

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PART II

ITEM 5.MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock has been traded on the Nasdaq National Market since December 2001. Prior to that time, there was no public market for our common stock. The
following table sets forth, for the period indicated, the high and low sale prices for the common stock as reported on the Nasdaq National Market.

High

LowFirst Quarter 2002

$
7.16

$
3.75Second Quarter 2002

$
4.10

$
1.50Third Quarter 2002

$
2.50

$
1.10Fourth Quarter 2002

$
2.95

$
1.50


As
of March 17, 2003, there were approximately 30 holders of record of our common stock. This number does not include the individual beneficial owners of shares held in nominee name or
within clearinghouse positions of brokerage firms and banks. The closing price per share of our common stock on March 17, 2003, as reported by the Nasdaq National Market, was $1.56.

We
have never declared or paid cash dividends on our capital stock. We currently anticipate that we will retain all available funds for use in our business and do not anticipate paying
any cash dividends in the foreseeable future.

In
January 2001, we issued and sold 5,625,000 shares of Series A convertible preferred stock for an aggregate purchase price of approximately $22.5 million, or $4
per share, to a total of eleven investors. Upon consummation of the initial public offering of our Common Stock, all outstanding shares of preferred stock were converted into 6,923,077 shares of
common stock. In June 2001, we issued 83,333 shares of common stock, at a price of $6 per share, to Affinium Pharmaceuticals in connection with our $1 million investment in Affinium
Pharmaceuticals' Series IIA financing. In October 2001, we issued 71,428 shares of common stock, at a price of $7 per share, to GeneFormatics Incorporated in connection with our
$1 million investment in GeneFormatics' Series C financing. These shares of our common stock were issued pursuant to an exemption from the registration requirements of the Securities Act
of 1933, as amended, afforded by Section 4(2) of this act, or Regulation D promulgated thereunder, as transactions by an issuer not involving a public offering.

On
December 13, 2001, a registration statement on Form S-1 (No. 333-66066) was declared effective by the Securities and Exchange Commission,
pursuant to which 9,000,000 shares of our common stock were offered and sold by us at a price of $6.50 per share, generating gross offering proceeds of approximately $58.5 million. On
January 11, 2002, the managing underwriters exercised their over-allotment option to purchase an additional 1,350,000 shares, generating gross proceeds of approximately
$8.8 million. The managing underwriters were UBS Warburg, Thomas Weisel Partners LLC, CIBC World Markets, SG Cowen and Robert W. Baird. In connection with the offering, we incurred expenses of
approximately $4.7 million in underwriting discounts and commissions and approximately $1.8 million in other related expenses. The net proceeds from the offering, after deducting the
foregoing expenses, were approximately $60.7 million. We have used a portion of the net proceeds of the offering to fund our continuing research and development activities and for working
capital and other general corporate purposes. Additionally, we have used $7.9 million of the net proceeds to pay off a portion of our outstanding related party debt, $3.0 million to pay
off a portion our outstanding bank debt, approximately $2.6 million to finance the acquisition of our Karlsruhe, Germany facility, approximately $1.7 million on leasehold improvements
and other capital expenditures, approximately $0.7 million on the purchase and implementation of computer software and $0.3 million on the acquisition of MAC Science Ltd.

18

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ITEM 6.SELECTED FINANCIAL DATA

|                                                                                                                           |                                     | Year Ended
December 31,  |         | Three Months Ended
December 31, |        | Year Ended
September 30, |       
|-------------------------------------------------------------------------------------------------------------------------- | ----------------------------------- | ------------------------ | ------- | ------------------------------- | ------ | ------------------------ | ------
|
|
|
|Net sales                                                                                                                  |                                     | $                        | 104,290 |                                 | $      | 82,588                   |       
|Cost of sales                                                                                                              |                                     |                          | 63,114  |                                 |        | 51,063                   |       
|                                                                                                                           |                                     |                          |         |                                 |        |                          |       
|                                                                                                                           | Gross profit                        |                          |         | 41,176                          |        |                          | 31,525
|                                                                                                                           |                                     |                          |         |                                 |        |                          |       
|Operating expenses:                                                                                                        |                                     |                          |         |                                 |        |                          |       
|                                                                                                                           | Research and development            |                          |         | 9,903                           |        |                          | 7,744 
|                                                                                                                           | In-process research and development |                          |         |                                |        |                          | 3,590 
|                                                                                                                           | General and administrative          |                          |         | 8,265                           |        |                          | 5,298 
|                                                                                                                           | Marketing and selling               |                          |         | 21,340                          |        |                          | 16,792
|                                                                                                                           | Restructuring charge                |                          |         | 1,767                           |        |                          |      
|                                                                                                                           |                                     |                          |         |                                 |        |                          |       
|                                                                                                                           |                                     | Total operating expenses |         |                                 | 41,275 |                          |       
|                                                                                                                           |                                     |                          |         |                                 |        |                          |       
|Operating (loss) income                                                                                                    |                                     |                          | (99     | )                               |        | (1,899                   | )     
|Interest (income) expense, net                                                                                             |                                     |                          | (306    | )                               |        | 133                      |       
|Other (income) expense                                                                                                     |                                     |                          | (1,614  | )                               |        | 314                      |       
|Write-down of investments in other companies                                                                               |                                     |                          | 1,300   |                                 |        |                         |       
|                                                                                                                           |                                     |                          |         |                                 |        |                          |       
|Income (loss) before income taxes, minority interest in subsidiary and cumulative effect of change in accounting principle |                                     |                          | 521     |                                 |        | (2,346                   | )     
|Income tax expense (benefit)                                                                                               |                                     |                          | 718     |                                 |        | (969                     | )     
|                                                                                                                           |                                     |                          |         |                                 |        |                          |       
|(Loss) income before minority interest in subsidiary and cumulative effect of change in accounting principle               |                                     |                          | (197    | )                               |        | (1,377                   | )     
|Minority interest in subsidiary                                                                                            |                                     |                          | 59      |                                 |        |                         |       
|                                                                                                                           |                                     |                          |         |                                 |        |                          |       
|(Loss) income before cumulative effect of change in accounting principle                                                   |                                     |                          | (256    | )                               |        | (1,377                   | )     
|Cumulative effect of change in accounting principle, net of taxes                                                          |                                     |                          | 617     |                                 |        |                         |       
|                                                                                                                           |                                     |                          |         |                                 |        |                          |       
|Net (loss) income                                                                                                          |                                     |                          | (873    | )                               |        | (1,377                   | )     
|Convertible preferred stock accretion                                                                                      |                                     |                          |        |                                 |        | 833                      |       
|Beneficial conversion feature                                                                                              |                                     |                          |        |                                 |        | 5,192                    |       
|                                                                                                                           |                                     |                          |         |                                 |        |                          |       
|Net (loss) income available to common shareholders                                                                         |                                     | $                        | (873    | )                               | $      | (7,402                   | )     
|                                                                                                                           |                                     |                          |         |                                 |        |                          |       
|Earnings (loss) per share  basic and diluted:                                                                             |                                     |                          |         |                                 |        |                          |       
|(Loss) income before cumulative effect of change in accounting principle, net of taxes                                     |                                     | $                        | 0.00    |                                 | $      | 0.19                     |       
|Cumulative effect of change in accounting principle                                                                        |                                     |                          | (0.01   | )                               |        |                         |       
|                                                                                                                           |                                     |                          |         |                                 |        |                          |       
|Net (loss) income per share                                                                                                |                                     | $                        | (0.02   | )                               | $      | (0.19                    | )     
|                                                                                                                           |                                     |                          |         |                                 |        |                          |       
|Shares used in computing net (loss) income per share basic                                                                 |                                     |                          | 56,028  |                                 |        | 39,613                   |       
|Shares used in computing net (loss) income per share diluted                                                               |                                     |                          | 56,028  |                                 |        | 39,613                   |       

|                           |  | As of
|-------------------------- |  | -----
|
|
|
|Cash and cash equivalents  |  | $    
|Working capital            |  |      
|Total assets               |  |      
|Total long-term debt       |  |      
|Total shareholders' equity |  |      

---

19

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ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with "Selected
financial data" and our financial statements and related notes appearing elsewhere in this annual report on Form 10-K. This discussion and analysis contains forward-looking
statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors,
including, but not limited to, those set forth under "Factors Affecting Our Business, Operating Results and Financial Condition" and elsewhere in this annual report on
Form 10-K.

OVERVIEW

We are a leading worldwide developer and provider of advanced integrated X-ray systems which provide solutions for molecular and elemental analysis by
X-ray diffraction and X-ray fluorescence. Our products, which have particular application in the drug discovery and materials science fields, provide our customers with the
ability to determine the structure of specific molecules, such as proteins, and to characterize and determine the composition of materials. Our customers include biotechnology and pharmaceutical
companies, semiconductor companies, raw material manufacturers, chemical companies, academic institutions and other businesses involved in materials analysis.

Our
new product introduction goal is to focus on the overall needs of our customers, providing them with complete solutions. Our plan includes providing turnkey systems with open
architecture that permits our systems to interface with other hardware and software components in the customer's lab. A major strategy to accomplish this goal is to offer our customers a modular
technology approach. Our modular approach permits us to provide individual customers with a customized application through varied combinations of existing product modules. By taking advantage of the
modular capabilities of our technology, we can respond quickly to the changing technological needs of the market and of our customers without having to incur significant development expenses or
delays. As we bring on systems with these new modular technologies, they typically replace systems with old technologies. Accordingly, this modular approach to introducing new systems helps sustain
our revenue growth rates.

We
have experienced substantial fluctuations in our quarterly and annual results of operations, and we expect these fluctuations to continue. The amount and timing of our revenues and
operating expenses
may fluctuate significantly in the future as a result of a variety of factors. We face a number of risks and uncertainties encountered by early stage companies, particularly those in rapidly evolving
markets such as the life science industry. We may not be able to successfully address these risks and difficulties. In addition, we are subject to foreign currency fluctuations.

We
are not affected by seasonal factors. Our systems sales are high-cost capital expenditures for customers, and the selling cycle may take from 6 to 24 months. The
order fulfillment cycle also may take up to six months to design and build a system.

ACQUISTIONS

Prior to September 1997, we did not engage in any significant business operations. In October 1997, Bruker BioSpin Corporation and Bruker Physik,
two of our affiliates, purchased the analytical X-ray business of Siemens AG. Bruker BioSpin Corporation purchased the assets and assumed the liabilities of Siemens' U.S. business, which
then became Bruker AXS Inc., and Bruker Physik purchased the stock of Siemens' German business, which business then became Bruker AXS GmbH.

In
June 1999, all of our shares were transferred from Bruker BioSpin Corporation to five individuals who were members of the controlling family of all of the Bruker companies. We
then

20

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acquired all of the shares of Bruker AXS GmbH from Bruker Physik. The transaction represented an exchange between entities under common control and, accordingly, the assets acquired and liabilities
assumed have been accounted for at historical cost in a manner similar to that of pooling-of-interests accounting. As a result of this acquisition, for periods prior to
June 1999, our financial statements reflect the combined accounts of us and Bruker AXS GmbH. All significant intercompany transactions have been eliminated in the combined statements.

In
April 2001, we acquired Nonius B.V. and four of its affiliates ("Nonius") from Delft Instruments N.V., a Dutch company, for approximately $6.6 million in cash plus the
assumption of approximately $1.8 million of debt and additional liabilities of $4.3 million. Nonius and its affiliates specialize in the development, production and marketing of products
and services for single crystal X-ray diffraction. Accordingly, the Nonius operations were consolidated in the results since the date of the acquisition. As part of the acquisition, we
entered into a services agreement with Delft Instruments to continue to provide various services to the acquired business. As of December 31, 2002, all of the services agreements were
terminated.

In
conjunction with the acquisition of Nonius, we acquired certain in-process research and development ("IPR&D") projects. These projects included next generation high
brilliancy optics and microsources, high brilliance rotating anode generator successors for biological crystallography, high sensitivity large area detector systems and next generation software for
data acquisition and processing. At the time of
the acquisition, these projects were in various stages of completion, ranging from 50% to 70%. The projects were expected to be completed during 2002 at an estimated cost of $0.6 million.

The
following table provides information regarding the current status of the acquired IPR&D projects as of December 31, 2002 (in thousands):

|Acquired IPR&D Project                      |  | Estimated Cost to
Complete at Time of
Acquisition |     | Actual Costs Incurred
as of December 31, 2002 |   | Actual
Completion Date | 
|------------------------------------------- |  | ------------------------------------------------- | --- | --------------------------------------------- | - | ---------------------- | 
|Optics and microsources                     |  | $                                                 | 231 |                                               | $ | 133                    | 
|Rotating anode generator                    |  | $                                                 | 154 |                                               | $ | 220                    | 
|Large area detector systems                 |  | $                                                 | 154 |                                               | $ | 231                    | 
|Software for data acqusition and processing |  | $                                                 | 77  |                                               | $ | 80                     | 

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Although
we believed these IPR&D projects, when completed, would provide value, we determined there was an absence of technological feasibility and alternative future use for this IPR&D
at the time of acquisition. As such, we utilized a discounted probable future cash flows analysis to prepare a valuation of the fair value of IPR&D. We performed this cash flow analysis on a project
by project basis and applied adjusted discount rates of 40%-45% to the projects' cash flow. We used financial assumptions based on pricing, margins and expense levels from those
historically realized by Nonius
and consistent with industry standards. Material net cash inflows from these projects were expected to begin in 2003. We were primarily responsible for estimating the fair value of the purchased
in-process research and development. This valuation resulted in an estimate of the fair value of $3.6 million ($2.1 million, net of tax), which was charged to research and
development expense immediately following the close of the transaction in the second quarter of 2001.

We
believe the projections used in performing the valuations are still appropriate; however, there can be no assurance that the projected results will be achieved. Failure to
successfully develop and market these projects would result in the loss of the expected economic return inherent in the fair value allocation.

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In May 2002, we acquired substantially all of the assets and certain liabilities of MAC Science Ltd., a Yokohama, Japan company focused on X-ray analysis
instrumentation, for $3.4 million including $0.3 million of cash plus the assumption of liabilities of $3.1 million. We believe this acquisition will result in both new product
introductions as well as further penetration in the Japanese life science and advanced materials research markets. The results of the MAC Science operations have been included in our consolidated
financial statements since the date of acquisition.

INITIAL PUBLIC OFFERING

In December 2001, we completed an initial public offering of 9,000,000 shares of our common stock to the public, at a price per share of $6.50. We received
net proceeds of $52.6 million. Upon the closing of the initial public offering, 5,625,000 shares of redeemable preferred stock converted into 6,923,077 shares of common stock (See "Notes to
Financial Statements"). In January 2002, the underwriters of the initial public offering exercised an over-allotment option to purchase an additional 1,350,000 shares at $6.50 per
share. We received net proceeds of $8.1 million.

RESULTS OF OPERATIONS

Year ended December 31, 2002 compared to year ended December 31, 2001

Net sales

Net sales for the year ended December 31, 2002 increased $21.7 million, or 26.3%, to $104.3 million compared to $82.6 million for the
year ended December 31, 2001. Approximately $8.3 million of the increase was related to our X-ray diffraction systems; specifically, the market's acceptance of the D8
DISCOVER CC and D4 ENDEAVOR accompanied by strong sales of our existing D8 ADVANCE. In
addition, the S4 PIONEER, an X-ray fluorescence system, was introduced in the fourth quarter of 2001 and has resulted in an increase in sales of $4.7 million. Approximately
$4.7 million of the increase in sales related to our acquisition of MAC Science. The remainder of the increase was due primarily to a $3.2 million increase in aftermarket and other
sales. Aftermarket and other sales consist of extended warranty and service agreements, replacement parts, accessories, software packages, upgrades, repair calls, support services and training.
Currency fluctuations on net sales for the year ended December 31, 2002 had a favorable impact of $3.4 million, or 4.1%, on our revenues.

Cost of sales

Cost of sales for the year ended December 31, 2002 increased $12.0 million, or 23.6%, to $63.1 million compared to $51.1 million for
the year ended December 31, 2001. The cost of sales increase was due to the overall growth in system sales. In addition, approximately $2.8 million of this increase was due to the
acquisition of MAC Science. Further, currency fluctuations increased our cost of sales by approximately $2.1 million as compared to the prior year. The gross margin on sales was 39.5% in 2002
compared to 38.2% in 2001. The improvement in gross margin was driven particularly by improved performance in our APEX and PROTEUM single crystal diffraction product lines. In addition, our redesign
to cost initiatives improved our margins in our X-ray diffraction systems, particularly our D8 products.

Research and Development

Research and development expenses for the year ended December 31, 2002 increased $2.2 million, or 27.9%, to $9.9 million from
$7.7 million for the year ended December 31, 2001. Approximately $1.7 million of the increase was due to the expansion of research and development projects, specifically material
purchases for these projects. In addition, research and development expenses increased by $0.5 million due to the acquisition of MAC Science. Currency fluctuations increased research and

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development expenses by $0.3 million. As a percentage of net sales, research and development expenses increased to 9.5% for the year ended December 31, 2002 from 9.4% for the year ended
December 31, 2001.

For
the year ended December 31, 2001, there was a $3.6 million charge resulting from the write-off of in-process research and development costs
related to the acquisition of Nonius in April 2001. There were no such charges in the year ended December 31, 2002.

General and Administrative

General and administrative expenses for the year ended December 31, 2002 increased $3.0 million, or 56.0%, to $8.3 million from
$5.3 million for the year ended December 31, 2001. Approximately $1.7 million of the increase was due to costs related to being a public company, including insurance, legal fees,
filing fees and other costs. In addition, approximately $0.5 million of this increase related to the acquisition of MAC Science. Currency fluctuations increased general and administrative
expenses by $0.2 million. As a percentage of net sales, general and administrative expenses were 7.9% for the year ended December 31, 2002 compared to 6.4% for the year ended
December 31, 2001.

Marketing and Selling

Marketing and selling expenses for the year ended December 31, 2002 increased $4.5 million, or 27.1%, to $21.3 million from
$16.8 million for the year ended December 31, 2001. The increase was due primarily to an increase in sales commissions and employee costs due to higher sales levels. In addition,
approximately $0.9 million of this increase related to the acquisition of MAC Science. Currency fluctuations increased marketing and selling expenses by $0.8 million. As a percentage of
net sales, marketing and selling expenses were 20.5% for the year ended December 31, 2002 compared to 20.3% for the year ended December 31, 2001.

Restructuring Charge

In the third quarter of 2002, we implemented a restructuring program to reduce costs and improve productivity by eliminating redundant positions, streamlining
production and initiating cost reduction programs in all operating areas. As a result, we recorded a restructuring charge of approximately $1.8 million ($1.0 million, net of tax).

Of
the total restructuring charge, approximately $0.5 million related to involuntary and voluntary employee termination benefits for personnel reductions in all operating areas.
Under the restructuring program, we reduced our workforce by approximately 19 employees, or approximately 5% of the total workforce in the United States, Germany and United Kingdom. The restructuring
charge also included approximately $0.7 million for the write-off of property and equipment as a result of ceasing production at a facility located in the United Kingdom. Beginning
in the fourth quarter of 2002, all products that were produced in the United Kingdom are being produced at the production facility in Germany. In addition, approximately $0.5 million of the
restructuring charge consisted of penalties for terminating contracts for outsourced inventory and information technology services which we now provide internally. The remaining $0.1 million
consisted of engineering inventory that was written off as a result of the termination of a research and development project.

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The
following table summarizes the restructuring charge activity and the balance of the restructuring accrual as of December 31, 2002 (in thousands):

|                                           |  | Workforce
Reduction |     | Production
Operations |   | Contractual
Obligations |   | Engineering
Inventory |      | Total |  
|------------------------------------------ |  | ------------------- | --- | --------------------- | - | ----------------------- | - | --------------------- | ---- | ----- | -
|Initial charge in third quarter 2002       |  | $                   | 458 |                       | $ | 699                     |   | $                     | 465  |       | $
|Cash payments                              |  |                     | (84 | )                     |   |                        |   |                       | (172 | )     |  
|Non-cash charges                           |  |                     |    |                       |   | (699                    | ) |                       |     |       |  
|Currency impact                            |  |                     | 16  |                       |   |                        |   |                       | 20   |       |  
|                                           |  |                     |     |                       |   |                         |   |                       |      |       |  
|Balance of accrual as of December 31, 2002 |  | $                   | 390 |                       | $ |                        |   | $                     | 313  |       | $
|                                           |  |                     |     |                       |   |                         |   |                       |      |       |  

We
expect the remaining accrual for the contractual obligations to be paid by the end of 2004. Due to the impact of certain German regulatory requirements applicable to the benefits of
our German employees, the workforce reduction accrual will not be fully paid until 2008.

Interest (income) expense

Interest income for the year ended December 31, 2002 increased $0.3 million, or 55.8%, to $0.8 million compared to $0.5 million for
the year ended December 31, 2001. The increase was due to higher investment balances derived from proceeds of our initial public offering, although this was partially offset by lower interest
rates. Additionally, interest expense for the year ended December 31, 2002 decreased by $0.2 million, or 24.8%, to $0.5 million compared to $0.6 million for the year ended
December 31, 2001. The decrease was due to a reduction of our related party debt through use of the proceeds from our initial public offering, although the decrease was partially offset by
increased third party debt with higher interest rates.

Other (income) expense

Other income for the year ended December 31, 2002 increased $1.9 million to income of $1.6 million compared to expense of $0.3 million
for the year ended December 31, 2001. The increase was primarily due to the weakening of the U.S. dollar against the euro. As a result, we recorded $1.1 million in foreign currency gains
on our euro denominated intercompany lines of credit for the year ended December 31, 2002 compared to a $0.2 million foreign currency loss for the year ended December 31, 2001. In
addition, gains on foreign currency transactions increased $0.9 million. The increases in other income were offset by interest rate and currency fluctuations on our derivative financial
instruments resulting in a decrease of $0.1 million in other income.

In
July 2002, we restructured our euro denominated intercompany lines of credit given that settlement is not anticipated in the foreseeable future. As a result, the impact of
foreign exchange rate fluctuations is no longer recorded in other expense (income) within that statement of operations, but instead is recorded as a component of accumulated other comprehensive income
(loss) within shareholders' equity. We recorded a gain of $0.4 million within accumulated other comprehensive income (loss) between July and December 2002 for euro denominated
intercompany lines of credit.

Write-down of investments in other companies

In the fourth quarter of 2002, we recorded an impairment loss of $1.3 million on investments in two unaffiliated proteomics companies. We believe that
these investments have been negatively impacted by the continued decline in the capital markets and the economic environment in which the investees operate. As these investments are not publicly
traded, we performed valuations on both of the investments. The valuations were based on the Black-Scholes option pricing theory to determine the fair value of the investees' equity. The valuations
were then adjusted to reflect market conditions and equity values of comparable companies.

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Income tax expense (benefit)

Income tax for the year ended December 31, 2002 increased by $1.7 million, or 174.1%, to $0.7 million compared to a tax benefit of
$1.0 million for the year ended December 31, 2001. Our effective tax rate was 137.8% for the year ended December 31, 2002 and 41.3% for the year ended December 31, 2001.
The increase in our effective tax rate was primarily due to recording a valuation allowance on our deferred tax assets for the write-down of investments in other companies and foreign tax
credits. Excluding the write-down of investments in other companies our effective tax rate would have been 39.4% for the year ended December 31, 2002. In addition to the valuation
allowance, the difference between the statutory tax rate and the effective tax rate was primarily due to research and development credits and state income taxes for the year ended December 31,
2002.

Minority interest

In February 2002, we contributed $22,000 of cash to Incoatec GmbH, a German entity, which resulted in a 51% ownership. The $59,000 increase in minority
interest in subsidiary represents the minority shareholders' proportionate share of net income for the year ended December 31, 2002.

Change in accounting principle

We adopted Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangibles," in the first quarter of 2002. Under the
transitional provisions of SFAS No. 142, we tested goodwill and intangible assets with indefinite useful lives for impairment as of January 1, 2002 pursuant to the method prescribed by
SFAS No. 142. We completed the transitional impairment tests in the third quarter of 2002, which resulted in recording an impairment loss of $1.0 million ($0.6 million, net of
tax). In accordance with the transition provisions of SFAS No. 142, the impairment loss has been recorded in the first quarter of 2002 as a cumulative effect of change in accounting principle.

The
goodwill impairment loss related to our Nonius subsidiary, which was acquired in April 2001. Changes in the market and economic conditions since the date of acquisition have
resulted in an impairment of goodwill allocated to Nonius.

Year ended December 31, 2001 compared to year ended December 31, 2000

Net sales

Net sales for the year ended December 31, 2001 increased $14.5 million, or 21.3%, to $82.6 million compared to $68.1 million for the
year ended December 31, 2000. Approximately $6.5 million of this increase related to the acquisition of Nonius. Approximately $1.6 million of this increase related to the
introduction of our new APEX and D4 products which were favorably received by the market. The remainder of the net sales increase was attributable to increased market acceptance of existing products.
Furthermore, the addition of new sales offices and increased marketing efforts in newer regions also favorably impacted net sales. The increase in net sales was mitigated by currency fluctuations
experienced in 2001, which effectively reduced our U.S. reporting revenues by approximately $2.6 million. Although third quarter net sales were negatively affected from general business
interruption immediately following the September 11, 2001 terrorist attacks, all sales which had been delayed were recognized by December 31, 2001.

Cost of sales

Cost of sales for the year ended December 31, 2001 increased $7.8 million, or 18.1%, to $51.1 million compared to $43.3 million for
the year ended December 31, 2000. Approximately $5.0 million of this increase was due to the addition of Nonius' operations in 2001. The increase in cost of sales also includes
approximately $0.6 million of additional costs. The introduction of new

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automation products accounted for approximately $0.2 million of additional cost and scrap accounted for approximately $0.1 million. We also incurred $0.3 million of unfavorable
variances for labor underabsorption due to travel restrictions subsequent to the September 11, 2001 terrorist attacks; some of our labor force was not fully utilized because they were unable to
travel to customers to install and service our products. The remainder of the cost of sales increase was due primarily to the overall growth of the number of system sales. The gross margin on sales
was 38.2% in 2001 compared to 36.5% in 2000. The increase in gross margin was primarily driven by product mix changes and cost reductions. Specifically, we sold more single crystal diffraction and
materials science systems, which have higher margins. The cost reductions were the result of standardizing production processes at all manufacturing locations.

Research and development

Research and development expenses for the year ended December 31, 2001 increased $5.4 million, or 91.6%, to $11.3 million (including
in-process research and development costs) compared to $5.9 million for the year ended December 31, 2000. Approximately $3.6 million of this increase was due to the
write-off of in-process research and development costs related to the acquisition of Nonius. As a percentage of net sales, research and development expenses increased to 13.7%
for the year ended December 31, 2001 from 8.7% for the year ended December 31, 2000. If we eliminate the effect of the Nonius acquisition, the research and development expenses as a
percentage of net sales in the year
ended December 31, 2001 would have been 9.0%. This increase in research and development expenses as a percentage of net sales was due to an expansion of research and development projects, which
included increases in personnel, materials and supplies.

General and administrative

General and administrative expenses for the year ended December 31, 2001 increased $2.6 million, or 94.6%, to $5.3 million compared to
$2.7 million for the year ended December 31, 2000. Approximately $0.5 million of this increase related to the Nonius acquisition. Approximately $0.3 million related to the
addition of four new sales distribution subsidiaries. As a percentage of net sales, general and administrative expenses were 6.4% for the year ended December 31, 2001 compared to 4.0% for 2000.
This increase in general and administrative expenses as a percentage of net sales was due to an expansion of administrative functions, additional systems consulting costs and increased executive
management expense.

Marketing and selling

Marketing and selling expenses for the year ended December 31, 2001 increased $2.7 million, or 19.0%, to $16.8 million compared to
$14.1 million for the year ended December 31, 2000. Approximately $0.1 million of this increase was due to the addition of new sales distribution subsidiaries. Approximately
$1.3 million was due to the addition of Nonius' operations. The remainder of the increase was due primarily to additional advertising and trade show expense related to product promotions. As a
percentage of net sales, marketing and selling expenses were 20.3% for the year ended December 31, 2001 compared to 20.7% for the year ended December 31, 2000.

Interest expense (income)

Interest expense decreased $0.8 million, or 85.5%, to $0.1 million for the year ended December 31, 2001 compared to $0.9 million for
the year ended December 31, 2000. The decrease was due to our reduction of $16.9 million of debt using the proceeds from our sale of preferred stock and common stock. Additionally, we
recognized interest income of $0.5 million and $0.1 million for the year ended December 31, 2001 and 2000, respectively. The increase in interest income was primarily the result
of cash received from our preferred stock and common stock offerings.

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Other expense (income)

We recognized $0.3 million of other expense for the year ended December 31, 2001 and $0.1 million of other income for the year ended
December 31, 2000. The decrease in 2001 of $0.4 million was primarily due to the effect of foreign currency fluctuations.

Income tax (benefit) expense

Income tax for the year ended December 31, 2001 was a tax benefit of $1.0 million compared to a tax expense of $0.5 million for the year
ended December 31, 2000. Our effective tax rate was 41.3% for the year ended December 31, 2001 and 41.4% for the year ended December 31, 2000. The difference between the statutory
tax rate and the effective tax rate was primarily due to research and development credits and state income taxes for the years ended December 31, 2001 and 2000.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2002, we had cash and cash equivalents of $52.7 million and working capital of $72.4 million. Historically, we have
financed our growth through a combination of debt financing and the issuance of our common and preferred stock.

During
the year ended December 31, 2002, we generated $0.7 million of cash from operating activities. This was primarily due to our accounts receivable and inventories
growing at a slower rate than our sales volume. We have made improvements in our cash collection efforts for accounts receivable and have more efficiently managed our inventories by reducing our lead
times. During the latter half of 2002 and as part of our restructuring, we focused on inventories on a facility-by-facility basis. Inventory management will continue to be an
area of focus in 2003 as we look at inventory management on a global basis. Our improvements in accounts receivable and inventories were offset by decreases in other current liabilities, primarily
customer advances. During the year ended December 31, 2001, we used $2.1 million of cash in operating activities. Our use of cash was primarily due to increases in accounts receivable
and inventories related to sales growth. These increases were partially offset by increases in current liabilities, primarily comprised of customer advances. During the year ended December 31,
2000, we generated $1.2 million in cash flow from operations. This was due to increased current liabilities and the elimination of restricted cash. Specifically, accrued warranty increased due
to an increased number of systems in the field and compensation liabilities increased due to the growth of our business. Restricted cash decreased due to a reduction in the number of customers
requiring bank guarantees. These increased current liabilities and the elimination of restricted cash were partially offset by increased accounts receivable and decreased accounts payable.

Cash
flows used for investing activities totaled $13.1 million for the year ended December 31, 2002, $9.7 million for the year ended December 31, 2001 and
$2.0 million for the year ended December 31, 2000. Investing activities include capital expenditures, acquisitions and investments in other companies.

Cash
used for capital expenditures was $12.8 million for the year ended December 31, 2002, $2.4 million for the year ended December 31, 2001 and
$2.0 million for the year ended December 31, 2000. We made these capital expenditures to improve productivity and expand manufacturing capacity. In February 2002, we purchased our
Karlsruhe, Germany facility, land and adjacent lot for approximately $7.0 million. Following the purchase of this facility, we expended approximately $0.6 million to expand this
facility. In addition, we moved our operations in the Netherlands and Japan to new facilities which resulted in approximately $1.4 million and $0.5 million of capital expenditures,
respectively. The remaining capital expenditures consisted primarily of computer equipment and software purchases and development costs. In addition to capital expenditure during 2002, we acquired MAC
Science for net cash of $0.3 million. During 2001, we acquired Nonius for $6.2 million, net of cash acquired and made cash investments of $1.0 million in connection with two
strategic alliances. No

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material capital expenditure commitments were outstanding as of December 31, 2002. We expect to continue to make capital investments focused on enhancing the efficiency of our operations and
to support our growth.

For
the year ended December 31, 2002, cash flow provided from financing activities totaled $15.5 million and included primarily net proceeds from the issuance of common
stock and long-term debt. In 2002, the underwriters of our initial public offering exercised an over-allotment option. As a result, we issued and sold 1,350,000 shares of our
common stock for $8.1 million, net of issuance costs. We also issued $8.2 million of long-term debt for the purchase of our Karlsruhe, Germany facility and for operating
needs at our facilities in Japan and our majority-owned subsidiary, Incoatec. Further, we received $0.9 million of borrowings from our lines of credit. We used cash in financing activities of
$1.1 million for purchases of our common stock, $0.3 million for the repayment of related party debt and $0.4 million for the repayment of long-term debt. For the year
ended December 31, 2001, cash flows provided by financing activities totaled $58.2 million and included primarily net proceeds from the issuance of preferred stock and common stock of
$22.3 million and $52.6 million, respectively, as discussed below. These cash inflows from financing activities were partially offset by net debt repayments of $16.7 million. On
January 16, 2001, we authorized and sold 5,625,000 shares of Series A convertible preferred stock generating proceeds of $22.3 million, net of issuance costs. We used these
proceeds for working capital needs, retirement of approximately $5.8 million of debt and the purchase of Nonius. On December 14, 2001, we issued and sold 9,000,000 shares of our common
stock for $52.6 million, net of issuance costs in conjunction with our initial public offering. Upon the closing of the offering, all 5,625,000 shares of our redeemable preferred stock
converted into 6,923,077 shares of common stock.

Currently,
we have both long-term and short-term debt outstanding. As of December 31, 2002, our long-term debt from banks in the U.S., Germany
and Japan totaled $10.6 million. The interest rates on our long-term debt ranges for 1.19% to 4.90%. As of December 31, 2002, we also had short-term borrowings of
$1.8 million on our lines of credit. We had unused borrowings under our lines of credit of approximately $3.7 million. The interest rate on our short-term borrowings
outstanding ranged from 1.50% to 6.50%.

In
connection with some of our outstanding debt, we are required to maintain a financial ratio and other criteria. Additionally, we are subject to some restrictive covenants that require
bank consent. As of December 31, 2002, the latest measurement date, we were in compliance with all covenants. If we were in default on any of these provisions, it could require repayment of the
amounts outstanding (approximately $2.2 million as of December 31, 2002). We also have bank guarantees on our customer advances which impact the availability on our lines of credit.

Presently,
we anticipate that our existing capital resources will meet our operating and investing needs through at least the end of 2004. Our future capital uses and requirements depend
on numerous factors, including our success in selling our existing products, our progress in research and development, our ability to introduce and sell new products, our sales and marketing expenses,
our need to expand production capacity, costs associated with possible acquisitions, expenses associated with unforeseen litigation, regulatory changes and competition and technological developments
in the market.

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CONTRACTUAL OBLIGATIONS AND COMMITMENTS

Our obligations and commitments to make future payments under contracts, such as debt and lease agreements, and under contingent commitments are included in the
following table as of December 31, 2002 (in thousands).

|Contractual obligations     |  | Total |        | Less than
1 year |   | 1-3 years |  | 4-5 years |       | After
5 years
|--------------------------- |  | ----- | ------ | ---------------- | - | --------- |  | --------- | ----- | -------------
|Short-term borrowings       |  | $     | 1,813  |                  | $ | 1,813     |  | $         |      |              
|Operating lease obligations |  |       | 4,308  |                  |   | 1,147     |  |           | 2,509 |              
|Long-term debt              |  |       | 10,560 |                  |   | 1,240     |  |           | 3,679 |              
|Pension                     |  |       | 4,858  |                  |   |          |  |           |      |              
|Other commitments           |  |       | 703    |                  |   | 298       |  |           | 223   |              
|                            |  |       |        |                  |   |           |  |           |       |              
|Total                       |  | $     | 22,242 |                  | $ | 4,498     |  | $         | 6,411 |              
|                            |  |       |        |                  |   |           |  |           |       |              

Disclosures
regarding these obligations are located in our Financial Statements included in this Annual Report on Form 10-K.

TRANSACTIONS WITH RELATED PARTIES

We are affiliated, through common shareholders, with several other entities which use the Bruker name. We have entered into a sharing agreement with our
affiliates which provides for the sharing of specified intellectual property rights, services, facilities and other related items.

Sales
to related parties which are not subsidiaries of Bruker AXS Inc. are included in the consolidated financial statements. Such related parties are affiliated sales offices in
countries in which we do not have our own distribution network. As such, these sales were primarily for resale of our products only. Sales to related parties are at commercially reasonable arm's
length conditions and pricing. These sales amounted to $10.8 million, $5.2 million and $14.9 million for the years ended December 31, 2002, 2001 and 2000, respectively.

We
share various general and administrative expenses for items including umbrella insurance policies, accounting services and leases with various related parties. These general and
administrative expenses amounted to $0.3 million, $0.6 million and $0.0 million for the years ended December 31, 2002, 2001 and 2000, respectively.

DISCLOSURE ABOUT CRITICAL ACCOUNTING POLICIES

Our accounting policies are disclosed in our Notes to Financial Statements in this Annual Report on Form 10-K. There have been no material
changes to these policies during the year ended December 31, 2002. The more critical of these policies are described in the following paragraphs.

Revenue
RecognitionWe continued to recognize revenues primarily when products are accepted by our customers, except when sold through a non-consolidated
affiliate or distributor that assumes responsibility for installation, in which case the system sale is recognized upon shipment. Revenue from accessories and parts is recognized upon shipment, and
revenue from services is recognized when performed. Our revenue recognition policies are in accordance with Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." In addition, warranty costs are estimated and accrued at the time of sale, as appropriate.

Customer
AdvancesWe require an advance deposit under the terms and conditions of contracts with certain customers. These deposits are recorded as a liability until revenue
is recognized on the specific contract. We continued to apply the same policy at December 31, 2002 as we have in the past.

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However, the realization of revenue is dependent on our ability to satisfy customer needs and our ability to continue manufacturing operations.

Cash
and Cash EquivalentsWe consider all highly liquid investments with original maturities of 90 days or less to be cash equivalents. Cash and cash equivalents
primarily include cash on hand, money market funds, municipal notes and time deposits. Time deposits represent amounts on deposit in banks and temporarily invested in instruments with maturities of
90 days or less at time of purchase. Certain of these investments represent off-shore deposits which are not insured by the FDIC or any other United States government agency. Cash
and cash equivalents are carried at cost, which approximates fair market value. Our portfolio of investment grade, liquid debt securities limits the amount of credit exposure to any one issue or
issuer.

InventoriesWe
value inventories primarily at standard cost or average cost which approximates the lower of cost or market. Cost is determined by the first-in,
first-out (FIFO) method. Valuing inventories at the lower of cost or market requires the use of estimates and judgment. As discussed later under "Factors Affecting Our Business, Operating
Results and Financial Condition," our inventories are subject to rapid technological change. Any of these factors, or certain additional actions, could impact
the valuation of our inventory. We continued to use the same techniques to value our inventory as we have in the past. Any technological changes potentially impacting the value of our inventory are
considered when determining the lower of cost or market valuations. In addition, we evaluate our ending inventories for estimated excess quantities. This evaluation includes analyses on the historical
and projected movement of the inventory-on-hand.

Accounts
ReceivableWe value accounts receivable net of an allowance for uncollectible accounts. This allowance is based on our estimate of the portion of the receivables
that will not be collected in the future. We continued to apply the same techniques to compute this allowance at December 31, 2002 as we have in the past. These techniques include recording a
specific allowance when we become aware of circumstances that may impair a specific customer's ability to meet its financial obligations to us. For other customers, we may recognize an allowance based
on the length of time the receivables are past due. However, the ultimate collectibility of a receivable is dependent upon the financial condition of an individual customer which could change rapidly
and without advance warning.

Investments
in Other CompaniesWe have investments in privately-held companies that are recorded at cost. We evaluate these investments for
other-than-temporary impairment. This process of assessing whether the investments' net realizable value is less than its carrying cost requires a significant amount of
judgment. We consider the investees' cash position, projections, financing needs and the current economic and industry environments. This evaluation is based on the information that we request from
these privately-held companies. We may also have a third-party perform a valuation on the investees.

GoodwillWe
adopted SFAS No. 142, "Goodwill and Other Intangible Assets" as of January 1, 2002. This standard requires that goodwill no longer be amortized, and
instead be tested for impairment annually. The process of evaluating the potential impairment of goodwill is highly subjective and requires significant judgment at many points during the analysis. In
estimating the fair value of our reporting units with goodwill, for the purposes of our 2002 financial statements, we made estimates and judgments about the future cash flows of these reporting units.
Our cash flow forecasts were based on assumptions that are consistent with the plans and estimates we are using to manage our company. When our estimated fair value is less than our carrying value, we
are required to estimate the fair value of all identifiable assets and liabilities in a manner similar to a purchase price allocation for an acquired business.

Pension
PlanWe have a pension plan for our Bruker AXS GmbH employees. Our benefit obligation under this plan is dependent on certain assumptions used by actuaries in
calculating such amount. These assumptions include salary growth, discount rates and other factors. While we believe that the assumptions used are appropriate, significant differences in actual
experience or significant changes in assumptions could increase or decrease our pension obligation.

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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are potentially exposed to market risk associated with changes in foreign exchange and interest rates for which we selectively use financial instruments to
reduce related market risks. An instrument will be treated as a hedge if it is effective in offsetting the impact of volatility in our underlying exposure. We have also entered into instruments which
are not effective derivatives under the requirements of SFAS No. 133 and therefore such instruments are not designated as hedges. All transactions are authorized and executed pursuant to
policies and procedures. Analytical techniques used to manage and monitor foreign exchange and interest rate risk include market valuation.

Impact of Foreign Currencies

We sell products in many countries, and a substantial portion of sales, costs and expenses are denominated in foreign currencies, principally in the euro. In the
first three months of 2002, the U.S. dollar continued to strengthen against the euro. However, this trend reversed as the U.S. dollar weakened against the euro during the remaining three quarters.
This had a significant impact on our consolidated revenue growth rate of $3.4 million, or 4.1%, as expressed in U.S. dollars. In 2001, the U.S. dollar was moderately strong against the euro and
thus had minimal impact on the consolidated revenue growth rate. In addition, the currency fluctuations resulted in accumulated foreign currency translation gains (losses) of $1.5 million and
($0.5) million at December 31, 2002 and 2001, respectively. These gains (losses) are included as a component of accumulated other comprehensive income (loss).

While
we may, from time to time, hedge specifically identified cash flows in foreign currencies using forward contracts, this foreign currency activity historically has not been
material. The maturities of the forward exchange contracts generally coincide with the settlement dates of the related transactions. Realized and unrealized gains and losses on these contracts are
recognized in the same period as gains and losses on the hedged items. At December 31, 2002 and 2001, there were no foreign currency forward contracts outstanding. There also were no material
non-functional currency denominated financial instruments, which would expose us to foreign exchange risk, outstanding at December 31, 2002 or 2001.

Historically,
realized foreign exchange gains and losses have been material. Realized foreign exchange (gains) losses were ($1.9) million, $0.2 million and ($0.2) million, for the
years ended December 31, 2002, 2001 and 2000, respectively. As we expand internationally, we will evaluate currency risks and
may continue to enter into foreign exchange contracts from time to time to mitigate foreign currency exposure.

We
have entered into foreign-denominated debt obligations. The currency effects of the debt obligations are reflected in the accumulated other comprehensive income (loss) account within
shareholders' equity. A 10% increase or decrease of the respective foreign exchange rate would result in a change in accumulated other comprehensive income (loss) of approximately $1.1 million
or ($0.9) million, respectively.

During
the first half of 2002, we also had euro denominated intercompany lines of credit that impacted transaction gains and losses. However, on July 12, 2002, we restructured our
intercompany debt given that settlement of the loans is not anticipated in the foreseeable future. As a result, the impact of foreign exchange rate fluctuations is no longer recorded in other expense
(income) within the statement of operations but instead is recorded as a component of accumulated other comprehensive income (loss) within shareholders' equity. We recorded a gain of
$0.4 million within accumulated other comprehensive income (loss) for euro denominated intercompany lines of credit between July and December 2002. A 10% increase or decrease of the
respective foreign exchange rate would result in a change in accumulated other comprehensive income (loss) of approximately $1.3 million or ($1.0) million, respectively.

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Impact of Interest Rates

Our exposure related to adverse movements in interest rates is derived primarily from outstanding floating rate debt instruments that are indexed to
short-term market rates and from our cash equivalents. Our objective in managing our exposure to interest rates is to decrease volatility that interest rate fluctuations might have on
earnings and cash flows. To achieve this objective, we use a fixed rate agreement to adjust a portion of our debt, as determined by management, that is subject to variable interest rates.

In
the U.S., we entered into an interest rate swap arrangement which is designated as a cash flow hedge. The effect of this arrangement was to limit the interest rate exposure on our
$2.2 million industrial revenue bond to a fixed rate of 4.60%. We pay a 4.60% fixed rate of interest and receive a variable rate of interest based on the Bond Market Association Municipal Swap
Index on a $2.2 million notional amount. Net interest payments or receipts are recorded as adjustments to interest expense. In addition, the instrument is recorded at fair market value as an
adjustment to accumulated other comprehensive income (loss). The fair value of the instrument was a liability of $133,000 and $42,000, net of tax, at December 31, 2002 and 2001, respectively.

In
Germany, we have entered into financial instruments currently not designated as hedges. In April 2002, the Company entered into two derivative financial instruments, a cross
currency interest rate swap and an interest rate swap, which are currently not designated as hedges. The cross currency interest rate swap of 2 million euro secures a fixed rate of 1.75% per
annum payable in Japanese yen until January 4, 2012. The interest rate swap of 3 million euro reduces the 6-month EURIBOR rate by 1.80% per annum until January 4,
2007. The Company entered into the financial instruments to manage its exposure to interest rates and foreign exchange risk. During the fiscal year ending September 30, 1999, the Company
entered into three financial instruments, an interest rate cap, an interest rate swap and a cross currency interest rate swap, which are currently not designated as hedges. In addition, the Company
acquired a financial instrument, which terminated in the fourth quarter of 2001, with its acquisition of Nonius. By entering into these speculative contracts the Company obtained the right to borrow
money at low rates of interest. The Company continues to hold these speculative contracts until it elects to exercise the options to borrow the money.

The
notional amount of the financial instruments not designated as hedges was approximately $13.6 million and $7.3 million at December 31, 2002 and 2001,
respectively. Until the instruments become an effective hedge, the instruments are considered speculative and are marked-to-market. The fair value of the instruments
depreciated $264,000, $164,000 and $147,000 for the years ended December 31, 2002, 2001 and 2000, respectively. The fair value of the instruments was a (liability) asset of ($315,000) and
$1,000 as of December 31, 2002 and 2001, respectively.

A
10% increase or decrease in the average cost of our variable rate debt would not result in a material change in pre-tax interest expense.

Inflation

We do not believe inflation has had a material impact on our business or operating results during the periods presented.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 requires entities to record the fair
value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes a cost by increasing the carrying amount
of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related

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asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. The standard is effective for fiscal years beginning
after June 15,
2002. We believe SFAS No. 143 will not have a material effect on the results of operations or financial position.

In
June 2002, the FASB issued SFAS No. 146, "Accounting for the Costs Associated with Exit or Disposal Activities." SFAS No. 146 requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit plan or disposal plan. This statement replaces Emerging Issues Task Force
Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." The
provisions of this statement are to be applied prospectively to exit or disposal activities initiated after December 31, 2002, with early application encouraged. We elected not to early adopt
SFAS No. 146. The adoption of this statement will not have a material effect on the results of operations or financial position.

In
November 2002, the FASB issued Interpretation ("FIN") No. 45, "Guarantor's Accounting and Disclosure requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others." This interpretation elaborates on the existing disclosure requirements for most guarantees. It also clarifies that at the time a company issues a guarantee, the company must
recognize an initial liability for the fair value, or market value, of the obligations it assumes under that guarantee and must disclose that information in its interim and annual financial
statements. The initial recognition and initial measurement provision apply on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements in the
interpretation are effective for financial statements of interim or annual periods ending after December 15, 2002. The adoption of FIN No. 45 did not affect our historical financial
statements and we believe that this interpretation will not have a material effect on our results of operations or financial position.

In
December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure," which amends SFAS No. 123, "Accounting for
Stock-Based Compensation." SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In
addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require more prominent and more frequent disclosures in financial statements about the effects of stock-based
compensation. The transition guidance and annual disclosure provisions of this statement are effective for fiscal years ending after December 15, 2002, with earlier application permitted in
certain circumstances. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. We adopted
the annual disclosure provisions of SFAS No. 148 in 2002. We will continue to apply the disclosure only provisions of both SFAS No. 123 and SFAS No. 148.

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FACTORS AFFECTING OUR BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION

The following risk factors should be considered in conjunction with the other information included in this report. This report may include
forward-looking statements that involve risks and uncertainties. In addition to those risk factors discussed elsewhere in this report, we identify the following risk factors which could affect our
actual results and cause actual results to differ materially from those in the forward-looking statements.

If our products fail to achieve and sustain sufficient market acceptance, our business may be significantly harmed.

The commercial success of our products depends on market acceptance of our products by biotechnology and pharmaceutical companies and research laboratories. We
have only recently commercially launched a number of our current products, and many of these products have achieved only limited sales. We may fail to achieve market acceptance of our newer products
or sustain substantial market acceptance of our already established products. Any failure of this nature could materially harm our business. In order to expand, we must convince substantial numbers of
pharmaceutical and biotechnology companies and other laboratories to replace their existing X-ray or other techniques with the X-ray technologies employed by our systems. Our
systems utilize sophisticated instruments, and many have significant purchase prices. Limited funding available for capital acquisitions by our customers, as well as our customers' own internal
purchasing approval policies, could hinder market acceptance of our products. Our intended customers may be reluctant to make the substantial capital investment generally needed to acquire our
products or to incur the training and other costs associated with replacing their existing systems with our products. We also may not be able to convince our customers that our systems are an
attractive and cost-effective alternative to other technologies and systems. Because of these and other factors, our products may fail to gain or sustain market acceptance.

If we are not able to respond to the rapid technological change characteristic of our industry, we may fail to maintain market share and our business may suffer.

Rapid technological change and frequent new product introductions characterize the market for life science and related discovery tools. Rapidly changing
technology could make some or all of our product lines obsolete. Because substantially all of our products are based on X-ray technologies, we are
particularly vulnerable to any technological advances that would make X-ray technologies obsolete in any of our markets. In addition, we may have difficulty in keeping abreast of the rapid
changes affecting each of the different markets we serve or intend to serve. If we fail to develop and introduce products in a timely manner in response to changing technology, market demands or the
requirements of our customers, our business, results of operation and financial condition could be materially harmed.

If we are unable to recover significant development costs of one or more of our products or product lines, our business, results of operations and financial condition may
suffer.

We offer and plan to offer a broad product line and incur and expect to incur substantial expenses for the development of new products and enhanced versions of
our existing products. To meet the evolving needs of our customers, we must rapidly and continually enhance our products and services and develop new products and services. Our business model calls
for us to derive a significant portion of our revenues each year from products that did not exist in the previous two years. However, we may experience difficulties which may delay or prevent the
successful development, introduction and marketing of new products or product enhancements. The speed of technological change in life science and other related markets we serve may prevent us from
successfully marketing some or all of our products for the length of time required to recover their often significant development costs. If we fail

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to recover the development costs of one or more products or product lines, our business, results of operations and financial condition could be harmed.

If the proteomics market does not grow as expected, we may not meet our growth expectations.

We expect the proteomics market to fuel the growth of a significant portion of our business. We have invested and expect to continue to invest significant time
and resources in the development of new products for this market. If this new and still evolving market does not grow and become established, we may not realize the expected profit from these research
and development expenditures. If this market for our products does not grow, our expected growth rate could decline substantially, which could have a material adverse impact on our business, results
of operations or financial condition. If we do not address our substantial competitive pressures, our revenues and profitability may suffer. In each market, for each of our products, we face
substantial competition from competitors who offer products based on X-ray technology as well as from those employing alternative technologies. We expect that competition in our markets
will increase significantly, especially as more biotechnology and pharmaceutical companies adopt automated high throughput instruments as tools for drug discovery, drug development and related areas.
Our competitors may develop or market products that are more effective or more commercially attractive than our current or future products or that may render our products obsolete. Many of our
competitors have substantially greater financial, operational, marketing and technical resources than we do. If we are unable to compete effectively with these companies, our market share may decline
and our business could be harmed.

Our success depends on our ability to operate without infringing or misappropriating the proprietary rights of others.

Our commercial success depends on avoiding the infringement of other parties' patents and proprietary rights as well as avoiding the breach of any licenses
relating to our technologies and products. Given that there may be patents of which we are unaware, particularly in the U.S. where patent applications are confidential, avoidance of patent
infringement may be difficult. Various third-parties hold patents which may relate to our technology, and we may be found in the future to infringe these or other patents or proprietary rights of
third parties, either with products we are currently marketing or developing or with new products which we may develop in the future. If a third party holding rights under a patent successfully
asserts an infringement claim with respect to any of our current or future products, we may be prevented from manufacturing or marketing our infringing product in the country or countries covered by
the patent we infringe, unless we can obtain a license from the patent holder. We may not be able to obtain the license on commercially reasonable terms, if at all, especially if the patent holder is
a competitor. In addition, even if we can obtain the license, it may be non-exclusive, which will permit others to practice the same technology licensed to us. We also may be required to
pay substantial damages to the patent holder in the event of an infringement. Under some circumstances in the U.S., these damages could include damages equal to triple the actual damages the patent
holder incurs. If we have supplied infringing products to third parties for marketing by them or licensed third parties to manufacture, use or market infringing products, we may be obligated to
indemnify these third parties for any damages they may be required to pay to the patent holder and for any losses the third parties may sustain themselves as the result of lost sales or license
payments they are required to make to the patent holder. Any successful infringement action brought against us may also adversely affect marketing of the infringing product in other markets not
covered by the infringement action, as well as our marketing of other products based on similar technology. Furthermore, we will suffer adverse consequences from a successful infringement action
against us even if the action is subsequently reversed on appeal, nullified through another action or resolved by settlement with the patent holder. The damages or other remedies awarded, if any, may
be significant. As a result, any successful infringement action against us may harm our business.

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We may be involved in lawsuits to protect or enforce our patents that are brought by us which could be expensive and time consuming.

In order to protect or enforce our patent rights, we may initiate patent litigation against third parties; and we may be similarly sued by others. We may also
become subject to interference proceedings conducted in the patent and trademark offices of various countries to determine the priority of inventions. The defense and prosecution, if necessary, of
intellectual property suits, interference proceedings and related legal and administrative proceedings is costly and diverts our technical and management personnel from their normal responsibilities.
We may not prevail in any of these suits. An adverse determination of any litigation or defense proceedings could put our patents at risk of being invalidated or interpreted narrowly and could put our
patent applications at risk of not issuing.

Furthermore,
because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could
be compromised by disclosure during this type of litigation. In addition, during the course of this kind of litigation, there could be public announcements of the results of hearings, motions or other
interim proceedings or developments in the litigation. If securities analysts or investors perceive these results to be negative, it could have a substantial negative effect on the trading price of
our common stock.

If we are unable to effectively protect our intellectual property, third parties may use our technology, which could impair our ability to compete in our markets.

Our success will depend in part on our ability to obtain and maintain meaningful patent protection for our products throughout the world. We seek patents to
protect our intellectual property and to enhance our competitive position. However, our presently pending or future patent applications may not issue as patents, and any patent issued to us may be
challenged, invalidated, held unenforceable or circumvented. Furthermore, the claims in patents which have been issued, or which may be issued to us in the future, may not be sufficiently broad to
prevent third parties from producing competing products. In addition, the laws of various foreign countries in which we compete may not protect our intellectual property to the same extent as do the
laws of the U.S. If we fail to obtain adequate patent protection for our proprietary technology, our ability to compete would be impaired.

In
addition to patent protection, we also rely on protection of trade secrets, know-how and confidential and proprietary information. To maintain the confidentiality of trade
secrets and proprietary information, we generally seek to enter into confidentiality agreements with our employees, consultants and strategic partners upon the commencement of a relationship with us.
However, we may not obtain these agreements in all circumstances. In the event of unauthorized use or disclosure of this information, these agreements, even if obtained, may not provide meaningful
protection for our trade secrets or other confidential information. In addition, adequate remedies may not exist in the event of unauthorized use or disclosure of this information. The loss or
exposure of our trade secrets and other proprietary information would impair our competitive advantages and could have a material adverse effect on our operating results, financial condition and
future growth prospects. Furthermore, others may have developed, or may develop in the future, substantially similar or superior know-how and technology.

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We have agreed to share our name and distribution channels with other entities under common control; if we lose the right to use our name or if our distribution channels are
disrupted, our business could be materially harmed.

We maintain a sharing agreement with 13 affiliated entities that allows us to share the Bruker name with these affiliated companies and their subsidiaries. We
could lose the right to use the Bruker name if:



The
loss of the Bruker name could result in a loss of goodwill, brand loyalty and sales of our products. We also share some distribution channels with many of these affiliates, primarily
in secondary markets. Although we have dedicated X-ray sales and service staff in each of the distribution channels we share with affiliates, if we lose this dedicated service staff and if
our affiliates' products receive distribution priority over our products, our distribution process could be impaired, resulting in lost sales which could harm our business.

We may be subject to substantial liability if our products malfunction or are misused.

Due to the high-power, complex nature of our machines, malfunction or misuse of the machines could result in serious damage to property or injury to
people. For example, our products utilize X-ray beams which could cause serious damage to biological tissue. While our systems contain protective devices designed to prevent harmful
exposure to X-rays, our service personnel often override these protective devices to service and maintain the systems. In addition, some of our customers require the ability to avoid these
protective devices. As a result, our personnel or our customers' personnel could be injured by exposure to X-ray beams and could sue us. Additionally, some of our products operate at very
high electrical voltage. Misuse of these products could lead to damaging accidents such as fires. Lawsuits filed against us for personal or property damage could result in substantial liability which
could harm our financial results.

If we fail to enter into and maintain effective collaborations, our product development may be stunted and our business may suffer.

We collaborate with other companies and academic institutions on new technology and product development. Demand for our products will depend in part upon the
extent to which these collaborations are successful in developing, or helping us to develop, new products and new applications for our existing products. We have limited or no control over the
resources that any collaborator may devote to our products. Any of our present or future collaborators may not perform their obligations as expected. If we fail to enter into or maintain appropriate
collaboration agreements, or if any of these events occur, we may not be able to develop new products as planned, which could harm our business.

Any reduction in the capital resources or government funding of our customers could reduce our sales and harm our business.

A significant portion of our sales are capital purchases by our customers. The spending policies of our customers could have a significant effect on the demand
for our products. These policies are based on a wide variety of factors, including the resources available to make purchases, the spending priorities

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among various types of equipment, unfavorable economic conditions and changes in the political climate. Any changes in capital spending or changes in the capital budgets of our customers could
significantly reduce demand for our products. The capital resources of our biotechnology and other corporate customers may be limited by the availability of equity or debt financing. Any significant
decline in capital expenditures by our customers could harm our business.

We
are dependent, both directly and indirectly, on the research and development spending patterns of the pharmaceutical, biotechnology, chemical and other industries, as well as upon the
funding policies of various governments and government agencies. In addition, we make a substantial portion of our sales to non-profit entities, which are dependent on continued high
levels of government support for scientific research. Any decline in this support could harm our business.

We may not be able to expand our sales and service staff to meet demand for our products and services.

Our future revenue and profitability will depend on our ability to expand our marketing and sales force as well as our service and support team. Because our
products are technical in nature, we believe that it is important in many cases for our marketing, sales and support staff to have scientific or technical expertise and experience. Competition for
employees with these skills is intense. We may not be able to continue to attract and retain sufficient qualified sales and service people, and we may not be able to grow and maintain an efficient and
effective sales, marketing and support department. If we fail to continue to attract or retain qualified people, our business could suffer.

We plan significant growth, and there is a risk that we will not be able to manage this growth.

Our success will depend on the expansion of our operations. Effective growth management will place increased demands on our management, operational and financial
resources. To manage our growth, we must expand our facilities, augment our operational, financial and management systems and hire and train additional qualified personnel. Any new systems which we
implement to facilitate our growth may have problems which could result in disruptions in our operations, financial or management systems. If we fail to manage our growth effectively, our business,
results of operations and financial condition will be harmed.

We are dependent upon various key personnel and must recruit additional qualified personnel for a number of management positions.

Our success is highly dependent on the continued services of key management, technical and scientific personnel. Our management and other employees may
voluntarily terminate their employment with us at any time upon short notice. The loss of the services of any member of our senior management, technical or scientific staff may significantly delay or
prevent the achievement of product development and other business objectives. The chairman of our board of directors also is and has been chief executive officer and chairman of the board of directors
of an affiliated, publicly traded company and a management officer of several affiliates, which reduces the time and attention he can devote to our management. Our future success will also depend on
our ability to identify, recruit and retain additional qualified scientific, technical and managerial personnel. Competition for qualified personnel is intense, particularly in the areas of
information technology, engineering and science, and the process of hiring suitably qualified personnel is often lengthy. If we are unable to hire and retain a sufficient number of qualified
employees, our ability to conduct and expand our business could be seriously reduced.

We are dependent in our operations upon a limited number of suppliers.

We currently purchase key components used in our X-ray systems from several preferred suppliers. Although we maintain secondary suppliers, our
reliance on the preferred suppliers could result in

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delays associated with redesigning a product due to an inability to obtain an adequate supply of required components and reduced control over pricing, quality and timely delivery. In particular, we
obtain a very sophisticated chip for use in our CCD detectors from Fairchild Imaging, which to our knowledge is the only source of a chip of this size and quality. See "BusinessStrategic
Collaborations." Although we have secondary chip sources, we do not believe that any of these sources would currently be able to provide us with a similar chip of comparable quality. Any interruption
in the supply of components could have an adverse effect on our business, results of operations and financial condition.

If we fail to expand our international presence, our revenue may not grow as expected.

International sales account for, and are expected to continue to account for, a significant portion of our total revenues. International expansion will require
that we hire additional personnel. If we fail to hire additional personnel or to develop and maintain relationships with foreign customers and partners, we may not be able to expand our international
sales and could suffer decreased profits.

International
sales and operations are and will remain subject to a number of additional risks not typically present in domestic operations, including:



Our
international operations are and will remain subject to the risks associated with the imposition of legislation and regulation relating to the import or export of high technology
products or other similar areas. We cannot predict whether tariffs or restrictions upon the importation or exportation of our products will be implemented by the U.S. or other countries. If these
tariffs or restrictions are imposed, our revenues or profits could suffer. We are also subject to the risks inherent in managing geographically distributed operations and personnel with disparate
cultures.

Our results of income may be adversely affected when we exchange foreign currency received from international sales into U.S. dollars.

A significant portion of our business is conducted in currencies other than the U.S. dollar, our reporting currency. As a result, currency fluctuations among the
U.S. dollar and the foreign currencies in which we do business have caused and will continue to cause foreign currency transaction gains and losses. We recognize foreign currency gains or losses
arising from our operations in the period incurred. Due to the number of currencies involved, the variability of currency exposures and the potential volatility of currency exchange rates, we cannot
predict the effects of exchange rate fluctuations upon our future operating results. To date, we have engaged in only limited hedging activities to reduce this risk.

Because we have subsidiaries and operations in countries outside the U.S., we are subject to various international tax risks which could adversely affect our earnings.

We have numerous subsidiaries and operations outside the U.S., and we are subject to international tax risks. Distributions of earnings and other payments
received from our subsidiaries may be subject to withholding taxes imposed by the countries where they are operating or are formed. If

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these foreign countries do not have income tax treaties with the United States or the countries where our subsidiaries are incorporated, we could be subject to high rates of withholding taxes on
these distributions and payments. We could also be subject to being taxed twice on income related to operations in these non-treaty countries. Because we are unable to reduce the taxable
income of one operating company by losses incurred by another operating company located in another country, we may have a higher foreign effective income tax rate than that of other companies in our
industry. The amount of the credit that we may claim against our U.S. federal income tax for foreign income taxes is subject to many limitations which may significantly restrict our ability to claim a
credit for all of the foreign taxes we pay.

If we make acquisitions, we may fail to successfully integrate technologies, personnel and operations, which could impede revenue growth and harm our business.

If appropriate opportunities become available, we may acquire additional technologies, products or businesses to expand our existing and planned product lines and
technologies. These acquisitions would expose us to risks including:



Acquisitions
may also result in the issuance of dilutive equity securities, the incurrence or assumption of debt or additional expenses associated with the amortization of acquired
intangible assets or potential business. Additionally, we recently acquired Nonius, a Dutch company, and are in the process of integrating its operations with ours. Integrating such a large
acquisition presents logistical issues and can result in short-term disruption to our business. Our failure to successfully address these risks could harm our business, results of
operations and financial condition. Also, there is no assurance that the benefits we expect to gain from the Nonius acquisition or from other acquisitions will be achieved.

Damages to our manufacturing facilities could adversely affect our ability to effectively operate our business.

We maintain manufacturing facilities in Madison, Wisconsin, Delft, the Netherlands and Karlsruhe, Germany. Damage to any of these facilities due to fire, weather,
earthquake or other natural disaster, power loss, unauthorized entry or other events could cause an interruption in the production of our products. A prolonged interruption in our manufacturing
operations could have a material adverse impact on our ability to effectively operate our business. The insurance we have purchased may not be sufficient to cover any losses incurred.

Our operating results may fluctuate significantly, and any failure to meet financial expectations may disappoint securities analysts or investors and result in a decline in our
common stock price.

Our operating results have fluctuated in the past, and we expect that they will fluctuate in the future. Factors that could cause our operating results to
fluctuate include, among other things, the timing of release and competitiveness of our products, disputes regarding patents or other intellectual property rights and currency fluctuations.

If
revenue declines in a period our earnings may decline because many of our expenses are relatively fixed in the short term. In particular, research and development and selling, general
and administrative expenses are not directly affected by variations in revenue in a period.

Due
to volatile and unpredictable revenues and operating expenses, we believe that period-to-period comparisons of our results of operations may not be a good
indication of our future

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performance. It is possible that, in some future periods, our operating results may be below the expectations of securities analysts or investors. In such event, the market price of our common stock
could fluctuate significantly or decline.

Claims relating to improper handling, storage or disposal of hazardous or radioactive materials present at our facilities or properties could result in liabilities and be time
consuming and costly to defend.

We handle hazardous and radioactive materials in our business which are subject to federal, state, local and foreign environmental, health and safety laws and
regulations. In addition, hazardous materials may have been released in the past at properties which we own or lease or may be released at properties to which we send waste for disposal. If we fail to
comply with applicable laws and regulations, regulatory authorities could impose on us sanctions and penalties, which could be substantial. Moreover, we could be held strictly liable for damages
relating to releases of hazardous or radioactive material, including the cost of cleanup and personal injury or property damages, and we may incur delays and increased costs in manufacturing our
products and otherwise conducting our business.

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required by this item is incorporated by reference from the section labeled "Quantitative and Qualitative Disclosures of Market Risk" in Item 7
Management's Discussion and Analysis of Financial Condition and Results of Operations.

41

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ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



|                                                                                                                                     
|-------------------------------------------------------------------------------------------------------------------------------------
|Report of Independent Accountants                                                                                                    
|Consolidated Balance Sheets at December 31, 2002 and 2001                                                                            
|Consolidated Statements of Operations for the years ended December 31, 2002, 2001, and 2000                                          
|Consolidated Statements of Shareholders' Equity and Comprehensive Income (Loss) for the years ended December 31, 2002, 2001, and 2000
|Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000                                           
|Notes to Financial Statements                                                                                                        

42

---



Report of Independent Accountants

To
the Board of Directors and Shareholders
of Bruker AXS Inc:

In
our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, shareholders' equity and comprehensive income (loss), and cash flows
present fairly, in all material respects, the financial position of Bruker AXS Inc. and its subsidiaries at December 31, 2002 and 2001, and the results of their operations and their cash flows
for the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance
with auditing standards generally accepted in the United States of America, which require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As
discussed in Note 11, to the consolidated financial statements, the company adopted Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other
Intangible Assets", effective January 1, 2002.

/s/
PricewaterhouseCoopers LLP

Milwaukee,
Wisconsin
February 25, 2003

43

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BRUKER AXS INC.        CONSOLIDATED BALANCE SHEETS        (in thousands, except per share data)

|                                                 |                                                                                                                                                  | December 31,                               |       
|------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | ------
|
|ASSETS                                           |                                                                                                                                                  |                                            |       
|Current assets:                                  |                                                                                                                                                  |                                            |       
|                                                 | Cash and cash equivalents                                                                                                                        |                                            | $     
|                                                 | Accounts receivable, net                                                                                                                         |                                            |       
|                                                 | Inventories                                                                                                                                      |                                            |       
|                                                 | Prepaid expenses                                                                                                                                 |                                            |       
|                                                 | Other current assets                                                                                                                             |                                            |       
|                                                 | Deferred income taxes                                                                                                                            |                                            |       
|                                                 |                                                                                                                                                  |                                            |       
|                                                 |                                                                                                                                                  | Total current assets                       |       
|Property and equipment, net                      |                                                                                                                                                  |                                            | 20,706
|Restricted cash                                  |                                                                                                                                                  |                                            | 128   
|Goodwill, net                                    |                                                                                                                                                  |                                            | 3,093 
|Intangible assets-trademarks and tradenames, net |                                                                                                                                                  |                                            | 250   
|Investments in other companies                   |                                                                                                                                                  |                                            | 700   
|Other assets                                     |                                                                                                                                                  |                                            | 756   
|Deferred income taxes                            |                                                                                                                                                  |                                            | 2,329 
|                                                 |                                                                                                                                                  |                                            |       
|                                                 |                                                                                                                                                  | Total assets                               |       
|                                                 |                                                                                                                                                  |                                            |       
|LIABILITIES AND SHAREHOLDERS' EQUITY             |                                                                                                                                                  |                                            |       
|Current liabilities:                             |                                                                                                                                                  |                                            |       
|                                                 | Short-term borrowings                                                                                                                            |                                            | $     
|                                                 | Current portion of long-term debt                                                                                                                |                                            |       
|                                                 | Related party debtcurrent                                                                                                                       |                                            |       
|                                                 | Accounts payable                                                                                                                                 |                                            |       
|                                                 | Other current liabilities                                                                                                                        |                                            |       
|                                                 |                                                                                                                                                  |                                            |       
|                                                 |                                                                                                                                                  | Total current liabilities                  |       
|Other long-term liabilities                      |                                                                                                                                                  |                                            | 517   
|Long-term debt                                   |                                                                                                                                                  |                                            | 9,320 
|Accrued pension                                  |                                                                                                                                                  |                                            | 4,858 
|Minority interest in consolidated subsidiary     |                                                                                                                                                  |                                            | 80    
|Commitments and contingencies (Note 22)          |                                                                                                                                                  |                                            |       
|Shareholders' equity:                            |                                                                                                                                                  |                                            |       
|                                                 | Preferred stock, $.01 par value, 5,000,000 authorized, none issued and outstanding at December 31, 2002 and 2001                                 |                                            |       
|                                                 | Common stock, $.01 par value, 100,000,000 shares authorized, 56,180,338 and 54,830,338 shares issued at December 31, 2002 and 2001, respectively |                                            |       
|                                                 | Additional paid-in capital                                                                                                                       |                                            |       
|                                                 | Accumulated deficit                                                                                                                              |                                            |       
|                                                 | Treasury stock, at cost, 457,700 shares and 0 shares at December 31, 2002 and 2001, respectively                                                 |                                            |       
|                                                 | Accumulated other comprehensive income (loss)                                                                                                    |                                            |       
|                                                 |                                                                                                                                                  |                                            |       
|                                                 |                                                                                                                                                  | Total shareholders' equity                 |       
|                                                 |                                                                                                                                                  |                                            |       
|                                                 |                                                                                                                                                  | Total liabilities and shareholders' equity |       
|                                                 |                                                                                                                                                  |                                            |       

The
accompanying notes are an integral part of these financial statements.

44

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BRUKER AXS INC.        CONSOLIDATED STATEMENTS OF OPERATIONS        (in thousands, except per share data)

|                                                                                                                           |                                                                                        | Year Ended December 31, |        
|-------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------- | ----------------------- | -------
|
|Net sales                                                                                                                  |                                                                                        | $                       | 104,290
|Cost of sales                                                                                                              |                                                                                        |                         | 63,114 
|                                                                                                                           |                                                                                        |                         |        
|Gross profit                                                                                                               |                                                                                        |                         | 41,176 
|                                                                                                                           |                                                                                        |                         |        
|Operating expenses:                                                                                                        |                                                                                        |                         |        
|                                                                                                                           | Research and development                                                               |                         |        
|                                                                                                                           | In-process research and development                                                    |                         |        
|                                                                                                                           | General and administrative                                                             |                         |        
|                                                                                                                           | Marketing and selling                                                                  |                         |        
|                                                                                                                           | Restructuring charge                                                                   |                         |        
|                                                                                                                           |                                                                                        |                         |        
|                                                                                                                           | Total operating expenses                                                               |                         |        
|                                                                                                                           |                                                                                        |                         |        
|                                                                                                                           |                                                                                        | Operating (loss) income |        
|Other expense (income):                                                                                                    |                                                                                        |                         |        
|                                                                                                                           | Interest income                                                                        |                         |        
|                                                                                                                           | Interest expense-third party                                                           |                         |        
|                                                                                                                           | Interest expense-related party                                                         |                         |        
|                                                                                                                           | Other (income) expense                                                                 |                         |        
|                                                                                                                           | Write-down of investments in other companies                                           |                         |        
|                                                                                                                           |                                                                                        |                         |        
|Income (loss) before income taxes, minority interest in subsidiary and cumulative effect of change in accounting principle |                                                                                        |                         | 521    
|Income tax expense (benefit)                                                                                               |                                                                                        |                         | 718    
|                                                                                                                           |                                                                                        |                         |        
|(Loss) income before minority interest in subsidiary and cumulative effect of change in accounting principle               |                                                                                        |                         | (197   
|Minority interest in subsidiary                                                                                            |                                                                                        |                         | 59     
|                                                                                                                           |                                                                                        |                         |        
|(Loss) income before cumulative effect of change in accounting principle                                                   |                                                                                        |                         | (256   
|Cumulative effect of change in accounting principle, net of taxes                                                          |                                                                                        |                         | 617    
|                                                                                                                           |                                                                                        |                         |        
|Net (loss) income                                                                                                          |                                                                                        |                         | (873   
|Convertible preferred stock accretion                                                                                      |                                                                                        |                         |       
|Beneficial conversion feature                                                                                              |                                                                                        |                         |       
|                                                                                                                           |                                                                                        |                         |        
|Net (loss) income available to common shareholders                                                                         |                                                                                        | $                       | (873   
|                                                                                                                           |                                                                                        |                         |        
|Basic and diluted earnings (loss) per share:                                                                               |                                                                                        |                         |        
|                                                                                                                           | (Loss) income before cumulative effect of change in accounting principle, net of taxes |                         | $      
|                                                                                                                           | Cumulative effect of change in accounting principle, net of taxes                      |                         |        
|                                                                                                                           |                                                                                        |                         |        
|                                                                                                                           | Net (loss) income                                                                      |                         | $      
|                                                                                                                           |                                                                                        |                         |        

The
accompanying notes are an integral part of these financial statements.

45

---



BRUKER AXS INC.        CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)        (in thousands, except share data)

|                                                                           |                                                                                                                          | Common Stock |   |   |     |   |   |        |   |   |        |        |  
|-------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------ | ------------ | - | - | --- | - | - | ------ | - | - | ------ | ------ | -
|
|
|Balance at December 31, 1999                                               |                                                                                                                          | 38,752,500   |   | $ | 388 |   | $ | 3,143  |   | $ | (927   | )      | $
|Stock compensation related to stock options issued to non-employees        |                                                                                                                          |             |   |   |    |   |   | 17     |   |   |       |        |  
|Comprehensive (Loss) Income:                                               |                                                                                                                          |              |   |   |     |   |   |        |   |   |        |        |  
|                                                                           | Net income                                                                                                               |              |  |   |     |  |   |        |  |   |        | 729    |  
|                                                                           | Foreign currency translation adjustments                                                                                 |              |  |   |     |  |   |        |  |   |        |       |  
|                                                                           |                                                                                                                          |              |   |   |     |   |   |        |   |   |        |        |  
|Net comprehensive income                                                   |                                                                                                                          |              |   |   |     |   |   |        |   |   |        |        |  
|                                                                           |                                                                                                                          |              |   |   |     |   |   |        |   |   |        |        |  
|Balance at December 31, 2000                                               |                                                                                                                          | 38,752,500   |   |   | 388 |   |   | 3,160  |   |   | (198   | )      |  
|Stock compensation related to stock options issued to non-employees        |                                                                                                                          |             |   |   |    |   |   | 229    |   |   |       |        |  
|Stock compensation related to modification of stock options                |                                                                                                                          |             |   |   |    |   |   | 28     |   |   |       |        |  
|Preferred stock accretion                                                  |                                                                                                                          |             |   |   |    |   |   | (833   | ) |   |       |        |  
|Issuance of common stock in initial public offering, net of issuance costs |                                                                                                                          | 9,000,000    |   |   | 90  |   |   | 52,515 |   |   |       |        |  
|Issuance of common stock for investments in other companies                |                                                                                                                          | 154,761      |   |   | 1   |   |   | 999    |   |   |       |        |  
|Conversion of redeemable preferred stock to common stock                   |                                                                                                                          | 6,923,077    |   |   | 69  |   |   | 23,037 |   |   |       |        |  
|Comprehensive (Loss) Income:                                               |                                                                                                                          |              |   |   |     |   |   |        |   |   |        |        |  
|                                                                           | Net loss                                                                                                                 |              |  |   |     |  |   |        |  |   |        | (1,377 | )
|                                                                           | Foreign currency translation adjustments                                                                                 |              |  |   |     |  |   |        |  |   |        |       |  
|                                                                           | Transition adjustment related to the adoption of SFAS No. 133, net of tax benefit of $14                                 |              |  |   |     |  |   |        |  |   |        |       |  
|                                                                           | Changes in fair value of financial instrument designated as a hedge of interest rate exposure, net of tax benefit of $15 |              |  |   |     |  |   |        |  |   |        |       |  
|                                                                           |                                                                                                                          |              |   |   |     |   |   |        |   |   |        |        |  
|Net comprehensive loss                                                     |                                                                                                                          |              |   |   |     |   |   |        |   |   |        |        |  
|                                                                           |                                                                                                                          |              |   |   |     |   |   |        |   |   |        |        |  
|Balance at December 31, 2001                                               |                                                                                                                          | 54,830,338   |   |   | 548 |   |   | 79,135 |   |   | (1,575 | )      |  
|Stock compensation related to stock options issued to non-employees        |                                                                                                                          |              |   |   |     |   |   | (160   | ) |   |        |        |  
|Stock compensation related to modification of stock options                |                                                                                                                          |              |   |   |     |   |   | 71     |   |   |        |        |  
|Issuance of common stock, net of issuance costs                            |                                                                                                                          | 1,350,000    |   |   | 14  |   |   | 8,123  |   |   |        |        |  
|Purchases of treasury stock                                                |                                                                                                                          |              |   |   |     |   |   |        |   |   |        |        |  
|Comprehensive (Loss) Income:                                               |                                                                                                                          |              |   |   |     |   |   |        |   |   |        |        |  
|                                                                           | Net loss                                                                                                                 |              |   |   |     |   |   |        |   |   |        | (873   | )
|                                                                           | Foreign currency translation adjustments                                                                                 |              |   |   |     |   |   |        |   |   |        |        |  
|                                                                           | Changes in fair value of financial instrument designated as a hedge of interest rate exposure, net of tax benefit of $63 |              |   |   |     |   |   |        |   |   |        |        |  
|                                                                           |                                                                                                                          |              |   |   |     |   |   |        |   |   |        |        |  
|Net comprehensive income                                                   |                                                                                                                          |              |   |   |     |   |   |        |   |   |        |        |  
|                                                                           |                                                                                                                          |              |   |   |     |   |   |        |   |   |        |        |  
|Balance at December 31, 2002                                               |                                                                                                                          | 56,180,338   |   | $ | 562 |   | $ | 87,169 |   | $ | (2,448 | )      | $
|                                                                           |                                                                                                                          |              |   |   |     |   |   |        |   |   |        |        |  

The accompanying notes are an integral part of these financial statements.

46

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BRUKER AXS INC.        CONSOLIDATED STATEMENT OF CASH FLOWS        (in thousands)

|                                                    |                                                                                     | Year Ended December 31,                                   |       
|--------------------------------------------------- | ----------------------------------------------------------------------------------- | --------------------------------------------------------- | ------
|
|Cash flows from operating activities:               |                                                                                     |                                                           |       
|                                                    | Net (loss) income                                                                   |                                                           | $     
|                                                    | Adjustments to reconcile net (loss) income to cash flows from operating activities: |                                                           |       
|                                                    |                                                                                     | Depreciation and amortization                             |       
|                                                    |                                                                                     | Deferred income taxes                                     |       
|                                                    |                                                                                     | Provision for doubtful accounts                           |       
|                                                    |                                                                                     | Stock compensation                                        |       
|                                                    |                                                                                     | Write off of acquired in-process research and development |       
|                                                    |                                                                                     | Cumulative effect of change in accounting principle       |       
|                                                    |                                                                                     | Minority interest in consolidated subsidiary              |       
|                                                    |                                                                                     | Non-cash portion of restructuring charge                  |       
|                                                    |                                                                                     | Foreign currency exchange gain on intercompany loans      |       
|                                                    |                                                                                     | Write-down of investments in other companies              |       
|                                                    | Changes in operating assets and liabilities:                                        |                                                           |       
|                                                    |                                                                                     | Restricted cash                                           |       
|                                                    |                                                                                     | Accounts receivable                                       |       
|                                                    |                                                                                     | Inventories                                               |       
|                                                    |                                                                                     | Other assets and prepaid expenses                         |       
|                                                    |                                                                                     | Accounts payable                                          |       
|                                                    |                                                                                     | Accrued pension                                           |       
|                                                    |                                                                                     | Other liabilities                                         |       
|                                                    |                                                                                     |                                                           |       
|Net cash provided by (used in) operating activities |                                                                                     |                                                           | 662   
|                                                    |                                                                                     |                                                           |       
|Cash flows from investing activities:               |                                                                                     |                                                           |       
|                                                    | Purchase of property and equipment                                                  |                                                           |       
|                                                    | Investment in other companies                                                       |                                                           |       
|                                                    | Acquisition of MAC Science Ltd.                                                     |                                                           |       
|                                                    | Acquisition of Nonius Group, net of cash acquired                                   |                                                           |       
|                                                    |                                                                                     |                                                           |       
|                                                    | Net cash used in investing activities                                               |                                                           |       
|                                                    |                                                                                     |                                                           |       
|Cash flows from financing activities:               |                                                                                     |                                                           |       
|                                                    | Proceeds from/(repayment of) line of credit                                         |                                                           |       
|                                                    | Repayment of related party debt                                                     |                                                           |       
|                                                    | Issuance of related party debt                                                      |                                                           |       
|                                                    | Repayment of long-term debt                                                         |                                                           |       
|                                                    | Issuance of long-term debt                                                          |                                                           |       
|                                                    | Proceeds from issuance of common stock, net of issuance costs                       |                                                           |       
|                                                    | Proceeds from issuance of preferred stock, net of issuance costs                    |                                                           |       
|                                                    | Cash contributions from minority shareholders                                       |                                                           |       
|                                                    | Purchases of treasury stock                                                         |                                                           |       
|                                                    |                                                                                     |                                                           |       
|Net cash provided by financing activities           |                                                                                     |                                                           | 15,458
|                                                    |                                                                                     |                                                           |       
|                                                    | Effect of exchange rate changes on cash                                             |                                                           |       
|                                                    |                                                                                     |                                                           |       
|Net increase in cash and cash equivalents           |                                                                                     |                                                           | 3,864 
|Cash and cash equivalents at beginning of year      |                                                                                     |                                                           | 48,787
|                                                    |                                                                                     |                                                           |       
|Cash and cash equivalents at end of year            |                                                                                     | $                                                         | 52,651
|                                                    |                                                                                     |                                                           |       
|Supplemental disclosure of cash flow information:   |                                                                                     |                                                           |       
|                                                    | Cash paid for interest                                                              |                                                           | $     
|                                                    | Cash paid for taxes                                                                 |                                                           |       
|Noncash investing and financing activities:         |                                                                                     |                                                           |       
|                                                    | Issuance of common stock for investments in other companies                         |                                                           |       
|                                                    | Conversion of preferred stock to common stock                                       |                                                           |       
|                                                    | Convertible preferred stock accretion                                               |                                                           |       

The accompanying notes are an integral part of these financial statements.

47

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BRUKER AXS INC.        NOTES TO FINANCIAL STATEMENTS

1.    Description of Business and Basis of Presentation

Bruker AXS Inc. (the "Company") designs, manufactures, distributes and services systems and complete solutions in X-ray instrumentation used in
non-destructive molecular and elemental analysis in academic, research and industrial applications.

Prior
to September 1997, the Company did not engage in any significant business operations. In October 1997, Bruker BioSpin Corporation, formerly Bruker Instruments, Inc,
of Billerica, Massachusetts (USA) and Bruker Physik, of Karlsruhe (Germany), both affiliates of the Company, purchased the analytical X-ray business of Siemens AG. Bruker BioSpin
Corporation purchased the assets and assumed the liabilities of Siemens' U.S. business for $3.9 million, which then became Bruker AXS Inc. Bruker Physik purchased the stock of Siemens'
German business for $7.2 million, which then became Bruker AXS GmbH. The acquisition was accounted for as a purchase of which the fair value of the net tangible and identifiable intangible
assets acquired approximated the purchase price of both acquisitions. These acquisitions were financed by third party loans.

Effective
June 8, 1999, all of the shares of Bruker AXS Inc. were transferred from Bruker BioSpin Corporation to the five shareholders of Bruker AXS Inc. who were
members of the controlling family of all of the Bruker companies. Effective June 23, 1999, Bruker AXS Inc. acquired all of the shares of Bruker AXS GmbH from Bruker Physik AG for
$169,000. Bruker Physik AG and Bruker BioSpin Corporation are considered commonly controlled entities. Therefore, the transactions represented an exchange between entities under common control and,
accordingly, the assets acquired and liabilities assumed in both transactions have been accounted for at historical cost in a manner similar to a pooling-of-interests.
Subsequent to these transactions, the financial statements include the consolidated accounts of Bruker AXS Inc. and its wholly- and majority-owned subsidiaries. All significant intercompany
transactions and balances have been eliminated.

In
December 2001, the Company completed an initial public offering (Note 19).

2.    Summary of Significant Accounting Policies

Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of
revenues and expenses during the reporting period. Actual results could differ from such estimates.

Cash and cash equivalents

The Company considers all highly liquid investments with original maturities of 90 days or less to be cash equivalents. Cash and cash equivalents primarily
include cash on hand, money market funds, municipal notes and time deposits. Time deposits represent amounts on deposit in banks and temporarily invested in instruments with maturities of
90 days or less at time of purchase. Certain of these investments represent off-shore deposits which are not insured by the FDIC or any other United States government agency. Cash
and cash equivalents are carried at cost, which approximates fair market value.

48

---

Restricted cash

The Company is required to maintain a restricted cash balance, which has been classified as non-current, as a guarantee for the lessor of the building
located in Delft, The Netherlands throughout the lease term.

In
addition, certain customers require the Company to provide a bank guarantee on customer advances. Generally, the lines of credit facilitate this requirement, however, to the extent
the required
guarantee exceeds the local line of credit availability, the Company maintains current restricted cash balances.

Inventories

Inventories are valued at standard costs, determined on a first-in, first-out basis, or average cost, which approximate the lower of cost
or market.

Inventories
include demonstration equipment which the Company provides to current and potential customers and is considered available for sale. As of December 31, 2002 and 2001,
demonstration equipment in inventory was $4,134,000 and $2,591,000, respectively. The Company amortizes its demonstration equipment over a three year period. Amortization expense for demonstration
equipment was $1,589,000, $1,463,000 and $783,000 for the years ended December 31, 2002, 2001 and 2000, respectively.

Inventories
include engineering inventory used in pre-production prototype units for which an alternative future use is available. As of December 31, 2002 and 2001,
engineering inventory was $306,000 and $404,000, respectively. The Company amortizes its engineering inventory over a three year period. Amortization expense for engineering inventory was $169,000,
$218,000, and $144,000 for the years ended December 31, 2002, 2001 and 2000, respectively. Engineering inventory used in research and development activities or for which no alternative future
use is available is expensed as incurred.

Inventories
also include systems that have been shipped to the Company's customers but not installed and accepted by the customer. As of December 31, 2002 and 2001 this inventory
in transit was $3,014,000 and $2,696,000, respectively.

Property and equipment

Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are calculated on a
straight-line basis over the estimated useful lives of the assets as follows:

Building

30-39 yearsMachinery and equipment

3-10 yearsComputer equipment and software

3-5 yearsFurniture and fixtures

5-10 yearsLeasehold improvements

Lesser of 15 years or the remaining lease term


Expenditures
which substantially extend the useful lives of assets are capitalized. Expenditures for maintenance and repairs are charged against income as incurred. Gains and losses
recognized on

49

---

disposals are included in other expense (income) in the Consolidated Statements of Operations. Depreciation and amortization expense was $1,871,000, $1,077,000, $799,000 for the years ended
December 31, 2002, 2001 and 2000, respectively.

The
Company reviews property and equipment for impairment, in accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment of
Long-Lived Assets," whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. Assets are written-down to fair value when the
carrying costs exceed this amount. Any impairment losses are determined based upon estimated future cash flows and fair values. To date, no such indicators of impairment have been identified.

Goodwill and other intangible assets

The Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets," in the first quarter of fiscal 2002. SFAS No. 142 requires that goodwill
and intangible assets with indefinite useful lives not be amortized. Instead, these assets are tested for impairment annually, or on an interim basis when events or changes in circumstances warrant.
The impairment test consists of a comparison of the fair value of goodwill or an intangible asset with its carrying amount with any related impairment losses recognized in earnings when incurred.
Under the transitional provisions of SFAS No. 142, the Company tested goodwill and intangible assets with indefinite useful lives for impairment as of January 1, 2002 pursuant to the
method prescribed by SFAS No. 142 (Note 11). Prior to the adoption of SFAS No. 142, trademarks and tradenames and goodwill were amortized using the straight-line basis
over 20 years. As of December 31, 2002 and 2001, accumulated amortization of trademarks and tradenames was $10,000. As of December 31, 2002 and 2001, accumulated amortization of
goodwill was $114,000.

Investments in other companies

Investments in other companies consist of two preferred equity security interests in unaffiliated proteomics companies. The securities do not have readily
determinable fair values and the Company's ownership interest in each of these individual companies is less than 20%. Accordingly, these investments are accounted for under the cost method of
accounting. This method requires the Company to periodically evaluate whether an other-than-temporary decrease in value of the investment has occurred, and if so, to write the
investment down to its net realizable value. In the fourth quarter of 2002, the Company recorded a $1,300,000 write-down related to these investments (Note 21).

Customer advances

The Company requires an advance deposit under the terms and conditions of contracts with certain customers. These deposits are recorded as a liability until
revenue is recognized on the specific contract.

Warranty costs and deferred revenue

The Company provides a one year parts and labor warranty with the purchase of equipment. The anticipated cost for this one year warranty is accrued upon
recognition of the sale and is included as a current liability. The Company also offers to its customers extended warranty and service agreements extending beyond the initial year of warranty for a
fee. These fees are recorded as deferred revenue and amortized into income over the life of the extended warranty contract.

50

---

Changes
in the warranty liability for the year ended December 31, 2002 are as follows (in thousands):

Warranty accrual at December 31, 2001

$
2,440Accruals for warranties issued during the period


3,465Accruals related to pre-existing warranties


(9
)Accruals from acquisition


543Settlements of warranty claims


(3,585
)Foreign currency impact


292Warranty accrual at December 31, 2002

$
3,146


Minority interest in consolidated subsidiary

Minority interest in consolidated subsidiary of $80,000 on the balance sheet as of December 31, 2002 represents the minority common shareholders'
proportionate share of the equity of Incoatec GmbH, a German entity. Minority interest in subsidiary of $59,000 on the statement of operations for the year ended December 31, 2002 represents
the minority common shareholders' proportionate share of net income for the year. Incoatec GmbH has been a consolidated subsidiary since February 2002 when the Company contributed $22,000 of
cash to this entity. The Company also guarantees approximately $121,000 of Incoatec GmbH's debt. As of December 31, 2002, the Company owned 51% of Incoatec GmbH.

Income taxes

The Company provides for income taxes under the liability method prescribed by SFAS No. 109, "Accounting for Income Taxes." Under this method, deferred tax
assets and liabilities are determined based on the difference between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the
difference is expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.

Comprehensive income (loss)

Comprehensive income includes net (loss) income, a transition adjustment for the adoption of SFAS No. 133, changes in fair market value of financial
instruments designated as hedges and foreign currency translation adjustments.

Foreign currency translation

Assets and liabilities of foreign subsidiaries are translated into United States dollars at year-end exchange rates. Revenues, costs and expenses of
foreign subsidiaries are translated at average exchange rates for each year. The effects of these translation adjustments are reported as a component of accumulated other comprehensive income. Foreign
exchange transaction gains and losses are included in other income (expense).

During
the first half of 2002, the Company had euro denominated intercompany lines of credit that impacted transaction gains and losses. However, on July 12, 2002, the Company
restructured its

51

---

intercompany debt. Settlement of the new loans is not anticipated in the foreseeable future. As a result, the impact of foreign exchange rate fluctuations are no longer recorded in other expense
(income) within the statement of operations but instead are recorded as a component of accumulated other comprehensive income (loss) within shareholders' equity. The Company recorded a gain of
$440,000 within accumulated other comprehensive income (loss) for the euro denominated intercompany lines of credit between July and December 2002.

Revenue recognition

Revenue is recognized from system sales when a product is accepted by the customer, except when sold through a non-consolidated Bruker affiliate or
distributor that assumes responsibility for installation, in which case the system sale is recognized upon shipment. Revenue from accessories and parts is recognized upon shipment, and revenue from
services is recognized when performed. The Securities and Exchange Commission ("SEC") staff issued Staff Accounting Bulletin ("SAB") 101, "Revenue Recognition," which became effective during the
fourth quarter of fiscal 2000 for the Company. The Company complies with the provisions of SAB 101. Shipping and handling fees are reflected in net sales and shipping and handling costs are reflected
in cost of goods sold.

Revenue
from software package sales represents less than 2% of total revenue and is recognized in accordance with the American Institute of Certified Public Accountants Statement of
Position ("SOP") 97-2, "Software Revenue Recognition."

Advertising

The Company expenses advertising costs as incurred. Advertising expenses were $1,065,000, $901,000 and $387,000 for the years ended December 31, 2002, 2001
and 2000, respectively.

Research and development

Research and development costs are expensed as incurred.

Software development costs

Certain direct development costs associated with internal-use software are capitalized, including external direct costs of material and services and
payroll costs for employees devoting time to the software projects. These costs are included within property and equipment and are amortized on a straight-line basis over a three- to
five-year period beginning when the asset is substantially ready for use. Costs incurred during the preliminary project stage, as well as maintenance and training costs, are expensed when
incurred.

The
Company has also developed proprietary software that is a component of its products. It is the Company's policy to charge all software development costs for proprietary software to
research and development expense until the establishment of technological feasibility of a particular application, which the Company defines as completion of a working model of one of its products.
Upon such establishment of technological feasibility, all further software development costs on the same application would be capitalized. Software development costs eligible for capitalization have
been insignificant and therefore have been charged to research and development expense as incurred.

52

---

Financial instruments

The Company has from time to time engaged in derivative instruments (See Note 14). Those derivative instruments that are not effective hedges and are
therefore considered speculative and are marked-to-market. The appreciation/depreciation of such instruments is included in other expense (income) in the Consolidated
Statements of Operations.

Stock-based compensation

The Company has a stock-based employee compensation plan, which is described more fully in Note 19. The Company accounts for the plan under the recognition
and measurement principles of Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees," and related interpretations. No stock-based compensation cost has
been recognized for options granted to employees, as all options granted under the plan had an exercise price equal to the market value of the underlying common stock on the date of grant. The
following table illustrates the effect on net (loss) income (in thousands) and earnings (loss) per share if the Company had applied the fair value recognition provisions under SFAS No. 123,
"Accounting for Stock-Based Compensation.

|                                                              |                                                                                                                 | Year Ended December 31, |       
|------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------- | ----------------------- | ------
|
|Net (loss) income, as reported                                |                                                                                                                 | $                       | (873  
|Deduct:                                                       |                                                                                                                 |                         |       
|                                                              | Total stock-based employee compensation expense determined under fair value method for all awards, net of taxes |                         |       
|                                                              | Convertible preferred stock accretion                                                                           |                         |       
|                                                              | Beneficial conversion feature                                                                                   |                         |       
|                                                              |                                                                                                                 |                         |       
|Net (loss) income available to common shareholders, pro forma |                                                                                                                 | $                       | (1,486
|                                                              |                                                                                                                 |                         |       
|Earnings (loss) per share:                                    |                                                                                                                 |                         |       
|Basic and diluted, as reported                                |                                                                                                                 | $                       | (0.02 
|                                                              |                                                                                                                 |                         |       
|Basic and diluted, pro forma                                  |                                                                                                                 | $                       | (0.03 
|                                                              |                                                                                                                 |                         |       

The
Company accounts for stock-based compensation to non-employees using the fair value method prescribed by SFAS No. 123 and EITF Issue No. 96-18,
"Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods or Services." Accordingly, compensation cost for the stock options
granted to non-employees is measured at the fair value of the option at the date of grant and re-measured as the underlying options vest.

Accounting pronouncements

In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS
No. 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity
capitalizes a cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is
depreciated over the useful life of the related asset. Upon settlement of the liability, an entity

53

---

either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. The standard is effective for fiscal years beginning after June 15, 2002. The Company believes
SFAS No. 143 will not have a material effect on its results of operations or financial position.

In
June 2002, the FASB issued SFAS No. 146, "Accounting for the Costs Associated with Exit or Disposal Activities." SFAS No. 146 requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit plan or disposal plan. This statement replaces Emerging Issues Task Force
Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." The
provisions of this statement are to be applied prospectively to exit or disposal activities initiated after December 31, 2002, with early application encouraged. The Company elected not to
early adopt SFAS No. 146. The adoption of this statement will not have a material effect on the results of operation or financial position.

In
November 2002, the FASB issued Interpretation ("FIN") No. 45, "Guarantor's Accounting and Disclosure requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others." This interpretation elaborates on the existing disclosure requirements for most guarantees. It also clarifies that at the time a company issues a guarantee, the company must
recognize an initial liability for the fair value, or market value, of the obligations it assumes under that guarantee and must disclose that information in its interim and annual financial
statements. The initial recognition and initial measurement provision apply on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements in the
interpretation are effective for financial statements of interim or annual periods ending after December 15, 2002. The adoption of FIN No. 45 did not affect the Company's historical
financial statements and the Company believes that the interpretation will not have a material effect on its results of operations or financial position.

In
December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure," which amends SFAS No. 123, "Accounting for
Stock-Based Compensation." SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In
addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require more prominent and more frequent disclosures in financial statements about the effects of stock-based
compensation. The transition guidance and annual disclosure provisions of this statement are effective for fiscal years ending after December 15, 2002, with earlier application permitted in
certain circumstances. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. The Company
adopted the annual disclosure provisions of SFAS No. 148 in 2002. The Company will continue to apply the disclosure only provisions of both SFAS No. 123 and SFAS No. 148.

Reclassifications

Certain reclassifications have been made to the financial statements of the prior year to conform to the current year presentation. Such reclassifications had no
effect on net (loss) income or shareholders' equity as previously reported.

54

---

3.    Accounts Receivable

Accounts receivable were comprised as follows (in thousands):

December 31,2002

2001Accounts receivable

$
21,517

$
17,660Less allowance for doubtful accounts


(714
)

(453
)Accounts receivable, net

$
20,803

$
17,207


4.    Inventories

Inventories were comprised of the following (in thousands):

December 31,2002

2001Raw materials

$
10,460

$
9,784Work-in-process


9,895


6,263Finished goods


10,652


7,483Service parts


3,123


3,239Total inventories

$
34,130

$
26,769


5.    Property and Equipment

Property and equipment were comprised of the following (in thousands):

December 31,2002

2001Land

$
4,167

$
980Building and leasehold improvements


9,888


3,030Machinery and equipment


5,147


2,995Computer equipment and software


3,866


2,275Furniture and fixtures


3,996


2,75427,064


12,034Less accumulated depreciation and amortization


(6,358
)

(3,883
)Property and equipment, net

$
20,706

$
8,151


55

---

6.    Other Current Liabilities

Other current liabilities were comprised of the following (in thousands):

December 31,2002

2001Customer advances

$
7,572

$
9,102Accrued compensation


5,828


4,235Accrued warranty


3,146


2,440Deferred revenue


4,185


2,843Other


3,856


2,281Total other current liabilities

$
24,587

$
20,901


7.    Other Expense (Income)

Other expense (income) was comprised of the following (in thousands):

Year Ended December 31,2002

2001

2000Exchange (gains) losses on foreign currency transactions

$
(1,878
)
$
150

$
(205
)Depreciation of the fair value of financial instruments


264


164


147Total other (income) expense

$
(1,614
)
$
314

$
(58
)


8.    Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) was comprised of the following (in thousands):

December 31,2002

2001Foreign currency translation adjustments

$
1,509

$
(496
)Transition adjustment relating to the adoption of SFAS No. 133, net of taxes


(20
)

(20
)Changes in fair market value of financial instrument designated as a hedge of interest rate exposure, net of taxes


(113
)

(22
)Total accumulated other comprehensive income (loss)

$
1,376

$
(538
)


56

---



9.    Acquisitions

MAC Science Ltd.

On May 13, 2002, the Company acquired substantially all of the assets and certain liabilities of MAC Science Ltd., a Yokohama, Japan-based company
focused on X-ray analysis instrumentation. The results of the MAC Science operation have been included in the accompanying consolidated financial statements since the date of acquisition.
It is anticipated that this acquisition will result in both new product introductions as well as further penetration in the Japanese life science and advanced materials research markets.

The
aggregate purchase price was $3,407,000, including $274,000 of cash plus the assumption of liabilities of $3,133,000.

The
following table summarizes the estimated fair values of assets acquired and liabilities assumed at the date of acquisition (in thousands):

May 13, 2002Inventories

$
2,541Property and equipment


41Goodwill


825Total assets acquired


3,407Other current liabilities


(3,133
)Total liabilities assumed


(3,133
)Net assets acquired

$
274


The
entire goodwill balance of $825,000 is expected to be deductible for tax purposes.

In
conjunction with the acquisition, the Company formulated a plan to relocate its manufacturing facility and 22 employees from Fukui, Japan to Yokohama, Japan. The Company completed
these activities in the third quarter of 2002. As a result of completing these activities, the allocation of the purchase price was adjusted by $82,000 in the third quarter of 2002. Charges against
the purchase accounting liabilities recorded in connection with these activities were as follows (in thousands):

Facility
Relocation

Employee
Relocation

TotalInitial balance in second quarter of 2002

$
196

$
102

$
298Utilized


(164
)

(65
)

(229
)Adjustment


(40
)

(42
)

(82
)Currency impact


8


5


13Balance as of December 31, 2002

$


$


$



Nonius Group

On April 10, 2001, the Company completed the acquisition of Nonius Group ("Nonius") in a transaction whereby the Company acquired the Nonius B.V.
subsidiary, and four affiliates, of Delft Instruments N.V., a Dutch company. Nonius is a developer and manufacturer of single crystal X-ray diffraction equipment. The Company paid cash of
approximately $6.2 million, net of cash acquired, plus

57

---

the assumption of approximately $1.8 million of debt plus additional liabilities of $4.3 million. The acquisition was accounted for as a purchase in the second quarter of fiscal 2001
and, accordingly, the results of operations of Nonius for the period subsequent to the consummation of the acquisition are included in the accompanying financial statements. The excess of the purchase
price over the fair value of the assets acquired of $3.2 million was recorded as goodwill. In the first quarter of 2002, the Company recorded an impairment loss of $1,046,000 ($617,000, net of
tax) related to goodwill (Note 11).

In
conjunction with the acquisition of Nonius, the Company acquired certain in-process research and development ("IPR&D") projects. These projects included next generation
high brilliancy optics and microsources; high brilliance rotating anode generator successors for biological crystallography; high sensitivity large area detector systems; and next generation software
for data acquisition and processing. At the time of the acquisition, these projects were in various stages of completion, ranging from 50% to 70%. The projects were expected to be completed during
2002 at an estimated cost of $615,000. The high brilliancy optics and rotating anode generator projects were completed in 2002. Both the large area detector systems and software projects are expected
to be completed in the third quarter of 2003.

The
Company had determined there was an absence of technological feasibility and alternative future use for this IPR&D. As such, the Company utilized a discounted probable future cash
flows analysis to prepare a valuation of the fair value of IPR&D. The Company performed this cash flow analysis on a project by project basis and applied adjusted discount rates of 40%-45%
to the projects' cash flow. The Company used financial assumptions based on pricing, margins and expense levels from those historically realized by Nonius and consistent with industry standards.
Material net cash inflows from
these projects are expected to begin in 2003. Management was primarily responsible for estimating the fair value of the purchased in-process research and development. This valuation
resulted in an estimate of the fair value of $3,590,000 ($2,118,000, net of tax), which was charged to research and development expense immediately following the close of the transaction in the second
quarter of 2001.

The
Bruker Nonius operations are located in Delft, The Netherlands. As part of the purchase agreement with Delft Instruments, Bruker Nonius entered into rental and service agreements for
20 months. The services provided by Delft Instruments included facility maintenance, telephone and systems networks, payroll and other handling. In May 2002, Bruker Nonius moved its
operations from the Delft Instruments facility to a new facility in Delft, The Netherlands. As of December 31, 2002 and 2001, the rental and service fee recognized since the acquisition were
$339,000 and $270,000. All services have been terminated as of December 31, 2002.

58

---

Unaudited Pro forma Information

The following unaudited pro forma income statement information (in thousands, except per share data) assumes that the MAC Science and Nonius acquisitions had
taken place as of the beginning of each of the periods presented, in accordance with SFAS No. 141, "Business Combinations."

Year Ended
December 31,2002

2001Net sales

$
110,821

$
99,993Income (loss) before cumulative of change in accounting principle


363


(1,091
)Net loss


(254
)

(1,091
)Net loss available to common shareholders


(254
)

(7,116
)Basic and diluted earnings (loss) per share


0.00


(0.18
)


The
unaudited pro forma combined income statement information has been prepared for informational purposes only and may not be indicative either of the operating results that actually
would have resulted had the acquisition been made at the beginning of the periods presented or of the operating results that may occur subsequent to the acquisition.

10.    Restructuring Charge

In the third quarter of 2002, the Company implemented a restructuring program to reduce costs and improve productivity by eliminating redundant positions,
streamlining production and initiating cost reduction programs in all operating areas. As a result, the Company recorded a restructuring charge of approximately $1,767,000 ($1,043,000, net of tax).

Of
the total restructuring charge, approximately $459,000 related to involuntary and voluntary employee termination benefits for personnel reductions in all operating areas. Under the
restructuring program, the Company reduced its total workforce by 19 employees, or approximately 5% of the total workforce in the United States, Germany and United Kingdom. The restructuring charge
also included approximately $699,000 for the write-off of property and equipment as a result of ceasing production at a facility located in the United Kingdom. Beginning in the fourth
quarter of 2002, all products that were produced in the United Kingdom are being produced at the production facility in Germany. In addition, approximately $464,000 of the restructuring charge
consisted of penalties for terminating contracts for outsourced inventory and information technology services which the Company now provides internally. The remaining $145,000 consisted of engineering
inventory that was written off as a result of the Company terminating a research and development project.

59

---

The
following table summarizes the restructuring charge activity and the balance of the restructuring accrual as of December 31, 2002 (in thousands):

|                                           |  | Workforce
Reduction |     | Production
Operations |   | Contractual
Obligations |   | Engineering
Inventory |      | Total |  
|------------------------------------------ |  | ------------------- | --- | --------------------- | - | ----------------------- | - | --------------------- | ---- | ----- | -
|Initial charge in third quarter 2002       |  | $                   | 458 |                       | $ | 699                     |   | $                     | 465  |       | $
|Cash payments                              |  |                     | (84 | )                     |   |                        |   |                       | (172 | )     |  
|Non-cash charges                           |  |                     |    |                       |   | (699                    | ) |                       |     |       |  
|Currency impact                            |  |                     | 16  |                       |   |                        |   |                       | 20   |       |  
|                                           |  |                     |     |                       |   |                         |   |                       |      |       |  
|Balance of accrual as of December 31, 2002 |  | $                   | 390 |                       | $ |                        |   | $                     | 313  |       | $
|                                           |  |                     |     |                       |   |                         |   |                       |      |       |  

11.    Goodwill and Other Intangibles

The Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets," in the first quarter of fiscal 2002. SFAS No. 142 requires that goodwill
and intangible assets with indefinite useful lives not be amortized. Instead, in accordance with the provisions of SFAS No. 142, these assets will be tested for impairment annually, or on an
interim basis when events or changes in circumstances warrant. Under the transitional provisions of SFAS No. 142, the Company tested goodwill and intangible assets with indefinite useful lives
for impairment as of January 1, 2002 pursuant to the method prescribed by SFAS No. 142. The Company completed the transitional impairment tests in the third quarter of 2002, which
resulted in the Company recording an impairment loss associated with its Nonius reporting unit of $1,046,000 ($617,000, net of tax). The fair value of the reporting unit was based on projected
discounted future net cash flows. In accordance with the transitional provisions of SFAS No. 142, the impairment loss has been recorded in the first quarter of 2002 as a cumulative effect of
change in
accounting principle. Accordingly, net (loss) income and earnings (loss) per share would have been reported as follows (in thousands, except per share data):

Three Months Ended
March 31, 2002

Six Months Ended
June 30, 2002Reported net income

$
310

$
918Less: impairment loss, net of tax


(617
)

(617
)Adjusted net (loss) income

$
(307
)
$
301Basic and diluted earnings (loss) per share:Reported net income

$
0.01

$
0.02Less: impairment loss, net of tax


(0.01
)

(0.01
)Adjusted net (loss) income

$
(0.01
)
$
0.01


Application
of the non-amortization provisions of SFAS No. 142 reduced amortization expense by approximately $165,000 in fiscal 2002. The following sets forth a
reconciliation of net income (loss) (in

60

---

thousands) for the years ended December 31, 2002, 2001 and 2000 adjusted for the non-amortization provisions of SFAS No. 142:

Year Ended December 31,2002

2001

2000Reported net (loss) income

$
(873
)
$
(1,377
)
$
729Add back: goodwill amortization, net of tax





68


Add back: trademarks and tradenames amortization, net of tax





6


Adjusted net (loss) income

$
(873
)
$
(1,303
)
$
729


The
non-amortization provisions of SFAS No. 142 had no impact on basic and diluted earnings (loss) per share for the years ended December 31, 2002, 2001 and
2000.

The
changes in the carrying amount of goodwill for the years ended December 31, 2002 and 2001 are as follows (in thousands):

Balance as of December 31, 2000

$
Goodwill of acquired business


3,213Amortization


(114
)Balance as of December 31, 2001


3,099Goodwill of MAC Science acquisition


907Transitional impairment loss


(1,046
)Purchase price adjustments


69Currency impact


64Balance as of December 31, 2002

$
3,093


12.    Leases

Certain vehicles, office equipment and buildings are leased under agreements that are accounted for as operating leases. Total rental expense under operating
leases was $1,540,000, $1,543,000, and $1,086,000 for the years ended December 31, 2002, 2001 and 2000, respectively.

Future
minimum lease payments under non-cancelable operating leases at December 31, 2002 were as follows:

2003

$
1,147,0002004


968,0002005


826,0002006


715,0002007


652,000Total minimum lease payments

$
4,308,000


61

---

13.    Debt

The Company's non-related party debt obligations consisted of the following (in thousands):

December 31,2002

2001Japanese Yen bank loan at fixed rate of 1.50%, uncollateralized, quarterly principal payments of $84,000 and quarterly interest payments commencing in March 2003, due and payable through December 2005

$
1,011

$
Japanese Yen bank loan at fixed rate of 1.19%, uncollateralized, quarterly principal payments of $140,000 and quarterly interest payments commencing in June 2002, due and payable through June 2006


1,990


Euro bank loan at fixed rate of 4.90%, uncollateralized, monthly principal payments of $8,000 and quarterly interest payments commencing in February 2002, due and payable through February 2004


121


Euro mortgage loan at 6-month European Interbank Offered Rate (EURIBOR) (2.80% at December 31, 2002) plus 1.00%, collateralized by a building located in Karlsruhe, Germany, biannual principal payments of $150,000 and
biannual interest payments commencing in April 2003, due and payable through October 2017


5,238


State of Wisconsin industrial revenue bonds at variable interest rate based on the Bond Market Association Municipal Swap Index (1.50% at December 31, 2002), collateralized by an irrevocable letter of credit, annual
principal payments of various amounts commencing in December 2004 and monthly interest payments, due and payable through December 2013


2,200


2,200Total long-term debt


10,560


2,200Less: current portion of long-term debt


(1,240
)

Total long-term debt, less current portion

$
9,320

$
2,200


The
industrial revenue bonds ("IRB") were entered into with the State of Wisconsin in 1999 in connection with the construction of the Company's building in Madison, Wisconsin. The
Company has an interest rate swap which has been designated as a hedge. The Company pays a 4.60% fixed rate of interest and receives a variable rate of interest based on the Bond Market Association
Municipal Swap Index. The contract has a $2,200,000 notional value which decreases in conjunction with the IRB payment schedule until the swap and IRB agreements terminate in December 2013. The
fair value of the swap, obtained from dealer quotes, is an unrealized loss of $224,000 and $71,000 at December 31,
2002 and 2001, respectively. Interest payments (receivable and payable) under the terms of the swap are accrued over the period and are treated as an adjustment to interest expense. The letter of
credit is renewable upon mutual agreement of the Company and the financial institution. If the letter of credit is not renewed and the Company is unable to obtain a similar letter of credit with
another financial institution, the IRB may be callable at the option of the bond trustee. The Company's outstanding letter of credit expires in December 2003 and is collateralized by
substantially all of the assets of the Company. The letter of credit contains various financial and other covenants. The most restrictive

62

---

covenant is a debt service coverage ratio. As of December 31, 2002, the Company was in compliance with the debt covenants.

Annual
maturities of long-term non-related party debt are as follows:

2003

$
1,240,0002004


1,407,0002005


1,400,0002006


872,0002007


514,000Thereafter


5,127,000$
10,560,000


The
Company maintains lines of credit at financial institutions in Germany, Japan and South Africa with an aggregate maximum credit amount of approximately $9.9 million and
$7.2 million at December 31, 2002 and 2001, respectively. At December 31, 2002 and 2001, the Company had borrowings of approximately $1.8 million and $0.0 million,
respectively, and availability of approximately $3.7 million and $5.0 million, respectively. At December 31, 2002 and 2001, the Company had bank guarantees of $3.4 million
and $2.2 million, respectively, for its customer advances. These guarantees affect the availability of its lines of credit. In addition, at December 31, 2002, the line of credit
availability has been reduced by $1.0 million due to debt incurred by the Company's subsidiary in Japan. The line of credit with the German financial institution is utilized by the Company's
subsidiaries in Germany and the Netherlands. For the German subsidiary, interest is paid monthly on outstanding borrowings based on the London Interbank Offered Rate for three-month deposits (LIBOR)
plus 1% which was 3.87% at December 31, 2002. For the Netherlands subsidiary, the interest rate was 6.50%.
For the lines of credit in Japan and South Africa, the interest rates were 1.50% and 14.0%, respectively at December 31, 2002. The weighted average interest rate on amounts outstanding at
December 31, 2002 was 5.34%. The lines of credit have no maturity date and are uncollateralized.

At
December 31, 2001, the Company had a short-term loan with a financial institution for $242,000. The loan had an interest rate of 4.28% and was paid in full in
February 2002.

14.    Financial Instruments

Cash and cash equivalents

The fair values of cash and cash equivalents approximate their carrying values.

Short-term and long-term debt

The fair values of short-term debt approximate their carrying values. The fair value of long-term debt, which was approximately
$10,627,000 and $2,200,000 at December 31, 2002 and 2001, respectively, was determined using market interest rates and discounted future cash flows.

Derivative instruments and hedging activities

Effective January 1, 2001, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended and
interpreted. SFAS No. 133 requires that all

63

---

derivative instruments, such as interest rate swap contracts, be recognized in the financial statements and measured at their fair market value. Changes in the fair market value of derivative
instruments are recognized each period in current earnings or shareholders' equity (as a component of other comprehensive income (loss)), depending on whether a derivative is designated as a part of a
hedge transaction and, if it is, the type of hedge transaction. In accordance with SFAS No. 133, the Company recorded a transition adjustment which resulted in an unrealized accumulated
comprehensive loss of $20,000, net of tax, as of January 1, 2001.

The
Company's objective in managing its exposure to interest rates is to decrease the volatility that changes in interest rates might have on earnings and cash flows. To achieve this
objective, the Company uses a fixed rate agreement to adjust a portion of its debt, as determined by management, that is subject to variable interest rates. The Company designates this instrument as a
cash flow hedge.

The
Company has an interest rate swap arrangement to pay a 4.60% fixed rate of interest and receive a variable rate of interest based on the Bond Market Association Municipal Swap Index
(ranging from 1.18% to 1.67% for the year ending December 31, 2002) on a $2.2 million notional amount. This contract is considered to be a hedge against changes in the amount of future
cash flows associated with the Company's interest payments related to its variable rate debt obligations. Accordingly, the fixed rate agreement is reflected at fair value in the Company's balance
sheet and related gains or losses on this contract are deferred in shareholders' equity as a component of comprehensive income (loss). However, to the extent that this contract is ineffective in
offsetting the change in interest cash flows being hedged, the ineffective portion would be immediately recognized in earnings. The amount recognized in earnings within the next twelve months is not
expected to be significant. The fair value of the instrument was a liability of $224,000 and $71,000 ($133,000 and $42,000, net of tax), at December 31, 2002 and December 31, 2001,
respectively. The fair values were obtained from dealer quotes.

In
April 2002, the Company entered into two derivative financial instruments, a cross currency interest rate swap and an interest rate swap, which are currently not designated as
hedges. The cross currency interest rate swap of 2 million euro secures a fixed rate of 1.75% per annum payable in Japanese yen until January 4, 2012. The interest rate swap of
3 million euro reduces the 6-month EURIBOR rate by 1.80% per annum until January 4, 2007. The Company entered into the financial instruments to manage its exposure to
interest rates and foreign exchange risk.

During
the fiscal year ending September 30, 1999, the Company entered into three financial instruments, an interest rate cap, an interest rate swap and a cross currency interest
rate swap, which are currently not designated as hedges. In addition, the Company acquired a financial instrument, which terminated in the fourth quarter of 2001, with its acquisition of Nonius. By
entering into these speculative contracts the Company obtained the right to borrow money at low rates of interest. The Company continues to hold these speculative contracts until it elects to exercise
the options to borrow the money.

The
notional amount of the financial instruments not designated as hedges was approximately $13,620,000 and $7,277,000 at December 31, 2002 and 2001, respectively. Until the
instruments become an effective hedge, the instruments are considered speculative and are marked-to-market. The fair value of the instruments depreciated $264,000, $163,000 and
$147,000 for the years ended December 31, 2002, 2001 and 2000, respectively. The fair value of the instruments was a (liability) asset of ($315,000) and $1,000 as of December 31, 2002
and 2001, respectively.

64

---



15.    Income Taxes

Significant components of the provision for income taxes were as follows (in thousands):

Year Ended December 31,2002

2001

2000Current:Federal

$
223

$
12

$
113State


146


27


10Foreign


915


727


1521,284


766


275Deferred:Federal


251


(1,649
)

14State


(61
)

(203
)

(24
)Foreign


(756
)

117


251(566
)

(1,735
)

241Income tax expense (benefit)

$
718

$
(969
)
$
516


Temporary
differences and carryforwards which gave rise to deferred tax assets and liabilities consisted of the following (in thousands):

December 31,2002

2001Current deferred income taxes:Accounts receivable

$
402

$
23Inventories


511


573Warranty reserve


468


276Other current liabilities


(158
)

(218
)Compensation


153


187Other


225


(71
)Revenue recognition





116Total current deferred income tax asset


1,601


886Long-term deferred income taxes:Property and equipment


(384
)

(201
)Intangible assets


1,415


1,237Accrued pension


423


268Tax credits


855


610Net operating loss carryforwards


828


104Restructuring charge


174


Other


(275
)

Total long-term deferred income tax asset


3,036


2,018Valuation allowance


(707
)

Total deferred income tax asset

$
3,930

$
2,904


65

---

A
reconciliation between the reported income tax (benefit) expense and the federal statutory rate follows (in thousands):

Year Ended December 31,2002

2001

2000Federal statutory rate

$
177

$
(798
)
$
410State income taxes, net of federal benefit


(37
)

(221
)

3Foreign tax expense at different rates and foreign losses without tax benefits


(318
)

113


191Research and development tax credits


(100
)

(110
)

(132
)Meals and entertainment and other permanent items


54


96


41Increase in valuation allowance


707





Foreign dividend income


502





Municipal interest income


(219
)




Other


(48
)

(49
)

3$
718

$
(969
)
$
516


There
was a statutory rate reduction in Germany which was enacted in October 2000. As a result, the Company reduced its deferred taxes in the fourth quarter of
2000 by $71,000.

Consolidated
domestic pre-tax income (loss) before minority interest and cumulative effect of change in accounting principle was $174,000, ($303,000) and $567,000 for the
years ended December 31, 2002, 2001 and 2000, respectively. The pre-tax (loss) income before minority interest and cumulative effect of change in accounting principle for foreign
operations was $347,000, ($2,043,000) and $678,000 for the years ended December 31, 2002, 2001 and 2000, respectively.

As
of December 31, 2002, the Company had approximately $552,000 of research and development tax credits available to reduce future federal and state tax liabilities. These credits
expire at various dates through the year 2022. Furthermore, the Company has foreign tax credit carryforwards of approximately $303,000. These carryforwards expire at various dates through the year
2007.

A
portion of the net operating loss carryforwards relates to a tax capital loss of $494,000 that would be realized upon sale of certain investments. These investments were written down
for book purposes. The remaining net operating loss carryforwards relate to taxable losses of foreign subsidiaries.

The
valuation allowance as of December 31, 2002 relates to future income tax benefits arising from a capital asset write-down and foreign tax credits of $494,000 and
$213,000 respectively, which management believes may not be realized.

Undistributed
losses of foreign subsidiaries aggregated approximately $2.5 million at December 31, 2002 which, under existing law, will not be subject to United States tax
until distributed as dividends. Any earnings are intended to be indefinitely reinvested in foreign operations and, as such, no provision or benefit has been made for United States income taxes that
may be applicable thereto.

16.    Related Parties

The Company is affiliated, through common shareholders, with several other entities which use the Bruker name. The Company and its affiliates have entered into a
sharing agreement which provides for the sharing of specified intellectual property rights, services, facilities and other related items.

66

---

Related
party debt consisted of the following (in thousands):

December 31,2002

2001Bruker BioSpin KK

$


$
229Less current portion





(229
)Long-term related party debt

$


$



The
Company had a line of credit with Bruker BioSpin KK with a maximum credit amount of $229,000 at December 31, 2001. The line of credit had an interest rate of
1.75% and matured on August 31, 2002.

For
the years ended December 31, 2002, 2001 and 2000, the Company had related party interest expense of $2,000, $259,000 and $405,000, respectively.

As
of December 31, 2002 and 2001, the Company has payables to related parties included in its accounts payable balance of $235,000 and $17,000, respectively. The Company has
receivables from related parties included within its accounts receivable balance of $3,507,000 and $2,532,000, as of December 31, 2002 and 2001, respectively. Payment terms of accounts
receivable balances with related parties are the same as those with third party customers.

Sales
to related parties which are not subsidiaries of Bruker AXS Inc. are included in the consolidated financial statements. Such related parties are affiliated sales offices in
countries in which the Company does not have its own distribution network. As such, these sales were primarily for resale of the Company's products only. These sales amounted to $10,837,000,
$5,188,000 and $14,947,000 for the years ended December 31, 2002, 2001 and 2000, respectively.

The
Company shares various general and administrative expenses for items including umbrella insurance policies, accounting services and leases with various related parties. These general
and administrative expenses amounted to $246,000, $672,000 and $0 for the years ended December 31, 2002, 2001 and 2000, respectively.

17.    Employee Benefit Plans

Substantially all of the Bruker AXS GmbH employees, who were employed by the Company on September 30, 1997, participate in a defined benefit pension plan.
The plan provides pension benefits based upon final average salary and years of service. Benefits to other employees are based on a fixed amount for each year of service. The Company has elected to
recognize the impact on the projected benefit obligation when actual experience differs from actuarial assumptions on an immediate basis. The Company recognized actuarial losses (gains) of
approximately $52,000, ($53,000) and ($75,000) for the years ended December 31, 2002, 2001 and 2000, respectively.

67

---

The
following provides a reconciliation of the funded status of the plan (in thousands):

December 31,2002

2001Change in benefit obligationBenefit obligation at beginning of year

$
3,336

$
2,962Service cost


487


386Interest cost


224


173Benefits paid


(22
)

(2
)Recognized actuarial loss (gain)


52


(53
)Currency translation adjustment


675


(130
)Benefit obligation at end of year

$
4,752

$
3,336Change in plan assetsFair value of plan assets at beginning of year

$


$
Employer contribution


22


2Benefits paid


(22
)

(2
)Fair value of plan assets at end of year

$


$
Funded status

$
(4,752
)
$
(3,336
)Unrecognized amendment gain


(106
)

(101
)Accrued benefit cost

$
(4,858
)
$
(3,437
)


Year Ended December 31,2002

2001

2000Components of net periodic benefit costService cost

$
487

$
386

$
170Interest cost


224


173


164Recognized actuarial loss (gain)


52


(53
)

(75
)Amortization


(11
)

(3
)

(3
)Net periodic benefit cost

$
752

$
503

$
256


Year Ended December 31,2002

2001

2000AssumptionsDiscount rate

5.75
%
6.25
%
6.25
%Expected return on assets

0
%
0
%
0
%Rate of compensation increase

3.00
%
3.00
%
3.00
%


The
Company maintains or sponsors various defined contribution retirement plans that cover domestic and foreign employees. The Company may make contributions to these
plans at its discretion. Retirement benefits earned are generally based on years of service and compensation during active employment. Eligibility is generally determined in accordance with local
statutory requirements.

68

---

However, the level of benefits and terms of vesting may vary among plans. The Company contributed $363,000, $337,000 and $380,000 for the years ended December 31, 2002, 2001 and 2000,
respectively.

18.    Redeemable Preferred Stock

On January 16, 2001, the Company authorized and sold 5,625,000 shares of Series A Convertible Preferred Stock, $0.01 par value per share, at a price
of $4.00 per share. Gross proceeds received totaled $22,500,000. The Company utilized these proceeds to pay down its related party debt in accordance with its payment schedules and to pay down its
third party lines of credit in full. Also, in conjunction with the preferred stock offering, the Company incurred investment fees related to the offering which totaled approximately $227,000. Such
fees were included as a reduction of the preferred stock. The terms of the Series A preferred shares also provide for cumulative cash dividends at an 8% annual rate, to be paid when and as they
may be declared from time to time by the Board of Directors of the Corporation.

A
beneficial conversion feature existed upon the closing of a qualified public offering ("IPO") if the closing price was between $6.00-$8.00 per share. With a closing price
between $6.00-$8.00 per share, the preferred shareholders would receive additional shares of common stock upon the conversion. The additional number of shares was determined by multiplying
one by a fraction, the numerator which was equal to eight and the denominator which was equal to the actual price per share at the closing of the IPO. Since this beneficial conversion feature was
contingent and the number of shares issued upon conversion could not be computed until the IPO occurred, the beneficial conversion feature was not recognized until the closing of the IPO.

While
outstanding, the carrying amount of the Series A preferred shares was being accreted, using the interest method, to the fair market value through January 16, 2009,
the earliest redemption date. During 2001, the Company recorded approximately $833,000 of accretion. The accretion was recorded through charges against additional paid-in capital. The
redemption amount of the mandatorily redeemable Series A Convertible Preferred Stock also included accrued dividends but only when dividends were declared by the Company's Board of Directors.
Accrued dividends of $370,000 had been included in the carrying value of the Series A Convertible Preferred Stock for the three months ended March 31, 2001. However, as the Board of
Directors had not declared any dividends and had no intention of doing so in the future, the accrual was reversed in the three months ended June 30, 2001. The reversal of the dividends would
have increased basic and diluted earnings per share by $.01 for the three months ended March 31, 2001.

Upon
closing of the Company's initial public offering (Note 19) in December 2001, all the preferred stock was converted into common stock. As the offering's closing price
was $6.50 per share, a beneficial conversion feature existed. An additional 1,298,077 shares were issued upon the conversion resulting in total conversion shares of 6,923,077. The intrinsic value of
the beneficial conversion feature was $5,192,000 which was recognized as a reduction to net income available to common shareholders through a reduction to additional paid-in capital in
December 2001.

In
addition, after the completion of the Company's initial public offering, the preferred shareholders were entitled to certain rights with respect to registration of their 6,923,077
shares of common stock. If the Company proposes to register any of its securities under the Securities Act, either for the Company's own account or for the account of other security holders exercising
registration rights, the holders of the 6,923,077 common shares are entitled to notice of the registration and to

69

---

include their shares of common stock in the registration at the Company's expense. Additionally, the holders of these shares are entitled to demand registration rights pursuant to which they may
require the Company to file a registration statement under the Securities Act at the Company's expense with respect to their shares of common stock. Further, the holders of these shares may
require the Company to file additional registration statements on Form S-3 at the Company's expense. All of these registration rights are subject to the right of the underwriters of
an offering to limit the number of shares included in such registration. These registration rights terminate five years after the closing of the initial public offering.

19.    Shareholders' Equity

Stock options

During April 2000, the 2000 Stock Option Plan was adopted by the Company as approved by the Board of Directors (the "2000 Plan"). The 2000 Plan, as amended
and restated, authorizes the granting of options to employees, consultants, officers and directors to purchase, receive awards or make direct purchases of up to 2,437,625 shares of the Company's
common stock. Options outstanding under the 2000 Plan generally vest over a period of three to five years and expire after 10 years from the date of grant.

Options
granted under the Plan may be "Incentive Stock Options" or "Nonqualified Options" under the applicable provisions of the Internal Revenue Code. Incentive Stock Options are
granted at the fair market value of the Company's common stock at the date of the grant. Incentive Stock Options granted to employees who own more than 10% of the voting power of all classes of stock
will be granted at 110% of the fair market value of the Company's common stock at the date of the grant.
Nonqualified options may be granted at amounts not less than 50% of the fair market value of the Company's common stock on the date of the grant.

Following
is a summary of activity in the stock option plan for the years ended December 31, 2002, 2001 and 2000:

Shares
Subject to
Option

Weighted
Average
Option
PriceOutstanding, January 1, 2000

$



Granted


739,500


1.92Exercised





Forfeited


(35,500
)

1.76Outstanding, December 31, 2000


704,000


1.94Granted


992,500


4.62Exercised





Forfeited


(23,250
)

2.24Outstanding, December 31, 2001


1,673,250


3.52Granted


535,500


2.49Exercised





Forfeited


(122,000
)

4.59Outstanding, December 31, 2002


2,086,750


3.19Exercisable, December 31, 2002


110,945

$
4.60


70

---

The
following table summarizes information about stock options outstanding and exercisable at December 31, 2002:

|  |             | Options Outstanding |           |  |      | Options Exercisable
|- | ----------- | ------------------- | --------- |  | ---- | -------------------
|
|$ | 1.46 - 1.76 |                     | 636,250   |  | 7.34 |                    
|  | 2.00 - 3.00 |                     | 450,500   |  | 9.44 |                    
|  | 4.00 - 5.00 |                     | 855,000   |  | 8.32 |                    
|  | 6.00 - 7.00 |                     | 145,000   |  | 8.84 |                    
|  |             |                     |           |  |      |                    
|  |             |                     | 2,086,750 |  |      |                    

Had
compensation cost been determined based on the fair value at the grant date for all awards, consistent with the provisions of SFAS No. 123, the Company's pro forma net income
and earning per share would have been as presented below:

Year Ended December 31,2002

2001

2000Net (loss) income

$
(1,486
)
$
(1,862
)
$
695Basic and diluted earnings (loss) per share

$
(0.03
)
$
(0.20
)
$
0.02


The
Company has recorded compensation (income) expense of ($160,000), $229,000 and $17,000 for the years ended December 31, 2002, 2001 and 2000, respectively, for stock options
granted to non-employees. Compensation (income) expenses are amortized on a straight-line basis over the underlying vesting terms.

The
fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:

Year Ended December 31,2002

2001

2000Dividend yield





Expected stock price volatility

75%

65%

15%Risk-free interest rate

2.11 - 4.94%

3.06 - 4.98%

5.11%Expected life of optionyears

3.0 - 5.0

3.0 - 5.0

3.0 - 5.0


The
weighted average grant date fair value of options granted during 2002, 2001 and 2000 were $1.56, $2.18 and $0.65, respectively.

On
August 6, 2001, the Company accelerated the vesting schedule of stock options to purchase 100,000 shares of common stock. No compensation cost has been recognized for this
modification.

On
November 7, 2001, the Company accelerated the vesting schedule of a stock option to purchase 50,000 shares of common stock. Compensation cost of $71,000 and $28,000 was
recognized for the years ended December 31, 2002 and 2001, respectively, for this modification since the stock option would have been forfeited otherwise.

71

---

Initial public offering

On December 14, 2001, the Company issued and sold 9,000,000 shares of its common stock for $58,500,000 (or $6.50 per share) in conjunction with its initial
public offering. The Company incurred approximately $5,895,000 in offering costs as a result of this transaction. Upon the closing of the
offering, all 5,625,000 shares of redeemable preferred stock converted into 6,923,077 shares of common stock (Note 18).

On
January 11, 2002, the underwriters of the initial public offering exercised an over-allotment option. As a result, the Company issued and sold 1,350,000 shares of
its common stock for $8,775,000 (or $6.50 per share). The Company incurred approximately $638,000 in costs as a result of this transaction.

Stock split

On March 31, 2000, the Board of Directors of the Company authorized a twenty-five-for-one stock split in the form of a
stock dividend. Shareholders of record received twenty-four additional shares of common stock for every share they owned. All common shares and per share data in the accompanying financial
statements have been restated to reflect the stock split. As such, subsequent to the stock split, the stock issuance was adjusted to 37,500,000 shares of common stock.

Preferred stock

The Company's Second Amended and Restated Certificate of Incorporation authorizes the Board of Directors to issue up to 5,000,000 shares of Blank Check Preferred
Stock with a par value of $0.01 per share in one or more series without shareholder approval. The Board of Directors also has discretion to determine the dividend rights and terms, conversion rights,
voting rights, redemption rights and terms, liquidation preferences and any other rights, preferences, privileges and restrictions applicable to each series of the preferred stock. There were no
preferred shares issued or outstanding at December 31, 2002 and 2001.

Treasury Stock

In August 2002, the Company announced that its Board of Directors had authorized the repurchase of up to 2,500,000 shares of its common stock. Any
purchases under the repurchase program may be made, from time-to-time, in the open market, through block trades or otherwise, at the discretion of Company management. The
Company repurchased 457,700 shares at a weighted average price of $2.39 per share for a total of approximately $1,096,000 for the year ended December 31, 2002.

72

---



20.    Earnings Per Share

Basic earnings per share is computed by dividing net (loss) income available to common shareholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share is computed by dividing net (loss) income by the weighted average number of common shares and, if applicable, common stock equivalents which would arise from
the exercise of stock options and conversion of preferred shares. The following table reconciles the numerators and denominators used to calculate basic and diluted earnings per share (in thousands,
except share data):

Year Ended December 31,2002

2001

2000Income available to common shareholders:(Loss) income before cumulative effect of change in accounting principle

$
(256
)
$
(1,377
)
$
729Cumulative effect of change in accounting principle, net of taxes


(617
)




Net (loss) income


(873
)

(1,377
)

729Convertible preferred stock accretion





833


Beneficial conversion feature





5,192


Net (loss) income available to common shareholders-basic and diluted

$
(873
)
$
(7,402
)
$
729Weighted average shares outstanding:Weighted average shares outstanding-basic


56,028,042


39,612,644


38,752,500Effect of dilutive securities:Stock options








61,560Convertible preferred stock








Weighted average shares outstanding-diluted


56,028,042


39,612,644


38,814,060


For
the year ended December 31, 2002, 750,209 common shares issuable upon the exercise of stock options were anti-dilutive and were excluded from the calculation of
diluted earning (loss) per share.

For
the year ended December 31, 2001, 400,025 common shares issuable upon the exercise of stock options and 5,176,291 shares issuable upon the conversion of the convertible
preferred stock were anti-dilutive and excluded from the calculation of diluted earnings (loss) per share.

For
the year ended December 31, 2001, net loss available to common shareholders-diluted is equal to net loss available to common shareholders-basic because of the
anti-dilutive effect of the preferred stock accretion and beneficial conversion feature due to net losses for the year.

21.    Strategic Alliances

In October 2001, the Company entered into a strategic alliance with Geneformatics, Inc., ("GFI"), a structural proteomics company. During the
three-year term of its strategic alliance, the Company will sell to GFI X-ray crystallography systems and support needed to incorporate X-ray crystallography into
its business. As part of this alliance, the Company agreed to invest $500,000 in cash and $500,000 in

73

---

common stock (71,428 shares) in the Series C financing of this structural proteomics company. The investment was recorded on a cost basis.

In
March 2001, the Company entered into a strategic alliance with Affinium Pharmaceuticals ("Affinium"), formerly Integrative Proteomics, Inc. Affinium is a leader in high
throughput structural proteomics. During the three-year term of the strategic alliance, the Company will sell to Affinium X-ray protein crystallography tools required by
Affinium for its proteomics facilities and collaborate in the development of higher-throughput proteomics tools. In June 2001, the Company invested $500,000 in cash and $500,000 in common stock
(83,333 shares) in the Series IIA financing of Affinium. The fair value of the shares issued was determined by negotiations between the parties. The investment was recorded on a cost basis.

In
the fourth quarter of 2002, the Company recorded a $650,000 write-down in its investment in GFI and a $650,000 write-down in its investment in Affinium. The
Company believes that these investments have been negatively impacted by the continued decline in the capital markets and the economic environment in which the investees operate. As these investments
are not publicly traded the Company performed valuations on both of the investments. The valuations were based on the Black-Scholes option pricing theory to determine the fair value of the investees'
equity. The valuations were then adjusted to reflect market conditions and equity values of comparable companies.

22.    Commitments and Contingencies

The Company and its subsidiaries are subject to lawsuits, claims and proceedings of a nature considered normal to its businesses. During 2001, the Company
recorded a reserve for approximately $200,000 for an issue related to a dispute with a supplier. The Company believes, based on discussions with legal counsel, that the outcome of any proceedings
resulting from this issue will not have a material impact on the Company's financial position or results of operations.

23.    Segment Information

The Company operates in one industry segment as a producer of service systems and complete solutions in X-ray instrumentation. The Company operates
primarily from four facilities located in: Madison, Wisconsin; Karlsruhe, Germany; Delft, The Netherlands; and Yokohama, Japan. The Company supplies products to a broad range of end user markets,
including academics, government and scientific research.

Net
sales are attributed to geographic segments based on the location of the customer.

74

---

The
following represents the Company's geographic segments (in thousands):

Year Ended December 31,2002

2001

2000Net Sales:North America

$
30,820

$
25,203

$
20,580Germany


17,510


13,204


12,070Other Europe


28,532


27,363


20,000Other foreign


27,428


16,818


15,455Total

$
104,290

$
82,588

$
68,105Long-Lived Assets (Year-End):North America

$
5,809

$
5,272

$
5,182Germany


12,486


2,131


1,236Other Europe


4,234


4,012


274Other foreign


1,520


85


24Total

$
24,049

$
11,500

$
6,716


Other
Europe primarily includes the United Kingdom, France, Italy, Spain, Belgium, The Netherlands, Scandinavia, Poland, Russia, Hungary, Slovenia, Switzerland and Austria. Other Foreign
includes all other countries not included within North America, Germany or Other Europe.

Long-lived
assets include property and equipment, intangible assets and goodwill.

75

---

24.    Quarterly Financial Data (Unaudited)

|                                                                          |                                                                           | Quarter Ended |        |       |     
|------------------------------------------------------------------------- | ------------------------------------------------------------------------- | ------------- | ------ | ----- | ----
|
|
|2002                                                                      |                                                                           |               |        |       |     
|Net sales                                                                 |                                                                           | $             | 23,795 |       | $   
|Gross profit                                                              |                                                                           |               | 9,118  |       |     
|Income (loss) before cumulative effect of change in acccounting principle |                                                                           |               | 310    |       |     
|Net (loss) income                                                         |                                                                           |               | (307   | )(1)  |     
|Net (loss) income available to common stockholders                        |                                                                           |               | (307   | )(1)  |     
|Basic and diluted earnings (loss) per share:                              |                                                                           |               |        |       |     
|                                                                          | Income (loss) before cumulative effect of change in acccounting principle |               |        | 0.01  | (1) 
|                                                                          | Net (loss) income                                                         |               |        | (0.01 | )(1)
|2001                                                                      |                                                                           |               |        |       |     
|Net sales                                                                 |                                                                           | $             | 18,846 |       | $   
|Gross profit                                                              |                                                                           |               | 7,132  |       |     
|Net income (loss)                                                         |                                                                           |               | 264    |       |     
|Net loss available to common stockholders                                 |                                                                           |               | (106   | )     |     
|Basic and diluted earnings (loss) per share                               |                                                                           |               | 0.00   |       |     

---

Three Months Ended
March 31, 2002Reported net income

$
310Less: impairment loss, net of tax


(617
)Adjusted net (loss) income


(307
)Basic and diluted earnings (loss) per share:Reported net income

$
0.01Less: impairment loss, net of tax


(0.01
)Adjusted net (loss) income

$
(0.01
)


The summation of quarterly earnings per share does not equate to the calculation for the full fiscal year, as quarterly calculations are performed
on a discrete basis.

76

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ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

PART III

ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS

Our executive officers are elected by the Board of Directors on an annual basis and serve until their successors have been duly elected and qualified. There are
no family relationships among any of our executive officers or directors.

Our
executive officers and directors of as of March 17, 2003 are as follows:

|Name                    |  | Age |  | Position                                                                                           
|----------------------- |  | --- |  | ---------------------------------------------------------------------------------------------------
|Martin Haase, Ph.D.     |  | 46  |  | President, Chief Executive Officer and Director                                                    
|Laura Francis           |  | 36  |  | Chief Financial Officer, Treasurer and Investor Relations Officer                                  
|Kline Wilkins           |  | 52  |  | Senior Vice President of Global Operations                                                         
|Richard Stein           |  | 51  |  | Secretary                                                                                          
|Lieuwe Boskma           |  | 46  |  | Product Line Manager, Life Science Systems; Managing Director, Bruker Nonius B.V. (1)              
|Roger Durst, Ph.D.      |  | 42  |  | Chief Technology Officer and Vice President of Research and Development                            
|Steven Pomerantz        |  | 46  |  | Vice President of Marketing and Sales, The Americas                                                
|Rolf Hofmann            |  | 59  |  | Director of Sales and Customer Support, Bruker AXS GmbH (1)                                        
|Frank Burgäzy, Ph.D.    |  | 42  |  | Product Line Manager, Materials Research; Managing Director, Bruker AXS GmbH (1)                   
|Bernard Kolodziej       |  | 37  |  | Chief Financial Officer, European Operations; Managing Director, Bruker AXS GmbH (1)               
|Jeremy Lea              |  | 41  |  | Product Line Manager, Elemental and Process Control Systems; Managing Director, Bruker AXS Ltd. (1)
|Sadao Ueki              |  | 57  |  | President, Nihon Bruker AXS KK (1)                                                                 
|Brandon D. Andries      |  | 38  |  | Director                                                                                           
|Taylor J. Crouch        |  | 43  |  | Director                                                                                           
|Daniel S. Dross         |  | 44  |  | Director                                                                                           
|Jay T. Flatley          |  | 50  |  | Director                                                                                           
|Tony W. Keller, Ph.D.   |  | 66  |  | Director                                                                                           
|Richard D. Kniss        |  | 62  |  | Director                                                                                           
|Frank H. Laukien, Ph.D. |  | 43  |  | Director                                                                                           

---

Martin Haase, Ph.D.Dr. Haase joined Bruker AXS in October 1997 and has been our President, a Director and the
Managing Director of Bruker AXS GmbH since October 1997. Dr. Haase became our Chief Executive Officer in November 2000. He also served as our Treasurer from March 2000 to
April 2001. Dr. Haase previously held various technical and management positions in the Siemens

77

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X-ray business. Dr. Haase has a degree in education and a Ph.D. in chemistry from the University of Göttingen.

Laura Francis.Ms. Francis joined Bruker AXS on March 26, 2002 as our Chief Financial Officer. Before joining
the Company, Ms. Francis was, from May 2001 to March 2002, the Chief Financial Officer and Chief Operating Officer of Nutra-Park, an agricultural biotechnology
company. From April 1999 to May 2001, Ms. Francis was the Chief Financial Officer of Hypercosm, a software company, and from October 1995 to April 1999, she was an
engagement manager with McKinsey & Co., a consulting firm. Early in her career, Ms. Francis was an audit manager with Coopers & Lybrand, an accounting firm. Ms. Francis
holds an M.B.A. from Stanford University and a B.B.A. from the University of Wisconsin. She is a Certified Public Accountant and a member of the American Institute of Certified Public Accountants.

Kline Wilkins.Mr. Wilkins joined Bruker AXS in January 1998 as our Vice President of Operations and has been
our Senior Vice President of Operations since November 2000. From 1992 to January 1998, Mr. Wilkins held various service and operations management positions with Bruker BioSpin
Corporation, an affiliate of Bruker AXS. Mr. Wilkins has a B.S. from Virginia Polytechnic Institute and an M.B.A. from the University of Wisconsin.

Richard M. Stein.Mr. Stein has been our Secretary since November 1999. He has been an attorney with Nixon
Peabody LLP, a Boston-based law firm, or a predecessor entity, Hutchins, Wheeler & Dittmar, since November 1992. Mr. Stein received a J.D. from Boston College Law School and a
B.A. from Brandeis University.

Lieuwe Boskma.Mr. Boskma joined Bruker AXS in April 2001 as our Vice President for Crystallography Solutions
and as the Managing Director, Bruker Nonius B.V. as part of the Nonius acquisition. Prior to the Nonius acquisition, from 1997 to 2001, Mr. Boskma was the managing director of the Nonius
affiliates of Delft Instruments N.V. In 2000 and 2001, Mr. Boskma was also interim manager of Medical X-ray at Nucletron, a radiotherapy company. From 1984 to 1997,
Mr. Boskma held various management and technical positions with Delft Electronic Products. Mr. Boskma holds a masters degree in physics from the University of Groningen.

Roger Durst, Ph.D.Dr. Durst joined Bruker AXS in October 1997 as a senior detector physicist and served as our
Manager of Engineering and Research and Development from June 1999 to October 2000. In November 2000, Dr. Durst became our Vice President of Engineering and Research and
Development and in November 2001, became our Chief Technology Officer. Before joining Bruker AXS, from 1995 to 1997, Dr. Durst was a detector scientist with the Siemens X-ray
business. Dr. Durst holds an S.B. from the Massachusetts Institute of Technology and a Ph.D. in physics from the University of Texas.

Steven M. Pomerantz.Mr. Pomerantz joined Bruker AXS in October 2000 as the Sales and Marketing Manager for the
Americas. In January 2002, Mr. Pomerantz became our Vice President of Marketing and Sales. Before joining Bruker AXS, from 1999 to 2000, Mr. Pomerantz was a sales and service
manager for Bio-Rad Laboratories. From 1992 to 1999, Mr. Pomerantz held various positions at GBC Scientific Equipment Inc. Mr. Pomerantz holds a B.A. in Environmental
Sciences from the State University of New York at Plattsburgh.

Rolf Hofmann.Mr. Hofmann joined Bruker AXS in October 1997 and has been the Director of Sales and Customer
Support of Bruker AXS GmbH since October 1997. Before joining Bruker AXS, from 1972 to 1997, Mr. Hofmann held various sales, marketing and management positions in businesses owned by
Siemens. He has a masters degree from the University of Erlangen.

Frank Burgäzy, Ph.D.Dr. Burgäzy joined Bruker AXS in October 1997 and has been
the Director of Research and Development and Marketing of Bruker AXS GmbH since October 1997. Before

78

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joining Bruker AXS, from 1990 to 1997, Dr. Burgäzy worked for Siemens in applications, technical product marketing and product management. He has a masters degree from the
University of Stuttgart and a Ph.D. in physics from Max-Planck-Institute/University of Stuttgart.

Bernard J. Kolodziej.Mr. Kolodziej joined Bruker AXS in October 1997 and has been Director of Finance and
Operations of Bruker AXS GmbH since January 1999. Before joining Bruker AXS, from 1995 to 1997, Mr. Kolodziej held several operations and financial positions with the Siemens
X-ray business. He has a masters degree in business administration/finance and production engineering from the University of Karlsruhe.

Jeremy Lea, Ph.D.Dr. Lea joined Bruker AXS in October 1997 and has been the Managing Director of Bruker
AXS Ltd. since October 1997. Before joining Bruker AXS, from 1995 to 1997, Dr. Lea worked for the Siemens X-ray business in various sales, marketing and business
development positions. Dr. Lea has a B.Sc. in biochemistry from the University of Salford and a Ph.D. in physical chemistry from the University of Leicester.

Sadao Ueki.Mr. Ueki joined Bruker AXS in October 1997 and has been the President of Bruker AXS K.K. in
Yokohama, Japan since May 2002. During the period between October 1997 and June 2002, Mr. Ueki was Managing Director of Bruker AXS K.K. in Japan. Mr. Ueki joined
Bruker Japan K.K. in May 1982 as Manager of Sales and Marketing and was appointed Managing Director in October 1997. Mr. Ueki previously held management positions with Beckman
Japan before joining Bruker. Mr. Ueki holds a B.S. degree in electrical engineering from Keio University.

Brandon D. Andries.Mr. Andries joined the Board of Directors in July 2000. Mr. Andries has been an
accountant with Virchow, Krause & Company, LLP, a regional accounting and consulting firm, since 1987 and has been a partner there since May 1998. He has been a Certified Public
Accountant in Wisconsin since 1990. Mr. Andries holds a B.S. in accounting from the University of Wisconsin-Madison.

Taylor J. Crouch.Mr. Crouch joined the Board of Directors in November 2000. Since July 2002, Mr. Crouch
has been President and Chief Operating Officer of Discovery Partners International, a leading provider of drug discovery capabilities to the pharmaceutical and biotech industries. From
April 1999 to April 2002, Mr. Crouch was the President, Chief Executive Officer and a Director of Variagenics, Inc. (now Nuvelo), a pharmacogenomics company. From 1991 to
April 1999, Mr. Crouch was Senior Vice President, Worldwide Marketing and Strategic Development for PAREXEL International Corporation, a contract pharmaceutical outsourcing organization.
Mr. Crouch received his B.S. in chemical engineering from Princeton University and his M.B.A. in international finance and marketing from the University of Chicago.

Daniel S. Dross.Mr. Dross joined the Board of Directors in January 2001. Mr. Dross has been a partner
of Trinity Partners, a private equity firm, since June 2002. Mr. Dross was a partner of Thomas Weisel Partners Group LLC from May 1999 to May 2002. Prior to joining Thomas Weisel
Partners, Mr. Dross was a Principal at Hicks, Muse, Tate & Furst Incorporated, a Dallas-based private equity firm, from 1991 to 1999. In addition to serving on the board of Bruker AXS,
Mr. Dross serves on the board of Scheduling.com, Inc. Mr. Dross received his B.A. from Dartmouth College and his M.B.A. from the Wharton School at the University of Pennsylvania.

Jay T. Flatley.Mr. Flatley joined the Board of Directors in November 2000. Mr. Flatley has been the
President, Chief Executive Officer and a Director of Illumina, Inc., a developer of tools for large-scale analysis of genetic variation and function, since October 1999. Prior to joining
Illumina, Mr. Flatley was co-founder, President, Chief Executive Officer and a Director of Molecular Dynamics, a life sciences company, from May 1994 to
September 1999. Mr. Flatley holds a B.A. in Economics

79

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from Claremont McKenna College and a B.S. and M.S. in Industrial Engineering from Stanford University.

Tony W. Keller, Ph.D.Dr. Keller joined the Board of Directors in October 1997. Dr. Keller has served as
Co-Chief Executive Officer, since December 2002, of the worldwide Bruker BioSpin family of companies, as a Managing Director, since 1978, of Bruker BioSpin GmbH, as a Managing Director of
Bruker Electronik and is a director of Bruker BioSpin Australia, Canada, France, Israel, Italy and Switzerland, all affiliates of Bruker AXS. In 1968, Dr. Keller helped establish the United
States operation of Bruker BioSpin Corporation. In 1973 he became a Director of Bruker Physik AG, an affiliate of Bruker AXS. In 1989, Dr. Keller received an honorary doctorate from the
Technical University of Berlin for his development of NMR Fourier transform technologies.

Richard D. Kniss.Mr. Kniss joined the Board of Directors in June 2001. Mr. Kniss was Senior Vice
President and General Manager for Agilent Technologies, Chemical Analysis Group, a producer of gas and liquid chromatographs, mass spectrometers and spectrophotometers, from August 1999 until
March 2001. Prior to the spin-off of Agilent from the Hewlett Packard Company, from 1995 to 1999, Mr. Kniss was Vice President and General Manager of the Chemical Analysis
Group for Hewlett Packard. Mr. Kniss holds a B.S. from Brown University and an M.B.A. from Stanford University.

Frank H. Laukien, Ph.D.Dr. Laukien has been the Executive Chairman of the Board of Directors of Bruker AXS since
August 2002 and, from October 1997 to August 2002, he served as the Chairman of the Board of Directors of Bruker AXS and, from October 1997 to March 2000, as the Chief Executive Officer
of the Company. Dr. Laukien has also served as Co-Chief Executive Officer, since December 2002, of the worldwide Bruker BioSpin family of companies, affiliates of Bruker AXS, as President and a
director, since June 1997, of Bruker BioSpin Corporation, an affiliate of Bruker AXS, and since February 1991, as the Chairman of the Board of Directors, President and Chief Executive Officer
of Bruker Daltonics Inc., an affiliate of Bruker AXS. A part-time professor of mass spectrometry at the University of Amsterdam, Dr. Laukien holds a B.S. from the
Massachusetts Institute of Technology and a Ph.D. in chemical physics from Harvard University. In October 2002, he was elected Chairman of ALSSA (Analytical & Life Science Systems Association),
an industry organization.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's officers and directors and persons owning more than 10% of the outstanding
Common Stock of the Company to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Officers, directors and greater than 10% holders of Common Stock of the
Company are required by Securities and Exchange Commission regulations to furnish the Company with copies of all Section 16(a) forms they file.

Based
solely on copies of such forms furnished as provided above, management believes that through the date hereof all Section 16(a) filing requirements applicable to its
officers, directors and owners of greater than 10% of its Common Stock were complied with except that (i) through inadvertence, one report on Form 3 relating to the Initial Statement of
Beneficial Ownership by Steven M. Pomerantz was not timely filed; (ii) through inadvertence, one report on Form 4 relating to multiple purchases by Richard Kniss was not timely filed;
(iii) through inadvertence, one report on Form 4 relating to one transaction by Taylor Crouch was not timely filed; (iv) through inadvertence, one report on Form 4 relating
to one transaction by Jay Flatley was not timely filed; (v) through inadvertence, six reports on Form 4 relating to multiple sales by Marc Laukien pursuant to a
non-discretionary Rule 10b5-1 Sales Plan were not timely filed; and (iv) through inadvertence, two reports on Form 4 relating to multiple sales by Dirk
Laukien pursuant to a non-discretionary Rule 10b5-1 Sales Plan were not timely filed. Beneficial ownership of these shares was subsequently reported on Forms 3, 4 and 5.

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ITEM 11.EXECUTIVE COMPENSATION

The following table sets forth the annual and long-term compensation for the Chief Executive Officer of the Company and the four other most highly
compensated executive officers of the Company at December 31, 2002 (the "Named Executive Officers"), for services rendered in all capacities to the Company during each of the past three fiscal
years.

Summary Compensation Table

|                                                                                                    |  | Annual
Compensation |  | Long Term Compensation |                         |  |    
|--------------------------------------------------------------------------------------------------- |  | ------------------- |  | ---------------------- | ----------------------- |  | ---
|
|Martin Haase
Chief Executive Officer and
President(3)                                               |  | 2002
2001
2000      |  | $$$                    | 112,164
101,102
86,954  |  | $$$
|Laura Francis
Chief Financial Officer(4)                                                            |  | 2002
2001
2000      |  | $                      | 105,392

             |  | $  
|Kline Wilkins
Senior Vice President of
Operations                                                   |  | 2002
2001
2000      |  | $$$                    | 160,753
159,088
153,476 |  | $$$
|Roger Durst
Vice President of Engineering
and Research and Development                              |  | 2002
2001
2000      |  | $$$                    | 115,087
101,029
92,543  |  | $$$
|Lieuwe Boskma
Managing Director, Bruker Nonius
B.V., Vice President of
Crystallography Solutions(5) |  | 2002
2001
2000      |  | $$                     | 133,702
101,108
       |  | $$ 

---

81

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Grants of Stock Options

The following table sets forth certain information with respect to individual grants of stock options to the Named Executive Officers during the fiscal year ended
December 31, 2002.

|              |  | Individual Grants |  |      |   |   |      | Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation for
Option Term (1)
|------------- |  | ----------------- |  | ---- | - | - | ---- | --------------------------------------------------------------------------------------------------
|
|
|
|Martin Haase  |  | 100,000           |  | 18.7 | % | $ | 2.10 |                                                                                                   
|Laura Francis |  | 80,000            |  | 15.0 | % | $ | 4.21 |                                                                                                   
|Kline Wilkins |  | 0                 |  | 0.0  | % |   |     |                                                                                                   
|Roger Durst   |  | 0                 |  | 0.0  | % |   |     |                                                                                                   
|Lieuwe Boskma |  | 0                 |  | 0.0  | % |   |     |                                                                                                   

---

Stock Option Exercises and December 31, 2002 Stock Option Values

Set forth in the table below is information concerning the value of stock options held at December 31, 2002 by the Named Executive Officers of the Company.

Aggregate Option Exercises in Last Fiscal
Year and Option values as at December 31, 2002

|              |  |   |  |   |   | Number of Securities
Underlying Unexercised
Options at
December 31, 2002 |        | Value of Unexercised
In-the-Money
Options at
December 31, 2002 (1)
|------------- |  | - |  | - | - | ------------------------------------------------------------------------ | ------ | ------------------------------------------------------------------
|
|
|Martin Haase  |  | 0 |  | $ | 0 |                                                                          | 67,000 |                                                                   
|Laura Francis |  | 0 |  | $ | 0 |                                                                          | 0      |                                                                   
|Kline Wilkins |  | 0 |  | $ | 0 |                                                                          | 0      |                                                                   
|Roger Durst   |  | 0 |  | $ | 0 |                                                                          | 0      |                                                                   
|Lieuwe Boskma |  | 0 |  | $ | 0 |                                                                          | 0      |                                                                   

---

Defined Benefit Plan

The Company's subsidiary, Bruker AXS GmbH, sponsors a defined benefit pension plan. For each participant in the plan, benefits are based on the sum of the amount
annually determined as a percentage of his or her salary, plus accrued interest at 6% per annum and are payable in four annual installments. The percentage is determined each year based on company
performance, and may range from 2.5% to 7.5% for management employees and from 1.375% to 4.125% for other employees. Currently, Martin Haase is the only Named Executive Officer with any accrued
benefit under this plan.

82

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The estimated amount of each annual installment payable to Dr. Haase under this plan upon retirement at age 60 is $12,000.

Employment Contracts

The Company has entered into a Managing Director Contract ("Geschäftsführer-Vertrag") with Martin Haase, the Company's President and
Chief Executive Officer, effective July 1, 2000. The agreement with Dr. Haase provides for an unlimited employment term, an agreed-upon annual base salary and eligibility for
an annual cash bonus that is tied to business performance. The agreement provides that, for twelve months following termination of his employment, Dr. Haase will not compete with the Company in
the analytical X-ray field. On August 6, 2001, the compensation committee agreed to modify the provisions of this agreement relating to Dr. Haase's annual base salary by
increasing the salary to 250,000 DM, or $134,000 at the current exchange rate, per year effective September 1, 2001.

The
Company does not currently have an employment agreement with any other executive officer.

COMPENSATION COMMITTEE INTERLOCKS  AND INSIDER PARTICIPATION

The compensation committee of the Board of Directors is comprised of Mr. Crouch, Mr. Flatley and Dr. Laukien. Dr. Laukien is also
chairman of the Board of Directors, President and Chief Executive Officer of Bruker Daltonics, a director and President of Bruker BioSpin Corporation and Co-Chief Executive Officer of the worldwide
Bruker BioSpin family of companies, all Bruker affiliated companies. See "Certain Relationships and Related Transactions."

The
Company has granted two members of the compensation committee options to purchase up to 20,000 shares of common stock each, at exercise prices of $4.50 per share, and options to
purchase up to 2,500 shares of common stock each, at exercise prices of $7.00 per share, under the Option Plan.

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COMPENSATION COMMITTEE REPORT  ON EXECUTIVE COMPENSATION (1)

Overview

The Company's executive compensation program is administered by the Compensation Committee of the Board of Directors, currently consisting of Taylor J. Crouch,
Jay T. Flatley and Frank H. Laukien. All members of the Compensation Committee are non-employee directors. The Committee administers the Company's stock option plan, makes annual
recommendations to the full Board of Directors regarding the chief executive officer's salary, bonus, and equity-based compensation and oversees the executive compensation program for the Company's
other executive officers.

Compensation Philosophy

The Company's compensation policies for executive officers are based on the belief that the interests of executives should be closely aligned with those of the
Company's stockholders. The compensation policies are designed to achieve the following objectives:



Executive Compensation

Compensation of executive officers other than the chief executive officer is generally determined by the chief executive officer and is subject to review by the
Committee. In some cases, an executive officer's compensation is determined by the Committee, based on the recommendation of the chief executive officer. Compensation for executive officers is
comprised of base salary, annual cash bonuses and stock options granted from time to time.

Base salary.Annual determinations of base salaries are made based in part on the competitive pay practices of companies in
the same industry of similar size and market capitalization, the skills, performance level and contribution to the business of the individual executives and the needs of the Company.

Annual cash incentive awards.The Company's executive officers are eligible to receive annual cash bonus awards designed to
motivate executives to attain short-term and longer-term corporate and individual management goals. Award levels vary depending upon the achievement of performance criteria
established by the chief executive officer. The bonus criteria for each executive officer are tailored to the achievement of financial and operational goals specifically developed for that officer's
area or responsibility, as well as overall corporate performance and the attainment of other individual objectives. Consequently, there is a direct link between the compensation of the executive
officers and the Company's performance.

Long-term incentives.The Committee believes that stock options are an excellent vehicle for compensating its
officers and employees. The Company provides long-term incentives through its stock option plan, a purpose of which is to create a direct link between executive compensation and increases
in stockholder value. Stock options are granted at fair market value and vest in installments, generally

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over five years. When considering option awards for an executive officer, the Committee reviews the executive's current contribution to Company performance, the anticipated contribution to meeting
the Company's long-term strategic performance goals and industry practices and norms. Long-term incentives granted in prior years and existing levels of stock ownership are
also taken into consideration. Because the receipt of value by an executive officer under a stock option is dependent upon an increase in the price of the Company's Common Stock, this portion of the
executive's compensation is directly aligned with an increase in stockholder value.

Chief Executive Compensation

The chief executive officer's compensation is comprised of base salary, annual cash incentive awards and stock option grants.

In
determining the base salary paid to Dr. Haase for the year ended December 31, 2002, the Committee considered his level of responsibility, salary increases awarded to him
in the past, his experience, his potential and compensation programs of other companies of similar size and characteristics. Dr. Haase's base compensation increased 11%, from $101,102 during
the fiscal year ended December 31, 2001 to $112,164 during the fiscal year ended December 31, 2002. These amounts were paid in Euro and were converted to U.S. dollars for purposes of
this annual report on Form 10-K based on the average conversion rates for the respective years.

The
annual cash bonus and stock option grants to Dr. Haase for the fiscal year ended December 31, 2002 reflect the achievement of predetermined targets based on the
Company's revenue, pre-tax income, and certain non-financial goals. Dr. Haase's cash bonus for the fiscal year ended December 31, 2002 was $116,261. This bonus
was paid in Euro and converted to U.S. dollars for purposes of this annual report on Form 10-K based on the average conversation rate for 2002. During fiscal 2002, Dr. Haase
was granted options to purchase 100,000 shares of Common Stock at an exercise price equal to the fair market value of the Company's Common Stock on the date of each grant.

Section 162(m) Limitation

Section 162(m) of the U.S. Internal Revenue Code limits the tax deductibility by a corporation of compensation in excess of $1,000,000 paid to the Chief
Executive Officer and any other of its four most highly compensated executive officers. However, compensation which qualifies as "performance-based" is excluded from the $1,000,000 limit if, among
other requirements, the compensation is payable only upon attainment of pre-established, objective performance goals under a plan approved by stockholders.

The
Compensation Committee does not presently expect total cash compensation payable for salaries to exceed the $1,000,000 limit for any individual executive. Having considered the
requirements of Section 162(m), the Compensation Committee believes that stock option grants to date meet the requirement that such grants be "performance-based" and are, therefore, exempt from
the limitations on deductibility. The Compensation Committee will continue to monitor the compensation levels potentially payable under the Company's cash compensation programs, but intends to retain
the

85

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flexibility necessary to provide total cash compensation in line with competitive practice, the Company's compensation philosophy and the Company's best interests.

| |  | COMPENSATION COMMITTEE                 
| |  | ---------------------------------------
| |  | Taylor Crouch
Jay Flatley
Frank Laukien

---

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PERFORMANCE GRAPH (1)

The graph below shows the cumulative total stockholder return on the Company's common stock over the period from December 14, 2001 (the first trading day
of the Company's common stock) to December 31, 2002, as compared with that of the Nasdaq Stock Market Index and the Nasdaq Stocks in the standard industry classification 38, based on an initial
investment of $100 in each on December 14, 2001. Total stockholder return is measured by dividing share price change plus dividends, if any, for each period by the share price at the beginning
of the respective period and assumes reinvestment of dividends. During fiscal year 2002, the Company paid no dividends. The Company's stock price performance shown in the following graph is not
indicative of future stock price performance.

GRAPHIC

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ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Security Ownership Of Certain Beneficial Owners And Management

The following table sets forth certain information regarding beneficial ownership of the Company's Common Stock as of March 17, 2003 (i) by each person who
is known by the Company to own beneficially more than 5% of the Company's Common Stock, (ii) by each of the Company's directors, (iii) by each Named Executive Officer of the Company, as
defined in "Summary of Executive Compensation," and (iv) by all directors and executive officers who served as directors or executive officers at March 20, 2002 as a group. Unless
otherwise noted, the address of each beneficial owner is c/o Bruker AXS Inc., 5465 East Cheryl Parkway, Madison, Wisconsin 53711.

|Name and Address of Beneficial Owner                                                  |  | Amount and Nature of
Beneficial Ownership(1) |  | Percent of Class |  
|------------------------------------------------------------------------------------- |  | -------------------------------------------- |  | ---------------- | -
|Named Executive Officers and Directors                                                |  |                                              |  |                  |  
|Martin Haase(2)                                                                       |  | 139,500                                      |  | *                |  
|Kline Wilkins(3)                                                                      |  | 6,350                                        |  | *                |  
|Laura Francis(4)                                                                      |  | 16,000                                       |  | *                |  
|Roger Durst(5)                                                                        |  | 6,250                                        |  |                  |  
|Lieuwe Boskma                                                                         |  | 1,200                                        |  | *                |  
|Frank H. Laukien(6)
c/o Bruker Daltonics Inc.
40 Manning Park
Billerica, MA 01821     |  | 7,820,500                                    |  | 13.9             | %
|Brandon Andries(7)
c/o Virchow, Krause & Company, LLP
P.O. Box 7398
Madison, WI 53707 |  | 2,345                                        |  | *                |  
|Taylor J. Crouch(8)
c/o Variagenics, Inc.
60 Hampshire Street
Cambridge, MA 02139     |  | 15,900                                       |  | *                |  
|Daniel S. Dross(9)
4433 McFarlin Blvd.
Dallas, TX 75205                               |  | 2,500                                        |  | *                |  
|Jay T. Flatley(10)
c/o Illumina, Inc.
9885 Towne Centre Drive
San Diego, CA 92121     |  | 15,900                                       |  | *                |  
|Tony W. Keller
c/o Bruker Analytik GmbH
Silberstreifen 4, 76287
Rheinstetten, Germany |  | 3,000                                        |  | *                |  
|Richard D. Kniss(11)
1985 Cowper Drive
Palo Alto, CA 94301                            |  | 37,000                                       |  | *                |  

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|All Directors and Executive Officers as a Group (12)
(including the twelve individuals named above)                       |  | 8,126,895 |  | 14.4 | %
|------------------------------------------------------------------------------------------------------------------------- |  | --------- |  | ---- | -
|Five percent stockholders                                                                                                 |  |           |  |      |  
|Dirk D. Laukien(13)
2634 Crescent Ridge Drive
The Woodlands, TX 77381                                                     |  | 7,657,000 |  | 13.6 | %
|Isolde Laukien
8 Brigham Road
Lexington, MA 02713                                                                         |  | 7,750,500 |  | 13.8 | %
|Jörg C. Laukien
Uhlandstrasse 10 D-76275
Ettlingen-Bruchhausen, Germany                                                   |  | 7,750,500 |  | 13.8 | %
|Marc M. Laukien
8 Crest View Road
Bedford, MA 01730                                                                       |  | 7,550,500 |  | 13.4 | %
|Entities affiliated with Thomas Weisel Capital Partners LLC(14)
One Montgomery Street,
Suite 3700
San Francisco, CA 94104 |  | 5,230,769 |  | 9.3  | %

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Equity Compensation Plan Information

|PLAN CATEGORY                                              |  | Number of
Securities
to be Issued
Upon Exercise
of Outstanding
Options, Warrants
and Rights |  | Weighted-Average
Exercise Price
of Outstanding
Options, Warrants
and Rights |  | Number of Securities
Remaining Available
for Future
Issuance Under
Equity Compensation
Plans (excluding
securities reflected
in column (a))
|---------------------------------------------------------- |  | ------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------
|EQUITY COMPENSATION PLANS APPROVED BY SECURITY HOLDERS     |  | 2,086,750                                                                                   |  | $2.75                                                                       |  | 350,875                                                                                                                                    
|EQUITY COMPENSATION PLANS NOT APPROVED BY SECURITY HOLDERS |  | N/A                                                                                         |  | N/A                                                                         |  | N/A                                                                                                                                        
|TOTAL                                                      |  | 2,086,750                                                                                   |  | $2.75                                                                       |  | 350,875                                                                                                                                    

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Affiliation and Stockholders

We are affiliated with Bruker Physik AG, Bruker BioSpin Corporation, Bruker Analytik GmbH, Bruker Optics Inc., Bruker Daltonics Inc., Rhena Invest
AG, Techneon AG, Bruker BioSpin Inc. and their respective subsidiaries, collectively referred to as the Bruker affiliated companies, through common control at the stockholder level. Our five
largest current stockholders, Dirk D. Laukien, Frank

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H. Laukien, Isolde Laukien, Joerg Laukien and Marc Laukien, are the controlling stockholders of these entities. Isolde Laukien is the mother of Dirk and Marc Laukien. Dirk, Frank, Joerg and Marc are
brothers or half-brothers.

Bruker
BioSpin Corporation previously held all of the shares of Bruker AXS Inc. In June 1999, Isolde Laukien purchased 15,501,000 shares of Bruker AXS Inc. from
Bruker BioSpin for $829,516, and Frank Laukien, Dirk Laukien and Marc Laukien each purchased 7,750,500 shares from Bruker BioSpin for $414,758. In November 1999, Joerg Laukien purchased
7,750,500 shares from Isolde Laukien for $414,758, resulting in the five Laukiens becoming equal stockholders of the Company. The share numbers set forth above have all been restated to reflect the
stock split in March 2000. At the time of these sales, Bruker BioSpin Corporation was indirectly owned by the estate of Gunther Laukien; the beneficiaries of the estate were the five Laukiens.

Frank
H. Laukien, Ph.D., Chairman of our Board of Directors, is also Chairman of the Board of Directors, President and Chief Executive Officer of Bruker Daltonics, a director and
President of Bruker BioSpin Corporation, and Co-Chief Executive Officer of the worldwide Bruker BioSpin family of companies, all Bruker affiliated companies. Dr. Laukien is also a director of
various Bruker affiliated companies in Canada, Belgium and the Netherlands and beneficially owns directly or indirectly more than 10% of the stock of each Bruker affiliated company. Until
March 31, 2000, he was also the Chief Executive Officer of Bruker AXS.

Tony
W. Keller, Ph.D., a director of Bruker AXS, is also a managing director of Bruker BioSpin GmbH and Bruker Elektronik GmbH, Co-Chief Executive Officer of the worldwide Bruker BioSpin
family of companies as well as a director of Bruker BioSpin Australia, Canada, France, Israel, Italy and Switzerland, all of which are Bruker affiliated companies.

Sharing Agreement

We have entered into a sharing agreement with thirteen of the Bruker affiliated companies, dated as of February 28, 2000. The sharing agreement provides
for the sharing of specified intellectual property rights, services, facilities and other related items among the parties to the agreement. The following description of the sharing agreement is a
summary and is qualified in its entirety by the provisions of the sharing agreement, a copy of which has been filed as an exhibit to the Company's registration statement on Form S-1
(No. 333-66066).

Name

Pursuant to the terms of the sharing agreement, Bruker Analytik and Bruker Physik have granted to the other parties to the sharing agreement a perpetual,
irrevocable, non-exclusive, royalty-free, non-transferable right and license to use the name "Bruker" in connection with the conduct and
operation of their respective businesses, provided that the parties do not materially interfere with any other party's use of the name, do not take any action which would materially detract from the
goodwill associated with the name and do not take any action which would cause a lien to be placed on the name or the parties' license rights. Until February 28, 2010, this license may become
null and void with respect to a party if that party files, or has filed against it, a petition in bankruptcy, fails to comply with the relevant terms of the sharing agreement or suffers a major loss
of its reputation in its industry or the marketplace.

Intellectual property

The parties to the sharing agreement also may share technology and other intellectual property rights, as they existed on or prior to February 28, 2000,
subject to the terms of the sharing agreement. In addition, under the sharing agreement each party, including us, has agreed to negotiate with any other party who wishes to obtain an agreement
permitting such party to make a broader use of the first

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party's intellectual property that was in effect on or prior to February 28, 2000. However, no party has any obligation to enter into these agreements. We do not currently share any
intellectual property pursuant to the sharing agreement or any sub-sharing agreements.

Distribution

In various countries, including Belgium, Russia, Singapore, Spain and Thailand, we share in the worldwide distribution network of Bruker affiliated companies. The
sharing agreement provides for the use of common distribution channels by the parties to the agreement. The terms and conditions of sale and the transfer pricing for any shared distribution will be on
an arm's length basis as would be utilized in typical transaction with a person or entity not a party to the agreement. The sharing agreement also states that no common sales channel may have any
exclusivity in any country or geographic area and that any party may establish its own sales channel in any country or geographic area upon notice to the other parties.

Services

We also share various general and administrative expenses for items including umbrella insurance policies, accounting services and leases with various affiliates.
These services are charged among us and the Bruker affiliated entities at arm's length conditions and pricing, according to individual Sub-Sharing Agreements.

For
the year ended December 31, 2002, Bruker BioSpin Corporation provided personnel, administrative and other services to us at a cost of $246,000.

Purchases and sales

We have entered into a research and development supply agreement with Bruker S.A. in France regarding the development and supply of a low temperature attachment
for the SMART line of products. It is anticipated that Bruker S.A. will supply the jointly developed product to us for worldwide distribution. This is the only product supplied to us by Bruker
affiliated companies. We may, from time to time, distribute the products of other Bruker affiliated companies as part of customer orders.

We
supply a variety of our products to Bruker affiliated companies for resale at commercially reasonable arm's length conditions and pricing. For the year ended December 31, 2002,
we sold to our affiliates products in the amount of $10.8 million. However, these sales were primarily for resale of our products by our affiliates as described above in the distribution
paragraph. We believe that less than 10% of our future sales will be through our affiliates.

Sales of Preferred Stock

Daniel S. Dross, a director of Bruker AXS, was a partner of Thomas Weisel Partners Group LLC, of which Thomas Weisel Capital Partners LLC and Thomas Weisel
Partners LLC are each wholly owned subsidiaries. Thomas Weisel Capital Partners LLC is the general partner of Thomas Weisel Capital Partners, L.P.; TWP CEO Founders' Circle (AI), L.P.; TWP CEP
Founders' Circle (QP), L.P.; Thomas Weisel Capital Partners Employees Fund, L.P. and TWP 2000 Co-Investment Fund, L.P., and the managing member of Thomas Weisel Capital Partners (Dutch)
LLC, which is the general partner of Thomas Weisel Capital Partners (Dutch), L.P. and Thomas Weisel Capital Partners (Dutch II), L.P. Additionally, an officer of Thomas Weisel Capital Partners LLC is
the managing partner of TWP Bruker Investors. These entities purchased, in the aggregate, 4,250,000 shares of the 5,625,000 shares of Series A convertible preferred stock in our preferred stock
offering in January 2001. Upon consummation of the initial public offering of our Common Stock, all outstanding shares of preferred stock were converted into 6,923,077 shares of common stock.

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ITEM 14.CONTROLS AND PROCEDURES

Within the ninety day period prior to the date of this report, the Company conducted an evaluation under the supervision and with the participation of the
Company's management, including the Company's Chief Executive Officer and Chief Financial Officer (its principal executive officer and principal financial officer, respectively) regarding the
effectiveness of the design and operation of the Company's disclosure controls and procedures as defined in Rule 13a-14 of the Securities Exchange Act of 1934 (the "Exchange Act").
Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective to ensure that material information
relating to the Company, including its consolidated subsidiaries, is made known to them by others within those entities.

There
were no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to the date the Company carried out
its evaluation.

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PART IV

ITEM 15.EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES AND REPORTS ON FORM 8-K



|                                                                                                                                     
|-------------------------------------------------------------------------------------------------------------------------------------
|Report of Independent Accountants                                                                                                    
|Consolidated Balance Sheets at December 31, 2002 and 2001                                                                            
|Consolidated Statements of Operations for the years ended December 31, 2002, 2001,
and 2000                                          
|Consolidated Statements of Shareholders' Equity and Comprehensive Income (Loss) for the years ended December 31, 2002, 2001, and 2000
|Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000                                           
|Notes to Financial Statements                                                                                                        
|                                                                                                                                     
|                                                                                                                                     
|
|Report of Independent Accountants on Financial Schedule                                                                              
|Schedule IIValuation and Qualifying Accounts                                                                                        







|NO.    |  | DESCRIPTION OF DOCUMENTS                                                                                                                        
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------
|*3.1   |  | Amended and Restated Certificate of Incorporation of the Registrant                                                                             
|*3.2   |  | Amended and Restated By-laws of the Registrant                                                                                                  
|*4.1   |  | Specimen stock certificate representing shares of common stock of the Registrant                                                                
|*10.1  |  | 2000 Stock Option Plan                                                                                                                          
|*10.2  |  | Sharing Agreement dated as of February 28, 2000 among the Registrant and 13 affiliates of the Registrant                                        
|*10.3  |  | Shared Services Agreement dated September 26, 2000 between Bruker SA and Bruker AXS SA                                                          
|*+10.4 |  | Supply Agreement dated March 30, 1998 between the Registrant and Fairchild Imaging Inc., formerly known as Lockheed Martin Fairchild Systems    
|*+10.5 |  | Supply Agreement dated October 1, 1998 between Bruker AXS GmbH and GKSS Forschungszentrum Geesthacht GmbH, as amended                           
|*+10.6 |  | Development Agreement dated July 31, 1997 between Bruker AXS GmbH and Siemens Aktiengesellschaft Berlin und Munchen Bereich Medizinische Technik
|*+10.7 |  | Development Agreement (Agreement 99.06) dated May 5, 1999 between Bruker AXS GmbH and Baltic Scientific Instruments                             

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|NO.     |  | DESCRIPTION OF DOCUMENTS                                                                                                                                                                                                                                                                                                                                                                                                
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*+10.8  |  | Development Agreement (Agreement 99.10) dated October 7, 1999 between Bruker AXS GmbH and Baltic Scientific Instruments                                                                                                                                                                                                                                                                                                 
|*+10.9  |  | Lease in Karlsruhe dated December 2, 1997 between Bruker AXS GmbH and Siemens Industriepark Karlsruhe GmbH & Co. oHG                                                                                                                                                                                                                                                                                                    
|*+10.10 |  | Strategic Alliance Agreement dated March 12, 2001 between the Registrant and Affinium Pharmaceuticals, formerly known as Integrative Proteomics, Inc.                                                                                                                                                                                                                                                                   
|*+10.11 |  | Purchase Agreement dated April 10, 2001 by and among Delft Instruments N.V., Delft Instruments Nederland B.V., Delft Instruments France SA, Delft Instruments International B.V., Enfarm B.V., Nonius Inc., Delft Instruments
BRD GmbH, Delft Instruments UK Ltd., Nonius B.V., Nonius Company LP, Nonius UK Ltd., Nonius GmbH and Nonius France Sarl, the Registrant, Bruker AXS GmbH, Bruker AXS SA and Bruker UK Ltd.
|*10.12  |  | Services Agreement dated April 10, 2001 between Delft Instruments, N.V. and the Registrant                                                                                                                                                                                                                                                                                                                              
|*10.13  |  | Managing Director Contract, dated July 1, 2000, between the Registrant and Martin Haase                                                                                                                                                                                                                                                                                                                                 
|*+10.14 |  | Agreement on Development, Supply and Marketing dated August 2, 2001 between Bruker AXS GmbH and Siemens Medical Solutions Rontgenwerk Rudolstadt                                                                                                                                                                                                                                                                        
|*+10.15 |  | Strategic Alliance Agreement dated October 2, 2001 between the Registrant and GeneFormatics Incorporated                                                                                                                                                                                                                                                                                                                
|*10.16  |  | Lease in Karlsruhe dated August 1, 1997 between Bruker AXS GmbH and Siemens Aktiengesellschaft Berlin and München                                                                                                                                                                                                                                                                                                       
|*10.17  |  | Lease for Office Space in Delft, The Netherlands dated October 12, 2001 between Bruker Nonius B.V. and Van Haaren Beheer B.V.                                                                                                                                                                                                                                                                                           
|*+10.18 |  | Memorandum of Agreement for Strategic Collaboration dated October 16, 2001 between the Registrant and Fairchild Imaging, Inc.                                                                                                                                                                                                                                                                                           
|*10.19  |  | Separation Agreement and General Release dated November 7, 2001 between the Registrant and John Bourke.                                                                                                                                                                                                                                                                                                                 
|*+10.20 |  | Purchase Agreement dated October 24, 2001 between Bruker AXS GmbH and Siemens Industriepark Karlsruhe GmbH & Co. oHG                                                                                                                                                                                                                                                                                                    
|*21.1   |  | Subsidiaries of the Registrant                                                                                                                                                                                                                                                                                                                                                                                          
|23.1    |  | Consent of PricewaterhouseCoopers LLP                                                                                                                                                                                                                                                                                                                                                                                   
|24.1    |  | Power of Attorney (included on page S-1)                                                                                                                                                                                                                                                                                                                                                                                
|99.1    |  | Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                       
|99.2    |  | Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                       

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All
other schedules for which provisions are made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or
are inapplicable, and therefore have been omitted.

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(d)
Financial Statement Schedules

Report of Independent Accountants on Financial Statement Schedule

To
the Board of Directors and Shareholders
of Bruker AXS Inc.:

Our
audits of the consolidated financial statements referred to in our report dated February 25, 2003, appearing in the 2002 Annual Report on Form 10-K, also included an
audit of the financial statement
schedule included in Item 15(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.

/s/
PricewaterhouseCoopers LLP

Milwaukee,
Wisconsin
February 25, 2003

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Schedule IIValuation and Qualifying Accounts

Bruker AXS Inc.
(in thousands)

|Classifications                                                    |                                             | Balance at
Beginning of
Period |   | Additions
Charged to
Expense |  | Acquisitions |     | Deductions(1) |   | Currency
Translation
Effects |  | Balance at
End of
Period
|------------------------------------------------------------------ | ------------------------------------------- | ------------------------------ | - | ---------------------------- |  | ------------ | --- | ------------- | - | ---------------------------- |  | ------------------------
|Deducted in the balance sheet from the assets to which they apply: |                                             |                                |   |                              |  |              |     |               |   |                              |  |                         
|For the year ended December 31, 2002                               |                                             |                                |   |                              |  |              |     |               |   |                              |  |                         
|                                                                   | Allowance for doubtful accounts             |                                | $ | 453                          |  | $            | 220 |               | $ |                             |  | $                       
|                                                                   | Allowance for excess and obsolete inventory |                                | $ | 1,366                        |  | $            | 662 |               | $ | 590                          |  | $                       
|                                                                   | Valuation allowance for deferred taxes      |                                | $ |                             |  | $            | 707 |               | $ |                             |  | $                       
|For the year ended December 31, 2001                               |                                             |                                |   |                              |  |              |     |               |   |                              |  |                         
|                                                                   | Allowance for doubtful accounts             |                                | $ | 610                          |  | $            | 243 |               | $ | 105                          |  | $                       
|                                                                   | Allowance for excess and obsolete inventory |                                | $ | 1,157                        |  | $            | 380 |               | $ | 176                          |  | $                       
|                                                                   | Valuation allowance for deferred taxes      |                                | $ |                             |  | $            |    |               | $ |                             |  | $                       
|For the year ended December 31, 2000                               |                                             |                                |   |                              |  |              |     |               |   |                              |  |                         
|                                                                   | Allowance for doubtful accounts             |                                | $ | 493                          |  | $            | 715 |               | $ |                             |  | $                       
|                                                                   | Allowance for excess and obsolete inventory |                                | $ | 984                          |  | $            | 362 |               | $ |                             |  | $                       
|                                                                   | Valuation allowance for deferred taxes      |                                | $ |                             |  | $            |    |               | $ |                             |  | $                       

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

| |  | BRUKER AXS INC.
| |  | ---------------
| |  | By:            

We,
the undersigned officers and directors of Bruker AXS Inc., hereby severally constitute and appoint Martin Haase, Ph.D. and Laura A. Francis to sign for us and in our names in
the capacities indicated below, the report on Form 10-K filed herewith and any and all amendments to such report, and to file the same, with all exhibits thereto and other documents
in connection therewith, in each case, with the Securities and Exchange Commission, and generally to do all such things in our names and on our behalf in our capacities consistent with the provisions
of the Securities Act of 1934, as amended, and all requirements of the Securities and Exchange Commission.

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on
the dates indicated.

|Signature                                         |  | Title                                                                                                           |  | Date          
|------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------- |  | --------------
|                                                  |  |                                                                                                                 |  |               
|/s/MARTIN HAASE, PH.D.Martin Haase, Ph.D.         |  | President and Chief Executive Officer
(Principal Executive Officer)                                             |  | March 21, 2003
|/s/LAURA A. FRANCISLaura A. Francis               |  | Chief Financial Officer, Treasurer, and Investor Relations Officer
(Principal Financial and Accounting Officer) |  | March 21, 2003
|/s/FRANK H. LAUKIEN, PH.D.Frank H. Laukien, Ph.D. |  | Chairman of the Board                                                                                           |  | March 21, 2003
|/s/TONY W. KELLERTony W. Keller                   |  | Director                                                                                                        |  | March 21, 2003
|/s/BRANDON D. ANDRIESBrandon D. Andries           |  | Director                                                                                                        |  | March 21, 2003
|/s/TAYLOR J. CROUCHTaylor J. Crouch               |  | Director                                                                                                        |  | March 21, 2003
|/s/JAY T. FLATLEYJay T. Flatley                   |  | Director                                                                                                        |  | March 21, 2003
|/s/DANIEL S. DROSSDaniel S. Dross                 |  | Director                                                                                                        |  | March 21, 2003
|/s/RICHARD D. KNISSRichard D. Kniss               |  | Director                                                                                                        |  | March 21, 2003

98

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CERTIFICATION

I,
Martin Haase, certify that:





|Date: March 21, 2003 |  | /s/MARTIN HAASE, PH.D.Martin Haase, Ph.D. President and Chief Executive
Officer
(Principal Executive Officer)
|-------------------- |  | -------------------------------------------------------------------------------------------------------------

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CERTIFICATION

I,
Laura Francis, certify that:





|Date: March 21, 2003 |  | /s/LAURA FRANCISLaura Francis Chief Financial Officer
(Principal Financial and Accounting Officer)
|-------------------- |  | --------------------------------------------------------------------------------------------------

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