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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
MAY 28, 1997
Date of report (Date of earliest event reported)
MICHIGAN BREWERY, INC.
(Exact Name of Registrant as Specified in Charter)
MICHIGAN 0-20845 38-3196031
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification Number)
550 SOUTH WISCONSIN STREET, GAYLORD, MICHIGAN 49735
(Address of Principal Executive Offices, including Zip Code)
(517) 731-0401
(Registrant's Telephone Number, including Area Code)
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ITEM 5 OTHER EVENTS
Michigan Brewery, Inc. (the "Company") is filing a Cautionary Statement
pursuant to the Private Securities Litigation Reform Act of 1995 (the "Act") for
use as a readily available written document to which reference may be made in
connection with forward-looking statements, as defined in the Act.
ITEM 7 FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits
99 - Cautionary Statement
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized on May 28, 1997.
MICHIGAN BREWERY, INC.
By: /s/Anthony P. Dombrowski
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Anthony P. Dombrowski
Chief Financial Officer and Treasurer
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
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99 Cautionary Statement
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EXHIBIT 99
CAUTIONARY STATEMENT
MICHIGAN BREWERY, INC. (THE "COMPANY"), OR PERSONS ACTING ON BEHALF OF THE
COMPANY, OR OUTSIDE REVIEWERS RETAINED BY THE COMPANY MAKING STATEMENTS ON
BEHALF OF THE COMPANY, OR UNDERWRITERS OF THE COMPANY'S SECURITIES, FROM TIME TO
TIME, MAY MAKE, IN WRITING OR ORALLY, "FORWARD-LOOKING STATEMENTS" AS DEFINED
UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 (THE "LITIGATION
REFORM ACT"). THIS CAUTIONARY STATEMENT, WHEN USED IN CONJUNCTION WITH AN
IDENTIFIED FORWARD-LOOKING STATEMENT, IS FOR THE PURPOSE OF QUALIFYING FOR THE
"SAFE HARBOR" PROVISIONS OF THE LITIGATION REFORM ACT AND IS INTENDED TO BE A
READILY AVAILABLE WRITTEN DOCUMENT THAT CONTAINS FACTORS WHICH COULD CAUSE
RESULTS TO DIFFER MATERIALLY FROM SUCH FORWARD-LOOKING STATEMENTS. THESE
FACTORS ARE IN ADDITION TO ANY OTHER CAUTIONARY STATEMENTS, WRITTEN OR ORAL,
WHICH MAY BE MADE, OR REFERRED TO, IN CONNECTION WITH ANY SUCH FORWARD-LOOKING
STATEMENT.
THE FOLLOWING MATTERS, AMONG OTHERS, MAY HAVE A MATERIAL ADVERSE EFFECT ON
THE BUSINESS, FINANCIAL CONDITION, LIQUIDITY, RESULTS OF OPERATIONS OR
PROSPECTS, FINANCIAL OR OTHERWISE, OF THE COMPANY. REFERENCE TO THIS CAUTIONARY
STATEMENT IN THE CONTEXT OF A FORWARD-LOOKING STATEMENT OR STATEMENTS SHALL BE
DEEMED TO BE A STATEMENT THAT ANY ONE OR MORE OF THE FOLLOWING FACTORS MAY CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN SUCH FORWARD-LOOKING STATEMENT
OR STATEMENTS.
LACK OF PROFITABILITY; LACK OF OPERATING HISTORY
The Company had a net loss of $355,186 during the quarter ended March 30,
1997 and a net loss of $703,592 during the year ended December 29, 1996. The
Company had working capital of $26,395 and $28,468 at March 30, 1997 and
December 29, 1996, respectively. The Company opened a Big Buck Brewery &
Steakhouse ("Brewery" or "Big Buck Brewery") in Gaylord, Michigan (the "Gaylord
Brewery"), in May 1995 and a Big Buck Brewery in Grand Rapids, Michigan (the
"Grand Rapids Brewery"), in March 1997. Prior to the opening of the Gaylord
Brewery, the Company had no operations or revenues. Accordingly, the Company's
operations are subject to all of the risks inherent in the establishment of a
new business enterprise, including the lack of operating history. The
likelihood of success of the Company must be considered in light of the
problems, expenses, difficulties, complications and delays frequently
encountered in connection with the establishment of a business. There can be no
assurance that future operations of any Big Buck Brewery will be profitable.
Future revenues and profits, if any, will depend upon various factors, including
the quality of restaurant operations, the acceptance of the Company's beer and
general economic conditions. In general, restaurants experience a decline in
revenue growth or of actual revenues following a period of excitement which
accompanies their opening. There is no assurance that the Company can operate
profitably or that it will successfully implement its plans to open additional
Big Buck Breweries, in which case the Company will continue to be dependent on
the revenues of the Gaylord and Grand Rapids Breweries.
DEVELOPMENT OF FUTURE BREWERIES; EXPANSION PLAN RISKS
The total cost of developing, constructing and opening the Gaylord Brewery
was approximately $5.8 million, including approximately $3.1 million for design
and construction, $1.3 million for equipment, furniture and fixtures relating to
the restaurant, $1.0 million for brewing and bottling equipment, and $400,000
for land. The Company purchased an existing structure for the Grand Rapids
Brewery. The total cost of the land, building, remodeling, equipment, furniture
and fixtures for the Grand Rapids Brewery was approximately $3.1 million.
Management believes that each new Brewery will be of a building style and size
suitable to its location. Accordingly, the Company has not developed a
standardized Brewery layout.
The Company anticipates it will develop and open two additional Big Buck
Breweries, including one in Auburn Hills, a suburb of Detroit, during the
remainder of 1997. The Company estimates that the cost of developing and
opening the Auburn Hills Brewery will be approximately $8.4 million. The
remaining Big Buck Brewery scheduled to be opened in 1997 is anticipated to be a
leased facility with an approximate cost between $1.3 and $1.5 million for
equipment and leasehold improvements. The Company intends to obtain real estate
financing for $4.0 million of the cost of developing and opening the new
Breweries, which may include a sale
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and leaseback of the Auburn Hills site. The Company believes that the remaining
net proceeds of its initial public offering, together with such financing, will
be sufficient to finance these expansion plans, depending on the definitive
locations, site conditions, construction costs and size and type of Breweries
built. There are no assurances that a sale and leaseback or any other real
estate financing will be available on terms acceptable or favorable to the
Company, or at all. Without such additional financing, the Company's
development plans will be slower than planned or even unachievable.
Successful expansion of the Company's operations will be largely dependent
upon a variety of factors, some of which are currently unknown or beyond the
Company's control, including customer acceptance of Big Buck Brewery restaurants
and Big Buck Beer-Registered Trademark-; the ability of the Company's management
to identify suitable sites and to negotiate purchases and financing of such
sites; timely and economic development and construction of Breweries; timely
approval from local governmental authorities; the hiring of skilled management
and other personnel; the ability of the Company's management to apply its
policies and procedures to a larger number of Breweries; the availability of
adequate financing; the general ability to successfully manage growth; and the
general state of the economy. There can be no assurance that the Company will
be able to open new Breweries.
The Company's strategy includes operating a brewhouse at each Big Buck
Brewery. Successful operation of separate brewhouses will require the Company
to overcome various organizational challenges such as increasing and maintaining
production and establishing and maintaining quality control over numerous
geographically separated Breweries. In attempting to expand beer distribution,
the Company will be required to establish and manage relationships with
wholesale distributors, retailers and consumers in new markets. The Company is
the sole promoter of sales of its beer in new markets. Consumer tastes and
preferences may vary from market to market. There can be no assurance that the
Company will be successful in entering new markets.
NEED FOR FINANCING
The Company's ability to execute its business strategy is dependent on its
ability to obtain substantial financing for the development of additional
Breweries. The Company intends to obtain real estate financing for the costs of
developing and opening the two new Breweries it intends to open during the
remainder of 1997. However, no assurance can be given that the Company will
obtain the financing required to develop and open the two additional Breweries.
In addition, the Company will require further financing to develop and open
additional Breweries. The Company anticipates that future development and
expansion will be financed through the public or private sale of additional
equity or debt securities, capital leases and other credit facilities. There
can be no assurance that any additional funds will be available or that such
funds, if available, will be on terms acceptable to the Company or its
shareholders. New investors may seek and obtain substantially better terms than
those available to investors purchasing shares of Common Stock on the open
market and the Company's issuance of securities in the future may result in
substantial dilution.
MICHIGAN LAW MAY LIMIT GROWTH
The Company is licensed under Michigan law as a "microbrewery." A
microbrewery in Michigan is limited to the production of not more than 30,000
barrels of beer per year by all breweries owned or controlled by the same
person, whether within or outside Michigan. Without a change in current law,
the Company will limit its sales of beer off-site so as to reserve its brewing
capacity for sales of beer on-site which provide the Company higher margins, but
do not reach the same customer base. There can be no assurance that legislation
raising the barrelage ceiling will pass, that any such legislation will pass in
a form which would facilitate the Company's expansion plans, or that if such
legislation is not passed, the Company will be able to become licensed to brew
in excess of 30,000 barrels per year.
RISKS RELATED TO SALE/LEASEBACK
On April 11, 1997, the Company sold the Grand Rapids site, including all
improvements thereto, to an unrelated third party pursuant to a real estate
purchase and leaseback agreement for $1.4 million. Pursuant
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to a separate lease agreement, the Company leases the Grand Rapids site at a
minimum annual base rent of $140,000 and a maximum annual base rent of $192,500
over a ten-year term. The lease may be extended at the option of the Company
for two additional five-year terms. In addition to the annual base rent, the
Company is obligated to pay an annual percentage rent in the amount of 5% on
gross sales at the site in excess of $2.9 million per year. In the event that
such annual gross sales do not exceed $2.9 million for any two consecutive years
during the lease term, the Company is obligated to repurchase the Grand Rapids
site for $1.4 million, plus $70,000 for each lease year on a pro rata basis.
The Company has the option to purchase the property from the lessor after the
seventh full lease year for $1.4 million, plus $70,000 for each lease year on a
pro rata basis. The lessor has the option to require the Company to purchase
the property after the seventh full lease year at the same price.
The lessor may terminate the lease in the event of a default which is not
cured within the applicable grace period. A default is defined as (i) the
Company's failure to make a rental payment within 30 days after receipt of
written notice that a payment is past due or (ii) the Company's failure to
perform its obligations under the lease (other than rent payments) within 30
days after written notice of a curable violation, provided, however that if such
default cannot be cured within the 30-day period, a default will be deemed to
have occurred only if the Company has failed to commence a cure within such
30-day period.
The annual percentage rent of 5% of the gross sales at the site in excess
of $2.9 million per year is required whether the Grand Rapids Brewery is
profitable or not. In the event that the Company is required to pay an annual
percentage rent, the funds available to the Company for working capital and
development plans will be reduced. In the event that an annual percentage rent
is not required over two consecutive years, the Company may be forced to
repurchase the site at a premium over the sale price. There can be no assurance
that the Company will have sufficient funds to repurchase the Grand Rapids
Brewery. In the event of a default and termination of the lease, the Company
would be unable to continue to operate the Grand Rapids Brewery, which could
have a material adverse impact on the Company's operating results.
COMPETITION; CERTAIN FACTORS AFFECTING THE RESTAURANT AND BREWING INDUSTRIES
The restaurant industry is highly competitive with respect to price,
service, food quality (including taste, freshness, and nutritional value) and
location. New restaurants have a high failure rate. The restaurant industry is
also generally affected by changes in consumer preferences, national, regional
and local economic conditions, and demographic trends. The performance of
individual restaurants may also be affected by factors such as traffic patterns,
demographic considerations, and the type, number and location of competing
restaurants. In addition, factors such as inflation, increased food, labor and
employee benefit costs, and the lack of availability of experienced management
and hourly employees may also adversely affect the restaurant industry in
general and the Company's restaurants in particular. Restaurant operating costs
are further affected by increases in the minimum hourly wage, unemployment tax
rates and similar matters over which the Company has no control. There are
numerous well-established competitors, including national, regional and local
restaurant chains, possessing substantially greater financial, marketing,
personnel and other resources than the Company. The Company also competes with
a large variety of locally owned restaurants, diners and other establishments
that offer moderately priced food to the public and with other microbrewery
restaurants in a highly competitive and developing microbrewery and brewpub
restaurant market. Other restaurants and companies could utilize the Big Buck
Brewery format or a related format. There can be no assurance that the Company
will be able to respond to various competitive factors affecting the restaurant
industry.
The domestic beer market is highly competitive due to: the enormous
advertising and marketing expenditures by national and major regional brewers;
the continuing proliferation of microbreweries, regional craft breweries,
brewpubs and other small craftbrewers; the introduction of fuller-flavored
products by certain major national brewers; and a general surplus of domestic
brewing capacity, which facilitates existing contract brewer expansion and the
entry of new contract brewers. Although domestic demand for craftbrewed beers
has increased dramatically over the past decade, there can be no assurance that
this demand will continue. The Company anticipates intensifying competition in
the craftbrewed beer market. Most of the Company's brewing competitors possess
marketing, financial, personnel and other resources substantially greater than
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those of the Company, and there can be no assurance that the Company will be
able to succeed against intensified competition in the craftbrewed and
fuller-flavored beer markets.
BREWERY OPERATING HAZARDS
The Company's brewing operations are subject to certain hazards and
liability risks faced by all brewers, such as potential contamination of
ingredients or products by bacteria or other external agents that may be
wrongfully or accidentally introduced into products or packaging. The Company's
products are not pasteurized. While the Company has never experienced a
contamination problem in its products, the occurrence of such a problem could
result in a costly product recall and serious damage to the Company's reputation
for product quality. The Company's operations are also subject to certain
injury and liability risks normally associated with the operation and possible
malfunction of brewing and other equipment. Although the Company maintains
insurance against certain risks under various general liability and product
liability insurance policies, there can be no assurance that the Company's
insurance will be adequate.
BEER AND LIQUOR REGULATION
A significant percentage of the Company's revenue is derived from beer
sales. On-site sales of beer accounted for 21% of revenues and off-site sales
of beer accounted for an additional 3.6% of revenues during the fiscal year
ended December 29, 1996. These percentages are expected to increase over the
next few years in relation to food sales. The Company must comply with federal
licensing requirements imposed by the Bureau of Alcohol, Tobacco and Firearms of
the United States Department of Treasury, as well as the licensing requirements
of states and municipalities where its Breweries are or will be located.
Failure to comply with federal, state or local regulations could cause the
Company's licenses to be revoked and force it to cease the brewing and/or sale
of its beer. Typically, licenses must be renewed annually and may be revoked or
suspended for cause at any time. Additionally, state liquor laws may prevent or
impede the expansion of the Company's Breweries into certain markets. While the
Company has not experienced and does not anticipate any significant problems in
obtaining required licenses, permits or approvals, any difficulties, delays or
failures in obtaining such required licenses, permits or approvals could delay
or prevent the opening of a Brewery in a particular area. In addition, changes
in legislation, regulations or administrative interpretation of liquor laws
after the opening of a Brewery in a jurisdiction may prevent or hinder the
Company's expansion or operations in that jurisdiction or increase operating
costs. See "Michigan Law May Limit Growth" above.
RESTAURANT REGULATION
The restaurant industry is subject to numerous federal, state and local
government regulations, including those relating to the preparation and sale of
food and to building and zoning requirements. The Company is subject to
regulation by air and water pollution control divisions of the Environmental
Protection Agency of the United States and by various states and municipalities
in which its Breweries are or will be located. The Company is also subject to
laws governing its relationship with employees, including minimum wage
requirements, overtime, working and safety conditions and citizenship
requirements. Restaurant operating costs are affected by increases in the
minimum hourly wage, unemployment tax rates, sales taxes and similar matters,
such as any government mandated health insurance, over which the Company has no
control.
The Company is subject to "dram-shop" laws in Michigan and will be subject
to such statutes in certain other states into which it expands. These laws
generally provide someone injured by an intoxicated person the right to recover
damages from an establishment which wrongfully served alcoholic beverages to
such person. The Company carries liquor liability coverage as part of its
existing comprehensive general liability insurance. However, a judgment against
the Company under a dram-shop statute in excess of the Company's liability
coverage could have a material adverse effect on the Company.
TAXES; SMALL BREWERS EXCISE TAX CREDIT
The federal government currently imposes an excise tax of $18 on each
barrel of beer produced for domestic consumption in the United States. However,
each brewer with production under 2,000,000 barrels
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per year is granted a small brewer's excise tax credit in the amount of $11 per
barrel on its first 60,000 barrels produced annually. No assurance can be given
that the federal government will not reduce or eliminate this credit. To the
extent Company-wide production increases to amounts over 60,000 barrels per
year, there will be an increase in the average federal excise tax rate of the
Company. Michigan currently imposes an excise tax of $6.30 per barrel on each
barrel of beer sold in Michigan. However, each brewer which is a "microbrewery"
under Michigan law (presently with production under 30,000 barrels per year) is
granted a microbrewer's excise tax credit in the amount of $2 per barrel on its
first 20,000 barrels produced annually. To the extent Company-wide production
increases to amounts over 20,000 barrels per year, there will be an increase in
the average Michigan excise tax rate of the Company. Other states and
municipalities into which the Company may expand also impose excise or other
taxes or special charges on alcoholic beverages in varying amounts, which
amounts are subject to change. It is possible that in the future the rate of
excise taxation could be increased by either the federal or state governments,
or both. Increased excise taxes on alcoholic beverages have been considered by
the United States Congress as an additional source of tax revenue in connection
with various proposals and could be included in future legislation. Future
increases in excise taxes on alcoholic beverages, if enacted, could adversely
affect the Company.
DEPENDENCE ON KEY PERSONNEL; NEED FOR ADDITIONAL PERSONNEL
The Company's future success will depend in large part upon the continued
service of its key management personnel including William F. Rolinski, Gary J.
Hewett and Anthony P. Dombrowski. Given the Company's limited operating
history, the Company is dependent on its ability to identify, hire, train and
motivate qualified personnel necessary to enable it to continue operations. The
Company does not have key person life insurance policies on any of its
employees. The departure of key employees could have a material adverse effect
on the Company's business. The Company's success will also be dependent upon
its ability to attract and retain qualified people, including additional
management personnel. No assurance can be given that the Company's current
employees will continue to work for the Company or that the Company will be able
to obtain the services of additional personnel necessary for the Company's
growth. To date, the Company has not entered into any employment agreements
with its personnel.
NO ASSURANCE AS TO LIQUIDITY ON THE NASDAQ SMALLCAP MARKET
The Company's Common Stock, Class A Warrants and Units are currently listed
on the Nasdaq SmallCap Market. There can be no assurance that an active public
market will develop or be sustained for the Company's securities. In addition,
if the Company's securities do not continue to trade on the Nasdaq SmallCap
Market, the securities would become subject to certain rules of the Securities
and Exchange Commission relating to "penny stocks." Such rules require
broker-dealers to make a suitability determination for purchasers and to receive
the purchaser's prior written consent for a purchase transaction, thus
restricting the ability to purchase or sell the securities in the open market.
CURRENT PROSPECTUS AND STATE REGISTRATION REQUIRED TO EXERCISE WARRANTS;
POSSIBLE REDEMPTION OF WARRANTS
Warrantholders will be able to exercise the Class A Warrants, and the
Company will be able to issue the shares of Common Stock underlying such
Warrants, only if a current prospectus relating to the Common Stock underlying
the Class A Warrants is then in effect and only if the Common Stock is qualified
for sale or exempt from qualification under the applicable securities laws of
the states in which the warrantholders reside. Although the Company will use
its best efforts to (i) maintain the effectiveness of a current prospectus
covering the shares of Common Stock underlying the Class A Warrants pursuant to
the Securities Act of 1933, as amended (the "Securities Act"), and (ii) maintain
the exemptions or qualifications of such Common Stock under the securities laws
of the states in which the Company initially qualified its securities for sale
in the initial public offering, there can be no assurance that the Company will
be able to do so. The Company will not be able to issue shares of Common Stock
to those persons desiring to exercise the Class A Warrants if a prospectus is
not kept effective under the Securities Act or if the Common Stock underlying
the Class A Warrants is not qualified or exempt from qualification in the state
where the holders of the Class A Warrants reside. In such a case, the holders
of the Class A Warrants could lose the benefit of owning the Class A Warrants
unless they could resell the Class A Warrants. The Class A Warrants are subject
to redemption at
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any time by the Company at $.01 per warrant, on 30 days prior written notice, if
the high closing bid price of the Common Stock exceeds $9.00 per share (subject
to adjustment) for 20 consecutive trading days. If the Class A Warrants are
redeemed, warrantholders will lose their right to exercise the Class A Warrants
except during such 30-day redemption period. Redemption of the Class A Warrants
could force the holders to exercise the Class A Warrants at a time when it may
be disadvantageous for the holders to do so or to sell the Class A Warrants at
the then market price or accept the redemption price of $.01 per warrant.
CONTROL BY MANAGEMENT
The current officers and directors of the Company beneficially own
approximately 43.7% of the outstanding Common Stock. Assuming the exercise of
all Class A Warrants, the current officers and directors of the Company will
beneficially own approximately 29.5% of the outstanding Common Stock.
Accordingly, such persons can, and in the future would be able to, exert
substantial influence over the composition of the Company's Board of Directors
and generally direct the affairs of the Company and may have the power to
control the outcome of shareholder approvals of business acquisitions, mergers
and combinations and other actions.
SEASONALITY AND FLUCTUATIONS IN QUARTERLY RESULTS
The Company's sales and earnings are expected to fluctuate based on
seasonal patterns. The Company anticipates that its highest earnings will occur
in the second and third calendar quarters. In addition, quarterly results in
the future are likely to be substantially affected by the timing of new Brewery
openings. Because of the seasonality of the Company's business and the impact
of new Brewery openings, results for any quarter are not necessarily indicative
of the results for a full fiscal year.
UNCERTAIN TRADEMARK PROTECTION; PROPRIETARY MARKS
The Company's ability to successfully operate will depend in part upon its
ability to register and protect its trademarks. The Company applied for
registration of a number of trademarks and service marks with the United States
Patent and Trademark Office on February 1, 1996, including BIG BUCK BREWERY &
STEAKHOUSE and BIG BUCK BEER-Registered Trademark-. The Company received a
certificate of registration for BIG BUCK BEER-Registered Trademark- on March 11,
1997. The United States Patent and Trademark Office has yet to grant a
certificate of registration for BIG BUCK BREWERY & STEAKHOUSE. In the event the
Company is denied registration, the Company may incur significant expense in
creating and developing new marks or in operating under its existing marks, and
may be restricted in where it can locate future Breweries using the Company's
marks. There is no assurance that the Company's marks will be granted
registration for all or any of the uses proposed in the Company's applications.
In the event that the Company's marks are granted registration, there is no
assurance that such marks will be enforceable against prior users in the areas
where the Company conducts or will conduct operations.
MICHIGAN ANTI-TAKEOVER LAWS
The Company is subject to Michigan statutes regulating business
combinations and restricting voting rights of certain persons acquiring shares
of Common Stock which may hinder or delay a change in control of the Company.
VOLATILITY OF MARKET PRICE OF COMMON STOCK
The market price of the Company's Common Stock has been subject to
significant fluctuations in response to numerous factors, including variations
in the annual or quarterly financial results of the Company or its competitors,
changes by financial research analysts in their estimates of the earnings of the
Company or its competitors, conditions in the economy in general or in the
brewing industry in particular, unfavorable publicity or changes in applicable
laws and regulations (or judicial or administrative interpretations thereof)
affecting the Company or the brewing industry. During fiscal year 1996, the
market price of the Company's Common Stock ranged from a high of $4.375 on
September 30 and October 1, 1996, to a low of $2.50 on
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September 23, 1996. During the first 145 days of 1997, the Company's Common
Stock ranged from a high of $3.75 on May 14, 16, 19, 20 and 21, 1997, to a low
of $1.75 on March 24, 1997. There can be no assurance that purchasers of shares
of Common Stock will be able to sell their shares at or above the prices at
which they were purchased.
IMPACT OF SALE OF SECURITIES; SECURITIES ELIGIBLE FOR FUTURE SALE
The Company had 5,275,000 shares of Common Stock outstanding as of May 15,
1997, and had warrants and options outstanding to purchase additional Common
Stock outstanding totaling 3,432,500 shares of Common Stock, exercisable at
prices ranging from $3.00 to $8.00 per share. The Company is obligated to
register up to 632,500 shares of Common Stock on behalf of certain shareholders
pursuant to outstanding registration rights. The sale of such Common Stock and
additional Common Stock which may become eligible for sale in the public market
from time to time upon exercise of warrants and stock options, or upon the
expiration of applicable holding periods, could have the effect of depressing
the market prices for the Company's Common Stock.
ABSENCE OF DIVIDENDS
The Company has not paid any cash dividends since its inception and does
not anticipate paying cash dividends in the foreseeable future. The Company
presently expects to retain its earnings to finance the development and
expansion of its business. The declaration or payment by the Company of
dividends, if any, on its Common Stock in the future is subject to the
discretion of the Board of Directors and will depend on the Company's earnings,
financial condition, capital requirements and other relevant factors. The
declaration or payment by the Company of dividends is also subject to the terms
of the Company's credit facility with its bank.
