SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1998
OR
( ) 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 0-21318
O'REILLY AUTOMOTIVE, INC.
- - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Missouri 44-0618012
- - --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or
organization)
233 South Patterson
Springfield, Missouri 65802
- - --------------------------------------------------------------------------------
(Address of principal executive offices, Zip code)
(417) 862-6708
- - --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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 X No
Common stock, $0.01 par value - 21,286,884 shares outstanding as of September
30, 1998
<PAGE>
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
FORM 10-Q
Quarter Ended September 30, 1998
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page
ITEM 1 - FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION 8
PART II - OTHER INFORMATION
ITEM 5 - OTHER INFORMATION 10
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 10
SIGNATURE PAGE 11
EXHIBIT INDEX 12
<PAGE>
PART I Financial Information
ITEM 1. Financial Statements
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C> <C>
September 30, December 31,
1998 1997
------------ -----------
(Unaudited) (Note)
(In thousands, except share data)
Assets
Current assets:
Cash and cash equivalents $ 1,584 $ 2,285
Short-term investments 1,000 1,000
Accounts receivable 26,459 12,469
Inventory 234,849 111,848
Deferred income 7,255 1,424
Other current assets 5,965 5,114
--------- ---------
Total current assets 277,112 134,140
Property and equipment, at cost 241,591 137,533
Accumulated depreciation and amortization 78,354 29,093
--------- ---------
163,237 108,440
Other assets 13,717 5,037
--------- ---------
Total assets $454,066 $247,617
========= =========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 40,090 $ 29,713
Income taxes payable 3,697 2,501
Other current liabilities 33,359 8,033
Current portion of long-term debt 7,098 130
--------- ---------
Total current liabilities 84,244 40,377
Long-term debt, less current portion 160,474 22,641
Other liabilities 2,616 2,560
Stockholders' equity:
Common stock, $.01 par value:
Authorized shares- 30,000,000
Issued and outstanding shares -
21,286,884 in 1998
and 21,125,493 in 1997 213 211
Additional paid-in capital 79,916 77,077
Retained earnings 126,603 104,751
--------- --------
Total stockholders' equity 206,732 182,039
--------- --------
Total liabilities and stockholders' equity $454,066 $247,617
========= ========
</TABLE>
NOTE: The balance sheet at December 31, 1997 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to condensed consolidated financial statements.
<PAGE>
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- --------
(In thousands, except per share data)
Product sales $172,784 $ 87,517 $456,295 $238,437
Cost of goods sold,
including warehouse and
distribution expenses 103,439 50,986 270,080 138,000
Operating, selling, general
and administrative expenses 53,910 26,064 146,199 72,549
-------- -------- -------- --------
157,349 77,050 416,271 210,549
-------- -------- -------- --------
Operating income 15,435 10,467 40,016 27,888
Other income (expense), net (1,955) 76 (4,770) 313
-------- -------- -------- --------
Income before income taxes 13,480 10,543 35,246 28,201
Provision for income taxes 5,119 3,922 13,394 10,491
-------- -------- -------- --------
Net income $ 8,361 $ 6,621 $ 21,852 $ 17,710
======== ======== ======== ========
Net income per share $0.39 $0.31 $1.03 $0.84
======== ======== ======== ========
Net income per share
- assuming dilution $0.38 $0.31 $1.00 $0.83
======== ======== ======== ========
Weighted average common
shares outstanding 21,256 21,081 21,209 21,019
======== ======== ======== ========
Diluted weighted average
common shares outstanding 21,883 21,347 21,744 21,221
======== ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Nine Months Ended September 30,
---------------------------------
1998 1997
---------- ----------
(In thousands)
Net cash provided by (used in)
operating activities ($16,698) $14,225
Investing activities:
Purchases of property and equipment (37,335) (25,070)
Acquisition of Hi-Lo Automotive, Inc.,
net of cash acquired (49,296) --
Proceeds from sale of property
and equipment 2,627 283
Other (455) (786)
---------- ---------
Net cash used in investing activities (84,459) (25,573)
Financing activities:
Borrowings on notes payable to banks -- 11,200
Payments on notes payable to banks -- (500)
Proceeds from issuance of long-term debt 145,241 --
Payments on long-term debt (46,217) (95)
Proceeds from issuance of common stock 1,432 1,161
----------- ----------
Net cash provided by financing activities 100,456 11,766
----------- -----------
Net increase (decrease) in cash (701) 418
Cash at beginning of period 2,285 1,207
----------- -----------
Cash at end of period $ 1,584 $ 1,625
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1998
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
O'Reilly Automotive, Inc. (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three months and nine months ended September 30, 1998 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1998. For further information, refer to the consolidated financial
statements and footnotes thereto included in the O'Reilly Automotive, Inc. and
Subsidiaries' annual report on Form 10-K for the year ended December 31, 1997.
2. Debt
In connection with the acquisition of Hi-Lo Automotive, Inc. ("Hi/LO") in
January 1998, the Company replaced its lines of credit with new, unsecured
credit facilities totaling $175 million. The facilities are comprised of a $125
million five-year revolving credit facility which includes a $5 million sublimit
for the issuance of letters of credit and a $50 million five-year term loan
facility. These credit facilities are guaranteed by the subsidiaries of the
Company and currently bear interest at the London Interbank Offered Rate
("LIBOR") plus 0.875%. The Company is required to meet various financial
covenants as defined in the credit agreement.
3. Segments of an Enterprise and Related Information
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information ("Statement 131"), which is effective for
years beginning after December 15, 1997. Statement 131 establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports. It also establishes standards for related disclosures about products
and services, geographic areas, and major customers. Statement 131 is effective
for financial statements for fiscal years beginning after December 15, 1997, and
therefore the Company will adopt the new requirements retroactively in 1998.
Management has not completed its review of Statement 131, but does not
anticipate that the adoption of this statement will have a significant effect on
the Company's financial statements.
4. Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued Statement 130,
Reporting Comprehensive Income ("Statement 130"). Statement 130 establishes new
rules for the reporting and display of comprehensive income and its components;
however, Statement 130 had no impact on the Company's net income or
shareholders' equity as of September 30, 1998.
5. Restatement
All share and per share information included in the financial statements as of
September 30, 1997 and the three and nine months then ended has been restated to
reflect the retroactive effect of the two-for-one stock split effected on August
31, 1997.
<PAGE>
6. Business Acquisition
Effective January 31, 1998, the Company acquired all of the outstanding common
shares of Hi-Lo Automotive, Inc. and its subsidiaries for $47.8 million or $4.35
per common share. This acquisition has been accounted for as a purchase by
recording the assets and liabilities of Hi/LO at their estimated fair values at
the acquisition date. The consolidated results of operations of the Company
include the operations of Hi/LO from the acquisition date. Unaudited Pro Forma
consolidated results of operations assuming the purchase was made at the
beginning of each period are shown below: (amounts in thousands, except per
share data)
<TABLE>
<CAPTION>
<S> <C> <C>
Nine months ended September 30,
-----------------------------------
1998 1997
-------- --------
Net sales $474,064 $422,996
Net income $25,505 $19,643
Net income per share $1.09 $0.93
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Product sales for the third quarter of 1998 increased by $85.3 million, or
97.4%, over product sales for the third quarter of 1997 due to the additional
sales from the acquired Hi-Lo Automotive, Inc. ("Hi/LO") stores and a 6.1%
increase in comparable store product sales for the quarter (O'Reilly stores
increased 9.3% and Hi/LO stores increased 2.2%). Product sales for the first
nine months of 1998 increased by $217.9 million, or 91.4% over product sales for
the first nine months of 1997 due the acquisition discussed above, the impact of
opening of 10 net, new O'Reilly stores during the last quarter of 1997 and the
opening of 36 net, new stores during the first three quarters of 1998, in
addition to a 4.9% increase in comparable store product sales (O'Reilly stores
increased 7.3% and Hi/LO stores increased 1.6%). At September 30, 1998, O'Reilly
operated 477 stores compared to 249 stores at September 30, 1997.
Gross profit increased 89.8% from $36.5 million (or 41.7% of product sales) in
the third quarter of 1997 to $69.3 million (or 40.1% of product sales) in the
third quarter of 1998. Gross profit for the first nine months increased 85.4%
from $100.4 million (or 42.1% of product sales) in 1997 to $186.2 million or
(40.8% of product sales) in 1998. The decrease in gross profit margin was due to
inclusion of eight months of Hi/LO operations which currently has a higher cost
of sales, offset partially by continued improvements in the Company's product
acquisition programs and conversions in the product lines in the Hi/LO stores.
Operating, selling, general and administrative expenses ("OSG&A expenses")
increased $27.8 million from $26.1 million (or 29.8% of product sales) in the
third quarter of 1997 to $53.9 million (or 31.2% of product sales) in the third
quarter of 1998. OSG&A expenses increased $73.7 million from $72.5 million (or
30.4% of product sales) in the first nine months of 1997 to $146.2 million (or
32.0% of product sales) in the first nine months of 1998. OSG&A expenses
increased in dollar amount and as a percent of product sales primarily from the
Hi/LO acquisition and the addition of team members and resources in order to
support the increased level of the Company's operations.
Other income (expense), net, decreased by $2.0 million in the third quarter of
1998 compared to the third quarter of 1997 and by $5.1 million for the first
nine months of 1998 compared to the first nine months of 1997. These decreases
were primarily due to increased interest expense from higher balances on
long-term debt principally resulting from the Hi/LO acquisition and growth in
the scope of the Company's operations.
The Company's estimated provision for income taxes increased from 37.2% of
income before income taxes in the third quarter and the first nine months of
1997 to 38.0% in the same periods in 1998. The increase in the effective income
tax rate was primarily due to changes in the mix of taxable income among the
states in which the Company operates.
Principally as a result of the foregoing, net income increased from $6.6 million
or 7.6% of product sales in the third quarter of 1997 to $8.4 million or 4.8% of
product sales in the third quarter of 1998 and from $17.7 million or 7.4% of
product sales in the first nine months of 1997 to $21.9 million or 4.8% of
product sales in the first nine months of 1998.
Liquidity and Capital Resources
Net cash of $16.7 million was used in operating activities for the first nine
months of 1998 as compared to $7.7 million net cash provided by operating
activities for the first nine months of 1997. This decrease was principally the
result of increases in inventory, accounts receivable and other assets, as
offset by increases in accounts payable and accruals. These increases are
primarily due to the acquisition of Hi/LO and the addition of new stores and
increased sales levels in existing and newly opened stores.
Net cash used in investing activities has increased from $16.3 million in 1997
to $84.5 million in 1998 primarily due to the acquisition of Hi/LO and an
increase in purchases of property and equipment as a result of the Company's
accelerated store growth program.
Cash provided by financing activities has increased from $9.3 million in the
first nine months of 1997 to $100.5 million in the first nine months of 1998.
The increase was primarily due to increased net borrowings under the Company's
credit facilities during the first nine months of 1998.
In order to fund the acquisition of Hi/LO, the Company's continuing store growth
program, and the Company's working capital and general corporate needs, the
Company replaced its lines of credit in January 1998 with new, unsecured,
syndicated credit facilities totaling $175 million. The facilities are comprised
of a $125 million five-year revolving credit facility which includes a $5
million sublimit for the issuance of letters of credit and a $50 million
five-year term loan facility.
In addition to the 189 stores acquired in the Hi/LO transaction and the 36 net
new stores (43 new stores less the disposal in April 1998 of the seven Hi/LO
stores located in California) opened in the first nine months of 1998, the
Company plans to open an additional 14 stores in 1998. The funds required for
such planned expansions will be provided by the existing cash and short-term
investments and the existing and available bank credit facilities.
Management believes that the cash expected to be generated from operating
activities, existing cash and short-term investments, existing bank credit
facilities and trade credit will be sufficient to fund both the short and
long-term capital and liquidity needs of the Company for the foreseeable future.
Inflation and Seasonality
The Company has been successful, in many cases, in reducing the effects of
merchandise cost increases principally by taking advantage of vendor incentive
programs, economies of scale resulting from increased volume of purchases and
selective forward buying. As a result, management does not believe its
operations have been materially affected by inflation.
The Company's business is seasonal to some extent primarily as a result of the
impact of weather conditions on store sales. Store sales and profits have
historically been higher in the second and third quarters (April through
September) of each year than in the first and fourth quarters.
Year 2000 Readiness
The advent of the Year 2000 ("Y2K") poses certain technological challenges from
a reliance in computer technologies on two digits rather than four digits to
represent the calendar year (e.g. "98" for "1998"). Computer technologies
programmed in this manner, if not corrected, could produce inaccurate or
unpredictable results or system failures in connection with the transition from
1999 to 2000, when dates will have a lower two-digit number than dates in the
prior century. The Company has completed the identification of all necessary
internal software changes to ensure that it does not experience any loss of
critical business functionality due to the Y2K problem. The Company has
appointed an internal Y2K project manager and remediation team and has adopted a
four phase approach of assessment, remediation, testing and contingency
planning. The scope of the project includes all internal software, hardware,
operating systems and assessment of risk to the business from vendors'
preparedness with respect to the Y2K problems. The assessment of all internal
systems has been completed, the remediation and testing phases are in progress,
and contingency planning for certain information technology systems has begun.
The Company believes that this approach of assessment (including prioritization
by business risk), remediation (including conversions to new software), testing
of necessary changes, and contingency planning will minimize the business risk
of the Y2K problem from internal systems.
The Company is utilizing internal personnel to correct, replace, and test its
software and plans to complete the Y2K project no later than June 30, 1999. The
total cost of the Y2K project is estimated at $0.1 million. Of the total project
cost, approximately $50,000 represents the purchase of replacements or upgrades
of software and hardware, which will be capitalized. The remaining will be
expensed as incurred during 1998 and 1999. As of the end of the Company's third
quarter, the Company had spent approximately $25,000 on the Y2K project.
Ongoing communications have been established with all significant vendors to
monitor their progress in resolving their own issues related to the Y2K problem,
most of which the Company believes, are making substantial progress. However,
the most likely worst case scenario for the Company would entail failure of one
or more of the Company's significant vendors to continue operations (even
temporarily) following transition to the Year 2000. The Company cannot guarantee
that its business partners will adequately address issues related to the Y2K
problem in a timely manner or that the failure of its business partners to
correct these issues would not have a material adverse effect on the Company.
The Company has already begun to develop contingency plans in the event of a
business interruption caused by the Y2K problem. Contingency plans are in place
for some, but not all, of the Company's internal information technology systems.
Elements of the Company's contingency plans will include: switching vendors,
back-up systems that do not rely on computers, and the stockpiling of certain
products in the months before the Year 2000.
The cost and time estimated for the Year 2000 project are based on the Company's
best current estimates. There can be no guarantee that these estimates will be
achieved and that planned results will be achieved. Risk factors include, but
are not limited to, the retention of internal personnel dedicated to the
project, the timely delivery of software corrections from external vendors, and
the successful completion of key business partners' Y2K projects.
Forward-Looking Statements
Certain statements contained in this quarterly report on Form 10-Q are
forward-looking statements. These statements discuss, among other things,
expected growth, store development and expansion strategy, business strategies,
future revenues and future performance. The forward-looking statements are
subject to risks, uncertainties and assumptions including, but not limited to
competitive pressures, demand for the Company's products, the market for auto
parts, the economy in general, inflation, consumer debt levels and the weather.
Actual results may materially differ from anticipated results described in these
forward-looking statements. Certain risks are discussed in Exhibit 99.1 hereto.
<PAGE>
PART II - OTHER INFORMATION
Item 5. Other information
In October 1998, the Company announced it had entered into a definitive
agreement to purchase the assets of Hinojosa Auto Parts ("Hinojosa") effective
April 1, 1999. Under the terms of the agreement, the Company will purchase the
inventory, fixtures, certain real estate and other assets for approximately $6
million. Additionally, the Company will not assume any liabilities of Hinojosa.
Unless otherwise required by law, under applicable regulations of the Securities
and Exchange Commission, proxies solicited by the Company in connection with its
1999 annual meeting of shareholders shall confer upon the individuals named
therein discretionary voting authority to vote on matters the Company did not
receive notice of by March 6, 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: See Exhibit Index on page 12 hereof
<PAGE>
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 thereunto duly authorized.
O'REILLY AUTOMOTIVE, INC.
November 16, 1998 /s/ David E. O'Reilly
- - --------------------------- ---------------------------------------
Date David E. O'Reilly, President and
Chief Executive Officer
November 16, 1998 /s/ James R. Batten
- - --------------------------- ---------------------------------------
Date James R. Batten, Vice-President of
Finance and Chief Financial Officer
November 16, 1998 /s/ Chris Stange
- - --------------------------- ---------------------------------------
Date Chris Stange, Corporate Controller and
Principal Accounting Officer
<PAGE>
EXHIBIT INDEX
Number Description Page
27.1 Financial Data Schedule 13
99.1 Certain Risk Factors, filed herewith. 14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheet at September 30, 1998 (unaudited) and 1997
(restated) and the Condensed Consolidated Statement of Income for the Nine
Months Ended September 30, 1998 (unaudited) and 1997 (restated) and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000898173
<NAME> O'REILLY AUTOMOTIVE, INC.
<MULTIPLIER> 1000
<CURRENCY> U. S. Dollars
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> SEP-30-1998 SEP-30-1997
<EXCHANGE-RATE> 1 1
<CASH> 1,584 1,625
<SECURITIES> 1,000 1,000
<RECEIVABLES> 28,099 14,081
<ALLOWANCES> 1,641 444
<INVENTORY> 234,849 107,330
<CURRENT-ASSETS> 13,220 2,759
<PP&E> 241,591 125,524
<DEPRECIATION> 78,354 26,924
<TOTAL-ASSETS> 454,066 229,721
<CURRENT-LIABILITIES> 84,244 37,782
<BONDS> 0 0
0 0
0 0
<COMMON> 213 211
<OTHER-SE> 206,519 175,654
<TOTAL-LIABILITY-AND-EQUITY> 454,066 229,721
<SALES> 456,295 238,437
<TOTAL-REVENUES> 457,072 238,833
<CGS> 270,080 138,000
<TOTAL-COSTS> 146,199 72,549
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 1,063 630
<INTEREST-EXPENSE> 5,547 83
<INCOME-PRETAX> 35,246 28,201
<INCOME-TAX> 13,394 10,491
<INCOME-CONTINUING> 21,852 17,710
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 21,852 17,710
<EPS-PRIMARY> 1.03 0.84
<EPS-DILUTED> 1.00 0.83
</TABLE>
The following factors could affect the Company's actual results, including its
revenues, expenses and net income, and could cause them to differ from any
forward-looking statements made by or on behalf of the Company.
Competition
The Company competes with a large number of retail and wholesale automotive
aftermarket product suppliers. The distribution of automotive aftermarket
products is a highly competitive industry, particularly in the more densely
populated market areas served by the Company. Competitors include national and
regional automotive parts chains, independently owned parts stores (some of
which are associated with national auto parts distributors or associations),
automobile dealerships, mass or general merchandise, discount and convenience
chains that carry automotive products, independent warehouse distributors and
parts stores and national warehouse distributors and associations. Some of the
Company's competitors are larger than the Company and have greater financial
resources than the Company.
No Assurance of Future Growth
Management believes that the Company's ability to open additional stores at an
accelerated rate will be a significant factor in achieving its growth objectives
for the future. The ability of the Company to accomplish its growth is
dependent, in part, on matters beyond the Company's control, such as weather
conditions, zoning and other issues related to new store site development, the
availability of qualified management personnel and general business and economic
conditions. No assurance can be given that the Company's current growth rate can
be maintained.
Dependence Upon Key and Other Personnel
The success of the Company has been largely dependent on the efforts of certain
key personnel of the Company, including David E. O'Reilly, Lawrence P. O'Reilly,
Charles H. O'Reilly, Jr., Rosalie O'Reilly Wooten and Ted F. Wise. The loss of
the services of one or more of these individuals could have a material adverse
effect on the Company's business and results of operations. Additionally, in
order to successfully implement and manage its growth strategy, the Company will
be dependent upon its ability to continue to attract and retain qualified
personnel. There can be no assurance that the Company will be able to continue
to attract such personnel.
Concentration of Ownership by Management
The Company's executive officers and directors as a group beneficially own a
substantial percentage of the outstanding shares of the Company's common stock.
These officers and directors have the ability to exercise effective voting
control of the Company, including the election of all of the Company's
directors, and to effectively determine the vote on any matter being voted on by
the Company shareholders, including any merger, sale of assets or other change
in control of the Company.
