EXHIBIT 99.1
Certain Factors to Consider in Connection
with Forward-Looking Statements
December 2000
From time to time, Phoenix Gold International, Inc., (the "Company"),
through its management, may make forward-looking public statements with respect
to the Company regarding, among other things, expected future revenues or
earnings, projections, plans, future performance, product development and
commercialization, and other estimates relating to the Company's future
operations. Forward-looking statements may be included in reports filed under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), in press
releases or in oral statements made with the approval of an authorized executive
officer or director of the Company. The words or phrases "will likely result,"
"are expected to," "intends," "is anticipated," "estimates," "projects" or
similar expressions are intended to identify "forward-looking statements" within
the meaning of Section 21E of the Exchange Act and Section 27A of the Securities
Act of 1933, as amended, as enacted by the Private Securities Litigation Reform
Act of 1995.
Forward-looking statements are subject to a number of risks and
uncertainties. The Company cautions you not to place undue reliance on its
forward-looking statements which speak only as of the date on which they are
made. The Company's actual results may differ materially from those described in
the forward-looking statements as a result of various factors, including those
listed below. The Company does not intend to update its forward-looking
statements.
Pursuant to the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company hereby files the following cautionary
statements identifying certain factors that could cause its actual results to
differ materially from those described in its forward-looking statements.
COMPETITION. The market for the Company's products is served by many
domestic and international companies and is intensely competitive, highly
fragmented and rapidly changing. Some of the Company's competitors have
significantly greater financial and technical resources than the Company and may
offer lower prices on competing products. There can be no assurance that other
companies, including those with greater resources than the Company, will not
seek to compete with the Company using the same means of distribution or that in
the face of such competition the Company will be able to maintain its current
market share or rate of growth.
In its accessories line, the Company competes with other manufacturers and
distributors, as well as with consumer electronics equipment manufacturers that
market their own lines of accessories. The Company competes with audio
electronics and speaker manufacturers that market their products primarily
through specialty dealer networks and mass merchandise retail stores. There can
be no assurance that the Company will be able to compete successfully by
introducing products or performance features on a timely basis or by adding new
features to its products while limiting price increases. Increased competition
could result in product price reductions, reduced margins and loss of market
share, all of which could materially adversely affect the Company's financial
condition and results of operations.
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POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS AND SEASONALITY. The Company's
quarterly results of operations are difficult to predict and may fluctuate
significantly from quarter to quarter. The Company's results of operations are
principally affected by the seasonality of the car audio aftermarket.
Historically, the Company's net sales have been greater during the third (April
through June) and fourth (July through September) quarters of the Company's
fiscal year than during the first two fiscal quarters. Due to the seasonality of
its business, the Company's quarterly results of operations may not necessarily
be indicative of its results of operations for the year.
The Company's results of operations may also fluctuate on a quarterly
basis because of changes in general economic conditions, the size and timing of
product orders and shipments, the introduction of new products and product
enhancements by the Company and its competitors, the timing of operating
expenditures and the risks inherent in international operations such as changes
in demand resulting from fluctuations in interest and exchange rates, changes in
trade policies, changes in tariff regulations and economic conditions in other
countries, among other factors. A significant portion of the Company's
manufacturing and operating expenses are relatively fixed in nature and planned
expenses are based primarily on sales forecasts. If net sales do not meet the
Company's expectations, operating results could be materially adversely affected
if the Company is unable to adjust operating expenses quickly enough to
compensate for a revenue shortfall. In addition, as a strategic response to a
changing competitive environment, the Company may make certain pricing, product
or marketing decisions that could have a material adverse effect on the
Company's quarterly results of operations.
ADVERSE EFFECT OF REDUCED DISCRETIONARY CONSUMER SPENDING. Consumer
purchases of accessories, electronics and speakers are highly discretionary. The
success of the Company is influenced by a number of economic factors affecting
disposable income such as employment levels, business conditions, and interest
and tax rates. Adverse changes in these economic factors, among others, may
cause consumers to reduce their discretionary spending, thereby adversely
affecting the Company's results of operations and growth.
DEPENDENCE ON A SIGNIFICANT CUSTOMER. The loss of Bose Corporation
("Bose") as a customer or any significant portion of Bose orders could have a
material adverse effect on the Company's business, results of operations and
financial condition. Bose accounted for 10.8% of the Company's net sales during
the year ended September 30, 2000. The Company entered into its present purchase
agreement with Bose in 1997 which does not contain minimum or scheduled purchase
requirements. Therefore, purchase orders by Bose may fluctuate significantly
from quarter to quarter over the term of the agreement. The purchase agreement
was extended beyond its scheduled expiration date of December 31, 1999 to March
31, 2001. The Company and Bose are currently negotiating a new purchase
agreement. There can be no assurance that the Company will be able to negotiate
a purchase agreement with Bose on acceptable terms or that purchases will be
made by Bose under any agreement.
NEED FOR INTRODUCTION OF NEW PRODUCTS AND PRODUCT ENHANCEMENTS. The market
for the Company's products is characterized by rapid technological change and
the need for frequent introduction of new products and models. The Company's
success depends in part upon its ability to maintain and enhance its products
and to develop and introduce new products that keep pace with technological
developments, respond to evolving customer preferences and requirements and
achieve market acceptance. Any failure by the Company to anticipate or respond
adequately to technological developments and customer requirements, or any
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significant delays in product development or introduction, could have a material
adverse effect on the Company's financial condition and results of operations.
The success of product enhancements and new products depends on a variety
of factors, including product selection, timely completion of product design,
efficient implementation of manufacturing and assembly processes and effective
sales and marketing. In addition, dealers may be reluctant to sell new Company
products for a number of reasons, including loyalty to competing products.
DEPENDENCE ON SUPPLIERS. The Company is dependent on a number of suppliers
for raw materials, components, a small number of subassemblies, and certain
finished goods. Certain of these materials, components, subassemblies and
finished goods are obtained from a single supplier or a limited number of
suppliers. The Company has no long-term contracts with any suppliers. Component
or raw materials shortages, production delays, work stoppages or quality control
issues experienced by these suppliers or any other circumstances resulting in
any of those suppliers ceasing to supply the Company could have a material
adverse impact on the Company's financial condition and results of operations.
While the Company has not experienced significant shortages in the supply of raw
materials, components, subassemblies and finished goods in the past, there is no
assurance that supply shortages will not occur in the future. The loss of
certain suppliers or delays in shifting to new suppliers could result in
manufacturing or shipping delays, which could have a material adverse effect on
the Company's results of operations.
CONTROL BY CURRENT SHAREHOLDERS. Keith A. Peterson, the Company's
Chairman, President and Chief Executive Officer, and Timothy G. Johnson, the
Company's Executive Vice President and Chief Operating Officer, beneficially own
approximately 68% of the Company's outstanding common stock. They have the power
to control the vote on most issues submitted to the Company's shareholders,
including the election of the Company's directors and approval or disapproval of
fundamental corporate changes such as mergers, dissolution and changes in
control. As shareholders, Messrs. Peterson and Johnson may act in their own
self-interest with respect to, among other things, the voting or disposing of
their shares of Company common stock. This concentration of ownership may also
have the effect of delaying or preventing a change in control of the Company.
HIGH INVENTORY REQUIREMENTS. In order to meet its dealers' needs for quick
delivery, the Company carries substantial amounts of inventory. This requirement
increases the Company's financing requirements and the risk of inventory
obsolescence. Although costs associated with inventory obsolescence have
historically been immaterial, there can be no assurance that the risks
associated with maintaining these levels of inventory will not have a material
adverse effect on the Company's results of operations.
SUBSTANTIAL INTERNATIONAL OPERATIONS. International sales accounted for
25.8% and 27.1% of the Company's net sales in fiscal years 2000 and 1999,
respectively. Gross margins for international sales are generally lower than for
domestic sales. Several of the Company's significant suppliers are also located
overseas. Transactions with foreign suppliers and customers are subject to the
risks of international trade, such as lengthy shipping times, tariff
regulations, actions by foreign custom officials, changes in trade policies,
foreign currency fluctuations and political instability. In addition, a decrease
in the value of a country's currency in relation to the United States dollar
would have the effect of raising the price of the Company's products in that
country and could cause consumers in that country to shift discretionary
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spending to other products or to competitors' products manufactured outside the
United States. Increased duties could also increase the cost of the Company's
products sold in international markets.
DEPENDENCE ON KEY EMPLOYEES. The Company is dependent on the continued
services of Messrs. Peterson and Johnson, and certain other key management
personnel. Although the Company has obtained "key man" insurance of $1.5 million
with respect to Mr. Peterson, the loss of his services or the services of one or
more other key personnel could have a material adverse effect on the Company.
The Company has no employment agreements with any of its key personnel. There
can be no assurance that the Company will be successful in attracting and
retaining the personnel it requires to develop, manufacture and market its
products or expand its operations.
NEED TO PROTECT INTELLECTUAL PROPERTY. The Company's future success will
depend in part on its intellectual property. The Company seeks to defend its
intellectual property rights, but its actions may not adequately protect the
rights covered by its trademarks and other proprietary rights, and prosecution
of the Company's claims could be time-consuming and costly. In addition, the
intellectual property laws of some foreign countries do not protect the
Company's proprietary rights as do the laws of the United States. Despite the
Company's efforts to protect its intellectual property, third parties may
obtain, disclose or use the Company's proprietary information or assets without
its authorization. Such disclosure could adversely affect the Company's
business.
ENVIRONMENTAL REGULATION. Although the Company attempts to avoid using
materials and manufacturing processes that create hazardous wastes, it, like
manufacturers of similar products, is subject to a number of Federal and state
environmental statutes and regulations. Although the Company believes it
complies with all applicable environmental requirements, there can be no
assurance that its manufacturing operations do not, or will not in the future,
violate such requirements or that compliance with such requirements will not
involve substantial cost or have a material adverse effect on the Company's
financial condition or results of operations.
DELISTING OF COMMON STOCK. The continued inclusion and listing of the
Company's Common Stock on The NASDAQ SmallCap Market is subject to certain
conditions. On November 24, 2000, The NASDAQ Stock Market, Inc. notified the
Company that its Common Stock had failed to maintain a minimum market value of
public float of $1,000,000 over the last 30 consecutive trading days as required
for continued listing on The NASDAQ SmallCap Market. The Company was provided
until February 22, 2001 to regain compliance with this rule or request a hearing
with the NASDAQ Listing Qualifications Panel.
If the Company's Common Stock is delisted from The NASDAQ SmallCap
Market, then the Common Stock would be traded in the over-the-counter market
and any broker or dealer effecting a purchase or sale of unlisted Common Stock
would be required to comply with the "penny stock" rules set forth in Section
15(g) of the Securities Exchange Act of 1934, as amended, and the
regulations promulgated thereunder, unless the transaction is otherwise exempt
pursuant to specified exemptions contained in such rules. The "penny stock"
rules require that, prior to the transaction, the broker or dealer has (i)
approved the prospective investor's account for the transaction in "penny
stock" in accordance with specified procedures and (ii) received from the
investor a written agreement to the transaction setting forth the identity
an quantity of the "penny stock" to be purchased. These requirements may
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significantly adversely affect the liquidity of and market for the Common Stock.
In addition, the over-the-counter market is characterized as volatile in that
securities traded in such market are subject to substantial and sudden price
increases and decreases and at times price (bid and asked) information for such
securities may not be available. In addition, when there are only one or two
market makers (a dealer holding itself out as ready to buy and sell the
securities on a regular basis), there is a risk that the dealer or group of
dealers may control the market in the security and set prices that are not
based on competitive forces and the bid and asked quotations of the securities
traded in the over-the-counter may not be reliable.
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