| ATARI INC ITEM 1A RISK FACTORS RISKS RELATED TO OUR BUSINESS Our business has contracted significantly |
| Due primarily to our limited funds, during the past two years we have reduced substantially our expenditures on product development and sold the intellectual property related to some game franchises that have generated substantial revenues for us in the past |
| This has both materially reduced our revenues and made distribution, which carries lower margins, a larger percentage of our business |
| Because of the reduction in available product, as well as unusually difficult market conditions, in fiscal 2006, our net revenues were only dlra218dtta7 million compared with net revenues of dlra407dtta8 million in the prior year and dlra468dtta9 million in the year before that |
| Primarily because of this, we had an operating loss of dlra68dtta6 million for the year ended March 31, 2006, compared with operating profits of dlra6dtta3 million and dlra7dtta6 million for the 2005 and 2004 fiscal years, respectively |
| Further, we have fewer titles available for release in fiscal 2007 than has historically been the case |
| We are reviewing our operating strategy, and it is likely that we will increasingly focus on publishing products developed by others as a source of revenue |
| However, we cannot be sure that any revised operating strategy will be successful in returning us to profitability |
| Our revenues will decline and our competitive position will be adversely affected if we are unable to introduce successful new products on a timely basis |
| Our performance in the video game software publishing business depends on the timely introduction of successful new products, sequels or enhancements of existing products to replace declining revenues from older products |
| Our inability to introduce compelling new products, sequels or enhancements, or significant delays in their release, could materially and adversely affect the ultimate success of our products and, in turn, our business, results of operations and financial condition |
| Our product development activities over the last fiscal year and in the coming fiscal year have been and will be less robust than our historical product development, resulting in fewer product releases |
| The process of introducing new products, sequels or product enhancements is extremely complex, time consuming and expensive, and will become more complex as new platforms and technologies emerge |
| Competitive factors in our industry demand that we create increasingly sophisticated products, which in turn makes it difficult to produce and release compelling products on a predictable schedule |
| If we introduce a relatively limited number of products in any period, the failure of such products to achieve strong market acceptance adversely affects our results of operations |
| The loss of Wal-Mart, GameStop/Electronics Boutique, Target, or Best Buy as key customers could negatively affect our business |
| Our sales to Wal-Mart, GameStop/Electronics Boutique, Target, and Best Buy accounted for approximately 31dtta1prca, 13dtta0prca, 12dtta8prca, and 9dtta1prca, respectively, of net revenues for the year ended March 31, 2006 |
| Our gross accounts receivable from these retailers were approximately dlra6dtta2 million, dlra11dtta1 million, dlra6dtta4 million, and dlra4dtta8 million, respectively, as of March 31, 2006 |
| Our business, results of operations and financial condition would be adversely affected if: • we lost any of these retailers as a customer; • any of these retailers purchased significantly fewer products from us; • we were unable to collect receivables from any of these retailers on a timely basis or at all; or • we experienced any other adverse change in our relationship with any of these retailers |
| We cannot assure you that Wal-Mart, GameStop/Electronics Boutique, Target, and Best Buy will continue to use us as a major supplier of video game software, or at all |
| We have experienced difficulties in collecting on certain accounts |
| We cannot guarantee that we will not continue to have such difficulties and, while we maintain a reserve for uncollectible receivables, the reserve may not be sufficient |
| 13 _________________________________________________________________ [71]Table of Contents Our results of operations and competitive position may be adversely affected if we are unable to anticipate and adapt to rapidly changing technology, including new console technology |
| The video game software industry is characterized by rapidly changing technology |
| The introduction of new technologies, including new console technology, software media formats, and delivery channels could render our previously released products obsolete or unmarketable |
| We are continuing to devote significant development resources to products for PlayStation 2 |
| If consumer demand for titles for this platform declines as a result of the next generation of console games systems, or generally, we may experience lower than expected sales from products designed for this platform |
| We must continually anticipate the emergence of, and adapt our products to, new technologies and systems |
| In addition, the development cycle for products designed to operate on new systems has been defined by an increased rate of change and complexity in the technological innovations of video game hardware and software |
| When we choose to publish or develop a product for a new system, we may need to make a substantial development investment one or two years in advance of when we actually ship products for that system |
| If we develop products for a new system that is ultimately unpopular, our net revenues from that product may be less than expected and we may not be able to recoup our investment as quickly as anticipated, if at all |
| Conversely, if we choose not to publish products for a new system that is ultimately popular, our competitive position may be adversely affected |
| A number of our competitors have developed or are developing online games |
| Increased consumer acceptance and increased availability of online games may result in a decline in platform-based software and negatively impact sales of our products |
| Direct sales of software over the Internet by competitors could materially adversely affect our distribution business |
| We need to raise additional capital |
| In recent years, our profits have been minimal compared to the profits reported by our industry competitors, and in the past year we have generated significant losses |
| We do not currently have a credit facility |
| Based on current assessments, we will need to raise capital in order to support our product development efforts and other operational needs |
| In order to complete the redirection of our product portfolio and to increase our slate of titles in fiscal 2007 and 2008, we will need to make a significant investment in product development |
| This investment is critical in order to maintain and grow our business, keep current with changing technology (including new hardware platforms), attract premier development partners, and secure profitable intellectual properties |
| We may raise capital in any number of ways, including through the issuance of debt or equity, or through other financing |
| If we borrow funds, we likely will be obligated to make periodic interest or other debt service payments, and the terms of this debt may impose burdensome restrictions on our ability to operate our business |
| If we seek financing through the sale of equity securities, our current stockholders will suffer significant dilution in their percentage ownership of common stock |
| Additionally, due to the relative size of Atari, our majority ownership by a financially challenged foreign entity and our history of significant losses, we are not certain as to our ability to raise additional capital in the future or under what terms capital would be available |
| Specifically, if we are not successful in raising capital, we will have to take various actions that may include, but not be limited to, a reduction in our expenditures for internal and external new product development, further reduction in overhead expenses, and further sales of intellectual property |
| These actions, should they become necessary, will probably result in further reduction in our size of operations |
| Such capital raising needs are discussed with our majority stockholder with respect to appropriate timing and structure of such funding |
| We may be unable to develop and publish new products if we are unable to secure or maintain relationships with leading independent video game software developers |
| We are even more dependent than in prior years upon leading independent software developers, as we have scaled back our internal development capabilities |
| Consequently, our success depends in part on our continued ability to obtain or renew product development agreements with leading independent video game software developers |
| Particularly in view of our financial situation, we may not be able to obtain or renew product development agreements on favorable terms, or at all, including obtaining the rights to sequels of successful products which were originally developed for us by leading independent video game software developers |
| Many of our competitors have greater financial resources and access to capital than we do, which puts us at a competitive disadvantage when bidding to attract leading independent video game software developers to enter into publishing agreements with us |
| We may be unable to secure or maintain relationships with leading independent video game software developers if our competitors can offer them better shelf access, better marketing support, more development funding, higher royalty rates, or other advantages |
| Usually, our agreements with independent software developers are easily terminable, often without notice, if either party declares bankruptcy, becomes insolvent, ceases 14 _________________________________________________________________ [72]Table of Contents operations or materially breaches its agreement and fails to cure that breach within a designated time frame |
| In addition, many leading independent video game software developers have limited financial resources |
| Many are small companies with a few key individuals without whom a project may be difficult or impossible to complete |
| Consequently, we are exposed to the risk that these developers will go out of business before completing a project, or simply cease work on a project for which we have hired them |
| If we are unable to maintain or acquire licenses to intellectual property, our operating results will be adversely impacted |
| Many of our products are based on or incorporate intellectual property owned by others |
| For example, some of our titles are based on key film licenses |
| We expect that many of the products we publish in the future will also be based on intellectual property owned by others |
| The rights we enjoy to licensed intellectual property may vary based on the agreement we have with the licensor |
| Competition for these licenses is intense and many of our competitors have greater resources to take advantage of opportunities for such licenses |
| If we are unable to maintain our current licenses and obtain additional licenses with significant commercial value, we believe our sales will decline |
| In addition, obtaining licenses for popular franchises owned by others could require us to expend significant resources and the licenses may require us to pay relatively high royalty rates |
| If these titles are ultimately unpopular, we may not recoup our investment made to obtain such licenses |
| Furthermore, in many instances we do not have exclusive licenses for intellectual property owned by others |
| In these cases, we may face direct competition from other publishers holding a similar license |
| Additionally, many of the products we distribute are products that are published by IESA or its subsidiaries, such as certain Hasbro games |
| In fiscal 2006, IESA sold several properties that we distributed, including selling back to Hasbro the rights to certain properties previously under the Hasbro license |
| If IESA continues to dispose of such properties, we will continue to lose revenue |
| Termination or modification of our agreements with hardware manufacturers will adversely affect our business |
| We are required to obtain a license to develop and distribute software for each of the video game consoles |
| We currently have licenses from Sony to develop products for PlayStation, PlayStation 2, and PSP, from Nintendo to develop products for Game Boy Advance, GameCube, and DS and from Microsoft to develop products for Xbox and Xbox 360 |
| We expect to obtain licenses for Nintendo Wii and Sony PlayStation 3 during fiscal 2007 |
| These licenses are non-exclusive, and as a result, many of our competitors also have licenses to develop and distribute video game software for these systems |
| These licenses must be periodically renewed, and if they are not, or if any of our licenses are terminated or adversely modified, we may not be able to publish games for such platforms or we may be required to do so on less attractive terms |
| In addition, our contracts with these manufacturers often grant them approval rights over new products and control over the manufacturing of our products |
| In some circumstances, this could adversely affect our business, results of operations or financial condition by: • terminating a project for which we have expended significant resources; • leaving us unable to have our products manufactured and shipped to customers; • increasing manufacturing lead times and expense to us over the lead times and costs we could achieve if we were able to manufacture our products independently; • delaying the manufacture and, in turn, the shipment of products; and • requiring us to take significant risks in prepaying for and holding an inventory of products |
| The loss of our senior management and skilled personnel could negatively affect our business |
| Our future success will depend to a significant degree upon the performance and contribution of our senior management team and upon our ability to attract, motivate and retain highly qualified employees with technical, management, marketing, sales, product development, creative and other skills |
| In the video game software industry, competition for highly skilled and creative employees is intense and costly |
| We expect this competition to continue for the foreseeable future, and we may experience increased costs in order to attract and retain skilled employees |
| We cannot provide any assurance that that we will be successful in attracting and retaining skilled personnel |
| Our business, operating results and financial condition could be materially and adversely affected if we lost the services of senior management or key technical or creative employees or if we failed to attract additional highly qualified employees |
| 15 _________________________________________________________________ [73]Table of Contents If returns and other concessions given to our customers exceed our reserves, our business may be negatively affected |
| To cover returns and other concessions, we establish reserves at the time we ship our products |
| We estimate the potential for future returns and other concessions based on, among other factors, management’s evaluation of historical experience, market acceptance of products produced, retailer inventory levels, budgeted customer allowances, the nature of the title and existing commitments to customers |
| While we are able to recover the majority of our costs when third-party products we distribute are returned, we bear the full financial risk when our own products are returned |
| In addition, the license fees we pay Sony, Microsoft and Nintendo are non-refundable and we cannot recover these fees when our products are returned |
| Although we believe we maintain adequate reserves with respect to product returns and other concessions, we cannot be certain that actual returns and other concessions will not exceed our reserves, which could adversely affect our business, results of operations and financial condition |
| Significant competition in our industry could adversely affect our business |
| The video game software market is highly competitive and relatively few products achieve significant market acceptance |
| Currently, we compete primarily with other publishers of video game software for both video game consoles and PCs |
| Our competitors include Activision, Inc, Electronic Arts, Inc, Midway Games, Inc, Take Two Interactive, Inc, and THQ, Inc, among others |
| In addition, console manufacturers including Microsoft, Nintendo, and Sony publish products for their respective platforms |
| Media companies and film studios, such as Warner Bros, are increasing their focus on the video game software market and may become significant competitors and/or may increase the price of their outbound licenses |
| Current and future competitors may also gain access to wider distribution channels than we do |
| As a result, these current and future competitors may be able to: • respond more quickly than we can to new or emerging technologies or changes in customer preferences; • carry larger inventories than we do; • undertake more extensive marketing campaigns than we do; • adopt more aggressive pricing policies than we can; and • make higher offers or guarantees to software developers and licensors than we can |
| We may not have the resources required for us to respond effectively to market or technological changes or to compete successfully with current and future competitors |
| Increased competition may also result in price reductions, reduced gross margins and loss of market share, any of which could have a material adverse effect on our business, results of operations or financial condition |
| We cannot assure you that we will be able to compete successfully against our current or future competitors or that competitive pressures will not have a material adverse effect on our business, results of operations and financial condition |
| Retailers of our products typically have a limited amount of shelf space and promotional resources, and there is intense competition among consumer interactive entertainment software products for high quality retail shelf space and promotional support from retailers |
| To the extent that the number of products and platforms increases, competition for shelf space may intensify and may require us to increase our marketing expenditures |
| Due to increased competition for limited shelf space, retailers and distributors are in a stronger position to negotiate favorable terms of sale, including price discounts, price protection, marketing and display fees and product return policies |
| We cannot be certain that retailers will continue to purchase our products or to provide our products with adequate levels of shelf space and promotional support on acceptable terms |
| A prolonged failure in this regard may significantly harm our business and financial results |
| Revenues from our distribution business may decline as competition increases and Internet technology improves |
| During the years ended March 31, 2005 and March 31, 2006, net revenues from our distribution business were approximately 13dtta3prca and 24dtta3prca, respectively, of our total net revenues |
| This increase as a percentage of net revenues is primarily a result of a decline in our development and publishing activities, which makes us increasingly dependent on our distribution activities |
| New video game systems and electronic delivery systems may also be introduced into the software market and potential new competitors may enter the software development and distribution market, resulting in greater 16 _________________________________________________________________ [74]Table of Contents competition |
| Revenues from our distribution business may be adversely affected as Internet technology is improved to enable consumers to purchase and download full-version software products or order products directly from publishers or from unauthorized or illegal sources over the Internet |
| Revenues from our distribution business may decline if the products which we distribute for third-party developers become unavailable to us |
| As part of our distribution business, we earn revenues by distributing to retailers our own products and products of others, including products published by our competitors |
| We cannot assure you that these competitors will continue to provide us with their products for distribution to our mass merchant customers |
| Our inability to obtain software titles developed or published by our competitors, coupled with our inability to obtain these titles from other distributors, could have a material adverse effect on our relationships with retailers and our ability to obtain shelf space for our own products, as well as our own revenues that we earn from our distribution activities |
| This, in turn, could have a material adverse effect on our business, results of operations and financial condition |
| If our distribution arrangements with IESA are adversely modified or terminated, we may lose revenue or incur disruption in the distribution of our products |
| Pursuant to agreements we have in place with IESA, we distribute products on their behalf in the United States, Canada and Mexico, and IESA distributes products on our behalf in Europe, Asia and certain other regions throughout the world |
| If these agreements, or product licenses to which IESA is a party, are terminated or amended in a manner adverse to us, we may, as applicable: • obtain new distribution arrangements for our products which may be on less favorable terms; • lose revenue from the distribution of IESA’s products; • experience difficulties or other delays in the distribution of our products outside the United States, Canada and Mexico; • incur an increase in the cost of distributing our products outside the United States, Canada and Mexico; or • incur problems with retailers to whom we distribute IESA’s products or to whom IESA distributes our products |
| We may face increased competition and downward price pressure if we are unable to protect our intellectual property rights |
| Our business is heavily dependent upon our confidential and proprietary intellectual property |
| We sell a significant portion of our published software under licenses from independent software developers, and, in these cases, we do not acquire the copyrights for the underlying work |
| We rely primarily on a combination of confidentiality and non-disclosure agreements, patent, copyright, trademark and trade secret laws, as well as other proprietary rights laws and legal methods, to protect our proprietary rights and the intellectual property rights of our developers |
| However, current US and international laws afford us only limited protection and amendments to such laws or newly enacted laws may weaken existing protections |
| Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy our products or franchises, or obtain and use information that we regard as proprietary |
| Software piracy is also a persistent problem in the video game software industry |
| Policing unauthorized use of our products is extremely difficult because video game software can be easily duplicated and disseminated |
| Furthermore, the laws of some foreign countries may not protect our proprietary rights to as great an extent as US law |
| Our business, results of operations and financial condition could be adversely affected if a significant amount of unauthorized copying of our products were to occur or if other parties develop products substantially similar to our products |
| We cannot assure you that our attempts to protect our proprietary rights will be adequate or that our competitors will not independently develop similar or competitive products |
| We may face intellectual property infringement claims which would be costly to resolve |
| As the number of available video game software products increases, and their functionality overlaps, software developers and publishers may increasingly become subject to infringement claims |
| We are not aware that any of our products infringe on the proprietary rights of third parties |
| However, we cannot provide any assurance that third parties will 17 _________________________________________________________________ [75]Table of Contents not assert infringement claims against us in the future with respect to past, current or future products |
| There has been substantial litigation in the industry regarding copyright, trademark and other intellectual property rights |
| We have sometimes initiated litigation to assert our intellectual property rights |
| Whether brought by or against us, these claims can be time consuming, result in costly litigation and divert management’s attention from our day-to-day operations, which can have a material adverse effect on our business, operating results and financial condition |
| We may be burdened with payment defaults and uncollectible accounts if our customers do not or cannot satisfy their payment obligations |
| Distributors and retailers in the video game software industry have, from time to time, experienced significant fluctuations in their businesses, and a number of them have become insolvent |
| The insolvency or business failure of any significant retailer or distributor of our products could materially harm our business, results of operations and financial condition |
| We typically make sales to most of our retailers and some distributors on unsecured credit, with terms that vary depending upon the customer’s credit history, solvency, credit limits and sales history |
| In addition, while we maintain a reserve for uncollectible receivables, the reserve may not be sufficient in every circumstance |
| As a result, a payment default by a significant customer could significantly harm our business and results of operations |
| Our software is subject to governmental restrictions or rating systems |
| Legislation is periodically introduced at the local, state and federal levels in the United States and in foreign countries to establish systems for providing consumers with information about graphic violence and sexually explicit material contained in video game software |
| In addition, many foreign countries have laws that permit governmental entities to censor the content and advertising of video game software |
| We believe that mandatory government-run rating systems may eventually be adopted in many countries that are potential markets for our products |
| We may be required to modify our products or alter our marketing strategies to comply with new regulations, which could increase development costs and delay the release of our products in those countries |
| Due to the uncertainties regarding such rating systems, confusion in the marketplace may occur, and we are unable to predict what effect, if any, such rating systems would have on our business |
| In addition to such regulations, certain retailers have in the past declined to stock some of our and our competitors’ video game products because they believed that the content of the packaging artwork or the products would be offensive to the retailer’s customer base |
| Although to date these actions have not impacted our business, we cannot assure you that similar actions by our distributors or retailers in the future would not cause material harm to our business |
| We may become subject to litigation which could be expensive or disruptive |
| Similar to our competitors in the video game software industry, we have been and will likely become subject to litigation |
| Such litigation may be costly and time consuming and may divert management’s attention from our day-to-day operations |
| In addition, we cannot assure you that such litigation will be ultimately resolved in our favor or that an adverse outcome will not have a material adverse effect on our business, results of operations and financial condition |
| RISKS RELATED TO OUR CORPORATE STRUCTURE AND FINANCING ARRANGEMENTS Our performance may be affected by IESA’s performance and financial stability |
| IESA has incurred significant continuing operating losses and is highly leveraged |
| IESA has taken steps to improve its financial situation, including (i) restructuring its outstanding debt obligations such that the debt amount is reduced and the debt maturity schedule is more favorable, (ii) reducing operating expenses, (iii) raising capital by selling assets (such as the Games |
| com URL), (iv) entering into banking arrangements to fund operations and position itself for the new hardware cycle, and (v) entering into production fund agreements to finance certain game development projects |
| However, IESA has not yet completed all of the actions it plans to take in order to improve its operations and reduce its debt |
| As a result, IESA’s current ability to fund, among other things, its subsidiaries’ operations is diminished |
| There can be no assurance that IESA will complete sufficient actions to assure its future financial stability |
| IESA distributes our products in Europe, Asia, and certain other regions, and pays us royalties in this respect |
| IESA (through its subsidiaries) also develops products which we distribute in the US, Canada, and Mexico and for which we pay royalties to IESA Both IESA and Atari Interactive are material sources of products which we market in the United States, Canada and Mexico |
| Atari Interactive was the source of approximately 31prca of our fiscal 2006 net publishing product revenue 18 _________________________________________________________________ [76]Table of Contents and we generated approximately 8prca of our fiscal 2006 net revenue from royalties on IESA’s distribution of our products in Europe, Asia, and certain other regions |
| If IESA is unable to complete its action plan and address its liquidity problems and fund its working capital needs, IESA would likely be unable to fund its and its subsidiaries’ video game development operations, including those of Atari Interactive |
| Our results of operations could be materially impaired if IESA fails to fund Atari Interactive, as any delay or cessation in product development could materially decrease our revenue from the distribution of Atari Interactive and IESA products |
| If the above contingencies occurred, we probably would be forced to take actions that could result in a significant reduction in the size of our operations and could have a material adverse effect on our revenue and cash flows |
| Additionally, although we are a separate and independent legal entity and we are not a party to, or a guarantor of, and have no obligations or liability in respect of IESA’s indebtedness (except that we have guaranteed the Beverly, MA lease obligation of Atari Interactive), because IESA owns the majority of our common stock, potential investors and current and potential business/trade partners may view IESA’s financial situation as relevant to an assessment of Atari |
| Therefore, if IESA is unable to address its financial issues, it may taint our relationship with our suppliers and distributors, damage our business reputation, affect our ability to generate business and enter into agreements on financially favorable terms, and otherwise impair our ability to raise and generate capital |
| IESA controls us and could prevent a transaction favorable to our other stockholders |
| IESA beneficially owns approximately 51prca of our common stock, which gives it sufficient voting power to prevent any transaction that it finds unfavorable, including an acquisition, consolidation or sale of assets that might be desirable to our other stockholders |
| Additionally, IESA could unilaterally approve certain transactions as a result of its majority position |
| IESA also has sufficient voting power to elect all of the members of our Board of Directors |
| Currently, four of the eight members of our Board of Directors are directors, employees or former employees (within three years) of IESA or its affiliates |
| One of the remaining four directors is currently affiliated with us |
| Therefore, only three of the eight directors are considered independent |
| This concentration of control could be disadvantageous to other stockholders whose interests differ from those of IESA Our affiliates retain considerable control over the Atari trademarks, and their oversight or exploitation of such trademarks could affect our business |
| Atari Interactive, a wholly owned subsidiary of IESA, has granted us the right to use the Atari name for software video games in the United States, Canada and Mexico |
| However, in addition to an initial upfront payment, we must pay a royalty equal to 1prca of our net revenues during each of 2009 through 2013 |
| We are subject to quality control oversight for our use of the Atari name |
| Any disputes over our performance under the trademark license agreement could materially affect our business |
| Furthermore, Atari Interactive’s use of the Atari mark (either itself or through its affiliates or third parties) to exploit products could affect the reputation or value associated with the Atari mark, and therefore materially affect our business |
| Therefore, we are dependent upon the cooperation and business actions of IESA and its affiliates with regard to the Atari trademark |
| Our restructuring efforts will create short term costs that may not be offset by increased efficiencies |
| We are incurring substantial costs in connection with our restructuring efforts, including severance obligations, relocation expenses, advisor fees, and lease obligations for unused property |
| Though we anticipate that the restructuring will ultimately result in reduced general and administrative expenses and more efficient corporate operations, we can give no assurance that we will be successful in redefining our cost and operational structures in the near term |
| If we are not successful, we may not see cost savings that justify these measures, which may negatively impact our results of operations |
| We have no revolving credit facility |
| On May 31, 2006 our dlra50dtta0 million revolving credit facility with HSBC expired |
| However, in January 2006, HSBC suspended our right to borrow under the revolving credit facility because we were not in compliance with certain financial covenants in the Revolving Credit Agreement |
| Therefore, in effect, we have not had a revolving credit facility, or any other source of working capital financing since January 2006 |
| We have had discussions with possible providers of working capital financing, and believe that we could arrange working capital financing secured by our accounts receivable and inventory |
| However, the financing would likely be expensive at our current levels of accounts receivable, and inventory would likely not provide adequate financing capacity to justify the cost |
| 19 _________________________________________________________________ [77]Table of Contents RISKS RELATED TO OUR COMMON STOCK The price of our common stock is very low |
| At June 27, 2006, the last reported sale price of our common stock was dlra0dtta52 per share |
| This represents a sharp decline from the price at which it once traded one, two, and three years earlier |
| The last reported sale prices on June 27, 2005, 2004, and 2003 were dlra2dtta76, dlra2dtta53, and dlra4dtta69, respectively |
| Because of that, a sale of stock, convertible debt, or other forms of stock-based securities in order to raise even a relatively moderate amount of funds would significantly dilute the percentage ownership of our existing stockholders |
| IESA is in a position to prevent us from selling stock |
| It is likely that anyone who purchases our common stock will insist on receiving a discount even from the current very low market price of the stock |
| Under the rules of the NASDAQ National Market, a sale of stock for less than its market price (or its book value) must be approved by our stockholders |
| As the owner of the majority of our common stock, we will not be able to obtain stockholder approval of a sale of 20prca or more of our common stock unless IESA approves it |
| IESA has historically desired to maintain its ownership of a majority of our outstanding stock |
| Because IESA currently owns only a little more than 50prca of our common stock, unless IESA changes that position, we will not be able to sell stock or securities that are convertible into our common stock unless we simultaneously sell shares to IESA or otherwise enter into a transaction in which we issue shares to IESA We are not in compliance with the NASDAQ continued listing requirements |
| We have been notified by the NASDAQ National Market that, because the price of our common stock traded below dlra1dtta00 per share for thirty consecutive days, and continues to do so, we are not in compliance with one of the NASDAQ National Market’s continued listing requirements |
| If our common stock does not, by August 30, 2006, trade at or above dlra1dtta00 per share for at least 10 consecutive trading days, we will be notified that our common stock will be delisted |
| We have the right to appeal a decision to delist our common stock, but that appeal will probably have to be based on a plan that will present substantial assurance that our common stock will trade at prices above dlra1dtta00 |
| A plan of that type might involve a reverse stock split, although it is not uncommon for stocks that are the subject of reverse stock splits to decline rapidly to prices near those before the reverse stock splits |
| Another possibility if our common stock were delisted from the NASDAQ National Market System would be to attempt to list it on the NASDAQ Capital Market |
| Ultimately, however, if the price of our common stock were to continue to trade at its current level, it would probably no longer be eligible to be quoted on any NASDAQ electronic trading market |
| AVAILABLE INFORMATION We file annual, quarterly and current reports, proxy statements and other information with the SEC Our SEC filings, including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) of the Exchange Act, are available to the public free of charge over the Internet at our website at http://www |
| com or at the SEC’s web site at http://www |
| Our SEC filings will be available on our website as soon as reasonably practicable after we have electronically filed or furnished them to the SEC You may also read and copy any document we file at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549 |