| SHARPER IMAGE CORP ITEM 1A RISK FACTORS If we fail to continuously offer new merchandise that our customers find attractive, the demand for our products may be limited |
| In order to meet our strategic goals we must successfully offer our customers new, innovative and high-quality products on a continuous basis |
| Our product offerings must be affordable, useful to the customer, well-made, distinctive in design and not widely available from other retailers |
| We cannot predict with certainty that we will successfully offer products that meet these requirements in the future |
| Some products or a group of related products usually produce sales volumes that are significant to our total sales volume in a particular period |
| If other retailers, especially department stores or discount retailers, offer the same products or products similar to those we sell, or if our products become less popular with our customers, our sales may decline or we may decide to offer our products at lower prices |
| If customers buy fewer of our products or if we have to reduce our prices, our revenues and earnings will decline |
| Our products must appeal to a broad range of consumers whose preferences we cannot predict with certainty and may change between sales seasons |
| If we do not maintain sufficient inventory levels, if we are unable to deliver our products to our customers in sufficient quantities, or if our inventory levels are too high, our operating results will be adversely affected |
| We must be able to deliver our merchandise in sufficient quantities to meet the demands of our customers and deliver this merchandise to customers in a timely manner |
| We must be able to maintain sufficient inventory levels, particularly during the peak holiday selling season |
| If we fail to achieve these goals we may be unable to meet customer demand and our future results will be adversely affected if we are not successful in achieving these goals |
| If our inventory levels are too high we may recognize lower gross margins in order to sell through this inventory |
| Our success depends on our ability to anticipate and respond to changing product trends and consumer demands in a timely manner |
| A significant portion of our sales during any given period of time may be generated by a particular product or line of products and if sales of those products or line of products decrease, our results of operations may be adversely affected |
| During fiscal 2005 and fiscal 2004 the sales of our air purification line of products constituted a significant portion of our total revenues and net income |
| Although not as significant, the sales from our home and portable stereo system and massage product lines constituted a substantial portion of our total revenues and net income for both fiscal 2005 and 2004 |
| The decrease in revenues for fiscal 2005 as compared to fiscal 2004 was due primarily to a decrease in the sale of our air purification and massage chair line of products |
| Our future success will be substantially dependent on the continued sales of existing core as well as new products, while at the same time achieving and improving on current gross margin rates |
| We cannot predict whether we will be able to increase sales of existing core products or successfully introduce new products, increase our revenue level or achieve higher gross margin rates in future periods |
| Failure to do so may adversely affect our results of operation |
| Poor economic conditions may reduce consumer spending on discretionary retail products such as the ones we offer |
| Consumer spending patterns, particularly discretionary spending for products such as ours, are affected by, among other things, prevailing economic conditions, stock market volatility, increasing gas prices, war and threats of war, acts of terrorism, wage rates, interest rates, inflation, taxation, consumer confidence and consumer perception of economic conditions |
| General economic, political and market conditions, such as recessions, may adversely affect our business results and the market price of our common stock |
| We may not be able to accurately anticipate the magnitude of the impact of these conditions on future quarterly results |
| 12 ______________________________________________________________________ [40]Table of Contents Our success depends in part on our ability to internally design and develop our Sharper Image Design products |
| We have invested significant resources in and are significantly dependent on the success of Sharper Image Design products |
| These products have typically generated higher gross margins than other products and our merchandising strategy emphasizes these products |
| Some of these products or a group of related products, which are affected by customers’ demands and the level of our marketing and advertising efforts, can produce sales volumes that are significant to our total sales volume in a particular period |
| In order to be successful, we must continue to design and develop products that meet the demands of our customers, as well as create customer demand for these products |
| Our goal is to increase the percentage of total revenues attributable to Sharper Image Design and Sharper Image branded products, although we expect this percentage may decline from time to time and cannot assure you we will otherwise achieve our goal |
| If we are unable to successfully design and develop these products, our operating results may be adversely affected |
| We rely on foreign sources of production and our business would be adversely affected if our suppliers are not able to meet our demand and alternative sources are not available |
| We must ensure that the products we design and develop are manufactured cost-effectively |
| We rely solely on a select group of contract manufacturers, most of whom are located in Asia (primarily China), to produce these products in sufficient quantities to meet customer demand and to obtain and deliver these products to our customers in a timely manner |
| These arrangements are subject to the risks of relying on products manufactured outside the United States, including political unrest and trade restrictions, local business practices and political issues, including issues relating to compliance with domestic or international labor standards, currency fluctuations, work stoppages, economic uncertainties, including inflation and government regulations, availability of raw materials and other uncertainties |
| If we are unable to successfully obtain and timely deliver sufficient quantities of these products, our operating results may be adversely affected |
| In July 2005, China permitted the exchange rate of its currency, the Chinese Yuan (“CNY”), to float against the US Dollar (“USD”) |
| Although substantially all of our supply contracts in China are denominated in USD, our suppliers could attempt to renegotiate these contracts and increase costs to us if the CNY/USD exchange rate were to change materially |
| We had a single supplier located in Asia for a number of our products that provided approximately 19prca of the net merchandise purchases in fiscal 2005 |
| If we were unable to obtain products from this supplier on a timely basis or on commercially reasonable terms, our operating results may be adversely affected |
| Some of our smaller vendors have limited resources, limited production capacities and limited operating histories |
| We have no long-term purchase contracts or other contracts that provide continued supply, pricing or access to new products and any vendor or distributor could discontinue selling to us at any time |
| We compete with many other companies for production facilities and import quota capacity |
| We cannot assure you that we will be able to acquire the products we desire in sufficient quantities or on terms that are acceptable to us in the future |
| In addition, we cannot assure you that our vendors will make and deliver high quality products in a cost-effective, timely manner |
| We also may be unable to develop relationships with new vendors |
| We depend on our vendors’ ability to timely deliver sufficient quantities of products and our business can be harmed by work stoppages or other interruptions to delivery of products |
| All products we purchase from our vendors in Asia must be shipped to our distribution centers by freight carriers and we cannot assure you that we will be able to obtain sufficient freight capacity on a timely basis and at favorable rates |
| Our inability to acquire suitable products in a cost-effective, timely manner or the loss of one or more key vendors or freight carriers could have a negative effect on our business |
| Many of our shipments that come from Asia move through the West Coast ports that have been negatively impacted in recent years by labor slowdowns |
| During the second half of fiscal 2004, a slowdown caused our airfreight costs to increase as we used alternative delivery methods to mitigate some of the impacts of the 13 ______________________________________________________________________ [41]Table of Contents slowdown |
| The increased usage of air freight transportation had a negative impact on our gross margins and expenses |
| Future slowdowns at the ports would cause supply chain issues for us and might adversely affect our operating results |
| Our ability to protect our proprietary technology, which is vital to our business, particularly our air purification products, is uncertain and our inability to protect these rights could impair our competitive advantage and cause us to incur substantial expense to enforce our rights |
| com,” “Sharper Image Design” and “Sharper Image” as well as the trademark fame that we have established are of significant value |
| We actively pursue and protect, domestically and internationally, our corporate trademarks, patents, copyrights and trade secrets to ensure that the quality of our brand and the value of our proprietary rights are maintained |
| We also seek patents to establish and protect our proprietary rights relating to the technologies and products we have developed, are in the process of developing, or that we may develop in the future |
| As of January 31, 2006, we held 71 US utility patents and more than 120 US design patents |
| We cannot assure you that a third party will not infringe upon or design around any patent issued or licensed to us, including the patents related to our air purification line of products, or that these patents will otherwise be commercially viable |
| Litigation to establish the validity of patents, to defend against patent infringement claims of others and to assert patent infringement claims against others can be expensive and time-consuming even if the outcome is favorable to us |
| If the outcome is unfavorable to us, we may be required to pay damages, pay ongoing fees if we continue to sell the product, stop production and sales of infringing products or be subject to increased competition from similar products |
| We have taken and may, in the future, take steps to enhance our patent protection, but we cannot assure you that these steps will be successful or that our patent protection will be adequate |
| We also rely upon trade secrets, know-how, continuing technological innovations and licensing opportunities to develop and maintain our competitive position |
| We attempt to protect our proprietary technology in large part by confidentiality agreements with our employees, consultants and other contractors |
| We cannot assure you, however, that these agreements will not be breached, that we will have adequate remedies for any breach or that competitors will not know of or independently discover our trade secrets |
| Our quarterly operating results and comparable store sales are subject to significant fluctuations and seasonality |
| Our business is seasonal, reflecting the general pattern of peak sales and earnings for the retail industry during the fourth quarter holiday shopping season |
| Typically, a substantial portion of our total revenues and all or most of our net earnings occur during our fourth quarter ending on January 31 |
| The fourth quarter accounted for approximately 40prca of total revenues in both fiscal 2005 and 2004 |
| In addition, the fourth quarter accounted for substantially all of our net earnings in fiscal 2004 and was the only the quarter in which we had an operating profit in fiscal 2005 |
| In anticipation of increased sales activity during the fourth quarter, we incur significant additional expenses, including significantly higher inventory costs and the costs of hiring a substantial number of temporary employees to supplement our regular staff |
| If for any reason our sales were to be substantially below those normally expected during the fourth quarter, our annual operating results would be adversely affected |
| Due to this seasonality, our operating results for any one period may not be indicative of our operating results for the full fiscal year |
| We generally experience lower revenues and net operating results during our first three quarters of the fiscal year and have historically experienced losses in these quarters |
| Our quarterly results of operations may fluctuate significantly as a result of a variety of factors including, among other things, the timing of new store openings, net sales contributed by new stores, increases or decreases in comparable store sales, changes in our merchandise mix and net catalog sales |
| 14 ______________________________________________________________________ [42]Table of Contents In addition, as with other retailers, we typically make merchandising and purchasing decisions well in advance of the holiday shopping season |
| As a result, poor economic conditions or lower than projected customer demand for our products during the fourth quarter could result in lower revenues and net operating results |
| Our comparable store sales also fluctuate significantly and can contribute to fluctuations in our quarterly operating results |
| Our comparable store sales are affected by a variety of factors, including customer demand in different geographic regions, our ability to efficiently source and distribute products, changes in our product mix, competition, advertising and our wholesale operations |
| Although we believe it is sound business strategy to take advantage of broadening our customer base and to leverage our brand and advertising through the increase in our wholesale business, the impact of selling our Sharper Image Design and Sharper Image branded products through an increased number of other selected retailers may put pressure on our own comparable store sales increase percentage |
| Our comparable store sales have fluctuated significantly in the past and we believe that such fluctuations may continue |
| For fiscal 2005, we experienced decreasing comparable store sales and expect this to continue for at least a portion of fiscal year 2006 |
| Our historic comparable net store sales changes from the prior fiscal year were as follows: Fiscal year Percentage increase (decrease) 2000 29dtta0 2001 (16dtta0 ) 2002 13dtta6 2003 15dtta3 2004 (1dtta1 ) 2005 (16dtta0 ) Comparable store sales are not a measure that has been defined under generally accepted accounting principles |
| We define comparable store sales as sales from stores where selling square feet did not change by more than 15prca in the previous 12 months and which have been open for at least 12 months |
| Stores are generally included in our annual comparable store sales calculation once they have 24 months of comparable sales |
| We cannot assure you that our comparable store sales results will increase in the future |
| Any reduction in or failure to increase our comparable store sales results could impact our future operating performance and cause the price of our common stock to decrease |
| We are dependent on the success of our advertising and direct marketing efforts and our profitability will be adversely affected by increased costs associated with these efforts |
| Our revenues depend in part on our ability to effectively market and advertise our products through The Sharper Image catalog and direct marketing operations |
| Increases in advertising, paper or postage costs may limit our ability to advertise without reducing our profitability |
| We are also utilizing and constantly testing other advertising media, such as infomercials, radio, single product mailings and other print media |
| If we decrease our advertising efforts, as we did in fiscal 2005, due to increased advertising costs, restrictions placed by regulatory agencies or for any other reason, our future operating results may be materially and adversely affected |
| Our advertising expenditures decreased by approximately dlra36dtta1 million, or 24dtta1prca, in fiscal 2005 from the prior fiscal year |
| If our advertising is ineffective and our increased advertising expenditures do not result in increased sales volumes, our sales and profits will be adversely affected |
| We depend on the continued availability of infomercial time at reasonable prices |
| We expect to continue to spend on advertising and marketing at significant levels in fiscal 2006 but at lower levels than fiscal 2005 |
| We may not be able to continue to produce a sufficient level of sales to cover such expenditures, which would reduce our profitability or increase our net loss |
| 15 ______________________________________________________________________ [43]Table of Contents Our wholesale sales present certain risks that could adversely affect our profitability |
| We sell products through a multichannel strategy |
| While we believe that our wholesale sales offer growth opportunities and exposure to a greater customer base, this growth could adversely impact our business |
| In general, depending on product mix, our sales to wholesale partners carry lower gross margins than sales made through our other channels |
| In addition, these sales could shift sales from our higher margin sales channels, particularly our retail and catalog channels |
| Wholesale customers may also decide to decrease or eliminate their level of purchases |
| Our business will be harmed if we are unable to successfully implement our growth strategy |
| Our growth strategy primarily includes the following components: • increase Sharper Image Design and Sharper Image branded product offerings; • broaden our customer base; • open new stores; and • broaden our sales and marketing channels |
| Any failure on our part to successfully implement any or all components of our growth strategy would likely have a material adverse effect on our financial condition, results of operations and cash flows |
| We believe our past growth has been attributable in large part to our success in meeting the merchandise, timing and service demands of an expanding customer base with changing demographic characteristics, but there is no assurance that we will be able to continue to have such success |
| Due to challenges in our business in fiscal 2005, our current plan is to moderate store growth in fiscal 2006 to six to eight new stores as compared to 20 in fiscal 2005, 28 in fiscal 2004 and 25 in fiscal 2003 |
| The decrease in the rate we plan to open new stores in fiscal 2006 compared to prior years will limit our ability to increase net store sales |
| The expansion of our store operations could result in increased expenses with no guarantee of increased profitability |
| We plan to open approximately six to eight new stores in fiscal 2006 |
| We may not be able to attain our target new store openings, and any of our new stores that we open may not be profitable, either of which could have an adverse impact on our financial results |
| Our ability to expand by opening new stores will depend in part on the following factors: • the availability of attractive store locations; • our ability to negotiate favorable lease terms; • our ability to identify customer demand in different geographic areas; • the availability and cost of store fixtures; • general economic conditions; and • availability of sufficient funds for expansion |
| Even though we continue to expand our store base, we have remained concentrated in limited geographic areas |
| This could increase our exposure to customer demand, weather, competition, distribution problems and poor economic conditions in these regions |
| In addition, our catalog sales, Internet sales or existing store sales in a specific region may decrease as a result of new store openings |
| If store sales are inadequate to support these new costs, our profitability will decrease |
| For example, inventory costs will increase as we increase inventory levels to supply additional stores |
| We may not be able to manage this increased inventory without 16 ______________________________________________________________________ [44]Table of Contents decreasing our profitability |
| Our current credit facility has various loan covenants we must comply with in order to maintain the credit facility |
| We cannot predict whether we will be successful in obtaining additional funds or new credit facilities on favorable terms or at all |
| We rely on our catalog operations which could have significant cost increases and could have unpredictable results |
| Our success depends in part on the success of our catalog operations |
| We believe that the success of our catalog operations depends on the following factors: • our ability to achieve adequate response rates to our mailings; • our ability to continue to offer a merchandise mix that is attractive to our mail order customers; • our ability to cost-effectively add new customers; • our ability to cost-effectively design, produce and deliver appealing catalogs; and • timely delivery of catalog mailings to our customers |
| Catalog production and mailings entail substantial paper, postage, merchandise acquisition and human resource costs, including costs associated with catalog development and increased inventories |
| We incur nearly all of these costs prior to the mailing of each catalog |
| As a result, we are not able to adjust the costs incurred in connection with a particular mailing to reflect the actual performance of the catalog |
| Increases in costs of mailing, paper or printing would increase costs and would adversely impact our earnings if we were unable to pass such increases directly on to our customers or offset such increases by raising prices or by implementing more efficient printing, mailing, delivery and order fulfillment systems |
| If we were to experience a significant shortfall in anticipated revenue from a particular mailing, and thereby not recover the costs associated with that mailing, our future results would be adversely affected |
| In addition, response rates to our mailings and, as a result, revenues generated by each mailing are affected by factors such as consumer preferences, economic conditions, the timing and mix of catalog mailings, the timely delivery by the postal system of our catalog mailings and changes in our merchandise mix, several or all of which may be outside our control |
| Further, we have historically experienced fluctuations in the response rates to our catalog mailings |
| If we are unable to accurately target the appropriate segment of the consumer catalog market or to achieve adequate response rates, we could experience lower sales, significant markdowns or write-offs of inventory and lower margins, which would adversely affect our future results |
| We have distribution and fulfillment operations located in Little Rock, Arkansas; Ontario, California; and Richmond, Virginia |
| Any disruption of the operations in these centers could make it difficult to meet customer demand |
| We conduct the majority of our distribution operations and all of our catalog and Internet order processing fulfillment functions from our own facility in Little Rock, Arkansas; and leased facilities in Little Rock, Arkansas; Ontario, California; and Richmond, Virginia |
| We also use contract fulfillment and warehouse facilities for additional seasonal requirements |
| Any disruption in the operations at any distribution center, particularly during the holiday shopping season, could result in late delivery of products and make it difficult to meet customer demand for our products |
| In addition, we rely upon third party carriers for our product shipments, including shipments to and from all of our stores |
| We are also dependent on temporary employees to adequately staff our distribution facilities, particularly during busy periods such as the holiday shopping season |
| We cannot assure you that we will continue to receive adequate assistance from our temporary employees, or that we will continue to have access to sufficient sources of temporary employees |
| 17 ______________________________________________________________________ [45]Table of Contents We experience intense competition in the rapidly changing retail markets and if we are unable to compete effectively, we may not be able to maintain profitability |
| We operate in a highly competitive environment |
| We principally compete with a variety of department stores, sporting goods stores, discount stores, specialty retailers and other catalogs that offer products similar to or the same as our products |
| We may increasingly compete with major Internet retailers |
| Many of our competitors are larger companies with greater financial resources, a wider selection of merchandise and greater inventory availability and offer the convenience of one-stop shopping |
| Specialty retailers, such as electronics stores, may offer only a certain category of product but often offer a wider range of selection within a particular category of product |
| Discount stores may offer analogous products at lower price points |
| We offer a more limited range of products compared to our competitors, and if we are unable to anticipate the preferences of our customers and effectively market and distinguish The Sharper Image brand, or if we experience increased competition, our business and operating results could be adversely affected |
| The US retail industry, the specialty retail industry in particular, and the e-commerce sector are dynamic in nature and have undergone significant changes over the past several years |
| Our ability to anticipate and successfully respond to continuing challenges is critical to our long-term growth and we cannot assure you that we will anticipate and successfully respond to changes in the retail industry and e-commerce sectors |
| We maintain a liberal merchandise return policy, which allows customers to return most merchandise, and as a result, excessive merchandise returns could harm our business |
| We make allowances for returns of store, catalog and Internet sales in our financial statements based on historical return rates |
| We cannot assure you that actual merchandise returns will not exceed our allowances |
| In addition, because our allowances are based on historical return rates, we cannot assure you that the introduction of new merchandise in our stores or catalogs, the opening of new stores, the introduction of new catalogs, increased sales over the Internet, changes in our merchandise mix or other factors will not cause actual returns to exceed return allowances |
| Any significant increase in merchandise returns that exceed our allowances could have a material adverse effect on our future results |
| We may be subject to risks associated with our products, including product liability or patent and trademark infringement claims |
| Our current and future products may contain defects, which could subject us to product liability claims, higher return rates and product recalls |
| Although we maintain limited product liability insurance, if any successful product liability claim or product recall is not covered by or exceeds our insurance coverage, our business, results of operations and financial condition would be harmed |
| Additionally, third parties may assert claims against us alleging infringement, misappropriation or other violations of patent, trademark or other proprietary rights, whether or not such claims have merit |
| Such claims can be time consuming and expensive to defend and could require us to cease using and selling the allegedly infringing products, which may have a significant impact on total company sales volume, and could cause us to incur significant litigation costs and expenses |
| If we lose our key personnel, we may not be able to successfully develop and merchandise our products |
| Our success depends to a significant extent upon the abilities of our senior management, particularly Richard Thalheimer, our Founder, Chairman and Chief Executive Officer |
| The loss of the services of any of the members of our senior management or of certain other key employees could have a significant adverse effect on our business, financial condition and operating results |
| We maintain key man life insurance on Mr |
| Thalheimer in the amount of dlra15 million |
| Thalheimer’s employment are governed by an employment agreement |
| Our future performance will depend upon our ability to attract and retain qualified management, merchandising and sales personnel |
| There can be no assurance that the members of our existing management team will be able to manage our company or our growth or that we will be able to attract and hire additional qualified personnel as needed in the future |
| 18 ______________________________________________________________________ [46]Table of Contents A single shareholder exerts considerable influence over our business affairs and may make business decisions which may not be in your best interest |
| As of January 31, 2006, Richard Thalheimer, our Founder, Chairman and Chief Executive Officer, beneficially owned approximately 22prca of our common stock |
| Thalheimer will continue to exert substantial influence over the election of directors and over our corporate actions |
| Our common stock price is volatile |
| Our common stock is quoted on the NASDAQ National Market, which has experienced and is likely to experience in the future significant price and volume fluctuations, which could reduce the market price of our common stock without regard to our operating performance |
| From February 1, 2005, to January 31, 2006, the price per share of our common stock has ranged from a high of dlra17dtta20 to a low of dlra8dtta86 |
| We believe that among other factors, any of the following factors could cause the price of our common stock to fluctuate substantially: • monthly fluctuations in our comparable store sales; • announcements by activist shareholders; • announcements by other retailers; • the trading volume of our common stock in the public market; • general economic conditions; • financial market conditions; • acts of terrorism; and • war and threats of war |
| Our charter documents, Delaware law, stockholders rights plan and other agreements may make a takeover of us more difficult |
| We are a Delaware corporation |
| The Delaware General Corporation Law contains certain provisions that may make a change in control of our company more difficult or prevent the removal of incumbent directors |
| In addition, our Certificate of Incorporation and Bylaws and our stockholders rights plan and other agreements contain provisions that may have the same effect |
| These provisions may have a negative impact on the price of our common stock, may discourage third-party bidders from making a bid for our company or may reduce any premiums paid to stockholders for their common stock |
| We face risks arising from the outcome of various litigation matters |
| We are and have been in the past involved in various litigation matters, including those arising in the ordinary course of business |
| While we do not believe that any of these litigation matters alone or in the aggregate will have a material adverse effect on our financial position, an adverse outcome in one or more of these matters could be material to our results of operations for any one period |
| Further, litigation can consume substantial financial and management resources and no assurance can be given that any adverse outcome would not be material to our financial position |
| Our business could be negatively impacted by natural disasters and their effects |
| Our sales could be negatively impacted by natural disasters |
| Loss of sales from affected store locations, as well as potential catalog and Internet sales from the affected region can have a negative impact on our overall sales |
| In addition to the loss of sales, we could also incur substantial property damage and inventory loss at the affected locations |
| 19 ______________________________________________________________________ [47]Table of Contents As a well known company we are susceptible to unsolicited attention in the print and electronic media |
| The Sharper Image name is well known and, as a result, appears often in print and electronic media |
| Because of the right to free speech, we may not have any ability to prevent or respond to the content of these publications, even if we strongly disagree with the content and/or conclusions |
| Even if we are vigorous in expressing our disagreement, negative press has the potential to adversely impact our business |
| We are reliant on third party credit processors for a portion of our business |
| We rely on third party credit card processors and other payment vendors to process the payment of many of our customers’ purchases, some of which may be affected by fraudulent conduct beyond our control |
| Under certain circumstances which cannot be specifically predicted and whose outcomes may be influenced by considerations beyond our control, we may disagree with these processors as to which party is responsible for fraudulent transactions |
| Depending on the outcome of these disagreements, operating results may be adversely affected |
| We have received notice from an investment group that it intends to replace members of our Board of Directors |
| We received a notice from Knightspoint Partners II, LP in March 2006 indicating that it intends to nominate seven individuals to our board of directors and present a number of proposals at our 2006 annual meeting of stockholders |
| In April 2006, a Schedule 13D was filed by Firebrand Partners II, LLC and other persons named therein indicating that they may nominate a slate of directors to our board but no candidates were named |
| The candidates and proposals in the Knightspoint filing are currently being evaluated by our nominating committee and board of directors |
| If we were to oppose the Knightspoint nominees or proposals as not in the best interest of the Company or our stockholders, management would be required to expend substantial time and energy, which may divert management’s attention from our operations |
| In connection with these matters, and regardless of whether we oppose the Knightspoint nominees and proposals, we will incur significant additional costs, including legal and financial advisory fees, that will negatively impact our operating results |
| At this time, management cannot estimate the impact that such proposals will have on our operating results |
| We may also experience management and employee distraction and may have difficulty attracting and retaining employees as a result of the uncertainty created by these matters |