Item
1. Description of Business
The
Company
Action
Fashions, Ltd. is in the business of retail sports apparel sales. Our executive
offices are located at, P.O. Box 235472, Encinitas, California, 92024. Our
telephone number is (858) 229-8116. Our retail location is located at 2026
Lowe
Street, Fort Collins, CO 80525.
We
were
originally incorporated under the laws of the State of Colorado on June 22,
1990, as U.S.A. Connection, Inc. Since inception, we did not have business
operations and we lost our charter with the Colorado Secretary of State on
April
1, 2004. We began business operations on June 1, 2005 and our charter was
reinstated on September 19, 2005. On October 28, 2005, we filed Articles of
Amendment with the Colorado Secretary of State changing our name to Action
Fashions, Ltd. Our fiscal year end is March 31
st
.
We
began
operations on June 1, 2005, via an arms length asset purchase agreement with
G.K. Gymnastics, Inc. Pursuant to the asset purchase agreement, we purchased
the
retail inventory of G.K. Gymnastics, Inc. for a total purchase price of $19,000
which was wholesale value of the goods purchased. The $19,000 purchase price
was
paid for with a five year, zero interest, $19,000 promissory note.
The
Business
We
are an
apparel company specializing in the retail sales of exercise, gymnastics, and
dance apparel including clothing, outfits, shoes and related accessories. Our
sole retail outlet is presently within the facilities of G.K. Gymnastics, Inc.,
a dance and gymnastics school/studio located in Fort Collins, Colorado. By
embedding our retail facility internally at the school/studio we have been
able
to market to a captive audience of dance and gymnastics students with minimal
outside competition. Our goal is to expand our retail outlet from the current
location to multiple dance and gymnastics schools throughout the country
beginning with the State of Colorado. Our auditors have expressed concern about
our ability to continue as a going concern.
General
Market
The
gymnastics and dance markets continue to grow each year in the United States.
According to the website (
www.usa-gymnastics.org
)
of USA
Gymnastics, the sole national governing body for the sport of artistic and
rhythmic gymnastics in the United States, USA Gymnastics currently maintains
a
grass roots membership base of approximately 3,000,000 recreational gymnasts,
85,000 competitive gymnasts, 15,000 professional members and 4,000 gymnastic
clubs in throughout the United States. General public interest for gymnastics
has continued to maintain record highs over the last few years and Gymnastics
continues to be the most popularly viewed Olympic sport. Over 40 million
households tuned into USA gymnastics telecasts on NBC Sports during the 2000
Olympic season. (Source:
www.usa-gymnastics.org
).
Dance
studios and schools as well continue to maintain a significant presence. The
US
Census Bureau’s 2002 Economic Census reported approximately 6,504 dance schools
in the United States.
Merchandise/Product
We
focus
on dance and gymnastics clothing and accessories. These items are distinguished
from normal women’s apparel in that dance and gymnastics apparel must be
comfortable and provide freedom of movement. Dancers and gymnasts need clothes
made from fabrics that breathe, are quick drying and transport moisture away
from the skin, to keep them dry and comfortable during intense workouts and
performances.
We
currently maintain distribution, consignment or similar wholesale supply
relationships with the following manufacturers of dance and gymnastics apparel.
These relationships allow us to buy products at wholesale, team and quantity
discount prices.
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|
Capezio
(Ballet Makers, Inc.) -
Ballet Makers Incorporated is one of the leading manufactures of
clothing
for the performer in dance, theater and recreation. For over 100
years,
they have been committed to providing exceptional service to customers
with innovative, quality products and services, while continuously
advancing market research and technologies (Source:
).
|
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|
Elite
Sportswear GK
-
Elite Sportswear GK
is
a well recognized manufacturer of gymnastics apparel around the world.
Elite Sportswear is recognized around the globe for superior quality,
styling, and fit, and friendly, knowledgeable customer service. With
the
release of ten catalogs a year and Custom Design Services, Elite
Sportswear offers more Workout and Team apparel choices than anyone
else.
Since 2000, Elite Sportswear in affiliation with Addidas America
has been
manufacturing the United States National, World, and Olympic Team
Apparel
(Source:
www.gk-elitesportswear.com).
|
§
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Tighe
Industries
-
Tighe designs, manufactures, and markets garments designed for dance
recitals, gymnastics schools, cheerleaders, and drill teams. Tighe
Industries, located in York, Pennsylvania, is a company with a global
focus. With sales representatives in Japan, the United Kingdom, Ireland,
Iceland and Germany, Tighe has become a world leader in producing
dance
costumes and gymnastics apparel. Olympic teams from around the world
continue to compete in garments designed and produced by Tighe associates.
Specialized lines like Curtain Call Spirit have made tremendous inroads
into the world of professional sports, outfitting cheerleading squads
for
teams like the NBA’s Dallas Mavericks and Cleveland Cavaliers and the
NFL’s Philadelphia Eagles and Buffalo Bills. Tighe Industries has also
provided the costumes for the extravagant Orange and Sugar Bowl halftime
shows (Source: www.tighe.com).
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Gibson,
Inc.
-
For over 30 years Gibson has provided Gymnastics, Fitness, Dance
and
Stretch Apparel to individuals and public and private institutions
concerned about quality when purchasing athletic equipment and supplies.
Gibson is one of the largest manufacturers of innovative dance and
stretch
clothing in the United States and a leading provider of AAI American
competitive gymnastics equipment. Gibson markets products to Schools,
Universities, private gym clubs, dance studios, Parks and Recreation
departments, YMCAs and individuals. Gibson manufactures and sources
equipment from around the world and throughout the U. S. in order
to
provide customers with the best equipment and supplies available
(Source:
).
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Foxy’s
Fitness Fashions
-
Foxy's Fitness Fashions is a manufacturer and retailer of gymnastic
apparel which has been in the business for almost two decades. The
company
specializes in design, specialty fabrics, quality and fit. The company’s
leotards are made in the USA and are sized true to actual clothing
sizes
which makes for a better fit. The company offers six different sizes
for
children and five different sizes for adults. Foxy’s Fitness Fashions
offers a consignment program to us and other retailers (Source:
).
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We
purchase our entire inventory from the above suppliers and manufacturers. We
do
not own or operate any manufacturing facilities. We believe that we have
established sufficient relationships with these suppliers and manufactures
to
meet our ongoing and future inventory needs. We do not have long-term contracts
with the suppliers and manufactures and we transact business principally on
account on an order-by-order basis.
Business
Strategy
Our
retail location is presently located within the 30,000 square foot building
of
the G.K. Gymnastics, Inc. dance and gymnastics school/studio in Fort Collins,
Colorado. The G.K. Gymnastics, Inc. facility has over 700 students, not
including their families. These students and their families serve as our
customer base.
Our
retail location is situated near the main entrance of the G. K. Gymnastics,
Inc.
facility and has its own separate entrance. By embedding the retail facility
internally at the school/studio we are able to market to a captive audience
of
dance and gymnastics students with minimal outside competition. We have found
that the relationship between our retail store and the school/studio has both
increased store sales and satisfied a consumer need for the studio/school and
its members. In addition, we believe that our relationship with the
school/studio gives us an advantage over our competitors because most sales
outlets for dance and gymnastics apparel exist in larger sporting goods stores,
department stores and a limited number of specialty athletic clothing stores.
By
focusing our sales inside the school/studio we can target our market when the
customer enters and exits the school/facility and we believe we will be able
to
compete more efficiently with larger retail competitors. By placing our store
front locations in areas of high target customer traffic with highly visible
product placement and creative store displays, we hope to attract an increased
customer sales base. Our staff are typically experienced dance and gymnastics
instructors that are usually familiar with the customer and understand the
customer’s needs.
Currently,
we do not market outside our embedded facility. We conduct limited marketing
and
advertising, relying more on our individual store displays, embedded location
and word-of-mouth to attract customers. Our product lines are supported by
visual merchandising, which consists of window displays, table layouts and
various promotions. This type of marketing is an important component of our
marketing and promotion strategies since our embedded location provides
significant target customer foot traffic.
We
have
found that many schools and studios throughout the country already maintain
in-store retail sales departments. However, these “stores” are usually poorly
run, unorganized and not properly inventoried. Our goal is to offer
school/studio owners a profit center without the headache and hassle of
merchandizing, inventorying and returning products.
In
addition to our existing location in Fort Collins, Colorado, within the next
12
months, we plan to expand our business into 2 to 4 new locations in existing
gymnastics and dance schools and studios in the state of Colorado.
Our
goal
is to offer other gymnastic and dance schools a “pre-packaged” retail store
whereby we will design and construct small retail outlets within the
school/studio, supply the inventory on an ongoing basis and train the
school/studio’s existing staff to sell the products. We will split the profits
from the sales with the school/studios on a negotiated basis pursuant to
contractual agreements. The pre-packaged program that will allow the studios
and
schools to offer their captive customers dance and gymnastics apparel from
within their existing facility without the cost and burden of establishing
the
store, seeking vendors and/or purchasing large amounts of inventory. We estimate
the cost for each location to be approximately $25,000 - $40,000 depending
on
the location, and plan on raising the funds by a private placement of our
securities.
Competitive
Business Conditions
The
retail gymnastics and dance apparel industry is competitive and highly
fragmented with no standout industry leaders. This type of apparel is usually
sold though sporting goods stores, department stores and a limited number of
specialty athletic clothing stores. We believe our target customers choose
to
purchase apparel based on the following factors: style and fashion, fit and
comfort, customer service, shopping convenience and environment and value and
we
believe that we have advantages over our competitors in meeting these needs.
Specifically, by locating our store within dance and gymnastics studios, we
are
able to make the sale immediately before or after the customer participates
in
the activity in which the apparel is used.
We
experience the normal seasonal pattern of the retail apparel industry with
our
peak sales occurring during the Christmas, back-to-school and spring periods.
In
addition, we also experience additional sales and interest increases in cyclical
periods surrounding the Summer Olympics. To keep merchandise fresh and
fashionable, slow-moving merchandise is marked down throughout the year.
Distribution
Methods of the Products
We
currently market our products to a limited captive market based on our current
location. Products are sold on site with little distribution and shipping costs.
We project revenue increase from future expansion by adding additional retail
outlets in various target market areas throughout the country. There is no
assurance of the revenue increase from future expansion or that expansion will
occur at all.
Our
sole officer/director holds 98% of the outstanding shares and exercises control
of the company.
Our
sole
officer/director, Phillip E. Koehnke, holds 98% of the outstanding shares and
exercises control of the company. Accordingly, our other shareholders will
have
little or no control of the company.
Dependence
on One or a Few Major Customers
We
are
highly dependent on our customer base derived from the location of our facility.
By its nature, our competitive advantage of our internal store location places
us at the mercy of the studios/schools where our facility is or will be located.
In the event the studio/school ceases operations or loses its facility, we
may
lose a key retailer and major customer supplier.
Patents,
trademarks, licenses, franchises, concessions, royalty agreements or labor
contracts, including duration;
We
do not
have any designs which are copyrighted, trademarked or patented.
Effect
of existing or probable governmental regulations on the
business
The
effects of existing or probable government regulations are minimal.
Research
and Development
We
do not
foresee any immediate future research and development costs.
Costs
and effects of compliance with environmental laws
The
expense of complying with environmental regulations is of minimal
consequence.
Number
of total employees and number of full time employees.
We
have
two part-time staff workers. We do not have any full time employees and do
not
expect to hire any new employees within the next 12 months. Mr. Koehnke is
our
sole officer and director.
Item
1a. Risk Factors
An
investment in our common stock involves a high degree of risk. You should
carefully consider the following risk factors and the other information in
this
registration statement before investing in our common stock. Our business and
results of operations could be seriously harmed by any of the following risks.
We
have a limited operating history and may not succeed.
We
have a
limited operating history and may not succeed. Our plans and businesses are
“proposed” and “intended” but we may not be able to successfully implement them.
Our primary business purpose is the expansion of our retail sports apparel
sales
business. We expect that unanticipated expenses, problems, and technical
difficulties will occur and that they will result in material delays in the
operation of our business. We may not obtain sufficient capital or achieve
a
significant level of operations and, even if we do, we may not be able to
conduct such operations on a profitable basis.
Our
sole officer/director holds 98% of the outstanding shares and exercises control
of the company.
Our
sole
officer/director, Phillip E. Koehnke, holds 98% of the outstanding shares and
exercises control of the company. In addition, Mr. Koehnke is our sole employee.
Accordingly, our other shareholders will have little or no control of the
company.
We
may have insufficient funds to implement our expansion strategy.
Our
expansion strategy will require additional capital for, among other purposes,
opening new and relocated stores, renovating existing stores and entering new
markets, including researching existing and new real estate and consumer
markets, lease costs, inventory, property and equipment, integration of new
stores and markets into company-wide systems and programs and other costs
associated with new store, renovated and relocated store and market entry
expenses and growth. If cash generated internally is insufficient to fund
capital requirements, or if funds are not available, we will require additional
debt or equity financing. Adequate financing may not be available or, if
available, may not be available on terms satisfactory to us. If we fail to
obtain sufficient additional capital in the future, we could be forced to
curtail our expansion, renovation and relocation strategies by reducing or
delaying capital expenditures relating to new stores, renovated and relocated
stores and new market entry, selling assets or restructuring or refinancing
our
indebtedness. As a result, there can be no assurance that we will be able to
fund our current plans for the opening of new stores, the expansion, renovation
and relocation of existing stores or entry into new markets
.
Customer
tastes and fashion trends are volatile and may prove difficult to respond to.
Our
success depends in part on our ability to effectively predict and respond to
changing fashion tastes and consumer demands, and to translate market trends
into appropriate, saleable product offerings far in advance. If we are unable
to
successfully predict or respond to changing styles or trends and misjudge the
market for our products or any new product lines, our sales will be lower and
we
may be faced with a substantial amount of unsold inventory or missed
opportunities. In response, we may be forced to rely on additional markdowns
or
promotional sales to dispose of excess, slow-moving inventory, which may have
a
material adverse effect on our business, financial condition and results of
operations.
Existing
and increased competition in the specialty retail apparel business may reduce
our net revenues, profits and market share.
The
specialty retail apparel business is highly competitive. Our retail segment
competes against a wide variety of small, independent specialty stores as well
as department stores, national specialty chains and catalog and Internet-based
retailers. In addition, some of our suppliers offer products directly to
consumers. Many of our competitors are considerably larger and have
substantially greater financial, marketing and other resources than we have.
We
cannot assure you that we will continue to be able to compete successfully
against existing or future competitors. Our expansion into markets served by
our
competitors and entry of new competitors or expansion of existing competitors
into our markets could have a material adverse effect on our business, financial
condition and results of operations.
A
downturn in the economy may affect consumer purchases of discretionary items and
could harm our operating results.
In
general, our sales represent discretionary spending by our customers.
Discretionary spending on our products is affected by many factors, including,
among others:
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general
business conditions;
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the
availability of consumer credit;
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the
number of new and second home purchases;
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unemployment
trends; and
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other
matters that influence consumer confidence and spending.
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Purchases
of discretionary items, including the products we sell, could decline during
periods when disposable income is lower or during periods of actual or perceived
unfavorable economic conditions. If this occurs, our operating results could
suffer.
If
we are unable to maintain the profitability of our existing store and profitably
open and operate new stores, we may not be able to adequately implement our
growth strategy, which may adversely affect our overall operating results.
Our
planned growth depends, in part, on our ability to maintain the profitability
of
our existing store and to open new stores. There can be no assurance, however,
that we will be able to identify and obtain favorable store sites, arrange
favorable leases for stores, obtain governmental and other third-party consents,
permits and licenses needed to expand or operate stores, construct or refurbish
stores, open stores in a timely manner, or hire, train and integrate qualified
sales associates in those stores. If we are unable to profitably open and
operate stores and maintain the profitability of our existing stores, we may
not
be able to adequately implement our growth strategy, which may adversely affect
our overall operating results.
Requirements
associated with being a public company will require significant company
resources and management attention.
Prior
to
this offering, we had not been subject to the reporting requirements of the
Securities Exchange Act of 1934, or the other rules and regulations of the
SEC
or any securities exchange relating to public companies. We are working with
independent legal, accounting and financial advisors to identify those areas
in
which changes should be made to our financial and management control systems
to
manage our growth and our obligations as a public company. These areas include
corporate governance, corporate control, internal audit, disclosure controls
and
procedures and financial reporting and accounting systems. We have made, and
will continue to make, changes in these and other areas, including our internal
controls over financial reporting. However, we cannot assure you that these
and
other measures we may take will be sufficient to allow us to satisfy our
obligations as a public company on a timely basis.
In
addition, being a public company could make it more difficult or more costly
for
us to obtain certain types of insurance, including directors' and officers'
liability insurance, and we may be forced to accept reduced policy limits and
coverage or incur substantially higher costs to obtain the same or similar
coverage. The impact of these events could also make it more difficult for
us to
attract and retain qualified persons to serve on our board of directors, our
board committees or as executive officers.
If
we
grow, we will face the risk that our existing resources and systems may be
inadequate to support our growth. We may also face new challenges, including
an
increase in information to be processed by our management information systems
and diversion of management attention and resources away from existing
operations and towards the opening of new and relocated stores and new markets.
Our current growth strategy will require us to increase our management and
other
resources over the next few years. In particular, heightened new standards
with
respect to internal accounting and other controls, as well as other
resource-intensive requirements of being a public company, may further strain
our business infrastructure. If we are unable to manage our planned growth
and
maintain effective controls, systems and procedures, we would be unable to
efficiently operate and manage our business and may experience errors or
information lapses affecting our public reporting, either of which could
adversely effect our operations and financial condition.
We
typically do not maintain long-term purchase contracts with suppliers, but
instead operate principally on a purchase order basis. Our current suppliers
may
not continue to sell products to us on current terms or at all, and we may
not
be able to establish relationships with new suppliers to ensure delivery of
products in a timely manner or on terms acceptable to us. We may not be able
to
acquire desired merchandise in sufficient quantities on terms acceptable to
us
in the future. Our business could also be adversely affected if there were
delays in product shipments to us due to freight difficulties, financial
difficulties with our major suppliers, delays due to the difficulties of our
suppliers involving strikes or other difficulties at their principal transport
providers or otherwise. We are also dependent on suppliers for assuring the
quality of merchandise supplied to us. Our inability to acquire suitable
merchandise in the future or the loss of one or more of our suppliers and our
failure to replace them may harm our relationship with our customers and our
ability to attract new customers, resulting in a decrease in net sales.
Costs
of legal matters and regulation could exceed estimates and adversely affect
our
business.
We
may
become parties to a number of legal and administrative proceedings involving
matters pending in various courts or agencies. These include proceedings
associated with facilities currently or previously owned, operated or leased
by
us and include claims for personal injuries and property damages. It is not
possible for us to estimate reliably the amount and timing of all future
expenditures related to legal matters and other contingencies.
Any
projections used in this registration statement may not be accurate and our
actual performance may not match or approximate the
projections.
Any
and
all projections and estimates contained in this registration statement or
otherwise prepared by us are based on information and assumptions which
management
believes
to
be
accurate; however, they are mere projections and no assurance can be given
that
actual performance will match or approximate the projections.
Our
estimates may prove to be inaccurate and future net cash flows are uncertain.
Any significant variance from these assumptions could greatly affect our
estimates.
Our
estimates of both future sales and the timing of development expenditures are
uncertain and may prove to be inaccurate. We also make certain assumptions
regarding net cash flows and operating costs that may prove incorrect when
judged against our actual experience. Any significant variance from these
assumptions could greatly affect our estimates of future net cash flows and
our
ability to borrow under our credit facility.
We
require substantial capital requirements to finance our operations. Our
inability to obtain financing will adversely impact our
business.
We
will
require additional capital for future operations. We plan to finance anticipated
ongoing expenses and capital requirements with funds generated from the
following sources:
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cash
provided by operating activities;
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available
cash and cash investments; and
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capital
raised through debt and equity
offerings.
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The
uncertainties and risks associated with future performance and revenues will
ultimately determine our liquidity and our ability to meet anticipated capital
requirements. If declining prices cause our anticipated revenues to decrease,
we
may be limited in our ability to replace our inventory. As a result, our
production and revenues would decrease over time and may not be sufficient
to
satisfy our projected capital expenditures. We may not be able to obtain
additional financing in such a circumstance.
Our
stock price could be extremely volatile and, as a result, you may not be able
to
resell your shares at or above the price you paid for them.
Before
this offering there has not been a public market for our common stock, and
an
active public market for our common stock may not develop or be sustained after
this offering. Further, the market price of our common stock may decline below
the price you paid for your shares.
Among
the
factors that could affect our stock price are:
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industry
trends and the business success of our vendors;
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actual
or anticipated fluctuations in our quarterly financial and operating
results, including our comparable store sales;
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our
failure to meet the expectations of the investment community and
changes
in investment community recommendations or estimates of our future
operating results;
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strategic
moves by our competitors, such as product announcements or acquisitions;
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regulatory
developments;
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general
market conditions;
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other
domestic and international macroeconomic factors unrelated to our
performance; and
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additions
or departures of key personnel.
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The
stock
market has from time to time experienced extreme volatility that has often
been
unrelated to the operating performance of particular companies. These kinds
of
broad market fluctuations may adversely affect the market price of our common
stock.
In
the
past, following periods of volatility in the market price of a company's
securities, securities class action litigation has often been instituted. If
a
securities class action suit is filed against us, we would incur substantial
legal fees and our management's attention and resources would be diverted from
operating our business in order to respond to the litigation.
Our
charter documents give our board of directors the authority to issue series
of
preferred stock without a vote or action by our stockholders. The board also
has
the authority to determine the terms of preferred stock, including price,
preferences and voting rights. The rights granted to holders of preferred stock
may adversely affect the rights of holders of our common stock. For example,
a
series of preferred stock may be granted the right to receive a liquidation
preference - a pre-set distribution in the event of a liquidation - that would
reduce the amount available for distribution to holders of common stock. In
addition, the issuance of preferred stock could make it more difficult for
a
third party to acquire a majority of our outstanding voting stock. As a result,
common stockholders could be prevented from participating in transactions that
would offer an optimal price for their shares.
We
do not anticipate paying dividends on our capital stock in the foreseeable
future.
We
do not
anticipate paying any dividends in the foreseeable future. We currently intend
to retain our future earnings, if any, to fund the growth of our business.
In
addition, the terms of the instruments governing our existing debt and any
future debt or credit facility may preclude us from paying any dividends.
Cautionary
Statement Concerning
Forward-Looking
Statements
The
following discussion and analysis should be read in conjunction with our audited
consolidated financial statements and related notes included in this report.
This report contains “forward-looking statements.” The statements contained in
this report that are not historic in nature, particularly those that utilize
terminology such as “may,” “will,” “should,” “expects,” “anticipates,”
“estimates,” “believes,” or “plans” or comparable terminology are
forward-looking statements based on current expectations and
assumptions.
Various
risks and uncertainties could cause actual results to differ materially from
those expressed in forward-looking statements. Factors that could cause actual
results to differ from expectations include, but are not limited to, those
set
forth under the section “Risk Factors” set forth in this report.
The
forward-looking events discussed in this report, the documents to which we
refer
you and other statements made from time to time by us or our representatives,
may not occur, and actual events and results may differ materially and are
subject to risks, uncertainties and assumptions about us. For these statements,
we claim the protection of the “bespeaks caution” doctrine. All forward-looking
statements in this document are based on information currently available to
us
as of the date of this report, and we assume no obligation to update any
forward-looking statements. Forward-looking statements involve known and unknown
risks, uncertainties and other factors that may cause the actual results to
differ materially from any future results, performance or achievements expressed
or implied by such forward-looking statements.