SEPTEMBER
30, 2006
(Unaudited)
NOTE
1 - DESCRIPTION OF COMPANY:
Pickups
Plus, Inc., the Company, was incorporated in Delaware in 1993 and is a
franchisor, wholesaler, retailer and installer of accessories for trucks and
sports utility vehicles. We currently have five operating franchised stores
that
are located in Texas, Ohio, Kentucky and Illinois. Additionally, as of September
30, 2006, there were two Company-owned stores located in the Cincinnati, Ohio
area.
In
April
2004, the Company acquired Auto Preservation, Inc., which operates as a wholly
owned subsidiary. Auto Preservation has two operating centers in the Cincinnati
market providing automotive dealerships in this market a single source solution
for their new vehicle prep, environmental protection packages, pickup truck
and
SUV accessories and detail and reconditioning sales and services. Additionally,
the Company began to offer exclusive licenses for individual territories for
the
ValuGard name and product outside greater Cincinnati.
NOTE
2 - BASIS OF PRESENTATION:
The
condensed consolidated financial statements include the financial statements
of
Pickups Plus, Inc. and its wholly owned subsidiaries. The accompanying unaudited
condensed consolidated financial statements have been prepared in accordance
with the instructions to Form 10-QSB and do not include all of the information
and footnotes required by accounting principles generally accepted in the United
States of America for complete consolidated financial statements. These
condensed consolidated financial statements and related notes should be read
in
conjunction with the Company's Form 10-KSB for the fiscal year ended December
31, 2005.
In
the
opinion of management, these condensed consolidated financial statements reflect
all adjustments which are of a normal recurring nature and which are necessary
to present fairly the consolidated financial position of the Company as of
September 30, 2006, the results of operations for the three and Nine month
periods ended September 30, 2006 and 2005, and cash flows for the Nine-month
periods ended September 30, 2006 and 2005. All significant intercompany accounts
and transactions have been eliminated in preparation of the condensed
consolidated financial statements. The results of operations for the three
and
Nine month periods ended September 30, 2006 are not necessarily indicative
of
the results to be expected for the full year.
NOTE
3 - GOING CONCERN UNCERTAINTY:
The
accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America, which
contemplates continuation of the Company as a going concern. However, the
Company realized a net loss of $422,973 for the quarter ended September 30,
2006, and also sustained substantial operating losses in 2005, 2004, 2003 and
2002 of $1,881,541, $1,105,936, $878,333, and $429,821, respectively. In
addition, the Company has used significant amounts of working capital in its
operations and, as of September 30, 2006, current liabilities exceed current
assets by $4,668,886 and total liabilities exceed total assets by $4,279,928.
The Company is also delinquent in paying certain of its debts.
As
of
September 30, 2006, sales tax collected from customers and unpaid aggregated
$260,132. The Company has accrued $27,487 in interest and penalty costs
associated with this liability. The Company has been working with
representatives of the State of Ohio to structure a payment plan regarding
this
liability. Although a definitive installment plan has not yet been structured,
the State of Ohio is aware of ongoing efforts of the Company to raise additional
funds.
The
Company is also delinquent in remitting payroll taxes and as of September 30,
2006, $754,167 is owed to the appropriate authorities. The Company has accrued
$79,785 in interest and penalties for the past due liabilities.
In
view
of these matters, realization of the assets on the accompanying balance sheet
is
dependent upon continued operations of the Company, which in turn is dependent
upon the Company’s ability to meet its financing requirements, and the success
of its future operations. The Company is actively pursuing additional capital.
The financial statements do not include any adjustments that might be necessary
if the Company is unable to continue as a going concern.
PICKUPS
PLUS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2006
(Unaudited)
NOTE
4 - POTENTIAL ACQUISITION:
The
Company has entered into a Stock Purchase Agreement dated April 30 2004, with
Automotive International, Inc.(“AI”), from whom it purchased Auto Preservation,
Inc. in April 2004, for the option to purchase all of the outstanding shares
of
AI for an aggregate purchase price of $4,300,000 after 24 months. At this time
the Company has decided not to exercise its option to acquire AI.
The
Company has a verbal agreement to purchase all of the assets of Cat Cay Yachts,
Inc. currently being transferred to Maritime Manufacturing, Inc., totaling
approximately $2,900,000 in exchange for $300,000 in cash, a note payable for
$75,000, and 12,000,000 shares of the Company’s common stock valued at $0.21 per
share. The Company has made an initial deposit of $306,250 and is awaiting
final
purchase contracts and an independent appraisal of the assets to be acquired.
At
this time the Company does not have the resources to complete the purchase
and
is negotiating a settlement on Cat Cay Yachts, Inc.
NOTE
5 - OTHER EVENTS:
On
February 17, 2006, certain promissory notes totaling $1,365,000 (the
“
Assigned
Notes
”)
that
the Company had previously issued to Cornell Capital Partners, LP was assigned
to NeoMedia Technologies, Inc. The Assigned Notes were all past due and
therefore in default at the time of the assignment and continue to be in default
as of the date of this Report. In February 2006, NeoMedia also purchased
20,000,000 shares of the Company’s common stock from Cornell, bringing its total
ownership to 28,333,333 shares of common stock. According to the Company’s
records, the total principal currently owed under the Assigned Notes is
$1,365,000, and the total accrued and unpaid interest there under at September
30, 2006 was $269,900.
On
August
10, 2006, the Company executed an agreement with a third party financing company
for an accounts receivable financing arrangement. Under the one-year agreement,
the Company’s Auto Appearance Center subsidiary is receiving ongoing financing
based on its weekly billings to clients. Client payments remitted from the
Company’s monthly statements will be then remitted to a lock box and repay the
financing provided.
NOTE
6 - SHAREHOLDERS EQUITY TRANSACTIONS:
During
the first nine months of 2006, the Company issued the following shares of its
common stock that were not already registered under the Securities Act of 1933,
as amended. The Company issued 500,000 shares of restricted stock to John
Fitzgerald in exchange for $2,000 due him for professional services rendered.
The Company issued 14,791,888 shares of restricted stock to certain members
of
management, including Merritt Jesson, Bob White and Sean Hayes in exchange
for
$59,168 due them for professional services rendered. The Company issued
17,560,000 shares to various vendors for rent, legal and accounting services
and
consulting fees. We believe such issuances were exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933.
These
issuances of nonvested shares were accounted as per provisions of Statement
of
Financial Accounting Standards ("FAS") No. 123 (revised 2004), Share-Based
Payment ("FAS 123(R)"), adopted by the Company effective January 1, 2006. FAS
123(R ) replaces FAS No. 123, Accounting for Stock-Based Compensation, and
supersedes Accounting Principles Board Opinion ("APB") No. 25, Accounting for
Stock Issued to Employees, and related interpretations. FAS 123 (R) requires
compensation costs related to share-based payment transactions, including
employee stock options, to be recognized in the financial statements. In
addition, the Company adheres to the guidance set forth within Securities and
Exchange Commission ("SEC") Staff Accounting Bulletin ("SAB") No. 107, which
provides the Staff's views regarding the interaction between FAS No. 123(R)
and
certain SEC rules and regulations and provides interpretations with respect
to
the valuation of share-based payments for public companies.
The
Company had no other nonvested shares issued and outstanding during 2006. These
shares vested on the date of the grant and the fair value of these shares
totaling $61,168 has been charged to the Statement of Operations for the Nine
months ended September 30, 2006 and is included in the “selling, general and
administrative expenses” line item.
ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF
OPERATIONS:
INTRODUCTION:
Pickups
Plus, Inc., the Company, was incorporated in Delaware in 1993 and is a
franchisor, wholesaler, retailer and installer of accessories for trucks and
sports utility vehicles. We currently have five operating franchised stores
and
two Company-owned stores located. The Company also operates a wholly owned
subsidiary Auto Preservation, Inc., which has two operating centers in the
Cincinnati market providing automotive dealerships in this market a single
source solution for their new vehicle prep, environmental protection packages,
pickup truck and SUV accessories and detail and reconditioning sales and
services. Additionally, the Company began to offer exclusive licenses for
individual territories for the ValuGard name and product outside greater
Cincinnati
The
financial information presented herein is derived from the: (i) Condensed
Balance Sheets as of September 30, 2006 and December 31, 2005; (ii) Condensed
Statements of Operations for the three and Nine month periods ended September
30, 2006 and 2005 and (iii) Condensed Statements of Cash Flows for the Nine
month periods ended September 30, 2006 and 2005.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
The
Company’s financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America. The preparation
of these financial statements requires the Company to make significant estimates
and judgments that affect the reported amounts of assets, liabilities, revenues,
expenses and related disclosure of contingent assets and liabilities. The
Company evaluates its estimates, including those related to bad debts,
inventories, contingencies and litigation on an ongoing basis. The Company
bases
its estimates on historical experience and on various other assumptions that
are
believed to be reasonable under the circumstances, the results of which form
the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ
from
these estimates under different assumptions or conditions.
The
Company’s critical accounting policies have not changed from those listed in its
year-end 10KSB filing.
RECENTLY
ADOPTED ACCOUNTING PRINCIPLES
The
Company has adopted FAS 154: Accounting Changes and Error Corrections, a
replacement of APD Opinion No. 20 and FASB Statement No. 3 and FAS No. 123
(revised 2004), “Share Based Payment” effective January 1, 2006. The financial
position and the results as of and for the three months ended were not affected
by these pronouncements.
OTHER
ACCOUNTING PRINCIPLES
The
Company’s critical accounting policies have not changed from those listed in the
Annual Report on Form 10-KSB for the year ended December 31, 2005 filed with
SEC.
RESULTS
OF OPERATIONS
The
Company realizes revenue from net sales generated by the retail stores, sales
of
service and product to automotive dealerships relating to new car prep and
environmental products, continuing royalty fees and initial franchise fees.
In
the future, the Company expects to generate license fees from ongoing expansion
of its programs related to the automotive dealership market.
Revenue
for the three-month and nine month periods ended September 30, 2006 was $573,727
and $1,456,799, which represented a $118,958 (26.2%) increase and $96,334 (7%),
increase from $454,769 and $1,360,465 for the comparable periods ended September
30, 2005. The third quarter increase was primarily the result of increased
sales
from the Auto Preservation division. There were no new franchise fees in the
three-month and six-month periods ended June 30, 2006.
Cost
of
sales were $110,376 and $363,825 for the three-month and nine-month periods
ended September 30, 2006 which represented an decrease of $43,783 (28.4%) and
a
decrease of $43,839 (10.7%) compared to the comparable period in 2005. Cost
of
sales as a percentage of retail sales was 19.2% and 24.9% for the three-month
and six-month period ended September 30, 2006 compared to the 33.8% and 27.9%
in
the comparable periods in 2005. This was the result of increased sales generated
in Auto Preservation, Inc., which has a significantly lower cost of product
per
sales dollar.
Selling,
general and administrative expenses was $818,924 and $2,074,016 for the
three-month and nine-month periods ending September 30, 2006 as compared to
508,281 and $1,624,555 for the comparable periods in 2005, which reflected
increases of $310,643 and $449,461 respectively. This primarily was attributable
to additional selling and operating costs related to the growth in business
from
Auto Preservation, Inc.
Interest
expense was $206,307 for the nine-month period ended September 30, 2005 as
compared to $143,066 in the comparable period in 2005. This increase of $63,241
was the result of the financing of the Auto Preservation, Inc. acquisition,
and
the ongoing cost of funds to support our negative cash flow at the same time
management attempts to grow the business toward profitability.
Net
loss
for the three-month and nine-month periods ended September 30, 2005 were
$422,973 and $1,185,563 which represented an increase of $155,829 and $370,926
from the net loss of $267,144 and $815,926 for the comparable periods in 2005.
This increase in losses resulted primarily from the cost of financing the
acquisition of Auto Preservation, Inc., additional professional fees and similar
costs in pursuing additional growth of the business and the cost of financing
the losses incurred.
Liquidity
And Capital Resources
As
of
September 30, 2006 and December 31, 2005, the Company’s current liabilities
exceeded current assets by $4,668,886 and $3,663,373 respectively. During the
nine-month period ended September 30, 2006 the Company secured new financing
in
the amount of $167,667. We may not be able to raise additional equity on terms
favorable to the Company, if at all.
The
Company currently has insufficient funds available for operations and needs
to
seek additional financing to supplement cash generated from the operation of
the
Company's retail stores, automotive market sales and services and ongoing
franchise operations. In view of these matters, realization of a major portion
of the assets in the accompanying balance sheet is dependent upon continued
operations of the Company, which in turn is dependent upon the Company's ability
to meet its financing requirements, and the success of its future operations.
These conditions raise substantial doubt about the Company’s ability to continue
as a going concern if sufficient additional funding is not acquired or
alternative sources of capital is not developed to meet the Company’s working
capital needs.
The
Company’s independent auditors included an explanatory paragraph in their 2005
year-end report stating that our ability to continue as a going concern is
dependent on our ability to meet our future financing requirements.
Cash
requirements for 2006 will include funds needed to sustain the cash used in
operations as well as for anticipated growth and acquisitions. Consequently,
management is trying to meet these needs in several ways. First, the Company
continues to work with its existing funding sources and is seeking new funding
sources to raise the required funding to implement its business plan. Secondly,
management is working aggressively to roll out its new Auto Appearance Centers
licensing program and is actively searching for sales personnel to ensure the
success of this profit center. At the same time, the Company is looking to
increase sales in its new retail store location in Cincinnati.
In
the
event the Company is unable to raise funds to carry out the above plans or
the
results are not favorable the Company could be required to either substantially
reduce or terminate its operations.
OFF-BALANCE
SHEET ARRANGEMENTS
The
Company does not have any significant off-balance sheet arrangements that have
or are reasonably likely to have a current or future effect on its financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that is
material to its stockholders.
RISKS
AND UNCERTANTIES
The
Company’s operations, as well as an investment in its securities, involve
numerous risks and uncertainties. The reader should carefully consider the
risk
factors discussed below and elsewhere in this Form 10-QSB before making any
investment decision involving the Company’s securities.
The
Company Has Had Losses And Such Losses May Continue, Which May Negatively Impact
Its Ability To Achieve Its Business Objective.
Net
loss
for the three-month and nine-month period ended September 30, 2006 was $422,973
and $1,186,563, which represented an increase of $155,829 and $370,637 from
the
net loss of $267,144 and $815,926 for the comparable periods in 2005. There
can
be no assurance that the Company will be profitable in the future. Revenues
and
profits, if any, will depend upon various factors, including whether the Company
will be able to continue to expand its revenues, gross profit and operating
margins.
The
Financial Statements Include A Concern Raised By the Company’s Independent
Auditors About The Company’s Ability To Continue As A Going Concern.
The
Company’s independent auditors raised a concern in their year-end report on the
Company’s financial statements for fiscal 2005 about its ability to continue as
a going concern. The Company’s auditors have stated that due to the Company’s
lack of profitability, there is "substantial doubt" about its ability to
continue as a going concern. The Company’s auditors view about the Company’s
ability to continue as a going concern may limit its ability to access certain
types of financing, or may prevent it from obtaining financing on acceptable
terms.
The
Company Must Comply With Federal And State Franchise Regulations And If It
Should Fail To Materially Comply With Such Regulations, It May Have An Adverse
Effect On Our Business Operations
The
offer
and sale of franchises is subject to extensive federal and state laws and
substantial regulation under such laws by government agencies, including the
Federal Trade Commission ("FTC") and various state authorities. Pursuant to
FTC
regulations, the Company is required to furnish to prospective franchisees
a
current franchise offering disclosure document containing information prescribed
by the FTC. The Company uses uniform franchise offering circulars to satisfy
this disclosure obligation. In addition, in certain states, it is required
to
register or file with such states and to provide prescribed disclosures. The
Company is required to update its offering disclosure documents to reflect
the
occurrence of material events. The occurrence of any such events may from time
to time require it to cease offering and selling franchises until the disclosure
document relating to such franchising business is updated. There can be no
assurance that the Company will be able to update our disclosure documents
(or
in the case of any newly acquired franchising business, prepare an adequate
disclosure document) or become registered in certain states in a time frame
consistent with its expansion plans, that it will not be required to cease
offering and selling franchises or that it will be able to comply with existing
or future franchise regulation in any particular state, any of which could
have
an adverse effect on its results of operation.
The
Company is currently working on updating its disclosure documents but currently
and for most of 2004 and 2005 it could not sell new franchises.
The
Loss Of Key Employees May Adversely Affect The Company’s Growth
Objectives
The
Company’s success in achieving its growth objectives depends upon the efforts of
top management as well as other of its management members. The loss of the
services of any of these individuals may have a material adverse effect on
the
Company’s business, financial condition and results of operations. The Company
can give no assurance that it will be able to maintain and achieve its growth
objectives should it lose any or all of these individuals' services.
The
Company’s Success Depends On its Ability To Attract And/Or Retain Qualified
Personnel
A
change
in labor market conditions that either further reduces the availability of
employees or increases significantly the cost of labor could have a material
adverse effect on the Company’s business, its financial condition and results
its operations. The Company’s business is dependent upon its ability to attract
and retain sales personnel, business administrators and corporate management.
The Company can give no assurance that it will be able to employ a sufficient
number of such personnel in order to accomplish growth objectives.
Many
Competitors Are Larger And Have Greater Financial And Other Resources Than
The
Company Do And Those Advantages Could Make It Difficult To Compete With
Them
The
wholesale/retail industry for the accessories of trucks and sports utility
vehicles is extremely competitive and includes several companies which have
achieved substantially greater market shares than the Company, and have longer
operating histories, have larger customer bases, have substantially greater
financial, development and marketing resources than the Company.
The
Company Has Been Delinquent In Reporting And Remitting Sales and Payroll Taxes
And Are Working On Structuring A Payment Plan That May Adversely Affect Our
Cash
Flow.
As
of
September 30, 2006, sales tax collected from customers and unpaid aggregated
$260,132. The Company has accrued $27,487 in interest and penalty costs
associated with this liability. The Company has been working with
representatives of the State of Ohio to structure a payment plan regarding
this
liability. Although a definitive installment plan has not yet been structured,
the State of Ohio is aware of ongoing efforts of the Company to raise additional
funds.
The
Company is also delinquent in remitting payroll taxes and as of September 30,
2006, $754,167 is owed to the appropriate authorities. The Company has accrued
$79,785 in interest and penalties for the past due liabilities. As a result
of
the foregoing, the Internal Revenue Services could take action against the
Company, including the levying of civil and/or criminal penalties and
fines.
The
Company May, In The Future, Issue Additional Shares Of Our Common Stock Which
Would Reduce Investors Percent Of Ownership And May Dilute Its Share
Value
The
Company’s Certificate of Incorporation, as amended, authorizes the issuance of
250,000,000 shares of common stock, par value $.001 per share, and 10,000,000
shares of preferred stock, par value $1.00 per share. The future issuance of
all
or part of its remaining authorized common stock may result in substantial
dilution in the percentage of the Company’s common stock held by its then
existing shareholders. The Company may value any common or preferred stock
issued in the future on an arbitrary basis. The issuance of common stock for
future services or acquisitions or other corporate actions may have the effect
of diluting the value of the shares held by the Company’s investors, and might
have an adverse effect on any trading market for our common stock.
Possible
Issuance Of Preferred Stock Without Stockholder Approval Could Adversely Affect
the Position of Common
Stockholders.
The
Company’s Certificate of Incorporation authorizes the issuance of up to
10,000,000 shares of preferred stock with designations rights, and preferences
determined from time to time by the Board of Directors. Accordingly, the
Company’s Board of Directors is empowered, without stockholder approval, to
issue preferred stock with dividends, liquidation, conversion, claims to assets,
voting, or other rights that could adversely affect the voting power or other
rights of the holders of the Company’s common stock. In the event of issuance,
the preferred stock could be used, under certain circumstances, as a method
of
discouraging, delaying or preventing a change in control of the Company or,
alternatively, granting the holders of preferred stock such rights as to
entrench management. If the holders of the Company’s common stock desired to
remove current management, it is possible that the Board of Directors could
issue preferred stock and grant the holders thereof such rights and preferences
so as to discourage or frustrate attempts by the common stockholders to remove
current management. In doing so, management would be able to severely limit
the
rights of common stockholders to elect the Board of Directors.
Shares
Eligible For Future Sale May Adversely Affect The Market
As
of
November 10, 2006, the Company had 195,807,900 shares of its common stock issued
and outstanding of which the Company believes 35,045,358 shares to be restricted
shares. Rule 144 provides, in essence, that a person holding "restricted
securities" for a period of one year may sell only an amount every three months
equal to the greater of (a) one percent of a company's issued and outstanding
shares, or (b) the average weekly volume of sales during the four calendar
weeks
preceding the sale. The amount of "restricted securities" which a person who
is
not an affiliate of our company may sell is not so limited, since non-affiliates
may sell without volume limitation their shares held for two years if there
is
adequate current public information available concerning our company. In such
an
event, "restricted securities" would be eligible for sale to the public at
an
earlier date. The sale in the public market of such shares of common stock
may
adversely affect prevailing market prices of our common stock.
The
Company Has Not Paid Any Dividends And Does Not Intend To Do So In The
Foreseeable Future, A Purchaser Of Our Common Stock Will Only Realize An
Economic Gain On His Or Her Investment From An Appreciation, If Any, In The
Market Price Of The Company’s Common Stock
The
Company has never paid, and has no intentions in the foreseeable future to
pay,
any cash dividends on our common stock. Therefore an investor in the Company’s
common stock, in all likelihood, will only realize a profit on his investment
if
the market price of the Company’s common stock increases in value.
The
Company’s Common Stock Is Deemed To Be “Penny Stock,” Which May Make It More
Difficult For Investors To Sell Their Shares Due To Suitability
Requirements
The
Company’s common stock is deemed to be “penny stock” as that term is defined in
Rule 3a51-1 promulgated under the Securities Exchange Act of 1934. Penny stocks
are stock:
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With
a price of less than $5.00 per
share;
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That
are not traded on a “recognized” national
exchange;
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Whose
prices are not quoted on the Nasdaq automated quotation system (Nasdaq
listed stock must still have a price of not less than $5.00 per share);
or
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In
issuers with net tangible assets less than $2.0 million (if the issuer
has
been in continuous operation for at least three years) or $5.0 million
(if
in continuous operation for less than three years), or with average
revenues of less than $6.0 million for the last three
years.
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Broker/dealers
dealing in penny stocks are required to provide potential investors with a
document disclosing the risks of penny stocks. Moreover, broker/dealers are
required to determine whether an investment in a penny stock is a suitable
investment for a prospective investor. These requirements may reduce the
potential market for the Company’s common stock by reducing the number of
potential investors. This may make it more difficult for investors in the
Company’s common stock to sell shares to third parties or to otherwise dispose
of them. This could cause the Company’s stock price to decline.
The
Company’s Common Stock May Be Affected By Limited Trading Volume And May
Fluctuate Significantly
The
Company’s common stock is traded on the Over-the-Counter Bulletin Board. There
has been a limited public market for the Company’s common stock and there can be
no assurance that an active trading market for its common stock will develop.
As
a result, this could adversely affect shareholders’ ability to sell the
Company’s common stock in short time periods, or possibly at all. Thinly traded
common stock can be more volatile than common stock traded in an active public
market. The Company’s common stock has experienced, and is likely to experience
in the future, significant price and volume fluctuations, which could adversely
affect the market price of our common stock without regard to the Company’s
operating performance. In addition, the Company believes that factors such
as
quarterly fluctuations in our financial results and changes in the overall
economy or the condition of the financial markets could cause the price of
its
common stock to fluctuate substantially.
The
Company May Not Be Able To Achieve And Manage Its Planned Expansion.
The
Company faces many business risks associated with rapidly growing companies,
including the risk that its existing management, information systems and
financial controls will be inadequate to support its continued planned
expansion. The Company’s growth plans will require it to expend significant
management time and effort and additional resources to ensure the continuing
adequacy of its financial controls, operating procedures, information systems,
product purchasing, warehousing and distribution systems and employee training
programs. The Company cannot predict whether it will be able to effectively
manage these increased demands or respond on a timely basis to the changing
demands that the planned expansion will impose on the management, information
systems and financial controls. If the Company fails to continue to add
management personnel or to improve the management information systems and
financial controls or if it encounters unexpected difficulties during expansion,
the business, financial condition, operating results or cash flows could be
materially adversely affected.