Exhibit 99.1
Risk Factors Relating to Our Business
We operate in highly competitive industries and our success depends on our
ability to effectively compete with numerous domestic and foreign lottery and
pari-mutuel businesses.
The instant ticket and online lottery businesses are highly competitive.
We face competition from a number of domestic and foreign instant ticket
manufacturers, online lottery system providers and other competitors, some of
which have substantially greater financial resources than we do. We continue to
operate in a period of intense price-based competition. The award of contracts
by state officials is influenced by factors including price, the ability to
optimize lottery revenues through game design, technical capability, marketing
capability and applications, the quality, dependability and upgrade capability
of the network, production capacity, the security and integrity of a vendor's
production operations, the experience, financial condition and reputation of a
vendor and the satisfaction of other requirements and qualifications that
lottery authorities may impose. Contract awards by lottery authorities are
sometimes challenged by unsuccessful bidders, which can result in protracted
legal proceedings that can result in delayed implementation or cancellation of
the award. Any future success of our lottery business will also depend, in part,
on the success of the lottery industry in attracting and retaining players in
the face of increased competition for these players' entertainment dollars, as
well as our own success in developing innovative products and systems to achieve
this goal. Our failure to achieve this goal could reduce revenues from our
lottery operations.
The market for pari-mutuel wagering services is also highly competitive,
and certain of our competitors may have substantially greater financial and
other resources than we do. We compete primarily on the basis of the design,
performance, reliability and pricing of our products, as well as customer
service. Our pari-mutuel customers face significant competition from other
operators in the pari-mutuel business, other gaming venues such as casinos and
state-sponsored lotteries and other forms of legal and illegal gaming. The
continuing popularity of horse racing is important to the growth and operating
results of our pari-mutuel business. Competition from sporting events and other
forms of entertainment, and casinos, sports wagering services and other
non-racetrack gaming operators, may reduce the attendance and amounts wagered at
our customers' horse racing events, which could reduce our revenues.
While we have exclusive licenses for our OTB operations in the Netherlands
and, subject to our compliance with certain licensing requirements, the right to
operate in perpetuity substantially all off-track pari-mutuel wagering in
Connecticut (except for OTB operations at two greyhound racetracks to which we
provide video simulcasting services under separate contracts and OTB operations
at Foxwoods Casino and The Mohegan Sun Casino, to which we provide facilities
management services), our revenues may be adversely affected by competition for
the consumer's wagering and entertainment dollar. Our venue management business
competes with other pari-mutuel operations as well as other forms of gaming and
other entertainment. Competition for wagers comes from casinos, racetracks,
lotteries and other forms of legal and illegal gambling. Other gaming
competitors operate in our licensed markets and in surrounding areas and compete
for our customers, and additional competitors could be licensed,
or existing regulations could be changed, so as to divert wagering activity from
our OTB operations.
The market for prepaid phone cards is highly fragmented. Competition comes
from other instant lottery ticket printers utilizing similar lottery security
and printing technologies, as well as alternative printing and non-printing
technologies. Our telecommunications products operations compete with other
printing companies on the basis of price, availability, product features and
product security. There is competition within our class of products and other
technologies to provide the desired functionality. There are alternative
technologies, such as smart cards, with which our products compete. Moreover,
the cellular telephone industry is undergoing significant growth and rapid
technology changes such that other technologies, including electronic commerce,
could impact our growth opportunities and our customer relationships. Further,
increasing price competition in the prepaid phone card business may continue to
negatively affect our operating margins.
Our business is subject to evolving technology.
The markets for all of our products and services are affected by changing
technology, new legislation and evolving industry standards. Our ability to
anticipate or respond to such changes and to develop and introduce new and
enhanced products and services on a timely basis will be a significant factor in
our ability to expand, remain competitive, attract new customers and retain
existing contracts.
We can give you no assurance that we will achieve the necessary
technological advances, have the financial resources, introduce new products or
services on a timely basis or otherwise have the ability to compete effectively
in these markets.
We are heavily dependent on our ability to renew our long-term contracts with
our customers in the lottery and pari-mutuel businesses, and we could lose
substantial revenue if we are unable to renew certain of our contracts.
Generally, our lottery contracts are for initial terms of one to seven
years, with optional renewal periods. Upon the expiration of a lottery contract,
including any extensions thereof, lottery authorities may award new contracts
through a competitive bidding process. Contracts representing a substantial
majority of our annual revenues from lottery contracts are scheduled to expire
or reach optional extension dates during the next three years.
Our lottery contracts typically permit a lottery authority to terminate
the contract at any time for material failure to perform, other specified
reasons and in many cases, for no reason at all, without penalty. In addition,
lottery contracts to which we are a party frequently contain exacting
implementation schedules and performance requirements. Failure to meet these
schedules and requirements may result in substantial monetary liquidated
damages, as well as possible contract termination. We are also required by
certain of our lottery customers to provide surety, or performance, bonds. We
cannot assure you that we will continue to be able to obtain performance bonds
on commercially reasonable terms or at all. Our inability to provide such bonds
would materially and adversely affect our ability to renew existing, or obtain
new, lottery contracts.
Our contracts for the provision of pari-mutuel wagering services are
typically for initial terms of five years. Contracts accounting for a majority
of our current annual pari-mutuel revenues are scheduled to expire during the
next three years.
There can be no assurance that our current lottery or pari-mutuel
contracts will be extended or that we will be awarded new lottery or pari-mutuel
contracts as a result of competitive bidding processes in the future. The
termination, expiration or failure to renew one or more of our contracts could
cause us to lose substantial revenue.
Our ability to bid on new online lottery and pari-mutuel contracts is dependent
upon our ability to fund required up-front capital expenditures through our cash
from operations or through financings.
Our online lottery and pari-mutuel contracts generally require significant
up-front capital expenditures for terminal assembly, software customization and
implementation, systems and equipment installation and telecommunications
configuration. Historically we have funded these up-front costs through cash
flows generated from operations, available cash on hand and borrowings under our
credit facilities. Our ability to continue to procure new contracts will depend
on, among other things, our then present liquidity levels or our ability to
obtain additional financing at commercially acceptable terms to finance the
initial up-front costs. If we do not have adequate liquidity or are unable to
obtain financing for these up-front costs on favorable terms or at all, we may
not be able to bid on certain contracts, which could restrict our ability to
grow and have a material adverse effect on our future profitability.
Our business depends on the protection of our intellectual property and
proprietary information.
We believe that our success depends, in part, on protecting our
intellectual property in the United States and in foreign countries. Our
intellectual property includes certain patents and trademarks relating to our
instant ticket games and wagering systems, as well as proprietary or
confidential information that is not subject to patent or similar protection.
Our intellectual property protects the integrity of our games, systems, products
and services, which is a core value of the industries in which we operate. For
example, our intellectual property is designed to ensure the security of the
printing of our instant lottery tickets and prepaid phone cards and provides
simple and secure validation of our lottery tickets. Competitors may
independently develop similar or superior products, software, systems or
business models. In cases where our intellectual property is not protected by an
enforceable patent, such independent development may result in a significant
diminution in the value of our intellectual property.
We cannot assure you that we will be able to protect our intellectual
property. We enter into confidentiality or license agreements with our
employees, vendors, consultants, and, to the extent legally permissible, our
customers, and generally control access to, and the distribution of, our game
designs, systems and other software documentation and other proprietary
information, as well as the designs, systems and other software documentation
and other information we license from others. Despite our efforts to protect
these proprietary rights, unauthorized parties may try to copy our gaming
products, business models or systems, use certain of our confidential
information to develop competing products, or develop independently or otherwise
obtain and use our gaming products or technology, any of which could have a
material adverse effect on our
business. Policing unauthorized use of our technology is difficult and
expensive, particularly because of the global nature of our operations. The laws
of other countries may not adequately protect our intellectual property.
We cannot assure you that our business activities, games, products and
systems will not infringe upon the proprietary rights of others, or that other
parties will not assert infringement claims against us. Any such claim and any
resulting litigation, should it occur, could subject us to significant liability
for damages and could result in invalidation of our proprietary rights, distract
management, and/or require us to enter into costly and burdensome royalty and
licensing agreements. Such royalty and licensing agreements, if required, may
not be available on terms acceptable to us, or may not be available at all. In
the future, we may also need to file lawsuits to defend the validity of our
intellectual property rights and trade secrets, or to determine the validity and
scope of the proprietary rights of others. Such litigation, whether successful
or unsuccessful, could result in substantial costs and diversion of resources.
We rely on products and technologies that we license from third parties.
We cannot assure you that these third-party licenses, or the support for such
licenses, will continue to be available to us on commercially reasonable terms.
Our business competes on the basis of the security of our systems and products.
We believe that our success depends, in part, on providing secure products
and systems to our vendors and customers. Attempts to penetrate security
measures may come from various combinations of customers, retailers, vendors,
employees and others. We constantly assess the adequacy of our security systems
to protect against any material loss to any of our customers.
In our lottery business, we employ numerous security safeguards, including
bar coding and providing additional layers of protection in our instant tickets.
We also incorporate this security technology in our prepaid phone cards. We have
effected security measures in the areas of ticket specifications, production,
packaging, delivery, distribution and accounting. We also incorporate computer
function safeguards, including secure ticket data, control number encryption,
winner file data, and ticket stock control, in our data processing and in the
computer operations phase. In addition, we also retain a major public accounting
firm to perform agreed upon security procedures for each game produced before it
is sent to the customer.
As the incidence and severity of publicly reported cases of physical and
computer crime continue, major lotteries periodically reassess key security
questions concerning the vulnerability of lottery games. Although we have not
uncovered any practical, economically feasible way to breach the security of our
instant tickets or online lottery games that could result in a material loss to
any of our customers, we cannot assure you that security breaches will not
occur.
In our pari-mutuel business, our wholly-owned pari-mutuel wagering
subsidiary, Autotote Systems, Inc., experienced a breach of security by an
employee who altered betting data on previously placed wagering tickets--the $3
million "winning" wager on the races constituting the Pick Six at the Breeders'
Cup at Arlington Park in Illinois on October 26, 2002, as well as two other
multiple-race wagers from earlier in the month. The employee also engaged in a
scheme whereby he used his authorized access to duplicate uncashed winning
tickets. We discovered evidence of the employee's wrongdoing during our review
of the Breeders' Cup Pick
Six wager and immediately terminated the employee before any financial loss to
bettors occurred.
Following the Breeders' Cup incident, we and the other pari-mutuel
industry totalizator companies agreed to industry-wide security improvements,
including the installation of software necessary to scan all wagering pools in
connection with multi-race wagers after each race of a multi-race wager. We also
engaged Kroll Inc., a leading worldwide risk mitigation and security company, to
conduct a separate review of our physical security, operational controls, hiring
practices and internal compliance. Kroll made recommendations to further enhance
our security and we have implemented those recommendations. In addition, we have
begun the deployment of a new control system to operate every one of our
totalizator systems. This independent system runs in parallel with our
computers, records data in real time and allows for a review by a third party of
all data against the live system.
Although we believe that the foregoing actions will provide sufficient
security for our wagering systems, there can be no assurance that our business
might not be affected by a security breach. Any such security breach could have
a material adverse impact on our business.
The lottery and pari-mutuel industries are subject to strict government
regulations that may limit our existing operations and have a negative impact on
our ability to grow.
In the United States and many other countries, lotteries, pari-mutuel
wagering and other forms of wagering must be expressly authorized by law. Once
authorized, such activities are subject to extensive and evolving governmental
regulation. Moreover, such gaming regulatory requirements vary from jurisdiction
to jurisdiction. Therefore, we are subject to a wide range of complex gaming
laws and regulations in the jurisdictions in which we are licensed. Most
jurisdictions require that we be licensed, that our key personnel and certain of
our security holders be found suitable or be licensed, and that our products be
reviewed and approved before placement. If a license, approval or finding of
suitability is required by a regulatory authority and we fail to seek or do not
receive the necessary approval, license or finding of suitability, then we may
be prohibited from distributing our products for use in the respective
jurisdiction. Furthermore, most jurisdictions have ongoing reporting
requirements for certain transactions and are concerned with our accounting
practices, internal controls, business relationships, and the fair operation of
our products.
The regulatory environment in any particular jurisdiction may change in
the future, and any such change could have a material adverse effect on our
results of operations. Moreover, we can give you no assurance that the operation
of lotteries, pari-mutuel wagering facilities, video gaming industry machines,
Internet gaming or other forms of lottery or wagering systems will be approved
by additional jurisdictions or that those jurisdictions in which these lottery
and wagering activities are currently permitted will continue to permit such
activities.
We are required to obtain and maintain licenses from various state and
local jurisdictions in order to operate certain aspects of our pari-mutuel
business and we are subject to extensive background investigations and
suitability standards in our lottery business. We also will become subject to
regulation in any other jurisdiction where our customers operate in the future.
There can be no assurance that we will be able to obtain new licenses or renew
any of our licenses, and the loss, denial or non-renewal of any of our licenses
could have a material adverse effect on our
business. Lottery authorities generally conduct background investigations of the
winning vendor and its employees prior to and after the award of a lottery
contract. Generally, regulatory authorities have broad discretion when granting,
renewing or revoking these approvals and licenses. Lottery authorities with
which we do business may require the removal of any of our employees deemed to
be unsuitable and are generally empowered to disqualify us from receiving a
lottery contract or operating a lottery system as a result of any such
investigation. Our failure, or the failure of any of our key personnel, systems
or machines, in obtaining or retaining a required license or approval in one
jurisdiction could negatively impact our ability (or the ability of any of our
key personnel, systems or gaming machines) to obtain or retain required licenses
and approvals in other jurisdictions. The failure to obtain or retain a required
license or approval in any jurisdiction would decrease the geographic areas
where we may operate and generate revenues, decrease our share in the gaming
marketplace and put us at a disadvantage compared with our competitors.
Some jurisdictions also require extensive personal and financial
disclosure and background checks from persons and entities beneficially owning a
specified percentage (typically 5% or more) of our equity securities. The
failure of these beneficial owners to submit to such background checks and
provide required disclosure could jeopardize the award of a lottery contract to
us or provide grounds for termination of an existing lottery contract. These
licensing procedures and background investigations also may inhibit potential
investors from becoming significant shareholders. Additional restrictions are
often imposed by international jurisdictions in which we market our lottery
systems on foreign corporations, such as us, seeking to do business in such
jurisdictions. Similar restrictions and considerations are also applicable to
our pari-mutuel business.
By holding the debentures, you may be required to be found suitable by the
gaming regulatory authorities who have jurisdiction over us and our
subsidiaries. Further, you may be required to dispose of your debentures or we
may redeem your debentures if any gaming authority finds you unsuitable to hold
them or in order to otherwise comply with gaming laws to which we are subject.
In addition, by holding the debentures, you may be deemed to be a beneficial
owner of the shares into which the debentures are convertible by certain of the
gaming authorities even if none of the events triggering your conversion rights
has occurred. As a result, you may be required to dispose of your debentures if
any gaming authority finds you unsuitable to hold the underlying shares or to
otherwise comply with gaming laws to which we are subject if you are deemed to
be a beneficial owner of such underlying shares.
There also have been and may continue to be investigations of various
types conducted by governmental authorities into possible improprieties and
wrong-doing in connection with efforts to obtain and/or the awarding of lottery
contracts and related matters. As such, because our reputation for integrity is
an important factor in our business dealings with lottery and other governmental
agencies, a governmental allegation or a finding of improper conduct on our part
or attributable to us in any manner could have a material adverse effect on our
business, including our ability to retain existing contracts or to obtain new or
renewal contracts. In addition, any adverse publicity resulting from such an
investigation could have a material adverse effect on our reputation and
business.
Currently, account wagering operations, through which pari-mutuel
customers place wagers by phone or via the Internet on thoroughbred, harness or
greyhound racing, may be
conducted only from certain jurisdictions and only through licensed wagering
operators in certain jurisdictions. While we believe that the activities of our
pari-mutuel businesses comply with all applicable laws, law enforcement
authorities in certain jurisdictions have opposed the expansion of wagering via
telephone and the Internet and state regulators have expressed concerns to us
regarding such wagering by their citizens through our account wagering systems
and the racetracks serviced by our pari-mutuel wagering systems. We cannot
assure you that our activities or the activities of our customers will not
become the subject of law enforcement proceedings or that any such proceedings
would not have a material adverse impact on us or our business plans.
We have developed and implemented an internal compliance program in an
effort to ensure that we comply with legal requirements imposed in connection
with our wagering-related activities, as well as legal requirements generally
applicable to all publicly traded corporations. The compliance program is run on
a day-to-day basis with two full-time compliance officers and is overseen by the
Compliance Committee authorized by our board of directors. While we are firmly
committed to full compliance with all applicable laws, there can be no assurance
that such steps will prevent the violation of one or more laws or regulations,
or that a violation by us or an employee will not result in the imposition of a
monetary fine or suspension or revocation of one or more of our licenses.
Gaming opponents persist in their efforts to curtail the expansion of legalized
gaming, which, if successful, could limit our existing operations.
Legalized gaming is subject to opposition from gaming opponents. We can
give you no assurance that this opposition will not succeed in preventing the
legalization of gaming in jurisdictions where these activities are presently
prohibited or prohibiting or limiting the expansion of gaming where it is
currently permitted, in either case to the detriment of our business, financial
condition, results and prospects.
Our ability to complete future acquisitions of gaming and related businesses
successfully could limit our future growth.
Part of our corporate strategy is to continue to pursue expansion and
acquisition opportunities in gaming and related businesses, such as our
acquisition of OES, and we could face significant challenges in managing and
integrating the expanded or combined operations including acquired assets,
operations and personnel. We cannot assure you that acquisition opportunities
will be available on acceptable terms or at all or that we will be able to
obtain necessary financing or regulatory approvals to complete such potential
acquisitions. Our ability to succeed in implementing our strategy will depend to
some degree upon the ability of our management to identify, complete and
successfully integrate commercially viable acquisitions. Acquisition
transactions may disrupt our ongoing business and distract management from other
responsibilities.
Our revenues fluctuate due to seasonal, weather and other variations and you
should not rely upon our quarterly operating results as indications of future
performance.
Our pari-mutuel service revenues are subject to seasonal and weather
variations. The first and fourth quarters of the calendar year traditionally
comprise the weakest period for our pari-
mutuel wagering service revenue. As a result of inclement weather during the
winter months, a number of racetracks do not operate and those that do operate
often experience missed racing days. This adversely affects the amounts wagered
and our corresponding service revenues. Wagering equipment sales and software
license revenues usually reflect a limited number of large transactions, which
may not recur on an annual basis. Consequently, revenues and operating results
can vary substantially from period to period as a result of the timing of
revenue recognition for major equipment sales and software license revenue. In
addition, instant ticket and prepaid phone card sales may vary depending on the
season and timing of contract awards, changes in customer budgets, ticket
inventory levels, lottery retail sales and general economic conditions.
We are dependent on suppliers and contract manufacturers, and any failure of
these parties to meet our performance and quality standards or requirements
could cause us to incur additional costs or lose customers.
Our production of instant lottery tickets and prepaid phone cards, in
particular, depends upon a continuous supply of raw materials, supplies, power
and natural resources. Our operating results could be adversely affected by an
interruption or cessation in the supply of these materials.
We simulcast live racing events by transmitting audio and/or video signals
from one facility to a satellite for reception by wagering locations across the
country. Our access to satellite service is provided pursuant to long-term
contracts. The technical failure of the satellite through which we transmit
substantially all of our racing events would require us to obtain other
satellite access. We have no assurance of access to such other satellites, or,
if available, whether the use of such other satellites could be obtained on
favorable terms or in a timely manner. While satellite failures are infrequent,
the operation of the satellite is outside of our control.
We have foreign operations, which subjects us to additional risks.
Our business in foreign markets subjects us to risks customarily
associated with such operations, including:
o foreign withholding taxes on our subsidiaries' earnings that could
reduce cash flow available to meet our required debt service and our
other obligations;
o the complexity of foreign laws, regulations and markets;
o the impact of foreign labor laws and disputes; and
o other economic, tax and regulatory policies of local governments.
Our consolidated financial results are significantly affected by foreign
currency exchange rate fluctuations. Foreign currency exchange rate exposures
arise from current transactions and anticipated transactions denominated in
currencies other than U.S. dollars and from the translation of foreign currency
balance sheet accounts into U.S. dollar-denominated balance sheet accounts. We
are exposed to currency exchange rate fluctuations because a significant portion
of our revenues is denominated in currencies other than the U.S. dollar,
particularly the
British pound sterling and the euro. Exchange rate fluctuations have in the past
adversely affected our operating results and cash flows and may continue to
adversely affect our results of operations and cash flows and the value of our
assets outside the United States.
We cannot assure you that we will be able to operate successfully in any
foreign market.
Certain holders of our common stock exert significant influence over the Company
and make decisions with which other stockholders may disagree.
In August 2004, the holders of our then outstanding Series A Convertible
Preferred Stock were issued shares of our Class A common stock in connection
with the conversion of all such preferred stock. Such holders currently are
entitled to appoint four of the ten (with nine currently in office) members of
our board of directors, and certain actions of the Company require the approval
of such holders. As a result, these holders have the ability to exert
significant influence over our business and may make decisions with which other
stockholders may disagree, including, among other things, to delay, discourage
or prevent a change of control of the Company or a potential merger,
consolidation, tender offer, takeover or other business combination.
If certain of our key personnel leave us, our business will be significantly
adversely affected.
We depend on the continued performance of A. Lorne Weil, our Chairman and
Chief Executive Officer, and the members of our senior management team. Mr. Weil
has extensive experience in the lottery and pari-mutuel businesses and has
contributed significantly to the growth of our business. If we lose the services
of Mr. Weil or any of our other senior officers and cannot find suitable
replacements for such persons in a timely manner, it could have a material
adverse effect on our business.
We could incur costs in the event of violations of or liabilities under
environmental laws.
Our operations and real properties are subject to U.S. and foreign
environmental laws and regulations, including those relating to air emissions,
the management and disposal of hazardous substances and wastes, and the cleanup
of contaminated sites. We could incur costs, including cleanup costs, fines or
penalties, and third-party claims as a result of violations of or liabilities
under environmental laws. Some of our operations require environmental permits
and controls to prevent or reduce environmental pollution, and these permits are
subject to review, renewal and modification by issuing authorities. We believe
that our operations are currently in substantial compliance with all
environmental laws, regulations and permits and have not historically incurred
material costs for noncompliance with, or liabilities under, these requirements.
Failure to perform under our lottery contracts may result in substantial
monetary liquidated damages, as well as contract termination.
Our business subjects us to certain risks of litigation, including
potential allegations that we have not fully performed under our contracts or
that goods or services we supply are defective in some respect. Litigation is
pending in Colombia arising out of the termination of certain Colombian lottery
contracts in 1993. An agency of the Colombian government has
asserted claims against certain parties, including our subsidiary Scientific
Games International, Inc., or SGI, which owned a minority interest in the former
operator of the Colombian national lottery. The claims are for, among other
things, contract penalties, interest and the costs of a bond issued by a
Colombian surety. SGI has been advised by Colombian counsel that it has various
defenses on the merits as well as procedural defenses. Although we believe that
any potential losses arising from this litigation will not result in a material
adverse effect on our consolidated financial position or results of operations,
we cannot predict the final outcome, and there can be no assurance that this
litigation might not be finally resolved adversely to us or result in material
liability.
We have experienced a material weakness in our internal controls. If we fail to
maintain an effective system of internal controls over financial reporting, we
may not be able to accurately report our financial results, which could have a
material adverse effect on our business, financial condition and the market
value of our securities.
Effective internal controls over financial reporting are necessary for us
to provide reliable financial reports. If we cannot provide reliable financial
reports, our reputation and operating results may be harmed. We have, at the end
of 2004, discovered, and may in the future discover, areas of our internal
controls over financial reporting that need improvement. We identified that a
material weakness in the design of internal controls over financial reporting
existed at December 31, 2004 because we had insufficient personnel resources and
technical accounting expertise within the accounting function to resolve certain
non-routine or complex accounting matters, such as the treatment of our 20%
minority equity interest in an Italian consortium.
During 2004, we had incorrectly accounted for our interest in that Italian
consortium (which was formed in 2003 and began operations in mid 2004). An
adjustment for this matter along with certain other adjustments related to
non-routine or complex accounting matters, which in the aggregate were material
to the financial statements, were necessary to fairly present the financial
statements for the year ended December 31, 2004 in accordance with generally
accepted accounting principles in the United States. This deficiency was
identified during the year end audit process and represents a material weakness
in the design of our internal controls.
We are in the process of remediating this weakness. Subsequent to December
31, 2004, we changed the design of internal controls over non-routine and
complex accounting matters through the re-assignment of responsibilities for
certain accounting personnel, the identification of outside resources that we
can consult with on complex issues and the formation of two committees which are
now responsible for reviewing all non-routine and complex accounting matters and
preparing formal reports on their conclusions. We are continuing to evaluate
additional controls and procedures which we can implement and may add additional
accounting personnel during fiscal 2005. We do not anticipate that the cost of
this remediation effort will be material to our financial statements.
We cannot be certain that these measures, and any other steps we may take,
will ensure that we implement and maintain adequate controls over our financial
processes and reporting in the future. Any failure to implement required new or
improved controls, or difficulties encountered in their implementation, could
harm our operations or results or cause us to not to meet our reporting
obligations or materially and adversely impact our business, our financial
condition and the market value of our securities.