Exhibit 99.1
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CAUTIONARY STATEMENTS
(Pursuant to Safe Harbor under the Private Securities
Litigation Reform Act of 1995)
The Private Securities Litigation Reform Act of 1995 (as used in this
Exhibit 99.1, the "Act") provides a "safe harbor" for forward-looking statements
to encourage companies to provide prospective information about their companies,
so long as those statements are identified as forward-looking and are
accompanied by meaningful cautionary statements identifying important factors
that could cause actual results to differ materially from those discussed in the
statement. The Company desires to take advantage of the "safe harbor" provisions
of the Act. Certain information, particularly information regarding future
economic performance, finances and management's plans and objectives, contained
or incorporated by reference in this annual report on Form 10-K is
forward-looking. In some cases, information regarding certain important factors
that could cause actual results to differ materially from any such
forward-looking statement appear together with such statement. The following
factors, in addition to those set forth in the Form 10-K and other possible
factors not listed, could also affect the Company's actual results and cause
such results to differ materially from those expressed in forward-looking
statements:
Dependence on Vendors and Product Supply
The Company's future success is highly dependent on its relationships with
vendors. Sales of products from the Company's 10 largest vendors accounted for
84% of net sales for fiscal 2001. From time to time, the Company experiences
shortages in availability of some products from vendors. The Company's business
is largely dependent upon the terms provided by its vendors. The Company's
vendor agreements generally contain provisions for periodic renewals and for
termination by the vendor without cause and typically upon short notice. Some of
the Company's vendor agreements require minimum purchase amounts or the
maintenance of a representative assortment of the vendor's full line of
products. Such contract provisions could increase the Company's working capital
requirements. Although the Company believes its vendor relationships are good,
there can be no assurance that the Company's vendor relationships will continue
as currently in effect. The loss or deterioration of the Company's relationship
with a major vendor, the authorization by vendors of additional wholesale
distributors, or the failure by the Company to establish good relationships with
major new vendors could have a material adverse effect on the Company's
business, financial condition, and results of operations.
As is typical in its industry, the Company receives volume discounts and
certain credits for market development from most of its vendors. Any change in
the availability of these discounts or credits or the failure of the Company to
obtain vendor financing on satisfactory terms and conditions could have a
material adverse effect on the Company's business, financial condition, and
results of operations.
Competition
The markets in which the Company operates are highly competitive.
Competition is based primarily on factors such as price, product availability,
speed and accuracy of delivery, effectiveness of sales and marketing programs,
credit availability, ability to tailor specific solutions to customer needs,
quality and breadth of product lines and services, and availability of technical
and product information. Certain of the Company's current and potential
competitors have significantly greater financial, technical, marketing, and
other resources than the Company and may be able to respond more quickly to new
or emerging technologies and changes in customer requirements. Additional
competition could result in price reductions, reduced margins, and loss of
market share by the Company. There can be no assurance that the Company will be
able to compete successfully against current and future competitors or that
future competitive pressures will not materially and adversely affect its
business, financial condition, and results of operations.
Quarterly Fluctuations in Net Sales and Operating Results
Net sales and operating results may fluctuate quarterly as a result of
demand for the Company's products and services, the introduction of new hardware
and software technologies, the introduction of new services by the Company and
its competitors, changes in manufacturers' prices or price protection policies,
changes in freight rates, disruption of warehousing or shipping channels,
changes in the level of operating expenses, the timing of major marketing or
other service projects, product supply shortages, inventory adjustments, changes
in product mix, entry into new product markets, difficulty in maintaining
margins, and general competitive and economic conditions. In addition, a
substantial portion of the Company's net sales in each quarter results from
orders booked in such quarter. Accordingly, the Company believes that period-to-
period comparisons of its operating results should not be relied upon as an
indication of future performance.
Risks Associated with Inventory Management
The Company's business, like that of other wholesale distributors, is
subject to the risk that the value of its inventory will be adversely affected
by price reductions by manufacturers or by technological changes affecting the
usefulness or desirability of its products inventory. Under the terms of most of
the Company's agreements and the policy of most manufacturers of specialty
technology products, the Company has some price protection and stock rotation
opportunities with respect to slow moving or obsolete inventory items. There can
be no assurance, however, that, in every instance, the Company will be able to
comply with all necessary conditions or manage successfully such price
protection or stock rotation opportunities, if available. Also, these industry
practices are sometimes not included in written agreements and do not protect
the Company in all cases from declines in inventory value, excess inventory, or
product obsolescence. There can be no assurance that manufacturers will continue
such practices or that the Company will be able to manage successfully its
existing and future inventories. Significant declines in inventory value in
excess of established inventory reserves or dramatic changes in prevailing
technology could have a material adverse effect on the Company's business,
financial condition, and results of operations.
Managing Growth; Risk of Entering New Markets
The growth of the Company's business has required it to make additions in
personnel and has increased its working capital requirements. Such growth has
resulted in new and increased responsibilities for management and has placed a
strain upon the Company's management, operating, financial, and technical
resources. The Company may also in the future require additional equity or debt
financing to support its increased working capital needs in connection with any
expansion of its business. Such financing may not be available on terms that are
favorable to the Company, if at all. Also crucial to the Company's success will
be its ability to achieve additional economies of scale in order to sustain its
operating margins. There can be no assurance that the Company will be able to
attract or retain competent personnel and improve its operational status, obtain
adequate working capital or achieve the needed economies of scale. The failure
to do so could have a material adverse effect on the Company's business,
financial condition, and results of operations.
The Company's growth strategy continues to anticipate the entry into new
product markets. Expansion of the Company's existing product markets or entry
into new product markets could divert the use of the Company's resources and
systems, require additional resources that might not be available, result in new
or more intense competition, require longer implementation times or greater
start-up expenditures than anticipated, or otherwise fail to achieve the desired
results in a timely fashion, if at all. The Company's ability to manage
successfully its growth will require continued enhancement of its operational,
management and financial resources and controls. The Company's failure to manage
effectively its growth could have a material adverse effect on the Company's
business, financial condition and results of operations.
Dependence on Centralized Functions
The Company currently distributes products from a single warehouse located
in Memphis, Tennessee and manages its operations through a single information
system based in Greenville, South Carolina. Repair, replacement, or relocation
of such centralized functions could be costly or untimely. Although the Company
has business interruption insurance, an uninsurable loss from electrical or
telephone failure, fire or other casualty, or other disruption could have a
material adverse
effect on the Company's business, financial condition, and results of
operations. The Company's use of a single warehouse also makes the Company more
vulnerable to dramatic changes in freight rates than a competitor with multiple,
geographically dispersed warehouse sites. Losses in excess of insurance
coverage, an uninsurable loss, or changes in freight rates could have a material
adverse effect on the Company's business, financial condition, and results of
operations.
Dependence on Senior Management
The success of the Company is largely dependent on the skills, experience
and efforts of its senior management, particularly Steven H. Owings, Chairman,
Michael L. Baur, Chief Executive Officer and President, and Jeffery A. Bryson,
Chief Financial Officer. The Company has obtained a "key person" insurance
policy on the life of Mr. Baur in the amount of $1.0 million. The loss of
services of any of these named individuals could have a material adverse effect
on the Company's business, financial condition, and results of operations.
Dependence on Third-Party Shippers
The Company presently ships the majority of its products from Memphis,
Tennessee by FedEx or United Parcel Service. Changes in shipping terms, or the
inability of these third-party shippers to perform effectively (whether as a
result of mechanical failure, casualty loss, labor stoppage, other disruption,
or any other reason), could have a material adverse effect on the Company's
business, financial condition, and results of operations. There can be no
assurance that the Company can maintain favorable shipping terms or replace such
shipping services on a timely or cost-effective basis.
Risks Associated with Extensions of Credit
As a marketing enhancement, the Company offers unsecured and secured credit
terms for qualified resellers. Historically, the Company has not experienced
losses from write-offs materially in excess of established reserves. While the
Company evaluates resellers' qualifications for credit and monitors its
extensions of credit, defaults by resellers in timely repayment of these
extensions of credit could have a material adverse effect on the Company's
business, financial condition, or results of operations.
Possible Volatility of Stock Price
The market price of the Company's common stock may be subject to wide
fluctuations in response to quarterly variations in operating results, general
market movements, and other events or factors. In addition, in recent years the
stock markets in general, and technology-related stocks in particular, have
experienced price and volume fluctuations that often have been unrelated or
disproportionate to the operating performance of companies. These fluctuations,
as well as general economic and market conditions, may adversely affect the
market price of the Company's common stock.