**Exhibit 99.1**

 

Certain Factors to Consider in Connectionwith Forward-Looking Statements

 

December 2003

 

From time to time, Phoenix Gold International, Inc.,(the “Company”), through its management, may make forward-looking publicstatements with respect to the Company regarding, among other things, expectedfuture revenues or earnings, projections, plans, future performance, productdevelopment and commercialization, and other estimates relating to theCompany’s future operations. Forward-looking statements may be included in reports filed under theSecurities Exchange Act of 1934, as amended (the “Exchange Act”), in pressreleases or in oral statements made with the approval of an authorizedexecutive officer or director of the Company. The words or phrases “will likely result,” “are expected to,” “intends,”“is anticipated,” “estimates,” “projects” or similar expressions are intendedto identify “forward-looking statements” within the meaning of Section 21Eof the Exchange Act and Section 27A of the Securities Act of 1933, asamended, as enacted by the Private Securities Litigation Reform Act of 1995.

 

Forward-lookingstatements are subject to a number of risks and uncertainties.  The Company cautions you not to place unduereliance on its forward-looking statements which speak only as of the date onwhich they are made.  The Company’sactual results may differ materially from those described in theforward-looking statements as a result of various factors, including thoselisted below.  The Company does notintend to update its forward-looking statements.

 

Pursuantto the “safe harbor” provisions of the Private Securities Litigation Reform Actof 1995, the Company hereby files the following cautionary statementsidentifying certain factors that could cause its actual results to differmaterially from those described in its forward-looking statements.

 

*Competition. *The market for theCompany’s products is served by many domestic and international companies andis intensely competitive, highly fragmented and rapidly changing.  Some of the Company’s competitors havesignificantly greater financial and technical resources than the Company andmay offer lower prices on competing products. There can be no assurance that other companies, including those withgreater resources than the Company, will not seek to compete with the Companyusing the same distribution channels or that in the face of such competitionthe Company will be able to maintain its current market share.

 

In its accessoriesline, the Company competes with other manufacturers and distributors, as wellas with consumer electronics equipment manufacturers that market their ownlines of accessories.  The Companycompetes with audio electronics and speaker manufacturers that market theirproducts primarily through specialty dealer networks and mass merchandiseretail stores.  There can be noassurance that the Company will be able to compete successfully by introducingproducts or performance features on a timely basis or by adding new features toits products while limiting price increases. Increased competition could result in product price reductions, reducedmargins and loss of market share, all of which could materially adverselyaffect the Company’s financial condition and results of operations.

 

*Adverse Effect of ReducedDiscretionary Consumer Spending. *Consumerpurchases of accessories, electronics and speakers are highlydiscretionary.  The success of theCompany is

 

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influenced by a number ofeconomic factors affecting disposable income such as employment levels,business conditions, and interest and tax rates.  Adverse changes in these economic factors, among others, maycause consumers to reduce their discretionary spending, thereby adversely affectingthe Company’s results of operations and growth.

 

*Dependence on a SignificantCustomer.* The loss ofBose Corporation (“Bose”) as a customer or any significant portion of Boseorders could have a material adverse effect on the Company’s business, resultsof operations and financial condition. Sales to Bose for the year ended September 30, 2003 decreased 45.9%from fiscal 2002 and were less than 10% of the Company’s net sales.  Bose accounted for 12.8% and 10.7% of theCompany’s net sales during the years ended September 30, 2002 and 2001,respectively.  Purchase orders from Bosehave historically fluctuated significantly from quarter to quarter.  Although the Company has continued toreceive orders from Bose, the Company’s formal purchase agreement with Boseexpired in March 2001.  The Companyand Bose are currently negotiating a new purchase agreement.  There can be no assurance that the Companywill be able to negotiate a new purchase agreement with Bose on acceptableterms or that purchases will be made by Bose under any agreement.  The loss of Bose as a customer or anysignificant portion of Bose orders could have a material adverse effect on theCompany’s business, results of operations and financial condition.

 

*Potential Fluctuations in QuarterlyResults and Seasonality. *TheCompany’s quarterly results of operations are difficult to predict and mayfluctuate significantly from quarter to quarter.  The Company’s results of operations are affected by theseasonality of the car audio aftermarket and the home audio market.  The car and home audio markets are bothsomewhat seasonal, with the majority of car audio sales normally occurring inthe period March through September and the majority of home audiosales normally occurring in the period September through March.  Historically, the Company’s net sales weregreater during the third (April through June) and fourth(July through September) quarters of the Company’s fiscal year than duringthe first two fiscal quarters.  Due tothe acquisition of the AudioSource product line in fiscal 2001, the Company’ssales have increased in the home audio market. Although the Company’s business is somewhat less seasonal, the Company’squarterly results of operations are not necessarily indicative of its results ofoperations for the full year.

 

The Company’sresults of operations may also fluctuate on a quarterly basis because ofchanges in general economic conditions, the size and timing of product ordersand shipments, the introduction of new products and product enhancements by theCompany and its competitors, the timing of operating expenditures and the risksinherent in international operations such as changes in demand resulting fromfluctuations in interest and exchange rates, changes in trade policies, changesin tariff regulations and economic conditions in other countries, among otherfactors.  In addition, as a strategicresponse to a changing competitive environment, the Company may make certainpricing, product or marketing decisions that could have a material adverseeffect on the Company’s quarterly results of operations.

 

*Fixed Operating Expenses Relative ToRevenues. *Asignificant portion of the Company’s manufacturing and operating expenses arerelatively fixed in nature, and budgeted expenses are based primarily on salesforecasts.  The Company must generallyplan production, purchase raw materials and finished goods, as well asundertake its sales and marketing activities, in advance of sales to customers.  If net sales do not meet the Company’s expectationsand if the Company is unable to adjust operating expenses quickly enough, thenoperating results could be materially adversely affected.

 

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*Need for Introduction of NewProducts and Product Enhancements. *Themarket for the Company’s products is characterized by rapid technologicalchange and the need for frequent introduction of new products and models.  The Company’s success depends in part uponits ability to maintain and enhance its products and to develop and introducenew products that keep pace with technological developments, respond toevolving customer preferences and requirements and achieve marketacceptance.  Any failure by the Companyto anticipate or respond adequately to technological developments and customerrequirements, or any significant delays in product development or introduction,could have a material adverse effect on the Company’s financial condition andresults of operations.

 

Thesuccess of product enhancements and new products depends on a variety offactors, including product selection, timely completion of product design,efficient implementation of manufacturing and assembly processes and effectivesales and marketing.  In addition,dealers may be reluctant to sell new Company products for a number of reasons,including loyalty to competing products.

 

*Dependence on Suppliers. *The Company is dependenton a number of suppliers for raw materials, components, a small number ofsubassemblies and, increasingly, finished goods.  Certain of these materials, components, subassemblies andfinished goods are obtained from a single supplier or a limited number ofsuppliers.  The Company has no long-termcontracts with any suppliers.  Componentor raw materials shortages, production delays, work stoppages or qualitycontrol issues experienced by these suppliers or any other circumstancesresulting in any of those suppliers ceasing to sell to the Company could have amaterial adverse effect on the Company’s financial condition and results ofoperations.  While the Company has notexperienced significant shortages in the supply of raw materials, components,subassemblies and finished goods in the past, there is no assurance that supplyshortages will not occur in the future. The loss of certain suppliers or delays in shifting to new supplierscould result in manufacturing or shipping delays, which could have a materialadverse effect on the Company’s results of operations.

 

*Control by CurrentShareholders. *KeithA. Peterson, the Company’s Chairman and Chief Executive Officer, and Timothy G.Johnson, the Company’s President and Chief Operating Officer,**beneficiallyown approximately 68% of the Company’s outstanding common stock.  They have the power to control the vote onmost issues submitted to the Company’s shareholders, including the election ofthe Company’s directors and approval or disapproval of fundamental corporatechanges such as mergers, dissolution and changes in control.  As shareholders, Messrs. Peterson andJohnson may act in their own self-interest with respect to, among other things,the voting or disposal of their shares of Company common stock.  This concentration of ownership may alsohave the effect of delaying or preventing a change in control of the Company.

 

*High Inventory Requirements. *In order to meet itsdealers’ needs for quick delivery, the Company carries substantial amounts ofinventory.  This requirement increasesthe Company’s financing requirements and the risk of inventory obsolescence.  Although costs associated with inventoryobsolescence have historically been immaterial, there can be no assurance thatthe risks associated with maintaining these levels of inventory will not have amaterial adverse effect on the Company’s results of operations.

 

*Substantial InternationalOperations.* International sales accounted for 22.4% and 20.1% of the Company’s netsales in fiscal years 2003 and 2002, respectively.  Gross margins for international sales are generally lower thanfor domestic sales.  Several of the Company’ssignificant suppliers are also located overseas.  Transactions with foreign suppliers and

 

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customers are subject tothe risks of international trade, such as lengthy shipping times, tariff regulations,actions by foreign custom officials, changes in trade policies, foreigncurrency fluctuations and political instability.  In addition, a decrease in the value of a country’s currency inrelation to the United States dollar would have the effect of raising the priceof the Company’s products in that country and could cause consumers in thatcountry to shift discretionary spending to other products or to competitors’products manufactured outside the United States.  Increased duties could also increase the cost of the Company’sproducts sold in international markets.

 

*Dependence on Key Employees. *The Company is dependenton the continued services of Messrs. Peterson and Johnson, and certain otherkey management personnel.  Although theCompany has obtained “key man” insurance of $1.5 million with respect to Mr.Peterson, the loss of his services or the services of one or more other keypersonnel could have a material adverse effect on the Company.  The Company has no employment agreementswith any of its key personnel.  Therecan be no assurance that the Company will be successful in attracting andretaining the personnel it requires to develop, manufacture and market itsproducts or expand its operations.

 

*Need to Protect IntellectualProperty*.  The Company’sfuture success will depend in part on its intellectual property.  The Company seeks to defend its intellectualproperty rights, but its actions may not adequately protect the rights coveredby its trademarks and other proprietary rights, and prosecution of theCompany’s claims could be time-consuming and costly.  In addition, the intellectual property laws of some foreigncountries do not protect the Company’s proprietary rights, as do the laws ofthe United States.  Despite theCompany’s efforts to protect its intellectual property, third parties mayobtain, disclose or use the Company’s proprietary information or assets withoutits authorization.  Such disclosurecould adversely affect the Company’s business.

 

*Environmental Regulation.*  Although the Company attempts to avoid usingmaterials and manufacturing processes that create hazardous wastes it, likemanufacturers of similar products, is subject to a number of Federal and stateenvironmental statutes and regulations. Although the Company believes it complies with all applicableenvironmental requirements, there can be no assurance that its manufacturingoperations do not, or will not in the future, violate such requirements or thatcompliance with such requirements will not involve substantial cost or have amaterial adverse effect on the Company’s financial condition or results ofoperations.

 

*Limited Trading Volume of Common Stock.*  The CommonStock is traded in the Over-The-Counter (“OTC”) Bulletin Board market.  As a result, an investor may find it moredifficult to dispose of, or obtain accurate quotations as to the price of, theCommon Stock.  In addition, the tradingvolume in the Common Stock has historically been low.  This low trading volume means that there is limited liquidity inthe Company’s shares of Common Stock. Selling the Company’s shares may be more difficult because smallerquantities of shares are bought and sold and news media coverage about theCompany is limited.  These factorsresult in a limited trading market for the Company’s Common Stock and thereforeinvestors may be unable to sell their shares of Common Stock immediately shouldthey desire to do so.

 

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