# **Exhibit99.3**

 

CertainFactors to Consider in Connectionwith Forward-Looking Statements

 

December2002

 

Fromtime to time, Phoenix Gold International, Inc., (the “Company”), through itsmanagement, may make forward-looking public statements with respect to theCompany regarding, among other things, expected future revenues or earnings,projections, plans, future performance, product development andcommercialization, and other estimates relating to the Company’s futureoperations.  Forward-looking statementsmay be included in reports filed under the Securities Exchange Act of 1934, asamended (the “Exchange Act”), in press releases or in oral statements made withthe approval of an authorized executive officer or director of the Company.  The words or phrases “will likely result,”“are expected to,” “intends,” “is anticipated,” “estimates,” “projects” orsimilar expressions are intended to identify “forward-looking statements”within the meaning of Section 21E of the Exchange Act and Section 27A of theSecurities Act of 1933, as amended, as enacted by the Private SecuritiesLitigation Reform Act of 1995.

 

Forward-looking statementsare subject to a number of risks and uncertainties.  The Company cautions you not to place undue reliance on itsforward-looking statements which speak only as of the date on which they aremade.  The Company’s actual results maydiffer materially from those described in the forward-looking statements as aresult of various factors, including those listed below.  The Company does not intend to update itsforward-looking statements.

 

Pursuant to the “safeharbor” provisions of the Private Securities Litigation Reform Act of 1995, theCompany hereby files the following cautionary statements identifying certainfactors that could cause its actual results to differ materially from thosedescribed in its forward-looking statements.

 

*Competition. *The market forthe Company’s products is served by many domestic and international companiesand is 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 means of distribution or that in the face of such competitionthe Company will be able to maintain its current market share.

 

In its accessories line,the Company competes with other manufacturers and distributors, as well as withconsumer electronics equipment manufacturers that market their own lines ofaccessories.  The Company competes withaudio electronics and speaker manufacturers that market their products primarilythrough specialty dealer networks and mass merchandise retail stores.  There can be no assurance that the Companywill be able to compete successfully by introducing products or performancefeatures on a timely basis or by adding new features to its products whilelimiting price increases.  Increasedcompetition could result in product price reductions, reduced margins and lossof market share, all of which could materially adversely affect the Company’sfinancial condition and results of operations.

 

*Adverse Effect of Reduced Discretionary ConsumerSpending. *Consumerpurchases of accessories, electronics and speakers are highlydiscretionary.  The success of theCompany is 

 

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influencedby a number of economic factors affecting disposable income such as employmentlevels, business conditions, and interest and tax rates.  Adverse changes in these economic factors,among others, may cause consumers to reduce their discretionary spending,thereby adversely affecting the Company’s results of operations and growth.

 

*Dependence on a Significant Customer.* The loss of Bose Corporation (“Bose”) as acustomer or any significant portion of Bose orders could have a materialadverse effect on the Company’s business, results of operations and financialcondition.  Bose accounted for 12.8% and10.7% of the Company’s net sales during the years ended September 30, 2002 and2001, respectively.  Purchase ordersfrom Bose have historically fluctuated significantly from quarter toquarter.  Although the Company hascontinued to receive orders from Bose, the Company’s formal purchase agreementwith Bose expired in March 2001.  TheCompany and 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 Quarterly Results andSeasonality. *The Company’squarterly results of operations are difficult to predict and may fluctuatesignificantly from quarter to quarter. The Company’s results of operations are principally affected by theseasonality of the car audio aftermarket and the home audio market.  The carand home audio markets are both somewhat seasonal, with the majority of caraudio sales normally occurring in the period March through September and themajority of home audio sales normally occurring in the period September throughMarch.  Historically, theCompany’s net sales were greater during the third (April through June) andfourth (July through September) quarters of the Company’s fiscal year thanduring the first two fiscal quarters. Due to the acquisition of the AudioSource product line in fiscal 2001,the Company’s sales in fiscal 2001 and fiscal 2002 have increased in the homeaudio market.  Although the business issomewhat less seasonal, the Company’s quarterly results of operations may notnecessarily be indicative of its results of operations for the full year.

 

The Company’s results ofoperations may also fluctuate on a quarterly basis because of changes ingeneral economic conditions, the size and timing of product orders andshipments, 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. *A significant portion ofthe Company’s manufacturing and operating expenses are relatively fixed innature, and budgeted expenses are based primarily on sales forecasts.  The Company must generally plan production,purchase raw materials and finished goods, as well as undertake its sales andmarketing activities, in advance of sales to customers.  If net sales do not meet the Company’sexpectations and if the Company is unable to adjust operating expenses quicklyenough, then operating results could be materially adversely affected.

 

*Need for Introduction of New Products and ProductEnhancements. *The market forthe Company’s products is characterized by rapid technological change and theneed for frequent 

 

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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.

 

The success of productenhancements and new products depends on a variety of factors, includingproduct selection, timely completion of product design, efficientimplementation of manufacturing and assembly processes and effective sales andmarketing.  In addition, dealers may bereluctant to sell new Company products for a number of reasons, includingloyalty to competing products.

 

*Dependence on Suppliers. *The Company is dependent on a number of suppliers forraw materials, components, a small number of subassemblies and, increasingly,finished goods.  Certain of thesematerials, components, subassemblies and finished goods are obtained from asingle supplier or a limited number of suppliers.  The Company has no long-term contracts with any suppliers.  Component or raw materials shortages,production delays, work stoppages or quality control issues experienced bythese suppliers or any other circumstances resulting in any of those suppliersceasing to supply the Company could have a material adverse effect on theCompany’s financial condition and results of operations.  While the Company has not experiencedsignificant shortages in the supply of raw materials, components, subassembliesand finished goods in the past, there is no assurance that supply shortageswill not occur in the future.  The lossof certain suppliers or delays in shifting to new suppliers could result inmanufacturing or shipping delays, which could have a material adverse effect onthe Company’s results of operations.

 

*Control by Current Shareholders. *Keith A. Peterson, theCompany’s Chairman and Chief Executive Officer, and Timothy G. Johnson, theCompany’s President and Chief Operating Officer,**beneficially ownapproximately 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 increases theCompany’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.

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*Substantial International Operations.*  International sales accounted for 20.1% and20.8% of the Company’s net sales in fiscal years 2002 and 2001,respectively.  Gross margins forinternational sales are generally lower than for domestic sales.  Several of the Company’s significantsuppliers are also located overseas. Transactions with foreign suppliers and customers are subject to therisks of international trade, such as lengthy shipping times, tariffregulations, actions by foreign custom officials, changes in trade policies,foreign currency fluctuations and political instability.  In addition, a decrease in the value of acountry’s currency 

 

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in relation to the United States dollar wouldhave the effect of raising the price of the Company’s products in that countryand could cause consumers in that country to shift discretionary spending toother products or to competitors’ products manufactured outside the UnitedStates.  Increased duties could alsoincrease the cost of the Company’s products sold in international markets.

 

*Dependence on Key Employees. *The Company is dependent onthe continued services of Messrs. Peterson and Johnson, and certain other keymanagement 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 Intellectual Property*.  The Company’s future success will depend inpart on its intellectual property.  TheCompany seeks to defend its intellectual property rights, but its actions maynot adequately protect the rights covered by its trademarks and otherproprietary rights, and prosecution of the Company’s claims could betime-consuming and costly.  In addition,the intellectual property laws of some foreign countries do not protect theCompany’s proprietary rights, as do the laws of the United States.  Despite the Company’s efforts to protect itsintellectual property, third parties may obtain, disclose or use the Company’sproprietary information or assets without its authorization.  Such disclosure could adversely affect theCompany’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.

 

*Delisting and Limited Trading Volume of Common Stock.*  The continued inclusion and listing of theCompany’s Common Stock on The NASDAQ SmallCap Market is subject to certainconditions.  There can be no assurancethat the Company will continue to meet maintenance listing criteria of TheNASDAQ SmallCap Market.  If theCompany’s Common Stock is delisted from The NASDAQ SmallCap Market, then theCommon Stock would be traded in the over-the-counter 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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