| SINGING MACHINE CO INC Item 1A Risk Factors 7 ITEM 1A RISK FACTORS Set forth below and elsewhere in this Annual Report on Form 10-K and in the other documents we file with the SEC are risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward looking statements contained in this Annual Report |
| RISKS ASSOCIATED WITH OUR BUSINESS WE HAVE SIGNIFICANT WORKING CAPITAL NEEDS AND IF WE ARE UNABLE TO OBTAIN ADDITIONAL FINANCING, WHEN NEEDED, WE MAY NOT HAVE SUFFICIENT CASH FLOW TO RUN OUR BUSINESS As of June 30, 2006, our cash on hand is limited |
| We need approximately dlra1dtta1 million in working capital in order to finance our operations over the next three months |
| We will finance our working capital needs from the collection of accounts receivable, and sales of existing inventory |
| As of March 31, 2006, our inventory was valued at dlra1dtta7 million |
| See "e Liquidity "e beginning on page 19 |
| If these sources do not provide us with adequate financing, we may try to seek financing from lenders and investors |
| If we are not able to obtain adequate financing, when needed, it will have a material adverse effect on our cash flow and our ability to continue as a going concern |
| If we have a severe shortage of working capital, we may not be able to continue our business operations and may be required to file a petition for bankruptcy under Chapter 11 of the US Bankruptcy Code or enter into some other form of liquidation or reorganization proceeding |
| WE MAY BE DEEMED INSOLVENT AND WE MAY GO OUT OF BUSINESS As of March 31, 2006, our cash position is limited and we had negative equity |
| We are not able to pay all of our creditors on a timely basis |
| We are not current on our accounts payable of dlra0dtta4 million to our factory in China |
| If we are not able to pay our current debts as they become due, we may be deemed to be insolvent |
| We may be required to file a petition for bankruptcy under Chapter 11 of the US Bankruptcy Code or enter into some other form of liquidation or reorganization proceedings |
| We received a report dated May 26, 2006 from our independent certified public accountants covering the consolidated financial statements for our fiscal year ended March 31, 2006 that included an explanatory paragraph which stated that the financial statements were prepared assuming that the Singing Machine would continue as a going concern |
| This report stated that our operating performance in fiscal 2006 and our minimal liquidity raised substantial doubt about our ability to continue as a going concern |
| If we are not able to raise additional capital, we may need to curtail or stop our business operations |
| We may be required to file a petition for bankruptcy under Chapter 11 of the US Bankruptcy Code or enter into some other form of liquidation or reorganization proceedings |
| We do not have long-term contractual arrangements with any of our customers and they can cancel their orders at any time prior to delivery |
| A substantial reduction in or termination of orders from any of our largest customers would decrease our revenues and cash flow |
| 7 WE ARE RELYING ON ONE FACTORY TO MANUFACTURE AND PRODUCE THE MAJORITY OF OUR KARAOKE MACHINES FOR FISCAL 2006, AND IF THE RELATIONSHIP WITH THIS FACTORY IS DAMAGED OR INJURED IN ANY WAY, IT WOULD REDUCE OUR REVENUES AND PROFITABILITY We have worked out a written agreement with factories in China to produce most of our karaoke machines for fiscal 2007 |
| We owe one factory approximately dlra0dtta4 million as of March 31, 2006 and have worked out a verbal payment plan with it |
| If the factory is unwilling or unable to deliver our karaoke machines to us, our business will be adversely affected |
| Because our cash on hand is minimal, we are relying on revenues received from the sale of our ordered karaoke machines to provide cash flow for our operations |
| If we do not receive cash from these sales, we may not be able to continue our business operations |
| WE ARE RELYING ON ONE DISTRIBUTOR TO DISTRIBUTE OUR MUSIC PRODUCTS, IF THE DISTRIBUTION AGREEMENT IS TERMINATED, IT WOULD REDUCE OUR REVENUES AND PROFITABILITY We are relying on Warner Elektra Atlantic Corporation (WEA) to distribute our music products in fiscal 2006, if the distribution agreement is terminated, our music revenues might decrease as well as our profitability |
| WE ARE SUBJECT TO THE RISK THAT SOME OF OUR LARGE CUSTOMERS MAY RETURN KARAOKE PRODUCTS THAT THEY HAVE PURCHASED FROM US AND IF THIS HAPPENS, IT WOULD REDUCE OUR REVENUES AND PROFITABILITY In fiscal 2006 and 2005, a number of our customers and distributors returned karaoke products that they had purchased from us |
| Our customers returned goods valued at dlra2dtta4 million, or 7dtta4prca of our net sales in fiscal 2006 |
| Although we were not contractually obligated to accept this return of the products, we accepted the return of the products because we valued our relationship with our customers |
| Because we are dependent upon a few large customers, we are subject to the risk that any of these customers may elect to return unsold karaoke products to us in the future |
| If any of our customers were to return karaoke products to us, it would reduce our revenues and profitability |
| WE ARE SUBJECT TO PRESSURE FROM OUR CUSTOMERS RELATING TO PRICE REDUCTION AND FINANCIAL INCENTIVES AND IF WE ARE PRESSURED TO MAKE THESE CONCESSIONS TO OUR CUSTOMERS, IT WILL REDUCE OUR REVENUES AND PROFITABILITY Because there is intense competition in the karaoke industry, we are subject to pricing pressure from our customers |
| If we do not meet our customerapstas demands for lower prices, we will not sell as many karaoke products |
| In fiscal year ended March 31, 2006, our sales to customers in the United States decreased because of increased price competition |
| We are also subject to pressure from our customers regarding certain financial incentives, such as return credits or large advertising or cooperative advertising allowances, which effectively reduce our profit |
| We gave advertising allowances in the amount of dlra0dtta2 million during fiscal 2006 and dlra0dtta6 million during fiscal 2005 |
| We have historically offered advertising allowances to our customers because it is standard practice in the retail industry |
| WE EXPERIENCE DIFFICULTY FORECASTING THE DEMAND FOR OUR KARAOKE PRODUCTS AND IF WE DO NOT ACCURATELY FORECAST DEMAND, OUR REVENUES, NET INCOME AND CASH FLOW MAY BE AFFECTED Because of our reliance on manufacturers in China for our machine production, our production lead times range from one to four months |
| Therefore, we must commit to production in advance of customers orders |
| It is difficult to forecast customer demand because we do not have any scientific or quantitative method to predict this demand |
| Our forecasting is based on managementapstas general expectations about customer demand, the general strength of the retail market and managementapstas historical experiences |
| We overestimated demand for our products in fiscal 2003 and 2004 and had dlra5dtta9 million in inventory as of March 31, 2004 |
| Because of this excess inventory, we had liquidity problems in fiscal 2005 and our revenues, net income and cash flow were adversely affected |
| WE ARE SUBJECT TO THE COSTS AND RISKS OF CARRYING INVENTORY FOR OUR CUSTOMERS AND IF WE HAVE TOO MUCH INVENTORY, IT WILL AFFECT OUR REVENUES AND NET INCOME Many of our customers place orders with us several months prior to the holiday season, but they schedule delivery two or three weeks before the holiday season begins |
| As such, we are subject to the risks and costs of carrying inventory during the time period between the placement or the order and the delivery date, which reduces our cash flow |
| As of March 31, 2006 we had dlra1dtta6 million in inventory on hand |
| It is important that we sell this inventory during fiscal 2007, so we have sufficient cash flow for operations |
| OUR GROSS PROFIT MARGINS HAVE DECREASED OVER THE PAST YEAR AND WE EXPECT A COMPETITIVE MARKET Over the past year, our gross profit margins have generally decreased due to the competition except for fiscal 2005 when we had developed several new models, which were in demand and yielded higher profit margins |
| 8 OUR LICENSING AGREEMENT WITH MTV NETWORKS IS IMPORTANT TO OUR BUSINESS AND IF WE WERE TO LOSE OUR MTV LICENSE IT WOULD AFFECT OUR REVENUES AND PROFITABILITY Our license with MTV Networks is important to our business |
| We generated 2dtta1prca and 17dtta6prca of our consolidated net sales from products sold under the MTV license in fiscal 2006 and 2005, respectively |
| Our MTV license was terminated on December 31, 2004, with an extension to sell certain existing inventory by September 30, 2005 |
| We expect the MTV branded products will be phased out and replaced with SMC brand products going forward |
| OUR BUSINESS IS SEASONAL AND THEREFORE OUR ANNUAL OPERATING RESULTS WILL DEPEND, IN LARGE PART, ON OUR SALES DURING THE RELATIVELY BRIEF HOLIDAY SEASON Sales of consumer electronics and toy products in the retail channel are highly seasonal, with a majority of retail sales occurring during the period from September through December in anticipation of the holiday season, which includes Christmas |
| A substantial majority of our sales occur during the second quarter ended September 30 and the third quarter ending December 31 |
| Sales in our second and third quarter, combined, accounted for approximately 87dtta5prca, 86dtta7prca and 87dtta2prca of net sales in fiscal 2006, 2005 and 2004, respectively |
| IF WE ARE UNABLE TO COMPETE IN THE KARAOKE PRODUCTS CATEGORY, OUR REVENUES AND NET PROFITABILITY WILL BE REDUCED Our major competitors for karaoke machines and related products is Memorex |
| We believe that competition for karaoke machines is based primarily on price, product features, reputation, delivery times, and customer support |
| Our primary competitors for producing karaoke music are Compass, Pocket Songs, Sybersound, UAV and Sound Choice |
| We believe that competition for karaoke music is based primarily on popularity of song titles, price, reputation, and delivery times |
| To the extent that we lower prices to attempt to enhance or retain market share, we may adversely impact our operating margins |
| Conversely, if we opt not to match competitorapstas price reductions we may lose market share, resulting in decreased volume and revenue |
| To the extent our leading competitors reduce prices on their karaoke machines and music, we must remain flexible to reduce our prices |
| If we are forced to reduce our prices, it will result in lower margins and reduced profitability |
| Because of intense competition in the karaoke industry in the United States during fiscal 2006, we expect that the intense pricing pressure in the low end of the market will continue in the karaoke market in the United States in fiscal 2007 |
| In addition, we must compete with all the other existing forms of entertainment including, but not limited to: motion pictures, video arcade games, home video games, theme parks, nightclubs, television, prerecorded tapes, CDapstas and video cassettes |
| IF WE ARE UNABLE TO DEVELOP NEW KARAOKE PRODUCTS, OUR REVENUES MAY NOT CONTINUE TO GROW The karaoke industry is characterized by rapid technological change, frequent new product introductions and enhancements and ongoing customer demands for greater performance |
| In addition, the average selling price of any karaoke machine has historically decreased over its life, and we expect that trend to continue |
| As a result, our products may not be competitive if we fail to introduce new products or product enhancements that meet evolving customer demands |
| The development of new products is complex, and we may not be able to complete development in a timely manner |
| To introduce products on a timely basis, we must: o accurately define and design new products to meet market needs; o design features that continue to differentiate our products from those of our competitors; o transition our products to new manufacturing process technologies; o identify emerging technological trends in our target markets; o anticipate changes in end-user preferences with respect to our customers &apos products; o bring products to market on a timely basis at competitive prices; and o respond effectively to technological changes or product announcements by others |
| We believe that we will need to continue to enhance our karaoke machines and develop new machines to keep pace with competitive and technological developments and to achieve market acceptance for our products |
| At the same time, we need to identify and develop other products which may be different from karaoke machines |
| OUR PRODUCTS ARE SHIPPED FROM CHINA AND ANY DISRUPTION OF SHIPPING COULD PREVENT OR DELAY OUR CUSTOMERS &apos RECEIPT OF INVENTORY We rely principally on four contract ocean carriers to ship virtually all of the products that we import to our warehouse facility in Compton, California |
| Retailers that take delivery of our products in China rely on a variety of carriers to import those products |
| Any disruptions in shipping, whether in California or China, caused by labor strikes, other labor disputes, terrorism, and international incidents may prevent or delay our customers &apos receipt of inventory |
| If our customers do not receive their inventory on a timely basis, they may cancel their orders or return products to us |
| Consequently, our revenues and net income would be reduced |
| 9 OUR MANUFACTURING OPERATIONS ARE LOCATED IN THE PEOPLE &apos S REPUBLIC OF CHINA, SUBJECTING US TO RISKS COMMON IN INTERNATIONAL OPERATIONS IF THERE IS ANY PROBLEM WITH THE MANUFACTURING PROCESS, OUR REVENUES AND NET PROFITABILITY MAY BE REDUCED We are using six factories in the Peopleapstas Republic of China to manufacture the majority of our karaoke machines |
| These factories will be producing approximately 98prca of our karaoke products in fiscal 2007 |
| Our arrangements with these factories are subject to the risks of doing business abroad, such as import duties, trade restrictions, work stoppages, and foreign currency fluctuations, limitations on the repatriation of earnings and political instability, which could have an adverse impact on our business |
| Furthermore, we have limited control over the manufacturing processes themselves |
| As a result, any difficulties encountered by our third-party manufacturers that result in product defects, production delays, cost overruns or the inability to fulfill orders on a timely basis could adversely affect our revenues, profitability and cash flow |
| Also, since we do not have written agreements with any of these factories, we are subject to additional uncertainty if the factories do not deliver products to us on a timely basis |
| WE DEPEND ON THIRD PARTY SUPPLIERS FOR PARTS FOR OUR KARAOKE MACHINES AND RELATED PRODUCTS, AND IF WE CANNOT OBTAIN SUPPLIES AS NEEDED, OUR OPERATIONS WILL BE SEVERELY DAMAGED Our growth and ability to meet customer demand depends in part on our capability to obtain timely deliveries of karaoke machines and our electronic products |
| We rely on third party suppliers to produce the parts and materials we use to manufacture and produce these products |
| If our suppliers are unable to provide our factories with the parts and supplies, we will be unable to produce our products |
| We cannot guarantee that we will be able to purchase the parts we need at reasonable prices or in a timely fashion |
| If we are unable to anticipate any shortages of parts and materials in the future, we may experience severe production problems, which would impact our sales |
| CONSUMER DISCRETIONARY SPENDING MAY AFFECT KARAOKE PURCHASES AND IS AFFECTED BY VARIOUS ECONOMIC CONDITIONS AND CHANGES Our business and financial performance may be damaged more than most companies by adverse financial conditions affecting our business or by a general weakening of the economy |
| Purchases of karaoke machines and music are considered discretionary for consumers |
| Our success will therefore be influenced by a number of economic factors affecting discretionary and consumer spending, such as employment levels, business, interest rates, and taxation rates, all of which are not under our control |
| Additionally, other extraordinary events such as terrorist attacks or military engagements, which adversely affect the retail environment may restrict consumer spending and thereby adversely affect our sales growth and profitability |
| WE MAY HAVE INFRINGED THE COPYRIGHTS OF CERTAIN MUSIC PUBLISHERS AND IF WE VIOLATE FEDERAL COPYRIGHT LAWS, WE WILL BE SUBJECT TO MONETARY PENALTIES Over the past several years, Singing Machine (like its competitors) has received notices from certain music publishers alleging that the full range of necessary rights in their copyrighted works has not been properly licensed in order to sell those works as part of products known as "e compact discs with graphics "e ( "e CDG "e s) |
| CDGapstas are compact discs which contain the musical recordings of karaoke songs and graphics which contain the lyrics of the songs |
| Singing Machine has negotiated licenses with the complaining parties, or is in the process of settling such claims, with each one of the complaining copyright owners |
| As with any alleged copyright violations, unlicensed users may be subject to damages under the US Copyright Act |
| Such damages and claims could have a negative effect on Singing Machineapstas ability to sell its music products to its customers if left unchecked or unresolved, the reason Singing Machine pursues licenses so diligently |
| WE MAY BE SUBJECT TO CLAIMS FROM THIRD PARTIES FOR UNAUTHORIZED USE OF THEIR PROPRIETARY TECHNOLOGY, COPYRIGHTS OR TRADE SECRETS AND ANY CLAIMS ASSERTED AGAINST US COULD AFFECT OUR NET PROFITABILITY We believe that we independently developed the technology used in our electronic and audio software products and that it does not infringe on the proprietary rights, copyrights or trade secrets of others |
| However, we cannot assure you that we have not infringed on the proprietary rights of third parties or those third parties will not make infringement violation claims against us |
| During fiscal 2000, Tanashin Denki, Ltd, a Japanese company that holds a patent on a cassette tape drive mechanism alleged that some of our karaoke machines violated their patents |
| We settled the matters with Tanashin in December 1999 |
| Subsequently in December 2002, Tanashin again alleged that some of our karaoke machines violated their patents |
| We entered into another settlement agreement with them in May 2003 |
| In addition to Tanashin, we could receive infringement claims from other third parties |
| Any infringement claims may have a negative effect on our profitability and financial condition |
| WE ARE EXPOSED TO THE CREDIT RISK OF OUR CUSTOMERS, WHO ARE EXPERIENCING FINANCIAL DIFFICULTIES, AND IF THESE CUSTOMERS ARE UNABLE TO PAY US, OUR REVENUES AND PROFITABILITY WILL BE REDUCED We sell products to retailers, including department stores, lifestyle merchants, direct mail retailers, which are catalogs and showrooms, national chains, specialty stores, and warehouse clubs |
| Some of these retailers, such as K-Mart, FAO Schwarz and KB Toys, have engaged in leveraged buyouts or transactions in which they incurred a significant amount of debt, and operated under the protection of bankruptcy laws |
| As of June 30, 2006, we are aware of only three customers, FAO Schwarz, Musicland and KB Toys, which are operating under the protection of bankruptcy laws |
| Deterioration in the financial condition of our customers could result in bad debt expense to us and have a material adverse effect on our revenues and future profitability |
| 10 A DISRUPTION IN THE OPERATION OF OUR WAREHOUSE CENTERS IN CALIFORNIA OR FLORIDA COULD IMPACT OUR ABILITY TO DELIVER MERCHANDISE TO OUR STORES, WHICH COULD ADVERSELY AFFECT OUR REVENUES AND PROFITABILITY A significant amount of our merchandise is shipped to our customers from one of our two warehouses, which are located in Compton, California, and Coconut Creek, Florida |
| Events such as fire or other catastrophic events, any malfunction or disruption of our centralized information systems or shipping problems may result in delays or disruptions in the timely distribution of merchandise to our customers, which could substantially decrease our revenues and profitability |
| OUR BUSINESS OPERATIONS COULD BE DISRUPTED IF THERE ARE LABOR PROBLEMS ON THE WEST COAST During fiscal 2006, approximately 33prca of our sales were domestic warehouse sales, which were made from our warehouses in California and Florida |
| During the third quarter of fiscal 2003, the dock strike on the West Coast affected sales of two of our karaoke products and we estimate that we lost between dlra3 and dlra5 million in orders because we could not get the containers of these products off the pier |
| If another strike or work slow-down occurs and we do not have a sufficient level of inventory, a strike or work slow-down would result in increased costs to us and may reduce our profitability |
| RISKS ASSOCIATED WITH OUR CAPITAL STRUCTURE THE MARKET PRICE OF OUR COMMON STOCK MAY BE VOLATILE WHICH MAY CAUSE INVESTORS TO LOSE ALL OR A PORTION OF THEIR INVESTMENT From December 1, 2004 through March 31, 2006, our common stock has traded between a high of $ |
| Our stock price may continue to be volatile based on similar or other adverse developments in our business |
| In addition, the stock market periodically experiences significant adverse price and volume fluctuations which may be unrelated to the operating performance of particular companies |
| As of June 12, 2006, investors hold a short position in 283cmam000 shares of our common stock which represents 4dtta0prca of our public float |
| The anticipated downward pressure on our stock price due to actual or anticipated sales of our stock by some institutions or individuals who engage in short sales of our common stock could cause our stock price to decline |
| Additionally, if our stock price declines, it may be more difficult for us to raise capital |
| OUR COMMON STOCK MAY BE DELISTED FROM THE AMERICAN STOCK EXCHANGE, WHICH MAY HAVE A MATERIAL ADVERSE IMPACT ON THE PRICING AND TRADING OF OUR COMMON STOCK The Company has received a non-compliance notice from The American Stock Exchange (the "e Amex "e ) on July 18, 2005 |
| The notice indicated that the Company has fallen below the continued listing standards of the Amex and that its listing is being continued pursuant to an extension |
| Specifically, for the fiscal year ended March 31, 2005, the Company was not in compliance with the minimum shareholders &apos equity requirement of dlra2cmam000cmam000, and had reported net losses in each of the past two fiscal years, resulting in the Companyapstas non-compliance with Sections 1003(a)(i) and 1003(a)(iv) of the Amex Company Guide |
| In addition, the Company failed to announce in a press release, as required by Section 610(b) of the Amex Company Guide, that it received an audit opinion which contained a going concern qualification as disclosed in its Form 10-K for fiscal 2005 that was filed on June 29, 2005 |
| In order to maintain its Amex listing, the Company submitted a plan by August 18, 2005 advising the Amex of actions it will take, which may allow it to regain compliance within a maximum of 18 months and 12 months from July 18, 2005, respectively |
| The Exchange has completed its review of The Singing Machineapstas plan of compliance and supporting documentation and has determined that, in accordance with Section 1009 of the Company Guide, the Plan makes a reasonable demonstration of the Companyapstas ability to regain compliance with the continued listing standards within a maximum of 18 months and 12 months from July 18, 2005, respectively |
| The Company must regain compliance with the dlra4cmam000cmam000 minimum shareholders &apos equity requirement by January 18, 2007 |
| Failure to regain compliance within these time frames likely will result in the Exchange Staff initiating delisting proceedings pursuant to Section 1009 of the Company Guide |
| Further, if our common stock is removed from listing on Amex, it may become more difficult for us to raise funds through the sales of our common stock or securities |
| 11 IF OUR OUTSTANDING DERIVATIVE SECURITIES ARE EXERCISED OR CONVERTED, OUR EXISTING SHAREHOLDERS WILL SUFFER DILUTION As of March 31, 2006, there were outstanding stock options to purchase an aggregate of 1cmam300cmam110 shares of common stock at exercise prices ranging from $ |
| 32 to dlra11dtta09 per share, not all of which are immediately exercisable |
| The weighted average exercise price of the outstanding stock options is approximately dlra2dtta42 per share |
| As of March 31, 2006, there were outstanding immediately exercisable options to purchase an aggregate of 392cmam161 shares of our common stock |
| There were outstanding stock warrants to purchase 5cmam591cmam040 shares of common stock at exercise prices ranging from dlra1dtta41 to dlra4dtta03 per share, all of which are exercisable |
| The weighted average exercise price of the outstanding stock warrants is approximately dlra0dtta85 per share |
| FUTURE SALES OF OUR COMMON STOCK HELD BY CURRENT STOCKHOLDERS AND INVESTORS MAY DEPRESS OUR STOCK PRICE As of June 30, 2006, there were 10cmam060cmam282 shares of our common stock outstanding |
| We have filed two registration statements registering an aggregate 3cmam794cmam250 of shares of our common stock (a registration statement on Form S-8 to register the sale of 1cmam844cmam250 shares underlying options granted under our 1994 Stock Option Plan and a registration statement on Form S-8 to register 1cmam950cmam000 shares of our common stock underlying options granted under our Year 2001 Stock Option Plan) |
| An additional registration statement on Form S-1 was filed in October 2003, registering an aggregate of 2cmam795cmam465 shares of our common stock |
| The market price of our common stock could drop due to the sale of large number of shares of our common stock, such as the shares sold pursuant to the registration statements or under Rule 144, or the perception that these sales could occur |
| OUR STOCK PRICE MAY DECREASE IF WE ISSUE ADDITIONAL SHARES OF OUR COMMON STOCK Our Certificate of Incorporation authorizes the issuance of 100cmam000cmam000 shares of common stock as amended in January 2006 |
| As of June 30, 2006, we had 10cmam060cmam282 shares of common stock issued and outstanding and an aggregate of 6cmam891150 shares issuable under our outstanding options and warrants |
| As such, our Board of Directors has the power, without stockholder approval, to issue up to 83cmam048cmam568 shares of common stock |
| According to the Security Purchase Agreement dated on February 21, 2006, the Company is required to issue 12cmam875cmam536 shares of common stock to Koncepts International at dlra0dtta233 per shares for dlra3 million investment |
| The agreement is currently under review by American Stock Exchange (AMEX) |
| Any issuance of additional shares of common stock, whether by us to new stockholders or the exercise of outstanding warrants or options, may result in a reduction of the book value or market price of our outstanding common stock |
| Issuance of additional shares will reduce the proportionate ownership and voting power of our then existing stockholders |
| PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW MAKE IT DIFFICULT FOR A THIRD PARTY TO ACQUIRE OUR COMPANY AND COULD DEPRESS THE PRICE OF OUR COMMON STOCK Delaware law and our certificate of incorporation and bylaws contain provisions that could delay, defer or prevent a change in control of our company or a change in our management |
| These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors and take other corporate actions |
| These provisions of our restated certificate of incorporation include: authorizing our board of directors to issue additional preferred stock, limiting the persons who may call special meetings of stockholders, and establishing advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings |