SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Check One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURUSANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ______________ to ______________
Commission file number 000-25277
PACIFIC MAGTRON INTERNATIONAL CORP.
(Exact Name of Registrant as Specified in Its Charter)
Nevada 88-0353141
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1600 California Circle, Milpitas, California 95035
(Address of Principal Executive Offices) (Zip Code)
(408) 956-8888
(Registrant's Telephone Number, Including Area Code)
---------------------------------------------------
Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report
Indicate by check [X] whether the registrant: (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Common Stock, $.001 par value per share:
10,100,000 shares issued and outstanding at March 31, 1999
The undersigned registrant hereby amends and restates this Quarterly Report on
Form 10-Q for the quarter ended March 31, 1999 as set forth in the following
pages.
<PAGE>
Part I. - Financial Information
Item 1. - Consolidated Financial Statements
Consolidated balance sheets as of December 31, 1998
and March 31, 1999 (Unaudited) 1-2
Consolidated statements of income for the three months
ended March 31, 1998 and 1999 (Unaudited) 3
Consolidated statements of cash flows for the three months
ended March 31, 1998 and 1999 (Unaudited) 4
Notes to consolidated financial statements 5-7
Item 2. - Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-12
Part II - Other Information
Item 6. - Exhibits and Reports on Form 8-K 13
Signatures
<PAGE>
PACIFIC MAGTRON INTERNATIONAL CORP.
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
December 31, March 31,
1998 1999
----------- -----------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,197,100 $ 3,309,100
Accounts receivable, net of allowance for
doubtful accounts of $150,000 and $150,000 6,321,800 6,150,100
Inventories 6,390,300 3,731,200
Prepaid expenses and other current assets 548,000 790,900
Notes and interest receivable from shareholders 268,100 272,600
Deferred income taxes 161,300 161,300
----------- -----------
TOTAL CURRENT ASSETS 16,886,600 14,415,200
PROPERTY, PLANT AND EQUIPMENT, net 4,038,000 4,452,900
DEPOSITS AND OTHER ASSETS 183,800 244,900
----------- -----------
$21,108,400 $19,113,000
=========== ===========
See accompanying notes to consolidated financial statements.
1
<PAGE>
PACIFIC MAGTRON INTERNATIONAL CORP.
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
December 31, March 31,
1998 1999
----------- -----------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable $ 51,200 $ 44,400
Floor plan inventory loans 2,305,000 638,800
Accounts payable 6,460,300 5,567,600
Accrued expenses 138,600 180,500
----------- -----------
TOTAL CURRENT LIABILITIES 8,955,100 6,431,300
NOTES PAYABLE, less current portion 3,377,100 3,373,600
DEFERRED INCOME TAXES 31,500 31,500
----------- -----------
TOTAL LIABILITIES 12,363,700 9,836,400
----------- -----------
COMMITMENTS, CONTINGENCIES AND SUBSEQUENT EVENT
SHAREHOLDERS' EQUITY:
Preferred stock, $0.001 par value; 5,000,000
shares authorized; no shares issued and
outstanding -- --
Common stock, $0.001 par value; 25,000,000
shares authorized; 10,100,000 shares issued
and outstanding at December 31, 1998 and
March 31, 1999 10,100 10,100
Additional paid-in capital 1,299,100 1,738,100
Retained earnings 7,435,500 7,528,400
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 8,744,700 9,276,600
----------- -----------
$21,108,400 $19,113,000
=========== ===========
See accompanying notes to consolidated financial statements.
2
<PAGE>
PACIFIC MAGTRON INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
1998 1999
THREE MONTHS ENDED MARCH 31, (Unaudited) (Unaudited)
- ---------------------------- ------------ ------------
SALES $ 25,111,400 $ 26,580,300
COST OF SALES 23,729,100 24,678,800
------------ ------------
GROSS MARGIN 1,382,300 1,901,500
789,300 1,515,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
AMORTIZATION OF PREPAID CONSULTING FEE -- 219,400
------------ ------------
INCOME FROM OPERATIONS 593,000 167,100
------------ ------------
OTHER EXPENSE (INCOME):
Interest income on shareholder notes (2,800) (4,500)
Interest income (44,200) (49,000)
Interest expense 69,700 65,600
------------ ------------
TOTAL OTHER EXPENSE 22,700 12,100
------------ ------------
INCOME BEFORE INCOME TAXES 570,300 155,000
INCOME TAXES 228,100 62,100
------------ ------------
NET INCOME $ 342,200 $ 92,900
============ ============
Basic and diluted earnings per share $ 0.04 $ 0.01
============ ============
Basic weighted average common shares outstanding 9,000,000 10,100,000
Stock options -- 105,600
------------ ------------
Diluted weighted average common shares outstanding 9,000,000 10,205,600
============ ============
See accompanying notes to consolidated financial statements.
3
<PAGE>
PACIFIC MAGTRON INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
1998 1999
THREE MONTHS ENDED MARCH 31, (Unaudited) (Unaudited)
- ---------------------------- ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 342,200 $ 92,900
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 34,400 38,900
Amortization of prepaid consulting fee -- 219,400
Changes in operating assets and liabilities:
Accounts receivable 449,100 171,700
Inventories (890,800) 2,659,100
Prepaid expenses and other current assets (23,900) (17,900)
Accounts payable 613,800 (892,700)
Accrued expenses 170,400 41,900
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 695,200 2,313,300
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Notes and interest receivable from shareholders (55,700) (4,500)
Deposits and other assets (8,300) (66,500)
Acquisition of property and equipment (4,800) (453,800)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (68,800) (524,800)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in floor plan
inventory loans 123,700 (1,666,200)
Principal payments on SBA loan (5,700) (6,100)
Principal payments on bank loan (3,800) (4,200)
----------- -----------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES 114,200 (1,676,500)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 740,600 112,000
CASH AND CASH EQUIVALENTS, beginning of period 3,262,900 3,197,100
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 4,003,500 $ 3,309,100
=========== ===========
See accompanying notes to consolidated financial statements.
4
<PAGE>
PACIFIC MAGTRON INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION
Pacific Magtron International Corp. (formerly Wildfire Capital Corporation,
a publicly traded shell corporation) (the Company), a Nevada Corporation,
was incorporated on January 8, 1996.
On July 17, 1998 the Company completed the acquisition of 100% of the
outstanding common stock of Pacific Magtron, Inc. (PMI), in exchange for
9,000,000 shares of the Company's $.001 par value common stock. For
accounting purposes, the acquisition has been treated as the acquisition of
the Company by PMI with PMI as the acquirer (reverse acquisition). The
historical financial statements prior to July 17, 1998 are those of PMI.
Since the Company prior to the reverse acquisition was a public shell
corporation with no significant operations, pro-forma information giving
effect to the acquisition is not presented. All shares and per share data
prior to the acquisition have been restated to reflect the stock issuance
as a recapitalization of PMI. The shares held by the shareholders of the
Company prior to the acquisition (1,000,000 shares after reflecting a three
for two reverse stock split effected by the Company immediately prior to
the acquisition) have been recognized as if they were issued in connection
with the acquisition of the Company by PMI.
PMI, a California corporation, was incorporated on August 11, 1989. PMI's
principal activity consists of importing and wholesale distribution of
electronics products, computer components, and computer peripheral
equipment to various companies throughout the United States.
In May 1998, the Company formed its Frontline Network Consulting
(Frontline) division, a corporate information systems group that serves the
networking and personal computer requirements of corporate customers.
Revenues earned and net loss incurred by Frontline during the three months
ended March 31, 1999 were $740,800 (including service revenues of $17,400)
and ($12,600), respectively, and Frontline's total assets were $1,035,200
at March 31, 1999.
5
<PAGE>
PACIFIC MAGTRON INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. FINANCIAL STATEMENT PRESENTATION AND NEW ACCOUNTING STANDARDS
The accompanying consolidated financial statements at March 31, 1999, and
for the three month periods ended March 31, 1998 and 1999 are unaudited,
but, in the opinion of management, include all adjustments necessary for a
fair presentation of consolidated financial position and results of
operations for the periods presented. Certain information and footnote
disclosures normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been omitted.
These consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and accompanying notes for
the year ended December 31, 1998 presented in the Company's Form 10.
In June 1998, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES. SFAS No. 133 requires companies to recognize all derivatives
contracts as either assets or liabilities in the balance sheet and to
measure them at fair value. If certain conditions are met, a derivative may
be specifically designated as a hedge, the objective of which is to match
the timing of gain or loss recognition on the hedging derivative with the
recognition of (i) the changes in the fair value of the hedged assets or
liability that are attributable to the hedged risk or (ii) the earnings
effect of the hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain and loss is recognized in
income in the period of change. SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000.
Historically, the Company has not entered into derivatives contracts either
to hedge existing risks or for speculative purposes. Accordingly, the
Company does not expect adoption of the new standard to affect its
financial statements.
6
<PAGE>
PACIFIC MAGTRON INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. STOCK OPTIONS
During the three months ended March 31, 1999, no additional options of the
Company's common stock were granted.
4. STATEMENTS OF CASH FLOWS
Cash was paid during the three months ended March 31, 1998 and 1999 for:
THREE MONTHS ENDING MARCH 31, 1998 1999
----------------------------- -------- --------
Income taxes $ -- $176,000
======== ========
Interest $ 69,700 $ 65,600
======== ========
5. CONSULTING AGREEMENT
On July 17, 1998, the Company issued 100,000 restricted shares of its
common stock to an unrelated party under the terms of a consulting
agreement. If the services are provided, the shares will vest 50% on July
17, 1999 and 50% on July 17, 2000. If the services are not provided as
required, the consultant will forfeit those shares not vested. The Company
is accounting for this transaction in accordance with Emerging Issues Task
Force (EITF) No. 96-18, ACCOUNTING FOR EQUITY INSTRUMENTS THAT ARE ISSUED
TO OTHER THAN EMPLOYEES FOR ACQUIRING, OR IN CONJUNCTION WITH SELLING,
GOODS OR SERVICES. As the measurement date for determining the final value
of these shares has yet to occur, the Company is valuing the shares at each
reporting date at their then-current value. As of March 31, 1999, the
Company has recorded these shares at their estimated current fair value of
$950,000 as of March 31, 1999. The $439,000 increase in the estimated
then-current fair value of these shares from $511,000 as of December 31,
1998 to $950,000 as of March 31, 1999 has been reflected as an increase in
additional paid-in capital. Included in other current and long-term assets
as of March 31, 1999 is $613,500, representing the unamortized portion of
the prepaid consulting fees.
6. SUBSEQUENT EVENT
In May 1999, the Company entered into a Management Operating Agreement
which provides for a 50% ownership interest in a newly formed company, LEA
Publishing, LLC (LEA). LEA is in the post-technological feasibility
production phase of various new software products. The Company intends to
account for its investment in LEA on the equity method whereby 50% of the
equity interest in the net income or loss of LEA will flow through to the
Company.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
"Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995:
Certain information included in this Item 2. and elsewhere in the Form 10-Q that
are not historical facts contain forward looking statements that involve a
number of known and unknown risks, uncertainties and other factors that could
cause the actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievement
expressed or implied by such forward looking statements. These risks and
uncertainties include, but are not limited to, the Company's growth strategy,
the effect of recent acquisitions, customer concentration, outstanding
indebtedness, dependence on weather conditions, seasonality, expansion and other
activities of competitors, changes in federal or state environmental laws and
the administration of such laws, protection of trademarks and other proprietary
rights, the general condition of the economy and other risks detailed in the
Company's Securities and Exchange Commission filings. Readers are cautioned not
to place undue reliance on these forward looking statements which speak only as
of the date the statement was made."
GENERAL
Pacific Magtron International Corp., a Nevada corporation (the "Company" or
"Pacific Magtron") is an integrated solutions provider of computer-related
equipment and services. The Company's primary business is the wholesale
distribution of computer and related hardware components and software for
personal computers to value added resellers, retailers, systems integrators,
original equipment manufacturers, independent hardware and software vendors,
consultants, and contractors. In May 1998, the Company formed a corporate
information systems group called Frontline Network Consulting ("Frontline") with
the goal of serving the networking and personal computer requirements of
corporate customers. As used herein and unless otherwise indicated, the terms
"Company" "we" and "our" refer to Pacific Magtron International Corp. and each
of its operating divisions and subsidiaries.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain selected
financial data as a percentage of sales:
Three Months Ended
March 31,
------------------
1998 1999
---- ----
Sales 100.0% 100.0%
Cost of Sales 94.5 92.8
----- -----
Gross Margin 5.5 7.2
Selling, General and Administrative Expenses 3.1 5.7
Amortization of Prepaid Consulting Fee -- 0.8
----- -----
Income from Operations 2.4 0.6
Other Expense, net 0.1 0.0
Income Taxes 0.9 0.2
----- -----
Net Income 1.4% 0.3%
----- -----
8
<PAGE>
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
Sales for the three months ended March 31, 1999 were $26,580,300, an increase of
$1,468,900, or approximately 6%, compared to $25,111,400 for the three months
ended March 31, 1998. Approximately $740,800 of the sales earned by the Company
in 1999 was attributable to the new FrontLine division that was formed in May
1998 to serve the networking and personal computer requirements of corporate
customers. The remainder of the increase in sales was primarily due to increased
market share achieved through expanded marketing efforts by the Company's
computer products group.
Gross margin for the three months ended March 31, 1999 was $1,901,500, an
increase of $519,200 or 38%, compared to $1,382,300 for the three months ended
March 31, 1998. The gross margin as a percentage of sales increased from 5.5%
for the three months ended March 31, 1998 to 7.2% for the three months ended
March 31, 1999. This increase in gross margin percentage arose primarily as a
result of better cost controls, including participation in more vendor rebate
programs, and the focus on marketing product lines with a higher gross margin
during the last twelve months. Gross margin relating to the FrontLine division
for the three months ended March 31, 1999 was $121,300, or 16.4% of FrontLine's
sales during the same period. However, since FrontLine's sales levels were
relatively insignificant in relation to that of the Company's computer products
group, the higher gross margin percentage earned by FrontLine had only a minor
favorable effect on the overall increase in the Company's gross margin during
the three months ended March 31, 1999.
Operating expenses, including selling, general, administrative and amortization
of prepaid consulting fee, for the three months ended March 31, 1999 were
$1,734,400, an increase of $945,100, or 120%, compared to $789,300 for the three
months ended March 31, 1998. The noted increase is primarily a result of the
hiring additional personnel to support the expansion of the Company's business
and establishment of the management infrastructure, including the ramp-up of the
Company's Frontline division. In addition, the Company incurred additional
expenses in 1999, including a non-cash charge of $219,400 for the amortization
of a prepaid consulting fee, in connection with the transition to a publicly
traded company. As a percentage of sales, operating expenses increased to 6.5%
for the three months ended March 31, 1999 as compared to 3.1% for the three
months ended March 31, 1998 resulting from an increase in the Company's fixed
cost component of operating expenses.
Income from operations for the three months ended March 31, 1999 was $167,100, a
decrease of $425,900 or 72%, as compared to $593,000 for the three months ended
March 31, 1998. As a percentage of sales, income from operations decreased to
0.6% for the three months ended March 31, 1999 as compared to 2.4% for the three
months ended March 31, 1998. This decrease was primarily due to the 120%
increase in operating expenses which was marginally offset by the improved gross
margin experienced during the three months ended March 31, 1999.
Interest expense for the three months ended March 31, 1999 was $65,600, a
decrease of $4,100 or 6%, compared to $69,700 for the three months ended March
31, 1998. This decrease was due to a decrease in the balance of the Company's
mortgage on its office building facility as a result of scheduled principal
9
<PAGE>
payments. Interest income increased from $47,000 for the three months ended
March 31, 1998 to $53,500 for the three months ended March 31, 1999, an increase
of $6,500 or 14%, which was principally due to better cash management.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily through cash
generated by operations and borrowings under its floor plan inventory loans.
At March 31, 1999, the Company had consolidated cash and cash equivalents
totaling $3,309,100 and working capital of $7,983,900. At December 31, 1998, the
Company had consolidated cash and cash equivalents totaling $3,197,100 and
working capital of $7,931,500.
Net cash provided by operating activities during the three months ended March
31, 1999 was $2,313,300, which reflected the net income for the period and
decreases in inventory and accounts receivable that were partially offset by a
decrease in accounts payable. The decrease in inventory was due primarily to the
Company's focus on improving its inventory turnover by balancing the inventory
product mix and levels in relation to customer orders with favorable vendor
terms and programs. Net cash provided by operating activities during the three
months ended March 31, 1998 was $695,200, which reflected the net effect of a
decrease in accounts receivable, increases in accounts payable and accrued
expenses, and the net income for the period, and was partially offset by an
increase in inventories.
Net cash used in investing activities was $524,800 during the three months ended
March 31, 1999, primarily reflecting cash used for improvements to the building
owned and occupied by the Company to support the Company's expanding workforce.
Net cash used in investing activities during the three months ended March 31,
1998 was $68,800, primarily resulting from the issuance of an additional note
receivable to a shareholder.
Net cash used in financing activities was $1,676,500 for the three months ended
March 31, 1999, primarily from the decrease in floor plan inventory loans as
well as the payment of the mortgage loans for the Company's facility. As of
March 31, 1999, the Company has available financing in the form of a $7.0
million floor plan inventory loan which is collateralized by the inventory
purchased and any proceeds from the sale of the inventory. The outstanding
balance of the floor plan inventory loan at March 31, 1999 was $638,800 and the
loan is subject to 45-day repayment terms, at which time interest begins to
accrue at the prime rate (7.75% at March 31, 1999). Net cash provided by
financing activities was $114,200 for the three months ended March 31, 1998,
primarily from the increase in the floor plan inventory loans, which was
partially offset by payment of the mortgage loans for the office facility.
As of March 31, 1999, the Company's material commitments for capital
expenditures consisted of an estimated $500,000 investment in its 50% equity
interest in Lea Publishing, LLC, a company that was formed during 1999 and is
currently in the post-technological feasibility production phase of various new
software products. The Company believes that the cash flow from operations and
borrowing available under its $7.0 million inventory floor plan loan will
satisfy the Company's anticipated requirements for working capital through at
least the next 12 months.
10
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENT
In June 1998, the FASB issued Statement of Financial Accounting Standards (SFAS)
No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No.
133 requires companies to recognize all derivatives contracts as either assets
or liabilities in the balance sheet and to measure them at fair value. If
certain conditions are met, a derivative may be specifically designated as a
hedge, the objective of which is to match the timing of gain or loss recognition
on the hedging derivative with the recognition of (i) the changes in the fair
value of the hedged assets or liability that are attributable to the hedged risk
or (ii) the earnings effect of the hedged forecasted transaction. For a
derivative not designated as a hedging instrument, the gain and loss is
recognized in income in the period of change. SFAS No. 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000.
Historically, the Company has not entered into derivatives contracts either to
hedge existing risks or for speculative purposes. Accordingly, the Company does
not expect adoption of the new standard to affect its financial statements.
INFLATION
Inflation has not had a material effect upon the Company's results of operations
to date. In the event the rate of inflation should accelerate in the future, it
is expected that costs in connection with the provision by the increased costs
are not offset by increased revenues, the operations of the Company may be
adversely affected.
YEAR 2000
The year 2000 problem concerns the inability of certain computer systems to
appropriately recognize the Year 2000 when the last two digits of the year are
entered in the date field. The Company's date critical functions related to the
Year 2000 and beyond, such as sales, distribution, purchasing, inventory
control, merchandise, planning and replenishment, facilities, and financial
systems, may be adversely affected unless these computer systems are or become
Year 2000 compliant.
The Company's management is in the process of assessing the Company's Year 2000
requirements and believes that expenditures necessary to make the Company's
major computer systems and some non-critical programs Year 2000 compliant will
be immaterial. The Company estimates that a complete assessment of all of its
information technology and non-information technology systems will have been
evaluated for Year 2000 problems on or before July 31, 1999. The Company
estimates that the total cost of identifying and addressing Year 2000 problems
will be $75,000, of which $10,000 has been spent or incurred to date.
The Company has not yet developed a contingency plan for dealing with the worst
case scenario, and such scenario has not yet been clearly identified. The
Company plans to complete such an analysis by July 31, 1999 in order to minimize
the risks associated with potential Year 2000 disruptions, including assessing
the need to locate alternate vendors or service providers.
11
<PAGE>
The Company's Year 2000 compliance is partially dependent upon key third parties
also being Year 2000 compliant on a timely basis. The Company could be adversely
affected by the Year 2000 problem if computer systems of third parties such as
banks, suppliers and others with whom the Company does business fail to address
the Year 2000 problem successfully. For example, the Company may be adversely
affected by, among other things, warranty and other claims made by the Company's
suppliers related to product failures caused by the Year 2000 problem, the
disruption or inaccuracy of data provided to the Company by non-Year 2000
compliant third parties, and the failure of the Company's service providers to
become Year 2000 compliant.
In an effort to evaluate and reduce its exposure in this area, the Company
intends to make an inquiry of its vendors and other business partners about
their progress in identifying and addressing problems that their computer
systems may face in correctly processing date information related to the Year
2000. In particular, the Company will seek to obtain statements from a
substantial majority of its suppliers that certain of their products are Year
2000 compliant, can be upgraded to meet Year 2000 demands, or do not affect
"date sensitive" information. The Company estimates that this process, including
analysis of responses and follow up interviews will be complete on or before
June 30, 1999.
The Company's management believes that the purchasing patterns of customers and
prospective customers might be affected by Year 2000 issues. Many companies may
need to modify or upgrade their information systems to address the Year 2000
problem. The effects of this issue and of the efforts by other companies to
address it are unclear. Many companies are expending significant resources to
correct their current software systems for Year 2000 compliance. These
expenditures might result in reduced funds available to purchase services and
products such as those that the Company offers.
The Company has no reason to believe that its exposure to the risks of lack of
supplier and customer Year 2000 readiness is any greater than the exposure to
such risks that affect its competitors generally. However, if a significant
number of the Company's key suppliers, customers and other business partners
experience business disruptions as a result of their lack of Year 2000
readiness, their problems could have a material adverse effect on the financial
position and operations of the Company. In addition, if all Year 2000 issues
within the Company's business are not properly identified, there can be no
assurance that the Year 2000 issue will not have a material adverse effect on
the Company's results of operations or financial position.
The Company's cost estimates and time frames will be influenced by its ability
to identify Year 2000 problems, the nature of programming required to fix any
problems, and the compliance success of third parties. For those reasons, no
assurance can be given at this point that the Company's computer systems will be
Year 2000 compliant in a timely manner or that the Company will not incur
significant additional expenses pursuing Year 2000 compliance.
12
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
None
13
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated August 16, 1999
PACIFIC MAGTRON INTERNATIONAL CORP.,
a Nevada corporation
(Registrant)
/s/ Theodore S. Li
----------------------------------------
Theodore S. Li
President and Chief Executive Officer
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-Q AT MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 3,309,100
<SECURITIES> 0
<RECEIVABLES> 6,300,100
<ALLOWANCES> 150,000
<INVENTORY> 3,371,200
<CURRENT-ASSETS> 14,415,200
<PP&E> 4,826,500
<DEPRECIATION> 373,600
<TOTAL-ASSETS> 19,113,000
<CURRENT-LIABILITIES> 6,431,300
<BONDS> 0
0
0
<COMMON> 10,100
<OTHER-SE> 9,266,500
<TOTAL-LIABILITY-AND-EQUITY> 19,113,000
<SALES> 26,580,300
<TOTAL-REVENUES> 26,580,300
<CGS> 24,678,800
<TOTAL-COSTS> 24,678,800
<OTHER-EXPENSES> 1,734,400
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 65,600
<INCOME-PRETAX> 155,000
<INCOME-TAX> 62,100
<INCOME-CONTINUING> 92,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 92,900
<EPS-BASIC> .01
<EPS-DILUTED> .01
</TABLE>
