SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(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, 2000
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)
(408) 956-8888
(Registrant's telephone number, including area code)
Indicate by check mark 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 has required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Applicable Only to Corporate Issuers
Common Stock, $.001 par value per share:
10,100,000 share issued and outstanding at March 31, 2000
<PAGE>
Part I. - Financial Information
Item 1. - Consolidated Financial Statements
Consolidated balance sheets as of March 31, 2000 (Unaudited)
and December 31, 1999 1-2
Consolidated statements of income for the three months
ended March 31, 2000 and 1999 (Unaudited) 3
Consolidated statements of cash flows for the three months
ended March 31, 2000 and 1999 (Unaudited) 4
Notes to consolidated financial statements 5-9
Item 2. - Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-13
Part II - Other Information
Item 2. - Changes in Securities and Use of Proceeds 14
Item 6. - Exhibits and Reports on Form 8-K 14
Signatures
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PACIFIC MAGTRON INTERNATIONAL CORP.
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2000 1999
----------- -----------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,835,800 $ 4,416,300
Accounts receivable, net of allowance for
doubtful accounts of $150,000 at each date 5,853,000 6,608,600
Inventories 3,656,300 3,811,200
Prepaid expenses and other current assets 510,900 314,800
Notes and interest receivable from shareholders 225,900 223,600
Deferred income taxes 96,600 96,600
----------- -----------
TOTAL CURRENT ASSETS 15,178,500 15,471,100
PROPERTY, PLANT AND EQUIPMENT, net 4,586,500 4,625,900
DEPOSITS AND OTHER ASSETS 91,300 342,000
INVESTMENT IN LEA PUBLISHING 250,000 250,000
----------- -----------
$20,106,300 $20,689,000
=========== ===========
See accompanying notes to consolidated financial statements.
1
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PACIFIC MAGTRON INTERNATIONAL CORP.
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2000 1999
----------- -----------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable $ 48,300 $ 47,300
Floor plan inventory loans 899,100 1,482,900
Accounts payable 5,891,400 5,811,600
Accrued expenses 144,400 272,600
----------- -----------
TOTAL CURRENT LIABILITIES 6,983,200 7,614,400
NOTES PAYABLE, less current portion 3,325,300 3,337,600
DEFERRED INCOME TAXES 1,000 1,000
----------- -----------
TOTAL LIABILITIES 10,309,500 10,953,000
----------- -----------
COMMITMENTS AND CONTINGENCIES
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 March 31, 2000 and
December 31, 1999 10,100 10,100
Additional paid-in capital 1,463,100 1,463,100
Retained earnings 8,323,600 8,262,800
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 9,796,800 9,736,000
----------- -----------
$20,106,300 $20,689,000
=========== ===========
See accompanying notes to consolidated financial statements.
2
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PACIFIC MAGTRON INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C>
SALES $ 22,815,200 $ 26,580,300
COST OF SALES 21,033,400 24,678,800
------------ ------------
GROSS MARGIN 1,781,800 1,901,500
------------ ------------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Non-cash amortization of prepaid consulting fee -- 219,400
Other selling, general and administrative expenses 1,661,500 1,515,000
------------ ------------
TOTAL OPERATING EXPENSES 1,661,500 1,734,400
------------ ------------
INCOME FROM OPERATIONS 120,300 167,100
------------ ------------
OTHER EXPENSE (INCOME):
Interest income on shareholder notes (2,300) (4,500)
Interest income (50,900) (49,000)
Interest expense 72,100 65,600
------------ ------------
TOTAL OTHER EXPENSE 18,900 12,100
------------ ------------
INCOME BEFORE INCOME TAXES 101,400 155,000
INCOME TAXES 40,600 62,100
------------ ------------
NET INCOME $ 60,800 $ 92,900
============ ============
Basic and diluted earnings per share $ 0.01 $ 0.01
============ ============
Basic weighted average common shares outstanding 10,100,000 10,100,000
Stock options 79,700 105,600
------------ ------------
Diluted weighted average common shares outstanding 10,179,700 10,205,600
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
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PACIFIC MAGTRON INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31,
2000 1999
----------- -----------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 60,800 $ 92,900
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 51,200 38,900
Amortization of prepaid consulting fee -- 219,400
Changes in operating assets and liabilities:
Accounts receivable 755,600 171,700
Inventories 154,900) 2,659,100
Prepaid expenses and other current assets (196,100) (17,900)
Accounts payable 79,800 (892,700)
Accrued expenses (128,200) 41,900
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 778,000 2,313,300
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Notes and interest receivable from shareholders (2,300) (4,500)
Deposits and other assets 250,700 (66,500)
Acquisition of property and equipment (11,800) (453,800)
---------- -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 236,600 (524,800)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in floor plan inventory loans (583,800) (1,666,200)
Principal payments on SBA loan (6,600) (6,100)
Principal payments on bank loan (4,700) (4,200)
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (595,100) (1,676,500)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 419,500 112,000
CASH AND CASH EQUIVALENTS, beginning of period 4,416,300 3,197,100
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 4,835,800 $ 3,309,100
=========== ===========
See accompanying notes to consolidated financial statements.
4
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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 the importation and wholesale distribution of
electronics products, computer components, and computer peripheral equipment
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.
5
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PACIFIC MAGTRON INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. FINANCIAL STATEMENT PRESENTATION AND NEW ACCOUNTING STANDARD
The accompanying consolidated financial statements at March 31, 2000, and
for the three month periods ended March 31, 2000 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, 1999 presented
in the Company's Form 10K.
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, as amended by SFAS
No. 137, 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
On March 6, 2000, an option to purchase 65,000 shares of the Company's
common stock at $6.50 per share was granted to an unrelated party to assist the
Company in services rendered in connection with raising capital for future
expansion under the terms of a consulting agreement. Under the agreement, if the
services are provided, the options will vest ratably over a seven-month period
beginning June 6, 2000. If the services are not provided and the agreement is
terminated, the consultant will forfeit those options 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.
Because this transaction does not contain a performance commitment, the final
value of the stock option will be measured as it vests on each of the vesting
dates.
4. STATEMENTS OF CASH FLOWS
Cash was paid during the three months ended March 31, 2000 and 1999 for:
Three Months Ending March 31,
2000 1999
-------- --------
Income taxes $ 37,000 $176,000
Interest $ 72,100 $ 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.
Under the agreement, if the services were provided, the shares were to vest 50%
on July 17, 1999 and 50% on July 17, 2000. If the services were not provided as
required, the consultant was to forfeit those shares not vested. The Company
accounted for this transaction in accordance with EITF No. 96-18. During 1999,
the Company and the consultant periodically discussed the level and type of
services required in order for the shares to vest under the consulting
agreement. This discussion led to a postponement of the scheduled July 17, 1999
vesting date. After further discussions, the Board of Directors of the Company
determined that no further performance was required by the consultant under the
agreement and deemed the entire 100,000 shares vested on September 17, 1999,
resulting in a measurement date and final valuation of these shares of $675,000.
7
<PAGE>
PACIFIC MAGTRON INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. INVESTMENTS
In May 1999, the Company and Rising Edge Technologies, Ltd., a corporation
based in Taiwan ("Rising Edge"), entered into an Operating Agreement with LEA
Publishing, LLC, a California limited liability company ("LEA") formed in
January 1999. The objective of LEA is to provide internet users, resellers and
providers advanced solutions and applications. LEA is developing various
software products. The Company and Rising Edge each own a 50% interest in LEA.
The brother of a director, officer and principal shareholder of the Company is
also a director, officer and the majority shareholder of Rising Edge. The
Company has no commitment to fund future losses of LEA beyond its investment or
guarantee any debt which LEA may incur. The Company is accounting for its
investment in LEA by the equity method whereby 50% of the equity interest in the
net income or loss of LEA flows through to the Company. During the three months
ended March 31, 2000, there were no results of operations for LEA. Therefore,
there was no equity in the net loss of LEA to flow through to the Company.
In November 1999, LEA entered into a software development contract with
Rising Edge which calls for the development of certain internet software for a
$940,000 fee. Of this amount, the contract specifies that $440,000 shall be
applied to services performed in 1999 and $500,000 shall be applied to services
to be performed in 2000.
The Company is in the process of finalizing an investment in a 25%
ownership interest in Rising Edge common stock for $500,000. The investment is
contingent upon the execution of a Share Purchase Agreement. Once this
investment is finalized, the Company will have a 62.5% combined direct and
indirect ownership interest in LEA, which will then require the consolidation of
LEA with the Company.
In January 2000, the Company acquired in a private placement 485,900 shares
of convertible preferred stock of a nonpublic company, ClickRebates.com, for
approximately $250,000 under the terms of a Series A Preferred Stock Purchase
Agreement. The Company's investment in ClickRebates.com, which represents
approximately 8% of the $3 million preferred stock offering, is being accounted
for using the cost method and is included in deposits and other assets.
8
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PACIFIC MAGTRON INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. SEGMENT INFORMATION
The Company has three reportable segments: PMI, Frontline and LEA. PMI
imports and distributes electronic products, computer components, and computer
peripheral equipment to various customers throughout the United States.
Frontline serves the networking and personal computer requirements of corporate
customers. LEA is developing advanced solutions and applications for internet
users, resellers and providers. The accounting policies of the segments are the
same as those described in the summary of significant accounting policies
presented in the Company's Form 10K. The Company evaluates performance based on
income or loss before income taxes, not including nonrecurring gains or losses.
Intersegment transfers between reportable segments have been insignificant. The
Company's reportable segments are strategic business units that offer different
products and services. They are managed separately because each business
requires different technology and marketing strategies.
The following table presents information about reported segment profit or
loss and segment assets for the three months ended March 31, 2000:
PMI Frontline LEA Totals
----------- ----------- ----- -----------
Revenues from external
customers $21,600,800 $1,214,400(1) $ -- $22,815,200
Segment income or (loss)
before income taxes 119,600 (18,200) -- 101,400
The following table presents information about reported segment profit or
loss for the three months ended March 31, 1999:
PMI Frontline Totals
----------- ----------- -----------
Revenues from external
customers $25,839,500 $740,800(1) $26,580,300
Segment income or (loss)
before income taxes 176,000 (21,000) 155,000
- ----------
(1) Includes service revenues of $32,900 and $17,400 in 2000 and 1999,
respectively.
The total of reportable segment income or (loss) before income taxes equals
the Company's consolidated income before income taxes in both periods presented.
The total assets of reportable segments have not significantly changed since
December 31, 1999.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
The accompanying discussion and analysis of financial condition and results
of operations is based on the consolidated financial statements of the Company,
which are included elsewhere in this Quarterly Report. The following discussion
and analysis should be read in conjunction with the accompanying financial
statements and related notes thereto. This discussion contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The
Company's actual results could differ materially from those set forth in the
forward-looking statements. Forward-looking statements, by their very nature,
include risks and uncertainties. Accordingly, the Company's actual results could
differ materially from those discussed in this Report. A wide variety of factors
could adversely impact revenues, profitability, cash flows and capital needs.
Such factors, many of which are beyond our control, include, but are not limited
to, technological changes, diminished marketability of inventory, increased
warranty costs, competition, recruitment and retention of technical personnel,
dependence on continued manufacturer certification, dependence on certain
suppliers, risks associated with the projects the Company is engaged to
complete, risks associated with our Lea venture, and dependence on key
personnel.
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. In January 1999, the Company formed Lea Publishing, LLC, a
California limited liability company ("Lea"), to develop, sell and license
software designed to provide Internet users, resellers and providers advanced
solutions and applications. The Company owns a 50% interest in Lea, and is in
the process of increasing its direct and indirect interest in Lea to
approximately 62.5%. Lea is a development stage company.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain selected
financial data as a percentage of sales:
10
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Three Months Ended
March 31,
-------------------------
2000 1999
------- -------
Sales 100.0% 100.0%
Cost of Sales 92.2 92.8
----- -----
Gross Margin 7.8 7.2
Operating Expenses 7.3 6.5
----- -----
Income from Operations 0.5 0.6
Other Expense, net 0.0 0.0
Income Taxes 0.2 0.3
----- -----
Net Income 0.3% 0.3%
===== =====
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
Sales for the three months ended March 31, 2000 were $22,815,200, a
decrease of $3,765,100, or approximately 14%, compared to $26,580,300 for the
three months ended March 31, 1999. Approximately $1,214,400 of the sales
recognized by the Company during the first quarter of 2000 was attributable to
the FrontLine division that was formed in May 1998 to serve the networking and
personal computer requirements of corporate customers. Sales recognized by the
Company's Frontline division were $740,800 for the three months ended March 31,
1999. Thus, there was a decrease in sales attributable to the Company's computer
products division for the three months ended March 31, 2000 of $4,238,700, or
approximately 16%, compared to the corresponding period of 1999, as the Company
focused its efforts on (i) improving gross margin by emphasizing higher margin
product sales and (ii) developing its e-commerce business.
Gross margin for the three months ended March 31, 2000 was $1,781,800, a
decrease of $119,700 or 6%, compared to $1,901,500 for the three months ended
March 31, 1999. The gross margin as a percentage of sales increased from 7.2%
for the three months ended March 31, 1999 to 7.8% for the three months ended
March 31, 2000. This increase in gross margin as a percentage of sales occurred
primarily due to better cost controls, including participation in more vendor
rebate programs, and a focus on marketing product lines with a higher gross
margin. Gross margin relating to the FrontLine division for the three months
ended March 31, 2000 was $158,700, or 13.1% of FrontLine's sales during the same
period. 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 effect on the overall
increase in the Company's gross margin during the three months ended March 31,
2000.
Operating expenses, including selling, general, administrative and
amortization of prepaid consulting fee, for the three months ended March 31,
2000 were $1,661,500, a decrease of $72,900, or 4%, compared to $1,734,400 for
the three months ended March 31, 1999. The noted decrease is primarily a result
of the $219,400 non-cash amortization of a prepaid consulting fee during the
three months ended March 31, 1999 which did not occur during the three months
ended March 31, 2000 as the prepaid consulting fee became fully amortized during
the third quarter of 1999. Excluding the amortization of the prepaid consulting
fee during 1999, there was an increase in operating expenses in 2000 of $146,500
which resulted from the hiring of 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. As a percentage of
sales, operating expenses increased to 7.3% for the three months ended March 31,
2000 as compared to 6.5% for the three months ended March 31, 1999 resulting
primarily from certain fixed operating expenses which are compared to decreased
sales for the three months ended March 31, 2000.
11
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Income from operations for the three months ended March 31, 2000 was
$120,300, a decrease of $46,800 or 28%, as compared to $167,100 for the three
months ended March 31, 1999. As a percentage of sales, income from operations
decreased to 0.5% for the three months ended March 31, 2000 as compared to 0.6%
for the three months ended March 31, 1999. This decrease was primarily due to
the 14% decrease in sales which was partially offset by the improved gross
margin percentage experienced during the three months ended March 31, 2000.
Interest expense for the three months ended March 31, 2000 was $72,100, an
increase of $6,500 or 10%, compared to $65,600 for the three months ended March
31, 1999. This increase was due to an increase in the floating interest rate
charged on one of the Company's mortgages on its office building facility.
Interest income slightly decreased from $53,500 for the three months ended March
31, 1999 to $53,200 for the three months ended March 31, 2000, a decrease of
$300 or 1%.
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, 2000, the Company had consolidated cash and cash equivalents
totaling $4,835,800 and working capital of $8,195,300. At December 31, 1999, the
Company had consolidated cash and cash equivalents totaling $4,416,300 and
working capital of $7,856,700.
Net cash provided by operating activities during the three months ended
March 31, 2000 was $778,000, which reflected decreases in accounts receivable
and inventories, and the net income for the period that were partially offset by
a decrease in accrued expenses. The decrease in accounts receivable was
principally a result of the decrease in sales. The decrease in inventories was
due primarily to the Company's continued 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, 1999 was
$2,313,300, which reflected the net income for the period and decreases in
inventories and accounts receivable that were partially offset by a decrease in
accounts payable.
Net cash provided by investing activities during the three months ended
March 31, 2000 was $236,600, primarily due to the decrease in deposits and other
assets. 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 financing activities was $595,100 for the three months
ended March 31, 2000, resulting 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, 2000, the Company has available financing in the form of a $7.0
million floor plan inventory loan which is collateralized by the inventory
12
<PAGE>
purchased and any proceeds from the sale of the inventory. The outstanding
balance of the floor plan inventory loan at March 31, 2000 was $899,100 and the
loan is subject to 45-day repayment terms, at which time interest begins to
accrue at the prime rate (9.0% at March 31, 2000). Net cash used in financing
activities was $1,676,500 for the three months ended March 31, 1999, resulting
from the decrease in the floor plan inventory loans as well as the payment of
the mortgage loans for the Company's facility.
As of March 31, 2000, the Company is in the process of finalizing an
investment in a 25% ownership interest in the common stock of Rising Edge
Technologies, the other 50% owner of Lea, for $500,000. The investment is
contingent upon the execution of a Share Purchase Agreement.
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. If product development and future expansion of the Company's existing
business segments prove to be more capital intensive than planned, the Company
may require additional funding.
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, as amended by SFAS
No. 137, 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 or on the Company's results of
operations to date. In the event the rate of inflation accelerates in the
future, it is expected that costs will increase, and if these costs are not
offset by increased revenues, the operations of the Company may be adversely
affected.
YEAR 2000
We experienced no significant disruptions in mission critical information
technology and non-information technology systems with respect to the Year 2000
date change. We are not aware of any material problem resulting from Year 2000
issues, either with our products, our internal systems or products and services
of third parties. We will continue to monitor our mission critical computer
applications and those of our suppliers and vendors throughout the year 2000 to
ensure any latent risks that may arise are addressed promptly.
13
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PART II
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On March 6, 2000, the Company granted a third party an option to purchase
65,000 shares of the Company's common stock at an exercise price of $6.50 per
share. This option was granted pursuant to the terms of a consulting agreement
whereby the consultant is required to provide consulting services in connection
with capital raising transactions. These options were granted pursuant to a
private transaction and the transaction is exempt from registration under
Section 4(2) of the Securities Act of 1933, as amended.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Item No. Description
-------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
SIGNATURE
Pursuant to the requirements 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 May 15, 2000 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, 2000 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-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 4,835,800
<SECURITIES> 0
<RECEIVABLES> 6,003,000
<ALLOWANCES> 150,000
<INVENTORY> 3,656,300
<CURRENT-ASSETS> 15,178,500
<PP&E> 5,156,700
<DEPRECIATION> 570,200
<TOTAL-ASSETS> 20,106,300
<CURRENT-LIABILITIES> 6,983,200
<BONDS> 0
0
0
<COMMON> 10,100
<OTHER-SE> 9,786,700
<TOTAL-LIABILITY-AND-EQUITY> 20,106,300
<SALES> 22,815,200
<TOTAL-REVENUES> 22,815,200
<CGS> 21,033,400
<TOTAL-COSTS> 21,033,400
<OTHER-EXPENSES> 1,661,500
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 72,100
<INCOME-PRETAX> 101,400
<INCOME-TAX> 40,600
<INCOME-CONTINUING> 60,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 60,800
<EPS-BASIC> .01
<EPS-DILUTED> .01
</TABLE>
