<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from to
----------------- -----------------
Commission File No. 0-25866
-----------------------------------------
PHOENIX GOLD INTERNATIONAL, INC.
(Exact name of small business issuer as specified in its charter)
Oregon 93-1066325
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
9300 North Decatur Street
Portland, Oregon 97203
(Address of principal executive offices) (Zip code)
(503) 288-2008
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 [ ]
As of April 30, 1996, there were issued and outstanding 3,446,920 shares of the
Company's Common Stock.
Transitional Small Business Disclosure Format (check one):
YES [ ] NO [X]
<PAGE>
PHOENIX GOLD INTERNATIONAL, INC.
FORM 10-QSB FOR THE QUARTER ENDED MARCH 31, 1996
INDEX
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Balance Sheets at March 31, 1996 (unaudited) and 3
September 30, 1995 (audited)
Unaudited Statements of Earnings for the Three and
Six Months Ended March 31, 1996 4
Unaudited Statements of Cash Flows for the Three and
Six Months Ended March 31, 1996 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of Operation 8
PART II. OTHER INFORMATION
Items 1 through 6 12
Signatures 14
Index to Exhibits 15
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PHOENIX GOLD INTERNATIONAL, INC.
BALANCE SHEETS
ASSETS
MARCH 31, SEPTEMBER 30,
1996 1995
------------ -------------
(Unaudited) (Audited)
Current assets:
Cash and cash equivalents $ 2,251 $2,101,563
Accounts receivable, net 6,054,216 3,825,473
Inventories 8,974,750 4,482,442
Prepaid expenses 586,697 328,047
Deferred taxes 48,130 53,614
----------- -----------
Total current assets 15,666,044 10,791,139
----------- -----------
Property and equipment, net 3,910,704 3,363,600
Goodwill, net 935,275 201,396
Other assets 1,182,197 153,114
----------- -----------
Total assets $21,694,220 $14,509,249
=========== ===========
LIABILITIES & SHAREHOLDERS' EQUITY
Accounts payable $ 4,371,371 $ 1,322,083
Notes payable 3,218,105 --
Accrued expenses 656,198 533,989
Current portion of long-term debt
and capital lease obligations 119,200 113,800
----------- -----------
Total current liabilities 8,364,874 1,969,872
Long-term obligations, net of current portion 225,215 286,189
Deferred taxes 522,438 240,000
Shareholders' equity:
Preferred Stock; 5,000,000 shares
authorized; none outstanding -- --
Common stock, no par value; 20,000,000
shares authorized; 3,446,920 and 3,445,000
shares outstanding at March 31, 1996 and
September 30, 1995, respectively 7,441,973 7,432,987
Retained earnings 5,139,720 4,580,201
----------- -----------
Total shareholders' equity 12,581,693 12,013,188
----------- -----------
Total liabilities and shareholders' equity $21,694,220 $14,509,249
=========== ===========
See Notes to Financial Statements
<PAGE>
<TABLE>
PHOENIX GOLD INTERNATIONAL, INC.
STATEMENTS OF EARNINGS
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
-------------------------------- --------------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 6,759,015 $ 4,430,177 $11,886,804 $ 8,385,382
Cost of sales 4,884,072 2,740,713 8,331,815 5,399,873
----------- ----------- ----------- -----------
Gross profit 1,874,943 1,689,464 3,554,989 2,985,509
Operating expenses:
Selling 787,603 568,319 1,328,478 990,327
General and administrative 736,358 394,954 1,292,119 776,588
----------- ----------- ----------- -----------
Total operating expenses 1,523,961 963,273 2,620,597 1,766,915
----------- ----------- ----------- -----------
Income from operations 350,982 726,191 934,392 1,218,594
----------- ----------- ----------- -----------
Other income (expense):
Interest expense (29,755) (124,905) (40,116) (216,134)
Other income (expense), net -- (4,653) 19,495 (4,653)
----------- ----------- ----------- -----------
Total other expense (29,755) (129,558) (20,621) (220,787)
----------- ----------- ----------- -----------
Earnings before taxes 321,227 596,633 913,771 997,807
Income tax expense 119,252 251,415 354,252 403,415
----------- ----------- ----------- -----------
Net earnings $ 201,975 $ 345,218 $ 559,519 $ 594,392
=========== =========== =========== ===========
Net earnings per share $ 0.06 $ 0.15 $ 0.15 $ 0.26
=========== =========== =========== ===========
Shares used in per share calculation 3,651,255 2,270,207 3,633,851 2,270,207
=========== =========== =========== ===========
See Notes to Financial Statements
</TABLE>
<PAGE>
PHOENIX GOLD INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
MARCH 31,
--------------------------
1996 1995
----------- -----------
Cash flows from operating activities:
Net earnings $ 559,519 $ 594,392
Adjustments to reconcile net earnings to net
cash used in operating activities:
Depreciation and amortization 482,268 265,752
Deferred taxes 287,922 (26,882)
Changes in operating assets and liabilities:
Accounts receivable (2,228,743) (397,638)
Inventories (4,154,529) (1,261,060)
Prepaid expenses (258,650) (275,677)
Other assets (131,295) --
Accounts payable 3,049,288 398,815
Accrued expenses 122,209 24,434
----------- -----------
Net cash used in operating activities (2,272,011) (677,864)
----------- -----------
Cash flows from investing activities:
Capital expenditures, net (902,997) (1,151,925)
Acquisition of Carver Professional
Sound division (1,745,821) --
----------- -----------
Net cash used in investing activities (2,648,818) (1,151,925)
----------- -----------
Cash flows from financing activities:
Proceeds from long-term obligations -- 2,092,563
Repayment of long-term obligations (55,574) (732,474)
Notes payable, net 2,868,105 432,558
Common stock issued 8,986 --
Proceeds from notes payable to shareholders -- 22,865
----------- -----------
Net cash provided by financing activities 2,821,517 1,815,512
----------- -----------
Increase (decrease) in cash (2,099,312) (14,277)
Cash, beginning of period 2,101,563 18,038
----------- -----------
Cash, end of period $ 2,251 $ 3,761
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 55,594 $ 208,678
Cash paid during the period for income taxes $ 101,800 $ 428,000
Supplemental disclosure of non-cash activities:
Note payable incurred via acquisition of
Carver Professional $ 350,000 $ --
See Notes to Financial Statements
<PAGE>
PHOENIX GOLD INTERNATIONAL, INC.
Notes to Financial Statements
(Unaudited)
(1) Unaudited financial statements
Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted from these unaudited financial statements. These unaudited
financial statements should be read in conjunction with the financial statements
and notes included in the Company's Annual Report on Form 10-KSB for the fiscal
year ended September 24, 1995 filed with the Securities and Exchange Commission.
The results of operations for the three and six-month periods ended March 31,
1996 are not necessarily indicative of the operating results for the full year.
In the opinion of management, all adjustments (consisting only of normal
recurring adjustments) have been made to present fairly the Company's financial
position at March 31, 1996 and the results of its operations and its cash flows
for the three and six-month periods ended March 31, 1996 and 1995.
(2) Reporting periods
The Company's fiscal year is the 52-week or 53-week period ending the last
Sunday in September. Fiscal 1995 was a 52-week year and fiscal 1996 is a 53-week
year. For presentation convenience, the Company has indicated in these financial
statements that its fiscal year ends on September 30. The first quarter of
fiscal 1995 was a 13-week period and the same quarter in fiscal 1996 was a
14-week period. The remaining quarters in fiscal years 1995 and 1996 are 13-week
quarters.
(3) Inventories
Inventories are stated at the lower of average cost or market and consist of the
following:
March 31, September 30,
1996 1995
---------- -------------
Raw materials $4,316,975 $ 1,161,666
Work-in-process 534,047 346,055
Finished goods 3,958,155 2,874,923
Supplies 165,573 99,798
---------- -----------
Total inventories, net $8,974,750 $ 4,482,442
========== ===========
<PAGE>
PHOENIX GOLD INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(4) Property and equipment
Property and equipment consist of the following:
March 31, September 30,
1996 1995
---------- -------------
Machinery, equipment, and vehicles $3,429,680 $ 3,020,056
Leasehold improvements 1,348,580 1,324,350
Construction in progress 524,459 55,315
---------- -----------
5,302,719 4,399,721
Less accumulated depreciation and amortization (1,392,015) (1,036,121)
---------- -----------
Total property and equipment, net $3,910,704 $ 3,363,600
========== ===========
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2: Management's Discussion and Analysis or Plan of Operation
PHOENIX GOLD INTERNATIONAL, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Results of Operations
- - ---------------------
Net sales increased $2.33 million, or 52.6%, to $6.76 million for the three
months ended March 31, 1996, compared to $4.43 million for the three months
ended March 31, 1995. Sales of electronics products in the quarter ended March
31, 1996 increased 75.8% from the quarter ended March 31, 1995, principally due
to the commencement in December 1995 of sales of the Company's new professional
sound products. Sales of speakers and accessories increased 51.8% and 28.7%,
respectively, in the second quarter of fiscal 1996 compared to the comparable
fiscal 1995 quarter. Net sales increased $3.50 million, or 41.8%, to $11.89
million for the six months ended March 31, 1996, compared to $8.39 million for
the six months ended March 31, 1995. Sales of electronics products, speakers and
accessories increased 68.2%, 27.6% and 17.0%, respectively, in the first six
months of fiscal 1996 compared to the comparable fiscal 1995 period.
International sales increased 44.6% to $2.63 million for the three months ended
March 31, 1996, from $1.82 million in the comparable 1995 period. International
sales increased 53.5% to $4.98 million for the six months ended March 31, 1996,
from $3.24 million in the comparable 1995 period. The increase in international
sales for the six months ended March 31, 1996 resulted primarily from several
significant orders of electronics from a European distributor in anticipation of
European regulatory changes effective as of December 31, 1995. **The Company
does not expect these orders to be repeated in future periods. International
sales represented 39.0% and 41.1% of net sales for the three months ended March
31, 1996 and 1995, respectively. International sales represented 41.9% and 38.7%
of net sales for the six months ended March 31, 1996 and 1995, respectively.
Gross profit decreased to 27.7% of net sales for the three months ended March
31, 1996 from 38.1% in the comparable fiscal 1995 period. Gross profit decreased
to 29.9% of net sales for the six months ended March 31, 1996 from 35.6% in the
comparable fiscal 1995 period. The decrease in gross profit for the three and
six months ended March 31, 1996, was primarily due to changes in the product
sales mix and start-up costs associated with manufacturing new products.
<PAGE>
The Company introduced a record 19 new electronics and speakers products in
January 1996. Initial shipments of many of these products were delayed until
late March 1996 as the Company responded to customer comments by making several
engineering design changes to the products. The introduction of new products
effectively shortened the life cycle and decreased sales of several of the
Company's key existing products during the earlier part of the second quarter of
fiscal 1996. The shortfall in car audio electronics sales in the quarter was
generally offset by sales of professional sound products that temporarily
carried much lower gross margins than car audio electronics products. During the
quarter, a majority of the professional sound products were purchased from
Carver Corporation at premium prices. The remaining professional sound products
were manufactured by the Company beginning in late March 1996 using higher cost
raw material components obtained from Carver Corporation and other outside
vendors. Additionally, the Company also experienced significant production and
engineering related start-up costs for the new professional sound and car audio
electronics products. **The Company anticipates that gross margins for these
products and gross margins overall will increase beginning in the third quarter
of fiscal 1996 due to expected reductions in certain raw materials costs,
increased manufacturing labor efficiencies and a higher margin product mix.
Operating expenses consist of selling, general and administrative expenses.
Total operating expenses increased $561,000, or 58.2%, to $1.52 million for the
three months ended March 31, 1996 compared to $963,000 for the three months
ended March 31, 1995. Operating expenses were 22.5% and 21.7% of net sales in
the respective three-month periods. Operating expenses increased $854,000, or
48.3%, to $2.62 million for the six months ended March 31, 1996 compared to
$1.77 million for the six months ended March 31, 1995. Operating expenses were
22.0% and 21.1% of net sales in the respective six-month periods.
Selling expenses increased $219,000, or 38.6%, to $788,000 for the three months
ended March 31, 1996 compared to $568,000 for the comparable fiscal 1995 period.
Selling expenses were 11.7% and 12.8% of net sales in the respective three-month
periods. Selling expenses increased $338,000, or 34.1%, to $1.33 million for the
six months ended March 31, 1996 compared to $990,000 for the comparable fiscal
1995 period. Selling expenses were 11.2% and 11.8% of net sales in the
respective six-month periods. The increased selling expenses in dollar amount
for the three and six months ended March 31, 1996 were principally due to
increased trade show, advertising and related expenses to support sales of
existing and newly introduced products, and increased personnel and related
costs.
General and administrative expenses increased $341,000, or 86.4%, to $736,000
for the three months ended March 31, 1996, compared to $395,000 for the
comparable fiscal 1995 period. General and administrative expenses were 10.9%
and 8.9% of net sales in the respective three-month periods. General and
administrative expenses
<PAGE>
increased $516,000, or 66.4%, to $1.29 million for the six months ended March
31, 1996 compared to $777,000 for the comparable fiscal 1995 period. General and
administrative expenses were 10.9% and 9.3% of net sales in the respective
six-month periods. The increased general and administrative expenses in dollar
amount for the three and six months ended March 31, 1996 were principally due to
increased research and development costs, amortization of goodwill and other
intangibles related to the purchase of the Carver Professional Sound division
and legal and accounting costs.
Other expenses, net of other income, decreased $100,000, or 77.0%, to $30,000
for the three months ended March 31, 1996 compared to $130,000 for the
comparable fiscal 1995 period. Other expenses, net of other income, decreased
$200,000, or 90.7%, to $21,000 for the six months ended March 31, 1996 compared
to $221,000 for the comparable fiscal 1995 period. The changes were due to
reduced interest expense on borrowings and interest income from investment of
initial public offering proceeds during the three and six-month periods in
fiscal 1996.
Net earnings were $202,000, or $.06 per share, for the three months ended March
31, 1996 compared to $345,000, or $.15 per share, for the comparable prior
period. Net earnings were 3.0% and 7.8% of net sales in the respective
three-month periods. Net earnings were $560,000, or $.15 per share, for the six
months ended March 31, 1996 compared to $594,000, or $.26 per share, for the
comparable fiscal 1995 period. Net earnings were 4.7% and 7.1% of net sales in
the respective six-month periods. The weighted average number of shares
increased in the three and six-month periods in fiscal 1996 due to the initial
public offering of the Company's Common Stock in May 1995.
Liquidity and Capital Resources
- - -------------------------------
The Company's primary needs for funds are for working capital and, to a lesser
extent, for capital expenditures. The Company financed its operations during the
six months ended March 31, 1996 principally from proceeds from short-term
borrowings. The Company has a $4.0 million revolving bank operating line of
credit expiring on December 31, 1996. There was $2.87 million outstanding on the
line at March 31, 1996, and the Company was eligible to borrow an additional
$1.13 million under such line on that date. Interest on borrowings is equal to
the bank's prime lending rate (8.25% at March 31, 1996). Borrowings under the
line of credit are secured by substantially all of the Company's assets.
Management expects to negotiate new credit facilities prior to December 31,
1996. Net cash used by operating activities was $2.27 million for the six months
ended March 31, 1996. Cash and cash equivalents decreased $2.10 million and
working capital decreased $1.52 million during the six months ended March 31,
1996, primarily due to the acquisition of the Carver Professional Sound division
in November 1995.
<PAGE>
Accounts receivable increased $2.23 million during the six months ended March
31, 1996, principally due to increased sales volume during March 1996.
Inventories increased $4.49 million, or 100.2%, to $8.97 million during the six
months ended March 31, 1996. This increase is due primarily to the acquisition
of raw material components necessary for the manufacture of the Company's new
professional sound products, its newly introduced car audio electronics and
Cyclone speaker products. A significant quantity of these raw materials was
purchased from Carver Corporation and its outside vendors in order to support
production of professional sound products while the Company establishes
alternative sources for all parts, many of which have long lead-times for
procurement. Increases in inventory were funded primarily by increases in
accounts payable of $3.05 million.
Prepaid expenses increased $259,000 during the six months ended March 31, 1996,
primarily due to trade show and insurance costs incurred in the beginning of the
Company's fiscal year that will be amortized over the remainder of the fiscal
year.
Effective November 20, 1995, the Company acquired substantially all of the
assets of the Professional Sound division of Carver Corporation. The assets
acquired included finished goods and other intangible property, including the
license of the name "Carver Professional" for five years. The purchase price for
the assets was $2.10 million, of which the Company paid $1.75 million in cash
(including an additional $8,000 in professional fees related to the acquisition
incurred in the quarter ended March 31, 1996) and a $350,000 note payable due on
November 20, 1996. The Company accounted for the acquisition under the purchase
method of accounting and recorded finished goods of $338,000, other intangibles
of $965,000 and goodwill of $792,000. Other intangibles are included in "Other
Assets" on the Company's balance sheet as of March 31, 1996 and consist of
patents and trademarks, a covenant not to compete and intellectual property.
Other intangibles and goodwill are being amortized using the straight-line
method over a period of five years.
Net deferred tax liabilities increased $288,000 in the six months ended March
31, 1996, principally due to certain differences in book and tax accounting
treatments arising from the acquisition of the Carver Professional Sound
division in November 1995.
In January 1996 the Company amended its lease for its facility to extend its
option to purchase the facility until June 30, 1999 and to lease on a triple-net
basis approximately 34,000 square feet of additional space in an adjacent
building. Annual lease payments for the additional space are approximately
$134,000. The Company has the option at any time prior to June 30, 1999 to
purchase the additional space for $1.27 million, subject to increases based upon
changes in the Consumer Price Index.
<PAGE>
The Company made capital expenditures of $903,000 during the six months ended
March 31, 1996. These expenditures related primarily to the continued automation
of certain manufacturing operations, tooling costs associated with the
manufacturing of new speaker products and the upgrade and expansion of the
Company's existing computer system. **Management anticipates that capital
expenditures for the remainder of fiscal 1996 will be approximately $200,000.
These anticipated expenditures will be financed from proceeds of long-term debt
and cash provided by operations.
Forward-Looking Statements
- - --------------------------
This Report contains estimates, projections and other forward-looking
statements, which are denoted "**". These statements are subject to certain
risks, trends and uncertainties, including those discussed here, that could
cause actual results to vary from those projected. Readers are cautioned not to
place undue reliance on forward-looking statements, which are based only on
current judgments and current knowledge.
Among the factors that could cause actual international sales, gross margin
results and capital expenditures to differ materially from anticipated results
are the following: business conditions and growth in the car audio electronics,
speakers and professional sound products markets and the general economy;
competitive factors such as rival products and price pressures; availability of
third party components at reasonable prices; continued success in the
manufacturing ramp with respect to speakers and professional sound products;
changes in product mix; cost and yield issues associated with initiating
production of speakers and professional sound products at the Company's factory;
and the risk factors listed from time to time in the Company's SEC filings
including, but not limited to, the Prospectus dated May 4, 1995 relating to the
Company's initial public offering.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings NONE
Item 2. Changes in Securities NONE
Item 3. Defaults Upon Senior Securities NONE
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its annual meeting of shareholders on February 12, 1996. Voting
common shareholders took the following actions at the meeting:
1. The shareholders voted to elect the following nominees to the Company's
Board of Directors:
Votes Votes
For Withheld
--------- --------
Keith A. Peterson 3,256,419 1,250
Timothy G. Johnson 3,256,419 1,250
Frank G. Magdlen 3,256,419 1,250
Matthew W. Chapman 3,256,419 1,250
2. The shareholders voted to ratify management's selection of auditors for
fiscal 1996 by the affirmative vote of 3,242,024 shares, with 14,645
shares voting against the proposal and 0 shares abstaining.
Item 5. Other Information NONE
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
(27) Financial Data Schedule
B. Reports of Form 8-K
NONE
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PHOENIX GOLD INTERNATIONAL, INC.
/s/David D. Bills
- - --------------------------------------------
David D. Bills
Vice President - Finance
(Principal Financial and Accounting Officer)
Dated: May 15, 1996
<PAGE>
FORM 10-QSB
PHOENIX GOLD INTERNATIONAL, INC.
Exhibit Index
Exhibit Page
- - ------- ----
(27) Financial Data Schedule 16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PHOENIX
GOLD INTERNATIONAL, INC.'S FINANCIAL STATEMENTS CONTAINED IN ITS QUARTERLY
REPORT ON FORM 10-QSB FOR THE PERIOD ENDING MARCH 31, 1996 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-29-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,251
<SECURITIES> 0
<RECEIVABLES> 6,054,216
<ALLOWANCES> 0
<INVENTORY> 8,974,750
<CURRENT-ASSETS> 15,666,044
<PP&E> 5,302,719
<DEPRECIATION> 1,392,015
<TOTAL-ASSETS> 21,694,220
<CURRENT-LIABILITIES> 8,364,874
<BONDS> 225,215
0
0
<COMMON> 7,441,973
<OTHER-SE> 5,139,720
<TOTAL-LIABILITY-AND-EQUITY> 21,649,220
<SALES> 11,886,804
<TOTAL-REVENUES> 11,886,804
<CGS> 8,331,815
<TOTAL-COSTS> 10,952,412
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40,116
<INCOME-PRETAX> 913,771
<INCOME-TAX> 354,252
<INCOME-CONTINUING> 559,519
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 559,519
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
