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 June 30, 1996
/ / TRANSITION PERIOD PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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 97203
Portland, Oregon (Zip code)
(Address of principal offices)
(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 July 15, 1995, there were issued and outstanding 3,454,605 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 June 30, 1996
INDEX
-----
Part I. FINANCIAL INFORMATION Page
- ------- ----
Item 1. Financial Statements
Balance Sheets at 3
June 30, 1996 (unaudited) and September 30, 1995 (audited)
Unaudited Statements of Earnings for the 4
Three and Nine Months Ended June 30, 1996 and 1995
Unaudited Statements of Cash Flows for the 5
Nine Months Ended June 30, 1996 and 1995
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 13
Index to Exhibits 14
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PHOENIX GOLD INTERNATIONAL, INC.
BALANCE SHEETS
Assets
June 30, September 30,
1996 1995
----------- -------------
(Unaudited) (Audited)
Current assets:
Cash and cash equivalents $ 2,250 $ 2,101,563
Accounts receivable, net 5,919,431 3,825,473
Inventories 9,977,667 4,482,442
Prepaid expenses 595,171 328,047
Deferred taxes 89,824 53,614
----------- -----------
Total current assets 16,584,343 10,791,139
----------- -----------
Property and equipment, net 3,943,159 3,363,600
Goodwill, net 892,476 201,396
Other assets 1,189,281 153,114
----------- -----------
Total assets $22,609,259 $14,509,249
=========== ===========
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,508,669 $ 1,322,083
Notes payable 4,579,930 -
Accrued expenses 893,051 533,989
Current portion of long-term debt
and capital lease obligations 122,100 113,800
----------- -----------
Total current liabilities 9,103,750 1,969,872
Long-term obligations, net of current portion 193,540 286,189
Deferred taxes 508,925 240,000
Shareholders' equity:
Preferred Stock; 5,000,000 shares
authorized; none outstanding - -
Common stock, no par value; 20,000,000
shares authorized; 3,454,605 and
3,445,000 shares outstanding at June 30,
1996 and September 30, 1995, respectively 7,477,939 7,432,987
Retained earnings 5,325,105 4,580,201
----------- -----------
Total shareholders' equity 12,803,044 12,013,188
----------- -----------
Total liabilities and shareholders' equity $22,609,259 $14,509,249
=========== ===========
See Notes to Financial Statements
<PAGE>
PHOENIX GOLD INTERNATIONAL, INC.
STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
------------------------ ------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
Net sales $ 7,461,921 $ 6,254,745 $19,348,725 $14,640,128
Cost of sales 5,057,476 3,949,959 13,389,293 9,349,832
----------- ----------- ----------- -----------
Gross profit 2,404,445 2,304,786 5,959,432 5,290,296
Operating expenses:
Selling 1,082,590 641,932 2,411,069 1,632,261
General and administrative 891,363 494,142 2,183,482 1,270,738
----------- ----------- ----------- -----------
Total operating expenses 1,973,953 1,136,074 4,594,551 2,902,999
----------- ----------- ----------- -----------
Income from operations 430,492 1,168,712 1,364,881 2,387,297
----------- ----------- ----------- -----------
Other income (expense):
Interest expense (72,829) (74,722) (112,945) (290,872)
Other income, net - 10,805 19,495 6,168
----------- ----------- ----------- -----------
Total other expense (72,829) (63,917) (93,450) (284,704)
----------- ----------- ----------- -----------
Earnings before taxes 357,663 1,104,795 1,271,431 2,102,593
Income tax expense 172,279 426,120 526,531 829,535
----------- ----------- ----------- -----------
Net earnings $ 185,384 $ 678,675 $ 744,900 $ 1,273,058
=========== =========== =========== ===========
Net earnings per share $ 0.05 $ 0.23 $ 0.20 $ 0.51
=========== =========== =========== ===========
Shares used in per
share calculation 3,641,755 2,969,456 3,638,279 2,509,713
=========== =========== =========== ===========
See Notes to Financial Statements
<PAGE>
PHOENIX GOLD INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
June 30,
-------------------------
1996 1995
----------- -----------
Cash flows from operating activities:
Net earnings $ 744,900 $ 1,273,058
Adjustments to reconcile net earnings to net
cash used in operating activities:
Depreciation and amortization 773,920 424,612
Loss on sale of equipment - 4,491
Deferred taxes 232,715 9,081
Changes in operating assets and liabilities:
Accounts receivable (2,093,958) (1,171,044)
Inventories (5,157,446) (501,629)
Prepaid expenses (267,124) (207,140)
Other assets (187,051) -
Accounts payable 2,186,586 (867,162)
Accrued expenses 359,062 (1,392)
----------- -----------
Net cash used in operating activities (3,408,396) (1,037,125)
----------- -----------
Cash flows from investing activities:
Capital expenditures, net (1,135,625) (1,321,620)
Acquisition of Carver Professional Sound division (1,745,821) -
----------- -----------
Net cash used in investing activities (2,881,446) (1,321,620)
----------- -----------
Cash flows from financing activities:
Proceeds from long-term obligations - 2,092,563
Repayment of long-term obligations (84,350) (3,753,780)
Notes payable, net 4,229,930 (1,885,762)
Common stock issued 44,949 -
Proceeds from notes payable to shareholders - 22,865
Repayments of notes payable to shareholders - (122,865)
Proceeds from initial public offering - 7,770,436
----------- -----------
Net cash provided by financing activities 4,190,529 4,123,457
Increase (decrease) in cash (2,099,313) 1,764,712
Cash, beginning of period 2,101,563 18,038
------------ -----------
Cash, end of period $ 2,250 $ 1,782,750
============ ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 111,488 $ 310,855
Cash paid during the period for income taxes $ 101,800 $ 1,003,000
Supplemental disclosure of non-cash activities:
Note payable incurred via acquisition of
Carver Professional $ 350,000 $ -
Acquisition of equipment via accounts payable $ - $ 80,405
Initial public offering expenses financed via
accounts payable $ - $ 535,003
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 nine-month periods ended June 30,
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 June 30, 1996 and the results of its operations and its cash flows
for the three and nine-month periods ended June 30, 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:
JUNE 30, SEPTEMBER 30,
1996 1995
------------- -------------
Raw materials $ 4,674,198 $ 1,161,666
Work-in-process 1,604,979 346,055
Finished goods 3,526,891 2,874,923
Supplies 171,871 99,798
============= =============
Total inventories, net $ 9,977,939 $ 4,482,442
============= =============
<PAGE>
PHOENIX GOLD INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(4) Property and equipment
Property and equipment consist of the following:
JUNE 30, SEPTEMBER 30,
1996 1995
------------- -------------
Machinery, equipment and vehicles $ 3,678,738 $ 3,020,056
Leasehold improvements 1,424,596 1,324,350
Construction in progress 432,019 55,315
------------- -------------
5,535,353 4,399,721
Less accumulated depreciation
and amortization (1,592,194) (1,036,121)
------------- -------------
Total property and equipment, net $ 3,943,159 $ 3,363,600
============= =============
(5) Subsequent Events
On July 11, 1995, the Company announced that it has hired Kurt W. Ruttum to
serve as Vice President and General Counsel. Mr. Ruttum will join Phoenix Gold
on October 1, 1996. Mr. Ruttum is a partner at the Portland, Oregon law firm of
Tonkon, Torp, Galen, Marmaduke and Booth. He joined that firm in 1986 and became
a partner in 1993. His practice has emphasized corporate finance, securities and
general corporate counseling. Mr. Ruttum received a B. A. degree in economics
from the University of Colorado and his J.D. degree from the University of
Chicago Law School.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis or Plan of Operation
Results of Operations
- ---------------------
Net sales increased $1.21 million, or 19.3%, to $7.46 million for the three
months ended June 30, 1996, compared to $6.25 million for the three months ended
June 30, 1995. Sales of electronics products in the quarter ended June 30, 1996
increased 31.4% from the quarter ended June 30, 1995. Sales of speakers and
accessories increased 17.1% and .5%, respectively, in the third quarter of
fiscal 1996 compared to the same fiscal 1995 quarter. Net sales increased $4.71
million, or 32.2%, to $19.35 million for the nine months ended June 30, 1996,
compared to $14.64 million for the nine months ended June 30, 1995. Sales of
electronics products, speakers and accessories increased 50.5%, 22.9% and 7.4%,
respectively, in the first nine months of fiscal 1996 compared to the same
fiscal 1995 period. The increases in net sales for the three and nine month
periods were principally due to the commencement in December 1995 of sales of
the Company's new professional sound products.
International sales increased 4.2% to $2.90 million for the three months ended
June 30, 1996, from $2.78 million in the comparable 1995 period. International
sales increased 30.7% to $7.87 million for the nine months ended June 30, 1996,
from $6.02 million in the comparable 1995 period. International sales
represented 38.8% and 44.5% of net sales for the three months ended June 30,
1996 and 1995, respectively. International sales represented 40.7% and 41.1% of
net sales for the nine months ended June 30, 1996 and 1995, respectively.
Gross profit decreased to 32.2% of net sales for the three months ended June 30,
1996 from 36.8% in the comparable fiscal 1995 period. Gross profit decreased to
30.8% of net sales for the nine months ended June 30, 1996 from 36.1% in the
comparable fiscal 1995 period. The decrease in gross profit for the three and
nine months ended June 30, 1996, was primarily due to manufacturing
inefficiencies associated with the production of new electronics products and
higher than anticipated costs for certain professional sound product raw
materials.
During the three and nine months ended June 30, 1996, sales of the Company's car
audio electronics and accessories decreased as a percentage of total sales
compared to the same fiscal 1995 periods. These decreases in percentages were
the result of sales of the Company's new professional sound products, which
carried lower gross margins than car audio electronics. During the three and
nine-month periods ended June 30, 1996, these products were either purchased
from Carver Corporation at premium prices or manufactured by the Company using
higher cost raw materials components obtained from Carver Corporation and other
outside vendors.
<PAGE>
During the three and nine months ended June 30, 1996, the Company was unable to
obtain adequate supplies of components from third-party vendors for its Cyclone
and XMAX speaker lines. As a result, speaker sales, and overall gross margins,
were less than the Company anticipated. Speakers generally carry higher gross
margins than electronics products.
Operating expenses consist of selling, general and administrative expenses.
Total operating expenses increased $838,000, or 73.8%, to $1.97 million for the
three months ended June 30, 1996 compared to $1.14 million for the three months
ended June 30, 1995. Operating expenses were 26.5% and 18.2% of net sales in the
respective three-month periods. Operating expenses increased $1.69 million, or
58.3%, to $4.59 million for the nine months ended June 30, 1996 compared to
$2.90 million for the nine months ended June 30, 1995. Operating expenses were
23.7% and 19.8% of net sales in the respective nine-month periods.
Selling expenses increased $441,000, or 68.6%, to $1.08 million for the three
months ended June 30, 1996 compared to $642,000 for the comparable fiscal 1995
period. Selling expenses were 14.5% and 10.3% of net sales in the respective
three-month periods. Selling expenses increased $779,000, or 47.7%, to $2.41
million for the nine months ended June 30, 1996 compared to $1.63 million for
the comparable fiscal 1995 period. Selling expenses were 12.5% and 11.1% of net
sales in the respective nine-month periods. The increased selling expenses in
dollar amount for the three and nine months ended June 30, 1996 were principally
due to increased marketing and advertising programs and related expenses to
support sales of existing and newly introduced products and personnel related
expenses.
General and administrative expenses increased $397,000 or 80.4%, to $891,000 for
the three months ended June 30, 1996, compared to $494,000 for the comparable
fiscal 1995 period. General and administrative expenses were 11.9% and 7.9% of
net sales in the respective three-month periods. General and administrative
expenses increased $913,000 or 71.8%, to $2.18 million for the nine months ended
June 30, 1996 compared to $1.27 million for the comparable fiscal 1995 period.
General and administrative expenses were 11.3% and 8.7% of net sales in the
respective nine-month periods. The increased general and administrative expenses
in dollar amount for the three and nine months ended June 30, 1996 were
principally due to increased bad debt expenses, amortization of goodwill and
other intangibles related to the purchase of the Carver Professional Sound
division and increased research and development costs and legal and accounting
expenses.
Other expenses, net of other income, increased $9,000, or 13.9%, to $73,000 for
the three months ended June 30, 1996 compared to $64,000 for the comparable
fiscal 1995 period. The change was due to increased interest expense on
borrowings and reduced interest income from investment of initial public
offering proceeds during the three-month period in fiscal 1996.
<PAGE>
Other expenses, net of other income, decreased $192,000, or 67.2% to $93,000 for
the nine months ended June 30, 1996 compared to $285,000 for the comparable
fiscal 1995 period. The change was due to reduced interest expense on borrowings
and interest income from investment of initial public offering proceeds.
Net earnings were $185,000, or $.05 per share, for the three months ended June
30, 1996 compared to $679,000, or $.23 per share, for the comparable prior
period. Net earnings were 2.5% and 10.9% of net sales in the respective
three-month periods. Net earnings were $745,000, or $.20 per share, for the nine
months ended June 30, 1996 compared to $1.27 million, or $.51 per share, for the
comparable fiscal 1995 period. Net earnings were 3.8% and 8.7% of net sales in
the respective nine-month periods. The weighted average number of shares
increased in the three and nine-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
nine months ended June 30, 1996 principally from proceeds from short-term
borrowings. In May 1996, the Company negotiated with its lender an increase of
$2.0 million in its operating line of credit. The Company now has a $6.0 million
revolving bank operating line of credit expiring on December 31, 1996. There was
$4.23 million outstanding on the line at June 30, 1996, and the Company was
eligible to borrow an additional $1.16 million under such line on that date.
Interest on borrowings is equal to the bank's prime lending rate (8.25% at June
30, 1996) for the first $4.0 million in borrowings and an additional .25% for
borrowings above $4.0 million. 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 in operating
activities was $3.41 million for the nine months ended June 30, 1996. Cash and
cash equivalents decreased $2.1 million and working capital decreased $1.34
million during the nine months ended June 30, 1996, primarily due to increased
short-term borrowings and cash used for the acquisition of the Carver
Professional Sound division in November 1995.
Accounts receivable increased $2.09 million during the nine months ended June
30, 1996, principally due to increased sales volume during the latter part of
the third quarter ended June 1996.
Inventories increased $5.50 million, or 123%, to $9.98 million during the nine
months ended June 30, 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.
<PAGE>
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. The remaining
increases in inventory were due to higher levels of work-in-process and other
finished goods. Increases in inventory were partially funded by increases in
accounts payable of $2.19 million. The remaining amount was financed with
short-term borrowings.
Prepaid expenses increased $267,000 during the nine months ended June 30, 1996,
primarily due to insurance costs incurred in the Company's third fiscal quarter
and trade show expenses incurred during the nine months ended June 30, 1996 that
will be amortized over the remainder of fiscal 1996.
Accrued expenses increased $359,000 during the nine months ended June 30, 1996,
primarily due to increased income taxes payable.
Net deferred tax liabilities increased $233,000 in the nine months ended June
30, 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.
The Company made capital expenditures of $1.14 million during the nine months
ended June 30, 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 information 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.
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 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 results to differ materially are the
following: business conditions and growth in the car audio electronics, speakers
and professional sound product 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, new professional sound and car audio electronics;
changes in product mix; and cost and yield issues associated with production of
speakers and professional sound products at the Company's factory.
<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 NONE
Item 5. Other Information NONE
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
(27) Financial Data Schedule
B. Reports on 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: July 22, 1996
<PAGE>
FORM 10-QSB
PHOENIX GOLD INTERNATIONAL, INC.
Exhibit Index
Exhibit Page
- ------- ----
(27) Financial Data Schedule 15
<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 JUNE 30, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-29-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,250
<SECURITIES> 0
<RECEIVABLES> 5,919,431
<ALLOWANCES> 0
<INVENTORY> 9,977,667
<CURRENT-ASSETS> 16,584,343
<PP&E> 5,535,353
<DEPRECIATION> 1,592,194
<TOTAL-ASSETS> 22,609,259
<CURRENT-LIABILITIES> 9,103,750
<BONDS> 193,540
0
0
<COMMON> 7,477,939
<OTHER-SE> 5,325,105
<TOTAL-LIABILITY-AND-EQUITY> 22,609,259
<SALES> 19,348,725
<TOTAL-REVENUES> 19,348,725
<CGS> 13,389,293
<TOTAL-COSTS> 17,983,844
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 112,945
<INCOME-PRETAX> 1,271,431
<INCOME-TAX> 526,531
<INCOME-CONTINUING> 744,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 744,900
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
</TABLE>
