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, 1997
OR
[ ] TRANSITION REPORT 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 identification number)
incorporation or organization)
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, 1997, 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 March 31, 1997
INDEX
Part I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Balance Sheets at March 31, 1997 (unaudited)
and September 30, 1996 (audited) 3
Unaudited Statements of Operations for the
Three and Six Months Ended March 31, 1997
and 1996 4
Unaudited Statements of Cash Flows for the
Six Months Ended March 31, 1997 and 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 11
Signatures 12
Index to Exhibits 13
<PAGE>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMAITON
Item 1: Financial Statements
PHOENIX GOLD INTERNATIONAL, INC.
--------------------------------
BALANCE SHEETS
--------------
March 31, September 30,
1997 1996
----------------- -----------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,602 $ 2,599
Accounts receivable, net 4,287,981 5,119,360
Inventories:
Raw materials 3,565,940 4,288,206
Work-in-process 84,061 1,101,414
Finished goods 4,442,369 3,411,342
Supplies 149,045 170,598
----------------- -----------------
8,241,415 8,971,560
Prepaid expenses 358,159 285,777
Deferred taxes 731,000 525,428
----------------- -----------------
Total current assets 13,621,157 14,904,724
Property and equipment, net 3,654,308 3,938,790
Goodwill, net 277,135 296,946
Deferred taxes 238,000 230,333
Other assets 506,582 461,734
----------------- -----------------
Total assets $ 18,297,182 $ 19,832,527
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,803,071 $ 3,529,450
Notes payable 4,303,585 4,278,983
Accrued expenses 700,752 932,767
Current portion of long-term obligations 376,000 130,334
----------------- -----------------
Total current liabilities 7,183,408 8,871,534
Long-term obligations, net of current portion 662,333 171,995
Shareholders' equity:
Preferred stock;
Authorized - 5,000,000 shares; none outstanding - -
Common stock, no par value;
Authorized - 20,000,000 shares
Issued and outstanding - 3,454,605 7,477,939 7,477,939
Retained earnings 2,973,502 3,311,059
----------------- -----------------
Total shareholders' equity 10,451,441 10,788,998
----------------- -----------------
Total liabilities and shareholders' equity $ 18,297,182 $ 19,832,527
================= =================
</TABLE>
See Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
PHOENIX GOLD INTERNATIONAL, INC.
--------------------------------
STATEMENTS OF OPERATIONS
------------------------
(Unaudited)
-----------
Three Months Ended Six Months Ended
March 31 March 31
---------------------------------------- ----------------------------------------
1997 1996 1997 1996
------------------- ------------------ ------------------- ------------------
<S> <C> <C> <C> <C>
Net sales $ 6,263,430 $ 6,759,015 $ 11,835,706 $ 11,886,804
Cost of sales 4,765,382 5,042,899 9,360,529 8,676,468
------------------- ------------------ ------------------- ------------------
Gross profit 1,498,048 1,716,116 2,475,177 3,210,336
Operating expenses:
Selling 744,340 787,603 1,511,754 1,328,478
General and administrative 657,266 660,557 1,258,922 1,195,085
In-process research and development - - - 1,120,500
------------------- ------------------ ------------------- ------------------
Total operating expenses 1,401,606 1,448,160 2,770,676 3,644,063
------------------- ------------------ ------------------- ------------------
Income (loss) from operations 96,442 267,956 (295,499) (433,727)
Other income (expense):
Interest expense (138,496) (29,755) (252,338) (40,116)
Other income, net - - 1,280 19,495
------------------- ------------------ ------------------- ------------------
Total other income (expense) (138,496) (29,755) (251,058) (20,621)
Earnings (loss) before income taxes (42,054) 238,201 (546,557) (454,348)
Income tax benefit (expense) 17,000 (91,461) 209,000 174,914
------------------- ------------------ ------------------- ------------------
Net earnings (loss) $ (25,054) $ 146,740 $ (337,557) $ (279,434)
=================== ================== =================== ==================
Net earnings (loss) per share $ (0.01) $ 0.04 $ (0.10) $ (0.08)
=================== ================== =================== ==================
Shares used in per share calculation 3,454,605 3,651,255 3,454,605 3,445,707
=================== ================== =================== ==================
</TABLE>
See Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
PHOENIX GOLD INTERNATIONAL, INC.
--------------------------------
STATEMENTS OF CASH FLOWS
------------------------
(Unaudited)
-----------
Six Months Ended
March 31
-----------------------------------
1997 1996
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (337,557) $ (279,434)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 483,810 406,467
Deferred taxes, net (213,239) (174,904)
In-process research and development - 1,120,500
Changes in operating assets and liabilities:
Accounts receivable 831,379 (2,228,743)
Inventories 730,145 (3,763,082)
Prepaid expenses (72,382) (258,650)
Accounts payable (1,726,379) 3,049,290
Accrued expenses (232,015) 55,857
---------------- ----------------
Net cash used in operating activities (536,238) (2,072,699)
Cash flows from investing activities:
Capital expenditures, net (156,211) (902,997)
Acquisition of Carver professional sound division - (1,792,616)
Other (68,154) (143,531)
---------------- ----------------
Net cash used in investing activities (224,365) (2,839,144)
Cash flows from financing activities:
Notes payable, net 24,602 2,868,105
Proceeds from long-term obligations 800,000 -
Repayment of long-term obligations (63,996) (55,574)
---------------- ----------------
Net cash provided by financing activities 760,606 2,812,531
---------------- ----------------
Increase (decrease) in cash and cash equivalents 3 (2,099,312)
Cash and cash equivalents, beginning of period 2,599 2,101,563
---------------- ----------------
Cash and cash equivalents, end of period $ 2,602 $ 2,251
================ ================
Supplemental disclosures:
Cash paid during the period for interest $ 252,655 $ 55,594
Cash paid during the period for income taxes 169,859 101,800
Note payable incurred via acquisition of Carver professional - 350,000
</TABLE>
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 year
ended September 30, 1996 filed with the Securities and Exchange Commission. The
results of operations for the three- and six-month periods ended March 31, 1997
are not necessarily indicative of the operating results for the full year. In
the opinion of management, all adjustments, consisting only of normal recurring
accruals, have been made to present fairly the Company's financial position at
March 31, 1997 and the results of its operations for the three- and six-month
periods ended March 31, 1997 and 1996 and its cash flows for the six months
ended March 31, 1997 and 1996.
(2) Reporting periods
- --- -----------------
The Company's fiscal year is the 52-week or 53-week period ending the last
Sunday in September. Fiscal 1996 was a 53-week year and fiscal 1997 is a 52-week
year. For convenience of presentation, the Company has indicated in these
financial statements that its fiscal year ended on September 30 and that the
three and six months presented ended on March 31. The first quarter of fiscal
1996 was a 14-week period and the same quarter in fiscal 1997 was a 13-week
period. The remaining quarters in fiscal 1996 were and in 1997 are 13-week
quarters.
(3) Property and equipment
- --- ----------------------
Property and equipment consist of the following:
March 31, September 30,
1997 1996
--------- -------------
Machinery, equipment and vehicles $ 4,206,648 $ 4,144,651
Leasehold improvements 1,425,816 1,425,816
Construction in progress 287,899 193,685
--------- -----------
5,920,363 5,764,152
Less accumulated depreciation
and amortization (2,266,055) (1,825,362)
---------- -----------
Total property and equipment, net $ 3,654,308 $ 3,938,790
========== ===========
(4) Acquisition of Carver professional sound division
- --- -------------------------------------------------
Effective November 20, 1995, the Company acquired substantially all of the
assets of the professional sound division (the "Division") of Carver Corporation
("Carver"). The assets acquired included finished goods and intellectual
property, including the license of the name "Carver Professional" for five
years. The purchase price for the assets was $2.14 million, of which the Company
paid $1.79 million in cash and issued a $350,000 note payable, which has since
been paid. The Company accounted for the acquisition under the purchase method
of accounting and recorded in-process research and development expenses of $1.12
million, finished goods of $780,000, other intangibles of $110,000 and goodwill
of $132,000. Other intangibles and goodwill are being amortized using the
straight-line method of accounting over a period of five years. The Company has
included the results of operations for the Division in its financial statements
from the date of acquisition.
<PAGE>
(5) Long-term Obligation
- --- --------------------
In March 1997, the Company borrowed $800,000 pursuant to a secured loan from a
third party lender. The loan bears interest at 11.1% per annum and is due in
monthly installments of $26,258 until maturity on March 1, 2000. The loan is
secured by certain of the Company's machinery and equipment.
(6) Prospective Accounting Change
- --- -----------------------------
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 128, Earnings Per Share, in February 1997. SFAS
No. 128 will have no effect on the financial position or results of operations
of the Company as the statement establishes new standards for computing and
presenting earnings per share and supercedes Accounting Principles Board Opinion
No. 15, Earnings Per Share. SFAS No. 128 will be adopted by the Company in the
quarter ending December 31, 1997. Earlier adoption is not permitted. Pro forma
earnings (loss) per share under SFAS No. 128 for the three and six months ended
March 31, 1997 and 1996 would not differ materially from the earnings (loss) per
share presently reported.
<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 for the second quarter ended March 31, 1997 decreased $496,000, or
7.3%, to $6.3 million from $6.8 million in the second quarter in fiscal 1996.
Sales of electronics products increased 8.5% from the quarter ended March 31,
1996 due principally to increases in unit sales and average prices of car audio
amplifiers. The increase in car audio electronics sales was offset in part by
lower professional sound amplifier sales due primarily to a large order in the
corresponding prior year's quarter that was not repeated and from delayed
introduction of the Company's new PX professional sound amplifers into the third
quarter of fiscal 1997. Sales of speakers increased 25.9% and sales of
accessories decreased 33.0% in the second quarter of fiscal 1997 compared to the
corresponding quarter in fiscal 1996. The decline in accessories sales resulted
principally from several large orders in the corresponding prior quarter that
were not repeated, increased competition and delivery delays from certain
vendors.
Net sales for the six months ended March 31, 1997 declined $51,000, or 0.4%, to
$11.8 million from $11.9 million in fiscal 1996. Sales of electronics products
increased 10.9% in the first half of fiscal 1997 compared to the first half of
fiscal 1996. Sales of speakers increased 72.9% and sales of accessories declined
26.5% in the respective periods.
International sales decreased 8.9% to $2.4 million for the three months ended
March 31, 1997 from $2.6 million in the comparable fiscal 1996 quarter.
International sales represented 38.3% and 39.0% of net sales for the three
months ended March 31, 1997 and 1996, respectively.
International sales decreased 10.3% to $4.5 million for the six months ended
March 31, 1997, from $5.0 million in the comparable 1996 period. The decrease
resulted primarily from sales made to a European distributor in the prior period
in anticipation of European regulatory changes effective as of December 31, 1995
that were not repeated in the most recent period. International sales
represented 37.7% and 41.9% of net sales for the six months ended March 31, 1997
and 1996, respectively.
Gross margin decreased to 23.9% of net sales from 25.4% for the three months
ended March 31, 1997 and 1996, respectively. Gross margin decreased to 20.9% for
the six months ended March 31, 1997 from 27.0% for the comparable prior period.
The decreases in gross margin resulted primarily from changes in product mix and
lower than expected sales volume which caused manufacturing overhead to increase
as a percentage of sales.
Operating expenses consist of selling, general and administrative expenses.
Operating expenses decreased $47,000, or 3.2%, to $1.4 million for the three
months ended March 31, 1997 compared to the same quarter in fiscal 1996.
Operating expenses were 22.4% and 21.4% of net sales in the respective
three-month periods. Operating expenses decreased $873,000, or 24.0%, to $2.8
million for the six months ended March 31, 1997 compared to the comparable
period in fiscal 1996. Operating expenses were 23.4% and 30.7% of net sales in
the respective six-month periods. Operating expenses for the first quarter of
fiscal 1996 included a one-time pre-tax charge of $1.12 million for in-process
research and development acquired from Carver Corporation. See Note 4 of Notes
to Financial Statements.
<PAGE>
Selling expenses declined $43,000, or 5.5%, to $744,000 for the three months
ended March 31, 1997 compared to the comparable fiscal 1996 quarter. Selling
expenses were 11.9% and 11.7% of net sales in the respective quarters. The
decreased selling expenses in dollar amount were principally due to salary
reductions by senior management, and marketing, advertising and promotional
expense reductions, offset in part by additional marketing personnel and
increased sales incentives. Selling expenses increased 13.8% in the first half
of fiscal 1997, to $1.5 million, compared to $1.3 million for the first half of
fiscal 1996. Selling expenses were 12.8% and 11.2% of net sales in the
respective six-month periods. The increased selling expenses resulted primarily
from additional marketing personnel and increased sales incentives.
General and administrative expenses in dollar amount remained approximately the
same for the three months ended March 31, 1997 compared to the same fiscal 1996
quarter. General and administrative expenses were 10.5% and 9.8% of net sales in
the respective quarters. General and administrative expenses were 10.6% and
10.1% of net sales in the respective six-month periods.
Other expense increased $109,000 to $138,000 in the second quarter of fiscal
1997 from other expense of $30,000 for second quarter of fiscal 1996. Other
expense increased $230,000 to $251,000 in the first half of fiscal 1997 compared
to the first half of fiscal 1996. The increases were due to higher interest
rates on larger borrowings.
Net loss was $25,000, or $.01 per share (based on 3.45 million shares
outstanding), for the three months ended March 31, 1997, compared to net
earnings of $147,000, or $0.4 per share (based on 3.65 million shares
outstanding), for the three months ended March 31, 1996. Net loss was $338,000,
or $0.10 per share (based on 3.45 million shares outstanding), for the six
months ended March 31, 1997, compared to a net loss of $279,000, or $0.08 per
share (based on 3.45 million shares outstanding), for the first six months of
fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's primary needs for funds are for working capital and, to a lesser
extent, capital expenditures. The Company financed its operations during the six
months ended March 31, 1997 primarily from increased long term debt. In March
1997, the Company completed a secured loan with a third party lender for
$800,000. The loan bears interest at 11.1% per annum and is due in monthly
installments of $26,258 until maturity on March 1, 2000. The loan is secured by
certain of the Company's machinery and equipment.
During the six months ended March 31, 1997, accounts payable decreased $1.7
million, accounts receivable decreased $831,000 and inventories decreased by
$730,000, leading to an increase in working capital of $405,000.
The Company made capital expenditures of $156,000 in the six months ended March
31, 1997. Management anticipates that capital expenditures for the remainder of
fiscal 1997 will be approximately $350,000. These anticipated expenditures will
be financed from proceeds of short-term debt and cash provided from operations.
The Company has a $5.5 million revolving bank operating line of credit expiring
on December 31, 1997. Borrowings under the line of credit are limited to
eligible accounts receivable and inventory, and are subject to certain
additional limits. Interest on borrowings is equal to the bank's prime lending
rate (8.5% at March 31, 1997) plus 2.0%. Borrowings under the line of credit are
secured by substantially all of the Company's assets. As of March 31, 1997, the
Company was eligible to borrow $5.3 million under the line of credit and
borrowings under the line of credit as of that date were $4.2 million.
<PAGE>
PROSPECTIVE ACCOUNTING CHANGE
- -----------------------------
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 128, Earnings Per Share, in February 1997. SFAS
No. 128 will have no effect on the financial position or results of operations
of the Company as the statement establishes new standards for computing and
presenting earnings per share and supercedes Accounting Principles Board Opinion
No. 15, Earnings Per Share. SFAS No. 128 will be adopted by the Company in the
quarter ending December 31, 1997. Earlier adoption is not permitted. Pro forma
earnings (loss) per share under SFAS No. 128 for the three and six months ended
March 31, 1997 and 1996 would not differ materially from the earnings (loss) per
share presently reported.
FORWARD-LOOKING STATEMENTS
- --------------------------
This Report contains "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995, including, without limitation,
statements as to expectations, beliefs and future financial performance, that
are based on current expectations and are subject to certain risks, trends and
uncertainties that could cause actual results to vary from those projected,
which variances may have a material adverse effect on the Company. Among the
factors that could cause actual results to differ materially are the following:
business conditions and growth in the car audio, professional sound and custom
audio/video and home theater markets and the general economy; competitive
factors such as rival products and price pressures; the failure of new products
to compete successfully in existing or new markets; the failure to achieve
timely improvement in the manufacturing ramp with respect to new products;
changes in product mix; availability and price of components, subassemblies and
products supplied by third party vendors; and cost and yield issues associated
with production 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
The Company held its annual meeting of shareholders on February 18, 1997. Voting
common shareholders took the following actions at the meeting:
1. The shareholders elected the following nominees to the Company's Board of
Directors to serve until the next annual meeting of shareholders or until
their successors are elected and qualified:
Shares Shares Shares
Name Voted For Withheld Abstaining
---- --------- -------- ----------
Keith A. Peterson 3,129,654 187,177 0
Timothy G. Johnson 3,129,654 187,177 0
Frank G. Magdlen 3,129,654 187,177 0
Matthew W. Chapman 3,129,654 187,177 0
2. The shareholders approved certain amendments to the Company's 1995 Stock
Option Plan and approved the Amended and Restated 1995 Stock Option Plan
by the following vote:
Shares Shares Shares Broker
Voted For Voted Against Abstaining Non-Votes
--------- ------------- ---------- ---------
2,598,195 229,530 6,038 483,068
3. The shareholders voted to ratify management's selection of auditors for
fiscal 1997 by the affirmative vote of 3,286,159 shares, with 28,187
shares voting against ratification and 2,485 shares abstaining.
Item 5. Other Information NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Amendment dated April 18, 1997 to Loan Agreement dated as of
February 4, 1997 between the Company and United States
National Bank of Oregon
10.2 Amended and Restated 1995 Stock Option Plan (incorporated by
reference to Appendix A to the Company's definitive proxy
statement filed with the Securities and Exchange Commission
on January 15, 1997)
10.3 Third Amendment dated as of January 15, 1997 to the License
Agreement for the Automobile Audio Aftermarket dated
September 30, 1993, as amended, between the Company and
Intersonics Technology Corporation. ***
*** Certain material contained in this exhibit and indicated by
asterisks has been omitted and filed separately with the Securities
and Exchange Commission pursuant to an application for confidential
treatment under Rule 24b-2 promulgated under the Securities Exchange
Act of 1934, as amended.
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.
By /s/ Joseph K. O'Brien
---------------------
Joseph K. O'Brien
Chief Financial Officer
(Principal Financial and Accounting Officer)
Dated: May 13, 1997
<PAGE>
FORM 10-QSB
Index to Exhibits
Exhibit Page
- ------- ----
10.1 Amendment dated April 18, 1997 to Loan Agreement dated
as of February 4,1997 between the Company and United States
National Bank of Oregon 14
10.2 Amended and Restated 1995 Stock Option Plan (incorporated
by reference to Appendix A to the Company's definitive
proxy statement filed with the Securities and Exchange
Commission on January 15, 1997)
10.3 Third Amendment dated as of January 15, 1997 to the License
Agreement for the Automobile Audio Aftermarket dated
September 30, 1993, as amended, between the Company and
Intersonics Technology Corporation. *** 15
*** Certain material contained in this exhibit and indicated by asterisks
has been omitted and filed separately with the Securities and Exchange
Commission pursuant to an application for confidential treatment under Rule
24b-2 promulgated under the Securities Exchange Act of 1934, as amended.
27 Financial Data Schedule 17
Exhibit 10.1
Daniel A. Rice U.S. Bank
Vice President
Oregon Corporate Banking
111 S.W. Fifth Avenue, Suite 400
Post Office Box 4412
Portland, OR 97204
503-275-5175
April 18, 1997
Mr. Joseph K. O'Brien
Chief Financial Officer
Phoenix Gold International, Inc.
9300 North Decatur
Portland, OR 97203
Dear Joe:
As we discussed this morning, the Bank has elected to amend certain sections of
the February 4, 1997, Loan Agreement between Phoenix Gold International, Inc.
and United States Bank of Oregon. The following is a recap of the amended
sections:
SECTION 2.3 LIMIT ON ADVANCES
Effective May 19, 1997 the advance rate to be applied to Eligible
Accounts will be reduced from 80 percent to 75 percent.
SECTION 9e BORROWER'S CERTIFICATES
Effective April 21, 1997 Borrower's Certificates will be
submitted to the Lender on a weekly rather than daily basis. In
the event the Borrower should become over-advanced against the
limitation on advances, daily Borrower's Certificates will be
immediately required.
SECTION 9f CASH FLOW PROJECTION
Effective April 28, 1997 cash flow projections for a rolling
twelve week period, actual results to projection, and variance
analysis will be provided to the Lender on a bi-weekly rather
than weekly basis.
Should you have any questions please feel free to call me at 275-5175.
Sincerely,
/s/ Daniel A. Rice
- ------------------
Daniel A. Rice
Exhibit 10.3
REDACTED COPY*
INTERSONICS TECHNOLOGY CORPORATION
THIRD AMENDMENT TO THE
LICENSE AGREEMENT
FOR THE
AUTOMOBILE AUDIO AFTERMARKET
This Third Amendment to the License Agreement for the Automobile Audio
Aftermarket dated September 30, 1993, as amended by the Novation Agreement dated
as of May 23, 1995 and by the Second Amendment dated as of September 18, 1995
(as so amended, the "License Agreement") made and entered into between
INTERSONICS TECHNOLOGY CORPORATION, an Illinois corporation ("Licensor"), and
PHOENIX GOLD INTERNATIONAL, INC., an Oregon corporation ("Licensee"), is
effective as of January 15, 1997.
FOR VALUABLE CONSIDERATION, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
1. Licensee and Licensor desire to extend Licensee's exclusivity period as
specified in Paragraph 4 of the License Agreement with respect to both the car
audio and home markets covered by the License Agreement (the "Exclusivity
Period"). The Exclusivity Period is currently scheduled to terminate on * * * *
* * * * * * * * .
2. The Exclusivity Period will be automatically extended by * * * * * * *
* for each * * * * * * in which Licensee pays to Licensor at least * * * * * *
in royalty payments (an "Extension Payment") under the License Agreement;
provided, that the Exclusivity Period can be extended under this paragraph up to
a maximum of * * * * * *. Licensor acknowledges receipt of the first Extension
Payment in January 1997, which extends the Exclusivity Period through * * * * *
* * *.
3. For each * * * * * * in which royalty payments of at least * * * * * *
extend the Exclusivity Period, to the extent that royalty payments due under the
License Agreement do not exceed * * * * *, the difference between the * * * * *
paid to Licensor and the amount of such royalty payments due to Licensor for
that * * * * * will be known as the "Additional Payment."
4. All Additional Payments will accumulate as part of an "Additional
Payment Pool." In any * * * * * in which royalty payments due to Licensor under
the License Agreement exceed * * * * *, * * * of such excess payments will be
credited against the Additional Payment Pool, and * * * * of such excess
payments will be credited against "advance royalties" under the License
Agreement, until the Additional Payment Pool is reduced to zero. After the
Additional Payment Pool is reduced to zero, or in any * * * * in which royalty
payments due to Licensor under the License Agreement are less than or equal to *
* * * * * *, all royalty payments due under the License Agreement will be paid
to Licensor and credited by Licensee against "advance royalties" as specified in
the License Agreement.
5. EXHIBIT A to the License Agreement is hereby modified by the addition
to the Minimum Annual Royalties for sales of Rotary Vane Subwoofers for the year
ended * * * * * the amount of * * * * * *.
<PAGE>
6. All Additional Payments will be counted as part of the Minimum Annual
Royalties owed by Licensee for Year 2 and Year 3 as set forth in EXHIBIT A to
the License Agreement.
7. Except as specifically modified hereby, the License Agreement shall
continue in full force and effect according to its terms. All capitalized terms
used in this Amendment without definition shall have the definitions ascribed to
them in the License Agreement.
INTERSONICS TECHNOLOGY CORPORATION
By: /s/ Charles A. Rey
-----------------------
Charles A. Rey, President
PHOENIX GOLD INTERNATIONAL, INC.
By: /s/ Timothy G. Johnson
-----------------------
Title: Executive Vice President
*** Certain material contained in this exhibit and indicated by asterisks
has been omitted and filed separately with the Securities and Exchange
Commission pursuant to an application for confidential treatment under Rule
24b-2 promulgated under the Securities Exchange Act of 1934, as amended.
<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, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-28-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,602
<SECURITIES> 0
<RECEIVABLES> 4,287,981
<ALLOWANCES> 0
<INVENTORY> 8,241,415
<CURRENT-ASSETS> 13,621,157
<PP&E> 5,920,363
<DEPRECIATION> 2,266,055
<TOTAL-ASSETS> 18,297,182
<CURRENT-LIABILITIES> 7,183,408
<BONDS> 662,333
0
0
<COMMON> 7,477,939
<OTHER-SE> 2,973,502
<TOTAL-LIABILITY-AND-EQUITY> 18,297,182
<SALES> 11,835,706
<TOTAL-REVENUES> 11,835,706
<CGS> 9,360,529
<TOTAL-COSTS> 12,131,205
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 252,338
<INCOME-PRETAX> (546,557)
<INCOME-TAX> (209,000)
<INCOME-CONTINUING> (337,557)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (337,557)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
</TABLE>
