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, 1997
[ ] 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 July 31, 1997, there were issued and outstanding 3,458,985 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, 1997
INDEX
Part I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Balance Sheets at June 30, 1997 (unaudited)
and September 30, 1996 (audited) 3
Unaudited Statements of Operations for the
Three and Nine Months Ended June 30, 1997
and 1996 4
Unaudited Statements of Cash Flows for the
Nine Months Ended June 30, 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 10
Signatures 11
Index to Exhibits 12
<PAGE>
PART I. FINANCIAL INFORMAITON
Item 1: Financial Statements
PHOENIX GOLD INTERNATIONAL, INC.
--------------------------------
BALANCE SHEETS
--------------
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1997 1996
---------------------- ----------------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $2,601 $2,599
Accounts receivable, net 5,157,149 5,119,360
Inventories:
Raw materials 3,188,894 4,288,206
Work-in-process 38,247 1,101,414
Finished goods 4,501,863 3,411,342
Supplies 135,956 170,598
---------------------- ----------------------
7,864,960 8,971,560
Prepaid expenses 297,731 285,777
Deferred taxes 390,000 525,428
---------------------- ----------------------
Total current assets 13,712,441 14,904,724
Property and equipment, net 3,565,572 3,938,790
Goodwill, net 267,230 296,946
Deferred taxes 233,000 230,333
Other assets 499,729 461,734
---------------------- ----------------------
Total assets $18,277,972 $19,832,527
====================== ======================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,974,858 $3,529,450
Notes payable 3,672,619 4,278,983
Accrued expenses 565,366 932,767
Current portion of long-term obligations 390,123 130,334
---------------------- ----------------------
Total current liabilities 6,602,966 8,871,534
Long-term obligations, net of current portion 593,706 171,995
Shareholders' equity:
Preferred stock;
Authorized - 5,000,000 shares; none outstanding - -
Common stock, no par value;
Authorized - 20,000,000 shares
Issued and outstanding - 3,458,985 and 3,454,605 shares 7,521,865 7,477,939
Retained earnings 3,559,435 3,311,059
---------------------- ----------------------
Total shareholders' equity 11,081,300 10,788,998
---------------------- ----------------------
Total liabilities and shareholders' equity $18,277,972 $19,832,527
====================== ======================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
PHOENIX GOLD INTERNATIONAL, INC.
--------------------------------
STATEMENTS OF OPERATIONS
------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30 JUNE 30
---------------------------------------------- --------------------------------------
1997 1996 1997 1996
------------------ -------------------- ------------------ ----------------
<S> <C> <C> <C> <C>
Net sales $8,263,509 $7,461,921 $20,099,215 $19,348,725
Cost of sales 5,781,313 5,092,831 15,141,842 13,769,299
------------------- ------------------- ------------------- -----------------
Gross profit 2,482,196 2,369,090 4,957,373 5,579,426
Operating expenses:
Selling 871,457 1,082,590 2,383,211 2,411,069
General and administrative 522,082 815,562 1,781,004 2,010,647
In-process research and development - - - 1,120,500
------------------- ------------------- ------------------- -----------------
Total operating expenses 1,393,539 1,898,152 4,164,215 5,542,216
------------------- ------------------- ------------------- -----------------
Income from operations 1,088,657 470,938 793,158 37,210
Other income (expense):
Interest expense (131,616) (72,829) (383,951) (112,945)
Other income, net 3,892 - 5,169 19,495
------------------- ------------------- ------------------- -----------------
Total other income (expense) (127,724) (72,829) (378,782) (93,450)
Earnings (loss) before income taxes 960,933 398,109 414,376 (56,240)
Income tax benefit (expense) (375,000) (152,882) (166,000) 22,033
------------------- ------------------- ------------------ -----------------
Net earnings (loss) $585,933 $245,227 $248,376 $(34,207)
=================== =================== =================== =================
Net earnings (loss) per share $0.17 $0.07 $0.07 $(0.01)
=================== =================== =================== =================
Shares used in per share calculation 3,495,297 3,641,755 3,528,003 3,447,237
=================== =================== =================== =================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
PHOENIX GOLD INTERNATIONAL, INC.
--------------------------------
STATEMENTS OF CASH FLOWS
------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
---------------------------------------------------
1997 1996
----------------------- -----------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $248,376 $(34,207)
Adjustments to reconcile net earnings (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 728,698 601,085
Deferred taxes, net 132,761 (22,030)
In-process research and development - 1,120,500
Changes in operating assets and liabilities:
Accounts receivable (37,789) (2,093,958)
Inventories 1,106,600 (4,730,643)
Prepaid expenses (11,954) (267,124)
Accounts payable (1,554,592) 2,186,586
Accrued expenses (367,401) 65,242
----------------------- -----------------------
Net cash provided by (used in) operating activities 244,699 (3,174,549)
Cash flows from investing activities:
Capital expenditures, net (288,463) (1,135,626)
Acquisition of Carver professional sound division - (1,792,616)
Other (39,128) (187,051)
----------------------- -----------------------
Net cash used in investing activities (327,591) (3,115,293)
Cash flows from financing activities:
Notes payable, net (606,364) 4,229,930
Proceeds from long-term obligations 800,000 -
Repayment of long-term obligations (154,668) (84,350)
Proceeds from exercise of stock options 43,926 44,949
----------------------- -----------------------
Net cash provided by financing activities 82,894 4,190,529
----------------------- -----------------------
Increase (decrease) in cash and cash equivalents 2 (2,099,313)
Cash and cash equivalents, beginning of period 2,599 2,101,563
----------------------- -----------------------
Cash and cash equivalents, end of period $2,601 $2,250
======================= =======================
Supplemental disclosures:
Cash paid for interest $386,497 $111,488
Cash paid for income taxes 169,859 101,800
Cash received for income tax refund 108,376 -
Equipment financed by capital lease 36,168 -
Note payable issued for 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 nine-month periods ended June 30, 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
June 30, 1997 and the results of its operations for the three- and nine-month
periods ended June 30, 1997 and 1996 and its cash flows for the nine months
ended June 30, 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 presentation convenience, the Company has indicated in these financial
statements that its fiscal year ended on September 30 and that the three and
nine months presented ended on June 30. 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 and 1997 are 13-week quarters.
(3) Property and Equipment.
- --- -----------------------
Property and equipment consist of the following:
June 30, September 30,
1997 1996
---- ----
Machinery, equipment and vehicles $ 4,425,823 $ 4,144,651
Leasehold improvements 1,580,717 1,425,816
Construction in progress 50,642 193,685
------------ ------------
6,057,182 5,764,152
Less accumulated depreciation
and amortization ( 2,491,610) (1,825,362)
------------ ------------
Total property and equipment, net $ 3,565,572 $ 3,938,790
============= ============
<PAGE>
(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.
(5) Long-term Obligations.
- --- ----------------------
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 Changes.
- --- -------------------------------
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share.
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 nine months ended June 30, 1997 and 1996 would not differ materially from
the earnings (loss) per share presently reported.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income. SFAS
No. 130 establishes requirements for disclosure of comprehensive income and
becomes effective for the Company's fiscal year ending September 1999.
Reclassification of earlier financial statements for comparative purposes is
required.
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. SFAS No. 131 establishes standards for
disclosure about operating segments in annual financial statements and selected
information in interim financial reports. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. This statement supersedes SFAS No. 14, Financial Reporting for
Segments of a Business Enterprise. The new standard becomes effective for the
Company's fiscal year ending September 1999, and requires that comparative
information from earlier years be restated to conform to the requirements of
this standard.
<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 third quarter ended June 30, 1997 increased $802,000, or
10.7%, to $8.3 million from $7.5 million in the third quarter in fiscal 1996.
Speaker sales increased 116.3% compared to the same quarter in fiscal 1996 due
in part to the recommencement of XMAX subwoofer sales in the third quarter and
increased distribution of existing products. Accessories sales increased 9.9%
compared to the same quarter in fiscal 1996. Sales of electronics products were
comparable to sales in the quarter ended June 30, 1996. Increased sales of car
audio electronics were offset by weaker demand for professional audio
electronics. The Company began shipping in the quarter initial models of its QX
Series and XS Series car audio amplifiers that are designed to address lower
price points.
Net sales for the nine months ended June 30, 1997 increased $750,000, or 3.9%,
to $20.1 million from $19.3 million in fiscal 1996. Sales of speakers increased
91.4% in the first nine months of fiscal 1997 compared to the same period in
fiscal 1996. Sales of electronics products increased 3.9% and sales of
accessories declined 11.1% in the respective periods.
International sales increased 15.9% to $3.4 million for the three months ended
June 30, 1997 from $2.9 million in the comparable fiscal 1996 quarter.
International sales represented 40.6% and 38.8% of net sales for the three
months ended June 30, 1997 and 1996, respectively.
International sales decreased 0.5% to $7.8 million for the nine months ended
June 30, 1997, from $7.9 million in the comparable 1996 period. The decrease
resulted primarily from sales made to a European distributor in the prior
nine-month period in anticipation of European regulatory changes effective as of
December 31, 1995 that were not repeated in the more recent period.
International sales represented 39.0% and 40.7% of net sales for the nine months
ended June 30, 1997 and 1996, respectively.
Gross margin decreased to 30.0% of net sales from 31.7% for the three months
ended June 30, 1997 and 1996, respectively. Gross margin decreased to 24.7% for
the nine months ended June 30, 1997 from 28.8% 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 $505,000, or 26.6%, to $1.4 million for the three
months ended June 30, 1997 compared $1.9 million in the same quarter in fiscal
1996. Operating expenses were 16.9% and 25.4% of net sales in the respective
three-month periods. Operating expenses decreased $1.4 million, or 24.9%, to
$4.2 million for the nine months ended June 30, 1997 compared to the comparable
period in fiscal 1996. Operating expenses were 20.7% and 28.6% of net sales in
the respective nine-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.
Selling expenses declined $211,000, or 19.5%, to $871,000 for the three months
ended June 30, 1997 compared to the comparable fiscal 1996 quarter. Selling
expenses were 10.5% and 14.5% 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. Selling expenses decreased 1.2% in the first nine months of
fiscal 1997, to $2.4 million compared to the first nine months of fiscal 1996.
Selling expenses were 11.9% and 12.5% of net sales in the respective nine-month
periods.
<PAGE>
General and administrative expenses declined $293,000, or 36.0%, to $522,000 for
the three months ended June 30, 1997 compared to $816,000 in the comparable
fiscal 1996 quarter. General and administrative expenses were 6.3% and 10.9% of
net sales in the respective quarters. The decrease in general and administrative
expenses for the quarter resulted primarily from reductions in bad debt expense,
labor expenses and facilities costs. General and administrative expenses were
8.9% and 10.4% of net sales in the respective nine-month periods
Other expense increased $55,000 to $128,000 in the third quarter of fiscal 1997
from other expense of $73,000 for third quarter of fiscal 1996. Other expense
increased $285,000 to $379,000 in the first nine months of fiscal 1997 compared
to $93,000 in the first nine months of fiscal 1996. The increases were due to
higher interest rates on larger borrowings.
Net earnings were $586,000, or $0.17 per share, for the three months ended June
30, 1997, compared to net earnings of $245,000, or $0.07 per share, for the
three months ended June 30, 1996. Net earnings for the first nine months of
fiscal 1997 were $248,000, or $0.07 per share, compared to a net loss of
$34,000, or $0.01 per share, for the first nine 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
nine months ended June 30, 1997 primarily from cash provided from operations and
increased long-term debt. Rather than accumulating excess cash, the Company pays
down in part the balances owing on its operating line of credit on a daily basis
when cash flow from operations exceeds current needs, resulting in low cash
balances.
During the nine months ended June 30, 1997, accounts payable decreased $1.6
million, inventories decreased $1.1 million, notes payable decreased $606,000
and accrued expenses decreased $367,000, leading to an increase in working
capital of $1.1 million.
The Company made capital expenditures of $325,000 in the nine months ended June
30, 1997. Management anticipates that capital expenditures for the remainder of
fiscal 1997 will be approximately $200,000. 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 June 30, 1997) plus an additional percentage based on the
Company's tangible net worth. At June 30, 1997, the additional percentage above
prime was 2.0%. Borrowings under the line of credit are secured by substantially
all of the Company's assets. As of June 30, 1997, the Company was eligible to
borrow $5.4 million under the line of credit and borrowings under the line of
credit as of that date were $3.7 million.
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 NONE
Item 5. Other Information NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Amendment dated June 27, 1997 to Loan Agreement dated as of
February 4, 1997 between the Company and United States
National Bank of Oregon
10.2 Amendment to Promissory Note dated February 3, 1997 from the
Company to United States National Bank of Oregon.
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: August 6, 1997
<PAGE>
INDEX TO EXHIBITS
PAGE
10.1 Amendment dated June 27, 1997 to Loan Agreement dated
as of February 4, 1997 between the Company and United States
National Bank of Oregon 13
10.2 Amendment to Promissory Note dated February 3, 1997 from the 16
Company to United States National Bank of Oregon.
27 Financial Data Schedule 17
EXHIBIT 10.1
FIRST AMENDMENT TO LOAN AGREEMENT
This First Amendment to Loan Agreement (the "Amendment") is made as of
June 27, 1997 by and among Phoenix Gold International, Inc. ("Borrower") and
United States National Bank of Oregon ("Bank").
Borrower and Bank are parties to an agreement entitled Loan Agreement
dated as of February 4, 1997 ("the Loan Agreement"). Borrower and Bank now wish
to modify certain terms and provisions of the Loan Agreement.
For valuable consideration, Borrower and Bank agree as follows:
1. DEFINITIONS. Except as otherwise provided in this Amendment, terms which
are capitalized in this Amendment and defined in the Loan Agreement shall have
the meaning provided in Loan Agreement.
2. ELIGIBLE ACCOUNTS ADVANCE RATE. Section 2.3 of the Loan Agreement is
amended by replacing "80 percent" with "75 percent".
3. INTEREST RATE. The chart at the end section 2.4 of the Loan Agreement is
replaced in its entirety with the following:
"Tangible Net Worth Interest Rate
------------------- -------------
Greater than or equal to $11,400,000 Prime Rate
Greater than or equal to $11,100,000 but
less than $11,400,000 Prime Rate plus .75 percent
Greater than or equal to $10,700,000 but
less than $11,100,000 Prime Rate plus 1.50 percent
Greater than or equal to $10,400,000 but
less than $10,700,000 Prime Rate plus 2.0 percent
Less than $10,400,000 Default Rate"
4. FINANCIAL COVENANTS. Section 8 of the Loan Agreement is replaced in its
entirety with the following:
"(a) CURRENT RATIO. Borrower shall maintain as of each month-end set
forth below, a Current Ratio of at least the following:
Month End Current Ratio
--------- -------------
June 1997 1.95:1
July 1997 2.00:1
August 1997 2.05:1
September 1997 2.10:1
October 1997 2.10:1
November 1997 2.10:1
December 1997 2.10:1
<PAGE>
(b) Minimum Tangible Net Worth. Borrower shall maintain as of each
month-end set forth below Tangible Net Worth of at least the following:
Month End Tangible Net Worth
--------- ------------------
June 1997 $10,575,000
July 1997 $10,700,000
August 1997 $10,825,000
September 1997 $10,950,000
October 1997 $10,950,000
November 1997 $10,950,000
December 1997 $10,950,000
(c) Maximum Inventory. Borrower shall maintain inventory, valued
at the lower of cost or market, not to exceed the following amounts during the
following time periods:
Month-End Maximum Inventory
--------- -----------------
July 1997 $8,100,000
August 1997 $8,000,000
September 1997 $8,000,000
October 1997 $8,000,000
November 1997 $8,000,000
December 1997 $8,000,000
(d) Debt Service Coverage Ratio. Borrower shall maintain as of each
fiscal quarter year-end set forth below a minimum Debt Service Coverage Ratio
commencing October 1, 1996, measured quarterly on a cumulative basis through the
fiscal quarter ending September 1997 and thereafter on a rolling four-quarter
basis, of at least the ratios set forth below:
Quarter-Ending Debt Service Coverage Ratio
-------------- ---------------------------
June 1997 1.10:1
September 1997 1.25:1
December 1997 1.25:1
5. BORROWER'S CERTIFICATE. Subsection 9(e) of the Loan Agreement is
replaced in its entirety with the following: "By 4:00 p.m. each Monday a
borrower's certificate in form sufficient to allow Bank to determine the amount
of credit available under the Revolving Loan as of the last business day of the
preceding week."
6. CASH FLOW PROJECTION. Subsection 9(f) of the Loan Agreement is deleted.
7. WHOLE AGREEMENT. This Amendment and the other Loan Documents (each as it
may have been or is amended in writing) represent the complete and final
understanding of the parties with respect to the matters addressed in those
documents.
8. WAIVER. Borrower waives and discharges any and all defenses, claims,
counterclaims and offsets which Borrower may have against Bank and which have
arisen or accrued through the date of this Amendment. Borrower acknowledges that
Bank and Bank's employees, agents and attorneys have made no representations or
promises to Borrower except as specifically reflected in this Amendment and in
the written agreements which have been previously executed.
<PAGE>
9. GENERAL PROVISIONS. To induce Bank to accept this Amendment, Borrower
makes the following representations, warranties and covenants:
(a) Each and every recital, representation and warranty contained in
this Amendment, the Loan Agreement and the other Loan Documents is correct as of
the date of this Amendment.
(b) No Event of Default or event which with the giving of notice of
the passage of time (or both) would constitute an Event of Default has occurred
under the Loan Agreement or the other Loan Documents.
(c) To induce Bank to enter into this Amendment, Borrower will pay
all expenses, including reasonable attorney fees, that Bank incurs in connection
with the preparation of this Amendment and any related documents.
10. EFFECT OF AMENDMENT. Except as specifically provided above, the
Agreement and the other Loan Documents remain fully valid, binding, and
enforceable according to their terms.
11. DISCLOSURE. BY OREGON STATUTE (ORS 41.580), THE FOLLOWING DISCLOSURE IS
REQUIRED:
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY
LENDERS AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH
ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE
BORROWER'S RESIDENCE, MUST BE IN WRITING, EXPRESS CONSIDERATION, AND BE SIGNED
BY THE LENDER TO BE ENFORCEABLE.
UNITED STATES NATIONAL BANK OF OREGON PHOENIX GOLD INTERNATIONAL, INC.
BY: /s/ Daniel A. Rice BY: /s/ Joseph K. O'Brien
- ------------------------ ---------------------------
TITLE: Vice President TITLE: Chief Financial Officer
EXHIBIT `A'
This exhibit is attached and made a part of that certain Promissory Note for
$5,5000,000.00, dated February 3, 1997, from Phoenix Gold International, Inc.
(Borrower) to U.S. Bank (Lender).
Pricing Matrix
--------------
The applicable rate of interest will be governed by the Borrower's Tangible Net
Worth and will be reviewed and adjusted monthly, as expressed in the following
matrix:
Tangible Net Worth Interest Rate
------------------ -------------
Greater than or equal to $11,400,000 Prime Rate + 0
Greater than or equal to $11,100,000 but
less than $11,400,000 Prime Rate + 0.75%
Greater than or equal to $10,700,000 but
less than $11,100,000 Prime Rate + 1.50%
Greater than or equal to $10,400,000 but
less than $10,700,000 Prime Rate + 2.00%
Less than $10,400,000 Default Rate
Phoenix Gold International, Inc.
By: /s/ Joseph K. O'Brien
- -------------------------
Title: Chief Financial Officer
U.S. Bank
By: /s/ Rob Teach for D.A. Rice
- -------------------------------
Title: Vice President
<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, 1997 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-28-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,601
<SECURITIES> 0
<RECEIVABLES> 5,157,149
<ALLOWANCES> 0
<INVENTORY> 7,864,960
<CURRENT-ASSETS> 13,712,441
<PP&E> 6,057,182
<DEPRECIATION> 2,491,610
<TOTAL-ASSETS> 18,277,972
<CURRENT-LIABILITIES> 6,602,966
<BONDS> 593,706
0
0
<COMMON> 7,521,865
<OTHER-SE> 3,559,435
<TOTAL-LIABILITY-AND-EQUITY> 18,277,972
<SALES> 20,099,215
<TOTAL-REVENUES> 20,099,215
<CGS> 15,141,842
<TOTAL-COSTS> 19,306,057
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 378,782
<INCOME-PRETAX> 414,376
<INCOME-TAX> 166,000
<INCOME-CONTINUING> 248,376
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 248,376
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
