U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 28, 1997, or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------ ------------
Commission file number 0-25866
PHOENIX GOLD INTERNATIONAL, INC.
Name of small business issuer in its charter
OREGON 93-1066325
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(State or 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
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock, no
par value
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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 [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ X ]
Issuer's revenues for the fiscal year ending September 28, 1997 were
$27,798,728.
The aggregate market value of the voting common stock held by non-affiliates of
the issuer was $5,919,463 as of November 21, 1997.
There were 3,464,745 shares of the issuer's common stock outstanding as of
November 21, 1997.
Transitional Small Business Disclosure Format: Yes [ ] No [ X ]
Parts of Registrant's proxy statement dated on or about January 5, 1998 prepared
in connection with the Annual Meeting of shareholders to be held on February 17,
1998 are incorporated by reference into Part III of this Report.
<PAGE>
PART I
ITEM 1.DESCRIPTION OF BUSINESS
Phoenix Gold International, Inc. (the "Company") designs, markets and
sells innovative, high quality, high performance electronics and accessories for
the domestic and international car audio aftermarket, the professional sound
market and the custom audio/video and home theater markets. The Company also
designs, markets and sells innovative, high quality, high performance speakers
for the car audio aftermarket. The Company manufactures substantially all of its
electronics and a portion of its accessories and speakers at its facility in
Portland, Oregon. The Company was incorporated in 1991 in Oregon.
The Company's car audio products encompass substantially all of the
components used in car audio systems (other than "head units" such as radios,
tape decks and CD players). The Company's car audio electronics include
amplifiers, equalizers, crossovers and line drivers. The Company's car audio
accessories include audio cables, speaker and power cables, connectors, clamps,
capacitors and fuseblocks. The Company's speaker products include subwoofers,
midranges and tweeters.
As the Company expanded its car audio product line from accessories to
electronics and speakers, it initially targeted car audio enthusiasts and
audiophiles with products that offer value by combining performance advantages,
such as sonic excellence, system flexibility and reliability, with distinctive
appearance and superior craftsmanship. The Company subsequently broadened its
car audio product line to offer similar performance characteristics at lower
price points. The Company's primary target market is car audio enthusiasts,
typically 18 to 34 year old males who desire high quality, high performance
systems. The Company also sells to other consumers who seek to increase the
quality of their car audio systems either by upgrading existing components or
installing new systems.
In November 1995, the Company acquired substantially all of the assets of
the professional sound division of Carver Corporation. The Company, as licensee
of the name "Carver Professional", designs, manufactures, markets and sells
electronic amplifiers and accessories for the domestic and international
professional sound market, including OEM customers.
PRODUCTS
The Company has three product lines: electronics, accessories and speakers.
ELECTRONICS. The Company's amplifiers, signal processors and other
electronics are designed to deliver sonic excellence, system flexibility and
reliable performance. The Company sells car audio electronics designed for
audiophiles, serious audio enthusiasts and sound competitors.
AMPLIFIERS. The Company sells a total of 18 car audio amplifiers in the
ZPA, ZX, XS, QX and Sapphire series at retail prices ranging from approximately
$200 to $1,150. Amplifiers in the ZPA series, introduced in 1996, are the
Company's reference amplifiers, designed to deliver maximum performance in
expensive, high end systems capable of driving multiple speakers. The ZX series,
also introduced in 1996, includes multi-channel amplifiers with built-in
crossovers and offers the performance and sonic excellence of the reference
series amplifiers except in the most demanding applications. The XS and QX
<PAGE>
series, both introduced in 1997, and the Sapphire series, introduced in 1994,
are designed to provide high performance at lower prices. The QX amplifier is
the first of the Company's electronics products to be designed and engineered by
the Company and manufactured by a third party vendor. Due to the introduction of
the XS and QX series in 1997, the Company does not expect the Sapphire series to
provide meaningful revenue in the future.
Additionally, the Company has periodically introduced limited edition
theme amplifiers, such as "Frank Amp'n Stein," "Son of Frank Amp'n Stein,"
"Route 66," "Outlaw 1845" and "Bandit 1895", at retail prices ranging from
approximately $500 to $2,400.
The Company sells a total of 15 Carver Professional amplifiers at retail
prices ranging from approximately $500 to $2,400. The PM series was designed for
multiple purposes, including instrument amplification, fixed installations and
touring applications. The PT series was designed specifically for the touring
sound industry for ease of transportability and use in a variety of settings.
The CA series amplifiers were designed for fixed installation applications,
including churches, warehouses and auditoriums. The PX series, introduced in
1997 and the first series designed by the Company, includes entry level,
multi-application models that offer increased features and power at lower price
points.
SIGNAL PROCESSORS. The Company sells a total of 18 car audio signal
processors, including equalizers, line drivers, and active and passive
crossovers. Signal processors, which are sold both as upgrade components and as
parts of complete systems, are used to increase the flexibility and performance
of audio systems. Retail prices of signal processors range from approximately
$130 to $600.
ACCESSORIES. The Company manufacturers and distributes innovative, high
quality accessories. The Company sells approximately 1,000 accessories, many of
which are manufactured to the Company's design specifications, for use primarily
in car audio aftermarket applications. Car audio accessories include audio
cables, speaker and power cables, connectors, clamps, adapters, capacitors,
fuseblocks, distribution blocks, alternators, carpet, textiles and adhesives.
The Company continually improves its existing accessories line and introduces
new and replacement accessories. The Company is a single source from which its
dealers and distributors can purchase all of the accessories necessary to
install the full range of car audio systems. Accessories are available either as
individual items or in complete installation kits.
The Company's accessories for use in professional sound and custom
audio/video and home theater applications include crossovers, attenuators,
transformers, speaker selectors, audio and video cables, connectors, wall plates
and volume controls. The Company manufactures Smart Audio Management panels for
the custom home audio/video market that provide for speaker distribution and
impedance matching.
SPEAKERS. The Company began selling speakers in 1994. The Company offers a
total of 30 speakers in the ZEROpoint, XMAX, XS and Sapphire series, including
tweeters, midranges, subwoofers and coaxials. The ZEROpoint series is the
Company's reference speaker series and is designed to achieve audiophile level
sound quality, transparency and enhanced imaging in either the "on" or "off"
axis listening position. The XMAX series features reproduction of tight,
accurate bass in a small enclosure. The XS series features exceptional
musicality, excursion and versatility at lower price points. The Sapphire series
is the Company's lower price point speaker line. Retail prices of speakers range
from approximately $50 to $400.
<PAGE>
The Company has an exclusive license to utilize patented technology to
produce a speaker known as the "Cyclone" for the car and home audio markets.
This technology uses a moving magnet rotary motor and a composite vane,
replacing the conventional motor magnet and cone of a typical loudspeaker.
Compared to a typical high performance 12-inch subwoofer, the Cyclone car audio
subwoofer can produce up to approximately three times the amount of bass in a
similar sized enclosure and offers improved sound quality and greater power
handling capacity. The retail price of the Cyclone is approximately $850.
SALES, MARKETING AND DISTRIBUTION
The Company sells its products through car audio and specialty retailers,
principally in North America, Europe, Japan, Southeast Asia, Australia and New
Zealand. The Company also sells certain of its car audio accessories through a
mass merchandising chain of stores in the United States. The Company sells its
car audio, professional sound and home products in the United States through
independent sales representatives and distributors. The Company sells its
products internationally through distributors serving approximately 50
countries. International sales accounted for 39.2%, 39.2% and 40.6% of net sales
in fiscal years 1997, 1996 and 1995, respectively. International sales are
denominated in United States dollars and are generally shipped f.o.b. the
Company's facility in Portland, Oregon.
No customer accounted for 10% or more of the Company's net sales during
fiscal 1997 or 1996. As of September 30, 1997, two customers accounted for 11.4%
and 10.8%, respectively, of total accounts receivable.
The Company offers its dealers and distributors complete product lines,
excellent service and support, and high performance, reliable products. The
Company believes these efforts enable it to attract and retain qualified dealers
and distributors. The Company recruits on a selective basis new dealers and
distributors for each of its product lines in specific geographic areas. Dealers
and distributors are chosen based on location, financial stability, technical
expertise, sales history, integrity, and installation and service capabilities.
The Company generally does not have written agreements with its car audio sales
representatives, dealers or distributors or its professional sound distributors.
The Company's written agreements with its professional sound representatives and
dealers are generally terminable upon no more than 30 days notice.
The Company markets its car audio products by participating in consumer
electronics trade shows and enthusiast events and by promoting its own
demonstration vehicles. The Company offers incentives to "Team Phoenix Gold"
competitors in regional, national and international car audio shows and
competitions and provides technical assistance, training and support from
Company engineers and technicians at "Tweek N Tune" workshops. The Company
advertises in car audio consumer magazines and its products have been reviewed
and profiled in national and international publications. The Company markets its
professional sound, custom audio/video and home theater products by
participating in trade shows, advertising in trade journals and magazines and
providing dealer support.
<PAGE>
COMPETITION
The markets for the Company's products are highly competitive and are
served by many United States and international manufacturers that market their
own lines of electronics, accessories and speakers through specialty dealer
networks and mass merchandise retail stores, as well as companies that market
generic products through the same distribution channels. The Company's principal
accessories competitors include Monster Cable Products, Inc., Esoteric Audio USA
Group of Companies and Recoton Corp. The Company's principal car audio
electronics competitors include Rockford Fosgate, a division of Rockford Corp.
("Rockford"), Orion Industries, Inc. and Precision Power, Inc. The Company's
principal professional sound competitors include Crown International, Inc., QSC
Audio Products, Inc. and Crest Audio, Inc. The Company's principal speaker
competitors include Rockford, MTX Corporation, Stillwater Design and Audio,
Inc., JL Audio, Inc., MB Quart Electronics USA, Inc. and Boston Acoustics, Inc.
Many competitors have greater financial and other resources than the Company.
The Company competes principally on the basis of innovation, breadth of
product line, quality and reliability of products, name recognition,
merchandising and distribution organization, and price. The Company believes it
competes favorably with respect to each of these factors.
MANUFACTURING AND ASSEMBLY
MANUFACTURED PRODUCTS. The Company manufactures substantially all of its
electronics products and a portion of its accessories at its facility in
Portland, Oregon. Manufacturing processes include laser-cutting, computer
controlled metal fabrication, powder coating, automated insertion of components
into and wave soldering of circuit boards, toroid winding, plastic injection
molding, silk-screening graphics and quality control testing. For use in its
manufacturing activities, the Company also purchases components manufactured by
third parties according to design specifications developed by the Company. The
Company purchases substantially all of its raw materials, components and
subassemblies from approximately 185 suppliers located primarily in the United
States and the Pacific Rim. Certain of these materials, components and
subassemblies are obtained from a single supplier or a limited number of
suppliers. The Company's principal supplier is Team Phoenix Co. Ltd., an
unaffiliated company.
DISTRIBUTED ACCESSORIES. The Company distributes accessories, many of
which are manufactured to its design specifications by third parties.
Substantially all distributed accessories are subjected to quality control
procedures at the Company's facility and are marketed under the PHOENIX GOLD or
CARVER PROFESSIONAL tradenames.
DESIGNED SPEAKERS. Other than the Cyclone, the Company's speakers are
manufactured by third parties in the United States and the Pacific Rim according
to acoustical and electrical design specifications developed by the Company.
Speakers are subjected to quality control procedures by the Company. The Company
manufactures the Cyclone.
<PAGE>
CUSTOMER SERVICE
The Company believes two of the most important elements in its business
are understanding consumers and their preferences, and providing high quality,
reliable products. The Company strives to understand the evolving needs and
preferences of consumers by communicating with its representatives, dealers and
distributors, sponsoring "Team Phoenix Gold" members and attending car audio
competitions and car audio, professional sound and custom audio/video and home
theater trade shows. Company representatives regularly seek suggestions from
dealers for improved design and performance of the Company's products.
Proper installation is critical to achieving optimum performance of car
audio systems. The Company offers an 18-month limited warranty on car audio
electronics installed by an authorized dealer or installer and increases the
warranty period to 36 months if the warranty card accompanying the product and a
copy of the original sales receipt are returned to the Company. If the product
is not installed by an authorized dealer or installer, the Company offers a
30-day limited warranty. The Company offers a five-year limited warranty on
professional sound electronics and a one-year limited warranty on speakers.
INTELLECTUAL PROPERTY
PHOENIX GOLD(R), CARVER PROFESSIONAL(TM), POWERFLOW(TM), QUICKSILVER(TM),
SAPPHIRE(TM) and ZEROPOINT(TM) are the principal trademarks of the Company. The
Company believes that PHOENIX GOLD and CARVER PROFESSIONAL have strong brand
name recognition, an important competitive factor in its markets. The Company
has no patents, but is a licensee of patented technology with respect to the
Cyclone. The Company has an exclusive, paid-up license to use the name CARVER
PROFESSIONAL through November 2000.
GOVERNMENTAL APPROVAL OF PRODUCTS
The Company is subject to and believes it is in compliance with certain
European Community standards regarding electromagnetic standards and product
safety on substantially all of its electronics sold in the European Community.
The Company believes that additional similar regulations will be imposed in
Europe and other areas. Any inability by the Company to comply with such similar
regulations on a timely basis could have a material adverse effect on the
Company.
EMPLOYEES
As of September 30, 1997 the Company had 231 full-time employees,
including 187 in manufacturing, engineering, warehousing and shipping, 25 in
sales and marketing and 19 in administration. The Company considers its employee
relations to be good.
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY
The Company's executive offices and manufacturing operations are located
at 9300 North Decatur Street, Portland, Oregon in two adjacent leased buildings
consisting of a total of approximately 15,000 square feet of office space and
130,000 square feet of manufacturing and warehouse space. Annual rent for the
Company's facilities is approximately $370,000. The lease expires June 30, 1999.
The Company has an option to extend the lease for one five-year term and has the
option to purchase the main building for $3.1 million and the adjacent building
for $1.3 million effective June 30, 1999. The Company believes that its existing
facilities are adequate to meet its needs for the foreseeable future and that,
if needed, suitable additional or alternative space will be available on
commercially reasonable terms.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock began trading on May 4, 1995 in the NASDAQ
National Market under the symbol "PGLD". As reported by NASDAQ, the following
table sets forth the range of high and low trading price information for the
Company's Common Stock.
Fiscal year ended Fiscal year ended
September 30, 1997 September 30, 1996
-------------------------- -----------------------
Common Stock (PGLD) High Low High Low
-------------------- ----------- ----------- ----------- -----------
First Quarter $ 8.25 $ 4.625 $ 10.75 $ 8.50
Second Quarter 6.50 4.625 13.50 9.00
Third Quarter 7.00 4.25 13.25 8.50
Fourth Quarter 7.00 4.25 9.25 6.75
At November 21, 1997, the closing price of the Common Stock was $4.375,
and the approximate number of holders of record of Common Stock was 110.
The Company has never declared or paid any cash dividends on its Common
Stock. The Company's existing credit agreements prohibit the Company from
declaring and paying dividends. The Company intends to retain all earnings for
use in its business and therefore does not anticipate paying any cash dividends
in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
FORWARD-LOOKING STATEMENTS
All statements in this Report that are not statements of historical
results should be considered "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, and 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>
COMPARISON OF FISCAL 1997 TO FISCAL 1996
NET SALES. Net sales increased $1.2 million, or 4.7%, to $27.8 million for
fiscal 1997 compared to $26.6 million for fiscal 1996. Sales of speakers and
accessories increased 46.9% and 18.1%, respectively, in fiscal 1997 compared to
fiscal 1996. The increases in speaker and accessories sales resulted primarily
from higher unit sales of existing and new products. Electronics sales decreased
2.7% from fiscal 1996 due to lower sales of professional sound products.
International sales increased $500,000, or 4.8%, to $10.9 million for fiscal
1997 compared to $10.4 million for fiscal 1996. International sales accounted
for 39.2% of net sales in each of fiscal 1997 and fiscal 1996.
GROSS PROFIT. Gross profit increased to 24.5% of net sales in fiscal 1997
from 23.1% in fiscal 1996. Gross profit is fiscal 1996 was impacted by increased
reserves for potentially obsolete raw materials and slow moving finished goods
inventories.
OPERATING EXPENSES. Operating expenses decreased $2.3 million, or 28.6%,
to $5.7 million in fiscal 1997 compared to $7.9 million in fiscal 1996.
Operating expenses were 20.4% and 29.8% of net sales in fiscal 1997 and fiscal
1996, respectively.
Selling expenses decreased $429,000, or 11.4%, to $3.3 million in fiscal
1997 compared to $3.8 million in fiscal 1996. Selling expenses were 12.0% and
14.1% of net sales in fiscal 1997 and fiscal 1996, respectively. The decrease
was primarily due to lower promotional, advertising and trade show expenses and
continuing cost control programs.
General and administrative expenses decreased $717,000, or 23.5%, to $2.3
million in fiscal 1997 compared to $3.0 million in fiscal 1996. General and
administrative expenses were 8.4% and 11.5% of net sales in fiscal 1997 and
fiscal 1996, respectively. The decrease in general and administrative expenses
occurred principally because of lower bad debt expense, lower professional fees
and continuing cost control programs.
In fiscal 1996 the Company took a one-time pretax charge of $1.1 million
related to in-process research and development costs associated with the
purchase in November 1995 of Carver Corporation's professional sound division.
This charge was equal to 4.2% of net sales in fiscal 1996.
OTHER EXPENSES. Other expenses, net of other income, increased $233,000,
or 96.6%, to $473,000 in fiscal 1997 from $241,000 in fiscal 1996, primarily due
to higher interest rates on larger borrowings.
NET EARNINGS (LOSS). The foregoing factors contributed to net earnings in
fiscal 1997 of $410,000, or $0.12 per share, compared to a net loss of $1.3
million in fiscal 1996, or $0.37 per share. Net loss for fiscal 1996, before the
one-time pretax charge of $1.1 million related to the acquisition of the Carver
professional sound division, was $571,000, or $0.17 per share.
<PAGE>
COMPARISON OF FISCAL 1996 TO FISCAL 1995
NET SALES. Net sales increased $6.4 million, or 31.7%, to $26.6 million
for fiscal 1996 compared to $20.2 million for fiscal 1995, due principally to
the acquisition of the Company's professional sound division in November 1995
and increased unit sales of existing and newly introduced car audio electronics,
accessories and speakers. Sales of electronics, speakers and accessories
increased 50.4%, 27.8% and 7.6%, respectively, in fiscal 1996 compared to fiscal
1995. International sales increased $2.2 million, or 27.0%, to $10.4 million for
fiscal 1996 compared to $8.2 million for fiscal 1995. International sales
accounted for 39.2% and 40.6% of net sales in fiscal 1996 and fiscal 1995,
respectively.
GROSS PROFIT. Gross profit decreased to 23.1% of net sales in fiscal 1996
from 35.4% in fiscal 1995, due principally to higher materials costs and
decreased labor productivity relating to the Company's ZPA and ZX car audio
amplifiers introduced in fiscal 1996, lower margins on professional sound
products the Company began selling in December 1995 and increased reserves for
potentially obsolete raw materials and slow moving finished goods inventories.
OPERATING EXPENSES. Operating expenses increased $4.1 million, or 107.1%,
to $7.9 million in fiscal 1996 compared to $3.8 million in fiscal 1995.
Operating expenses were 29.8% and 19.0% of net sales in fiscal 1996 and fiscal
1995, respectively.
Selling expenses increased $1.6 million, or 74.6%, to $3.8 million in
fiscal 1996 compared to $2.2 million in fiscal 1995. Selling expenses were 14.1%
and 10.7% of net sales in fiscal 1996 and fiscal 1995, respectively. The
increase in dollar amount was primarily due to increased promotional and trade
show expenses to support sales of existing products and the introduction of new
products, including the Company's professional sound products, the addition of
sales and marketing personnel and increased salary expense for existing sales
and marketing personnel, and increased commissions to sales representatives
reflecting increased sales volume.
General and administrative expenses increased $1.4 million, or 82.0%, to
$3.0 million in fiscal 1996 compared to $1.7 million in fiscal 1995. General and
administrative expenses were 11.5% and 8.3% of net sales in fiscal 1996 and
fiscal 1995, respectively. The increases in dollar amount and as a percentage of
net sales were due principally to increased bad debt expenses, higher legal,
accounting and investor relations costs and increased personnel costs.
Historically, the Company has built infrastructure and added personnel on an
as-needed basis, resulting in occasional increases in general and administrative
expenses that are disproportionate to increases in net sales. This policy has
resulted in and may continue to result in variations in general and
administrative expenses as a percentage of sales from period to period.
In fiscal 1996 the Company took a one-time pretax charge of $1.1 million
related to in-process research and development costs associated with the
purchase in November 1995 of Carver Corporation's professional sound division.
This charge was equal to 4.2% of net sales in fiscal 1996.
OTHER EXPENSES. Other expenses, net of other income, decreased $22,000, or
8.5%, to $241,000 in fiscal 1996 from $263,000 in fiscal 1995, primarily as a
result of lower average debt levels during fiscal 1996 due to the reduction of
debt subsequent to the Company's initial public offering in May 1995.
<PAGE>
NET EARNINGS (LOSS). The foregoing factors contributed to a net loss in
fiscal 1996 of $1.3 million, or $0.37 per share (based on 3.45 million shares),
compared to net earnings of $1.9 million in fiscal 1995, or $0.67 per share
(based on 2.80 million shares). Net loss for fiscal 1996, before the one-time
pretax charge of $1.1 million related to the acquisition of the Carver
professional sound division, was $571,000, or $0.17 per share.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal needs for funds are for working capital and, to a
lesser extent, for capital expenditures. The Company financed its operations in
fiscal 1997 principally from funds generated from operations and borrowings. Net
cash generated by operating activities in fiscal 1997 was $945,000 as compared
to net cash used in operating activities of $2.8 million in fiscal 1996.
During fiscal 1997, accounts payable decreased $2.0 million, inventories
decreased $1.8 million and notes payable decreased $1.1 million, leading to an
increase in working capital of $1.2 million.
Capital expenditures were $483,000, $1.4 million and $1.5 million in
fiscal years 1997, 1996 and 1995, respectively. These expenditures related
primarily to the automation and the commencement of certain manufacturing
processes in house, leasehold improvements to the Company's new facility and the
acquisition of equipment for use by the Company's administration, engineering
and marketing departments. The Company does not expect capital expenditures to
exceed $500,000 in fiscal 1998.
As of September 30, 1997, the Company had a $5.5 million revolving bank
operating line of credit available through 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 under the
line of credit equaled the bank's prime lending rate (8.5% at September 30,
1997), plus an additional percentage based upon the Company's tangible net
worth. At September 30, 1997, the additional percentage above prime was 1.5%.
Borrowings under the line of credit are secured by substantially all of the
assets of the Company. The line of credit contains covenants which require a
minimum level of tangible net worth, a maximum level of inventories and minimum
ratios of current assets to current liabilities and debt service coverage. The
line of credit prohibits dividends. As of September 30, 1997, the Company was
eligible to borrow $5.1 million under the line of credit and borrowings under
the line of credit as of that date were $3.1 million. The Company expects to
renew the revolving bank operating line of credit on similar terms prior to
December 31, 1997.
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 until maturity on March 1, 2000. The loan is secured by
certain of the Company's machinery and equipment.
A $350,000 note payable to Carver Corporation related to the acquisition
of the Carver professional sound division was paid in full in fiscal 1997. The
note bore interest at a rate of 6% per annum.
<PAGE>
Due to seasonally lower sales levels in the first two fiscal quarters and
the maintenance of inventory levels in anticipation of higher sales in the third
and fourth fiscal quarters, the Company's cash requirements are usually greater
during the first two fiscal quarters.
The Company's total inventories decreased $1.8 million, or 20.0%, to $7.2
million as of September 30, 1997 compared to $9.0 million as of September 30,
1996. The decrease was in work-in-process and raw materials.
As of September 30, 1997, the Company's capital lease obligations totaled
$161,000, including a current portion of $133,000, at annual interest rates
ranging from 5.0% to 10.3%.
ITEM 7. FINANCIAL STATEMENTS
See pages 17 through 32.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
This is hereby incorporated by reference to the information under the
captions "Proposal 1: Election of Directors" and "Section 16(a) Beneficial
Ownership Reporting Compliance" of the Company's definitive Proxy Statement to
be filed pursuant to Regulation 14A, which Proxy Statement is anticipated to be
filed with the Securities and Exchange Commission within 120 days after the end
of Registrant's fiscal year ended September 28, 1997.
ITEM 10. EXECUTIVE COMPENSATION
This is hereby incorporated by reference to the information under the
caption "Proposal 1: Election of Directors" of the Company's definitive Proxy
Statement to be filed pursuant to Regulation 14A, which Proxy Statement is
anticipated to be filed with the Securities and Exchange Commission within 120
days after the end of Registrant's fiscal year ended September 28, 1997.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This is hereby incorporated by reference to the information under the
caption "Proposal 1: Election of Directors" of the Company's definitive Proxy
Statement to be filed pursuant to Regulation 14A, which Proxy Statement is
anticipated to be filed with the Securities and Exchange Commission within 120
days after the end of Registrant's fiscal year ended September 28, 1997.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This is hereby incorporated by reference to the information under the
caption "Proposal 1: Election of Directors" of the Company's definitive Proxy
Statement to be filed pursuant to Regulation 14A, which Proxy Statement is
anticipated to be filed with the Securities and Exchange Commission within 120
days after the end of Registrant's fiscal year ended September 28, 1997.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Articles of Incorporation and Bylaws
------------------------------------
3(i) 1995 Restated Articles of Incorporation and Articles of
Amendment (incorporated by reference to Exhibit 3(i) to
Registration Statement on Form SB-2 effective May 3, 1995
(Registration No. 93-90588))
<PAGE>
3(i)(a) Articles of Amendment filed April 7, 1995 (incorporated by
reference to Exhibit 3(i) (a) to Registration Statement on
Form SB-2 effective May 3, 1995 (Registration No. 93-90588))
3(ii) Restated Bylaws (incorporated by reference to Exhibit 3(ii)
to Registration Statement on Form SB-2 effective May 3, 1995
(Registration No. 93-90588))
Instruments Defining Rights of Security Holders
-----------------------------------------------
4 Articles 2, 5 and 6 of Exhibit 3(i) and Article 6 of Exhibit
3(ii) are incorporated herein by reference
Material Contracts
------------------
10.1 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) (1)
10.1 Form of Incentive Stock Option Agreement (incorporated by
reference to Exhibit 10.1(a) to Registration Statement on
Form SB-2 effective May 3, 1995 (Registration No. 93-90588))
(1)
10.2 Form of Nonstatutory Stock Option Agreement (incorporated by
reference to Exhibit 10.1(b) to Registration Statement on
Form SB-2 effective May 3, 1995 (Registration No. 93-90588))
(1)
10.3 Lease Agreement between the Company and BB&S Development
Company dated February 2, 1994 (incorporated by reference to
Exhibit 10.2 to Registration Statement on Form SB-2
effective May 3, 1995 (Registration No. 93-90588))
10.4 Amendment dated January 12, 1996 to Lease Agreement between
the Company and BB&S Development Company dated February 2,
1994 (incorporated by reference to Exhibit 10.1 to Form
10-QSB filed with the Securities and Exchange Commission for
the quarterly period ended December 31, 1995)
10.5 License Agreement between the Company and Carver Corporation
dated as of November 20, 1995 (incorporated by reference to
Exhibit 2.3 to Form 8-K filed with the Securities and
Exchange Commission on December 1, 1995)
10.6 License Agreement dated September 30, 1993 between the
Company and Intersonics Technology Corporation, and
amendments (incorporated by reference to Exhibit 10.2 to
Form 10-QSB/A (Amendment No. 1) filed with the Securities
and Exchange Commission for the quarterly period ended
December 31, 1995) (2)
<PAGE>
10.7 Third Amendment dated as of January 15, 1996 between the
Company and Intersonics Technology Corporation (incorporated
by reference to Exhibit 10.3 to Form 10-QSB filed with the
Securities and Exchange Commission for the quarterly period
ended March 31, 1997) (2)
10.8 Loan Agreement between the Company and United States
National Bank of Oregon ("USNB") dated February 4, 1997
(incorporated by reference to Exhibit 10.1 to Form 10-QSB
filed with the Securities and Exchange Commission for the
quarterly period ended December 31,1996)
10.9 Amendment dated April 18, 1997 to Loan Agreement between the
Company and USNB dated February 4, 1997 (incorporated by
reference to Exhibit 10.1 to Form 10-QSB filed with the
Securities and Exchange Commission for the quarterly period
ended March 31, 1997)
10.10 First Amendment dated June 27, 1997 to Loan Agreement
between the Company and USNB dated February 4, 1997
(incorporated by reference to Exhibit 10.1 to Form 10-QSB
filed with the Securities and Exchange Commission for the
quarterly period ended June 30, 1997)
10.11 Second Amendment dated September 26, 1997 to Loan Agreement
between the Company and USNB dated February 4, 1997
10.12 Commercial Security Agreement between the Company and USNB
dated as of January 1, 1997 (incorporated by reference to
Exhibit 10.11 to Form 10-KSB filed with the Securities and
Exchange Commission for the fiscal year ended September 30,
1996)
10.13 Promissory Note dated February 3, 1997 made by the Company
in favor of USNB (incorporated by reference to Exhibit 10.1
to Form 10-QSB filed with the Securities and Exchange
Commission for the quarterly period ended December 31, 1996)
10.14 Amendment to Promissory Note dated February 3, 1997 made by
the Company in favor of USNB (incorporated by reference to
Exhibit 10.2 to Form 10-QSB filed with the Securities and
Exchange Commission for the quarterly period ended June 30,
1997)
10.15 Form of Indemnity Agreement (incorporated by reference to
Exhibit 10.6 to Registration Statement on Form SB-2
effective May 3, 1995 (Registration No. 93-90588))
10.16 Nonstatutory Stock Option Agreement dated February 18, 1997
between the Company and Frank G. Magdlen (1)
10.17 Nonstatutory Stock Option Agreement dated February 18, 1997
between the Company and Matthew W. Chapman (1)
<PAGE>
23.1 Consent of Deloitte & Touche LLP, Independent Auditors
27 Financial Data Schedule
(b) Reports on Form 8-K
None
- -----------------------------------------------
(1) Management contract or compensatory plan or arrangement.
(2) Certain material contained in this exhibit 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.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report 18
Balance Sheets at September 30, 1997 and 1996 19
Statements of Operations
for the Three Years Ended September 30, 1997 20
Statements of Shareholders' Equity
for the Three Years Ended September 30, 1997 21
Statements of Cash Flows
for the Three Years Ended September 30, 1997 22
Notes to Financial Statements 23
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Phoenix Gold International, Inc.
We have audited the accompanying balance sheets of Phoenix Gold International,
Inc. as of September 30, 1997 and 1996, and the related statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended September 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Phoenix Gold International, Inc. as of
September 30, 1997 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended September 30, 1997, in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Portland, Oregon
November 3, 1997
<PAGE>
PHOENIX GOLD INTERNATIONAL, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------------------
1997 1996
------------------ ------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,603 $ 2,599
Accounts receivable, net 5,186,630 5,119,360
Inventories 7,178,820 8,971,560
Prepaid expenses 247,523 285,777
Deferred taxes 380,000 525,428
------------------ ------------------
Total current assets 12,995,576 14,904,724
Property and equipment, net 3,478,827 3,938,790
Goodwill, net 257,324 296,946
Deferred taxes 231,000 230,333
Other assets 492,422 461,734
------------------ ------------------
Total assets $ 17,455,149 $ 19,832,527
================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,558,749 $ 3,529,450
Notes payable 3,147,936 4,278,983
Accrued payroll and benefits 373,512 381,530
Other accrued expenses 241,337 448,881
Income taxes payable - 102,356
Current portion of long-term obligations 395,669 130,334
------------------ ------------------
Total current liabilities 5,717,203 8,871,534
Long-term obligations 494,927 171,995
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 3,721,154 3,311,059
------------------ ------------------
Total shareholders' equity 11,243,019 10,788,998
------------------ ------------------
Total liabilities and shareholders' equity $ 17,455,149 $ 19,832,527
================== ==================
SEE NOTES TO FINANCIAL STATEMENTS
</TABLE>
<PAGE>
PHOENIX GOLD INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------
1997 1996 1995
------------------ ------------------ ------------------
<S> <C> <C> <C>
Net sales $ 27,798,728 $ 26,563,142 $ 20,173,822
Cost of sales 20,981,845 20,432,478 13,039,022
------------------ ------------------ ------------------
Gross profit 6,816,883 6,130,664 7,134,800
Operating expenses:
Selling 3,329,339 3,757,981 2,152,931
General and administrative 2,331,128 3,048,573 1,674,587
In-process research and development - 1,120,500 -
------------------ ------------------ ------------------
Total operating expenses 5,660,467 7,927,054 3,827,518
------------------ ------------------ ------------------
Income (loss) from operations 1,156,416 (1,796,390) 3,307,282
Other income (expense):
Interest expense (499,818) (260,233) (300,526)
Other income, net 26,497 19,495 37,423
------------------ ------------------ ------------------
Total other income (expense) (473,321) (240,738) (263,103)
------------------ ------------------ ------------------
Earnings (loss) before income taxes 683,095 (2,037,128) 3,044,179
Income tax benefit (expense) (273,000) 767,986 (1,162,902)
------------------ ------------------ ------------------
Net earnings (loss) $ 410,095 $ (1,269,142) $ 1,881,277
================== ================== ==================
Net earnings (loss) per share $ 0.12 $ (0.37) $ 0.67
================== ================== ==================
Shares used in per share calculation 3,535,288 3,449,068 2,798,877
================== ================== ==================
SEE NOTES TO FINANCIAL STATEMENTS
</TABLE>
<PAGE>
PHOENIX GOLD INTERNATIONAL, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------------------------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
---------------- ----------------- ----------------- -------------------
<S> <C> <C> <C> <C>
Balance at September 30, 1994 2,180,000 $ 200,000 $ 2,698,924 $ 2,898,924
Issuance of stock for
initial public offering 1,265,000 7,232,987 - 7,232,987
Net earnings - - 1,881,277 1,881,277
---------------- ----------------- ----------------- -------------------
Balance at September 30, 1995 3,445,000 7,432,987 4,580,201 12,013,188
Issuance of stock upon
exercise of options 9,605 44,952 - 44,952
Net loss - - (1,269,142) (1,269,142)
---------------- ----------------- ----------------- -------------------
Balance at September 30, 1996 3,454,605 7,477,939 3,311,059 10,788,998
Issuance of stock upon
exercise of options 4,380 20,498 - 20,498
Tax benefit of stock options - 23,428 - 23,428
Net earnings - - 410,095 410,095
---------------- ----------------- ----------------- -------------------
Balance at September 30, 1997 3,458,985 $ 7,521,865 $ 3,721,154 $ 11,243,019
================ ================= ================= ===================
SEE NOTES TO FINANCIAL STATEMENTS
</TABLE>
<PAGE>
PHOENIX GOLD INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------
1997 1996 1995
----------------- ------------------ -----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 410,095 $ (1,269,142) $ 1,881,277
Adjustments to reconcile net earnings (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 985,401 850,696 603,938
Deferred taxes 144,761 (942,147) 68,386
In-process research and development - 1,120,500 -
Changes in operating assets and liabilities:
Accounts receivable (67,270) (1,293,887) (1,363,296)
Inventories 1,792,740 (3,709,016) (496,283)
Prepaid expenses 38,254 42,270 (83,485)
Other assets (69,964) (223,612) (130,000)
Accounts payable (1,970,701) 2,207,367 (136,734)
Accrued expenses (215,562) 326,415 99,429
Income taxes payable (102,356) 72,363 (398,485)
----------------- ------------------ -----------------
Net cash provided by (used in) operating activities 945,398 (2,818,193) 44,747
Cash flows from investing activities:
Capital expenditures, net (446,540) (1,348,286) (1,520,399)
Acquisition of Carver professional sound division - (1,792,616) -
----------------- ------------------ -----------------
Net cash used in investing activities (446,540) (3,140,902) (1,520,399)
Cash flows from financing activities:
Notes payable, net (1,131,047) 3,928,983 (1,885,762)
Proceeds from long-term obligations 800,000 - 2,092,563
Repayment of long-term obligations (211,733) (113,804) (3,780,611)
Proceeds from notes payable to shareholders - - 37,431
Repayment of notes payable to shareholders - - (137,431)
Proceeds from exercise of stock options 43,926 44,952 -
Proceeds from initial public offering - - 7,232,987
----------------- ------------------ -----------------
Net cash provided by (used in) financing activities (498,854) 3,860,131 3,559,177
----------------- ------------------ -----------------
Increase (decrease) in cash and cash equivalents 4 (2,098,964) 2,083,525
Cash and cash equivalents, beginning of period 2,599 2,101,563 18,038
----------------- ------------------ -----------------
Cash and cash equivalents, end of period $ 2,603 $ 2,599 $ 2,101,563
================= ================== =================
Supplemental disclosures:
Cash paid for interest $ 513,000 $ 215,280 $ 320,508
Cash paid for income taxes 222,000 102,000 1,493,000
Equipment financed by capital leases 36,168 16,145 -
Note payable issued for Carver acquisition - 350,000 -
SEE NOTES TO FINANCIAL STATEMENTS
</TABLE>
<PAGE>
PHOENIX GOLD INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
Three Years Ended September 30, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS. Phoenix Gold International, Inc. ("Phoenix Gold" or
the "Company") designs and sells electronics and accessories for the domestic
and international car audio aftermarket, the professional sound market and
custom audio/video and home theater markets. Phoenix Gold also designs and sells
speakers for the car audio aftermarket and the home theater market.
Substantially all of the electronics and certain accessories are manufactured in
Portland, Oregon.
REPORTING PERIODS. The Company's fiscal year is the 52 or 53 weeks ending
the last Sunday in September. Fiscal years 1997 and 1995 were 52 weeks and
fiscal year 1996 was 53 weeks. For presentation convenience, these periods have
been presented in these financial statements as years ended September 30.
ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents include all highly
liquid investments with original maturities of three months or less.
INVENTORIES. Inventories are stated at the lower of cost or market. Cost
is determined by the average cost method. Raw materials inventories generally
consist of component parts. Finished goods and work-in-process inventories
include materials, labor and manufacturing overhead.
PROPERTY AND EQUIPMENT. Property and equipment are recorded at cost.
Depreciation is provided using the straight-line method over the estimated
useful lives (generally 3 to 10 years) of the related assets. Leasehold
improvements and equipment under capital leases are amortized over the estimated
useful lives of the assets or the terms of the lease, whichever is shorter.
GOODWILL. Goodwill arising at the Company's inception is amortized using
the straight-line method over a period of twenty years. Goodwill arising from
the acquisition of the Carver professional sound division is amortized using the
straight-line method over a period of five years. Accumulated amortization was
$117,394 and $77,772 as of September 30, 1997 and 1996.
FINANCIAL INSTRUMENTS AND FAIR VALUES. The carrying amounts reported in
the balance sheet for cash, accounts receivable, accounts payable, accrued
expenses and notes payable approximate fair value because of the immediate or
short-term maturity of these financial instruments. The carrying amount for
long-term debt approximates its fair value because the related interest rates
are comparable to rates currently available for debt with similar terms and
maturities.
<PAGE>
REVENUE RECOGNITION. Revenue is recognized upon shipment of the product.
STOCK OPTIONS. Accounting Principles Board (APB) Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, is followed to account for stock
options. No compensation cost is recognized because the option exercise price is
equal to or greater than the market price of the underlying stock on the date of
grant.
INCOME TAXES. Certain items of income and expense are not reported in tax
returns and financial statements in the same year. The tax effects of temporary
differences are reported as deferred taxes.
NET EARNINGS (LOSS) PER SHARE. Net earnings (loss) per share is computed
on the basis of the weighted average number of common and common equivalent
shares outstanding. When dilutive, outstanding options for common stock are
included in the calculation of common and common equivalent shares outstanding
using the treasury stock method. Also in accordance with the accounting rules of
the Securities and Exchange Commission, shares issued or options granted within
one year prior to the initial public offering have been included in the
calculation of common and common equivalent shares as if they were outstanding
for 1995 using the treasury stock method.
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 establishes new standards for
computing and presenting earnings per share and supersedes APB Opinion No. 15,
EARNINGS PER SHARE. SFAS No. 128 will be adopted in the year beginning October
1, 1997. Earlier adoption is not permitted. Pro forma earnings (loss) per share
under SFAS No. 128 for the years ended September 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 year ending September 30, 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. SFAS No. 131 will be effective for the year
ending September 30, 1999 and requires that comparative information from earlier
years be restated to conform to the requirements of this standard.
<PAGE>
NOTE 2 - ACQUISITION
Effective November 20, 1995, substantially all of the assets of the
professional sound division of Carver Corporation were acquired. The purchase
price was $2.1 million consisting of $1.8 million in cash and a $350,000 note
payable. The Company accounted for the acquisition under the purchase method of
accounting and recorded in-process research and development expenses of $1.1
million, finished goods of $780,000, other intangibles of $110,000 and goodwill
of $132,000.
The following unaudited pro forma combined results of operations accounts
for the acquisition as if it had occurred at the beginning of fiscal 1995 or at
the beginning of fiscal 1996. The pro forma results give effect to cost of goods
sold, amortization of goodwill and the effects on interest expense, interest
income and taxes. However, a one-time, nonrecurring, pretax charge of $1.1
million relating to the purchase price allocated to in-process research and
development expenses has not been included in the following pro forma results.
1996 1995
------------------- --------------------
Net sales $ 26,991,519 $ 26,590,822
Net earnings (loss) (657,791) 1,283,952
Earnings (loss) per share (0.19) 0.16
The pro forma amounts may not be indicative of the results that would have
occurred if the acquisition had been effective on the date indicated, or the
results that may be obtained in the future.
NOTE 3 - ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
1997 1996
------------------ ----------------
Accounts receivable $ 5,446,630 $ 5,394,360
Allowance for doubtful accounts (260,000) (275,000)
------------------ ----------------
Total accounts receivable, net $ 5,186,630 $ 5,119,360
================== ================
<PAGE>
NOTE 4 - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
1997 1996
--------------------- ---------------------
<S> <C> <C>
Raw materials $ 2,818,409 $ 4,288,206
Work-in-process 11,867 1,101,414
Finished goods 4,204,428 3,411,342
Supplies 144,116 170,598
===================== =====================
Total inventories $ 7,178,820 $ 8,971,560
===================== =====================
</TABLE>
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1997 1996
--------------------- ---------------------
<S> <C> <C>
Machinery, equipment, and vehicles $ 4,434,003 $ 4,144,651
Leasehold improvements 1,590,012 1,425,816
Construction in progress 155,052 193,685
--------------------- ---------------------
6,179,067 5,764,152
Less accumulated depreciation
and amortization (2,700,240) (1,825,362)
===================== =====================
Total property and equipment, net $ 3,478,827 $ 3,938,790
===================== =====================
</TABLE>
NOTE 6 - NOTES PAYABLE
A $5.5 million revolving bank operating line of credit is available
through December 31, 1997. Interest on the borrowings is equal to the bank's
prime lending rate (8.50% at September 30, 1997) plus an additional percentage
based on tangible net worth. At September 30, 1997, the additional percentage
above prime was 1.50%. Borrowings under the line of credit are limited to
eligible accounts receivable and inventories and are subject to certain
additional limits. Borrowings under the line of credit are secured by
substantially all of the assets of the Company. The line of credit contains
covenants which require a minimum level of tangible net worth, a maximum level
of inventories and minimum ratios of current assets to current liabilities and
debt service coverage. The line of credit prohibits dividends. As of September
30, 1997, the Company was eligible to borrow $5.1 million under the line of
credit. Borrowings under the line of credit were $3.1 million as of that date.
Borrowings as of September 30, 1996 were $3.9 million and bore interest at
8.25%.
A $350,000 note payable to Carver Corporation related to the acquisition
of the professional sound division was paid in full in 1997. The note bore
interest at a rate of 6%.
<PAGE>
NOTE 7 - LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
1997 1996
--------------------- ---------------------
<S> <C> <C>
Term note, due March 2000, payable in monthly
installments, including interest at 11.1%,
secured by property and equipment $ 684,498 $ -
Term note, due April 2002, payable in monthly
installments, including interest at 5.9%,
secured by equipment 34,079 -
Term note, due August 1999, payable in monthly
installments, including interest at 9.0%,
secured by equipment 10,809 16,145
Capital lease obligations 161,210 286,184
--------------------- ---------------------
890,596 302,329
Less current portion (395,669) (130,334)
--------------------- ---------------------
Total long-term obligations $ 494,927 $ 171,995
===================== =====================
</TABLE>
Maturities on long-term obligations are as follows:
September 30,
1998 $ 395,669
1999 321,760
2000 159,890
2001 7,807
2002 5,470
--------------------
Total $ 890,596
====================
NOTE 8 - LEASE COMMITMENTS
The Company leases its office, warehouse and manufacturing facility under
a five-year operating lease agreement. Terms of the lease include an option to
purchase the facility and an option to extend the length of the lease for five
additional years. The Company also leases manufacturing equipment under capital
lease agreements.
<PAGE>
Minimum future rentals under capital and operating leases having initial
or remaining terms of one year or more are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------------------- ---------------------
<S> <C> <C>
September 30,
1998 $ 141,188 $ 367,500
1999 29,195 275,625
Thereafter - -
--------------------- ---------------------
170,383 $ 643,125
=====================
Less amount representing interest (9,173)
---------------------
Present value of minimum lease payments $ 161,210
=====================
</TABLE>
Rent expense under operating leases for the three years ended September
30, 1997, 1996 and 1995 was $332,782, $348,147 and $228,913.
NOTE 9 - TAXES
<TABLE>
<CAPTION>
Income tax expense (benefit):
1997 1996 1995
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
Current:
Federal $ 112,000 $ 155,831 $ 906,000
State 16,239 18,330 188,516
--------------------- --------------------- ---------------------
Total current 128,239 174,161 1,094,516
Deferred:
Federal 127,000 (842,974) 61,000
State 17,761 (99,173) 7,386
--------------------- --------------------- ---------------------
Total deferred 144,761 (942,147) 68,386
===================== ===================== =====================
Total expense (benefit) $ 273,000 $ (767,986) $ 1,162,902
===================== ===================== =====================
</TABLE>
<TABLE>
<CAPTION>
Effective income tax rates are as follows:
1997 1996 1995
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
Taxes at statutory
federal income tax rate 34.0% (34.0%) 34.0%
State taxes, net of
federal benefit 4.4 (4.4) 4.4
Other, net 1.6 0.7 (0.2)
--------------------- --------------------- ---------------------
Total 40.0% (37.7%) 38.2%
===================== ===================== =====================
</TABLE>
<PAGE>
The tax effects of temporary differences which give rise to deferred tax
assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------- ---------------------
<S> <C> <C>
Deferred tax liability - depreciation $ (179,000) $ (182,000)
Deferred tax assets:
Accrued expenses 154,000 139,000
Goodwill and other intangibles 410,000 412,333
Inventory valuation 226,000 386,428
-------------------- ---------------------
Total deferred tax assets 790,000 937,761
===================== =====================
Net deferred taxes $ 611,000 $ 755,761
===================== =====================
Current deferred tax asset $ 380,000 $ 525,428
Long-term deferred tax asset 231,000 230,333
--------------------- ---------------------
Net deferred taxes $ 611,000 $ 755,761
===================== =====================
</TABLE>
NOTE 10 - BENEFIT PLAN
Phoenix Gold adopted a profit sharing and 401(k) savings plan in September
1997 which covers substantially all employees. Participating employees may defer
up to 15% of their compensation, subject to certain regulatory limitations. The
Company matches 100% of employee contributions up to $750 of each participating
employee's compensation. A contribution of $10,000 was accrued for the year
ended September 30, 1997.
The profit sharing and 401(k) savings plan also permits the Company to
make discretionary profit sharing contributions to all employees. Discretionary
profit sharing contributions are determined annually by the Board of Directors.
No profit sharing expense was approved for the year ended September 30, 1997.
NOTE 11 - STOCK OPTION PLAN
Phoenix Gold's Board of Directors and shareholders adopted and approved a
stock option plan (the "Stock Option Plan") on January 27, 1995. Under the Stock
Option Plan, the Board of Directors may grant incentive and nonqualified options
to employees, directors and consultants to purchase up to 315,000 shares of
common stock. On July 16, 1996, the Stock Option Plan was amended to reserve an
additional 200,000 shares for issuance.
In general, options to purchase common stock shall not be granted at less
than fair market value at the date of grant. Options generally become
exercisable ratably over a three to five year period and expire five to ten
years after the date of grant. The Stock Option Plan expires in 2005. The Stock
Option Plan can also be terminated by the Board of Directors at any time without
shareholder approval with respect to shares of common stock not subject to
outstanding options.
<PAGE>
Information relating to option activity for the Stock Option Plan is set
forth below:
<TABLE>
<CAPTION>
Outstanding Options Exercisable
------------------------------ ------------------------------
Weighted Weighted
Shares Number Average Number Average
Available of Exercise of Exercise
for Option Shares Price Shares Price
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
September 30, 1994 - - - - -
Reserved 315,000 - -
Granted (297,675) 297,675 $ 4.92
-------------- --------------
September 30, 1995 17,325 297,675 4.92 120,613 $ 4.92
Reserved 200,000 - -
Granted (10,295) 10,295 9.57
Exercised - (9,605) 4.68
Canceled 2,500 (2,500) 8.22
-------------- --------------
September 30, 1996 209,530 295,865 5.06 161,764 4.97
Granted (239,545) 239,545 5.34
Exercised - (4,380) 4.68
Canceled 38,930 (38,930) 6.28
-------------- --------------
September 30, 1997 8,915 492,100 $ 5.10 221,615 $ 4.97
============== ==============
</TABLE>
The following table summarizes information about stock options outstanding
under the Stock Option Plan at September 30, 1997:
<TABLE>
<CAPTION>
Outstanding Exercisable
----------------------------------------------------- -----------------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices of Shares Life Price of Shares Price
- ------------------------ ----------------- ----------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
$ 4.63 - $ 4.75 343,525 7.7 $ 4.71 162,431 $ 4.68
$ 5.15 - $ 5.50 90,000 5.5 5.31 44,400 5.22
$ 6.75 - $ 7.89 55,775 8.4 6.87 13,850 7.07
$ 11.75 2,800 3.3 11.75 934 11.75
----------------- ----------------- ---------------- ----------------- -----------------
492,100 7.3 $ 5.10 221,615 $ 4.97
================= ================= ================ ================= =================
</TABLE>
<PAGE>
At September 30, 1997 and 1996, there were outstanding warrants to
purchase up to 110,000 shares of common stock at $8.10 per share. Such warrants
became exercisable on May 4, 1996 and expire on May 3, 2000.
At September 30, 1997, nonqualified options to purchase 10,000 shares of
common stock were outstanding at $4.63 per share. Such options become
exercisable ratably over a three year period and expire in 2007.
Phoenix Gold has elected to continue to account for stock options
according to APB Opinion No. 25. However, as required by SFAS No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION, the Company has computed for pro forma
disclosure purposes the value of options granted during the years ended
September 30, 1997 and 1996 using the Black-Scholes option pricing model. The
weighted average estimated fair value of options granted during 1997 and 1996
was $4.52 and $7.79 per share. The weighted average assumptions used for stock
option grants during the years ended September 30, 1997 and 1996 were a risk
free interest rate of 6.25% and 6.25%, an expected dividend yield of 0% and 0%,
an expected life of 7.1 years and 5.8 years and an expected volatility of 94.6%
and 94.6%.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. Because the Company's options have characteristics significantly
different from those of traded options and because changes in the subjective
input assumptions can materially affect the fair value estimate, in the opinion
of management, the existing models do not necessarily provide a reliable single
measure of the fair value of its options.
For purposes of the pro forma disclosures, the estimated fair value of the
stock-based awards is amortized over the vesting period. Pro forma net earnings
(loss) and earnings (loss) per share is as follows:
1997 1996
----------------- ----------------
Pro forma net earnings (loss) $ 306,039 $ (1,277,931)
Pro forma earnings (loss) per share 0.09 (0.37)
The effects of applying SFAS No. 123 for providing pro forma disclosure
are not likely to represent net earnings (loss) and earnings (loss) per share
for future years since SFAS No. 123 does not apply to grants prior to October 1,
1995, options vest over several years, additional awards are anticipated in
future years and assumptions used for any additional awards may vary from the
current assumptions.
<PAGE>
NOTE 12 - SALES AND MAJOR CUSTOMERS
Phoenix Gold operates in a single industry segment: the manufacturing and
sales of electronics, accessories and speaker products for use in car and
professional sound audio and custom home audio and video applications.
Net sales by geographic region are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
United States $ 16,894,741 $ 16,161,385 $ 11,985,542
International:
Europe 5,565,352 5,578,371 3,899,981
Asia 2,245,232 2,054,498 1,625,771
Other 3,093,403 2,768,888 2,662,528
--------------------- --------------------- ---------------------
Total international 10,903,987 10,401,757 8,188,280
===================== ===================== =====================
Net sales $ 27,798,728 $ 26,563,142 $ 20,173,822
===================== ===================== =====================
</TABLE>
No customer accounted for 10% or more of the Company's net sales during
the years ended September 30, 1997, 1996 or 1995. As of September 30, 1997 two
customers accounted for approximately 11.4% and 10.8% of total accounts
receivable and as of September 30, 1996, two customers accounted for
approximately 12.1% and 10.4% of total accounts receivable.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PHOENIX GOLD INTERNATIONAL, INC.
By: /s/ Keith A. Peterson
---------------------
Keith A. Peterson
Chairman, President, Chief Executive
Officer and Director
Date:December 2, 1997
In accordance with the Exchange Act, this report has been signed below by
the following persons and in the capacities and on the dates indicated.
Signature Capacity Date
--------- -------- ----
/s/ Keith A. Peterson Chairman, President, Chief December 2, 1997
- ---------------------- Executive Officer and Director
Keith A. Peterson (Principal Executive Officer)
/s/ Timothy G. Johnson Executive Vice President, December 2, 1997
- ---------------------- Chief Operating Officer and
Timothy G. Johnson Director
/s/ Joseph K. O'Brien Chief Financial Officer and December 2, 1997
- ---------------------- Secretary (Principal Financial
Joseph K. O'Brien and Accounting Officer)
/s/ Frank G. Magdlen Director December 2, 1997
- ----------------------
Frank G. Magdlen
<PAGE>
EXHIBIT INDEX
Exhibit Description Page
- ------- ----------- ----
10.11 Second Amendment dated September 26, 1997 to Loan 35
Agreement between the Company and USNB dated
February 4, 1997
10.16 Nonstatutory Stock Option Agreement dated 38
February 18, 1997 between the Company and
Frank G. Magdlen
10.17 Nonstatutory Stock Option Agreement dated 41
February 18, 1997 between the Company and
Matthew W. Chapman
23.1 Consent of Deloitte & Touche LLP, 44
Independent Auditors
27 Financial Data Schedule 45
EXHIBIT 10.11
SECOND AMENDMENT TO LOAN AGREEMENT
This Second Amendment to Loan Agreement (the "Amendment") is made as of
September 26, 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") which has been previously
amended. 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. 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
--------- -------------
September 1997 2.10:1
October 1997 2.10:1
November 1997 2.10:1
December 1997 2.10:1
(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
--------- ------------------
September 1997 $10,825,000
October 1997 $10,825,000
November 1997 $10,825,000
December 1997 $10,825,000
-1-
<PAGE>
(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
--------- -----------------
September 1997 $7,800,000
October 1997 $7,800,000
November 1997 $7,800,000
December 1997 $7,800,000
(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
-------------- ---------------------------
September 1997 1.25:1
December 1997 1.25:1
3. 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.
4. 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.
5. 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.
-2-
<PAGE>
(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.
6. 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.
7. 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 PHOENIX GOLD INTERNATIONAL, INC.
BANK OF OREGON
BY: /s/ Daniel A. Rice BY: /s/ Joseph K. O'Brien
- ------------------------ --------------------------
TITLE: Vice President TITLE: CFO
- ----------------------- --------------------------
-3-
EXHIBIT 10.16
PHOENIX GOLD INTERNATIONAL, INC.
GRANT NO. NSO-9
NONSTATUTORY STOCK OPTION AGREEMENT
THIS AGREEMENT is made as of February 18, 1997 between PHOENIX GOLD
INTERNATIONAL, INC., an Oregon corporation (the "Company"), and FRANK G. MAGDLEN
(the "Optionee").
Optionee has been automatically granted a nonstatutory stock option
to purchase shares of the Company's Common Stock, without par value per share
(the "Common Stock"), in the amount indicated below. This Option is granted
outside of the Company's Amended and Restated 1995 Stock Option Plan (the
"Plan"). Nonetheless, certain of the terms and conditions of the Plan are
incorporated into this Option Agreement by reference.
NOW, THEREFORE, in consideration of the promises and the mutual
covenants contained in this Option Agreement, the parties agree as follows:
1. Grant. The Company grants to Optionee, upon the terms and
conditions set forth below, the right and option (the "Option") to purchase
5,000 shares of Common Stock at an exercise price of $4.63 per share (the
"Exercise Price"). The Option is a Nonstatutory Stock Option and is not intended
to qualify as an Incentive Stock Option under Section 422 of the Code.
2. Term of Option. Subject to reductions in the term of the Option as
provided in this Option Agreement, the Option shall continue in effect until
February 18, 2007, and may be exercised during such term only in accordance with
the provisions of the Plan and this Option Agreement.
3. Vesting Schedule. The Option may be exercised, in whole or in
part, in accordance with the following schedule: (a) on the first anniversary of
the date hereof, one-third of the shares purchasable under the Option may be
purchased at any time thereafter until the Option expires; and (b) continuing on
each of the second and third anniversaries of the date hereof, an additional
one-third of the shares purchasable under the Option may be purchased at any
time thereafter until the Option expires.
4. Exercise of Option.
A. Right to Exercise. The Option is exercisable during its term
in accordance with the vesting schedule set forth above in Section 3 and the
applicable provisions of this Option Agreement. In the event that the Optionee's
service with the Company terminates during the term of the Option, the
exercisability of the Option shall be governed by the applicable provisions of
the Plan, as if the Option had been granted under the Plan, and this Option
Agreement.
B. Method of Exercise. The Option is exercisable by delivery of
an exercise notice, which notice shall state the election to exercise the
Option, the number of shares of Common Stock in respect of which the Option is
being exercised (the "Exercised Shares"), and such other representations and
agreements as may be required by the Company pursuant to the provisions of the
Plan. In addition, Optionee agrees to execute, as a condition of Option
exercise, such agreements respecting the Exercised Shares as the Committee, in
its reasonable discretion, determines to be required under the terms of
agreements to which the Company is a party or otherwise advisable and in the
best interests of the Company. The exercise notice shall be signed by Optionee
<PAGE>
and shall be delivered in person or by certified mail to the Secretary of the
Company. The exercise notice shall be accompanied by payment of the aggregate
Exercise Price as to all the Exercised Shares. The Option shall be deemed to be
exercised upon receipt by the Company of such fully executed exercise notice
accompanied by such aggregate Exercise Price. For income tax purposes the
Exercised Shares shall be considered transferred to Optionee on the date the
Option is exercised with respect to such Exercised Shares.
5. Conditions. The obligations of the Company under this Option
Agreement shall be subject to the approval of such state or federal authorities
or agencies as may have jurisdiction in the matter. The Company will use its
best efforts to take such steps as may be required by state or federal law or
applicable regulations, including rules and regulations of the Securities and
Exchange Commission and any national securities exchange on which the Common
Stock may then be listed, in connection with the issuance or sale of any shares
acquired pursuant to this Option Agreement or the listing of such shares on any
such exchange. The Company shall not be obligated to issue or deliver shares of
Common Stock under this Option Agreement if, upon advice of its legal counsel,
such issuance or delivery would violate state or federal securities laws.
6. Method of Payment. Payment of the aggregate Exercise Price shall be
by any of the following, or a combination thereof, at the election of Optionee:
(i) cash; or
(ii) check; or
(iii) delivery of such documentation as the Committee and Optionee's
broker shall require to effect an exercise of the Option and
delivery to the Company of the sale or margin loan proceeds
required to pay the aggregate Exercise Price of the Exercised
Shares; or
(iv) surrender of other shares of Common Stock which have a Fair
Market Value on the date of surrender equal to the aggregate
Exercise Price of the Exercised Shares.
7. Restriction on Transfer. The Option may not be transferred in any
manner otherwise than by will or by the laws of descent or distribution or, with
the consent of the Committee, pursuant to a qualified domestic relations order
(a "QDRO") as defined by the Code or Title I of the Employee Retirement Income
Security Act of 1974, as amended, and may be exercised during the lifetime of
Optionee only by Optionee or Optionee's guardian or legal representative or
Optionee's permitted assignee or transferee pursuant to a QDRO. The terms of the
Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and permitted assigns of Optionee.
8. Legends. All certificates representing any of the shares of Common
Stock subject to the provisions of this Option Agreement may, in the sole
discretion of the Committee, have endorsed thereon the following legends:
(a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED."
(b) Any legend required to be placed thereon by
applicable Blue Sky laws of any state.
<PAGE>
(c) Any legend required to be placed thereon by
any applicable shareholder agreement.
9. Employment; Service. Nothing in the Plan or in this Option
Agreement shall (a) confer upon the Optionee any right with respect to
employment with the Company or any affiliate of the Company or (ii) interfere in
any way with the right of the Company or any affiliate of the Company to
terminate the Optionee's employment (or service as a Director, in accordance
with applicable corporate law, or service as a Consultant) at any time for any
reason, with or without cause.
10. The Plan. Although the Option has been granted outside of the
Plan, the parties desire that the Option be subject to the terms and conditions
of the Plan as if it had been granted under the Plan.
11. Definitions. Any capitalized term in this Option Agreement which
is not defined herein and which is defined in the Plan shall have the same
definition as in the Plan.
12. Governing Law. To the extent that federal laws (such as the Code
and the federal securities laws) do not otherwise control, the Plan and this
Option Agreement shall be construed in accordance with the laws of the state of
Oregon.
13. Headings. Headings contained in this Option Agreement are for
reference purposes and shall not affect the meaning or interpretation of this
Option Agreement.
Optionee and the Company agree that the Option is granted under and
governed by the terms and conditions of the Plan and this Option Agreement.
Optionee has reviewed the Plan and this Option Agreement in their entirety, has
had an opportunity to obtain the advice of counsel prior to executing this
Option Agreement and fully understands all provisions of the Plan and Option
Agreement. Optionee hereby agrees to accept as binding, conclusive and final all
decisions or interpretations of the Committee upon any questions relating to the
Plan and Option Agreement.
OPTIONEE: PHOENIX GOLD INTERNATIONAL, INC.
/s/ Frank G. Magdlen By: /s/ Kurt W. Ruttum
- ------------------------ -------------------------------
Signature Kurt W. Ruttum
Vice President and General Counsel
FRANK G. MAGDLEN
- -----------------------
Print Name
- -----------------------
Social Security Number
EXHIBIT 10.17
PHOENIX GOLD INTERNATIONAL, INC.
GRANT NO. NSO-10
NONSTATUTORY STOCK OPTION AGREEMENT
THIS AGREEMENT is made as of February 18, 1997 between PHOENIX GOLD
INTERNATIONAL, INC., an Oregon corporation (the "Company"), and MATTHEW W.
CHAPMAN (the "Optionee").
Optionee has been automatically granted a nonstatutory stock option
to purchase shares of the Company's Common Stock, without par value per share
(the "Common Stock"), in the amount indicated below. This Option is granted
outside of the Company's Amended and Restated 1995 Stock Option Plan (the
"Plan"). Nonetheless, certain of the terms and conditions of the Plan are
incorporated into this Option Agreement by reference.
NOW, THEREFORE, in consideration of the promises and the mutual
covenants contained in this Option Agreement, the parties agree as follows:
1. Grant. The Company grants to Optionee, upon the terms and
conditions set forth below, the right and option (the "Option") to purchase
5,000 shares of Common Stock at an exercise price of $4.63 per share (the
"Exercise Price"). The Option is a Nonstatutory Stock Option and is not intended
to qualify as an Incentive Stock Option under Section 422 of the Code.
2. Term of Option. Subject to reductions in the term of the Option as
provided in this Option Agreement, the Option shall continue in effect until
February 18, 2007, and may be exercised during such term only in accordance with
the provisions of the Plan and this Option Agreement.
3. Vesting Schedule. The Option may be exercised, in whole or in
part, in accordance with the following schedule: (a) on the first anniversary of
the date hereof, one-third of the shares purchasable under the Option may be
purchased at any time thereafter until the Option expires; and (b) continuing on
each of the second and third anniversaries of the date hereof, an additional
one-third of the shares purchasable under the Option may be purchased at any
time thereafter until the Option expires.
4. Exercise of Option.
A. Right to Exercise. The Option is exercisable during its term
in accordance with the vesting schedule set forth above in Section 3 and the
applicable provisions of this Option Agreement. In the event that the Optionee's
service with the Company terminates during the term of the Option, the
exercisability of the Option shall be governed by the applicable provisions of
the Plan, as if the Option had been granted under the Plan, and this Option
Agreement.
B. Method of Exercise. The Option is exercisable by delivery of
an exercise notice, which notice shall state the election to exercise the
Option, the number of shares of Common Stock in respect of which the Option is
being exercised (the "Exercised Shares"), and such other representations and
agreements as may be required by the Company pursuant to the provisions of the
Plan. In addition, Optionee agrees to execute, as a condition of Option
exercise, such agreements respecting the Exercised Shares as the Committee, in
its reasonable discretion, determines to be required under the terms of
agreements to which the Company is a party or otherwise advisable and in the
best interests of the Company. The exercise notice shall be signed by Optionee
and shall be delivered in person or by certified mail to the Secretary of the
Company. The exercise notice shall be accompanied by payment of the aggregate
Exercise Price as to all the Exercised Shares. The Option shall be deemed to be
<PAGE>
exercised upon receipt by the Company of such fully executed exercise notice
accompanied by such aggregate Exercise Price. For income tax purposes the
Exercised Shares shall be considered transferred to Optionee on the date the
Option is exercised with respect to such Exercised Shares.
5. Conditions. The obligations of the Company under this Option
Agreement shall be subject to the approval of such state or federal authorities
or agencies as may have jurisdiction in the matter. The Company will use its
best efforts to take such steps as may be required by state or federal law or
applicable regulations, including rules and regulations of the Securities and
Exchange Commission and any national securities exchange on which the Common
Stock may then be listed, in connection with the issuance or sale of any shares
acquired pursuant to this Option Agreement or the listing of such shares on any
such exchange. The Company shall not be obligated to issue or deliver shares of
Common Stock under this Option Agreement if, upon advice of its legal counsel,
such issuance or delivery would violate state or federal securities laws.
6. Method of Payment. Payment of the aggregate Exercise Price shall be
by any of the following, or a combination thereof, at the election of Optionee:
(i) cash; or
(ii) check; or
(iii) delivery of such documentation as the Committee and Optionee's
broker shall require to effect an exercise of the Option and
delivery to the Company of the sale or margin loan proceeds
required to pay the aggregate Exercise Price of the Exercised
Shares; or
(iv) surrender of other shares of Common Stock which have a Fair
Market Value on the date of surrender equal to the aggregate
Exercise Price of the Exercised Shares.
7. Restriction on Transfer. The Option may not be transferred in any
manner otherwise than by will or by the laws of descent or distribution or, with
the consent of the Committee, pursuant to a qualified domestic relations order
(a "QDRO") as defined by the Code or Title I of the Employee Retirement Income
Security Act of 1974, as amended, and may be exercised during the lifetime of
Optionee only by Optionee or Optionee's guardian or legal representative or
Optionee's permitted assignee or transferee pursuant to a QDRO. The terms of the
Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and permitted assigns of Optionee.
8. Legends. All certificates representing any of the shares of Common
Stock subject to the provisions of this Option Agreement may, in the sole
discretion of the Committee, have endorsed thereon the following legends:
(a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED."
(b) Any legend required to be placed thereon by
applicable Blue Sky laws of any state.
(c) Any legend required to be placed thereon by
any applicable shareholder agreement.
<PAGE>
9. Employment; Service. Nothing in the Plan or in this Option
Agreement shall (a) confer upon the Optionee any right with respect to
employment with the Company or any affiliate of the Company or (ii) interfere in
any way with the right of the Company or any affiliate of the Company to
terminate the Optionee's employment (or service as a Director, in accordance
with applicable corporate law, or service as a Consultant) at any time for any
reason, with or without cause.
10. The Plan. Although the Option has been granted outside of the
Plan, the parties desire that the Option be subject to the terms and conditions
of the Plan as if it had been granted under the Plan.
11. Definitions. Any capitalized term in this Option Agreement which
is not defined herein and which is defined in the Plan shall have the same
definition as in the Plan.
12. Governing Law. To the extent that federal laws (such as the Code
and the federal securities laws) do not otherwise control, the Plan and this
Option Agreement shall be construed in accordance with the laws of the state of
Oregon.
13. Headings. Headings contained in this Option Agreement are for
reference purposes and shall not affect the meaning or interpretation of this
Option Agreement.
Optionee and the Company agree that the Option is granted under and
governed by the terms and conditions of the Plan and this Option Agreement.
Optionee has reviewed the Plan and this Option Agreement in their entirety, has
had an opportunity to obtain the advice of counsel prior to executing this
Option Agreement and fully understands all provisions of the Plan and Option
Agreement. Optionee hereby agrees to accept as binding, conclusive and final all
decisions or interpretations of the Committee upon any questions relating to the
Plan and Option Agreement.
OPTIONEE: PHOENIX GOLD INTERNATIONAL, INC.
/s/ Matthew W. Chapman By: /s/ Kurt W. Ruttum
- ------------------------- -------------------------
Signature Kurt W. Ruttum
Vice President and General Counsel
MATTHEW W. CHAPMAN
- ------------------------
Print Name
- ------------------------
Social Security Number
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-98648 and 333-24751 of Phoenix Gold International, Inc., on Form S-8, of our
report dated November 3, 1997, appearing in this Annual Report on Form 10-KSB of
Phoenix Gold International, Inc. for the year ended September 30 ,1997.
DELOITTE & TOUCHE LLP
Portland, Oregon
December 9, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PHOENIX
GOLD INTERNATIONAL, INC.'S FINANCIAL STATEMENTS CONTAINED IN ITS ANNUAL
REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDING SEPTEMBER 28, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-28-1997
<PERIOD-END> SEP-28-1997
<CASH> 2,603
<SECURITIES> 0
<RECEIVABLES> 5,186,630
<ALLOWANCES> 0
<INVENTORY> 7,178,820
<CURRENT-ASSETS> 12,995,576
<PP&E> 6,179,067
<DEPRECIATION> 2,700,240
<TOTAL-ASSETS> 17,455,149
<CURRENT-LIABILITIES> 5,717,203
<BONDS> 494,927
0
0
<COMMON> 7,521,865
<OTHER-SE> 3,721,154
<TOTAL-LIABILITY-AND-EQUITY> 17,455,149
<SALES> 27,798,728
<TOTAL-REVENUES> 27,798,728
<CGS> 20,981,845
<TOTAL-COSTS> 20,981,845
<OTHER-EXPENSES> 5,660,467
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 473,321
<INCOME-PRETAX> 683,095
<INCOME-TAX> 273,000
<INCOME-CONTINUING> 410,095
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 410,095
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
