U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 26, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______to ______
Commission file number 000-25866
PHOENIX GOLD INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
OREGON 93-1066325
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
9300 NORTH DECATUR STREET, PORTLAND, OREGON 97203
(Address of principal executive offices) (Zip code)
(503) 286-9300
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 [ ]
There were 3,030,245 shares of the issuer's common stock outstanding as of
April 30, 2000.
1
<PAGE>
PHOENIX GOLD INTERNATIONAL, INC.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000
INDEX
-----
<TABLE>
<CAPTION>
Part I. FINANCIAL INFORMATION Page
----
<S> <C> <C>
Item 1. Financial Statements
Balance Sheets at March 31, 2000
and September 30, 1999 (unaudited) 3
Statements of Earnings for the Three and Six Months Ended
March 31, 2000 and 1999 (unaudited) 4
Statements of Cash Flows for the Six Months Ended
March 31, 2000 and 1999 (unaudited) 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosure About Market Risk 10
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
INDEX TO EXHIBITS 13
2
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
PHOENIX GOLD INTERNATIONAL, INC.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
2000 1999
------------------ ------------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 495,928 $ 868,458
Accounts receivable, net 4,144,232 4,794,799
Inventories 6,062,418 5,620,835
Prepaid expenses 264,748 213,677
Deferred taxes 360,000 315,000
------------------ ------------------
Total current assets 11,327,326 11,812,769
Property and equipment, net 989,897 1,055,531
Goodwill, net 158,270 178,081
Deferred taxes 610,000 600,000
Other assets 252,099 242,058
------------------ ------------------
Total assets $13,337,592 $13,888,439
================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 674,768 $ 1,074,881
Accrued payroll and benefits 354,741 436,970
Other accrued expenses 395,036 379,782
Income taxes payable 180,910 81,644
------------------ ------------------
Total current liabilities 1,605,455 1,973,277
Deferred gain on sale of facility 907,217 956,256
Shareholders' equity:
Preferred stock;
Authorized - 5,000,000 shares; none outstanding - -
Common stock, no par value;
Authorized - 20,000,000 shares
Issued and outstanding - 3,034,345 and 3,234,345 shares 6,569,428 7,155,997
Retained earnings 4,255,492 3,802,909
------------------ ------------------
Total shareholders' equity 10,824,920 10,958,906
------------------ ------------------
Total liabilities and shareholders' equity $13,337,592 $13,888,439
================== ==================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
3
<PAGE>
PHOENIX GOLD INTERNATIONAL, INC.
STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31 MARCH 31
--------------------------- --------------------------------
2000 1999 2000 1999
------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net sales $ 6,511,208 $ 6,200,066 $13,404,835 $12,866,001
Cost of sales 4,627,577 4,526,449 9,720,435 9,471,332
----------- ----------- ----------- -----------
Gross profit 1,883,631 1,673,617 3,684,400 3,394,669
Operating expenses:
Selling 913,768 795,642 1,840,537 1,582,323
General and administrative 573,553 572,467 1,104,940 1,114,644
----------- ----------- ----------- -----------
Total operating expenses 1,487,321 1,368,109 2,945,477 2,696,967
----------- ----------- ----------- -----------
Income from operations 396,310 305,508 738,923 697,702
Other income (expense):
Interest expense - (39,789) - (88,647)
Other income, net 3,300 - 11,660 -
----------- ----------- ----------- -----------
Total other income (expense) 3,300 (39,789) 11,660 (88,647)
----------- ----------- ----------- -----------
Earnings before income taxes 399,610 265,719 750,583 609,055
Income tax expense (159,000) (106,000) (298,000) (243,000)
----------- ----------- ----------- -----------
Net earnings $ 240,610 $ 159,719 $ 452,583 $ 366,055
=========== =========== =========== ===========
Earnings per share - basic and diluted $ 0.08 $ 0.05 $ 0.15 $ 0.11
=========== =========== =========== ===========
Average shares outstanding - basic and diluted 3,048,212 3,248,745 3,102,466 3,342,503
=========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
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PHOENIX GOLD INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
----------------------------------
2000 1999
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 452,583 $ 366,055
Adjustments to reconcile net earnings to
net cash provided by (used in) operating activities:
Depreciation and amortization 314,113 489,038
Deferred taxes (55,000) 38,000
Changes in operating assets and liabilities:
Accounts receivable 650,567 368,053
Inventories (441,583) 869,467
Prepaid expenses (51,071) (124,883)
Other assets (36,943) (80,002)
Accounts payable (400,113) (987,276)
Accrued expenses 32,291 (149,759)
------------ ----------
Net cash provided by operating activities 464,844 788,693
Cash flows from investing activities:
Capital expenditures, net (250,805) (120,817)
------------ ----------
Net cash used in investing activities (250,805) (120,817)
Cash flows from financing activities:
Line of credit, net - (200,000)
Repayment of long-term obligations - (111,479)
Purchase of common stock (586,569) (356,400)
------------ ----------
Net cash used in financing activities (586,569) (667,879)
------------ ----------
Decrease in cash and cash equivalents (372,530) (3)
Cash and cash equivalents, beginning of period 868,458 2,602
------------ ---------
Cash and cash equivalents, end of period $ 495,928 $ 2,599
============ =========
Supplemental disclosures:
Cash paid for interest - $ 80,000
Cash paid for income taxes 253,000 120,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
PHOENIX GOLD INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - UNAUDITED FINANCIAL STATEMENTS
Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted from these unaudited financial statements. These unaudited
financial statements should be read in conjunction with the financial statements
and notes included in the Company's Annual Report on Form 10-K for the year
ended September 30, 1999 filed with the Securities and Exchange Commission. The
results of operations for the three- and six-month periods ended March 31, 2000
are not necessarily indicative of the operating results for the full year. In
the opinion of management, all adjustments, consisting only of normal recurring
accruals, have been made to present fairly the Company's financial position at
March 31, 2000 and the results of its operations for the three- and six-month
periods ended March 31, 2000 and 1999 and its cash flows for the six-months
ended March 31, 2000 and 1999.
NOTE 2 - REPORTING PERIODS
The Company's fiscal year is the 52-week or 53-week period ending the last
Sunday in September. Fiscal 2000 and fiscal 1999 are 52-week years and all
quarters are 13-week periods. For presentation convenience, the Company has
indicated in these financial statements that its fiscal year ended on September
30 and that the three and six months presented ended on March 31.
NOTE 3 - PROSPECTIVE ACCOUNTING CHANGE
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES. The new statement will require recognition of all
derivatives as either assets or liabilities on the balance sheet at fair value.
The new statement is effective for the year ending September 30, 2001.
Management has not yet completed an evaluation of the effect this standard will
have on the Company's financial statements.
NOTE 4 - INVENTORIES
Inventories are stated at the lower of cost or market and consist of the
following:
MARCH 31, SEPTEMBER 30,
2000 1999
--------------- ----------------
Raw materials and work-in-process $ 2,606,935 $ 2,531,260
Finished goods and supplies 3,455,483 3,089,575
--------------- ----------------
Total inventories $ 6,062,418 $ 5,620,835
=============== ================
6
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NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
MARCH 31, SEPTEMBER 30,
2000 1999
--------------- ---------------
Machinery, equipment, and vehicles $ 4,896,566 $ 4,717,198
Leasehold improvements 75,266 3,829
--------------- ---------------
4,971,832 4,721,027
Less accumulated depreciation
and amortization (3,981,935) (3,665,496)
--------------- ---------------
Total property and equipment, net $ 989,897 $ 1,055,531
=============== ===============
NOTE 6 - LINE OF CREDIT
During December 1999, the Company renewed its revolving operating line of
credit through December 2000. The new agreement provides for borrowings of up to
$5.0 million subject to eligible accounts receivable and inventories and certain
additional limits. Interest on the borrowings is equal to the bank's prime
lending rate (9.0% at March 31, 2000) or LIBOR plus 1.75%. Borrowings under the
line of credit are secured by cash and cash equivalents, accounts receivable and
inventories. The line of credit contains covenants which require a minimum level
of tangible net worth, a minimum ratio of current assets to current liabilities
and a maximum ratio of interest bearing debt to tangible net worth. As of March
31, 2000, the Company was eligible to borrow $4.9 million under the line of
credit. No borrowings were outstanding under the line of credit as of that date.
NOTE 7 - SHAREHOLDERS' EQUITY
The Board of Directors has authorized the Company to purchase up to $1.0
million of Company common stock. During the six months ended March 31, 2000, the
Company acquired 200,000 shares of its common stock for $587,000. From the
inception of the stock repurchase program, the Company has acquired $979,000 of
Company common stock.
7
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Net sales increased $311,000, or 5.0%, to $6.5 million for the three
months ended March 31, 2000 from $6.2 million for the three months ended March
31, 1999 due principally to increased international sales. International sales
increased 20.3% to $1.7 million from $1.4 million in the comparable 1999 period.
The increase resulted primarily from a 32.2% increase in sales to Europe and an
81.4% increase in sales to Asia offset in part by an 11.1% decrease in sales to
other international markets. International sales represented 25.6% and 22.4% of
net sales for the three months ended March 31, 2000 and 1999, respectively.
Domestic sales increased $30,000, or 0.6%, to $4.84 million for the three months
ended March 31, 2000 compared to $4.81 million for the three months ended March
31, 1999. The Company expects international sales for fiscal 2000 to remain at
levels lower than historically achieved due to current world-wide economic
conditions.
Net sales for the six months ended March 31, 2000 increased $539,000, or
4.2%, to $13.4 million from $12.9 million for the six months ended March 31,
1999 due to increased domestic and international sales. Domestic sales increased
$327,000, or 3.4%, to $10.0 million for the six months ended March 31, 2000
compared to $9.6 million for the six months ended March 31, 1999. For the six
months ended March 31, 2000, international sales increased 6.6% to $3.4 million
from $3.2 million in the comparable 1999 period. The increase resulted primarily
from a 108.6% increase in sales to Asia offset in part by a 15.4% decrease in
sales to Europe. International sales represented 25.6% and 25.0% of net sales
for the six months ended March 31, 2000 and 1999, respectively.
Gross profit increased to 28.9% of net sales for the three months ended
March 31, 2000 from 27.0% for the three months ended March 31, 1999. Gross
profit increased to 27.5% of net sales for the six months ended March 31, 2000
from 26.4% for the comparable prior period. The increase was primarily due to
increased sales volume which caused manufacturing overhead to decrease as a
percentage sales.
Operating expenses consist of selling, general and administrative
expenses. Total operating expenses increased $119,000, or 8.7%, to $1,487,000
for the three months ended March 31, 2000 compared to $1,368,000 for the three
months ended March 31, 1999. Operating expenses were 22.8% and 22.1% of net
sales in the respective three-month periods. Operating expenses increased
$249,000, or 9.2%, to $2,945,000 for the six months ended March 31, 2000
compared to $2,697,000 for the comparable period in fiscal 1999. Operating
expenses were 22.0% and 21.0% of net sales in the respective six-month periods.
Selling expenses increased $118,000, or 14.8%, to $914,000 for the three
months ended March 31, 2000 compared to $796,000 for the comparable 1999 period.
Selling expenses were 14.0% and 12.8% of net sales in the respective three-month
periods. Selling expenses increased 16.3% in the first half of fiscal 2000, to
$1.8 million, compared to $1.6 million for the first half of fiscal 1999.
Selling expenses were 13.7% and 12.3% of net sales in the respective six month
periods. The increased selling expenses were due to increased promotional
activities and sales incentive programs.
8
<PAGE>
General and administrative expenses were unchanged for the three months
ended March 31, 2000 and 1999, respectively. General and administrative expenses
were 8.8% and 9.2% of net sales in the respective three-month periods. General
and administrative expenses decreased $10,000, or 0.9% in the first half of
fiscal 2000, to $1,105,000, compared to $1,115,000 for the first half of fiscal
1999. General and administrative expenses were 8.2% and 8.7% of net sales in the
respective six-month periods. The decreased general and administrative expenses
were due to lower depreciation expense offset in part by higher payroll costs.
Interest expense decreased by $40,000 to $0 for the three months ended
March 31, 2000, compared to $40,000 for the three months ended March 31, 1999.
Interest expense decreased by $89,000 to $0 for the first half of fiscal 2000
compared to $89,000 for the first half of fiscal 1999. The decrease in interest
expense was due to repayment of all short and long-term borrowings in fiscal
1999.
Net earnings were $241,000, or $0.08 per share - basic and diluted (based
on 3.0 million shares outstanding), for the three months ended March 31, 2000,
compared to net earnings of $160,000, or $0.05 per share - basic and diluted
(based on 3.2 million shares outstanding), for the three months ended March 31,
1999. Net earnings were $453,000, or $0.15 per share - basic and diluted (based
on 3.1 million shares outstanding), for the six months ended March 31, 2000,
compared to net earnings of $366,000, or $0.11 per share - basic and diluted
(based on 3.3 million shares outstanding), for the comparable 1999 period. The
increase in net earnings was due to increased sales and improved gross margin.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's primary needs for funds are for working capital and, to a
lesser extent, capital expenditures. The Company financed its operations during
the six months ended March 31, 2000 from cash generated from operating
activities. Net cash provided by operating activities was $465,000 for the six
months ended March 31, 2000. When cash flow from operations was less than
current needs, the Company increased the balance owing on its operating line of
credit. When cash flow from operations exceeded current needs, the Company paid
down in part the balance owing on its operating line of credit rather than
investing and accumulating excess cash, which practices resulted in low reported
cash balances in periods prior to September 30, 1999.
Cash and cash equivalents decreased by $373,000 during the six months
ended March 31, 2000 due principally to purchases of Company common stock.
Accounts receivable decreased by $651,000 due to management's continuing efforts
to improve collections. Inventories increased by $442,000 due to management's
efforts to increase certain electronics, speakers and accessories inventories.
Accounts payable decreased $400,000 due to the timing of payment due dates.
Prepaid expenses increased $51,000 primarily due to trade show deposits and
insurance costs incurred in the beginning of the Company's fiscal year. Overall,
net working capital decreased $118,000 during the first half of fiscal 2000 due
to the Company acquiring 200,000 shares of its common stock for $587,000.
The Company made capital expenditures of $251,000 for the six months ended
March 31, 2000. Management anticipates that discretionary capital expenditures
for the remainder of fiscal 2000 will be approximately $200,000. These
anticipated expenditures will be financed from available cash, cash provided
from operations and, if necessary, proceeds from the line of credit.
9
<PAGE>
During December 1999, the Company renewed its revolving operating line of
credit through December 2000. The new agreement provides for borrowings of up to
$5.0 million subject to eligible accounts receivable and inventories and certain
additional limits. Interest on the borrowings is equal to the bank's prime
lending rate (9.0% at March 31, 2000) or LIBOR plus 1.75%. Borrowings under the
line of credit are secured by cash and cash equivalents, accounts receivable and
inventories. The line of credit contains covenants which require a minimum level
of tangible net worth, a minimum ratio of current assets to current liabilities
and a maximum ratio of interest bearing debt to tangible net worth. As of March
31, 2000, the Company was eligible to borrow $4.9 million under the line of
credit. No borrowings were outstanding under the line of credit as of that date.
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:
competitive factors; potential fluctuations in quarterly results and
seasonality; the adverse effect of reduced discretionary consumer spending; the
need for the introduction of new products and product enhancements; dependence
on suppliers; control by current shareholders; high inventory requirements;
business conditions in international markets; the Company's dependence on key
employees; the need to protect intellectual property; costs or expenditures
associated with remediating potential Year 2000 issues; and, environmental
regulation as well as other factors discussed in Exhibit 99.1 to the Company's
1999 Annual Report on Form 10-K which are hereby incorporated by reference.
Given these uncertainties, readers are cautioned not to place undue reliance on
the forward-looking statements. The Company does not intend to update its
forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company has assessed its exposure to market risks for its financial
instruments and has determined that its exposures to such risks are not
material. As of March 31, 2000, the Company had cash and cash equivalents of
$496,000 compared to $868,000 as of September 30, 1999. The Company invests its
excess cash in highly liquid marketable securities with maturities of three
months or less at date of purchase. The Company does not invest in derivative
securities.
10
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of shareholders on February 15, 2000. Voting
common shareholders took the following actions at the meeting:
1. The shareholders elected the following nominees to the Company's Board of
Directors to serve until the next annual meeting of shareholders or until their
successors are elected and qualified:
<TABLE>
<CAPTION>
Shares Shares Shares Broker
Name Voted for Withheld Abstaining Non-votes
<S> <C> <C> <C> <C>
Keith A. Peterson 2,936,886 8,600 0 0
Timothy G. Johnson 2,935,886 9,600 0 0
Robert A. Brown 2,936,886 8,600 0 0
Edward A. Foehl 2,936,886 8,600 0 0
Frank G. Magdlen 2,936,886 8,600 0 0
</TABLE>
2. The shareholders voted to ratify management's selection of auditors for
fiscal 2000 by the affirmative vote of 2,928,407 shares, with 12,725 shares
voting against ratification and 4,354 shares abstaining. There were no broker
non-votes with respect to this proposition.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.20 Nonstatutory Stock Option Agreement dated February 15, 2000
between the Company and Frank G. Magdlen
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PHOENIX GOLD INTERNATIONAL, INC.
/s/ Joseph K. O'Brien
-------------------------------------
Joseph K. O'Brien
Chief Financial Officer
(Principal Financial and Accounting
Officer)
Dated: May 8, 2000
12
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Page
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<S> <C> <C>
10.1 Nonstatutory Stock Option Agreement dated February 15, 2000
between the Company and Frank G. Magdlen 14
27 Financial Data Schedule 19
</TABLE>
13
PHOENIX GOLD INTERNATIONAL, INC.
GRANT NSO-18
NONSTATUTORY STOCK OPTION AGREEMENT
THIS AGREEMENT is made as of February 15, 2000 between PHOENIX GOLD
INTERNATIONAL, INC., an Oregon corporation (the "Company"), and FRANK G. MAGDLEN
(the "Optionee").
Optionee has been 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 1,400 shares of
Common Stock at an exercise price of $3.375 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 14, 2005, 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,
in whole or in part, 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.
14
<PAGE>
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
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:
(a) cash; or
(b) check; or
(c) 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
(d) 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.
15
<PAGE>
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.
9. EMPLPYMENT; 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.
14. GENERAL. Optionee and the Company agree that the Option is granted
under and governed by the terms and conditions of this Option Agreement and
governed by the terms and conditions of the Plan as set forth in Section 10.
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.
16
<PAGE>
OPTIONEE: PHOENIX GOLD INTERNATIONAL, INC.
/s/ Frank G. Magdlen By: /s/ Keith A. Peterson
- ------------------------------------- ----------------------------------
Signature Keith A. Peterson, President
FRANK G. MAGDLEN By: /s/ Timothy G. Johnson
- ------------------------------------- ----------------------------------
Print Name Timothy G. Johnson, Executive
Vice President
- ------------------------------------
Social Security Number
17
<PAGE>
CONSENT OF SPOUSE
The undersigned spouse of Optionee has read and hereby approves the terms
and conditions of the Plan and this Option Agreement. In consideration of the
Company's granting his or her spouse the right to purchase shares of Common
Stock as set forth in this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement, and further agrees that any joint or community property interest
shall be similarly bound. The undersigned hereby appoints the undersigned's
spouse as attorney-in-fact for the undersigned with respect to any amendment or
exercise of rights under the Plan or this Option Agreement.
/s/ Sherri Magdlen
---------------------------------
Spouse of Optionee
SHERRI MAGDLEN
---------------------------------
Print name
March 25, 2000
---------------------------------
Date signed
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PHOENIX
GOLD INTERNATIONAL, INC.'S FINANCIAL STATEMENTS CONTAINED IN ITS QUARTERLY
REPORT ON FORM 10-Q FOR THE PERIOD ENDING MARCH 31, 2000 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-24-2000
<PERIOD-END> MAR-26-2000
<CASH> 495,928
<SECURITIES> 0
<RECEIVABLES> 4,144,232
<ALLOWANCES> 0
<INVENTORY> 6,062,418
<CURRENT-ASSETS> 11,327,326
<PP&E> 4,971,832
<DEPRECIATION> 3,981,935
<TOTAL-ASSETS> 13,337,592
<CURRENT-LIABILITIES> 1,605,455
<BONDS> 0
<COMMON> 6,569,428
0
0
<OTHER-SE> 4,255,492
<TOTAL-LIABILITY-AND-EQUITY> 13,337,592
<SALES> 13,404,835
<TOTAL-REVENUES> 13,404,835
<CGS> 9,720,435
<TOTAL-COSTS> 9,720,435
<OTHER-EXPENSES> 2,945,477
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 750,583
<INCOME-TAX> 298,000
<INCOME-CONTINUING> 452,583
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 452,583
<EPS-BASIC> .15
<EPS-DILUTED> .15
</TABLE>
