**U.S. Securities and ExchangeCommission**

**Washington, D.C.20549**

 

**Form 10-Q**

** **

| **ý** |   | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                               |
|------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   | **For the quarterly period ended June 30,  2003**                                                                                                                                                                                                                                          |
|       |
| **or**     |
|       |
| **o**      |   | **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 itscharter)

 

| **OREGON**                                                      |   | **93-1066325**                           |
|-----------------------------------------------------------------|--------|------------------------------------------|
| (State or other jurisdiction  of incorporation or organization) |   | (I.R.S. Employer  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 reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. Yes ý  No o

 

Indicate by check mark whether the registrant is an accelerated filer(as defined in Rule 12b-2 of the Exchange Act).  Yes o  No ý

 

There were 3,006,945 shares of the issuer’s common stock outstanding asof July 31, 2003.

 

 

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**PHOENIXGOLD INTERNATIONAL, INC.****Form 10-Qfor the Quarter Ended June 30, 2003**

 

**INDEX**

 
| Part I.           | FINANCIAL INFORMATION |
|-------------------|-----------------------|
|              |                  |   |
|              | Item 1.               | Financial Statements |
|              |                  |   |
|              |                  | Balance  Sheets at June 30, 2003  and September 30, 2002 (unaudited) |
|              |                  |   |
|              |                  | Statements of Operations for the Three and  Nine Months Ended  June 30, 2003 and 2002 (unaudited) |
|              |                  |   |
|              |                  | Statements of Cash Flows for the Nine  Months Ended  June 30, 2003 and 2002 (unaudited) |
|              |                  |   |
|              |                  | Notes to Financial Statements |
|              |                  |   |
|              | Item 2.               | Management’s Discussion and Analysis of  Financial Condition and Results of Operations |
|              |                  |   |
|              | Item 3.               | Quantitative and Qualitative Disclosure  About Market Risk |
|              |                  |   |
|              | Item 4.               | Controls and Procedures |
|              |                  |   |
| Part II.          | OTHER INFORMATION     |
|              |                  |   |
|              | Item 6.               | Exhibits and Reports on Form 8-K |
|              |                  |   |
| SIGNATURES        |
|              |
| INDEX TO EXHIBITS |

 

2

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**PART I.  FINANCIAL INFORMATION**

** **

**Item1.  Financial Statements**

** **

**PHOENIXGOLD INTERNATIONAL, INC.**

**BALANCE SHEETS**

**(Unaudited)**

 
|                                                                                                                 |   | **June 30,  2003** |       | **September  30,  2002** |   |
|----------------------------------------------------------------------------------------------------------------------|--------|--------------------|------------|--------------------------|--------|
| **ASSETS**                                                                                                           |   |               |       |                     |   |
|                                                                                                                 |   |               |       |                     |   |
| Current assets:                                                                                                      |   |               |       |                     |   |
| Cash and cash equivalents                                                                                            |   | $                  | 1,000      |                     | $      | 214,814 |   |
| Accounts receivable, net                                                                                             |   | 5,007,920          |       | 3,610,939                |   |
| Inventories                                                                                                          |   | 7,012,666          |       | 7,765,523                |   |
| Prepaid expenses                                                                                                     |   | 196,296            |       | 188,140                  |   |
| Deferred taxes                                                                                                       |   | 860,000            |       | 572,000                  |   |
| Total current assets                                                                                                 |   | 13,077,882         |       | 12,351,416               |   |
|                                                                                                                 |   |               |       |                     |   |
| Property and equipment, net                                                                                          |   | 1,009,375          |       | 1,102,498                |   |
| Deferred taxes                                                                                                       |   | 531,000            |       | 513,000                  |   |
| Other assets                                                                                                         |   | 334,789            |       | 552,336                  |   |
|                                                                                                                 |   |               |       |                     |   |
| Total assets                                                                                                         |   | $                  | 14,953,046 |                     | $      | 14,519,250 |   |
|                                                                                                                 |   |               |       |                     |   |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                                        |   |               |       |                     |   |
|                                                                                                                 |   |               |       |                     |   |
| Current liabilities:                                                                                                 |   |               |       |                     |   |
| Line of credit                                                                                                       |   | $                  | 1,206,027  |                     | $      | — |   |
| Accounts payable                                                                                                     |   | 890,028            |       | 1,297,507                |   |
| Accrued payroll and benefits                                                                                         |   | 554,082            |       | 430,048                  |   |
| Accrued customer rebates                                                                                             |   | 364,487            |       | 382,972                  |   |
| Other accrued expenses                                                                                               |   | 607,483            |       | 498,972                  |   |
| Total current liabilities                                                                                            |   | 3,622,107          |       | 2,609,211                |   |
|                                                                                                                 |   |               |       |                     |   |
| Deferred gain on sale of facility                                                                                    |   | 588,465            |       | 662,023                  |   |
|                                                                                                                 |   |               |       |                     |   |
| Commitments and contingencies                                                                                        |   |               |       |                     |   |
|                                                                                                                 |   |               |       |                     |   |
| Shareholders’ equity:                                                                                           |   |               |       |                     |   |
| Preferred stock;  Authorized - 5,000,000 shares; none outstanding                                                    |   | —             |       | —                   |   |
| Common stock, no par value;  Authorized - 20,000,000 shares  Issued and outstanding - 3,006,945 and 3,006,945 shares |   | 6,511,528          |       | 6,511,528                |   |
| Retained earnings                                                                                                    |   | 4,230,946          |       | 4,736,488                |   |
| Total shareholders’ equity                                                                                      |   | 10,742,474         |       | 11,248,016               |   |
|                                                                                                                 |   |               |       |                     |   |
| Total liabilities and shareholders’ equity                                                                      |   | $                  | 14,953,046 |                     | $      | 14,519,250 |   |

 

**SeeNotes to Financial Statements**

 

3

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**PHOENIXGOLD INTERNATIONAL, INC.**

**STATEMENTS OFOPERATIONS**

**(Unaudited)**

** **
|                                                                            |   | **Three  Months Ended  June 30** |      | **Nine  Months Ended  June 30** |   |
|---------------------------------------------------------------------------------|--------|----------------------------------|-----------|---------------------------------|--------|
|                                                                            |   | **2003**                         |      | **2002**                        |   | **2003** |   | **2002** |   |
|                                                                            |   |                             |      |                            |   |   |   |   |   |
| Net sales                                                                       |   | $                                | 8,032,132 |                            | $      | 8,063,132 |   | $ | 18,675,476 |   | $ | 22,917,242 |   |
|                                                                            |   |                             |      |                            |   |   |   |   |   |
| Cost of sales                                                                   |   | 5,841,071                        |      | 6,007,312                       |   | 14,214,964 |   | 17,545,997 |   |
|                                                                            |   |                             |      |                            |   |   |   |   |   |
| Gross profit                                                                    |   | 2,191,242                        |      | 2,055,820                       |   | 4,460,512 |   | 5,371,245 |   |
|                                                                            |   |                             |      |                            |   |   |   |   |   |
| Operating expenses:                                                             |   |                             |      |                            |   |   |   |   |   |
| Selling                                                                         |   | 1,035,413                        |      | 1,043,935                       |   | 2,889,309 |   | 2,853,860 |   |
| General and administrative                                                      |   | 759,973                          |      | 656,516                         |   | 2,226,749 |   | 1,997,836 |   |
|                                                                            |   |                             |      |                            |   |   |   |   |   |
| Total operating expenses                                                        |   | 1,795,386                        |      | 1,700,451                       |   | 5,116,058 |   | 4,851,696 |   |
|                                                                            |   |                             |      |                            |   |   |   |   |   |
| Income (loss) from operations                                                   |   | 395,856                          |      | 355,369                         |   | (655,546 | ) | 519,549 |   |
|                                                                            |   |                             |      |                            |   |   |   |   |   |
| Other income (expense):                                                         |   |                             |      |                            |   |   |   |   |   |
| Interest income                                                                 |   | —                           |      | 2,001                           |   | 745 |   | 3,119 |   |
| Interest expense                                                                |   | (23,766                          | )         | —                          |   | (26,897 | ) | (16,670 | ) |
| Other income, net                                                               |   | 3                                |      | —                          |   | 3,156 |   | 2,532 |   |
|                                                                            |   |                             |      |                            |   |   |   |   |   |
| Total other income (expense)                                                    |   | (23,763                          | )         | 2,001                           |   | (22,996 | ) | (11,019 | ) |
|                                                                            |   |                             |      |                            |   |   |   |   |   |
| Earnings (loss) before income taxes and  cumulative effect of accounting change |   | 372,093                          |      | 357,370                         |   | (678,542 | ) | 508,530 |   |
|                                                                            |   |                             |      |                            |   |   |   |   |   |
| Income tax benefit (expense)                                                    |   | (148,000                         | )         | (143,000                        | )      | 241,000 |   | (203,000 | ) |
|                                                                            |   |                             |      |                            |   |   |   |   |   |
| Earnings (loss) before cumulative effect of  accounting change                  |   | 224,093                          |      | 214,370                         |   | (437,542 | ) | 305,530 |   |
|                                                                            |   |                             |      |                            |   |   |   |   |   |
| Cumulative effect accounting change, net of  tax                                |   | —                           |      | —                          |   | (68,000 | ) | — |   |
|                                                                            |   |                             |      |                            |   |   |   |   |   |
| Net earnings (loss)                                                             |   | $                                | 224,093   |                            | $      | 214,370 |   | $ | (505,542 | ) | $ | 305,530 |   |
|                                                                            |   |                             |      |                            |   |   |   |   |   |
| Earnings (loss) per share:                                                      |   |                             |      |                            |   |   |   |   |   |
| Before accounting change – basic and  diluted                              |   | $                                | 0.07      |                            | $      | 0.07 |   | $ | (0.15 | ) | $ | 0.10 |   |
| Accounting change – basic and diluted                                      |   | 0.00                             |      | 0.00                            |   | (0.02 | ) | 0.00 |   |
|                                                                            |   |                             |      |                            |   |   |   |   |   |
| Earnings (loss) per share – basic and  diluted                             |   | $                                | 0.07      |                            | $      | 0.07 |   | $ | (0.17 | ) | $ | 0.10 |   |
|                                                                            |   |                             |      |                            |   |   |   |   |   |
| Average shares outstanding:                                                     |   |                             |      |                            |   |   |   |   |   |
| Basic                                                                           |   | 3,006,945                        |      | 3,006,945                       |   | 3,006,945 |   | 3,006,945 |   |
| Diluted                                                                         |   | 3,007,603                        |      | 3,022,144                       |   | 3,006,945 |   | 3,013,207 |   |

 

**SeeNotes to Financial Statements**

 

4

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**PHOENIXGOLD INTERNATIONAL, INC.**

**STATEMENTS OF CASHFLOWS**

**(Unaudited)**

** **
|                                                                                                  |   | **Nine  Months Ended  June 30,** |       |
|-------------------------------------------------------------------------------------------------------|--------|----------------------------------|------------|
|                                                                                                  |   | **2003**                         |       | **2002** |   |
|                                                                                                  |   |                             | ** ** |   | ** ** |
| Cash flows from operating activities:                                                                 |   |                             |       |   |   |
| Net earnings (loss)                                                                                   |   | $                                | (505,542   | ) | $ | 305,530 |   |
| Adjustments to reconcile net earnings  (loss) to net cash provided by (used in) operating activities: |   |                             |       |   |   |
| Depreciation and amortization                                                                         |   | 405,367                          |       | 394,109 |   |
| Cumulative effect of accounting change, net                                                           |   | 68,000                           |       | — |   |
| Deferred taxes                                                                                        |   | (261,000                         | )          | (105,000 | ) |
| Changes in operating assets and  liabilities:                                                         |   |                             |       |   |   |
| Accounts receivable                                                                                   |   | (1,396,981                       | )          | 351,374 |   |
| Inventories                                                                                           |   | 752,857                          |       | 1,236,675 |   |
| Prepaid expenses                                                                                      |   | (8,156                           | )          | 2,784 |   |
| Accounts payable                                                                                      |   | (407,479                         | )          | (1,097,337 | ) |
| Accrued expenses                                                                                      |   | 214,348                          |       | 613,012 |   |
|                                                                                                  |   |                             |       |   |   |
| Net cash provided by (used in) operating  activities                                                  |   | (1,138,586                       | )          | 1,701,147 |   |
|                                                                                                  |   |                             |       |   |   |
| Cash flows from investing activities:                                                                 |   |                             |       |   |   |
| Capital expenditures, net                                                                             |   | (281,255                         | )          | (304,460 | ) |
|                                                                                                  |   |                             |       |   |   |
| Net cash used in investing activities                                                                 |   | (281,255                         | )          | (304,460 | ) |
|                                                                                                  |   |                             |       |   |   |
| Cash flows from financing activities:                                                                 |   |                             |       |   |   |
| Line of credit, net                                                                                   |   | 1,206,027                        |       | (1,157,707 | ) |
|                                                                                                  |   |                             |       |   |   |
| Net cash provided by (used in) financing  activities                                                  |   | 1,206,027                        |       | (1,157,707 | ) |
|                                                                                                  |   |                             |       |   |   |
| Increase (decrease) in cash and cash  equivalents                                                     |   | (213,814                         | )          | 238,980 |   |
|                                                                                                  |   |                             |       |   |   |
| Cash and cash equivalents, beginning of  period                                                       |   | 214,814                          |       | 1,002 |   |
|                                                                                                  |   |                             |       |   |   |
| Cash and cash equivalents, end of period                                                              |   | $                                | 1,000      |   | $ | 239,982 |   |
|                                                                                                  |   |                             |       |   |   |
| Supplemental disclosures:                                                                             |   |                             |       |   |   |
| Cash paid for interest                                                                                |   | $                                | 27,000     |   | $ | 17,000 |   |
| Cash paid for income taxes                                                                            |   | —                           |       | 162,000 |   |

 

**SeeNotes to Financial Statements**

 

5

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**PHOENIXGOLD INTERNATIONAL, INC.**

**Notes to FinancialStatements**

**(Unaudited)**

 

**Note 1 - UNAUDITEDFINANCIAL STATEMENTS**

 

Certaininformation and note disclosures normally included in financial statementsprepared in accordance with accounting principles generally accepted in theUnited States of America have been omitted from these unaudited financialstatements.  These unaudited financialstatements should be read in conjunction with the financial statements andnotes included in the Company’s Annual Report on Form 10-K for the year endedSeptember 30, 2002 filed with the Securities and Exchange Commission.  The results of operations for the three- andnine-month periods ended June 30, 2003 are not necessarily indicative of theoperating results for the full year.  Inthe opinion of management, all adjustments, consisting only of normal recurringaccruals, have been made to present fairly the Company’s financial position atJune 30, 2003 and the results of its operations for the three- and nine-monthperiods ended June 30, 2003 and 2002 and its cash flows for the nine-monthsended June 30, 2003 and 2002.

 

**Note 2 - REPORTINGPERIODS**

 

The Company’sfiscal year is the 52-week or 53-week period ending the last Sunday inSeptember.  Fiscal 2003 and fiscal 2002are 52-week years and all quarters are 13-week periods.  For presentation convenience, the Companyhas indicated in these financial statements that its fiscal year ended onSeptember 30 and that the three and nine months presented ended on June 30.

 

**Note 3 - NEWACCOUTING PRONOUNCEMENTS**

 

In July 2001,the Financial Accounting Standards Board (FASB) issued Statement of FinancialAccounting Standards (SFAS) No. 142, *Goodwill and Other Intangible Assets*.  SFAS No. 142 changed the accounting forgoodwill and certain intangibles from an amortization method to animpairment-only approach.  Thus,amortization of goodwill and certain intangibles, including goodwill andcertain intangibles recorded in past business combinations, cease upon adoptionof SFAS No. 142.  Instead, goodwill andcertain intangibles are now analyzed for impairment and written down andcharged to operations only in periods in which the recorded goodwill andcertain intangibles is more than its fair value.  SFAS No. 142 became effective for the Company’s fiscal yearbeginning October 1, 2002.

 

The Companycompleted the transitional goodwill impairment test and recorded an impairmentloss of $68,000, net of tax of $45,000, or $0.02 per share, during the ninemonths ended June 30, 2003.  Inaccordance with SFAS No. 142, the goodwill impairment loss is recognized as theeffect of a change in accounting principle as of October 1, 2002.  Goodwill amortization expense for the three-and nine-month periods ended June 30, 2002 was $12,000 and $37,000.

 

6

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Included in other assets at June 30, 2003 are intangible assets of$236,000 consisting primarily of trademarks and a noncompetitionagreement.  Amortization expense for thethree and nine months ended June 30, 2003 was $32,000 and $95,000.  The estimated future amortization expense ofthe intangible assets for the years ending September 30, 2003, 2004, 2005 and2006 is $127,000, $119,000, $74,000 and $11,000. It is estimated that theintangible assets will be fully amortized in fiscal 2006.

 

In August 2001, the FASB issued SFAS No. 144, *Accounting for the Impairment orDisposal of Long-Lived Assets*. This Statement supercedes SFAS No. 121*, Accounting for the Impairment ofLong-Lived Assets and for Long-Lived Assets to Be Disposed Of*, andthe accounting and reporting provisions of Accounting Principles Board OpinionNo. 30, *Reportingthe Results of Operations, Reporting the Effects of Disposal of a Segment of aBusiness, and Extraordinary, Unusual and Infrequently Occurring Events andTransactions*, for the disposal of a segment of a business.  SFAS No. 144 maintains the method forrecording an impairment of assets to be held under SFAS No. 121 and establishesa single accounting model based on the framework established in SFAS No. 121for long-lived assets to be disposed of by sale.  This Statement also broadens the presentation of discontinuedoperations to include more disposal transactions.  SFAS No. 144 became effective as of October 1, 2002.  The adoption of SFAS No. 144 did nothave a material effect on the Company’s financial position or results ofoperations.

 

In November 2002, the FASB issued Interpretation No. 45, *Guarantor’sAccounting and Disclosure Requirements for Guarantees Including IndirectGuarantees of Indebtedness of Others*.  Included in other accrued expenses at June 30, 2003 is an accrualof approximately $310,000 for estimated warranty liabilities.  A majority of the products sold by theCompany are covered by a warranty.  Theestimated warranty liability is based on historical experience and expectationof future conditions.  The Company’shistorical experience indicates that substantially all warranty services areprovided within one year of product sale. Warranty services incurred for products sold more than one year ago havenot been significant.  Warranty expenseswere approximately $230,000 during the nine months ended June 30, 2003.

 

In December 2002, the FASB issued SFAS No. 148, *Accounting for Stock-Based Compensation- Transition and Disclosure: An Amendment of FASB Statement No. 123*.  This Statement amends SFAS No. 123, *Accountingfor Stock-Based Compensation*, to provide alternative methods oftransition for a voluntary change to the fair value based method of accountingfor stock-based employee compensation. In addition, this Statement amends the disclosure requirements of SFASNo. 123 to require prominent disclosures in both annual and interim financialstatements about the method of accounting for stock-based employee compensationand the effect of the method used on reported results.  The disclosure provisions of SFAS No. 148are applicable for fiscal periods beginning after December 15, 2002.  The Company continues to account for itsfixed plan stock options under the recognition and measurement principles ofAccounting Principles Board (APB) Opinion No. 25, *Accounting for Stock Issued toEmployees*, and related interpretations.  The adoption of SFAS No. 148 did not have a material effect onthe Company’s financial position or results of operations.  See Note 7.

 

**Note 4 - INVENTORIES**

 

Inventories are stated at the lower of cost or market and consist ofthe following:

 

7

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|                              |   | **June 30,  2003** |      | **September  30,  2002** |   |
|-----------------------------------|--------|--------------------|-----------|--------------------------|--------|
|                              |   |               |      |                     |   |
| Raw materials and work-in-process |   | $                  | 2,227,340 |                     | $      | 2,924,498 |   |
| Finished goods                    |   | 4,785,326          |      | 4,841,025                |   |
| Total inventories                 |   | $                  | 7,012,666 |                     | $      | 7,765,523 |   |

 

**Note 5 - PROPERTY ANDEQUIPMENT**

 

Property and equipment consist of the following:

 
|                                            |   | **June 30,  2003** |      | **September  30,  2002** |   |
|-------------------------------------------------|--------|--------------------|-----------|--------------------------|--------|
|                                            |   |               |      |                     |   |
| Machinery and equipment                         |   | $                  | 3,477,385 |                     | $      | 3,691,770 |   |
| Office equipment and furniture                  |   | 1,854,860          |      | 1,741,398                |   |
| Leasehold improvements                          |   | 175,335            |      | 170,494                  |   |
|                                            |   | 5,507,580          |      | 5,603,662                |   |
| Less accumulated depreciation and  amortization |   | (4,498,205         | )         | (4,501,164               | )      |
| Total property and equipment, net               |   | $                  | 1,009,375 |                     | $      | 1,102,498 |   |

 

**Note 6 - LINE OFCREDIT**

 

During January 2003, the Company extended its revolving operating lineof credit through January 31, 2004.  Theline of credit provides for borrowings up to $3.5 million at the bank’s primelending rate plus 1% (5% at June 30, 2003). As of June 30, 2003, the Company was eligible to borrow $3.5 millionunder the line of credit, of which borrowings of $1,206,027 were outstanding.

 

# **Note 7 - STOCK OPTIONPLAN**

 

At June 30, 2003, the Company had one stock-based employee compensationplan, which is described more fully in Note 9 to the financial statementsincluded in the Company’s Annual Report on Form 10-K for the year endedSeptember 30, 2002 filed with the Securities and Exchange Commission.  The Company accounts for this Plan under therecognition and measurement principles of Accounting Principles Board OpinionNo. 25, *Accounting for Stock issued toEmployees*, and related interpretations.  No stock-based compensation cost is reflected in net earnings(loss) as reported, as all options granted under this Plan had an exerciseprice equal to or greater than the market value of the underlying common stockon the date of grant.  The followingtable illustrates the effect on net earnings (loss) and earnings (loss) pershare if the Company had applied the fair value recognition provisions of FASBStatement No. 123, *Accounting forStock-Based Compensation*, to stock-based employee compensation.

 

8

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|                                                                                                                                      |   | **Three  Months Ended  June 30** |    | **Nine  Months Ended  June 30** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------|---------|---------------------------------|--------|
|                                                                                                                                      |   | **2003**                         |    | **2002**                        |   | **2003** |   | **2002** |   |
|                                                                                                                                      |   |                             |    |                            |   |   |   |   |   |
| Net earnings (loss), as reported                                                                                                          |   | $                                | 224,093 |                            | $      | 214,370 |   | $ | (505,542 | ) | $ | 305,530 |   |
|                                                                                                                                      |   |                             |    |                            |   |   |   |   |   |
| Total stock-based employee compensation  expense determined under the fair value based method for all awards, net of  related tax effects |   | (1,000                           | )       | (2,000                          | )      | (1,000 | ) | (7,000 | ) |
|                                                                                                                                      |   |                             |    |                            |   |   |   |   |   |
| Pro forma net earnings (loss)                                                                                                             |   | $                                | 223,093 |                            | $      | 212,370 |   | $ | (506,542 | ) | $ | 298,530 |   |
|                                                                                                                                      |   |                             |    |                            |   |   |   |   |   |
| Earnings (loss) per share:                                                                                                                |   |                             |    |                            |   |   |   |   |   |
| Basic and diluted – as reported                                                                                                      |   | $                                | 0.07    |                            | $      | 0.07 |   | $ | (0.17 | ) | $ | 0.10 |   |
| Basic and diluted – pro forma                                                                                                        |   | 0.07                             |    | 0.07                            |   | (0.17 | ) | 0.10 |   |

 

9

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**Item 2: Management’s Discussion****and Analysis of Financial Condition andResults of Operations**

 

**Forward-LookingStatements**

 

*Allstatements in this report that are not statements of historical results shouldbe considered “forward-looking statements” within the meaning of the PrivateSecurities Litigation Reform Act of 1995, including, without limitation,statements as to expectations, beliefs and future financial performance, andare based on current expectations and are subject to certain risks, trends anduncertainties 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 actualresults to differ materially are the following: the adverse effect of reduceddiscretionary consumer spending; competitive factors; dependence on asignificant customer; potential fluctuations in quarterly results and seasonality;fixed operating expenses relative to revenues; the need to introduce newproducts and product enhancements; dependence on suppliers; control by currentshareholders; high inventory requirements; business conditions in internationalmarkets; the Company’s dependence on key employees; the need to protectintellectual property; environmental regulation; and the potential delistingand limited trading volume of the Company’s common stock, as well as otherfactors discussed in Exhibit 99.3 to the Phoenix Gold International, Inc.Annual Report on Form 10-K for the fiscal year ended September 30, 2002,which exhibit is hereby incorporated by reference.  Given these uncertainties, readers are cautioned not to place unduereliance on the forward-looking statements. The Company does not intend to update its forward-looking statements.*

 

**Application of Critical Accounting Policies**

 

The preparation of financial statements in conformity with accountingprinciples generally accepted in the United States of America requiresmanagement to make the appropriate application of certain accounting policies,many of which require estimates and assumptions about future events and theireffect on amounts reported in the financial statements and related notes.  Since future events and their effect cannotbe determined with certainty, the actual results will inevitably differ fromthe estimates.  Such differences couldbe material to the financial statements.

 

The Company’saccounting policies are disclosed in its 2002 Annual Report on Form 10-K. InJuly 2001, the Financial Accounting Standards Board (FASB) issued Statement ofFinancial Accounting Standards (SFAS) No. 142, *Goodwill and Other Intangible Assets*.  SFAS No. 142 changed the accounting forgoodwill and certain intangibles from an amortization method to animpairment-only approach.  Thus,amortization of goodwill and certain intangibles, including goodwill andcertain intangibles recorded in past business combinations, cease upon adoptionof SFAS No. 142.  Instead, goodwill andcertain intangibles are now analyzed for impairment and written down andcharged to operations only in periods in which the recorded goodwill andcertain intangibles is more than its fair value.  SFAS No. 142 became effective for the Company’s fiscal yearbeginning October 1, 2002.

 

The Company completed the transitional goodwill impairment test andrecorded an impairment loss of $68,000, net of tax of $45,000, or $0.02 pershare, during the nine months ended June 30, 2003.  In accordance with SFAS No. 142, the goodwill impairment loss isrecognized as the effect of a change in accounting principle as of October 1,2002.  Goodwill amortization expense forthe three and nine months ended June 30, 2002 was $12,000 and $37,000.

 

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In November 2002, the FASB issued Interpretation No. 45, *Guarantor’sAccounting and Disclosure Requirements for Guarantees Including IndirectGuarantees of Indebtedness of Others*.  Included in other accrued expenses at June 30, 2003 is an accrualof approximately $310,000 for estimated warranty liabilities.  A majority of the products sold by theCompany are covered by a warranty.  Theestimated warranty liability is based on historical experience and expectationof future conditions.  The Company’shistorical experience indicates that substantially all warranty services areprovided within one year of product sale. Warranty services incurred for products sold more than one year ago havenot been significant.  Warranty expenseswere approximately $230,000 during the nine months ended June 30, 2003.

 

Except as described above, there have been no material changes to theCompany’s accounting policies during the nine months ended June 30, 2003.  The more significant of the Company’s accountingpolicies include revenue recognition and the use of estimates (which inherentlyinvolve judgment and uncertainties) in establishing customer rebate andwarranty accrued liabilities, valuing accounts receivable, inventory, andlong-lived and deferred tax assets.

 

Revenue Recognition

 

The Company recognizes revenue when all of the following criteria aremet: persuasive evidence of an arrangement exists; delivery has occurred; theselling price is fixed and determinable; and collectibility is reasonably assured.  These criteria are generally satisfied andthe Company recognizes revenue upon shipment. The Company also offers certain of its customers the right to returnproducts that do not meet the standards agreed to with the customer. TheCompany records a provision for estimated sales returns and allowances onproduct related sales in the same period as the related revenues arerecorded.  These estimates are based onhistorical sales returns, analysis of credit memo data and other known factors.The Company continuously monitors such product returns and while such returnshave historically been minimal, the Company may not continue to experience thesame return rates that it has in the past. Any significant increase in product quality failure rates and theresulting credit returns could have a material adverse effect on the Company’snet sales and operating results for the period or periods in which such returnsmaterialize.

 

The Company also provides for certain sales allowances which includesales rebates, co-op advertising incentives and other volume-basedincentives.  The Company records aprovision for estimated incentives based upon the incentives offered tocustomers on product related sales in the same period as the related revenuesare recorded. If the historical data the Company uses to calculate theseestimates do not properly reflect future sales allowances, revenue could bemisstated.

 

Products sold are covered by a warranty.  The Company accrues a warranty reserve for estimated costs toprovide warranty services.  TheCompany’s estimate of costs to service its warranty obligations is based onhistorical experience and expectation of future conditions.  To the extent the Company experiencesincreased warranty claim activity or increased costs associated with servicingthose claims, its warranty accrual will increase accordingly and result indecreased gross profit.

 

Accounts Receivable

 

The Company performs ongoing credit evaluations of its customers andadjusts credit limits based upon payment history and the customer’s currentcreditworthiness, as determined by the

 

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review of the customer’scurrent credit information.  The Companycontinuously monitors collections and payments from customers and maintains aprovision for estimated credit losses based upon the Company’s historicalexperience and any specific customer collection issues that have beenidentified.  The Company values accountsreceivable net of an allowance of $290,000 for doubtful accounts at June 30,2003.  The allowance is calculated basedupon the Company’s evaluation of specific customer accounts where the Companyhas information that the customer may have an inability to meet its financialobligations (bankruptcy, etc.).  In thesecases, the Company uses its judgment, based on the best available facts andcircumstances, and records a specific reserve for that customer against amountsdue to reduce the receivable to the amount that is expected to be collected.  These specific reserves are re-evaluated andadjusted as additional information is received that affects the amountreserved.  However, the ultimatecollectibility of a receivable is dependent upon the financial condition of anindividual customer, which could change rapidly and without advancewarning.  The same technique used tocompute the allowance at September 30, 2002 was used at June 30, 2003.

 

The Company has had significant accounts receivable or other amountsdue from its customers or other parties. From time to time, certain of these account receivable or other amountsdue have become unusually large and/or overdue, and on occasion the Company hastaken write-offs relating to accounts receivable.  The failure of the Company’s customers to pay in a timely manneror in full amounts due to the Company could affect future liquidity andprofitability.

 

Inventory

 

The Company values inventory at the lower of cost or market.  Cost is determined using the average costmethod.  The Company continues to usethe same techniques to value inventory as have been used in the past.  The Company regularly reviews inventoryquantities on hand and records a provision for excess and obsolete inventorybased primarily on estimated product demand and production requirements for thenext year.  Customers may cancel theirorders or change purchase volumes.  Anyactions taken by customers that could affect the value of inventory areconsidered when determining the lower of cost or market valuations.  These or other actions could create excessinventory levels that would affect the valuation of inventory. If the Companyis not able to achieve its expectations of the net realizable value of theinventory at its current value, then the Company would have to adjust itsreserves accordingly, which would reduce net earnings.

 

Long-Lived Assets

 

The Company evaluates the fair value and future benefits of long-livedassets by estimating undiscounted future cash flows of the related assets andreduces the carrying value of the long-lived assets by the excess, if any, ofthe result of such calculation.  TheCompany believes that the carrying values and estimated useful lives continueto be appropriate at this time.  Futureadverse changes in market conditions or poor operating results of theunderlying long-lived assets could result in an inability to recover thecarrying value of the long-lived assets that may not be reflected in thecurrent carrying value, thereby possibly requiring an impairment charge in thefuture.

 

Deferred Tax Valuation Allowance

 

The Company records a valuation allowance to reduce deferred tax assetsto the amount that is more likely than not to be realized.  Future taxable income and ongoing prudentand feasible tax planning strategies are estimated in assessing the need forthe valuation allowance.

 

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Should the Company not be ableto realize all or part of the deferred tax assets in the future, an adjustmentto the deferred tax asset would be recorded to earnings in the period suchdetermination was made by increasing the valuation allowance to reduce thedeferred tax assets to the amount that is more likely than not to berealized.  The effect of such adjustmentwould be to reduce earnings.  TheCompany determined that a valuation allowance was not necessary at June 30,2003.

 

**Results of Operations**

 

Net sales decreased $31,000, or 0.4%, to $8,032,000 for the threemonths ended June 30, 2003 from $8,063,000 for the three months ended June 30,2002.  Domestic sales decreased $216,000,or 3.4%, to $6.2 million for the three months ended June 30, 2003 compared to$6.4 million for the three months ended June 30, 2002.  Sales of speakers increased 15.9% for thethree months ended June 30, 2003 compared to the corresponding quarter in fiscal2002.  Sales of accessories decreased68.4% for the three months ended June 30, 2003 compared to the three monthsended June 30, 2002 due to market conditions. The increased sales of speakers were primarily due to sales of PhoenixGold and AudioSource products.  Sales ofelectronics for the three months ended June 30, 2003 were flat as compared tothe three months ended June 30, 2002 as increased sales of Phoenix Gold andAudioSource electronics were offset by decreased sales of Carver Professionaland OEM electronics.  Sales ofelectronics to a significant customer decreased $88,000, or 14.3%, to $524,000for the three months ended June 30, 2003 compared to $612,000 for thecorresponding quarter in fiscal 2002. International sales increased 11.4% to $1.8 million from $1.6 million inthe comparable 2002 period.  Theincrease resulted primarily from a 16.2% increase in sales to Europe and a24.0% increase in sales to other international markets offset in part by a 8.7%decrease in sales to Asia.  Internationalsales represented 22.5% and 20.1% of net sales for the three months ended June30, 2003 and 2002, respectively.

 

Net sales for the nine months ended June 30, 2003 decreased $4.2million, or 18.5%, to $18.7 million from $22.9 million for the nine monthsended June 30, 2002.  Domestic salesdecreased $3.8 million, or 20.7%, to $14.7 million for the nine months endedJune 30, 2003 compared to $18.5 million for the nine months ended June 30,2002.  Sales of electronics to asignificant customer decreased $1.3 million, or 46.4%, to $1.6 million for thenine months ended June 30, 2003 compared to $2.9 million for the comparableperiod in fiscal 2002.  The amount andtiming of purchase orders from this customer may fluctuate from period toperiod.  For the nine months ended June30, 2003, international sales decreased 9.2% to $4.0 million from $4.4 millionin the comparable 2002 period.  Thedecrease resulted primarily from a 26.8% decrease in sales to Asia and a 5.9% decreasein sales to Europe.  International salesrepresented 21.4% and 19.2% of net sales for the nine months ended June 30,2003 and 2002, respectively.

 

Because of the nature of the Company’s products, the Company’s largestcustomers have historically tended to be large domestic retailers, and domesticand international distributors.  Nocustomer accounted for 10% or more of the Company’s  net sales during the nine months ended June 30, 2003.  The Company had one customer during the ninemonths ended June 30, 2002 that accounted for more than 10% of net sales.  The timing and volume of customer activitycan vary significantly from period to period. Management expects decreased sales for the Company in fiscal 2003 ascompared to fiscal 2002 due to the continued reduced spending by consumers on discretionaryitems. The loss of business from one or more principal customers or a change inthe sales volume from a particular customer could have a material adverseeffect on the Company’s sales volume and profitability.

 

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Gross profit increased to 27.3% of net sales for the three months endedJune 30, 2003 from 25.5% for the three months ended June 30, 2002.  Gross profit increased to 23.9% of net salesfor the nine months ended June 30, 2003 from 23.4% for the comparable priorperiod.  The increase was primarily dueto changes in sales mix and reduced direct labor costs. ** **Dueto the range of products that the Company sells, the product sales mix canproduce a range of gross margins.  Somemarkets in which the Company operates also yield lower gross margins thanothers.

 

Historically, the Company has built infrastructure and added personnelon an as-needed basis, resulting in occasional changes in manufacturing andoperating expenses that are disproportionate to changes in net sales.  This policy has resulted in and may continueto result in variations in cost of sales and operating expenses as a percentageof sales from period to period.  OnFebruary 25, 2003, the Company reorganized its workforce, including thereassignment of certain production personnel. These actions reduced the Company’s workforce by approximately 22%.  Further, in March 2003, the Companyimplemented a 5% company-wide pay reduction.

 

Operating expenses consist of selling, general and administrativeexpenses.  Total operating expensesincreased $95,000, or 5.6%, to $1.8 million for the three months ended June 30,2003 compared to $1.7 million for the three months ended June 30, 2002.  Operating expenses were 22.4% and 21.1% ofnet sales in the respective three-month periods.  Operating expenses increased $264,000, or 5.4%, to $5.1 millionfor the nine months ended June 30, 2003 compared to $4.9 million for thecomparable period in fiscal 2002. Operating expenses were 27.4% and 21.2% of net sales in the respectivenine-month periods.

 

Selling expenses decreased $9,000, or 0.8%, to $1,035,000 for the threemonths ended June 30, 2003 compared to $1,044,000 for the comparable 2002period.  Selling expenses were 12.9% ofnet sales for both three-month periods. Selling expenses increased 1.2% in the first nine months of fiscal 2003,to $2,889,000, compared to $2,854,000 for the first nine months of fiscal2002.  Selling expenses were 15.5% and12.5% of net sales in the respective nine-month periods.  The decreased selling expenses for the threemonths ended June 30, 2003 were due to decreased commissions paid toindependent representatives selling the Company’s products and decreasedadvertising, offset in part by increased personnel and payroll expenses.  The increased selling expenses for the ninemonths ended June 30, 2003 was due to increased personnel and payroll expensesoffset in part by decreased commissions paid to independent representatives, anddecreased consulting and advertising expenses.

 

General and administrative expenses increased $103,000, or 15.8%, to$760,000 for the three months ended June 30, 2003 compared to $657,000 forthe comparable 2002 period.  General andadministrative expenses were 9.5% and 8.1% of net sales in the respectivethree-month periods.  General andadministrative expenses increased $229,000, or 11.5%, in the first nine monthsof fiscal 2003, to $2.2 million, compared to $2.0 million for the first ninemonths of fiscal 2002.  General andadministrative expenses were 11.9% and 8.7% of net sales in the respectivenine-month periods.  The increasedgeneral and administrative expenses were primarily due to increased engineeringexpenses as a result of additional engineering personnel and new productdevelopment activities.

 

Other income (expense) decreased by $26,000 to $24,000 of other expensefor the three months ended June 30, 2003, compared to $2,000 of other incomefor the three months ended June 30, 2002. Other expense increased by $12,000 to $23,000 of other expense for thenine months ended June 30, 2003, compared to $11,000 of other expense for thecorresponding

 

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period in fiscal 2002.  Interest expense increased for the three andnine months ended June 30, 2003 from the prior periods due to the use of theoperating line of credit to finance operating activities and capitalexpenditures.

 

Tax expense was $148,000 and $143,000 for the three months ended June30, 2003 and 2002 due to the earnings before income taxes in the respectivethree-month periods.  For the nine-monthperiod ended June 30, 2003, the tax benefit was $241,000 due a loss beforeincome taxes for the period.  For thenine-month period ended June 30, 2002, tax expense was $203,000 due to earningsbefore income taxes in the period. Deferred taxes of $860,000 and $531,000 are recorded as current andlong-term assets, respectively at June 30, 2003 due to the tax effects oftemporary differences between the carrying amounts of assets and liabilitiesfor financial and tax reporting purposes and a net operating loss carryforwardresulting from the net loss for the nine months ended June 30, 2003.

 

On October 1, 2002, the Company adopted SFAS No. 142 and recorded agoodwill impairment loss of $68,000, net of tax of $45,000, or $0.02 per share- basic and diluted (based on 3.0 million shares outstanding) as the effect ofa change in accounting principle. Goodwill amortization expense for the three and nine months ended June30, 2002 was $12,000 and $37,000.

 

Net earnings were $224,000, or $0.07 per share - basic and diluted, forthe three months ended June 30, 2003, compared to net earnings of $214,000, or$0.07 per share - basic and diluted, for the three months ended June 30, 2002.  The net loss was $506,000, or $0.17 pershare - basic and diluted, for the nine months ended June 30, 2003, compared tonet earnings of $306,000, or $0.10 per share - basic and diluted, for thecomparable 2002 period.  All per shareamounts are based on 3.0 million shares outstanding.  The decrease in net earnings during the nine-month period was dueto decreased sales and gross profit and increased operating expenses.

 

**Liquidity and CapitalResources**

 

The Company’s primary needs for funds are for working capital and, to alesser extent, capital expenditures. The Company financed its operations during the nine months ended June30, 2003 from borrowings under its revolving line of credit.  Net cash used in operating activities was$1.1 million for the nine months ended June 30, 2003.  When cash flow from operations is less than current needs, theCompany increases the balance owing on its operating line of credit.  When cash flow from operations exceedscurrent needs, the Company pays down the balance owing on its operating line ofcredit rather than investing and accumulating excess cash, which practice mayresult in low reported cash balances.

 

The Company’s future cash flows from operations are dependent upon, butnot limited to:

 

•                  the ability of the Company to attract new and retainexisting customers,

•                  the volume of sales for these customers, or the loss ofbusiness of one or more primary customer,

•                  changes in sales mix,

•                  changes in general economic conditions,

•                  management’s effectiveness in managing the manufacturingprocess, and

•                  the ability to collect in full and in a timely manneramounts due to the Company.

 

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Cash and cash equivalents decreased by $214,000 during the nine monthsended June 30, 2003 due principally to the net loss.  Accounts receivable increased by $1.4 million due to theseasonality of increased sales of car audio products during the three monthsended June 30, 2003.  Inventoriesdecreased by $753,000 due to decreased purchases of raw materials.  Accounts payable decreased $407,000 due tothe decrease in inventories and timing of payment due dates.  Accrued expenses increased $214,000 due toincreased accrued payroll and benefits at June 30, 2003.  Overall, net working capital decreased $286,000due to the net loss.

 

The Company’s capital expenditures were $281,000 for the nine monthsended June 30, 2003.  Managementanticipates that discretionary capital expenditures for manufacturing andoffice equipment during the remainder of fiscal 2003 will be approximately$200,000.  These anticipatedexpenditures will be financed from available cash, cash provided fromoperations and, if necessary, proceeds from the line of credit.

 

During January 2003, the Company extended its revolving operating line ofcredit through January 31, 2004.  Theline of credit provides for borrowings up to $3.5 million at the bank’s primelending rate plus 1%.  As of June 30,2003, the Company was eligible to borrow $3.5 million under the line of credit,of which borrowings of $1,206,027 were outstanding.

 

Information pertaining to the Company’s obligations and commitments tomake future cash payments is described more fully in Note 8 to the financialstatements included in the Company’s Annual Report on Form 10-K for the yearended September 30, 2002 filed with the Securities and ExchangeCommission.  Minimum annual rentalsunder operating leases having initial or remaining terms of one year or morefor the years ending September 30, 2003, 2004, 2005, 2006, 2007 and thereafterare $564,000, $578,000, $593,000, $608,000, $623,000 and $1,126,000.

 

The Company believes that cash available through its credit facilityand cash generated from operations, if any, should be sufficient to meetworking capital and capital expenditure requirements for the next twelvemonths.

 

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# **Item 3. Quantitative and Qualitative**Disclosure About Market Risk

 

The Company has assessed its exposure to market risks for its financialinstruments and has determined that its exposures to such risks are notmaterial.  As of June 30, 2003, theCompany had cash and cash equivalents of $1,000 compared to $215,000 as ofSeptember 30, 2002.  When the Companyhas repaid any borrowings outstanding under its line of credit and has excesscash, then the Company has historically invested its excess cash in highlyliquid marketable securities with maturities of three months or less at date ofpurchase.  The Company’s cash equivalentsare generally commercial paper and money market accounts.  The Company does not invest in derivativesecurities.

 

The Company sells its products and purchases its inventories primarilyin United States dollars, therefore its exposure to currency exchange ratefluctuations is not material.  TheCompany does not engage in foreign currency hedging activities.

 

The Company borrows from time to time under its revolving line ofcredit.  Any borrowings outstandingunder the line of credit bear interest at a variable rate based on the primerate.  The Company is not a party tointerest rate swaps or caps.  TheCompany believes that a 100 basis point increase or decrease in the interestrate on borrowings outstanding under the line of credit would not materially affectthe results of operations of the Company.

 

**Item 4.  Controls andProcedures**

 

The Company’s Chairman and Chief Executive Officer and the ChiefFinancial Officer have reviewed the disclosure controls and procedures relatingto the Company at June 30, 2003 and concluded that such controls and procedureswere effective to provide reasonable assurance that all material informationabout the financial and operational activities of the Company was made known tothem.  There were no changes in theCompany’s internal control over financial reporting during the quarter endedJune 30, 2003 that materially affected, or are reasonably likely to materiallyaffect, the Company’s internal control over financial reporting.

 

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**PART II.  OTHERINFORMATION**

 

**Item6. Exhibits and Reports on Form 8-K**

 
| (a) Exhibits            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|-------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 31.1                    |   | Certification of the Chief Executive Officer pursuant to 18 U.S.C.  Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of  2002                                                                                                                                                                                                                                                                                                                            |
|                    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 31.2                    |   | Certification of the Chief Financial Officer pursuant to 18 U.S.C.  Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of  2002                                                                                                                                                                                                                                                                                                                            |
|                    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 32.1                    |   | Certification of the Chief Executive Officer pursuant to 18 U.S.C.  Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of  2002                                                                                                                                                                                                                                                                                                                            |
|                    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 32.2                    |   | Certification of the Chief Financial Officer pursuant to 18 U.S.C.  Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of  2002                                                                                                                                                                                                                                                                                                                            |
|                    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| (b) Reports on Form 8-K |
|                    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                    |   | A current report on Form 8-K dated May 8, 2003, was filed on May 12,  2003 to report the public disclosure of the Company’s operating results for  the three months ended March 31, 2003.                                                                                                                                                                                                                                                                                    |
|                    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                    |   | A current report on Form 8-K dated June 26, 2003, was filed on June  27, 2003 to report the public disclosure of a notification received from The  Nasdaq Stock Market, Inc. of a Nasdaq Staff Determination indicating that the  Company failed to comply with the minimum market value of publicly held  shares for continued listing set forth in Marketplace Rule 4310(c)(7), and  that its shares of common stock are subject to delisting from The Nasdaq  SmallCap Market. |
|                    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                    |   | Subsequent to the end of the quarter ended June 30, 2003, a current  report on Form 8-K dated July 23, 2003, was filed on July 24, 2003 to  report the public disclosure of the Company’s operating results for the three  months ended June 30, 2003.                                                                                                                                                                                                                  |

 

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**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 theundersigned thereunto duly authorized.

 
|   | PHOENIX GOLD INTERNATIONAL, INC.                       |
|--------|--------------------------------------------------------|
|   |                                                   |
|   |                                                   |
|   | /s/ Joseph K. O’Brien                             |   |
|   | Joseph K. O’Brien                                 |
|   | Vice President, Chief Financial Officer  and Secretary |
|   | (Principal Financial and Accounting Officer)           |

 

Dated:  August 12, 2003

 

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**INDEX TO EXHIBITS**

 
| **Exhibit** |   |                                                                                                                                                   |
|-------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |   |                                                                                                                                                   |
| 31.1        |   | Certification of the Chief Executive Officer pursuant to 18 U.S.C.  Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of  2002 |
|        |   |                                                                                                                                                   |
| 31.2        |   | Certification of the Chief Financial Officer pursuant to 18 U.S.C.  Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of  2002 |
|        |   |                                                                                                                                                   |
| 32.1        |   | Certification of the Chief Executive Officer pursuant to 18 U.S.C.  Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of  2002 |
|        |   |                                                                                                                                                   |
| 32.2        |   | Certification of the Chief Financial Officer pursuant to 18 U.S.C.  Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  |

 

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