SECURITIES AND EXCHANGE COMMISSION
Washington, DC 25049
-----------------------
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 December 31, 1997
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from __________ to
___________
Commission File Number 0-21903
ORA ELECTRONICS, INC.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 95-4607830
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(State or Other Jurisdiction of (IRS Employer Identification
Incorporation or Organization) Number)
9410 Owensmouth Avenue, Chatsworth, CA 91311
--------------------------------------------
(Address of Principal Executive Offices)(Zip Code)
(818) 772-2700
--------------
(Registrant's Telephone Number, Including Area Code)
(No Change)
-----------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
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 .....
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15 (d) of the Securities
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Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes ..... No ..... Not Applicable ..X..
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at February 11, 1998
----- --------------------------------
Common Stock, $.001 par value 6,606,814 shares
Exhibit Index on Page 19
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ORA ELECTRONICS, INC.
Form 10-Q
December 31, 1997
TABLE OF CONTENTS
Page
----
PART I - Financial Information. 4
Item 1. Financial Statements 4
Balance Sheets as of December 31, 1997 and
March 31, 1997 4
Statements of Operations for the three and nine month
periods ended December 31, 1997 and 1996 6
Statements of Cash Flows for the nine month
periods ended December 31, 1997 and 1996 7
Notes to Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 11
PART II - Other Information. 15
Item 1. Legal Proceedings. 15
Item 6. Exhibits and Reports on Form 8-K. 16
Signatures 18
Exhibit Index 19
Exhibits 20-24
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PART I -FINANCIAL INFORMATION.
ITEM 1. FINANCIAL STATEMENTS.
ORA ELECTRONICS, INC.
Balance Sheets
December 31, March 31,
1997 1997
(Unaudited) (Audited)
----------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 53,557 $ 321,647
Trade accounts receivable, less
allowance for sales returns and
doubtful accounts of $1,772,603
($1,716,671 at March 31, 1997) 1,702,245 3,499,517
Inventories 4,728,580 5,449,028
Federal tax refund -- 219,927
Prepaid expenses 80,635 65,892
------------ ------------
Total current assets 6,565,017 9,556,011
Property and equipment, net 6,270,336 6,301,378
Other assets:
Loan receivable, officer 572,573 551,337
Deferred expenses 288,078 319,578
------------ ------------
Total assets $ 13,696,004 $ 16,728,304
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 63,571 $ 63,186
Notes payable 205,713 1,257,197
Trade payables 2,563,229 3,738,108
Accrued interest 93,941 110,717
Other accounts payable and accrued
expenses 1,624,690 1,556,906
------------ ------------
Total current liabilities 4,551,144 6,726,114
Long-term debt 5,639,253 5,601,516
------------ ------------
Total liabilities 10,190,397 12,327,630
------------ ------------
See accompanying notes to financial statements.
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Stockholders' equity:
Preferred stock, $.001 par value,
5,000,000 shares authorized,
none issued -- --
Common stock, par value $.001 per share,
authorized 30,000,000 shares, issued
and outstanding 6,606,414 shares at
December 31, 1997 and 6,589,068
shares at March 31, 1997 6,606 6,589
Additional paid in capital 5,825,583 5,806,810
Retained (deficit) (2,326,582) (1,412,725)
------------ ------------
Total stockholders' equity 3,505,607 4,400,674
------------ ------------
Total liabilities and stockholders'
equity $ 13,696,004 $ 16,728,304
============ ============
See accompanying notes to financial statements.
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<TABLE>
ORA ELECTRONICS, INC.
Statements of Income and Retained Earnings (Deficit)
For the Three Month and Nine Month Periods
Ended December 31, 1997 and 1996
(Unaudited)
<CAPTION>
Three months Nine months
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 3,447,512 $ 6,227,597 $11,691,492 $14,427,805
Cost of goods sold 1,690,510 3,457,484 6,761,814 9,647,134
----------- ----------- ----------- -----------
Gross profit 1,757,002 2,770,113 4,929,678 4,780,671
----------- ----------- ----------- -----------
Operating expenses:
Selling and shipping expenses 597,201 1,035,092 1,811,235 2,563,527
Administrative and general
expenses 994,832 959,514 3,492,592 3,123,589
----------- ----------- ----------- -----------
Total operating expenses 1,592,033 1,994,606 5,303,827 5,687,116
----------- ----------- ----------- -----------
Operating income (loss) 164,969 775,507 (374,149) (906,445)
Interest expense 161,158 362,773 539,708 837,683
----------- ----------- ----------- -----------
Net income (loss) 3,811 412,734 (913,857) (1,744,128)
Retained earnings (deficit),
beginning of period (2,330,394) (888,645) (1,412,726) 1,268,217
----------- ----------- ----------- -----------
Retained (deficit),
end of period $(2,326,583) $ (475,911) $(2,326,583) $ (475,911)
=========== =========== =========== ===========
Per share information:
Net income (loss) $ 3,811 $ 412,734 $ (913,857) $(1,744,128)
Earnings (loss) per share:
Basic and diluted $ (0.00) $ 0.07 $ (0.14) $ (0.28)
=========== =========== =========== ===========
Number of shares used in the
per share calculation:
Basic and diluted 6,606,414 6,337,691 6,606,414 6,337,691
Pro forma per share information:
(Note 4)
Pro forma earnings (loss) per share:
Basic and diluted $ (0.00) $ 0.07 $ (0.14) $ (0.28)
=========== =========== =========== ===========
Pro forma number of shares used
in the per share calculation:
Basic and diluted 6,606,414 6,337,691 6,606,414 6,337,691
</TABLE>
See accompanying notes to financial statements.
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ORA ELECTRONICS, INC.
Statements of Cash Flows
For the Nine Month Periods Ended December 31, 1997 and 1996
(Unaudited)
Nine Months Ended December 31,
1997 1996
---- ----
Cash flows from operating activities:
Net loss $ (913,857) $(1,744,128)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization 227,012 269,667
Provision for losses and sales returns 284,187 (270,247)
Changes in assets and liabilities:
Accounts receivable 1,741,341 (765,196)
Inventories 492,193 (188,679)
Prepaid expenses 205,183 79,538
Accounts payable, accrued interest
and other accrued expenses (1,123,869) 1,994,680
----------- -----------
Net cash provided by (used in) operating activities 912,190 (624,365)
----------- -----------
Cash flows from investing activities:
Capital expenditures (164,470) (33,899)
Loan receivable, officer (21,237) (280,854)
----------- -----------
Net cash provided by (used in) investing activities (185,707) (314,753)
----------- -----------
Cash flows from financing activities:
Additional paid in capital 18,773 1,288,115
Common stock 17 (3,662)
Repayment of line of credit (1,051,485) (500,000)
Borrowing (repayment) of long-term debt 38,122 1,000,000
----------- -----------
Net cash provided by (used in) financing
activities (994,573) 1,784,453
----------- -----------
Net increase (decrease) in cash and cash
equivalents (268,090) 845,335
Cash and cash equivalents at beginning of period 321,647 357,995
----------- -----------
Cash and cash equivalents at end of period $ 53,557 $ 1,203,330
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid $ 370,664 $ 837,683
=========== ===========
Income taxes paid $ -- $ --
=========== ===========
See accompanying notes to financial statements.
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ORA ELECTRONICS, INC.
Notes to Financial Statements
(Unaudited)
NOTE 1 - DESCRIPTION OF BUSINESS
ORA Electronics, Inc. (the "Company") is a developer and supplier of interface,
connectivity solutions and peripheral accessories for wireless communication
devices. The Company's products supplement the effectiveness of cellular
telephones, personal communications systems ("PCS"), pagers, computing devices
and the Intelligent Transportation Systems industry. The Company is a supplier
to major retailers, cellular and PCS service providers and original equipment
manufacturers.
NOTE 2 - BASIS OF INTERIM PRESENTATION
Interim financial statements and information are unaudited; however, in the
opinion of management all adjustments necessary for a fair presentation of the
interim results have been made. All such adjustments were of a normal recurring
nature. The results for the three and nine months ended December 31, 1997 are
not necessarily an indication of results to be expected for the entire fiscal
year. The accompanying financial statements have been prepared in accordance
with the instructions to Form 10-Q and do not include all of the information and
the footnotes required by generally accepted accounting principles for complete
statements. All information reported in this Form 10-Q should be read in
conjunction with the Company's annual financial statements and notes thereto for
the fiscal year ended March 31, 1997 filed with the Securities and Exchange
Commission on June 30, 1997.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE 3 - LEGAL PROCEEDINGS
The Company filed suit in 1994 seeking a declaratory judgment that certain
patents held by Telular Corporation ("Telular") are invalid. Telular
counterclaimed, contending that its patents are valid and infringed.
On February 1, 1996, the United District Court for the Central District of
California (the "District Court") granted Telular's motion for partial summary
judgment against the Company, determining that Telular's patents are valid and
that CDL infringes, and permanently enjoining the Company from further sales of
CDL.
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The Company appealed the issuance of the permanent injunction, and the partial
summary judgment order on which it is based, to the United States Court of
Appeals for the Federal Circuit (the "Federal Circuit"). On April 29, 1997, the
Federal Circuit issued an opinion affirming the District Court's February 1,
1996 ruling against the Company. As a result, the District Court's determination
that Telular's patents are valid and that CDL infringes, and that the Company is
permanently enjoined from further sales of CDL, have been upheld on appeal.
The case against the Company has been returned to the District Court for a trial
to determine the amount of damages to be assessed. The damages phase of the
trial will result in a money judgment against the Company. Because discovery on
damages issues is pending, the Company is unable to provide an estimate of the
amount or range of potential damages that will be assessed. However, the Company
has assumed a minimum estimate of damages to be approximately $200,000, and
accordingly, accrued that amount at March 31, 1997 as a reserve for this
contingency. The potential upper limit of damages may be much higher and could
have a material adverse affect on the Company's financial position, results of
operations and cash flow.
On August 4, 1997, Telular asked for summary judgment on the issues of whether
the case against the Company is an exceptional case and whether the infringement
by the Company was willful. In December, 1997, the District Court issued an
order granting Telular's partial summary judgment motion, ruling that the case
was exceptional and the infringement willful. As a result, damages awarded
during the damages phase of trial will be trebled, and the Court will award
Telular's reasonable attorneys' fees.
The Company is involved in other legal proceedings, many of which arise in the
ordinary course of its business. While any litigation contains an element of
uncertainty, management believes that the outcome of such proceedings will not
have a material adverse effect on the Company's results of operations.
NOTE 4 - PRO FORMA EARNINGS (LOSS) PER SHARE
The pro forma earnings (loss) per share data is presented to show the effect on
basic and diluted earnings (loss) per share assuming the Company's merger with
North American Energy of Delaware, Inc. had occurred at the beginning of the
three month period ended December 31, 1996 instead of the actual merger date of
December 20, 1996.
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NOTE 5 - LINE OF CREDIT
On April 7, 1997, the Company secured a $5,000,000 line of credit from a finance
company. The initial term of the line of credit is two years with provisions for
automatic renewals thereafter in one-year increments. The line is secured by all
inventory, equipment, accounts receivable and intellectual property. Borrowings
incur interest at 1% above the reference rate of Citibank, N.A. and there is an
unused line fee of 0.5%. The Company's funds are swept daily and capital is made
available based on 70% of eligible accounts receivable and 35% of eligible
inventory.
Under the line of credit facility, the Company is required to maintain various
covenants, including meeting certain net worth requirements, a liquidity ratio,
a debt service coverage ratio and restrictions of capital expenditures,
additional indebtedness and the payment of dividends. At December 31, 1997, the
Company was not in compliance with the net worth requirement. On February 11,
1998, such covenant violation was waived by the finance company and amended by a
Waiver and Fourth Amendment to Loan Agreement dated February 11, 1998.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS COMPARISON OF THREE MONTHS ENDED DECEMBER 31, 1997 TO
THREE MONTHS ENDED DECEMBER 31, 1996
Revenues decreased by $2,780,085, or 44.6%, to $3,447,512 for the third
quarter of fiscal 1998 compared to $6,227,597 for the same period of the
prior year. This decrease primarily reflects a continuation of a trend of lower
orders being received by consumer electronics retailers who have reported same
store sales decreases and reductions in cellular telephone activations as
compared with the prior year. Retailers have reported that their cellular
telephone activations are lower as a result of reduced financial incentives
offered to them by cellular telephone carriers. The Company believes that its
traditional retail customers may face increased competitive pressures from
cellular service providers and that, consequently, orders for its cellular
products from such retailers may continue to decline. The Company is exploring
alternative channels of distribution.
Gross profit decreased by $1,013,111, or 36.6%, to $1,757,002 for the third
quarter of fiscal 1998 compared with $2,770,113 for same period of the prior
year, while gross profit as a percentage of net sales increased to 51.0% from
44.5%. The decrease in gross profit is primarily attributable to the
continuation of competitive pressures among the Company's large retail customers
and the resulting pressure on wholesale prices during the quarter ended December
31, 1997. The increase in gross profit as a percentage of sales reflects the
successful efforts of the Company to reduce the purchase costs of its inventory.
Selling and shipping expenses decreased by $437,891, or 42.3%, to $597,201
for the third quarter of fiscal 1998 compared with $1,035,092 in the same period
of the prior year. The decreases in selling and shipping expenses are
attributable to lower costs of shipping, warehousing, freight and sales
commissions, which primarily resulted from lower sales, combined with lower
expenditures for media and catalogue advertising, as well as reductions in
personnel in each of these areas.
Administrative and general expenses increased by $35,318, or 3.7%, to
$994,832 for the third quarter of fiscal 1998 compared with $959,514 in the same
period of the prior year.
Income from operations was $164,969 for the third quarter of fiscal 1998
compared with an operating profit of $775,507 in the same period of the prior
year. The decrease in operating profit is primarily a result of the reduction in
revenue as a result of continuing competitive pressures among the Company's
major retail customers.
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Interest expense for the third quarter of fiscal 1998 was $161,158 compared
with $362,773 in the same period of the prior year. This reduction is
primarily a result of decreased borrowings under the Company's line of credit
and a net reduction in Long-term debt of approximately $1,525,000.
The net income was $3,811 for the third quarter of fiscal 1998 compared
with net income of $412,734 in the same period of the prior year.
COMPARISON OF NINE MONTHS ENDED DECEMBER 31, 1997 TO NINE MONTHS ENDED
DECEMBER 31, 1996
Revenues decreased by $2,736,313, or 19.0%, to $11,691,492 for the nine
months of fiscal 1998 ended December 31, 1997, compared with $14,427,805 for the
same period of the prior year. The decrease is primarily attributable to the
decrease in sales of $2,780,085 noted for the current quarter ended December 31,
1997.
Gross profit increased by $149,007, or 3.1%, to $4,929,678 for the nine
months of fiscal 1998 ended December 31, 1997 compared with $4,780,671 for the
same period of the prior year, while gross profit as a percentage of net sales
increased to 42.2% from 33.1%. These comparisons are significantly impacted by
the reduction in carrying value of trade accounts receivable and merchandise
inventory totaling approximately $2,671,000, which occurred in the fiscal
quarter ended June 30, 1996 and is more fully discussed in the Company's
quarterly report for the period ended June 30, 1997. Excluding the effects of
these carrying value adjustments, and after giving effect to the $700,000
carrying value adjustment of merchandise inventory taken in the quarter ended
September 30, 1997, as discussed in the Company's quarterly report for the
period ended September 30, 1997, there was a decrease in gross profit for the
nine month period ended December 31, 1997 of approximately $1,822,000, or 24.5%,
and a resultant gross profit as a percentage of net sales of approximately 48.2%
for the nine month period ended December 31, 1997. The resultant decreases in
gross profit and gross profit as a percentage of net sales are primarily
attributable to continuing competitive pressure among the Company's large retail
customers and the resulting pressure on wholesale prices.
Selling and shipping expenses decreased by $752,292, or 29.3%, to
$1,811,235 for the nine months of fiscal 1998 ended December 31, 1997 compared
with $2,563,527 in the same period of the prior year. The decrease in selling
and shipping expenses is primarily attributable to lower costs of shipping and
warehousing, freight and sales commissions which primarily resulted from lower
sales, combined with lower expenditures for media and promotional advertising,
including reductions in personnel.
Administrative and general expenses increased by $369,003, or 11.8%, to
$3,492,592 for the nine months of fiscal 1998 ended December 31, 1997 compared
with $3,123,589 for the same period of the prior year. The increase is primarily
attributable to increases in professional fees, legal and insurance expenses,
and bad debt accrual, partially offset by reductions in personnel.
Losses from operations decreased by $532,296 or 58.7%, to $374,149 for the
nine months of fiscal 1998 ended December 31, 1997 compared with a $906,445 loss
in the same period of the prior year.
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Interest expense for the nine months of fiscal 1998 ended December 31, 1997
was $539,708 compared with $837,683 in the same period of the prior year. This
reduction is primarily a result of decreased borrowings under the Company's line
of credit and a net reduction in Long-term debt of approximately $1,525,000.
The net loss decreased by $830,271, or 47.6%, to $913,857 for the nine
months of fiscal 1998 ended December 31, 1997 compared with $1,744,128 in the
same period of the prior year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements are to fund working capital needs,
primarily accounts receivable and inventories. Historically, the Company has
satisfied these working capital requirements principally through cash flow from
operations and bank borrowings.
At December 31, 1997, the Registrant had $53,557 in cash and cash
equivalents with a working capital surplus of $2,013,873, contrasted to $321,647
in cash and cash equivalents with a working capital surplus of $2,829,897 at
March 31, 1997. Net cash provided by operating activities was $912,190 for the
nine months ended December 31, 1997, compared with net cash used in operating
activities of $624,365 for the nine months ended December 31, 1996. Working
capital may vary from time to time as a result of seasonality, new product
introductions, capital expenditures and changes in inventory levels.
To supplement cash flow from operations, if necessary, the Company
maintains a $5,000,000 revolving credit facility to be used for general working
capital purposes. The credit agreement (dated April 4, 1997) with FINOVA Capital
Corporation ("FINOVA") allows the Company to borrow funds at Citibank N.A.'s
reference rate plus 1% and there is an unused line fee of 0.5%. The Company's
funds are swept daily and capital is made available based on 70% of eligible
accounts receivable and 35% of eligible inventory. Based on the Company's level
of underlying collateral and the formulas utilized to calculate eligible
collateral, the Company generally has capital available of approximately
$1,500,000 from this line of credit.
Under the FINOVA facility, the Company is required to maintain various
covenants, including meeting certain net worth requirements, a liquidity ratio,
a debt service coverage ratio and restrictions of capital expenditures,
additional indebtedness and the payment of dividends. At December 31, 1997, the
Company was not in compliance with the net worth requirement. On February 11,
1998, the covenant violation was waived by FINOVA. The Company is currently
negotiating a revision of all covenants, which would take effect on March 31,
1998, at levels that the Company anticipates can be successfully maintained.
However, the Company's ability to maintain such covenants depends, in part, upon
its ability to penetrate new distribution channels. No assurances can be given
as to the Company's ability to do so.
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A loan from the Aid Association for Lutherans ("AAL") obtained by the
Company to purchase its headquarters and distribution facility in Chatsworth,
California is, by its terms, callable by AAL upon six months notice. As of
December 31, 1997, the outstanding principal balance of such loan was$4,617,900.
Such loan bears interest at 9.875% per year, is payable in monthly installments
of $43,418, representing both principal and interest, matures in February 2019
and is secured by the real property on which the facility is located.
Net cash used in investing activities was $185,707 for the first nine
months of fiscal 1998, compared with net cash used in investing activities of
$314,753 for the first nine months of fiscal 1997. This difference is primarily
attributable to an increase in capital expenditures of approximately $131,000 in
fiscal 1998 combined with a reduction in loans made to officers of approximately
$260,000.
Cash flows used in financing activities were $994,573 for the first
nine months of fiscal 1998, compared with cash flows provided by financing
activities of $1,784,453 for the first nine months of fiscal 1997. The cash
flows used in financing activities in fiscal 1998 are primarily attributable to
the repayment of short term borrowings during the period.
The Company is currently evaluating its management information systems as
part of its strategy and growth expectations for the future. The likely result
of this evaluation will be a systems conversion for the Company's core business
processes. Although, the ultimate cost of a systems conversion has not yet been
determined, the Company believes that it will incur expenses of between $100,000
and $150,000 related to this project in late fiscal 1999 or early fiscal 2000.
The Company is currently involved in a patent infringement lawsuit whereby
it has been enjoined from selling its Cellular Data Link ("CDL") product line. A
determination by the court as to money damages to be assessed, based on the
Company's prior sales of CDL products, has yet to be made. Although the extent
of the liability for this matter is presently unknown, total damages, including
attorney fees for both sides, could have a material adverse impact on the
Company's financial condition, including liquidity.
The Company believes that available cash, cash flow from operations and
available borrowings through its credit facility, will be sufficient to meet
operating needs and capital expenditure requirements for the foreseeable future,
although no assurances can be given.
SEASONALITY
The Company's markets are seasonal with sales typically higher in the
Company's third quarter due to increased demand from mass-market retailers
during the year-end holiday season.
FORWARD LOOKING INFORMATION
This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of that term in the Private Securities Litigation Reform Act
of 1995 (Section 27A of the Securities Act of 1933 and Section 21E of the
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Securities Exchange Act of 1934). Additional written or oral forward-looking
statements may be made by the Company from time to time, in filings with the
Securities and Exchange Commission or otherwise. Statements contained herein
that are not historical facts are forward-looking statements made pursuant to
the safe harbor provisions referenced above. The matters discussed herein with
respect to the introduction of new products by the Company, the Company's
ability to penetrate new distribution channels, future sales levels, compliance
with financial covenants in loan agreements, the Company's ability to secure
future financing and the potential outcome of pending litigation involving the
Company, among others, are forward looking statements. In addition, when used in
this discussion, the words "anticipates," "expects," "intends," "plans" and
variations thereof and similar expressions are intended to identify
forward-looking statements.
Forward-looking statements are inherently subject to risks and
uncertainties, some of which cannot be predicted or quantified based on current
expectations. Consequently, future events and actual results could differ
materially from those set forth in, contemplated by, or underlying the
forward-looking statements contained in this Quarterly Report. Statements in
this Quarterly Report, particularly in the Notes to Financial Statements, "Part
1, Item 2, Management's Discussion and Analysis of Financial Condition and
Results of Operations," and "Part II, Item 1, Legal Proceedings" describe
certain factors, among others, that could contribute to or cause such
differences. Other factors that could contribute to or cause such differences
include, but are not limited to, unanticipated developments in any one or more
of the following areas: the receptivity of consumers to new consumer electronics
technologies, the rate and consumer acceptance of new product introductions,
competition, the number and nature of customers and their product orders,
pricing, foreign manufacturing, sourcing and sales (including foreign government
regulation, trade and importation concerns and fluctuation in exchange rates),
borrowing costs, changes in taxes due to changes in the mix of U.S. and non U.S.
revenue, pending or threatened litigation, the availability of key personnel and
other risk factors which may be detailed from time to time in the Company's
Securities and Exchange Commission filings.
Readers are cautioned not to place undue reliance on any forward-looking
statements contained herein, which speak only as of the date hereof. The Company
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of unexpected
events.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As previously reported in the Company's Form 8-K filed on December 20, 1996
and the Company's Form 10-K filed on June 30, 1997, the Company is currently
involved in a lawsuit titled ALLIANCE RESEARCH CORPORATION v. TELULAR
CORPORATION, including the counterclaim entitled TELULAR CORPORATION v. ALLIANCE
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RESEARCH CORPORATION, United States District Court for the Central District of
California, Case No. CV 94-1065-JSL.
On August 4, 1997, Telular filed a motion for summary judgment on the
issues of whether the case against the Company is an exceptional case and
whether the infringement by the Company was willful. In December, 1997, the
District Court issued an order granting Telular's partial summary judgment
motion, ruling that the case was exceptional and the infringement willful. As a
result, damages awarded during the damages phase of trial will be trebled, and
the Court will award Telular's reasonable attorneys' fees.
In addition to the above-described litigation, the Company is party to
other claims and litigation that arise in the normal course of business. While
any litigation contains an element of uncertainty, management believes that the
ultimate outcome of these claims and litigation will not have a material adverse
effect on the Company's results of operations or financial condition.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit No. Description
----------- -----------
2.1 Plan of Reorganization of North American Energy of Delaware,
Inc. (1)
2.2 Agreement and Plan of Merger between ORA Electronics, Inc., a
Delaware corporation, and North American Energy of Delaware,
Inc., a Delaware corporation. (2)
3.1 Restated Certificate of Incorporation of ORA Electronics, Inc.
(2)
3.2 Bylaws of ORA Electronics, Inc. (2)
4.1 Specimen Common Stock Certificate of ORA Electronics, Inc. (2)
4.2 Specimen Class A Warrant Certificate. (2)
4.3 Specimen Class B Warrant Certificate. (2)
4.4 Specimen Class C Warrant Certificate. (2)
4.5 Specimen Class D Warrant Certificate. (2)
4.6 Warrant Agreement between the Company and Continental Stock
Transfer & Trust Company (the "Warrant Agent"), dated as of
December 20, 1996. (2)
-16-
<PAGE>
4.7 Letter Agreement, dated June 10, 1997, from Sheppard, Mullin,
Richter & Hampton LLP to the Warrant Agent. (3)
10.1 Loan and Security Agreement, dated April 4, 1997, by and between
the Company and FINOVA Capital Corporation ("FINOVA").
(3)
10.2 Amendment to Loan Agreement, dated April 4, 1997, between the
Company and FINOVA. (3)
10.3 Collateral Assignment, Patent Mortgage and Security Agreement,
dated as of April 4, 1997, by and between the Company and
FINOVA. (3)
10.4 Waiver and Second Amendment to Loan Agreement, dated June 26,
1997, between the Company and FINOVA. (3)
10.5 Waiver and Third Amendment to Loan Agreement, dated November 13,
1997, between the Company and FINOVA.
11 Statement re: Computation of Earnings (loss) Per Share.
27 Financial Data Schedule.
- ---------------
(1) Incorporated by reference from the Form 8-K/A filed on December 20,
1996, by North American Energy of Delaware, Inc., predecessor to the
Registrant.
(2) Incorporated by reference from the Registrant's Form 8-K filed on
December 20, 1996.
(3) Incorporated by reference from the Registrant's Form 10-K filed on
June 30, 1997.
(b) Reports on Form 8-K.
A report on Form 8-K was filed on December 19, 1997, in connection
with the Company's extension of the exercise deadlines relating to its
Class A and Class B Warrants. By their terms, the Company's Class A
Warrants now entitle the holders thereof to purchase shares of the
Company's common stock at an exercise price of $5.00 per share on or
prior to December 31, 1998, and the Company's Class B Warrants now
entitle the holders thereof to purchase shares of the Company's common
stock at an exercise price of $10.00 per share on or prior to December
31, 1998.
-17-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ORA ELECTRONICS, INC.
(Registrant)
Dated: February 13, 1998 By: /s/ John M. Burris
---------------------------------
John M. Burris, Duly Authorized
Representative and Chief Financial
Officer
-18-
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page
- --------------------------------------------------------------------------------
10.5 Waiver and Third Amendment to Loan Agreement,
dated November 13, 1997, between the Company
and FINOVA 20
11 Statement Re: Computation Of Earnings (loss)
Per Share 23
27 Financial Data Schedule 24
-19-
<PAGE>
EXHIBIT 10.5
FINOVA
WAIVER AND THIRD AMENDMENT TO LOAN AGREEMENT
Borrower: ORA Electronics, Inc.
Address: 9410 Owensmouth Avenue
Chatsworth, California 91311
Date: November 13, 1997
THIS WAIVER AND THIRD AMENDMENT TO LOAN AGREEMENT is entered into
between FINOVA Capital Corporation ("FINOVA") and the borrower named above (the
"Borrower").
The Parties agree to amend the Loan and Security Agreement between them,
dated April 4, 1997 (as amended, the "Loan Agreement"), as follows, effective
September 30, 1997. (Capitalized terms used but not defined in this Amendment,
shall have the meanings set forth in the Loan Agreement.)
1. WAIVER. FINOVA hereby waives the default consisting of the Borrower's
failure to comply with the Net Worth covenant set forth in the Schedule to the
Loan Agreement at September 30, 1997, October 31, 1997 and November 30, 1997 (as
such covenant was in effect prior to this Amendment). FINOVA further waives the
default consisting of the Borrower's failure to comply with the Debt Service
Coverage Ratio covenant set forth in the Schedule (as such covenant was in
effect prior to this Amendment) during the period ended September 30, 1997.
Borrower shall, however, comply with the Net Worth and Debt Service Coverage
Ratio covenants as modified by this Amendment at said dates.
2. AMENDMENT TO CERTAIN FINANCIAL COVENANTS. The Net Worth covenant and
Debt Service Coverage Ratio covenants set forth in the Schedule are amended as
follows, effective on: The Paragraphs in the Schedule which presently read:
"Net Worth. Borrower shall maintain Net Worth of not
less than the following amounts as of the
end of each month during the following
periods:
Months Net Worth
------ ---------
May 1, 1997 to June 30, 1997 $3,400,000
July 1, 1997 to August 31, 1997 3,350,000
September 1, 1997 to September 30, 1997 4,200,000
October 1, 1997 and thereafter 5,000,000
-1-
-20-
<PAGE>
"Debt Service
Coverage Ratio: Borrower shall maintain a Debt Service
Coverage Ratio of 1.50:1 during the
following periods:
(i) for the period from August 1,
1997 through August 31, 1997; and
(ii) for the period from April 1,
1997 through September 30, 1997,
and from April 1, 1997 through the
end of each month thereafter
(October 31, 1997), November 30,
1997, etc.), to and including
February 28, 1998; and
(iii) for the twelve-month period
ending March 31, 1998 and for each
consecutive cumulative rolling
twelve-month period ending on the
last day of each subsequent month
throughout the term of this
Agreement."
are amended to read as follows:
"Net Worth. Borrower shall maintain Net Worth of not
less than the following amounts as of the
last day of each of the following months;
Months Net Worth
------ ---------
September, 1997 to and including $3,500,000
November, 1997
December, 1997 4,200,000
January, 1998 and each month thereafter 5,000,000
"Increase in Net Worth Requirements. In the event
that the Borrower effects the sale of a license to
Ora UK, each of the foregoing Net Worth
requirements shall be increased by $1,000,000
effective upon receipt of the first proceeds of
such sale.
"Debt Service
Coverage Ratio: Borrower shall maintain a Debt Service
Coverage Ratio of 1.50:1 during the
following periods:
-2-
-21-
<PAGE>
(i) for the period from August 1,
1997 through September 30, 1997; and
(ii) for the period from August 1,
1997 through October 31, 1997, and
from August 1, 1997 through the
end of each month after October 31,
1997 to and including July 31, 1998; and
(iii) for the twelve-month period
ending July 31, 1998 and for each
consecutive cumulative rolling
twelve-month period ending on the
last day of each subsequent month
throughout the term of this Agreement."
3. REPRESENTATIONS TRUE. Borrower represents and warrants to FINOVA that
all representations and warranties set forth in the Loan Agreement, as amended
hereby, are true and correct.
4. GENERAL PROVISIONS. The waiver herein shall only apply to the
specific matters herein specifically set forth, and said waver shall not
constitute a waiver of any other present or future default or Event of Default,
whether or not similar to the default or Event of Default waived herein. This
Amendment, the Loan Agreement, any prior written amendments to the Loan
Agreement signed by FINOVA and the Borrower, and the other written documents and
agreements between FINOVA and the Borrower, including, without limitation, that
certain Letter Agreement between FINOVA and the Borrower of even date herewith,
set forth in full all of the representations and agreements of the parties with
respect to the subject matter hereof and supersede all prior discussions,
representations, agreements and understandings between the parties with respect
to the subject hereof. Except as herein expressly amended, all of the terms and
provisions of the Loan Agreement, and all other documents and agreements between
FINOVA and the Borrower shall continue in full force and effect and the same are
hereby ratified and confirmed.
Borrower: FINOVA:
ORA Electronics, Inc. FINOVA Capital Corporation
By /s/ Gershon Cooper By /s/ M.S. Milan
--------------------------- -----------------------------
President or Vice President Title Vice President
--------------------------
-3-
-22-
<PAGE>
EXHIBIT 11
STATEMENT RE: COMPUTATION OF EARNINGS (LOSS) PER SHARE
Three Months Ended December 31,
1997 1996
---- ----
Basic and diluted average shares outstanding 6,606,414 6,337,691
Net income $ 3,811 $ 412,734
=========== ===========
Basic and diluted earnings per share $ 0.00 $ 0.07
=========== ===========
Nine Months Ended December 31,
1997 1996
---- ----
Basic and diluted average shares outstanding 6,606,414 6,337,691
Net (loss) $ (913,857) $(1,744,128)
=========== ===========
Basic and diluted (loss) per share $ (0.14) $ (0.28)
=========== ===========
-23-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> MAR-31-1998 MAR-31-1998
<PERIOD-END> DEC-31-1997 DEC-31-1997
<CASH> 53,557 53,557
<SECURITIES> 0 0
<RECEIVABLES> 3,474,848 3,474,848
<ALLOWANCES> 1,772,603 1,772,603
<INVENTORY> 4,728,580 4,728,580
<CURRENT-ASSETS> 6,565,017 6,565,017
<PP&E> 9,126,163 9,126,163
<DEPRECIATION> 2,855,827 2,855,827
<TOTAL-ASSETS> 13,696,004 13,696,004
<CURRENT-LIABILITIES> 4,551,144 4,551,144
<BONDS> 0 0
0 0
0 0
<COMMON> 6,606 6,606
<OTHER-SE> 3,499,001 3,499,001
<TOTAL-LIABILITY-AND-EQUITY> 13,696,004 13,696,004
<SALES> 3,447,512 11,691,492
<TOTAL-REVENUES> 3,447,512 11,691,492
<CGS> 1,690,510 6,761,814
<TOTAL-COSTS> 1,592,033 5,303,827
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 161,158 539,708
<INCOME-PRETAX> 3,811 (913,857)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 3,811 (913,857)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,811 (913,857)
<EPS-PRIMARY> (0.00) (0.14)
<EPS-DILUTED> (0.00) (0.14)
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