SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
- -------------------------------------------------------------------------------
FORM 10-K
(Mark one)
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended March 31, 1998 or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from __________________
to ____________________
COMMISSION FILE NUMBER: 0-21903
ORA ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-4607830
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9410 OWENSMOUTH AVE.
CHATSWORTH, CALIFORNIA 91311
---------------------- -----
(Address of principal executive offices) (Zip Code)
(818) 772-2700
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
par value $.001 per share; Class A Warrants; Class B Warrants; Class C Warrants;
Class D Warrants
Indicate by check mark whether the registrant (1) has filed all reports 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
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Exhibit Index on Page 44
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Yes No X
----- -----
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
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The aggregate market value of the voting stock held by non-affiliates of
the registrant at June 25, 1998 was approximately $4,414,410. The registrant
had 6,908,934 shares of common stock, par value $.001 per share outstanding at
June 25, 1998.
The registrant had each of 478,863 Class A Warrants; 644,213 Class B
Warrants; 563,470 Class C Warrants; and 730,900 Class D Warrants, outstanding at
June 25, 1998.
Documents Incorporated by Reference (To the Extent Indicated Herein):
Portions of the Definitive Proxy Statement for the 1998 Annual Meeting (in Part
III).
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ITEM 1 - BUSINESS
GENERAL
ORA Electronics, Inc. ("ORA" or the "Company") is a developer and supplier of
interface, connectivity solutions and peripheral accessories for wireless
communication devices, including cellular telephones, personal communications
systems ("PCS") and pagers, computing devices and intelligent transportation
systems ("ITS"). The Company currently carries over 2,000 products which are
sold to over 500 customers in the United States, and throughout North, Central
and South America. Among the Company's customers are major retailers such as
Circuit City, Staples and OfficeMax, service providers and cellular carriers,
original equipment manufacturers ("OEMs"), auto manufacturers, regional
distributors and dealers.
The Company's business began as a sole proprietorship in 1974 under the name ORA
Electronics and was incorporated in California in 1979 under the name Alliance
Research Corporation ("Alliance"). The Company's products have been primarily
sold under the "ORA" trade name. In December 1996, Alliance merged into ORA
Electronics, Inc. for the purposes of effecting its name change and
reincorporation from California to Delaware. References herein to "ORA" or the
"Company" include Alliance prior to the date of such merger, as applicable.
From April, 1987 to December 1996, the Company was taxed as an S corporation
under the Internal Revenue Code of 1986, as amended. From December 1996 forward,
the Company has been taxed as a C corporation.
INDUSTRY
Wireless communications technology encompasses wireless communications devices
such as handheld, mobile and transportable phones, pagers and two-way radios.
Since its inception in 1983, the wireless phone service market has grown
rapidly. An industry source, Dataquest, a leading worldwide market intelligence
provider for the wireless communications industry, estimates that from 1992
through 1996, worldwide wireless phone subscribers grew at a compounded annual
rate of approximately 54.5%.
In the United States, wireless phone service was developed as an alternative to
conventional landline systems and existing mobile phone service and has been one
of the fastest growing market segments in the communications industry. The
number of U.S. wireless subscribers has grown significantly since the inception
of the wireless phone industry in 1983. According to Dataquest estimates, as of
December 31, 1996, there were approximately 42.2 million subscribers in the
United States; Dataquest estimates that the number of wireless subscribers in
the United States grew by close to ten million in 1997 alone.
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The chart below sets forth certain estimated information regarding U.S. wireless
phone shipments and subscriber growth:
Year Ended December 31,
-----------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In thousands)
Number of Wireless
Phones Shipped 20,956 16,457 14,381 12,774 8,565
Number of Subscribers 52,180 42,188 32,187 23,630 16,255
Source: Dataquest, Mobile Telephones Worldwide, 1992-2001--Market Trends 1996
(September 1997 Estimates)
The Company believes that the U.S. market for wireless services will continue to
expand due to the increasing affordability and availability of such services and
shorter development cycles for new products and enhancements. In addition, many
wireless service providers are upgrading their existing systems from analog to
digital technology as a result of analog capacity constraints in many of the
larger wireless markets and in order to respond to competition. Digital
technology increases system capacity and is expected to offer other advantages,
such as improved overall average signal quality, improved call security,
potentially lower incremental costs for additional subscribers and the ability
to provide data transmission services. If digital technology improves and
becomes more affordable, the Company may benefit both from the sale of digital
wireless phone accessories and peripheral devices as replacements for existing
analog wireless products and from the increased system capacity digital
technology offers.
PRODUCTS
Sales of wireless accessory products accounted for approximately 97.1%, 96.3%
and 89.6% of ORA's net sales for the fiscal years ended in 1998, 1997 and 1996,
respectively. The various power cords offered by ORA as part of its wireless
phone accessory line accounted for approximately 22.7%, 21.9% and 24.2% of ORA's
net sales for the fiscal years ended March 31, 1998, 1997 and 1996,
respectively. ORA offers 23 different stock keeping units of power cords which
support different wireless telephone models offered by 14 different
manufacturers.
A new product category in ORA's line is ITS. ORA has developed numerous
proprietary ITS products that allow interconnectivity between automotive safety
systems, entertainment systems, navigation systems and wireless communications
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devices. Telcar, a product developed by ORA, serves as an integration hub for
its products utilizing ORA's T-bus data protocols. Initial sales of this product
are expected to commence at the end of the second quarter of its fiscal year
ending March 31, 1999 or early in the following quarter. ORA's patent
applications with respect to these products are currently pending before the
U.S. Patent and Trademark Office.
CUSTOMERS
ORA sells its products to over 500 customers in the United States and throughout
North, Central and South America. Among ORA's customers are major retailers,
such as Circuit City, Staples and OfficeMax, service providers and cellular
carriers, OEMs, auto manufacturers, regional distributors and dealers.
Pursuant to its distribution agreement with an unaffiliated company, ORA
Electronics (UK) Ltd. ("ORA UK"), the Company may not sell products bearing the
"ORA" trade name and logo outside of North, Central and South America. Under
such agreement, which is perpetual, the Company does not generate any revenues
with respect to sales made by ORA UK.
For the fiscal years ending March 31, 1998, 1997 and 1996, one customer, Circuit
City, accounted for 38.5%, 25.4% and 23.6%, respectively, of the Company's net
sales. For the fiscal years ending March 31, 1998, 1997 and 1996, Staples
accounted for approximately 17.3%, 9.2% and 13.4%, respectively, of the
Company's net sales.
MARKETING AND CUSTOMER SUPPORT
ORA places a strong emphasis on the marketing of its products. Though its
product line features many technologically sophisticated and innovative
products, the Company believes that its greatest strengths lie in its abilities
to manufacture for, and communicate with, the mass market, provide useable
products and superior customer service, and introduce high technology products
to the market.
To ensure comprehensive control of the marketing process, ORA has a complete
in-house marketing services department. The marketing services department
provides a full range of services. In addition to ad design and production,
product photography, line brochures, packaging and catalogs, the department
provides a number of specialized customer services including a complete
planogram service specifying and illustrating the in-store arrangement of the
Company's products, cooperative advertising programs, store merchandising,
in-store display design and production, customer-specific collateral material,
ad slicks, clip art services, semi-private labeling, private label catalogs,
mail inserts and trade show exhibit management.
SALES AND DISTRIBUTION
ORA's products are distributed via national and regional consumer electronics
retailers, office supply retailers, department stores, auto parts chains and
other multiple outlet retailers, cellular service providers, catalog and mail
order houses, and electronics distributors. In addition, ORA designs and
supplies products to manufacturers of wireless communications devices,
automobile manufacturers and other manufacturers under "private label" and
special product agreements.
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In order to facilitate prompt deliveries to its retail customers, the Company
carries high levels of inventories. ORA's policy is to provide a 24-hour
turnaround on a select group of its products which are stocked in depth. In
addition, an ongoing "stock balancing" program allows retailers to return
current, slow moving items every three months in exchange for an offsetting
double order. ORA's return policy for non-salable products, including damaged
products, results in significant returns for credit. ORA products carry
warranties for defects in material or workmanship. These warranties vary from
one year to lifetime on passive devices, with most products carrying warranties
of three to five years. The Company's payment terms are typically 30 to 60 days.
However, under special circumstances, the Company will offer extended terms. Net
sales made on extended terms were approximately $245,000 and $890,000 for the
fiscal years ended March 31, 1998 and 1997.
The Company's business is seasonal. For its fiscal years ending March 31, 1998,
1997 and 1996, on average, approximately 28.3% of the Company's net sales were
in its third fiscal quarter and 17.7% in its fourth fiscal quarter, with the
balance split approximately evenly between the first and second fiscal quarters.
BACKLOG
Most orders received by the Company are for immediate delivery. As of March 31,
1998 and 1997, the Company had approximately $1,277,000 and $362,000,
respectively, in backlog orders, including orders for current delivery, orders
for later delivery, back orders and special orders, all of which may be
cancelled or modified by the customer. Such backlog represented approximately
$279,000 of back orders as of March 31, 1998, compared to approximately $294,000
of back orders as of March 31, 1997.
RESEARCH AND DEVELOPMENT
The Company has always focused on innovation as a means of maximizing margins
and capturing and maintaining market share. During its fiscal years ended March
31, 1998, 1997 and 1996, as reflected in its audited financial statements, the
Company spent approximately $440,000, $550,000 and $520,000, respectively, on
research and development related activities. In addition, the Company estimates
that approximately an additional $36,000, $80,000 and $77,000, respectively, was
spent for purchased materials that do not have alternative future uses. ORA
maintains an in-house research and development engineering staff. The
acquisition of a product development group in the beginning of 1994 increased
the size and quality of ORA's R&D staff. The Company maintains extensive
research and testing facilities (including an anechoic chamber) at its corporate
headquarters, thus allowing it to conduct sophisticated operations such as
testing radiation patterns for antenna and, thus, promoting product safety. ORA
also has strategic relationships with other independent research and development
companies to utilize their respective specialized skills or equipment.
Many of ORA's products carry UL listings or FCC approvals. The Company has been
awarded the prestigious Innovation in Engineering Award from the Electronics
Industry Association four times, in 1998, 1997, 1996 and 1995. Additionally, ORA
is Underwriters Laboratories, Inc. ISO 9000 certified and operates under the ISO
9002 quality standards.
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MANUFACTURING AND PACKAGING
ORA out-sources the manufacturing of its products using contract manufacturers
and "bid" manufacturing. Contract manufacturers are used mainly for proprietary
products such as Telcar, battery chargers and hands-free adapters. Bid
manufacturers are used mainly to produce commodity items such as battery packs
and power cords. Manufacturing plants are located in the US, Taiwan, China,
Hong Kong and Korea. ORA is not dependent on any one manufacturer to produce
products. The Company believes that such production is "portable" and can be
moved rapidly to other manufacturers and assemblers. The Company is, however,
dependent on the availability of raw materials and labor, and is subject to
customs regulations and quotas both in the US and abroad.
The products manufactured for the Company in Asia, which represent substantially
all of the Company's products, are purchased by the Company from a foreign
trading company, Data-Spec Taiwan, Limited ("Data-Spec Taiwan"). Data-Spec
Taiwan negotiates purchases with the various contract manufacturers, "bid"
manufacturers and remits payment to these companies for the products. Data-Spec
Taiwan also represents ORA in negotiations with respect to procurement,
specifications compliance and quality assurance. Data-Spec Taiwan is ISO 9000
certified. Jack D.W. Song who owns over 10% of the Company's outstanding Common
Stock, is the majority owner of Data-Spec Taiwan.
The Company receives most of its inventory in bulk shipments. The bulk products
are then assembled and packaged in various configurations and kits utilizing
in-house packaging equipment and materials.
ASSET MANAGEMENT
Inventory control is important to the Company's ability to maintain margins
while offering its customers competitive prices and rapid delivery of a wide
variety of products. To be in a position to deliver products rapidly, the
Company maintains a significant investment in its product inventory and,
therefore, is subject to the risks of inventory obsolescence and excessive
inventory levels.
COMPETITION
The consumer electronics and wireless telecommunications accessory market is
highly fragmented and subject to intense competition. The market for wireless
products is characterized by rapidly changing technology and frequent new
product introductions. The Company's success depends in large part upon its
ability to identify and design products that will meet the changing requirements
and demands of the marketplace. ORA's competitors include (a) various companies
which offer broad lines of consumer electronic accessories, (b) other accessory
companies which offer certain product lines and (c) manufacturers of brand name
consumer electronics hardware, which market their own lines of similar
accessories. Certain of the Company's existing and potential competitors have
greater financial, technical, marketing or manufacturing resources and may
develop new accessories and other products that are superior to those of the
Company. The Company competes primarily on the basis of product variety and
quality, customer service and support, product reliability, company and brand
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name recognition, ability to meet customer delivery needs, price, product
features and proprietary products. There can be no assurance that the Company
will be able to identify, obtain and offer products necessary to remain
competitive.
TRADEMARKS AND PATENTS
The Company actively pursues a program of protecting its intellectual property
by seeking patent, copyright and trademark protection for its products to the
maximum extent permissible under U.S. and foreign laws. Currently, the Company
owns 36 issued patents and has an additional six pending patent applications
covering various unique and novel aspects of certain of its products in both the
United States and in some foreign jurisdictions. Most of the Company's patents
have the majority of their term remaining.
The Company also owns 20 trademarks registered on the Principal Trademark
Register of the United States under which the Company markets its goods and
offers its services. The Company also copyrights its manuals, sales and product
literature, as well as numerous software codes and protocols necessary to
operate several of its processor controlled products and systems.
No assurance can be given that the Company's existing patents or any future
patents will not be challenged, invalidated or circumvented, or that
competitors of the Company will not independently develop or patent
technologies which are substantially equivalent or superior to the Company's
technologies.
EMPLOYEES
As of June 15, 1998, the Company had 57 employees. None of the Company's
employees is covered by a collective bargaining agreement. The Company
believes that its relationship with its employees is satisfactory.
ITEM 2 - PROPERTIES
The Company owns its 80,000 square foot headquarters and distribution facility
in Chatsworth, California. Such property is subject to a deed of trust in favor
of the Aid Association for Lutherans, which entity provided financing for the
acquisition of the property.
ITEM 3 - LEGAL PROCEEDINGS
The Company was involved in a lawsuit titled ALLIANCE RESEARCH CORPORATION V.
TELULAR CORPORATION; including the counterclaim entitled TELULAR CORPORATION V.
ALLIANCE RESEARCH CORPORATION, United States District Court for the Central
District of California, Case No. CV 94-1065-JSL.
As previously disclosed on a Current Report on Form 8-K filed with the
Securities and Exchange Commission ("SEC") on March 3, 1998, the Company and
Telular Corporation ("Telular") settled the lawsuit pursuant to a Settlement
Agreement and Mutual General Release dated March 2, 1998. According to the terms
of the settlement, Telular Corporation will receive from the Company cash
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payments totaling $1,500,000 over a two year period and 300,000 shares of the
Company's common stock and may receive additional shares of common stock on
February 1, 2000, if necessary to ensure that the total shares of common stock
received by Telular Corporation have a market value of $1,500,000 as of such
date. Pursuant to the settlement, the lawsuit was dismissed with prejudice,
although the Company is enjoined from selling its CDL line of products. The
Company has had no sales of such product line since before April 1, 1996.
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 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended March 31, 1998.
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market for Common Stock
The Company's common stock, par value $.001 per share (the "Common Stock"), was
listed for trading on December 20, 1996, following its merger with North
American Energy of Delaware, Inc. (the "NAED Merger"), on the OTC Bulletin
Board. As of June 25, 1998, there were approximately 645 stockholders of record
of the Company's Common Stock. On June 25, 1998, the last reported sale price of
the Common Stock on the OTC Bulletin Board was $2.06. The following table sets
forth the high and low sales prices for the Common Stock for each quarterly
period since such stock began trading:
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High Low
---- ----
Fiscal year ended March 31, 1997:
First Quarter............................... N/A N/A
Second Quarter.............................. N/A N/A
Third Quarter (commencing December 20, 1996) $7.00 $4.00
Fourth Quarter.............................. 9.00 3.50
Fiscal year ended March 31, 1998:
First Quarter............................... 4.38 1.25
Second Quarter.............................. 4.38 2.25
Third Quarter............................... 2.25 1.50
Fourth Quarter.............................. 2.00 1.25
Dividend Policy
The Company intends to use its cash flow from operations to finance its working
capital needs. The payment of cash dividends, if any, in the future is within
the discretion of the Company's Board of Directors and will depend upon the
Company's earnings, its capital requirements and financial condition and other
relevant factors. Since having become a C corporation for tax purposes in
December 1996, the Company has not paid a dividend on its Common Stock and does
not intend to declare any cash dividends in the foreseeable future.
Recent Sales of Unregistered Securities
Pursuant to a Stock Agreement dated March 2, 1998, arising from a settlement of
patent litigation with Telular Corporation, the Company issued to Telular
Corporation 300,000 shares of its common stock. These shares were subsequently
registered with the SEC effective May 11, 1998.
ITEM 6 - SELECTED FINANCIAL DATA
The following table sets forth certain selected financial data regarding the
Company which is qualified by reference to, and should be read in conjunction
with, the consolidated financial statements and notes thereto (see "Index to
Consolidated Financial Statements") and "Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations." The income statement
and balance sheet data presented below have been derived from the Company's
financial statements. The selected pro forma income statement data set forth
below is for informational purposes only and may not necessarily be indicative
of the Company's results of operations in the future.
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ORA ELECTRONICS, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
Years Ended March 31,
- ----------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 15,443,432 $ 18,718,113 $ 24,110,436 $ 25,308,778 $ 20,398,962
Cost of goods sold 9,152,641 12,211,623 15,354,206 15,687,331 10,559,143
------------ ------------ ------------ ------------ ------------
Gross profit 6,290,791 6,506,490 8,756,230 9,621,447 9,839,819
------------ ------------ ------------ ------------ ------------
Operating Expenses:
Selling and shipping expenses 2,434,547 3,163,863 3,997,970 4,161,196 3,767,825
General and administrative expenses 5,742,427 5,183,082 5,202,191 4,407,590 4,183,391
------------ ------------ ------------ ------------ ------------
Total operating expenses 8,176,974 8,346,945 9,200,161 8,568,786 7,951,216
------------ ------------ ------------ ------------ ------------
Other (income) expenses:
Interest expense 702,128 1,072,107 1,056,529 898,534 782,647
Other expense (income) (10,627) (231,620) (58,783) (56,790) (3,989)
------------ ------------ ------------ ------------ ------------
Total other expenses 691,501 840,487 997,746 841,744 778,658
------------ ------------ ------------ ------------ ------------
Total expenses 8,868,475 9,187,432 10,197,907 9,410,530 8,729,874
------------ ------------ ------------ ------------ ------------
Net income (loss) before income taxes (2,577,684) (2,680,942) (1,441,677) 210,917 1,109,945
Provision (benefit) for income taxes 0 0 (23,822) 27,861 32,633
------------ ------------ ------------ ------------ ------------
Net income (loss) $ (2,577,684) $ (2,680,942) $ (1,417,855) $ 183,056 $ 1,077,312
============ ============ ============ ============ ============
PRO FORMA DATA:
Historical income (loss) before
income taxes $ (2,577,684) $ (2,680,942) $ (1,441,677) $ 210,917 $ 1,109,945
Proforma income tax provision (benefit) 0 0 $ (713,913) $ 84,367 $ 443,978
------------ ------------ ------------ ------------ ------------
Proforma net income (loss) $ (2,577,684) $ (2,680,942) $ (727,764) $ 126,550 $ 665,967
------------ ------------ ------------ ------------ ------------
Proforma net income (loss) per share $ (0.39) $ (0.41) $ (727.76) $ 126.55 $ 665.97
------------ ------------ ------------ ------------ ------------
Proforma weighted average common shares
outstanding 6,627,697 6,589,068 1,000 1,000 1,000
============ ============ ============ ============ ============
BALANCE SHEET DATA:
Working capital $ 1,131,155 $ 2,829,897 $ 1,290,836 $ 2,892,990 $ 3,364,889
============ ============ ============ ============ ============
Total assets $ 14,337,715 $ 16,728,304 $ 17,128,943 $ 17,020,943 $ 14,165,803
============ ============ ============ ============ ============
Long term debt $ 6,105,477 $ 5,601,516 $ 7,188,902 $ 7,246,168 $ 6,798,073
============ ============ ============ ============ ============
Stockholders' equity $ 2,141,880 $ 4,400,674 $ 1,278,217 $ 2,696,072 $ 3,263,016
============ ============ ============ ============ ============
</TABLE>
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The proforma data above is provided for information purposes only, to reflect
the effects of federal and state income taxes had the Company had been taxed as
a C corporation rather than an S corporation, since April 1, 1993.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion and analysis should be read in conjunction with the
Company's consolidated financial statements and the notes thereto.
RESULTS OF OPERATIONS
The following table sets forth proforma operating results (as a percentage of
net sales) for the periods indicated. Proforma operations reflect adjustments to
historical operating results for Federal and state income taxes as if the
Company had been taxed as a C corporation rather than an S corporation.
Years Ended March 31,
1998 1997 1996
---- ---- ----
Net sales 100.0% 100.0% 100.0%
Cost of sales 59.3 65.2 63.7
----- ----- -----
Gross Profit 40.7 34.8 36.3
Selling and shipping expenses 15.3 16.9 16.6
Administrative and general expenses 37.6 27.7 21.6
----- ----- -----
Loss From Operations (12.2) (9.8) (1.9)
Interest expense 4.5 5.7 4.4
Other (income) 0.0 (1.2) (0.3)
----- ----- -----
Net (loss) before taxes (16.7) (14.3) (6.0)
Proforma income taxes (benefit) 0.0 0.0 (3.0)
----- ----- -----
Proforma net (loss) (16.7)% (14.3)% (3.0)%
====== ====== ======
FISCAL YEAR ENDED MARCH 31, 1998 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1997
Net sales decreased 17.5 % to $15,443,432 in fiscal year 1998, compared to
$18,718,113 in fiscal year 1997, a decrease of $3,274,681. This decrease
reflects lower than expected orders from consumer electronics retailers who have
reported comparable store sales decreases compared to the prior year. Retailers
have reported that their wireless telephone activations are lower as a result of
reduced financial incentives offered to them by wireless telephone carriers. The
Company believes that its traditional retail customers may face increased
competitive pressures from wireless service providers and that, consequently,
orders for its wireless products from such retailers may continue to decline.
The Company is exploring alternative channels of distribution. The Company
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allows stock balancing (return of unsold items for different merchandise) to
enable customers to freshen inventory. Higher than expected returns from
customers relating to such stock balancing also contributed to lower net sales.
Gross profit decreased to $6,290,791 for fiscal year 1998 from $6,506,490 in
fiscal year 1997. Gross profit as a percentage of net sales increased to 40.7%
in fiscal year 1998 from 34.8% in fiscal year 1997. The decrease in absolute
dollars is primarily attributable to the decreased number of units sold combined
with an increase in customer returns of unsold merchandise. The increase in
profit margin as a percentage of net sales is primarily attributable to the
Company's successful efforts to procure its product inventory at lower prices,
primarily from Taiwan and China.
Operating expenses in total decreased to $8,176,974 in fiscal year 1998 from
$8,346,945 in fiscal year 1997. Selling and shipping expenses decreased to
$2,434,547 in fiscal year 1998 compared to $3,163,863 in fiscal year 1997,
primarily attributable to lower costs of shipping, warehousing, freight, sales
commissions, and lower expenditures for advertising. Media, promotional and
catalogue advertising decreased to $33,719 in fiscal year 1998 from $105,991 in
fiscal year 1997. Administrative and general expenses increased to $5,742,427 in
fiscal year 1998 compared to $5,183,082 in fiscal year 1997, primarily
attributable to higher legal fees associated with the resolution of the
Company's patent litigation against Telular Corporation, higher bank fees and
bad debt experience, partially offset by reductions in personnel.
Operating expenses as a percentage of net sales increased to 52.9% in fiscal
year 1998 from 44.6% in fiscal year 1997, primarily due to the decrease in net
sales.
The Company had interest expense of $702,128 in fiscal year 1998 compared to
$1,072,107 in fiscal year 1997. The decrease is primarily attributable to
decreases in the Company's usage of its bank line of credit during fiscal 1998.
Other income decreased to $10,627 for fiscal year 1998 compared to $231,620 in
fiscal year 1997, primarily attributable to a refund of required estimated
Federal income tax payments in fiscal year 1997, resulting from the Company's S
corporation status for most of fiscal 1997.
FISCAL YEAR ENDED MARCH 31, 1997 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1996
Net sales decreased 22.4% to $18,718,113 in fiscal year 1997, compared to
$24,110,436 in fiscal year 1996, a decrease of $5,392,323. This decrease
reflects lower than expected orders from consumer electronics retailers who
reported comparable store sales decreases compared to the prior year. Retailers
reported that reduced financial incentives to activate cellular telephones
offered by cellular telephone carriers negatively impacted the level of cellular
telephone activations in the retail channel. The Company allows stock balancing
(return of unsold items for different merchandise) to enable customers to
freshen inventory. Higher than expected returns from customers relating to such
stock balancing also contributed to lower net sales.
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Gross profit decreased to $6,506,490 for fiscal year 1997 from $8,756,230 in
fiscal year 1996. Gross profit as a percentage of net sales decreased to 34.8%
in fiscal year 1997 from 36.3% in fiscal year 1996. The decrease in absolute
dollars was primarily attributable to the decreased number of units sold
combined with an increase in customer returns of unsold merchandise. The
decrease in profit margin was primarily attributable to competitive pressure
among the Company's large retail customers and the resulting pressure on
wholesale prices.
Operating expenses decreased in all categories to $8,346,945 in fiscal year 1997
from $9,200,161 in fiscal year 1996. Selling and shipping expenses decreased to
$3,163,863 in fiscal year 1997 compared to $3,997,970 in fiscal year 1996,
primarily attributable to lower costs of shipping, warehousing, freight, sales
commissions, and lower expenditures for advertising. Media, promotional and
catalog advertising decreased to $105,991 in fiscal year 1997 from $460,125 in
fiscal year 1996. Administrative and general expenses decreased to $5,183,082 in
fiscal year 1997 compared to $5,202,191 in fiscal year 1996, primarily
attributable to lower bad debt experience combined with reductions in personnel.
These administrative and general expense reductions were offset by costs related
to the NAED Merger and the resultant change to a public C corporation, which
occurred on December 20, 1996. Operating expenses as a percentage of net sales
increased to 44.6% in fiscal year 1997 from 38.2% in fiscal year 1996 due to
the decrease in net sales.
The Company had interest expense of $1,072,107 in fiscal year 1997 compared to
$1,056,529 in fiscal year 1996. The increase was primarily attributable to
increase in the Company's bank line of credit usage during fiscal 1997.
Other income increased to $231,620 for fiscal year 1997 compared to $58,783 in
fiscal year 1996, primarily attributable to a refund of required estimated
Federal income tax payments, resulting from the Company's S corporation status
for most of fiscal 1997.
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 March 31, 1998, the Company had $407,694 in cash and cash equivalents with a
working capital surplus of $1,131,155, contrasted to $321,647 in cash and cash
equivalents with a working capital surplus of $2,829,897 at March 31, 1997. Net
cash used in operating activities was $937,077 for the fiscal year ended March
31, 1998, compared with net cash used in operating activities of $964,201 for
the fiscal year ended March 31, 1997. 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"), as amended, 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%.
Page 14
<PAGE>
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 had borrowing capacity from this line of credit
of approximately $2,600,000 at March 31, 1998.
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. On March 27, 1998, the
Company negotiated a revision of all covenants at levels that the Company
believes can be 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.
On December 23, 1996, the Company obtained a $1,000,000 loan from an unrelated
third party which was used to pay the initial required $1,000,000 reduction on
its then existing credit facility. Such $1,000,000 loan bears interest at 8% per
annum and all principal and interest is due and payable upon maturity on
December 31, 2001.
The 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 March 31, 1998,
the outstanding principal balance of such loan was $4,601,516. 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 flow from investing activities of $108,392 for fiscal year 1998
principally reflects the issuance of 300,000 shares of the Company's common
stock to Telular Corporation, partially offset by approximately $182,000 in
capital expenditures. The shares issued to Telular Corporation were pursuant to
a Settlement Agreement described more fully in Item 3 of this Annual Report.
Net cash flow from financing activities of $914,732 for fiscal year 1998
principally reflects the issuance of approximately $886,000 of debt to Telular
Corporation pursuant to a Settlement Agreement described more fully in Item 3 of
this Annual Report.
The Company is currently evaluating its management information systems as part
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 between $100,000 and
$150,000 related to this project in fiscal 1999.
Page 15
<PAGE>
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.
RECENT ACCOUNTING PRONOUNCEMENTS AND OTHER MATTERS
During February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards 128, Earnings per Share ("SFAS
128"), which is effective for financial statements for both interim and annual
periods ending after December 15, 1997. The Company adopted SFAS 128 in third
fiscal quarter of 1998. SFAS 128 replaces the presentation of primary and fully
diluted earnings per share with basic and diluted earnings per share. The
Company's adoption of SFAS 128 required no change in the Company's previously
reported earnings per share.
In June 1997, the FASB issued Statement of Financial Accounting Standards 130,
"Reporting Comprehensive Income" ("SFAS 130"), effective for fiscal years
beginning after December 15, 1997. The new rules establish standards for the
reporting of comprehensive income and its components in financial statements.
Comprehensive income consists of net income and other gains and losses affecting
stockholders' equity that, under generally accepted accounting principles, are
excluded from net income, such as unrealized gains and losses on investments
available for sale, foreign currency translation gains and losses and minimum
pension liability. The Company has adopted the provisions of SFAS 130 as of
April 1, 1998. For all periods presented in this Annual Report, there was no
comprehensive income.
In June 1997, the FASB issued Statement of Financial Accounting Standards 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131"), effective for fiscal years beginning after December 15, 1997. The new
rules establish revised standards for public companies relating to the reporting
of financial and descriptive information about their operating segments in
financial statements. SFAS 131 is effective for the Company in fiscal 1999. The
Company currently evaluates its operations as one segment.
The widespread use of computer programs that rely on two-digit dates to perform
computations and decision-making functions may cause computer systems to
malfunction prior to or in the year 2000 and lead to significant business delays
and disruptions in the United States and internationally. The Company has
developed a plan to minimize the impact of this "year 2000 problem" and
periodically reports on the status of its efforts to the Company's corporate
officers and Board of Directors. Pursuant to such plan, the Company is engaged
in the process of identifying programs used by its computer systems that may
malfunction as a result of the use of such two-digit dates, and has initiated
programs to rectify any problems, including upgrading existing software
packages, implementing new year 2000 compliant systems or repairing existing
software. The Company has also begun communications with its significant
suppliers to determine the extent to which the Company's operations are
vulnerable to those third parties' failure to solve their own year 2000 issues.
Management believes that the costs of resolving potential year 2000 issues will
not be material and that the necessary revisions or replacements of material
computer systems will be accomplished in a timely manner.
Page 16
<PAGE>
FORWARD LOOKING INFORMATION
This Annual Report on Form 10-K 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 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
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
anticipated growth and expansion of the wireless telephone industry and the
development of new wireless communications technologies, increased capacity in
digital technology, the introduction of new products by the Company, including
products utilizing the Company's T-bus data protocols, the Company's ability to
penetrate new distribution channels, future sales levels, costs associated with,
and effectiveness of, the Company's proposed new management information system,
compliance with financial covenants in loan agreements, sufficiency of the
Company's available cash, cash flows and available borrowings to meet its
operating needs and capital expenditure requirements, the Company's ability to
secure future financing, the outcome of the Company's patent applications
pending in the U.S. Patent and Trademark Office, the ability of the Company to
address issues relating to the "year 2000 problem" and the potential outcome of
any 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 Annual Report. Statements in this Annual Report,
particularly in "Item 1. Business", "Item 3. Legal Proceedings", the Notes to
Financial Statements and "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations," 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
development of the digital communications system, the rate and consumer
acceptance of new product introductions, competition, the number and nature of
customers and their product orders, the Company's patents pending before the
U.S. Patent and Trademark Office, 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, the ability of the Company and
the Company's suppliers to address issues relating to the "year 2000 problem"
and other risk factors which may be detailed from time to time in the Company's
Securities and Exchange Commission filings.
Page 17
<PAGE>
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.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See "Index to Consolidated Financial Statements" at Item 14(a) for a listing of
the consolidated financial statements and supplementary data submitted as part
of this report.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company's financial statements for the fiscal years ended March 31, 1998 and
March 31, 1997 were audited by Richard & Hedrick ("R&H"), and its financial
statements for the fiscal year ended March 31, 1996, were audited by Tanner,
Mainstain & Hoffer ("TM&H"). The Company became subject to the reporting
requirements of the Securities Exchange Act of 1934 on December 20, 1996,
pursuant to the NAED Merger. Prior to such merger, on November 30, 1996, the
Company retained Richard & Hedrick as its auditor for its fiscal year ended
March 31, 1997. All of the appointments of auditors described above were
approved by the Company's Board of Directors.
TM&H's report on the Company's financial statements for the fiscal year ended
March 31, 1996 did not contain an adverse opinion or a disclaimer of opinion and
was not qualified as to uncertainty, audit scope or accounting principles.
During the Company's two most recent fiscal years and any subsequent interim
period through the date of R&H's appointment, there were no disagreements
between Registrant and TM&H on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedures, which
disagreements, if not resolved to the satisfaction of TM&H, would have caused it
to make a reference to the subject matter of the disagreements in connection
with its reports.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item will be contained in the Company's Proxy
Statement for its Annual Shareholders Meeting scheduled for September 14, 1998,
to be filed with the Securities and Exchange Commission within 120 days after
March 31, 1998, and is incorporated herein by reference.
Page 18
<PAGE>
ITEM 11 - EXECUTIVE COMPENSATION
The information required by this item will be contained in the Company's Proxy
Statement for its Annual Shareholders Meeting scheduled for September 14, 1998,
to be filed with the Securities and Exchange Commission within 120 days after
March 31, 1998, and is incorporated herein by reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item will be contained in the Company's Proxy
Statement for its Annual Shareholders Meeting scheduled for September 14, 1998,
to be filed with the Securities and Exchange Commission within 120 days after
March 31, 1998, and is incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item will be contained in the Company's Proxy
Statement for its Annual Shareholders Meeting scheduled for September 14, 1998,
to be filed with the Securities and Exchange Commission within 120 days after
March 31, 1998, and is incorporated herein by reference.
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
(1) Financial Statements:
Reports of Independent Auditors
Balance Sheets at March 31, 1998 and 1997
Statements of Operations for the Twelve-Month Periods Ended
March 31, 1998, 1997 and 1996
Statements of Stockholders' Equity for the Twelve-Month
Periods Ended March 31, 1998, 1997 and 1996
Statements of Cash Flows for the Twelve-Month Periods
Ended March 31, 1998, 1997 and 1996
Notes to Financial Statements
(2) Financial Statement Schedules:
The schedules specified under Regulation S-X are either not applicable
or immaterial to the Company's financial statements for each of the
three years in the period ended March 31, 1998.
Page 19
<PAGE>
(3) Exhibits:
The Exhibits listed on the accompanying Index to Exhibits immediately
following the financial statement schedules are filed as part of, or
incorporated by reference into, this Report.
Exhibit No. Description
- ----------- -----------
2.1 Plan of Reorganization of North American Energy of
Delaware, Inc. <F1>
2.2 Agreement and Plan of Merger between ORA Electronics, Inc., a
Delaware corporation, and North American Energy of Delaware,
Inc., a Delaware corporation. <F2>
3.1 Restated Certificate of Incorporation of ORA
Electronics, Inc. <F2>
3.2 Bylaws of ORA Electronics, Inc. <F2>
4.1 Specimen Common Stock Certificate of ORA Electronics, Inc. <F2>
4.2 Specimen Class A Warrant Certificate. <F2>
4.3 Specimen Class B Warrant Certificate. <F2>
4.4 Specimen Class C Warrant Certificate. <F2>
4.5 Specimen Class D Warrant Certificate. <F2>
4.6 Warrant Agreement between the Company and Continental Stock
Transfer & Trust Company (the "Warrant Agent"), dated as of
December 20, 1996. <F2>
4.7 Letter Agreement, dated June 10, 1997, from Sheppard, Mullin,
Richter & Hampton LLP to the Warrant Agent. <F4>
10.1 Loan and Security Agreement, dated April 4, 1997, by and between
the Company and FINOVA Capital Corporation ("FINOVA"). <F4>
10.2 Amendment to Loan Agreement, dated April 4, 1997, by and between
the Company and FINOVA. <F4>
10.3 Collateral Assignment, Patent Mortgage and Security Agreement,
dated as of April 4, 1997, by and between the Company and FINOVA.
<F4>
10.4 Waiver and Second Amendment to Loan Agreement, dated June 26,
1997, between the Company and FINOVA. <F4>
10.5 Waiver and Third Amendment to Loan Agreement, dated November 13,
1997, between the Company and FINOVA. <F5>
Page 20
<PAGE>
10.6 Waiver and Fourth Amendment to Loan Agreement, dated February 11,
1998, between the Company and FINOVA.
10.7 Waiver and Fifth Amendment to Loan Agreement, dated March 27,
1998, between the Company and FINOVA.
10.8 ORA Electronics, Inc. 1996 Stock Plan. <F3>
10.9 Form of ORA Electronics, Inc. 1996 Stock Plan Stock Option
Grant Agreement. <F3>
10.10 Form of ORA Electronics, Inc. Non-Employee Directors Stock
Option Plan. <F3>
10.11 Form of ORA Electronics, Inc. Non-Employee Directors Stock
Option Agreement. <F3>
10.12 Form of Indemnification Agreement. <F3>
10.13 Employment Agreement dated as of December 19, 1996 by and
between the Company and Gershon N. Cooper. <F3>
10.14 Amended and Restated Promissory Note dated December 17, 1996,
made by Gershon N. Cooper and Ruth Cooper in favor of the
Company. <F3>
10.15 Promissory Note dated December 6, 1996, made by Gershon N.
Cooper and Ruth Cooper in favor of the Company. <F3>
10.16 Amended and Restated Commercial Credit Agreement dated as of
December 31, 1996, by and among Sanwa Bank California, the
Company, Gershon N. Cooper, Ruth Cooper and the Cooper
Living Trust. <F3>
10.17 Amended and Restated Security Agreement dated as of December 31,
1996, by and between the Company and Sanwa Bank California. <F3>
10.18 Secured Promissory Note dated as of February 1, 1989, made by
the Company in favor of the Aid Association for Lutherans. <F3>
10.19 Promissory Note dated as of December 23, 1996, made by the
Company in favor of General Funding Corporation. <F3>
11 Statement re: Computation of Earnings Per Share.
16 Letter re Change in Accountants.
23.1 Independent Auditors' Consent of Richard & Hedrick.
23.2 Independent Auditors' Consent of Tanner, Mainstain,
Hoffer & Peyrot (formerly Tanner, Mainstain & Hoffer)
27 Financial Data Schedule.
Page 21
<PAGE>
99.1 Letter Agreement dated December 19, 1996 between the Company and
DLS Financial Services, Inc. <F3>
99.2 Registration Rights Agreement, dated as of December 20, 1996,
between the Company and The Cooper Family Living Trust. <F3>
99.3 Settlement Agreement and Mutual General Release dated March 2,
1998, between the Registrant and Telular Corporation. <F6>
- ----------------------
<F1>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.
<F2>Incorporated by reference from the Registrant's Form 8-K filed on
December 20, 1996.
<F3>Incorporated by reference from the Registrant's Form 10-Q filed on
February 14, 1997.
<F4>Incorporated by reference from the Registrant's Form 10-K filed on June
30, 1997.
<F5>Incorporated by reference from the Registrant's Form 10-Q filed on
February 14, 1998.
<F6>Incorporated by reference from the Registrant's Form 8-K filed on
March 3, 1998.
(b) Reports on Form 8-K:
A Current Report on Form 8-K was filed on March 3, 1998, in connection with
the Company's settlement of the lawsuit titled ALLIANCE RESEARCH
CORPORATION v. TELULAR CORPORATION. Pursuant to such settlement, the
lawsuit will be dismissed with prejudice, although the Company will remain
enjoined from selling its CDL line of products. Such settlement is governed
by a Settlement Agreement and Mutual General Release dated March 2, 1998
between the Company and Telular Corporation.
Page 22
<PAGE>
ORA ELECTRONICS, INC.
INDEX TO FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT (Richard & Hedrick)
INDEPENDENT AUDITORS' REPORT (Tanner, Mainstain & Hoffer)
FINANCIAL STATEMENTS:
Balance sheets at March 31, 1998 and 1997
Statements of operations for the twelve month
periods ended March 31, 1998, 1997 and 1996
Statements of stockholders' equity for the
twelve-month periods ended March 31, 1998, 1997 and 1996
Statements of cash flows for the twelve-month
periods ended March 31, 1998, 1997 and 1996
Notes to financial statements
Page 23
<PAGE>
RICHARD & HEDRICK
ACCOUNTANCY CORPORATION * CERTIFIED PUBLIC ACCOUNTANTS
MEMBER OF AICPA * MEMBER OF CSCPA
5857 UPLANDER WAY * CULVER CITY, CA 90230
PHONE 310-348-4188 * FAX 310-348-4189
May 30, 1998
ORA Electronics, Inc.
Chatsworth, CA 91311
To the Shareholders and the Board of Directors of ORA Electronics, Inc.:
We have audited the accompanying balance sheets of ORA Electronics, Inc. as of
March 31, 1998 and 1997 and the related statements of operations, stockholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating an overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ORA Electronics, Inc. as of
March 31, 1998 and 1997 and the results of their operations and their cash flows
for each year in accordance with generally accepted accounting principles.
The financial statements for ORA Electronics, Inc. (formerly Alliance Research
Corporation) for the year ended March 31, 1996 were audited by other independent
accountants whose report, dated November 6, 1996, expressed an unqualified
opinion.
/s/ Richard & Hedrick
- --------------------------
Richard & Hedrick
An Accountancy Corporation
Page 24
<PAGE>
[TANNER, MAINSTAIN & HOFFER LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors
ALLIANCE RESEARCH CORPORATION
We have audited the accompanying balance sheet of Alliance Research Corporation
(an S corporation) as of March 31, 1996, and the related statements of
operations and retained earnings and the statements of cash flows for the year
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these statements
based on our audit. The financial statements of Alliance Research Corporation as
of March 31, 1995, were audited by other auditors whose report dated September
30, 1996, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Alliance Research Corporation
as of March 31, 1996, and the results of its operations and cash flows for the
year then ended, in conformity with generally accepted accounting principles.
/s/ Peter Mainstain
- ----------------------------
Peter Mainstain
TANNER, MAINSTAIN & HOFFER
An Accountancy Corporation
Los Angeles, California
November 6, 1996
Page 25
<PAGE>
ORA ELECTRONICS, INC.
BALANCE SHEET
March 31, 1998 and 1997
ASSETS
- ------ 1998 1997
---- ----
Current assets:
Cash and cash equivalents (Note 4) $ 407,694 $ 321,647
Trade accounts receivable, less
allowances for sales returns and
doubtful accounts (Note 4) 2,112,292 3,499,517
Inventories (Notes 4 and 13) 4,627,251 5,449,028
Federal tax refund (Note 3) - 219,927
Prepaid expenses 74,276 65,892
----------- -----------
Total current assets 7,221,513 9,556,011
Property and equipment, less accumulated
depreciation (Note 6) 6,231,494 6,301,378
Other assets:
Loan receivable, officer (Note 5) 579,833 551,337
Deferred expenses (Note 4) 304,875 319,578
----------- -----------
Total assets $14,337,715 $16,728,304
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt
(Note 8) $488,604 $63,186
Notes payable (Note 7) 1,355,847 1,257,197
Trade payables 2,925,677 3,738,108
Accrued interest (Notes 7 and 8) 101,648 110,717
Other accounts payable and
accrued expenses 1,218,582 1,556,906
----------- -----------
Total current liabilities 6,090,358 6,726,114
Long-term debt (Note 8) 6,105,477 5,601,516
----------- -----------
Total liabilities 12,195,835 12,327,630
----------- -----------
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
Page 26
<PAGE>
Commitments and contingencies (Note 11)
Stockholders' equity:
Preferred stock $.001 par value;
authorized 5,000,000 shares;
none issued - -
Common stock $.001 par value;
authorized 30,000,000 shares; reserved
for options and warrants 2,586,868
shares and 2,364,480 shares at March 31,
1998 and 1997; issued and outstanding
6,908,722 shares and 6,589,068 shares at
March 31, 1998 and 1997. (Note 2) 6,909 6,589
Paid-in capital (Note 2) 6,125,380 5,806,810
Retained earnings (deficit) (3,990,409) (1,412,725)
------------ -----------
Total stockholders' equity 2,141,880 4,400,674
----------- -----------
Total liabilities and
stockholders' equity $14,337,715 $16,728,304
=========== ===========
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
Page 27
<PAGE>
ORA ELECTRONICS, INC.
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net sales (Notes 4 & 10) $15,443,432 $18,718,113 $24,110,436
Cost of goods sold 9,152,641 12,211,623 15,354,206
----------- ----------- -----------
Gross profit 6,290,791 6,506,490 8,756,230
----------- ----------- -----------
Operating expenses:
Selling and shipping 2,434,547 3,163,863 3,997,970
Administrative and general 5,742,427 5,183,082 5,202,191
----------- ----------- -----------
Total operating expenses 8,176,974 8,346,945 9,200,161
----------- ----------- -----------
Other (income) expenses:
Interest expense 702,128 1,072,107 1,056,529
Interest/other income (10,627) (231,620) (58,783)
----------- ----------- -----------
Total other expenses 691,501 840,487 997,746
----------- ----------- -----------
Loss before income taxes (2,577,684) (2,680,942) (1,441,677)
Income tax (benefit)(Note 15) 0 0 (23,822)
----------- ----------- -----------
Net loss $(2,577,684) $(2,680,942) $(1,417,855)
============ ============ ===========
Loss per share:
Basic and diluted $ (0.39) $ (0.41) $ (1,417.86)
Number of shares used in the
per share calculation:
Basic and diluted 6,627,697 6,589,068 1,000
Pro forma per share information:
(Notes 2 and 14)
Pro forma loss per share:
Basic and diluted $ (0.39) $ (0.41) $ (0.22)
Pro forma number of shares used
in per share calculation:
Basic and diluted 6,627,697 6,589,068 6,589,068
</TABLE>
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
Page 28
<PAGE>
ORA ELECTRONICS, INC. STATEMENT OF STOCKHOLDER'S
EQUITY FOR THE YEARS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
Common Stock Retained
Number Preferred Paid-In Earnings Stockholders'
Options Warrants of Shares Amount Stock Capital (Deficit) Equity
------- --------- --------- ------- --------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1996 0 0 1,000 10,000 0 $ 0 $1,268,217 $1,278,217
Merger of Alliance Research
Corp. into ORA
Electronics, Inc.:
Cancellation of Alliance
Research Corporation shares 0 0 ( 1,000) (10,000) 0 0 0 (10,000)
Issuance of ORA Electronics, Inc.
shares 0 0 5,000,000 5,000 0 0 0 5,000
Proceeds from exercise of 2,200
options at $1.50 per share 0 0 2,200 2 0 3,298 0 3,300
Merger of North American Energy
of Delaware, Inc. into ORA
Electronics, Inc. 75,480 2,156,000 250,000 250 0 (125) 0 125
Common shares issued for advisory
services 0 0 160,566 161 0 (80) 0 81
Common shares issued in
satisfaction of $5,804,893
of indebtedness 0 0 1,176,302 1,176 0 5,803,717 0 5,804,893
Employee stock plan grants
(Note 12) 133,000
Net loss for the year ended
March 31, 1997 0 0 0 0 0 0 (2,680,942) (2,680,942)
------- --------- --------- ------ ------ ---------- ----------- -----------
Balance, March 31, 1997 208,480 2,156,000 6,589,068 $6,589 $ 0 $5,806,810 ($1,412,725) $4,400,674
Common shares issued in
satisfaction of Telular
settlement 300,000 300 299,700 300,000
Issuance of warrants 259,888
Issuance of common shares 19,654 20 18,870 18,890
Employees stock plan forfeitures (37,500)
Net loss for the year ended
March 31, 1998 (2,577,684) (2,577,684)
------- --------- --------- ------ --------- ---------- ----------- -----------
170,980 2,415,888 6,908,722 $6,909 $ - $6,125,380 $(3,990,409) $2,141,880
======= ========= ========= ====== ========= ========== ============ ===========
</TABLE>
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
Page 29
<PAGE>
ORA ELECTRONICS, INC.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (2,577,684) $ (2,680,942) $ (1,417,855)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 266,588 343,831 321,659
Provision for losses and returns on
accounts receivable 305,371 (468,047) 1,142,718
Changes in assets and liabilities:
Accounts receivable 1,081,854 302,744 (1,326,089)
Inventories 821,777 363,702 (144,284)
Federal tax refund 219,927 190,876 (252,512)
Prepaid expenses (8,383) (28,580) 299,371
Accounts payable, accrued interest and
other accrued expenses (1,046,527) 1,012,215 651,179
----------- ----------- -----------
Net cash (used in)
operating activities (937,077) (964,201) (725,813)
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures (182,001) 29,585 (268,944)
Loan receivable, officer (28,497) (307,355) (243,982)
Deferred expenses - - 64,835
Proceeds from issuance of stock 318,890 5,804,893 -
------------ ----------- -----------
Net cash provided by (used in)
investing activities 108,392 5,527,123 (448,091)
------------ ----------- -----------
Cash flows from financing activities:
Borrowing (repayment) of notes payable 98,650 (3,017,803) 925,000
Repayment of trust deed payable (69,715) (57,267) (51,904)
Issuance (repayment) of long-term debt 885,797 (1,524,200) -
------------ ------------ -----------
Net cash provided by (used in)
financing activities 914,732 (4,599,270) 873,096
------------ ----------- -----------
Net increase (decrease) in cash and cash equivalents 86,047 (36,348) (300,808)
Cash and cash equivalents at beginning of year 321,647 357,995 658,803
------------ ----------- -----------
Cash and cash equivalents at end of year $ 407,694 $ 321,647 $ 357,995
============ ========== ==========
Supplemental disclosure of cash flow information:
Interest paid $ 702,128 $ 2,636,350 $ 758,018
============ ========== ==========
Income taxes paid $ 0 $ 0 $ 6,500
============ ========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
Page 30
<PAGE>
ORA ELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - 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 Intelligent transportation Systems industry. The Company currently carries
over 2,000 products which are sold to over 500 customers in the United States,
and throughout North, Central and South America. Among the Company's customers
are major retailers such as Circuit City, Staples, and OfficeMax, service
providers and cellular carriers, original equipment manufacturers ("OEMs"), auto
manufacturers, regional distributors and dealers.
NOTE 2 - REORGANIZATION:
In December 1996, Alliance Research Corporation merged into a newly formed
Delaware corporation named ORA Electronics, Inc. (ORA Electronics was a trade
name of Alliance Research Corporation).
On December 20, 1996, North American Energy of Delaware, Inc. merged into ORA
Electronics, Inc. by exchanging 250,000 common shares of ORA Electronics, Inc.
and options for 2,200 common shares at $1.50 per share, and warrants for
2,156,000 common shares for all the shares issued and to be issued of North
American Energy of Delaware, Inc.
In consideration for advisory services rendered for this transaction, ORA
Electronics, Inc. issued 160,566 common shares and options for 75,180 common
shares.
The options and warrants are exercisable as follows:
Options Warrants* Price Expires
- ------- ------------------- ----- -------
14,772 Class A 392,000 $ 5.00 December 31, 1998
20,208 Class B 588,000 $ 10.00 December 31, 1998
17,478 Class C 490,000 $ 15.00 December 20, 1999
23,022 Class D 686,000 $ 20.00 December 20, 2001
- ------ ---------
75,480 2,156,000
====== =========
North American Energy of Delaware, Inc. had no business expenses for the five
years previous to the merger date and no tangible assets or liabilities at the
merger date.
* Actual warrant numbers are subject to the round-up provisions under the terms
of the merger.
Page 31
<PAGE>
NOTE 3 - S CORPORATION STATUS:
The Company, with the consent of its shareholders, had elected S corporation
status effective April 1, 1987 for both federal and state income tax purposes.
In lieu of federal corporate income taxes, the shareholders of an S corporation
are taxed on their proportionate share of the Company's taxable income. For
state purposes, S corporations are taxed at a rate of 1 1/2% of taxable income.
A provision for state income taxes is reflected in the accompanying statement of
income and retained earnings.
In connection with the S corporation election, the Company also elected to
retain its fiscal year end of March 31. According to Internal Revenue Service
regulations, to compensate the government for the tax deferral obtained through
the use of a taxable year end other than the required taxable year end of
December 31, the Company is obligated to make an annual "required payment" on
May 15. This payment is considered a deposit and is refundable when there is no
longer a tax deferral resulting from the use of a fiscal year end other than
December 31. The amount deposited as "required payment" for the year ended March
31, 1997 was $219,927, which was refunded to the company in the fiscal year
ended March 31, 1998.
In December 1996, the Company terminated the S corporation election and has been
subsequently taxed as a C corporation.
Page 32
<PAGE>
ORA ELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash Equivalents
- ----------------
Cash equivalents include short-term investments with original maturities of 90
days or less.
Allowance for Sales Returns and Doubtful Accounts
- -------------------------------------------------
The Company reduces gross sales by the amount of discounts and returns to
determine net sales. The Company estimates a reserve for returns based on
historical experience and the amount of gross sales.
The reserve is adjusted periodically to reflect the Company's actual return
experience. The Company provides allowances for doubtful accounts receivable
when it determines that such amounts are uncollectible. Actual bad debt and
sales return experience has been in line with management's expectations. The
allowances are as follows at March 31,
1998 1997
----------- ----------
Trade accounts receivable $ 4,134,335 $ 5,216,188
Less allowance for doubtful accounts (537,845) (300,000)
Less allowance for sales returns (1,484,198) (1,416,671)
------------ -----------
Trade accounts receivable, net $ 2,112,292 $ 3,499,517
============ ===========
Inventories
- -----------
Inventories are stated at the lower of cost (determined on a weighted average
cost basis) or market. Market value is based upon net realizable value.
Appropriate consideration is given to deterioration, obsolescence, and other
factors in evaluating net realizable value.
Goodwill
- --------
Goodwill consists of the excess of consideration paid over the fair value of net
assets acquired and is amortized on a straight-line basis against income over 40
years. Goodwill of $299,188 at March 31, 1998 and 1997 is included in deferred
expenses net of accumulated amortization of $29,310 and $21,830 respectively.
Page 33
<PAGE>
Revenues
- --------
Revenues are recognized upon shipment of product to customers.
Research and Development Expenses
- ---------------------------------
Research and development expenditures are expensed as incurred and are included
in general and administrative expenses.
The total research and development costs for new products for the years ended
March 31, 1998, 1997 and 1996 were approximately $440,000, $550,000 and $520,000
respectively, including $36,000, $80,000 and $77,000 of purchased materials that
do not have alternative future uses.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
Concentration of Cash Balances
- ------------------------------
The Company maintains cash balances with two banks. The amount on deposit in one
financial institution exceeds the $100,000 federally insured limit by $273,268
at March 31, 1998.
Earnings per share
- ------------------
During February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share", which is effective for financial statements for both interim and annual
periods ending after December 15, 1997. The Company adopted SFAS No. 128 in the
third fiscal quarter of 1998. This statement replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per share.
Earnings per share amounts for all periods presented did not require restatement
to conform to SFAS No. 128 requirements.
Advertising
- ------------
Cooperative advertising obligations are accrued and the costs expensed at the
same time the related revenue is recognized. All other advertising costs are
expensed as incurred.
Page 34
<PAGE>
Comparatives
- ------------
For comparative purposes, certain amounts in the financial statements from the
prior year have been reclassified.
Recent Accounting Pronouncements
- --------------------------------
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
("SFAS 130") effective for fiscal years beginning after December 15, 1997. The
new rules establish standards for the reporting and display of comprehensive
income and its components in a full set of general purpose financial statements.
Comprehensive income is defined as the change in equity of a business enterprise
during a period, resulting from transactions and other events and circumstances
from nonowner sources. The Company has adopted the provisions of SFAS 130 as of
April 1, 1998. For all periods presented, there was no comprehensive income.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information" (SFAS 131") effective for fiscal years
beginning after December 15, 1997. The new rules establish revised standards for
public companies to report financial and other information about key
revenue-producing segments of the entity for which such information is available
and is utilized by the chief operating decision maker. Specific information to
be reported for individual segments includes profit or loss, certain revenue and
expense items and total assets. A reconciliation of segment financial
information to amounts reported in the financial statements would be provided.
SFAS 131 is effective for the Company in fiscal 1999. The Company currently
evaluates its operations as one segment.
NOTE 5 - OFFICER LOANS RECEIVABLE:
Officer loans receivable of $579,833, at March 31, 1998, consist of a note for
$280,855, a note for $243,982 and accrued interest of $54,996. Both notes bear
interest at 5.05% and principal and interest are due December 31, 1999 and March
31, 1999, respectively.
Page 35
<PAGE>
ORA ELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost. Major renewals and improvements are
capitalized while maintenance and repairs are expensed as incurred. Interest and
taxes have been capitalized in connection with the construction of building
improvements. The capitalized interest and taxes are included in the cost of the
building and are being depreciated over the building's estimated useful life.
Property and equipment are depreciated on the straight-line and accelerated
methods over the estimated useful lives of the property as follows:
Useful Life
Assets In Years March 31, 1998 March 31, 1997
- ------ ----------- -------------- --------------
Land $2,900,000 $2,900,000
Building and
improvements 31.5 - 39 4,238,969 4,161,669
Machinery and
equipment 5 - 7 710,263 743,391
Computer equipment 5 475,368 665,099
Furniture and
fixtures 5 - 7 429,821 491,534
---------- ----------
8,754,421 8,961,693
Less accumulated
depreciation 2,522,927 2,660,315
---------- ---------
Net property and
equipment $6,231,494 $6,301,378
========== ==========
NOTE 7 - NOTES PAYABLE:
At March 31, 1996, the Company had a line of credit available with a commercial
bank in the amount of $5,000,000. As of that date, the Company had drawn on the
line of credit $4,000,000. The line of credit was secured by all inventory,
equipment and accounts receivable of the Company and was personally guaranteed
by the Company's officers/shareholders. The revolving line of credit agreement
was effective through October 31, 1996, and was extended to December 31, 1996.
At the Company's election, borrowings incurred interest at the bank's prime rate
(8.25% at March 31, 1996) or the bank's cost of funds plus 2.00%.
Page 36
<PAGE>
ORA ELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS
Under the line of credit facility, the Company was required to maintain various
covenants. These covenants included meeting certain tangible net worth, debt to
equity ratios. and certain restrictions on the amount of capital expenditures,
additional indebtedness, and the payment of dividends. At March 31, 1996, the
Company was not in compliance with certain bank covenants relating to tangible
net worth and liquidity ratios. The bank subsequently waived all covenant
violations and limited the amount to be drawn on the line to $4,500,000.
In December, 1996, the bank agreed to further extend the Company's line of
credit to March 31, 1997 and to convert such line into a revolving credit
facility on a conforming basis pursuant to which the bank will sweep excess
funds from the Company's account at the bank on a daily basis and the bank will
lend against eligible collateral (receivables and inventory). Interest on the
extended facility was increased to 1.75% above the bank's reference rate (8.50%
at March 31, 1997) and payable monthly. At the time of this extension, the
Company had $4,500,000 outstanding under such facility which had total
availability of $4,500,000. Under the extended bank facility, the Company was
required to make a principal reduction in the amount of $1,000,000 by December
27, 1996 and was required to further reduce its borrowing availability by
$1,000,000 by January 31, 1997 and by an additional $1,000,000 by February 28,
1997. On December 23, 1996, the Company obtained a $1,000,000 loan from an
unrelated third party which was used to pay the initial required $1,000,000
reduction in principal. Such loan bears interest at 8% per annum and all
principal and interest is due and payable upon maturity on December 31, 2001
(See Note 8). Under the terms of the extension, the remaining balance of the
bank line of credit was due and payable on March 31, 1997.
On April 7, 1997, the Company secured a $5,000,000 line of credit from a finance
company, which enabled the Company to pay off the remaining balance owed to the
bank of $1,257,197, thereby curing the default which occurred as a result of not
making this payment by March 31, 1997. The line of credit facility with the
finance company is secured by all inventory, equipment, accounts receivable and
intellectual property. The initial term of the line of credit is two years with
provisions for automatic renewals thereafter in one year increments. 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 January 31, 1998, the
Company was not in compliance with the Debt Service Coverage Ratio covenant. On
March 27, 1998, the covenant violation was waived by FINOVA and all required
covenants were reset at levels that the Company believes can be successfully
maintained.
Page 37
<PAGE>
ORA ELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - LONG-TERM DEBT:
March 31, March 31,
1998 1997
--------- ---------
Long-term debt consists of the following:
Trust deed payable, secured by certain real
estate, payable in monthly installments of
$43,418 including interest at 9.875% per annum,
due February 2019, callable with six months notice. $ 4,601,516 $ 4,664,702
Note payable with interest payable
at a rate of 8% per annum, principal
and interest due December 31, 2001. 1,106,768 1,000,000
Note payable to Telular Corporation, non-interest
bearing, payable in monthly installments of $25,000
with additional payments of $225,000 on March 1,
1999 and February 1, 2000, due February 1, 2000. 1,000,000 -
Less unamortized discount, 10% per annum (114,203) -
----------- -----------
Total Debt 6,594,081 5,664,702
Less: current maturities 488,604 63,186
----------- -----------
Total Long-Term Debt $ 6,105,477 $ 5,601,516
=========== ===========
Page 38
<PAGE>
Maturities of long-term debt for the years subsequent to March 31, 1997 are as
follows:
1999 $ 488,604
2000 543,829
2001 84,870
2002 1,200,408
2003 103,318
Thereafter 4,173,052
-----------
$ 6,594,081
===========
NOTE 9 - 401(k) PROFIT SHARING PLAN:
On January 1, 1992, the Company adopted a defined contribution Profit Sharing
Savings Plan pursuant to Section 401(K) of the Internal Revenue Code covering
substantially all eligible officers and employees. Under the terms of the Plan,
employees can voluntarily elect to contribute to the Plan, by salary reduction,
up to 15% of their compensation, subject to certain IRS limitations then in
effect. Additionally, the Company can, at its discretion, match 100% of the
voluntary employee contributions not to exceed $250. The Company has received a
determination letter from the IRS indicating that the above Plan is qualified
within the terms of the applicable provisions of ERISA.
NOTE 10 - MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK:
At March 31, 1998 approximately 69.4% of the trade accounts receivable were
represented by three customers and at March 31, 1997, approximately 64.9% of the
trade accounts receivable were represented by two customers. For the fiscal year
ended March 31, 1998, two customers accounted for approximately 55.8% of the
Company's net sales and for the fiscal year ended March 31, 1997, two customers
accounted for approximately 34.6% of the Company's net sales.
To reduce credit risk, the Company performs ongoing credit evaluations of its
customers financial condition but does not generally require collateral.
The Company purchases substantially all of its inventory through a foreign
trading company. The trading company negotiates purchases with various foreign
manufacturing companies and remits payment to these companies.
NOTE 11 - COMMITMENTS AND CONTINGENCIES:
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 States 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.
Page 39
<PAGE>
ORA ELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS
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"). The Company filed a
motion in the Federal Circuit requesting a stay of the permanent injunction
pending appeal. The Federal Circuit granted the motion in part, finding that the
Company had established a strong likelihood that it would prevail on the merits
of its appeal at least as to whether CDL units that are compatible with certain
Motorola cellular telephones infringe the patent. The Federal Circuit lifted the
injunction with respect to Motorola-compatible CDL's.
The Company filed its opening appellate brief on April 29, 1996. Telular filed
its opposition on July 25, 1996. The Company filed its Reply Brief on August 26,
1996. The Federal Circuit heard oral argument on January 28, 1997.
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, were
upheld on appeal.
The Company and Telular Corporation have settled the lawsuit pursuant to a
Settlement Agreement and Mutual General Release dated March 2, 1998. According
to the terms of the settlement, Telular Corporation will receive from the
Company cash payments totaling $1,500,000 over a two year period and 300,000
shares of the Company's common stock and may receive additional shares of common
stock on February 1, 2000 if necessary to ensure that the total shares of such
common stock received by Telular Corporation have a market value of $1,500,000
as of such date. The Company has estimated the current value of the final
settlement at $1,685,797, of which $459,243 had been accrued for in prior
periods. The remaining $1,226,554 has been included in Administrative and
General expenses for the year ended March 31, 1998.
The Company is involved in other legal proceedings, many of which arise in the
ordinary course of its business. While any litigation contains as 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 12 - STOCK PLANS
The Company's 1996 stock plans, approved by the shareholders, provide grants of
non-qualified or incentive stock options, restricted stock awards and stock
appreciation "SARs". All plans are administered by the Company's Board of
Directors ("Board"). Stock options may be granted with or without SARs. The
total number of shares of Common Stock subject to issuance under the 1996 stock
plan is 2,000,000, subject to adjustments as provided for in the 1996 Stock
Plan. Grant prices for incentive stock options and non-qualified stock options
are not less than 100% and 85% of the fair market value of the Common Stock at
the time of grant, respectively. Options and SARs normally extend for 10 years
and under Board policy become exercisable in installments of 25 percent per year
commencing one year from the date of grant or over a vesting period determined
by the Board.
Page 40
<PAGE>
ORA ELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS
Restricted stock awards issued under the plan provide that shares awarded may
not be sold or otherwise transferred until restrictions as established by the
Board have lapsed. Upon termination of employment, shares upon which
restrictions have not lapsed must be returned to the Company.
The following table summarizes stock option activity:
Option Shares 1998 1997
--------- -------
Outstanding at beginning
of fiscal year 133,000 0
Granted 0 133,000
Exercised 0 0
Forfeitures (37,500) 0
----------- -----------
Outstanding March 31
($5.00 per share) 95,500 133,000
========== ==========
Exercisable March 31 23,875 0
========== ==========
The shareholders also approved a Non-Employee Directors Stock Option Plan. Under
the plan, a maximum of 100,000 shares may be granted to non-employee directors
at not less than 100% of the fair market value at the date of grant. Shares may
be exercised in two equal installments commencing on the first anniversary of
the date of the grant.
NOTE 13 - LOWER OF COST OR MARKET ADJUSTMENT:
Adjustments of $978,256, $820,973 and $0 were made in the fiscal years ended
March 31, 1998, 1997 and 1996, respectively, to reflect inventory at the lower
of cost or market, as determined by management's estimates of value below the
Company's cost.
NOTE 14 - PRO FORMA EARNINGS PER SHARE:
The pro forma earnings per share data is presented to show the effect on basic
earnings per share assuming the Company's merger with North American Energy of
Delaware, Inc. had occurred at the beginning of the fiscal year ended March 31,
1996 instead of the actual merger date of December 20, 1996.
Page 41
<PAGE>
ORA ELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 15 - INCOME TAXES:
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, and operating loss and
tax credit carryforwards. Significant components and the approximate tax effect
of the Company's deferred tax assets as of March 31, 1998 and 1997 are as
follows:
1998 1997
----------- ----------
Net operating loss carryforwards $ 1,164,486 $ 168,211
Less valuation allowance (1,164,486) (168,211)
------------ -----------
Net deferred tax asset $ - $ -
============ ===========
The company establishes valuation allowances in accordance with the provisions
of FASB Statement No. 109, "Accounting for Income Taxes". The company
periodically reviews the adequacy of the valuation allowance to estimate whether
or not these tax benefits will be realized in future periods. Management
believes that sufficient uncertainty exists regarding the realizability of the
net operating losses, and accordingly, a valuation allowance has been recorded
at March 31, 1998 and 1997.
No income taxes were paid for the years ended March 31, 1998 and 1997.
NOTE 16 - SUBSEQUENT EVENT:
In April, 1998, pursuant to the terms of a Second Deed of Amendment, the company
granted ORA Electronics (UK) Limited ("ORA UK") an exclusive royalty-free right
to use certain of the Company's trademarks, including, without limitation, the
"ORA" name, in perpetuity worldwide except for North, Central, and South
America. The total consideration paid by ORA UK to the company for such
perpetual right was 1,000,000 GBP, or approximately $1,659,000. Gershon N.
Cooper, President and Chief Executive Officer of the company, is a former member
of the Board of Directors of ORA UK.
Page 42
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on the 29th of June,
1998.
ORA ELECTRONICS, INC.
By: /s/ Gershon N. Cooper
-------------------------------
Gershon N. Cooper, President
[Printed Name and Title]
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the 29th day of June, 1998.
Signature Title
--------- -----
/s/ Gershon N. Cooper Chairman of the Board, Chief
- --------------------------- Executive Officer and President
Gershon N. Cooper (Principal Executive Officer)
/s/ John M. Burris Vice President, Chief Financial
- --------------------------- Officer and Director (Principal
John M. Burris Financial Officer)
/s/ Matthew F. Jodziewicz Vice President of Technology and
- --------------------------- Legal Affairs and Technology,
Matthew F. Jodziewicz Secretary and Director
/s/ John Moore III Controller (Principal Accounting
- --------------------------- Officer)
John Moore III
/s/ Ruth Cooper Director
- ---------------------------
Ruth Cooper
Page 43
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page
- -------------------------------------------------------------------------------
2.1 Plan of Reorganization of North American Energy of
Delaware, Inc. <F1>
2.2 Agreement and Plan of Merger between ORA Electronics,
Inc., a Delaware corporation, and North American Energy
of Delaware, Inc., a Delaware corporation. <F2>
3.1 Restated Certificate of Incorporation of ORA
Electronics, Inc. <F2>
3.2 Bylaws of ORA Electronics, Inc. <F2>
4.1 Specimen Common Stock Certificate of ORA Electronics,
Inc. <F2>
4.2 Specimen Class A Warrant Certificate. <F2>
4.3 Specimen Class B Warrant Certificate. <F2>
4.4 Specimen Class C Warrant Certificate. <F2>
4.5 Specimen Class D Warrant Certificate. <F2>
4.6 Warrant Agreement between the Company and Continental
Stock Transfer & Trust Company (the "Warrant Agent"),
dated as of December 20, 1996. <F2>
4.7 Letter Agreement, dated June 10, 1997, from Sheppard,
Mullin, Richter & Hampton LLP to the Warrant Agent. <F4>
10.1 Loan and Security Agreement, dated April 4, 1997, by
and between the Company and FINOVA Capital Corporation
("FINOVA"). <F4>
10.2 Amendment to Loan Agreement, dated April 4, 1997,
between the Company and FINOVA. <F4>
10.3 Collateral Assignment, Patent Mortgage and Security
Agreement, dated as of April 4, 1997, by and between
the Company and FINOVA. <F4>
10.4 Waiver and Second Amendment to Loan Agreement, dated
June 26, 1997, between the Company and FINOVA. <F4>
10.5 Waiver and Third Amendment to Loan Agreement, dated
November 13, 1997, between the Company and FINOVA. <F5>
10.6 Waiver and Fourth Amendment to Loan Agreement, dated 47
February 11, 1998, between the Company and FINOVA.
10.7 Waiver and Fifth Amendment to Loan Agreement, dated 49
March 27, 1998, between the Company and FINOVA.
Page 44
<PAGE>
10.8 ORA Electronics, Inc. 1996 Stock Plan. <F3>
10.9 Form of ORA Electronics, Inc. 1996 Stock Plan Stock Option
Grant Agreement. <F3>
10.10 Form of ORA Electronics, Inc. Non-Employee Directors Stock
Option Plan. <F3>
10.11 Form of ORA Electronics, Inc. Non-Employee Directors Stock
Option Agreement. <F3>
10.12 Form of Indemnification Agreement. <F3>
10.13 Employment Agreement dated as of December 19, 1996 by and
between the Company and Gershon N. Cooper. <F3>
10.14 Amended and Restated Promissory Note dated December 17,
1996, made by Gershon N. Cooper and Ruth Cooper in favor
of the Company. <F3>
10.15 Promissory Note dated December 6, 1996, made by Gershon N.
Cooper and Ruth Cooper in favor of the Company. <F3>
10.16 Amended and Restated Commercial Credit Agreement dated as
of December 31, 1996, by and among Sanwa Bank California,
the Company, Gershon N. Cooper, Ruth Cooper and the Cooper
Living Trust. <F3>
10.17 Amended and Restated Security Agreement dated as of
December 31, 1996, by and between the Company and Sanwa
Bank California. <F3>
10.18 Secured Promissory Note dated as of February 1, 1989,
made by the Company in favor of the Aid Association for
Lutherans. <F3>
10.19 Promissory Note dated as of December 23, 1996, made by
the Company in favor of General Funding Corporation. <F3>
11 Statement re: Computation of Earnings Per Share 53
16 Letter re Change in Accountants 54
23.1 Independent Auditor's Consent of Richard & Hedrick 55
23.2 Independent Auditors' Consent of Tanner, Mainstain,
Hoffer & Peyrot (formerly Tanner, Mainstain & Hoffer) 56
27 Financial Data Schedule 57
99.1 Letter Agreement dated December 19, 1996 between the
Company and DLS Financial Services, Inc. <F3>
Page 45
<PAGE>
99.2 Registration Rights Agreement, dated as of December 20,
1996, between the Company and The Cooper Family Living
Trust. <F3>
99.3 Settlement Agreement and Mutual General Release dated
March 2, 1998, between the Registrant and Telular
Corporation. <F6>
- -----------------
<F1> 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.
<F2> Incorporated by reference from the Registrant's Form 8-K filed on December
20, 1996.
<F3> Incorporated by reference from the Registrant's Form 10-Q filed on February
14, 1997.
<F4> Incorporated by reference from the Registrant's Form 10-K filed on June 30,
1997.
<F5> Incorporated by reference from the Registrant's Form 10-Q filed on February
14, 1998.
<F6> Incorporated by reference from the Registrant's Form 8-K filed on March 3,
1998.
Page 46
<PAGE>
EXHIBIT 10.6
[GRAPHIC OMITTED]
Waiver and Fourth Amendment to Loan Agreement
Borrower: ORA Electronics, Inc.
Address: 9410 Owensmouth Avenue
Chatsworth, California 91311
Date: February 11, 1998
THIS WAIVER AND FOURTH 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 on
the date hereof. (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 December 31, 1997 (as such covenant was in effect prior to
this Amendment).
2. Amendment to Net Worth Covenant. The Net Worth covenant set forth in
the Schedule, which presently reads 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 November, $3,500,000
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
-1-
Page 47
<PAGE>
increased by $1,000,000 effective upon receipt of the first
proceeds of such sale.
is amended to read as follows:
"Net Worth. Borrower shall maintain Net Worth of not less than
$4,000,000 as of March 31, 1998 and as of the last day of each
succeeding calendar quarter."
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 waiver 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 N. Cooper By /s/ Marilyn S. Milam
---------------------------- -------------------------------
President or Vice President Title Vice President
-----------------------------
-2-
Page 48
<PAGE>
EXHIBIT 10.7
[GRAPHIC OMITTED]
Waiver and Fifth Amendment to Loan Agreement
Borrower: ORA Electronics, Inc.
Address: 9410 Owensmouth Avenue
Chatsworth, California 91311
Date: March 27, 1998
THIS WAIVER AND FIFTH 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 on
the date hereof. (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 Debt Service Coverage Ratio covenant set forth in the
Schedule to the Loan Agreement at January 31, 1998 (as such covenant was in
effect prior to this Amendment).
2. Amendment to Net Worth Covenant. The Net Worth covenant set forth in the
Schedule, which presently reads as follows:
"Net Worth. Borrower shall maintain Net Worth of not less than $4,000,000 as
of March 31, 1998 and as of the last day of each succeeding
calendar quarter."
is amended to read as follows:
"Net Worth. Borrower shall maintain Net Worth of not less than
$2,000,000 as of March 31, 1998 and as of the last day of
each succeeding calendar quarter.
"Increase in Net Worth Requirements. In the event that the
Borrower effects the sale of a license to Ora UK, the
foregoing Net Worth requirement shall be increased by 50% of
the net proceeds of such sale, effective upon receipt of the
first proceeds of such sale."
-1-
Page 49
<PAGE>
3. Amendment to Current Ratio Covenant. The Current Ratio covenant set forth
in the Schedule, which presently reads as follows:
"Current Ratio. Borrower shall maintain a ratio of Current Assets to Current
Liabilities of not less than 1.25 to 1.0;"
is amended to read as follows (and Compliance shall continue to be determined as
of the end of each month):
"Current Ratio. Borrower shall maintain a ratio of Current Assets to Current
Liabilities of not less than 1.05 to 1.0;"
4. Amendment to Debt Service Covenant. The Debt Service covenant set forth
in the Schedule, which presently reads as follows:
"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."
is amended to read as follows:
"Debt Service
Coverage Ratio: There shall be no Debt Service Coverage Ratio
requirement for the periods ending March 31, April 30 and
May 31, 1998.
Borrower shall maintain a Debt Service Coverage Ratio of
1.0:1 during the following periods: (i) for the period
from June 1, 1998 through June 30, 1998; and
-2-
Page 50
<PAGE>
(ii) for the period from June 1, 1998 through July 31,
1998, and from June 1, 1998 through the end of each month
thereafter (August 31, 1998, September 30, 1998, etc.), to
and including May 31, 1999; and (iii) for the twelve-month
period ending June 30, 1999 and for each consecutive
cumulative rolling twelve-month period ending on the last
day of each subsequent month throughout the term of this
Agreement."
5. Amendment to Capital Expenditure Covenant. The Capital Expenditure
covenant set forth in the Schedule, which presently reads as follows:
"Capital
Expenditures: Borrower shall not make or incur any Capital Expenditure
if, after giving effect thereto, the aggregate
amount of all Capital Expenditures by Borrower in any
fiscal year (beginning with the fiscal year ending March
31, 1998) would exceed $300,000."
is amended to read as follows:
"Capital
Expenditures: Borrower shall not make or incur any Capital Expenditure
if, after giving effect thereto, the aggregate
amount of all Capital Expenditures by Borrower in the
following fiscal years would exceed the following amounts:
"Fiscal year ending March 31, 1998 $300,000
"Fiscal year ending March 31, 1999 and
subsequent fiscal years $175,000
"Increase in Permitted Capital Expenditures. In the event
that the Borrower effects the sale of a license to Ora UK,
the foregoing $175,000 limit for the fiscal year ending
March 31, 1999 shall be increased by the amount of the
proceeds received by Borrower from such sale, provided
that, in any event, the total maximum amount of all
Capital Expenditures by Borrower in the fiscal year ending
March 31, 1999 shall not exceed $500,000."
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 waiver shall not constitute a
waiver of any other present or future default or Event of Default, whether or
-3-
Page 51
<PAGE>
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 N. Cooper By /s/ Marilyn S. Milam
------------------------------ -----------------------------
President or Vice President Title Vice President
--------------------------
-4-
Page 52
<PAGE>
EXHIBIT 11
----------
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
Year ended March 31,
----------------------------------
1998 1997 1996
---- ---- ----
Basic and diluted average shares
outstanding 6,627,697 6,589,068 1,000
Net (loss) $(2,577,734) $(2,680,942) $(1,417,855)
Basic and diluted (loss) per share $(0.39) $(0.41) $(1,417.86)
Page 53
<PAGE>
EXHIBIT 16
----------
[TANNER, MAINSTAIN, HOFFER & PEYROT LETTERHEAD]
June 26, 1998
ORA ELECTRONICS, INC.
9410 Owensmouth Avenue
Chatsworth, California 91311
Ladies and Gentlemen:
We have reviewed the language proposed to be included in Item 9 ("Changes In and
Disagreements With Accountants on Accounting and Financial Disclosure") of the
Annual Report of Form 10-K to be filed on behalf of ORA Electronics, Inc. (the
"Company") for the fiscal year ended March 31, 1998. We hereby agree with the
facts contained in such Item 9 as they relate to us and consent to the inclusion
of such language in the Form 10-K.
Very truly yours,
/s/ Michael Glynn
TANNER, MAINSTAIN, HOFFER & PEYROT
an Accountancy Corporation
Page 54
<PAGE>
Exhibit 23.1
[RICHARD & HEDRICK LETTERHEAD]
INDEPENDENT AUDITORS' CONSENT
-----------------------------
We consent to the use of our audit report dated May 30, 1998, in this annual
report on Form 10-K of ORA Electronics, Inc.
/s/ Richard & Hedrick
- --------------------------------
RICHARD & HEDRICK
Los Angeles, California
June 26, 1998
Page 55
<PAGE>
Exhibit 23.2
[TANNER, MAINSTAIN, HOFFER & PEYROT LETTERHEAD]
INDEPENDENT AUDITORS' CONSENT
-----------------------------
We consent to the use in this Annual Report on Form 10-K of ORA Electronics,
Inc. of our report dated November 6, 1996.
/s/ Michael L. Glynn
- --------------------------
TANNER, MAINSTAIN, HOFFER & PEYROT
An Accountancy Corporation
Los Angeles, California
June 26, 1998
Page 56
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 407,694
<SECURITIES> 0
<RECEIVABLES> 4,134,335
<ALLOWANCES> 2,022,043
<INVENTORY> 4,627,251
<CURRENT-ASSETS> 7,221,513
<PP&E> 8,754,421
<DEPRECIATION> 2,522,927
<TOTAL-ASSETS> 14,337,715
<CURRENT-LIABILITIES> 6,090,358
<BONDS> 0
0
0
<COMMON> 6,909
<OTHER-SE> 2,134,971
<TOTAL-LIABILITY-AND-EQUITY> 14,337,715
<SALES> 15,443,432
<TOTAL-REVENUES> 15,443,432
<CGS> 9,152,641
<TOTAL-COSTS> 8,176,974
<OTHER-EXPENSES> (10,627)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 702,128
<INCOME-PRETAX> (2,577,684)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,577,684)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,577,684)
<EPS-PRIMARY> (0.39)
<EPS-DILUTED> (0.39)
</TABLE>
