SECURITIES AND EXCHANGE COMMISSION
Washington, DC 25049
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FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Quarterly Period Ended September 30, 1998
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from __________ to
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Commission File Number 0-21903
ORA ELECTRONICS, INC.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 95-4607830
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(State or Other Jurisdiction of (IRS Employer Identification
Incorporation or Organization) Number)
9410 Owensmouth Avenue, Chatsworth, CA 91311
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(Address of Principal Executive Offices)(Zip Code)
(818) 772-2700
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(Registrant's Telephone Number, Including Area Code)
(No Change)
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes ..X.. No .....
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15 (d) of the Securities
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Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes ..... No ..... Not Applicable ..X..
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at November 13, 1998
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Common Stock, $.001 par value 6,909,694 shares
Exhibit Index on page 20
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ORA ELECTRONICS, INC.
Form 10-Q
September 30, 1998
TABLE OF CONTENTS
Page
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PART I - Financial Information. 4
Item 1. Financial Statements 4
Balance Sheets as of September 30, 1998 and
March 31, 1998 4
Statements of Operations and Retained Deficit
for the three and six month periods ended
September 30, 1998 and 1997 6
Statements of Cash Flows for the six month
periods ended September 30, 1998 and 1997 7
Notes to Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 11
PART II - Other Information. 17
Item 4. Submission of Matters to a Vote of Security Holders. 17
Item 6. Exhibits and Reports on Form 8-K. 17
Signatures 19
Exhibit Index 20
Exhibits 21-22
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PART I -FINANCIAL INFORMATION.
ITEM 1. FINANCIAL STATEMENTS.
ORA ELECTRONICS, INC.
Balance Sheets
September 30, March 31,
1998 1998
(Unaudited) (Audited)
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ASSETS
Current assets:
Cash and cash equivalents $ 1,296,940 $ 407,694
Trade accounts receivable, less
allowance for sales returns and
doubtful accounts of $586,560
($1,022,043 at March 31, 1998) 1,651,307 3,112,292
Inventories 3,209,214 4,627,251
Prepaid expenses 176,284 74,276
------------ ------------
Total current assets 6,333,745 8,221,513
Property and equipment, net 6,159,611 6,231,494
Other assets:
Loan receivable, officer 594,629 579,833
Deferred expenses 300,307 304,875
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Total assets $ 13,388,292 $ 15,337,715
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 539,454 $ 488,604
Notes payable - 1,355,847
Trade payables 877,973 2,925,677
Accrued interest 90,167 101,648
Other accounts payable and accrued
expenses 2,739,340 2,218,582
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Total current liabilities 4,246,934 7,090,358
Long-term debt 5,983,806 6,105,477
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Total liabilities 10,230,740 13,195,835
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See accompanying notes to financial statements.
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Stockholders' equity:
Preferred stock, $.001 par value,
5,000,000 shares authorized,
none issued - -
Common stock, par value $.001 per share,
authorized 30,000,000 shares, issued
and outstanding 6,909,046 shares at
September 30, 1998 and 6,908,722
shares at March 31, 1998 6,909 6,909
Additional paid in capital 6,125,380 6,125,380
Retained (deficit) (2,974,737) (3,990,409)
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Total stockholders' equity 3,157,552 2,141,880
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Total liabilities and stockholders'
equity $ 13,388,292 $ 15,337,715
============ ============
See accompanying notes to financial statements.
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<TABLE>
ORA ELECTRONICS, INC.
Statements of Operations and Retained Deficit
For the Three Month and Six Month Periods
Ended September 30, 1998 and 1997
(Unaudited)
<CAPTION>
Three months Six months
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 4,086,412 $ 4,917,170 $ 7,543,417 $ 8,243,980
Cost of goods sold 2,053,293 3,347,466 4,290,735 5,071,304
----------- ----------- ----------- -----------
Gross profit 2,033,119 1,569,704 3,252,682 3,172,676
----------- ----------- ----------- -----------
Operating expenses:
Selling and shipping 604,228 641,500 1,236,878 1,195,160
Administrative and general 1,083,451 1,167,584 2,373,128 2,506,578
----------- ----------- ----------- -----------
Total operating expenses 1,687,679 1,809,084 3,610,006 3,701,738
----------- ----------- ----------- -----------
Operating profit (loss) 345,440 (239,380) (357,324) (529,062)
Interest (expense) (172,170) (180,314) (367,268) (378,550)
Other income and (expense) (Note 4) 54,391 34,096 1,740,264 (10,056)
----------- ----------- ----------- -----------
Income (loss) before income taxes 227,661 (385,598) 1,015,672 (917,668)
Provision for income taxes - - - -
----------- ----------- ----------- -----------
Net profit (loss) 227,661 (385,598) 1,015,672 (917,668)
Retained deficit, beginning
of period (3,202,398) (1,944,796) (3,990,409) (1,412,726)
----------- ----------- ----------- -----------
Retained deficit, end
of period $(2,974,737) $(2,330,394) $(2,974,737) $(2,330,394)
=========== =========== =========== ===========
Per common share information:
Net earnings (loss) $ 227,661 $ (385,598) $ 1,015,672 $ (917,668)
=========== =========== =========== ===========
Earnings (loss) per share:
Basic and diluted $ 0.03 $ (0.06) $ 0.15 $ (0.14)
=========== =========== =========== ===========
Weighted average shares outstanding
used in the per share calculation:
Basic and diluted 6,908,956 6,604,373 6,908,875 6,604,373
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
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ORA ELECTRONICS, INC.
Statements of Cash Flows
For the Six Month Periods Ended September 30, 1998 and 1997
(Unaudited)
Six Months Ended September 30,
1998 1997
---- ----
Cash flows from operating activities:
Net income (loss) $ 1,015,672 $ (917,668)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Depreciation and amortization 118,486 146,760
Provision for losses and sales returns (84,507) 454,776
Changes in assets and liabilities:
Trade accounts receivable 1,545,492 (30,371)
Inventories 1,418,037 1,079,432
Prepaid expenses (102,008) 212,692
Trade payables (2,047,704) (1,274,366)
Accrued interest (11,481) (2,753)
Other accounts payable and
accrued expenses 520,758 71,979
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Net cash provided by (used in) operating
activities 2,372,745 (259,519)
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Cash flows from investing activities:
Capital expenditures (42,036) -
Loan receivable, officer (14,796) (14,069)
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Net cash (used in) investing activities (56,832) (14,069)
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Cash flows from financing activities:
Repayment of line of credit (1,355,847) (7,223)
Borrowing (repayment) of long-term debt (70,820) 32,696
Common stock - 15
Additional paid in capital - 18,775
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Net cash provided by (used in) financing activities (1,426,667) 44,263
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Net increase (decrease) in cash and cash
equivalents 889,246 (229,325)
Cash and cash equivalents, beginning of period 407,694 321,647
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Cash and cash equivalents, at end of period $ 1,296,940 $ 92,322
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid $ 333,376 $ 229,692
=========== ===========
Income taxes paid $ - $ -
=========== ===========
See accompanying notes to financial statements.
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ORA ELECTRONICS, INC.
Notes to Financial Statements
(Unaudited)
NOTE 1 - DESCRIPTION OF BUSINESS
ORA Electronics, Inc. (the "Company") is a developer and supplier of
interface, connectivity solutions and peripheral accessories for wireless
communication devices. The Company's products supplement the effectiveness of
cellular telephones, personal communications systems ("PCS"), pagers, computing
devices and the intelligent transportation systems industry. The Company
currently carries over 1,200 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 national and regional retailers, service providers
and wireless carriers, original equipment manufacturers ("OEMs"), auto
manufacturers, regional distributors and dealers.
NOTE 2 - BASIS OF INTERIM PRESENTATION
Interim financial statements and information are unaudited; however, in the
opinion of management all adjustments necessary for a fair presentation of the
interim results have been made. All such adjustments were of a normal recurring
nature. The results for the three and six months ended September 30, 1998 are
not necessarily an indication of results to be expected for the entire fiscal
year. The accompanying financial statements have been prepared in accordance
with the instructions to Form 10-Q and do not include all of the information and
the footnotes required by generally accepted accounting principles for complete
statements. All information reported in this Form 10-Q should be read in
conjunction with the Company's annual financial statements and notes thereto for
the fiscal year ended March 31, 1998 filed with the Securities and Exchange
Commission on June 29, 1998.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
For comparative purposes, certain amounts in the financial statements from
the prior periods ended March 31, 1998 and September 30, 1997 have been
reclassified.
NOTE 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.
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 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
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shares of common stock received by Telular 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.
The Company has estimated the current value of the final settlement at
$1,685,797, all of which has been recognized and included in Administrative and
General expenses in periods prior to fiscal year 1999.
The Company is involved in other legal proceedings, many of which arise in
the ordinary course of its business. While any litigation contains an element of
uncertainty, management believes that the outcome of such proceedings will not
have a material adverse effect on the Company's results of operations.
NOTE 4 - RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 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
the 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 (loss) per share.
In June 1997, the FASB issued SFAS 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
Quarterly Report, there was no comprehensive income.
In June 1997, the FASB issued SFAS 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.
NOTE 5 - YEAR 2000 ISSUE
Many computer systems and other equipment with embedded chips or processors
in use today were designed and developed using two digits, rather than four, to
specify the year. As a result, such systems will recognize the Year 2000 as "00"
and may assume that the year is 1900 rather than 2000. This is commonly known as
the Year 2000 issue, which could potentially result in a system failure or in
miscalculations causing disruptions of operations, including among other things,
a temporary inability to process transactions, send invoices or engage in other
similar normal business activities. The Company has been informed that the
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portion of the Company's computer software systems relating to the general
ledger, payroll and other employee records is presently Year 2000 compliant. The
Company is in the process of evaluating the potential cost to it in addressing
the Year 2000 issue with respect to its other software and the potential
consequences of an incomplete or untimely resolution of the Year 2000 issue. The
Company has been given estimates in the $100,000 to $150,000 range to purchase
and implement new Year 2000 compliant software for those systems that the
Company is aware require such replacement. Although the Company believes that it
will not incur significant costs above these estimates to become completely Year
2000 compliant, no assurance can be given that the Company will not incur
significant costs in addressing the Year 2000 issue or that the failure to
adequately address the Year 2000 issue will not have a material adverse effect
upon the Company.
The Company is contacting its major suppliers, major customers, financial
institutions and others with whom it conducts business to determine that they
will be able to resolve the Year 2000 issue in matters affecting the Company.
The Company at this time cannot make any predictions as to the degree of
compliance by such third parties or the consequences of their noncompliance.
However, if those third parties with whom the Company conducts business are
unsuccessful in implementing timely solutions, the Year 2000 issue could have a
material adverse effect on the Company's business, financial condition and
results of operations.
NOTE 6 - SALE OF CERTAIN TRADEMARKS
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 GRP, or approximately
$1,675,000, which is included in Other Income on the Statement of Operations and
Retained Deficit for the six months ended September 30, 1998. Gershon N.
Cooper, President and Chief Executive Officer of the Company, is a former
member of the Board of Directors of ORA UK.
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ITEM 2. 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 financial statements and the notes thereto.
The following table sets forth, for the periods indicated, certain
statements of operations and retained deficit data for the Company expressed as
a percentage of net sales:
Three months Six months
ended September 30, ended September 30,
1998 1997 1998 1997
---- ---- ---- ----
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 50.2 68.1 56.9 61.5
----- ----- ----- -----
Gross profit 49.8 31.9 43.1 38.5
Selling and shipping expenses 14.8 13.0 16.4 14.5
Administrative and general expenses 26.5 23.8 31.4 30.4
----- ----- ----- -----
Income (loss) from operations 8.5 (4.9) (4.7) (6.4)
Interest expense (4.2) (3.6) (4.9) (4.6)
Other income and expense 1.3 0.7 23.1 (0.1)
----- ----- ----- -----
Income (loss) before income taxes 5.6 (7.8) 13.5 (11.1)
Provision for income taxes - - - -
----- ----- ----- -----
Net income (loss) 5.6% (7.8)% 13.5% (11.1)%
===== ===== ===== =====
RESULTS OF OPERATIONS COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1998 TO
THREE MONTHS ENDED SEPTEMBER 30, 1997
Net Sales. Net sales decreased by $830,758, or 16.9%, to $4,086,412 for the
second quarter of fiscal 1999 compared to $4,917,170 for the same period of the
prior year. Approximately $500,000 of this decrease is attributed to the loss of
a major retail customer, Staples, due to competitors' pricing structures.
Shipments to Staples ceased as of August 1, 1998 and had averaged approximately
$250,000 per month. The remainder of the decrease primarily reflects a
continuation of a trend of lower orders being received by consumer electronics
retailers who have reported same store sales decreases and reductions in
cellular telephone activations as compared with the prior year. Retailers have
reported that their cellular telephone activations are lower as a result of
reduced financial incentives offered to them by cellular telephone carriers. The
Company believes that its traditional retail customers may face increased
competitive pressures from cellular service providers and that, consequently,
orders for its cellular products from such retailers may continue to decline.
The Company is exploring alternative channels of distribution.
Gross Profit. Gross profit increased by $463,415, or 29.5%, to $2,033,119
for the second quarter of fiscal 1999 compared with $1,569,704 for same period
of the prior year, while gross profit as a percentage of net sales increased to
49.8% from 31.9%. The increases in gross profit and gross profit as a percentage
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of net sales are primarily attributable to a reduction in the carrying value of
the Company's merchandise inventory of approximately $700,000 reflected during
the quarter ended September 30, 1997.
Selling and Shipping Expense. Selling and shipping expense decreased by
$37,272, or 5.8%, to $604,228 for the second quarter of fiscal 1999 compared
with $641,500 in the same period of the prior year. The decrease in selling and
shipping expense is primarily attributable to lower costs of shipping,
warehousing, freight and sales commissions resulting from lower sales volume,
partially offset by an increase in promotion and travel expense of approximately
$50,000 incurred by the Company's sales force in its effort to acquire new
customers.
Administrative and General Expense. Administrative and general expense
decreased by $84,133, or 7.2%, to $1,083,451 for the second quarter of fiscal
1999 compared with $1,167,584 in the same period of the prior year. The decrease
is primarily attributed to a reduction in legal fees based on the settlement
of certain litigation during fiscal 1998.
Interest Expense. Interest expense for the second quarter of fiscal 1999
was $172,170 compared with $180,314 in the same period of the prior year. This
reduction is primarily a result of decreased borrowings under the Company's line
of credit.
Other Income and Expense. Other income for the second quarter of fiscal
1999 was $54,391 compared with $34,096 in the same period of the prior year. The
increase of $20,295, or 59.5% is primarily attributed to a partial refund of
property taxes related to prior periods.
Income Taxes. The Company has made no provision for income taxes as it has
a history of net losses, which has resulted in tax loss carryforwards. At
September 30, 1998, the Company had available federal net operating loss
carryforwards of approximately $3,104,000, which expire in 2012 through 2013,
and state net operating loss carryforwards of approximately $1,438,000, which
expire in 2002 through 2003.
COMPARISON OF SIX MONTHS ENDED SEPTEMBER 30, 1998 TO SIX MONTHS ENDED
SEPTEMBER 30, 1997
Net Sales. Net sales decreased by $700,563, or 8.5%, to $7,543,417 for the
six months of fiscal 1999 ended September 30, 1998, compared with $8,243,980 for
the same period of the prior year. Approximately $500,000 of this decrease is
attributed to the loss of a major retail customer, Staples, due to competitors'
pricing structures. Shipments to Staples ceased as of August 1, 1998 and had
averaged approximately $250,000 per month. The remainder of the decrease
primarily reflects a continuation of a trend of lower orders being received by
consumer electronics retailers who have reported same store sales decreases and
reductions in cellular telephone activations as compared with the prior year.
Retailers have reported that their cellular telephone activations are lower as a
result of reduced financial incentives offered to them by cellular telephone
carriers. The Company believes that its traditional retail customers may face
increased competitive pressures from cellular service providers and that,
consequently, orders for its cellular products from such retailers may continue
to decline. The Company is exploring alternative channels of distribution.
Gross Profit. Gross profit increased by $80,007, or 2.5%, to $3,252,682 for
the six months of fiscal 1999 ended September 30, 1998 compared with $3,172,675
for the same period of the prior year, while gross profit as a percentage of net
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sales increased to 43.1% from 38.5%. The increases in gross profit and gross
profit as a percentage of net sales are primarily attributable to a reduction in
the carrying value of the Company's merchandise inventory of approximately
$700,000, reflected during the six month period ended September 30, 1997.
Selling and Shipping Expense. Selling and shipping expense increased by
$41,718, or 3.5%, to $1,236,878 for the six months of fiscal 1999 ended
September 30, 1998 compared with $1,195,160 in the same period of the prior
year. The increase in selling and shipping expenses is primarily attributable to
an increase in promotion and travel expense of approximately $180,000 incurred
by the Company's direct sales force in its effort to acquire new customers,
partially offset by lower costs of shipping, warehousing, freight and sales
commissions as result of decreased sales volume.
Administrative and General Expense. Administrative and general expense
decreased by $133,450, or 5.3%, to $2,373,128 for the six months of fiscal 1999
ended September 30, 1998 compared with $2,506,578 for the same period of the
prior year. The decrease is primarily attributable to a reduction in legal fees
based on the settlement of certain litigation during fiscal 1998.
Interest Expense. Interest expense for the six months of fiscal 1999 ended
September 30, 1998 was $367,268 compared with $378,550 in the same period of the
prior year. This reduction is primarily a result of decreased borrowings under
the Company's line of credit.
Other Income and Expense. Other income for the six months of fiscal 1999
was $1,740,264 compared with Other expense of $10,056 in the same period of the
prior year. The difference is primarily attributable to approximately $1,675,000
in royalty income received in the quarter ended June 30, 1998 as a result of the
Company granting to ORA Electronics (UK) Limited, an unaffiliated company, an
exclusive royalty-free right to use certain of the Company's trademarks,
including the "ORA" name, in perpetuity worldwide, excepting North, Central and
South America.
Income Taxes. The Company has made no provision for income taxes as it has
a history of net losses, which has resulted in tax loss carryforwards. At
September 30, 1998, the Company had available federal net operating loss
carryforwards of approximately $3,104,000, which expire in 2012 through 2013,
and state net operating loss carryforwards of approximately $1,438,000, which
expire in 2002 through 2003.
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 September 30, 1998, the Registrant had $1,296,940 in cash and cash
equivalents with a working capital surplus of $2,086,811, contrasted to $407,694
in cash and cash equivalents with a working capital surplus of $1,131,155 at
March 31, 1998. Net cash provided by operating activities was $2,372,745 for the
six months ended September 30, 1998, compared with net cash used in operating
activities of $259,519 for the six months ended September 30, 1997. Working
capital may vary from time to time as a result of seasonality, new product
introductions, capital expenditures and changes in inventory levels.
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To supplement cash flow from operations, if necessary, the Company
maintains a $5,000,000 revolving credit facility to be used for general working
capital purposes. The credit agreement (dated April 4, 1997) with FINOVA Capital
Corporation ("FINOVA") allows the Company to borrow funds at Citibank N.A.'s
reference rate plus 1% and there is an unused line fee of 0.5%. The Company's
funds are swept daily and capital is made available based on 70% of eligible
accounts receivable and 35% of eligible inventory. Based on the Company's level
of underlying collateral and the formulas utilized to calculate eligible
collateral, the Company had borrowing capacity of approximately $1,000,000 at
September 30, 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. At all times during the
quarter ended September 30, 1998, the Company was in compliance with all
covenant requirements.
A loan from the Aid Association for Lutherans ("AAL") obtained by the
Company to purchase its headquarters and distribution facility in Chatsworth,
California is, by its terms, callable by AAL upon six months notice. As of
September 30, 1997, the outstanding principal balance of such loan was
$4,567,515. Such loan bears interest at 9.875% per year, is payable in monthly
installments of $43,418, representing both principal and interest, matures in
February 2019 and is secured by the real property on which the facility is
located.
Net cash used in investing activities was $56,832 for the first six months
of fiscal 1999, compared with net cash used in investing activities of $14,069
for the first six months of fiscal 1998. The increase in net cash used is
primarily attributable to capital expenditures for new computer equipment
incurred during the six month period ended September 30, 1998.
Cash flows used in financing activities were $1,426,667 for the first six
months of fiscal 1999, compared with cash flows provided by financing activities
of $44,263 for the first six months of fiscal 1998. The increase in cash flows
used in financing activities is primarily attributable to net repayments of
short-term debt during the six month period ended September 30, 1998.
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
During February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") 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 the 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 SFAS 130, "Reporting Comprehensive Income"
("SFAS 130") effective for fiscal years beginning after December 15, 1997. The
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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
Quarterly Report, there was no comprehensive income.
In June 1997, the FASB issued SFAS 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.
YEAR 2000 ISSUE UPDATE
Many computer systems and other equipment with embedded chips or processors
in use today were designed and developed using two digits, rather than four, to
specify the year. As a result, such systems will recognize the Year 2000 as "00"
and may assume that the year is 1900 rather than 2000. This is commonly known as
the Year 2000 issue, which could potentially result in a system failure or in
miscalculations causing disruptions of operations, including among other things,
a temporary inability to process transactions, send invoices or engage in other
similar normal business activities. The Company has been informed that the
portion of the Company's computer software systems relating to the general
ledger, payroll and other employee records is presently Year 2000 compliant.
The Company is in the process of evaluating the potential cost to it in
addressing the Year 2000 issue with respect to its other software and the
potential consequences of an incomplete or untimely resolution of the Year 2000
issue. The Company has been given estimates in the $100,000 to $150,000 range
to purchase and implement new Year 2000 compliant software for those systems
that the Company is aware require such replacement. Full implementation and
final testing of new software in targeted for completion by June, 1999. Although
the Company believes that it will not incur significant costs above these
estimates to become completely Year 2000 compliant, no assurance can be given
that the Company will not incur significant costs in addressing the Year 2000
issue or that the failure to adequately address the Year 2000 issue will not
have a material adverse effect upon the Company.
The Company is contacting its major suppliers, major customers, financial
institutions and others with whom it conducts business to determine that they
will be able to resolve the Year 2000 issue in matters affecting the Company.
The Company at this time cannot make any predictions as to the degree of
compliance by such third parties or the consequences of their noncompliance.
However, if those third parties with whom the Company conducts business are
unsuccessful in implementing timely solutions, the Year 2000 issue could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company is currently assessing its mechanical systems (e.g. telephones,
HVAC, etc.) which employ embedded chip technology. Based on initial information
gathered, the Company does not estimate a significant expense will be incurred
to make any non-compliant systems Year 2000 compliant.
-15-
<PAGE>
The Company plans to test and validate its internal operations, complete
the third party surveys, and finalize and implement any contingency plans
necessary by June 30, 1999.
SEASONALITY
The Company's markets are seasonal with sales typically higher in the
Company's third quarter due to increased demand from mass-market retailers
during the year-end holiday season.
FORWARD LOOKING INFORMATION
This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of that term in the Private Securities Litigation Reform Act
of 1995 (Section 27A of the Securities Act of 1933 and Section 21E of the
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 introduction of new products by the Company, future sales levels,
compliance with financial covenants in loan agreements, the Company's ability to
secure future financing, the ability of the Company and its suppliers to address
issues relating to the "Year 2000 problem," estimated costs of the Company's
resolution of the "Year 2000 problem," costs associated with, and effectiveness
of, the Company's proposed new management information system, 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 Quarterly Report. Statements in
this Quarterly Report, particularly in the Notes to Financial Statements, "Part
1, Item 2, Management's Discussion and Analysis of Financial Condition and
Results of Operations," and "Part II, Item 1, Legal Proceedings" describe
certain factors, among others, that could contribute to or cause such
differences. Other factors that could contribute to or cause such differences
include, but are not limited to, unanticipated developments in any one or more
of the following areas: the receptivity of consumers to new consumer electronics
technologies, the rate of consumer acceptance of new product introductions,
competition, the Company's ability to retain existing customers and attract new
ones, 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," the costs to the Company in addressing 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.
-16-
<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.
PART II -- OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On September 14, 1998, the Company held its Annual Meeting of Stockholders.
The number of votes is based on the voting rights of the Common Stock.
The following individuals were elected as directors:
Votes Votes Broker
Name For Withheld Non-Votes
Gershon N. Cooper 5,362,210 3,151 1,543,579
John M. Burris 5,362,210 3,151 1,543,579
Matthew F. Jodziewicz 5,362,210 3,151 1,543,579
Ruth Cooper 5,362,110 3,251 1,543,579
The following proposals were approved as follows:
Votes Broker
Proposal Votes For Against Abstain Non-Votes
Approval to amend the
Company's 1996 Stock
Plan 5,359,151 5,339 871 1,543,579
Approval of the appointment
of Richard & Hedrick as the
Company's independent
certifying accountants 5,359,151 5,339 871 1,543,579
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit No. Description
----------- -----------
2.1 Plan of Reorganization of North American Energy of Delaware,
Inc. (1)
2.2 Agreement and Plan of Merger between ORA Electronics, Inc., a
Delaware corporation, and North American Energy of Delaware,
Inc., a Delaware corporation. (2)
3.1 Restated Certificate of Incorporation of ORA Electronics, Inc.
(2)
-17-
<PAGE>
3.2 Bylaws of ORA Electronics, Inc. (2)
4.1 Specimen Common Stock Certificate of ORA Electronics, Inc. (2)
4.2 Specimen Class A Warrant Certificate. (2)
4.3 Specimen Class B Warrant Certificate. (2)
4.4 Specimen Class C Warrant Certificate. (2)
4.5 Specimen Class D Warrant Certificate. (2)
4.6 Warrant Agreement between the Company and Continental Stock
Transfer & Trust Company (the "Warrant Agent"), dated as of
December 20, 1996. (2)
4.7 Letter Agreement, dated June 10, 1997, from Sheppard, Mullin,
Richter & Hampton LLP to the Warrant Agent. (3)
10.1 Loan and Security Agreement, dated April 4, 1997, by and between
the Company and FINOVA Capital Corporation ("FINOVA").
(3)
10.2 Amendment to Loan Agreement, dated April 4, 1997, between the
Company and FINOVA. (3)
10.3 Collateral Assignment, Patent Mortgage and Security Agreement,
dated as of April 4, 1997, by and between the Company and
FINOVA. (3)
10.4 Waiver and Second Amendment to Loan Agreement, dated June 26,
1997, between the Company and FINOVA. (3)
10.5 Waiver and Third Amendment to Loan Agreement, dated
November 13, 1997 between the Company and FINOVA. (4)
10.6 Waiver and Fourth Amendment to Loan Agreement, dated
February 11, 1998 between the Company and FINOVA. (5)
10.7 Waiver and Fifth Amendment to Loan Agreement, dated
March 27, 1998, between the Company and FINOVA. (6)
10.8 Second Deed of Amendment, by and between the Company
and ORA Electronics (UK) Limited ("ORA UK"), dated
as of April 1, 1998. (5)
10.9 Distribution Agreement, by and between Alliance Research
Corporation (predecessor to the Registrant) and Contactace
Limited (doing business as ORA UK), dated as of 1990. (5)
-18-
<PAGE>
11 Statement re: Computation of Earnings Per Share.
27 Financial Data Schedule.
- ---------------
(1) Incorporated by reference from the Form 8-K/A filed on December 20,
1996, by North American Energy of Delaware, Inc., predecessor to the
Registrant.
(2) Incorporated by reference from the Registrant's Form 8-K filed on
December 20, 1996.
(3) Incorporated by reference from the Registrant's Form 10-K filed on
June 30, 1997.
(4) Incorporated by reference from the Registrant's Form 10-Q filed on
February 14, 1998.
(5) Incorporated by reference from the Registrant's Form 8-K filed on
April 17, 1998.
(6) Incorporated by reference from the Registrant's Form 10-K filed on
June 29, 1998.
(b) Reports on Form 8-K.
--------------------
No reports on Form 8-K were filed by the Company during the fiscal
quarter ended September 30, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ORA ELECTRONICS, INC.
(Registrant)
Dated: November 16, 1998 By: /s/ John M. Burris
---------------------------------
John M. Burris, Duly Authorized
Representative and Chief Financial
Officer
-19-
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page
- --------------------------------------------------------------------------------
11 Statement Re: Computation Of Earnings
Per Share 21
27 Financial Data Schedule 22
-20-
<PAGE>
EXHIBIT 11
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
Three Months Ended September 30,
1998 1997
---- ----
Basic and diluted weighted average
number of shares of common stock
outstanding 6,908,956 6,604,373
=========== ===========
Net earnings (loss) per share $ 227,661 $ (385,598)
=========== ===========
Basic and diluted earnings (loss)
per share $ 0.03 $ (0.06)
=========== ===========
Six Months Ended September 30,
1998 1997
---- ----
Basic and diluted weighted average
number of shares of common stock
outstanding 6,908,875 6,604,373
=========== ===========
Net earnings (loss) per share $ 1,015,672 $ (917,668)
=========== ===========
Basic and diluted earnings (loss) $ 0.15 $ (0.14)
per share =========== ===========
-21-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> MAR-31-1999 MAR-31-1999
<PERIOD-END> SEP-30-1998 SEP-30-1998
<CASH> 1,296,940 1,296,940
<SECURITIES> 0 0
<RECEIVABLES> 2,237,867 2,237,867
<ALLOWANCES> 586,560 586,560
<INVENTORY> 3,209,214 3,209,214
<CURRENT-ASSETS> 6,333,745 6,333,745
<PP&E> 8,796,456 8,796,456
<DEPRECIATION> 2,636,845 2,636,845
<TOTAL-ASSETS> 13,388,292 13,388,292
<CURRENT-LIABILITIES> 4,246,934 4,246,934
<BONDS> 0 0
0 0
0 0
<COMMON> 6,609 6,609
<OTHER-SE> 3,150,643 3,150,643
<TOTAL-LIABILITY-AND-EQUITY> 13,388,292 13,388,292
<SALES> 4,086,412 7,543,417
<TOTAL-REVENUES> 4,086,412 7,543,417
<CGS> 2,053,293 4,290,735
<TOTAL-COSTS> 1,687,679 3,610,006
<OTHER-EXPENSES> (54,391) (1,740,264)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 172,170 367,268
<INCOME-PRETAX> 227,661 1,015,672
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 227,661 1,015,672
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 227,661 1,015,672
<EPS-PRIMARY> 0.03 0.15
<EPS-DILUTED> 0.03 0.15
</TABLE>
