SECURITIES AND EXCHANGE COMMISSION
Washington, DC 25049
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Quarterly Period Ended June 30, 1999
[ ] 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
-------- ----------
(State or Other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
9410 Owensmouth Avenue 91311
- ---------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(818) 772-2700
------------------------
(Registrant's Telephone Number, Including Area Code)
(No Change)
------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes ..X.. No .....
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
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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
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 August 12, 1999
- ------------------- ------------------------------
Common Stock, $.001 6,910,067 shares
par value
Exhibit Index on Page 21
Page 2 of 23
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ORA ELECTRONICS, INC.
Form 10-Q
June 30, 1999
TABLE OF CONTENTS
Page
----
PART I - Financial Information 4
Item 1. Financial Statements 4
Balance Sheets as of June 30, 1999 and
March 31, 1999 4
Statements of Operations and Retained
Deficit for the three month periods
ended June 30, 1999 and 1998 6
Statements of Cash Flows for the
three month periods ended June 30,
1999 and 1998 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 1. Legal Proceedings. 17
Item 6. Exhibits and Reports on Form 8-K. 17
Signatures 20
Exhibit Index 21
Exhibits 22-23
Page 3 of 23
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Part I - FINANCIAL INFORMATION.
ITEM 1. FINANCIAL STATEMENTS.
ORA ELECTRONICS, INC.
Balance Sheets
June 30, March 31,
1999 1999
(Unaudited) (Audited)
----------- ---------
ASSETS
Current assets:
Cash and cash equivalents (Note 2) $ 1,369,261 $ 1,807,940
Trade accounts receivable, less allowances
for sales returns and doubtful accounts of
$420,394($697,498 at March 31, 1999) 598,910 2,206,849
Inventories 2,604,870 2,565,673
Prepaid expenses 62,721 103,114
------------ ------------
Total current assets 4,635,762 6,683,576
Property and equipment, net 5,998,907 6,038,045
Other assets:
Loan receivable, officer 617,533 609,802
Deferred expenses 293,442 295,728
------------ ------------
Total assets $ 11,545,644 $ 13,627,151
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 481,972 $ 693,830
Notes payable - 946,775
Trade payables 2,329,799 1,966,103
Accrued interest 41,412 49,707
Other accounts payable and
accrued expenses 2,009,980 2,132,403
------------ ------------
Total current liabilities 4,863,163 5,788,818
Long-term debt 5,657,201 5,653,510
------------ ------------
Total liabilities 10,520,364 11,442,328
------------ ------------
Commitments and contingencies (Note 4)
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Stockholders' equity:
Preferred stock, $.001 par value,
authorized 5,000,000 shares,
none issued - -
Common stock, par value $.001 per share,
authorized 30,000,000 shares, issued
and outstanding 6,910,063 shares at
June 30, 1999 and 6,909,959 shares at
March 31, 1999 6,910 6,910
Additional paid in capital 6,125,379 6,125,379
Retained deficit (5,107,009) (3,947,466)
------------ ------------
Total stockholders' equity 1,025,280 2,184,823
------------ ------------
Total liabilities and stockholders'
equity $ 11,545,644 $ 13,627,151
============ ============
See accompanying notes to financial statements.
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ORA ELECTRONICS, INC.
Statements of Operations and Retained Deficit
For the Three Month Period Ended June 30, 1999 and 1998
(Unaudited)
Three Months
Ended
June 30,
1999 1998
---- ----
Net sales $ 977,148 $ 3,457,005
Costs of goods sold 686,231 2,237,443
----------- -----------
Gross profit 290,917 1,219,562
----------- -----------
Operating expenses:
Selling and shipping 366,052 654,019
Administrative and general 969,614 1,268,307
----------- -----------
Total operating expenses 1,335,666 1,922,326
----------- -----------
Operating loss (1,044,749) (702,764)
Interest expense (149,239) (195,098)
Other income and expense (Note 5) 34,445 1,685,873
----------- -----------
Income (loss) before income taxes (1,159,543) 788,011
Provision for income taxes - -
----------- -----------
Net profit (loss) $(1,159,543) $ 788,011
Retained deficit, beginning
of period (3,947,466) (3,990,409)
----------- -----------
Retained deficit, end
of period $(5,107,009) $(3,202,398)
=========== ===========
Per common share information:
Net earnings (loss) $(1,159,543) $ 788,011
=========== ===========
Earnings (loss) per share:
Basic and diluted $ (0.17) $ 0.11
=========== ===========
Weighted average shares outstanding
used in the per share calculation:
Basic and diluted 6,910,011 6,908,794
=========== ===========
See accompanying notes to financial statements.
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ORA ELECTRONICS, INC.
Statements of Cash Flows
For the Three Month Periods Ended June 30, 1999 and 1998
(Unaudited)
Three Months
Ended June 30,
1999 1998
---- ----
Cash flows from operating activities
Net income (loss) $(1,159,543) $ 788,011
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization 60,924 57,123
Provision for losses and sales returns (125,868) 323,352
Changes in assets and liabilities:
Trade accounts receivable 1,607,939 532,107
Inventories (39,197) 525,107
Prepaid expenses 40,393 (92,426)
Trade payables 363,696 (1,791,168)
Accrued interest (8,295) (3,882)
Other accounts payable and
accrued expenses (122,423) 281,908
----------- -----------
Net cash provided by operating activities 617,626 620,132
----------- -----------
Cash flows from investing activities:
Capital expenditures (19,500) (13,289)
Loan receivable, officer (7,731) (7,351)
----------- -----------
Net cash (used in) investing activities (27,231) (20,640)
----------- -----------
Cash flows from financing activities:
Repayment of line of credit (946,775) (873,196)
Repayment of long-term debt (82,299) (22,489)
----------- -----------
Net cash (used in) financing activities (1,029,074) (895,685)
----------- -----------
Net (decrease) in cash and cash
equivalents (438,679) (296,193)
Cash and cash equivalents, beginning of period 1,807,940 407,694
----------- -----------
Cash and cash equivalents, end of period $ 1,369,261 $ 111,501
=========== ===========
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest $ 125,106 $ 172,845
=========== ===========
Income taxes $ - $ -
=========== ===========
See accompanying notes to financial statements.
Page 7 of 23
<PAGE>
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
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 400 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 - Financial Results and Liquidity:
- -----------------------------------------
The Company has incurred operating losses of $1,032,025, $1,886,183 and
$1,840,455 in the fiscal years ended March 31, 1999, 1998 and 1997, and is
reporting an operating loss for the three months ended June 30, 1999 of
$1,044,749. For several years the company's major competitors, many with greater
resources, have aggressively lowered their selling prices in an attempt to
increase market share. Although the company has benefited from its own internal
cost reduction programs, the effects of lower pricing by major competitors has
more than offset the company's cost reductions.
The Chief Executive Officer, along with the rest of the company's
management team, has been developing a broad operational and financial
restructuring plan. The plan, which is designed to leverage the company's brand,
distribution and technology strengths, includes reducing costs, disposition of
certain assets, focusing on development of alternative channels of distribution
and capitalizing on the company's patented technologies. Restructuring costs
must be incurred to implement the plan.
Going forward, significant cash flow will be needed to pay the
restructuring costs to implement the proposed business plan and to fund losses
until the company has returned to profitability. While there is no assurance
that funding will be available to execute the plan, the company is continuing to
seek financing to support its turnaround efforts and is exploring a number of
alternatives in this regard.
The company's independent public accountants have included a "going
concern" emphasis paragraph in their audit report accompanying the March 31,
1999 financial statements. The paragraph states that the company's recurring
losses and its inability to secure working capital financing raise substantial
doubt about the company's ability to continue as a going concern and cautions
that the financial statements do not include adjustments that might result from
the outcome of this uncertainty. The financial statements at, and for the three
month period ended June 30, 1999, similarly do not include adjustments that
might result from the outcome of this uncertainty.
Page 8 of 23
<PAGE>
On July 27, 1999, the Company obtained a $1,200,000 revolving credit
facility from Celtic Capital Corporation, to be used for general working capital
purposes. The credit agreement setting forth the terms of such revolving credit
facility allows the Company to borrow funds at Wells Fargo Bank N.A.'s reference
rate plus 2.5%, based on an 80% advance rate on eligible trade accounts
receivable. There is a monthly collateral monitoring fee of .25% based on the
average trade accounts receivable during the month. However, existing available
cash, cash flow from operations and available borrowings through the Company's
newly acquired credit facility may not to be sufficient to cover liquidity
requirements after September 30, 1999, and the Company is currently facing the
prospect of not having adequate funds to operate its business. There can be no
assurance that any long-term restructuring alternative can be successfully
initiated or implemented by September 30, 1999, in which case the Company may be
compelled to pursue a bankruptcy filing in the absence of a proposed or
pre-approved financial restructuring.
Management believes that, despite the financial hurdles and funding
uncertainties going forward, it has under development a business plan that, if
successfully funded and executed as part of a financial restructuring, can
significantly improve operating results. The support of the Company's vendors,
customers, potential lenders, stockholders and employees will continue to be key
to the company's future success.
Note 3 - 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, but do not include any adjustments that might be necessary if
the Company were not able to continue as a going concern. The results for the
three months ended June 30, 1999 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, 1999 included
in the Company's Annual Report dated June 29, 1999 on Form 10-K filed with the
Securities and Exchange Commission.
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 year quarter ended June 30, 1998 have been reclassified.
Note 4 - Legal Proceedings:
- ---------------------------
The Company was involved in a lawsuit titled ALLIANCE RESEARCH CORPORATION
V. TELULAR CORPORATION, including the counterclaim entitled TELULAR
Page 9 of 23
<PAGE>
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 their patent
lawsuit pursuant to a Settlement Agreement and Mutual General Release dated
March 2, 1998. According to the terms of the settlement, Telular 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 have a market value of at least
$1,500,000 as of such date. The Company 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 the quarter ended June
30, 1998.
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 ultimate outcome of such proceedings
will not have a material adverse effect on the Company's results of operations
or financial condition.
Note 5 - 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 GBP, or approximately $1,675,000,
which is included in Other income on the Statement of Operations and Retained
Deficit for the quarterly period ended June 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.
Note 6 - Recent Accounting Pronouncements:
- ------------------------------------------
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.
Page 10 of 23
<PAGE>
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 operating results (as a percentage of net
sales) for the periods indicated.
Three months ended June 30,
1999 1998
---- ----
Net sales 100.0% 100.0%
Cost of sales 70.2 64.7
Gross profit 29.8 35.3
Selling and shipping expenses 37.5 18.9
Administrative and general expenses 99.2 36.7
Loss from operations (106.9) (20.3)
Interest expense (15.3) (5.6)
Other (income) and expenses 3.5 48.8
Net income (loss) before taxes (118.7)% 22.8%
RESULTS OF OPERATIONS FOR THREE MONTHS ENDED JUNE 30, 1999
COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
Net Sales. Net sales for the first fiscal quarter ended June 30, 1999 were
$977,148, compared to $3,457,005 in the same quarter of 1998, a decrease of
$2,479,857, or 71.7%. Approximately $1,550,000 of this decrease is attributable
to the loss of business from Circuit City, which had previously been the
Company's largest customer. Net sales to Circuit City during the first quarter
of fiscal 2000 were approximately $185,000, or 18.9% of the total quarterly net
sales of $977,148. Net sales to Circuit City during the first quarter of fiscal
1999 were approximately $1,735,000, or 50.2% of the total quarterly net sales of
$3,457,005. The remaining 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 wireless telephone
activations as compared with 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 is
actively exploring ways to replace this reduction in net sales, including
alternative channels of distribution; however, no assurance can be given that
the Company will be able to do so.
Gross Profit. Gross profit for the first quarter ended June 30, 1999 was
$290,917 compared to gross profit of $1,219,562 in the same quarter of 1998.
Gross profit as a percentage of net sales was 29.8% for the first quarter ended
June 30, 1999 compared to gross profit as a percentage of net sales of 35.3% for
the quarter ended June 30, 1998. Gross profit results for the quarter ended June
30, 1998 included a $500,000 reduction in the carrying value of inventory.
Excluding the effects of that reduction in carrying value of inventory, the
Page 11 of 23
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gross profit for the quarter ended June 30, 1998 was $1,719,562 and gross profit
as a percentage of net sales was 49.7%. Accordingly, there was a decrease in
gross profit of $1,428,645 or 83.1%, and a decrease in gross profit as a
percentage of net sales of approximately 64.1%. The decreases in both gross
profit, and gross profit as a percentage of net sales, are primarily attributed
to the loss of business with the Company's largest customer, Circuit City,
including the effects of product returns and other program credits issued to
Circuit City in connection with its reduction in business with the Company.
Additionally, product returns and other program credits to other major
customers were higher than anticipated in the quarter ended June 30, 1999.
Selling and Shipping Expense. Selling and shipping expense decreased by
$287,967, or 44.0%, to $366,052 for the first quarter of fiscal 2000 compared
with $654,019 in the same period of the prior year. The decrease in selling and
shipping expense is primarily attributable to the decrease in net sales.
Administrative and General Expense. Administrative and general expense
decreased by $298,693, or 23.6%, to $969,614 for the first quarter of fiscal
2000 compared with $1,268,307 in the same period of the prior year. The decrease
is primarily attributable to a reduction in personnel and other overhead costs
of approximately $200,000 and the remaining decrease is attributable to a
reduction in legal fees related to the settlement of certain litigation during
fiscal 1998.
Interest Expense. Interest expense for the first quarter of fiscal 2000
was $149,239 compared with $195,098 in the same period of the prior year. The
decrease of $45,859, or 23.5% is primarily attributable to a reduction in the
Company's usage of its line of credit during the quarter ended June 30, 1999
compared with the same period of the prior year.
Other Income and Expense. Other income for the first quarter of fiscal
2000 was $34,445 compared with Other income of $1,685,873 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 carry-forwards. At June
30, 1999, the Company had available federal net operating loss carry-forwards of
approximately $3,332,000, which expire in 2012 through 2013, and state net
operating loss carry-forwards of approximately $1,666,000, 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 borrowings from revolving line of credit facilities.
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<PAGE>
At June 30, 1999, the Company had $1,369,261 in cash and cash equivalents
with a working capital deficit of $227,401, contrasted to $1,807,940 in cash and
cash equivalents with a working capital surplus of $894,757 at March 31, 1999.
Net cash provided by operating activities was $617,626 for the three months
ended June 30, 1999, compared with net cash provided by operating activities of
$620,132 for the first fiscal quarter ended June 30, 1998. Working capital may
vary from time to time as a result of seasonality, new product introductions,
capital expenditures, and changes in levels of inventory and trade accounts
receivable.
To supplement cash flow from operations, the Company had maintained 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") allowed the Company to borrow funds at Citibank N.A.'s
reference rate plus 1%, as well as an unused line fee of 0.5%. In January,
1999, the Company was notified by FINOVA that its revolving line of credit would
not be extended after its scheduled expiration date of April 4, 1999. On May 12,
1999, the entire balance owing of $285,747 was paid and the Company's
relationship with FINOVA was terminated.
On July 27, 1999, the Company obtained a $1,200,000 revolving credit
facility from Celtic Capital Corporation, to be used for general working capital
purposes. The Credit Agreement allows the Company to borrow funds at Wells Fargo
Bank N.A.'s reference rate plus 2.5%, based on an 80% advance rate on eligible
trade accounts receivable. There is a monthly collateral monitoring fee of .25%
based on the average trade accounts receivable during the month.
The Company believes that available cash, cash flow from operations and
available borrowings through its newly acquired credit facility may not be
sufficient to meet operating needs and capital expenditure requirements in the
immediate future.
The Company has incurred operating losses of $1,032,025, $1,886,183 and
$1,840,455 in the fiscal years ended March 31, 1999, 1998 and 1997, and is
reporting an operating loss for the three months ended June 30, 1999 of
$500,000. For several years the Company's major competitors, many with greater
resources, have aggressively lowered their selling prices in an attempt to
increase market share. Although the Company has benefited from its own internal
cost reduction programs, the effects of lower pricing by major competitors has
more than offset the Company's cost reductions. In addition, the Company is
experiencing a significant reduction in its business with its largest customer,
Circuit City. See Management's Discussion and Analysis of Financial Condition
and Results of Operations for Three Months ended June 30, 1999 compared to Three
Months ended June 30, 1998.
The Chief Executive Officer, along with the rest of the Company's
management team, has been developing a broad operational and financial
restructuring plan. The plan, which is designed to leverage the Company's brand,
distribution and technology strengths, includes reducing costs, disposition of
certain assets, focusing on development of alternative channels of distribution
and capitalizing on the Company's patented technologies. Restructuring costs
must be incurred to implement the plan.
Page 13 of 23
<PAGE>
Going forward, significant cash flow will be needed to pay the
restructuring costs to implement the proposed business plan and to fund losses
until the Company has returned to profitability. While there is no assurance
that funding will be available to execute the plan, the Company is continuing to
seek financing to support its turnaround efforts and is exploring a number of
alternatives in this regard.
The Company's independent public accountants have included a "going
concern" emphasis paragraph in their audit report accompanying the March 31,
1999 financial statements. The paragraph states that the Company's recurring
losses and its inability to secure working capital financing raise substantial
doubt about the Company's ability to continue as a going concern and cautions
that the financial statements do not include adjustments that might result from
the outcome of this uncertainty. Similarly, the unaudited financial statements
presented for the period ending June 30, 1999, do not include any adjustments
that might be necessary if the Company were not able to continue as a going
concern.
Existing cash flow is not expected to be sufficient to cover liquidity
requirements after September 30, 1999, and the Company is currently facing the
prospect of not having adequate funds to operate its business. There can be no
assurance that any long-term restructuring alternative can be successfully
initiated or implemented by September 30, 1999, in which case the Company may be
compelled to pursue a bankruptcy filing in the absence of a proposed or
pre-approved financial restructuring.
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 June
30, 1999, the outstanding principal balance of such loan was $4,513,274. 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 of $27,231 for the first fiscal
quarter ended June 30,1999 is primarily attributed to approximately $20,000 in
capital expenditures and additional accrued interest on loans receivable from
officer.
Net cash used in financing activities of $1,029,074 for the first fiscal
quarter ended June 30, 1999 principally reflects repayments on the Company's
revolving line of credit of approximately $947,000 and repayments of long-term
debt of approximately $82,000.
The Company is currently evaluating its management information systems as
part of its strategy and growth expectations for the future. The likely result
of this evaluation will be a systems conversion for the Company's core business
processes. Although the ultimate cost of a systems conversion has not yet been
determined, the Company believes that it will incur between $100,000 and
$150,000 related to this project in fiscal 2000, which will include the purchase
of all required hardware, software, and implementation.
Page 14 of 23
<PAGE>
Management believes that, despite the financial hurdles and funding
uncertainties going forward, it has under development a business plan that, if
successfully funded and executed as part of a financial restructuring, can
significantly improve operating results. The support of the Company's vendors,
customers, potential lenders, stockholders and employees will continue to be key
to the Company's future success.
RECENT ACCOUNTING PRONOUNCEMENTS
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
Annual 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
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. 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 additional costs in addressing the Year 2000
issue or that the failure to adequately address the Year 2000 issue will not
have a material adverse affect upon the Company.
Page 15 of 23
<PAGE>
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.
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 Company's ability to penetrate new distribution
channels, the Company's ability to restructure its existing business, the
Company's ability to replace business from lost customers, future sales levels,
costs associated with the Company's new management information system,
compliance with financial covenants in loan agreements, the development and
implementation of a new business plan, 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, and
"Part 1, Item 2, 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 rate and consumer
acceptance of new product introductions, competition, the number and nature of
customers and their product orders, timely replacement of lost customers,
pricing, foreign manufacturing, sourcing and sales (including foreign government
regulation, trade and importation concerns and fluctuation in exchange rates),
borrowing costs, the receptivity in the market place of the Company's
restructuring efforts, changes in taxes due to changes in the mix of U.S. and
non U.S. revenue, pending or threatened litigation, the availability of key
personnel and other risk factors which may be detailed from time to time in the
Company's Securities and Exchange Commission filings.
Page 16 of 23
<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 1. LEGAL PROCEEDINGS
The Company is party to various claims and litigation that arise in the
ordinary course of its business. While any litigation contains an element of
uncertainty, management believes that the ultimate outcome of these claims and
litigation will not have a material adverse effect on the Company's results of
operations or financial condition.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
--------
Exhibit No. Description
- ----------- -----------
2.1 Plan of Reorganization of North American Energy
of Delaware, Inc. (1)
2.2 Agreement and Plan of Merger between ORA
Electronics, Inc., a Delaware corporation, and
North American Energy of Delaware, Inc., a
Delaware corporation. (2)
3.1 Restated Certificate of Incorporation of ORA
Electronics, Inc. (2)
3.2 Bylaws of ORA Electronics, Inc. (2)
4.1 Specimen Common Stock Certificate of ORA
Electronics, Inc. (2)
Page 17 of 23
<PAGE>
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)
Page 18 of 23
<PAGE>
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)
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.
--------------------
A Current Report on Form 8-K was filed on June 18, 1999, in connection
with the Company's extension of the exercise deadlines relating to its Class A,
Class B and Class C Warrants. By their terms, the Company's Class A Warrants now
entitle the holders thereof to purchase shares of the Company's common stock at
an exercise price of $5.00 per share on or prior to June 30, 2000, the Company's
Class B Warrants now entitle the holders thereof to purchase shares of the
Company's common stock at an exercise price of $10.00 per share on or prior to
June 30, 2000, and the Company's Class C Warrants now entitle the holders
thereof to purchase shares of the Company's common stock at an exercise price of
$15.00 per share on or prior to June 30, 2000.
Page 19 of 23
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
ORA ELECTRONICS, INC.
(Registrant)
Dated: August 16, 1999 By: /s/ JOHN M. BURRIS
------------------------------
John M. Burris, Duly Authorized
Representative and Chief Financial
Officer
Page 20 of 23
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page
- -----------------------------------------------------------------------------
11 Statement Re: Computation Of
Earnings Per Share 22
27 Financial Data Schedule 23
Page 21 of 23
<PAGE>
EXHIBIT 11
----------
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
Three Months Ended June 30,
1999 1998
---- ----
Basic and diluted weighted average
number of shares of common stock
outstanding 6,910,011 6,908,794
=========== ===========
Net earnings (loss) $(1,159,543) $ 788,011
=========== ===========
Basic and diluted earnings $ (0.17) $ 0.11
(loss) per share =========== ===========
Page 22 of 23
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> JUN-30-1999
<CASH> 1,369,261
<SECURITIES> 0
<RECEIVABLES> 1,019,304
<ALLOWANCES> 420,394
<INVENTORY> 2,604,870
<CURRENT-ASSETS> 4,635,762
<PP&E> 8,782,410
<DEPRECIATION> 2,783,503
<TOTAL-ASSETS> 11,545,644
<CURRENT-LIABILITIES> 4,863,163
<BONDS> 0
0
0
<COMMON> 6,910
<OTHER-SE> 1,018,370
<TOTAL-LIABILITY-AND-EQUITY> 11,545,644
<SALES> 977,148
<TOTAL-REVENUES> 977,148
<CGS> 686,231
<TOTAL-COSTS> 1,335,666
<OTHER-EXPENSES> (34,445)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 149,239
<INCOME-PRETAX> (1,159,543)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,159,543)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,159,543)
<EPS-BASIC> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
