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, 2000
[ ] 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:
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 11, 2000
------------------------------ ------------------------------
Common Stock, $.001 par value 7,517,638 shares
Exhibit Index on Page 20
<PAGE>ii
ORA ELECTRONICS, INC.
Form 10-Q
June 30, 2000
<TABLE>
<S> <C>
TABLE OF CONTENTS
Part I -Financial Information............................................................1
Item 1. Financial Statements......................................................1
Balance Sheets...............................................................1
Statements of Operations and Retained Deficit For the
Three Month Period Ended June 30, 2000 and 1999..............................3
Statements of Cash Flows For the Three-Month Periods
Ended June 30,2000 and 1999..................................................4
Notes to Financial Statements................................................5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..............................................................8
Part II -Other Information..............................................................13
Item 1. Legal Proceedings........................................................13
Item 6. Exhibits and Reports on Form 8-K.........................................13
Signatures..............................................................................15
Exhibit Index...........................................................................16
</TABLE>
<PAGE>1
Part I - FINANCIAL INFORMATION.
ITEM 1. FINANCIAL STATEMENTS.
ORA ELECTRONICS, INC.
Balance Sheets
June 30, March 31,
2000 2000
(Unaudited) (Audited)
----------- ---------
ASSETS
Current assets:
Cash and cash equivalents (Note 2) $ 238,427 $ 398,493
Trade accounts receivable, less allowances
for sales returns and doubtful accounts of
$400,182 ($393,896 at March 31, 2000) 38,120 214,939
Inventories 207,903 195,286
Prepaid expenses 9,440 12,552
------------ ------------
Total current assets 493,890 821,270
Property and equipment, net 5,764,951 5,814,784
Other assets:
Loan receivable, officer 301,668 298,097
Deferred expenses 284,297 286,582
------------ ------------
Total assets $ 6,844,806 $ 7,220,733
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Current maturities of long-term debt $ 86,982 $ 84,870
Trade payables 3,313,737 3,131,464
Accrued interest 19,173 19,173
Other accounts payable and
accrued expenses 2,079,963 2,087,658
------------ ------------
Total current liabilities 5,499,855 5,323,165
Security deposit 33,580 33,580
Long-term debt 5,671,707 5,668,126
------------ ------------
Total liabilities 11,205,142 11,024,871
------------ ------------
Contingencies (Note 4)
Stockholders' deficiency:
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 7,517,638 shares
at June 30, 2000 and 7,117,638 shares at
March 31, 2000 7,518 7,118
Additional paid in capital 6,647,550 6,487,950
Retained deficit (11,015,404) (10,299,206)
------------ ------------
Total stockholders' deficiency (4,360,336) (3,804,138)
------------ ------------
Total liabilities and stockholders'
deficiency $ 6,844,806 $ 7,220,733
============ ============
See accompanying notes to financial statements.
<PAGE>3
ORA ELECTRONICS, INC.
Statements of Operations and Retained Deficit
For the Three Month Period Ended June 30, 2000 and 1999
(Unaudited)
Three Months
Ended
June 30,
2000 1999
------------- ------------
Net sales $ 251,902 $ 977,148
Costs of goods sold 113,736 686,231
------------- ------------
Gross profit 138,166 290,917
------------- ------------
Operating expenses:
Selling and shipping 168,359 366,052
Administrative and general 605,955 969,614
------------- ------------
Total operating expenses 774,314 1,335,666
------------- ------------
Operating loss (636,148) (1,044,749)
Interest expense (141,948) (149,239)
Other income and expense 61,898 34,445
------------- ------------
Loss before income taxes (716,198) (1,159,543)
Provision for income taxes - -
------------- ------------
Net loss $ (716,198) $(1,159,543)
Retained deficit, beginning
of period (10,299,206) (3,947,466)
------------- ------------
Retained deficit, end
of period $(11,015,404) $(5,107,009)
============= ============
Per common share information:
Net loss $ (716,198) $(1,159,543)
============= ============
Loss per share:
Basic and diluted $ (0.10) $ (0.17)
============= ============
Weighted average shares outstanding
used in the per share calculation:
Basic and diluted 7,317,638 6,910,011
============= ============
See accompanying notes to financial statements.
<PAGE>4
ORA ELECTRONICS, INC.
Statements of Cash Flows
For the Three Month Periods Ended June 30, 2000 and 1999
(Unaudited)
Three Months
Ended June 30,
2000 1999
------------ ------------
Cash flows from operating activities
Net loss $ (716,198) $(1,159,543)
Adjustments to reconcile net loss to net
cash provided (used in) by operating
activities:
Depreciation and amortization 52,119 60,924
Provision for losses and sales returns 6,286 (125,868)
Issuance of Common Stock for compensation 160,000 -
Changes in assets and liabilities:
Trade accounts receivable 176,381 1,607,939
Inventories (12,617) (39,197)
Prepaid expenses 3,112 40,393
Trade payables 182,273 363,696
Accrued interest - (8,295)
Other accounts payable and
accrued expenses (7,695) (122,423)
------------ ------------
Net cash provided by (used in) operating
activities (156,339) 617,626
------------ ------------
Cash flows from investing activities:
Capital expenditures (5,850) (19,500)
Loan receivable, officer (3,571) (7,731)
------------ ------------
Net cash provided by (used in) investing
activities (9,421) (27,231)
------------ ------------
Cash flows from financing activities:
Repayment of line of credit - (946,775)
Net borrowings (repayments) of long-term debt 5,694 (82,299)
------------ ------------
Net cash provided by (used in) financing
activities 5,694 (1,029,074)
------------ ------------
Net (decrease) in cash and cash
equivalents (160,066) (438,679)
Cash and cash equivalents, beginning of period 398,493 1,807,940
------------ ------------
Cash and cash equivalents, end of period $ 238,427 $ 1,369,261
============ ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 115,813 $ 125,106
=========== ===========
Income taxes $ - $ -
=========== ===========
See accompanying notes to financial statements.
<PAGE>5
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 500 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 $5,903,483, $1,032,025 and
$1,886,183 in the fiscal years ended March 31, 2000, 1999 and 1998, and is
reporting an operating loss for the three months ended June 30, 2000 of
$636,148. 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 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 reports accompanying the March 31, 2000 and
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, 2000, similarly do not include
adjustments that might result from the outcome of this uncertainty.
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 allowed the Company to borrow funds at Citibank
N.A.'s reference rate plus 2.5%, based on an 80% advance rate on eligible trade
accounts receivable. There was a monthly collateral monitoring fee of .25% based
on the average trade accounts receivable during the month. On May 15, 1999,
Celtic Capital withdrew the credit facility, citing the significant
deterioration in the Company's business. No borrowings were made from the credit
facility. The Company is still attempting to find a replacement credit facility,
but no assurances can be given that the Company will be able to do so.
The Company believes that available cash, cash flow from operations and any
borrowings that might be made available through a yet to be obtained replacement
credit facility, may not be sufficient to cover liquidity requirements after
August 31, 2000, 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 August 31, 2000, in which case the Company may be compelled to pursue a
<PAGE>6
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, majority and other stockholders (See Note 6 for
details of the change in majority control of the Company, effective May 23,
2000) 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 is not able to continue as a going concern. The results for the three
months ended June 30, 2000 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, 2000 included
in the Company's Annual Report dated July 14, 2000 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, 1999 have been reclassified.
NOTE 4 - CONTINGENCIES:
-----------------------
Legal Proceedings
On March 2, 1998, the Company reached settlement in a patent infringement case
with Telular Corporation. Pursuant to a Settlement Agreement and Mutual General
Release dated March 2, 1998, the Company agreed to pay Telular Corporation
$500,000 in cash, a $1,000,000 promissory note payable February 1, 2000 and
300,000 shares of the Company's common stock. Telular had the right to 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 had a
market value of $1,500,000 as of such date.
The Company made the final cash payment to Telular in full satisfaction of the
$1,000,000 promissory note on February 18, 2000. With respect to Telular's right
to receive additional shares of ORA's common stock, the Company and Telular
reached agreement on February 18, 2000 to extend the implementation of that
provision until February 1, 2002.
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 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,
<PAGE>7
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. To
date, the Company has not experienced any problems relating to these systems.
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. Due to the serious deterioration of the Company's operating performance,
and its related effect on cash flows, the Company has not been able to afford
the conversion and implementation of new Year 2000 compliant software for those
systems that the Company is aware require such replacement. Instead, the Company
has elected to design workarounds to its present non-compliant software in the
hopes that essential information needed to manage the business and to report
results on a timely basis will continue to be available. So far, since December
31, 1999, the Company has not experienced significant operational failures with
the non-compliant systems. However, there can be no assurance that its systems
will continue to operate and that the Company's failure to adequately address
the Year 2000 issue will not have a material adverse effect upon the Company.
The Company does not conduct any of its purchase transactions through computer
systems that interface directly with suppliers. However, the Company has
completed a formal assessment of its significant suppliers to determine the
extent to which the Company would be vulnerable if those third parties fail to
remedy Year 2000 issues. To date, the Company has received written responses
from most of its suppliers. The Company has evaluated these responses and has
determined that all critical suppliers have prepared for the Year 2000.
The Company currently has no material systems that interface directly with its
customers, financial institutions or others with whom it conducts business.
However, if those third parties with which 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 has reviewed each of its product lines and has determined that its
products will operate properly in the Year 2000 and beyond.
Since it is not possible to anticipate all future outcomes, especially when
third parties are involved, there could be circumstances in which the Company is
adversely affected by Year 2000 problems. As of August 14, 2000, the Company has
not experienced any significant Year 2000 issues relating to the procurement,
sales or support of the Company's products. The Company believes that it may
take several more months to determine the impact of the Year 2000, if any, on
its customers or suppliers.
NOTE 6 - CHANGE IN MAJORITY CONTROL OF COMPANY:
-----------------------------------------------
Pursuant to a Stock Purchase Agreement dated May 23, 2000, Mrs. Ruth Cooper, a
director and beneficial owner of 4,982,600 shares of the Company's common stock,
sold 3,982,600 shares of such common stock to SATX, Inc. ("SATX"). As of such
date, SATX owned approximately 56% of the issued and outstanding common stock of
the Company. In consideration for the sale of her 3,982,600 shares of common
stock, SATX paid to Mrs. Cooper $150,000 in cash, $23,185 payable in twelve
monthly installments, 400,000 shares of SATX common stock and assumed the
liability for a promissory note owed to ORA Electronics, Inc. by Mrs. Cooper in
the amount of $299,347.
SATX, a publicly held company engaged in telecommunications technology, develops
and markets prepaid cellular handsets and global tracking devices in addition to
investing in relevant technology companies. SATX common stock trades on the OTC
Electronic Bulletin Board under the symbol "SATX".
In connection with the transaction, Mrs. Ruth Cooper resigned as a director and
three members of the Board of Directors of SATX were appointed to the Company's
Board of Directors.
<PAGE>8
NOTE 7 - REPAYMENT OF OFFICER LOAN:
-----------------------------------
Officer loans receivable of $301,668, at June 30, 2000, consisted of one note
for $243,982 plus accrued interest of $57,686, bearing interest at 5.05%.
Repayment liability for the promissory note, due March 31, 2001, was assumed by
SATX, Inc. ("SATX") in connection with its purchase of a majority interest in
the common stock of the Company. On July 10, 2000, SATX paid a total of $302,284
to the Company, which represented $243,982 principal and $58,302 accrued
interest through that date, in full satisfaction of the note.
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,
2000 1999
----------- --------
Net sales 100.0% 100.0%
Cost of sales 45.2% 70.2%
Gross profit 54.8% 29.8%
Selling and shipping expenses 66.8% 37.5%
Administrative and general expenses 240.6% 99.2%
Loss from operations 252.5% 106.9%
Interest expense 56.4% 15.3%
Other (income) and expenses (24.6)% (3.5)%
Net loss before income taxes 284.3% 118.7%
RESULTS OF OPERATIONS FOR THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE
MONTHS ENDED JUNE 30, 1999
Net Sales. Net sales for the first fiscal quarter ended June 30, 2000 were
$251,902 compared to $977,148 in the same quarter of 1999, a decrease of 74.2%.
The decrease represents a continuation of a trend of the Company's inability to
retain its customer base largely due to severe cash flow constraints, as more
fully described in the Liquidity and Capital Resources section of Management's
Discussion and Analysis of Financial Condition and Results of Operations below.
The Company is actively exploring ways to raise the required capital to enable
it to replace this reduction in net sales, including exploring 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, 2000 was
$138,166 compared to gross profit of $290,917 in the same quarter of 1999. Gross
profit as a percentage of net sales was 54.8% for the first quarter ended June
30, 2000 compared to gross profit as a percentage of net sales of 29.8% for the
quarter ended June 30, 1999. The gross profit decrease in the quarter ended June
30, 2000 is primarily attributed to the decline in net sales described above,
partially offset by an increase in gross profit as a percentage of net sales.
The gross profit as a percentage of net sales for the quarter ended June 30,
1999 was significantly impacted by higher than usual product returns and program
credits issued in connection with the termination of the Company's business
relationship with Circuit City on or about April 1, 1999. Circuit City had
previously been the Company's largest customer.
Selling and Shipping Expense. Selling and shipping expense decreased by
$197,693, or 54.0%, to $168,359 for the first quarter of fiscal 2001 compared
with $366,052 in the same period of the prior year. The decrease in selling and
shipping expense is primarily attributable to lower costs of shipping,
warehousing, personnel, freight and sales commissions associated with the
decreased sales volume described above.
Administrative and General Expense. Administrative and general expense decreased
by $363,659, or 37.5%, to $605,955 for the first quarter of fiscal 2001 compared
with $969,614 in the same period of the prior year. Approximately $523,700 of
the decrease is primarily attributable to a reduction in personnel and salaries
<PAGE>9
of existing personnel during the current quarter as part of the Company's
efforts to reduce expenses, partially offset by the issuance of 400,000 shares
of the Company's common stock to two of its Officers and Directors, Messrs. John
M. Burris and Matthew F. Jodziewicz, in connection with their employment
agreements with the Company dated May 23, 2000.
Interest Expense. Interest expense for the first quarter of fiscal 2001 was
$141,948 compared with $149,239 in the same period of the prior year. The
decrease of $7,291, or 4.9% is primarily attributable to a reduction in the
interest portion of the Company's mortgage payments to AAL, as the loan ages.
Other Income and Expense. Other income increased by $27,453, or 79.7%, to
$61,898 for the first quarter of fiscal 2001 compared with $34,445 in the same
period of the prior year. The increase is primarily a result of rental income
being received for the full quarter in the current year, compared with only a
partial quarter in the same period of the prior year.
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, 2000, the Company had available federal net operating loss carry-forwards of
approximately $9,720,000, which expire in 2012 through 2014, and state net
operating loss carry-forwards of approximately $3,305,000, which expire in 2002
through 2004.
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 June 30, 2000, the Company had $238,427 in cash and cash equivalents with a
working capital deficit of $5,005,965, contrasted to $398,493 in cash and cash
equivalents with a working capital deficit of $4,501,895 at March 31, 2000. Net
cash used in operating activities was $316,339 for the three months ended June
30, 2000, compared with net cash provided by operating activities of $617,626
for the first fiscal quarter ended June 30, 1999. Working capital may vary from
time to time as a result of seasonality, new product introductions, capital
expenditures, and changes in inventory and trade accounts receivable levels.
On July 27, 1999, the Company secured a $1,200,000 revolving credit facility
from Celtic Capital Corporation, to be used for general working capital
purposes. The credit agreement allowed the Company to borrow funds at Citibank
N.A.'s reference rate plus 2.5%, based on an 80% advance rate on eligible trade
accounts receivable. There was a monthly collateral monitoring fee of .25% based
on the average trade accounts receivable during the month. On September 27,
1999, Celtic Capital withdrew the credit facility, citing the significant
deterioration in the Company's business. No borrowings were made from the credit
facility. The Company is attempting to find a replacement credit facility, but
no assurances can be given that the Company will be able to do so.
The Company believes that available cash, cash flow from operations and any
borrowings that might be made available through a yet to be obtained replacement
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 $5,903,483, $1,032,025 and
$1,886,183 in the fiscal years ended March 31, 2000, 1999 and 1998, and is
reporting an operating loss for the three months ended June 30, 2000 of
$636,148. 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 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>10
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 reports accompanying the March 31, 2000 and
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, 2000, similarly do not include
adjustments that might result from the outcome of this uncertainty.
The Company believes that available cash, cash flow from operations and any
borrowings that might be made available through a yet to be obtained replacement
credit facility, may not to be sufficient to cover liquidity requirements after
August 31, 2000, 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 August 31, 2000, 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. At June 30, 2000, the balance of principal and accrued
interest was $1,324,251.
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, 2000,
the outstanding principal balance of such loan was $4,434,439. 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 provided by financing activities of $5,694 for the three months ended
June 30, 2000, is primarily attributed to accrued interest on the note to
General Funding Corporation of approximately $26,135, offset by repayments of
approximately $20,441 on the mortgage debt to AAL.
Pursuant to a Stock Purchase Agreement dated May 23, 2000, Mrs. Ruth Cooper, a
director and beneficial owner of 4,982,600 shares of the Company's common stock,
sold 3,982,600 shares of such common stock to SATX, Inc. ("SATX"). As of such
date, SATX owned approximately 56% of the issued and outstanding common stock of
the Company. In consideration for the sale of her 3,982,600 shares of common
stock, SATX paid to Mrs. Cooper $150,000 in cash, $23,185 payable in twelve
monthly installments, 400,000 shares of SATX common stock and assumed the
liability for a promissory note owed to ORA Electronics, Inc. by Mrs. Cooper in
the amount of $299,347.
Officer loans receivable of $301,668, at June 30, 2000, consisted of one note
for $243,982 plus accrued interest of $57,686, bearing interest at 5.05%.
Repayment liability for the promissory note, due March 31, 2001, was assumed by
SATX, Inc. ("SATX") in connection with its purchase of a majority interest in
the common stock of the Company. On July 10, 2000, SATX paid a total of $302,284
to the Company, which represented $243,982 principal and $58,302 accrued
interest through that date, in full satisfaction of the note.
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, majority and other stockholders and employees will
continue to be key to the Company's future success.
<PAGE>11
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. To
date, the Company has not experienced any significant problems relating to these
systems.
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. Due to the serious deterioration of the Company's operating performance,
and its related effect on cash flows, the Company has not been able to afford
the conversion and implementation of new Year 2000 compliant software for those
systems that the Company is aware require such replacement. Instead, the Company
has elected to design workarounds to its present non-compliant software in the
hopes that essential information needed to manage the business and to report
results on a timely basis will continue to be available. So far, since December
31, 1999, the Company has not experienced significant operational failures with
the non-compliant systems. However, there can be no assurance that its systems
will continue to operate and that the Company's failure to adequately address
the Year 2000 issue will not have a material adverse effect upon the Company.
The Company does not conduct any of its purchase transactions through computer
systems that interface directly with suppliers. However, the Company has
completed a formal assessment of its significant suppliers to determine the
extent to which the Company would be vulnerable if those third parties fail to
remedy Year 2000 issues. To date, the Company has received written responses
from most of its suppliers. The Company has evaluated these responses and has
determined that all critical suppliers have prepared for the Year 2000.
The Company currently has no material systems that interface directly with its
customers, financial institutions or others with whom it conducts business.
However, if those third parties with which 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 has reviewed each of its product lines and has determined that its
products will operate properly in the Year 2000 and beyond.
Since it is not possible to anticipate all future outcomes, especially when
third parties are involved, there could be circumstances in which the Company is
adversely affected by Year 2000 problems. As of August 14, 2000, the Company has
not experienced any significant Year 2000 issues relating to the procurement,
sales or support of the Company's products. The Company believes that it may
take several more months to determine the impact of the Year 2000, if any, on
its customers or suppliers.
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 anticipated growth of the
wireless telephone industry and the development of new wireless communications
technologies, the introduction of new products by the Company, 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 Company's ability to secure future financing and the potential
<PAGE>12
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.
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.
<PAGE>13
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)
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)
<PAGE>14
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)
10.10 Employment Agreement dated May 23, 2000, between the
Company and John M. Burris.
10.11 Employment Agreement dated May 23, 2000, between the
Company and Matthew F. Jodziewicz.
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 15, 2000, 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 December 31, 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, 2001, 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, 2001.
A Current Report on Form 8-K was filed on May 24, 2000, in connection with a
change in control of the Registrant. Pursuant to a Stock Purchase Agreement
dated May 23, 2000, Mrs. Ruth Cooper, a director and beneficial owner of
4,982,600 shares of the Registrants common stock, sold 3,982,600 shares of such
common stock to SATX, Inc. ("SATX"). SATX, a publicly held company engaged in
telecommunications technology, develops and markets prepaid cellular handsets
and global tracking devices in addition to investing in relevant technology
companies. As a result of the transaction, SATX owns approximately 56% of the
issued and outstanding common stock of the Registrant. Mrs. Ruth Cooper resigned
as a director and three members of SATX's Board of Directors were appointed to
the Registrant's Board of Directors.
<PAGE>15
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 14, 2000 By: /s/ JOHN M. BURRIS
------------------------------
John M. Burris, Duly Authorized
Representative and Chief Financial
Officer
<PAGE>16
EXHIBIT INDEX
Exhibit No. Description
----------- ---------------------------------------------------------
10.10 Employment Agreement dated May 23, 2000, between the
Company and John M. Burris.
10.11 Employment Agreement dated May 23, 2000, between the
Company and Matthew F. Jodziewicz.
11 Statement Re: Computation of
Earnings Per Share
27 Financial Data Schedule
