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 September 30, 2000
( ) 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
--------------------------------------------
(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 November 17, 2000
----- --------------------------------
Common Stock, $.001 par value 7,518,150 shares
Exhibit Index on page 23
ORA ELECTRONICS, INC.
Form 10-Q
September 30, 2000
TABLE OF CONTENTS
Page
----
PART I - Financial Information. 4
Item 1. Financial Statements 4
Balance Sheets as of September 30, 2000 and
March 31, 2000 4
Statements of Operations and Retained Deficit
for the three and six month periods ended
September 30, 2000 and 1999 6
Statements of Cash Flows for the six month
periods ended September 30, 2000 and 1999 7
Notes to Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 12
PART II - Other Information. 19
Item 4. Submission of Matters to a Vote of Security Holders. 19
Item 6. Exhibits and Reports on Form 8-K. 20
Signatures 22
Exhibit Index 23
Exhibits 24-25
PART I -FINANCIAL INFORMATION.
ITEM 1. FINANCIAL STATEMENTS.
ORA ELECTRONICS, INC.
Balance Sheets
September 30, March 31,
2000 2000
(Unaudited) (Audited)
----------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 80,821 $ 398,493
Trade accounts receivable, less
allowance for sales returns and
doubtful accounts of $280,021
($393,896 at March 31, 2000) 22,123 214,939
Inventories 198,506 195,286
Prepaid expenses 19,655 12,552
------------ ------------
Total current assets 321,105 821,270
Property and equipment, net 5,715,119 5,814,784
Other assets:
Loan receivable, officer - 298,097
Deferred expenses, net 282,010 286,582
------------ ------------
Total assets $ 6,318,234 $ 7,220,733
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 89,148 $ 84,870
Trade payables 3,347,654 3,131,464
Accrued interest 19,173 19,173
Other accounts payable and accrued
expenses 2,167,679 2,087,658
------------ ------------
Total current liabilities 5,623,654 5,323,165
Security deposit 33,580 33,580
Long-term debt 5,675,254 5,668,126
------------ ------------
Total liabilities 11,332,488 11,024,871
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See accompanying notes to financial statements.
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 7,517,844 shares at
September 30, 2000 and 7,117,638
shares at March 31, 2000 7,518 7,118
Additional paid in capital 6,637,550 6,487,950
Retained (deficit) (11,659,322) (10,299,206)
------------ ------------
Total stockholders' deficit (5,014,254) (3,804,138)
------------ ------------
Total liabilities and stockholders'
deficit $ 6,318,234 $ 7,220,733
============ ============
See accompanying notes to financial statements.
ORA ELECTRONICS, INC.
Statements of Operations and Retained Deficit
For the Three Month and Six Month Periods
Ended September 30, 2000 and 1999
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Three months Six months
2000 1999 2000 1999
---- ---- ---- ----
Net sales $ 219,419 $ 846,138 $ 471,320 $ 1,823,287
Cost of goods sold 296,628 432,436 410,363 1,118,668
----------- ----------- ----------- -----------
Gross profit (loss) (77,209) 413,702 60,957 704,619
----------- ----------- ----------- -----------
Operating expenses:
Selling and shipping 105,851 441,328 274,210 879,979
Administrative and general 380,979 791,352 986,934 1,688,367
----------- ----------- ----------- -----------
Total operating expenses 486,830 1,232,680 1,261,144 2,568,346
----------- ----------- ----------- -----------
Operating (loss) (564,039) (818,978) (1,200,187) (1,863,727)
Interest (expense) (136,414) (158,482) (278,362) (307,722)
Other income (Note 5) 56,535 46,747 118,433 81,193
----------- ----------- ----------- -----------
Income (loss) before income taxes (643,918) (930,713) (1,360,116) (2,090,256)
Provision for income taxes - - - -
----------- ----------- ----------- -----------
Net profit (loss) (643,918) (930,713) (1,360,116) (2,090,256)
Retained deficit, beginning
of period (11,015,404) (5,107,009) (10,299,206) (3,947,466)
----------- ----------- ----------- -----------
Retained deficit, end
of period $(11,659,322) $(6,037,722) $(11,659,322) $(6,037,722)
=========== =========== =========== ===========
Per common share information:
Net earnings (loss) $ (643,918) $ (930,713) $(1,360,116) $(2,090,256)
=========== =========== =========== ===========
Earnings (loss) per share:
Basic and diluted $ (0.09) $ (0.13) $ (0.18) $ (0.30)
=========== =========== =========== ===========
Weighted average shares outstanding
used in the per share calculation:
Basic and diluted 7,517,844 6,910,098 7,517,000 6,910,055
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
ORA ELECTRONICS, INC.
Statements of Cash Flows
For the Six Month Periods Ended September 30, 2000 and 1999
(Unaudited)
Six Months Ended September 30,
2000 1999
---- ----
Cash flows from operating activities:
Net income (loss) $(1,360,116) $ (2,090,256)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Depreciation and amortization 104,238 121,848
Provision for losses and sales returns 4,276 (165,089)
Changes in assets and liabilities:
Trade accounts receivable 192,816 1,607,589
Inventories (3,220) 46,062
Prepaid expenses - 76,820
Trade payables 216,190 459,013
Accrued interest (7,103) 8,295
Other accounts payable and
accrued expenses 80,021 (84,382)
----------- -----------
Net cash provided by (used in) operating
activities (772,898) (20,100)
----------- -----------
Cash flows from investing activities:
Capital expenditures - (23,650)
Loan receivable, officer 298,097 (15,555)
Security deposits - 33,580
----------- -----------
Net cash (used in) investing activities 298,097 (5,625)
----------- -----------
Cash flows from financing activities:
Repayment of line of credit - (933,888)
Borrowing (repayment) of long-term debt 7,129 (142,067)
Contributions to capital 150,000 -
----------- -----------
Net cash provided by (used in) financing activities 157,129 (1,075,955)
----------- -----------
Net increase (decrease) in cash and cash
equivalents (317,672) (1,101,680)
Cash and cash equivalents, beginning of period 398,493 1,807,940
----------- -----------
Cash and cash equivalents, at end of period $ 80,821 $ 706,260
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid $ 219,116 $ 256,458
=========== ===========
Income taxes paid $ - $ -
=========== ===========
See accompanying notes to financial statements.
ORA ELECTRONICS, INC.
Notes to Financial Statements
(Unaudited)
NOTE 1 - DESCRIPTION OF BUSINESS
ORA Electronics, Inc. (the "Company" or the "Registrant") 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 900 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 - 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, 2000, 1999 and 1998, and is
reporting an operating loss for the six months ended September 30, 2000 of
$1,200,187. 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 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,
2000 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 and six month periods ended, September 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 allows 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 is 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 to be sufficient to cover liquidity requirements after
November 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 November 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. The results for the three and six months ended September 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 filed with the Securities and Exchange
Commission on June 29, 2000.
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, 2000 and September 30, 1999 have been
reclassified.
NOTE 4 - 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 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 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 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 at the time of the
transaction, is a former member of the Board of Directors of ORA UK.
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,
2000 1999 2000 1999
---- ---- ---- ----
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 51.1 50.2 61.4 56.9
Gross profit 49.9 49.8 38.6 43.1
Selling and shipping expenses 52.2 14.8 48.3 16.4
Administrative and general expenses 93.5 26.5 92.6 31.4
Income (loss) from operations (96.8) 8.5 (102.2) (4.7)
Interest expense (18.7) (4.2) (16.9) (4.9)
Other income and expense 5.5 1.3 4.5 23.1
Net Income(loss)before income taxes (110.0)% 5.6% (114.6)% 13.5%
RESULTS OF OPERATIONS COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2000 TO
THREE MONTHS ENDED SEPTEMBER 30, 1999
Net Sales. Net sales decreased by $626,71974, or 74%, to $219,419 for the
second quarter of fiscal 2000 compared to $846,138 for the same period of the
prior year. 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 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 Loss. A gross loss of $77,209 was reported compared to a gross profit
of $413,702 for the same period of the prior year. The gross loss is primarily
attributable to the decline in net sales described above and discounting of old,
slow-moving inventory.
Selling and Shipping Expense. Selling and shipping expense decreased by
$335,477, or 68%, to $105,851 for the second quarter of fiscal 2000 compared
with $441,328 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.
Administrative and General Expense. Administrative and general expense
decreased by $410,373, or 62%, to $380,979 for the second quarter of fiscal
2000 compared with $791,352 in the same period of the prior year. The decrease
is primarily attributed to a reduction in personnel and salaries of existing
personnel during the quarterly period ended September 30, 2000 as part of the
Company's efforts to reduce expenses.
Interest Expense. Interest expense for the second quarter of fiscal 2000
was $136,414 compared with $158,482 in the same period of the prior year. This
reduction is primarily a result of the Company not borrowing from its line of
credit during the quarter ended September 30, 2000.
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, 2000, the Company had available federal net operating loss
carryforwards of approximately $4,363,000, which expire in 2012 through 2013,
and state net operating loss carryforwards of approximately $2,697,000, which
expire in 2002 through 2003.
COMPARISON OF SIX MONTHS ENDED SEPTEMBER 30, 2000 TO SIX MONTHS ENDED
SEPTEMBER 30, 1999
Net Sales. Net sales decreased by $1,351,967, or 75.2%, to $471,320 for the
six months of fiscal 2000 ended September 30, 2000, compared with $1,823,287 for
the same period of the prior year. 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
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 decreased by $643,662, or $86%, to $60,957 for
the six months of fiscal 2000 ended September 30, 2000 compared with $704,619
for the same period of the prior year. The decreases in gross profit is
primarily attributable to the decline in net sales described above, combined
with discounting of old, slow-moving inventory.
Selling and Shipping Expense. Selling and shipping expense decreased by
$605,769, or 69%, to $274,210 for the six months of fiscal 2000 ended
September 30, 2000 compared with $879,979 in the same period of the prior
year. The decrease in selling and shipping expenses is primarily attributable to
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 $701,433, or 42%, to $986,934 for the six months of fiscal 2000
ended September 30, 2000 compared with $1,688,367 for the same period of the
prior year. The decrease is primarily attributable to a reduction in personnel
and salaries of existing personnel during the six month period ended September
30, 2000 as part of the Company's efforts to reduce expenses.
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, 1999, the Company had available federal net operating loss
carryforwards of approximately $4,263,000, which expire in 2012 through 2013,
and state net operating loss carryforwards of approximately $,597,000, 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.
On September 20, 1999, the Company announced that Gershon N. Cooper had
relinquished his duties as Chief Executive Officer and President of the Company
due to medical reasons, and that Martin Pichinson was appointed as the interim
Chief Executive Officer and President as of that date. Pursuant to the terms of
Mr. Cooper's employment agreement with the Company, Mr. Cooper is entitled to
draw his full salary of $330,000 per year for a period of six months following
a medical disability of this nature. As interim Chief Executive Officer and
President, Mr. Pichinson is entitled to a base salary of $360,000 per year, in
addition to certain incentive-based compensation.
At September 30, 2000, the Registrant had $80,821 in cash and cash
equivalents with a working capital deficiency of $5,302,549, contrasted to
$706,260 in cash and cash equivalents with a working capital deficiency of
$4,501,895 at March 31, 2000. Net cash used in operating activities was
$772,898?? for the six months ended September 30, 2000, compared with net cash
used in operating activities of $20,100 for the six months ended September 30,
1999.?? Working capital may vary from time to time as a result of seasonality,
new product introductions, capital expenditures and changes in inventory levels.
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 $6,351,740, $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 six months ended September 30, 2000 of
$1,200,187. 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 has
experienced a significant reduction in its business with Circuit City,
previously its largest customer. See Management's Discussion and Analysis of
Financial Condition and Results of Operations for the Three Months and Six
Months ended September 30, 2000 compared to the Three Months and Six Months
ended September 30, 1999.
The Company 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,
2000 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 periods ending September 30, 2000, 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 November 30, 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 November 30, 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.
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, 2000, the outstanding principal balance of such loan was
$4,324,341. 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 $298,097 for the first six months
of fiscal 2000, compared with net cash used in investing activities of $5,625
for the first six months of fiscal 1999. The increase in net cash provided by
investment activities was primarily due to the repayment of an officer's loan
receivable of approximately $298,000.
Cash flows used in financing activities were $157,129 for the first six
months of fiscal 2000, compared with cash flows used in financing activities of
$1,075,955 for the first six months of fiscal 1999. The decrease in cash flows
used in financing activities is primarily attributable to lower net repayments
of short-term and long-term debt during the six month period ended September 30,
2000.
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.
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 December, 2000. 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.
The Company plans to test and validate its internal operations, complete
the third party surveys, and finalize and implement any contingency plans
necessary by December 31, 2000.
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, 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.
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 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. (4)
10.1 Loan and Security Agreement, dated April 4, 1997, by and between
the Company and FINOVA Capital Corporation ("FINOVA").
(4)
10.2 Amendment to Loan Agreement, dated April 4, 1997, between the
Company and FINOVA. (4)
10.3 Collateral Assignment, Patent Mortgage and Security Agreement,
dated as of April 4, 1997, by and between the Company and
FINOVA. (4)
10.4 Waiver and Second Amendment to Loan Agreement, dated June 26,
1997, between the Company and FINOVA. (4)
10.5 Waiver and Third Amendment to Loan Agreement, dated
November 13, 1997 between the Company and FINOVA. (5)
10.6 Waiver and Fourth Amendment to Loan Agreement, dated
February 11, 1998 between the Company and FINOVA. (6)
10.7 Waiver and Fifth Amendment to Loan Agreement, dated
March 27, 1998, between the Company and FINOVA. (7)
10.8 Second Deed of Amendment, by and between the Company
and ORA Electronics (UK) Limited ("ORA UK"), dated
as of April 1, 1998. (6)
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. (6)
10.10 ORA Electronics, Inc. 1996 Stock Plan. (3)
10.11 Loan and Security Agreement, dated July 27, 1999, by and
between the Company and Celtic Capital Corporation ("Celtic").
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-Q filed on
February 14, 1997.
(4) Incorporated by reference from the Registrant's Form 10-K filed on
June 30, 1997.
(5) Incorporated by reference from the Registrant's Form 10-Q filed on
February 14, 1998.
(6) Incorporated by reference from the Registrant's Form 8-K filed on
April 17, 1998.
(7) 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, 2000.
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 20, 2000 By: /s/ John M. Burris
---------------------------------
John M. Burris, Duly Authorized
Representative and Chief Financial
Officer
EXHIBIT INDEX
Exhibit No. Description Page
--------------------------------------------------------------------------------
11 Statement Re: Computation Of Earnings
Per Share 45
27 Financial Data Schedule 46
EXHIBIT 11
----------
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
Three Months Ended September 30,
2000 1999
---- ----
Basic and diluted weighted average
number of shares of common stock
outstanding 7,517,844 6,910,098
=========== ===========
Net earnings (loss) per share $ (643,918) $ (930,713)
=========== ===========
Basic and diluted earnings (loss)
per share $ (0.09) $ (0.13)
=========== ===========
Basic and diluted weighted average
number of shares of common stock
outstanding 7,517,000 6,910,055
=========== ===========
Net earnings (loss) per share $(1,360,116) $(2,090,256)
=========== ===========
Basic and diluted earnings (loss) $ (0.18) $ (0.30)
per share =========== ===========
