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 December 31, 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.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 95-4607830
------------------------------- ------------------------------
(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)
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ...
<PAGE>2
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 February 14, 2000
----- --------------------------------
Common Stock, $.001 par value 6,910,267 shares
<PAGE>2
Exhibit Index on page 18
ORA ELECTRONICS, INC.
Form 10-Q
December 31, 1999
TABLE OF CONTENTS
Page
----
PART I - Financial Information. 3
Item 1. Financial Statements 3
Balance Sheets as of December 31, 1999 and
March 31, 1999 3
Statements of Operations and Retained Deficit
for the three month and nine month periods ended
December 31, 1999 and 1998 4
Statements of Cash Flows for the nine month
periods ended December 31, 1999 and 1998 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 9
PART II - Other Information. 15
Item 6. Exhibits and Reports on Form 8-K. 15-16
Signatures 17
Exhibit Index 18
Exhibits 19-20
<PAGE>3
PART I -FINANCIAL INFORMATION.
ITEM 1. FINANCIAL STATEMENTS.
ORA ELECTRONICS, INC.
Balance Sheets
December 31, March 31,
1999 1999
(Unaudited) (Audited)
----------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 208,276 $ 1,807,940
Trade accounts receivable, less
allowance for sales returns and
doubtful accounts of $382,246
($697,498 at March 31, 1999) 396,635 2,206,849
Inventories 395,727 2,565,673
Prepaid expenses 189,272 103,114
------------ ------------
Total current assets 1,189,910 6,683,576
Property and equipment, net 5,856,006 6,038,045
Other assets:
Loan receivable, officer 633,270 609,802
Deferred expenses 288,871 295,728
------------ ------------
Total assets $ 7,968,057 $ 13,627,151
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 353,433 $ 693,830
Notes payable - 946,775
Trade payables 2,768,384 1,966,103
Accrued interest 19,173 49,707
Other accounts payable and accrued
expenses 2,200,432 2,132,403
------------ ------------
Total current liabilities 5,341,422 5,788,818
Long-term debt 5,698,092 5,653,510
------------ ------------
Total liabilities 11,039,514 11,442,328
------------ ------------
Stockholders' equity:
Preferred stock, $.001 par value,
5,000,000 shares authorized,
none issued - -
Common stock, par value $.001 per share,
authorized 30,000,000 shares, issued
and outstanding 6,910,267 shares at
December 31, 1999 and 6,908,722
shares at March 31, 1999 6,910 6,910
Additional paid in capital 6,125,379 6,125,379
Retained (deficit) (9,203,746) (3,947,466)
------------ ------------
Total stockholders' equity (deficiency) (3,071,457) 2,184,823
------------ ------------
Total liabilities and stockholders'
equity $ 7,968,057 $ 13,627,151
============ ============
See accompanying notes to financial statements.
<PAGE>4
<TABLE>
ORA ELECTRONICS, INC.
Statements of Operations and Retained Deficit
For the Three Month and Nine Month Periods
Ended December 31, 1999 and 1998
(Unaudited)
<CAPTION>
Three months Nine months
-------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 771,443 $ 3,101,102 $ 2,594,730 $10,644,519
Cost of goods sold 2,657,168 2,096,956 3,775,836 6,387,692
----------- ----------- ----------- -----------
Gross profit (loss) (1,885,725) 1,004,146 (1,181,106) 4,256,827
----------- ----------- ----------- -----------
Operating expenses:
Selling and shipping 461,329 566,058 1,355,545 1,804,935
Administrative and general 674,957 581,249 2,349,087 2,952,377
----------- ----------- ----------- -----------
Total operating expenses 1,136,286 1,147,307 3,704,632 4,757,312
----------- ----------- ----------- -----------
Operating (loss) (3,022,011) (143,161) (4,885,738) (500,485)
Interest expense 169,511 166,995 477,233 534,262
Other income 25,498 26,493 106,691 1,766,756
----------- ----------- ----------- -----------
Income (loss) before income taxes (3,166,024) (283,663) (5,256,280) 732,009
Provision for income taxes - - - -
----------- ----------- ----------- -----------
Net income (loss) (3,166,024) (283,663) (5,256,280) 732,009
Retained deficit, beginning
of period (6,037,722) (2,974,737) (3,947,466) (3,990,409)
----------- ----------- ----------- -----------
Retained deficit, end
of period $(9,203,746) $(3,258,400) $(9,203,746) $(3,258,400)
=========== =========== =========== ===========
Per common share information:
Net earnings (loss) $(3,166,024) $ (283,663) $(5,256,280) $ 732,009
=========== =========== =========== ===========
Earnings (loss) per share:
Basic and diluted $ (0.46) $ (0.04) $ (0.76) $ 0.11
=========== =========== =========== ===========
Weighted average shares outstanding
used in the per share calculation:
Basic and diluted 6,910,200 6,909,480 6,910,103 6,909,077
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>5
ORA ELECTRONICS, INC.
Statements of Cash Flows
For the Nine Month Periods Ended December 31, 1999 and 1998
(Unaudited)
Nine Months Ended December 31,
-----------------------------
1999 1998
------------- -------------
Cash flows from operating activities:
Net income (loss) $(5,256,280) $ 732,009
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Depreciation and amortization 176,546 177,616
Provision for sales returns and doubtful
accounts (117,331) (522,351)
Changes in assets and liabilities:
Trade accounts receivable 1,810,214 1,703,042
Inventories 2,169,946 1,322,127
Prepaid expenses (86,158) (121,672)
Trade payables 802,281 (1,272,863)
Accrued interest (30,534) (9,201)
Other accounts payable and
accrued expenses 68,029 (102,966)
----------- -----------
Net cash provided by (used in) operating
activities (463,287) 1,905,741
----------- -----------
Cash flows from investing activities:
Capital expenditures 68,933 (50,826)
Loan receivable, officer (23,468) (22,335)
----------- -----------
Net cash provided by (used in) investing
activities 45,465 (73,161)
----------- -----------
Cash flows from financing activities:
Repayment of line of credit (946,775) (650,354)
Borrowing (repayment) of long-term debt (235,067) (120,655)
Common stock - 1
Additional paid in capital - (1)
----------- -----------
Net cash (used in) financing activities (1,181,842) (771,009)
----------- -----------
Net increase (decrease) in cash and cash
equivalents (1,599,664) 1,061,571
Cash and cash equivalents, beginning of period 1,807,940 407,694
----------- -----------
Cash and cash equivalents, at end of period $ 208,276 $ 1,469,265
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid $ 403,368 $ 464,589
=========== ===========
Income taxes paid $ - $ -
=========== ===========
See accompanying notes to financial statements.
<PAGE>6
ORA ELECTRONICS, INC.
Notes to Financial Statements
(Unaudited)
NOTE 1 - DESCRIPTION OF BUSINESS
ORA Electronics, Inc. (the "Company") is a developer and supplier of
interface, connectivity solutions and peripheral accessories for wireless
communication devices. The Company's products supplement the effectiveness of
cellular telephones, personal communications systems ("PCS"), pagers, computing
devices and the intelligent transportation systems industry. The Company
currently carries over 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, 1999, 1998 and 1997, and is
reporting an operating loss for the nine months ended December 31, 1999 of
$5,256,280. 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 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 and nine month periods ended December 31, 1999, similarly do not include
adjustments that might result from the outcome of this uncertainty.
<PAGE>7
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 to be sufficient to cover liquidity requirements after
March 15, 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 March 15, 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.
Management believes that the support of the Company's vendors, customers,
potential lenders, stockholders and employees will certainly be key ingredients
to any opportunity the Company may have to turn its very serious business
decline around. However, there is no assurance that any of this support can be
obtained or sustained.
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, except for a $2,100,000 write down of inventory to the lower of cost or
market during the third quarter of fiscal 2000. The results for the three month
and nine month periods ended December 31, 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 filed with the Securities and Exchange Commission on June
29, 1999.
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, 1999 and December 31, 1998 have been
reclassified.
NOTE 4 - CONTINGENCIES
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, the Company agreed to pay Telular Corporation $500,000 in cash,
a $1,000,000 promissory note payable through February 1, 2000 and 300,000 shares
of the Company's common stock. Telular has the right to receive additional
shares of the Company's common stock to ensure the fair market value received is
equivalent to $1,500,000 on February 1, 2000. The remaining balance on the
promissory note of $250,000 and the additional shares due to Telular Corporation
have not yet been paid. The Company is currently attempting to renegotiate with
Telular Corporation with respect to the final cash payment due of $250,000 and
the additional shares due of ORA common stock.
<PAGE>8
NOTE 5 - YEAR 2000 ISSUE
Many computer systems and other equipment with embedded chips or processors
in use today were designed and developed using two digits, rather than four, to
specify the year. As a result, such systems will recognize the Year 2000 as "00"
and may assume that the year is 1900 rather than 2000. This is commonly known as
the Year 2000 issue, which could potentially result in a system failure or in
miscalculations causing disruptions of operations, including among other things,
a temporary inability to process transactions, send invoices or engage in other
similar normal business activities. The Company has been informed that the
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 February 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 months to determine the impact of the Year 2000, if
any, on its customers or suppliers.
NOTE 6 - SUBSEQUENT EVENT
At December 31, 1999, Officer loans receivable amounted to $633,270,
including accrued interest at the annual rate of 5.05%. The balance is comprised
of a note for $280,855 plus accrued interest of $58,034, due December 1, 1999,
and a note for $243,982 plus accrued interest of $50,399, due March 31, 2001. On
February 14, 2000, a total of $341,032 was repaid to the Company, which
represented payment of the $280,855 note and its accrued interest of $60,177
through that date.
<PAGE>9
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.
RESULTS OF OPERATIONS COMPARISON OF THREE MONTHS ENDED DECEMBER 31, 1999 TO
THREE MONTHS ENDED DECEMBER 31, 1998
Net Sales. Net sales decreased by $2,329,659, or 75.1%, to $771,443 for the
third quarter of fiscal 2000 compared to $3,101,102 for the same period of the
prior year. Approximately $1,850,000 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 third quarter of fiscal
2000 were approximately $47,000, or 6.0% of the total quarterly net sales of
$771,443. Net sales to Circuit City during the third quarter of fiscal 1999 were
approximately $1,900,000, or 61.3% of the total quarterly net sales of
$3,101,102. 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 decreased by $2,889,871. There was a gross loss
of $1,885,725 for the third quarter of fiscal 2000 compared with a gross profit
of $1,004,146 for same period of the prior year. This result is primarily
attributable to a stock inventory write down to the lower of cost or market of
$2,100,000 during the third fiscal quarter ended December 31, 1999. The
reduction in valuation was necessitated by the significant loss in the customer
base to whom these products could be sold to, combined with the rapid change in
wireless technology from analog to digital services, thus impacting the value of
the Company's remaining stock of inventory supporting analog handsets. The
remaining decrease in gross profit is the result of the decline in net sales
described above.
Selling and Shipping Expense. Selling and shipping expense decreased by
$104,729, or 18.5%, to $461,329 for the third quarter of fiscal 2000 compared
with $566,058 in the same period of the prior year. The decrease in selling and
shipping expense is primarily attributable to lower sales commissions resulting
from lower sales volume.
Administrative and General Expense. Administrative and general expense
increased by $93,708, or 16.1%, to $674,957 for the third quarter of fiscal 2000
compared with $581,249 in the same period of the prior year. The increase is
primarily attributed to costs incurred for business consultants, including a
business turnaround management team to help the Company develop and implement a
turnaround business plan.
Interest Expense. Interest expense for the third quarter of fiscal 2000 was
$169,511 compared with $166,995 in the same period of the prior year. This
increase is primarily attributable to approximately $50,000 in interest paid
during the quarter ended December 31, 1999 on overdue balances from the
Company's primary supplier, substantially offset by no interest being paid on a
line of credit during the current quarter. The Company has not utilized a credit
facility since since May 12, 1998.
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
December 31, 1999, the Company had available federal net operating loss
carryforwards of approximately $7,250,000, which expire in 2012 through 2013,
and state net operating loss carryforwards of approximately $4,150,000, which
expire in 2002 through 2003.
<PAGE>10
COMPARISON OF NINE MONTHS ENDED DECEMBER 31, 1999 TO NINE MONTHS ENDED
DECEMBER 31, 1998
Net Sales. Net sales decreased by $8,049,789, or 75.6%, to $2,594,730 for the
nine months of fiscal 2000 ended December 31, 1999, compared with $10,644,519
for the same period of the prior year. Approximately $5,225,000 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
nine months of fiscal 2000 were approximately $270,000, or 10.4% of the total
net sales of $2,594,730. Net sales to Circuit City during the first nine months
of fiscal 1999 were approximately $5,493,073, or 51.6% of the total net sales of
$10,644,519. 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 decreased by $5,437,933. There was a gross loss
of $1,181,106 for the nine months of fiscal 2000 compared with a gross profit of
$4,256,827 for same period of the prior year. This result is primarily
attributable to a stock inventory write down to the lower of cost or market of
$2,100,000 during the third fiscal quarter ended December 31, 1999. The
reduction in valuation was necessitated by the significant loss in the customer
base to whom these products could be sold to, combined with the rapid change in
wireless technology from analog to digital services, thus impacting the value of
the Company's remaining stock of inventory supporting analog handsets. The
remaining decrease in gross profit is primarily a result of the decline in net
sales described above.
Selling and Shipping Expense. Selling and shipping expense decreased by
$449,390, or 24.9%, to $1,355,545 for the nine months of fiscal 2000 ended
December 31, 1999 compared with $1,804,935 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 $603,290, or 20.4%, to $2,349,087 for the nine months of fiscal
2000 ended December 31, 1999 compared with $2,952,377 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 nine month period ended December
31, 1999 as part of the Company's efforts to reduce expenses.
Interest Expense. Interest expense for the nine months of fiscal 2000 ended
December 31, 1999 was $477,233 compared with $534,262 in the same period of the
prior year. This decrease is primarily a result of decreased short-term
borrowings during the nine months ended December 31, 1999. The Company has not
incurred any interest expense related to a credit facility since it was paid off
on May 12, 1999. The Company has been operating without a credit facility to
borrow from since that time.
Other Income. Other income for the nine months of fiscal 2000 was $106,691
compared with $1,766,756 in the same period of the prior year. The difference is
primarily attributable to approximately $1,675,000 in royalty income received
during the nine months ended December 31, 1998 as a result of the Company
granting to ORA Electronics (UK) Limited, an unaffiliated company, an exclusive
royalty-free right to use certain of the Company's trademarks, including the
"ORA" name, in perpetuity worldwide, excepting North, Central and South America.
Income Taxes. The Company has made no provision for income taxes as it has
a history of net losses, which has resulted in tax loss carryforwards. At
December 31, 1999, the Company had available federal net operating loss
carryforwards of approximately $7,250,000, which expire in 2012 through 2013,
and state net operating loss carryforwards of approximately $4,150,000, which
expire in 2002 through 2003.
<PAGE>11
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 December 31, 1999, the Registrant had $208,276 in cash and cash
equivalents with a working capital deficiency of $4,151,512, contrasted to
$1,807,940 in cash and cash equivalents with a working capital surplus of
$894,758 at March 31, 1999. Net cash used in operating activities was $463,287
for the nine months ended December 31, 1999, compared with net cash provided by
operating activities of $1,905,741 for the nine months ended December 31, 1998.
The decrease in cash from operating activities during the nine-month period
ended December 31, 1999 is primarily due to the rapid deterioration of the
business activities of the Company, including a significant decline in net sales
and a write down of its inventory by $2,100,000 to present it at the lower of
cost or market.
To supplement cash flow from operations, if necessary, the Company obtained a
$1,200,000 revolving credit facility on July 27, 1999, 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
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 $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 nine months ended December 31, 1999 of
$5,256,280. 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 Nine
Months ended December 31, 1999 compared to the Three Months and Nine Months
ended December 31, 1998.
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>12
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. There is no assurance that funding will
be available to execute the plan, however, 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 periods ending December 31, 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 March 15, 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 March 15, 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
December 31, 1999, the outstanding principal balance of such loan was
$4,474,825. 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 investing activities was $45,465 for the first nine
months of fiscal 2000, compared with net cash used in investing activities of
$73,161 for the first nine months of fiscal 1999. This difference is primarily
attributable to net capital equipment dispositions during the nine month period
ended December 31, 1999.
Cash flows used in financing activities were $1,181,842 for the first nine
months of fiscal 2000, compared with cash flows used in financing activities of
$771,009 for the first nine months of fiscal 1999. The increase in cash flows
used in financing activities is primarily attributable to higher net repayments
of short-term and long-term debt during the nine month period ended December 31,
2000.
Management believes that the support of the Company's vendors, customers,
potential lenders, stockholders and employees will certainly be key ingredients
to any opportunity the Company may have to turn its very serious business
decline around. However, there is no assurance that any of this support can be
obtained or sustained.
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. To
date, the Company has not experienced any problems relating to these systems.
<PAGE>13
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 February 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 months to determine the impact of the Year 2000, if
any, on its customers or suppliers.
SEASONALITY
The Company's markets are seasonal with sales typically higher in the
Company's third quarter due to increased demand from mass-market retailers
during the year-end holiday season.
FORWARD LOOKING INFORMATION
This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of that term in the Private Securities Litigation Reform Act
of 1995 (Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934). Additional written or oral forward-looking
statements may be made by the Company from time to time, in filings with the
Securities Exchange Commission or otherwise. Statements contained herein that
are not historical facts are forward-looking statements made pursuant to the
safe harbor provisions referenced above. The matters discussed herein with
respect to the introduction of new products by the Company, future sales levels,
compliance with financial covenants in loan agreements, the Company's ability to
secure future financing, the ability of the Company to replace the expected loss
of business with its largest customer, Circuit City, the ability of the Company
and its suppliers to address issues relating to the "Year 2000 problem,"
estimated costs of the Company's resolution of the "Year 2000 problem," costs
associated with 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
<PAGE>14
contribute to or cause such differences. Other factors that could contribute to
or cause such differences include, but are not limited to, unanticipated
developments in any one or more of the following areas: the receptivity of
consumers to new consumer electronics technologies, the rate of consumer
acceptance of new product introductions, competition, the Company's ability to
retain existing customers and attract new ones, the number and nature of
customers and their product orders, the Company's patents pending before the
U.S. Patent and Trademark Office, pricing, foreign manufacturing, sourcing and
sales (including foreign government regulation, trade and importation concerns
and fluctuation in exchange rates), borrowing costs, changes in taxes due to
changes in the mix of U.S. and non U.S. revenue, pending or threatened
litigation, the availability of key personnel, the ability of the Company and
the Company's suppliers to address issues relating to the "Year 2000 problem,"
the costs to the Company in addressing the "Year 2000 problem," and other risk
factors which may be detailed from time to time in the Company's Securities and
Exchange Commission filings.
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>15
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. (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)
<PAGE>16
Exhibit No. Description
----------- -----------
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)
11 Statement re: Computation of Earnings Per Share.
27 Financial Data Schedule.
- ---------------
(1) Incorporated by reference from the Form 8-K/A filed on December 20, 1996,
by North American Energy of Delaware, Inc., predecessor to the Registrant.
(2) Incorporated by reference from the Registrant's Form 8-K filed on December
20, 1996.
(3) Incorporated by reference from the Registrant's Form 10-K filed on June 30,
1997.
(4) Incorporated by reference from the Registrant's Form 10-Q filed on February
14, 1998.
(5) Incorporated by reference from the Registrant's Form 8-K filed on April 17,
1998.
(6) Incorporated by reference from the Registrant's Form 10-K filed on June 29,
1998.
(b) Reports on Form 8-K.
--------------------
No reports on Form 8-K were filed by the Company during the fiscal
quarter ended December 31, 1999.
<PAGE>17
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: February 22, 2000 By: /s/ JOHN M. BURRIS
---------------------------------
John M. Burris, Duly Authorized
Representative and Chief Financial
Officer
<PAGE>18
EXHIBIT INDEX
Exhibit No. Description Page
- --------------------------------------------------------------------------------
11 Statement Re: Computation Of Earnings
Per Share 19
27 Financial Data Schedule 20
<PAGE>19
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
Three Months Ended December 31,
-------------------------------
1999 1998
------------- ------------
Basic and diluted weighted average
number of shares of common stock
outstanding 6,910,200 6,909,480
=========== ===========
Net earnings (loss) $(3,166,024) $ (283,663)
=========== ===========
Basic and diluted earnings (loss)
per share $ (0.46) $ (0.04)
=========== ===========
Nine Months Ended December 31,
------------------------------
1999 1998
----------- -----------
Basic and diluted weighted average
number of shares of common stock
outstanding 6,910,103 6,909,077
=========== ===========
Net earnings (loss) $(5,256,280) $ 732,009
=========== ===========
Basic and diluted earnings (loss) $ (0.76) $ 0.11
per share =========== ===========
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> MAR-31-2000 MAR-31-2000
<PERIOD-END> DEC-31-1999 DEC-31-1999
<CASH> 208,276 208,276
<SECURITIES> 0 0
<RECEIVABLES> 778,882 778,882
<ALLOWANCES> 382,247 382,247
<INVENTORY> 395,727 395,727
<CURRENT-ASSETS> 1,189,910 1,189,910
<PP&E> 8,693,977 8,693,977
<DEPRECIATION> 2,837,971 2,837,971
<TOTAL-ASSETS> 7,968,057 7,968,057
<CURRENT-LIABILITIES> 5,341,422 5,341,422
<BONDS> 0 0
0 0
0 0
<COMMON> 6,910 6,910
<OTHER-SE> (3,064,547) (3,064,547)
<TOTAL-LIABILITY-AND-EQUITY> 7,968,057 7,968,057
<SALES> 771,443 2,594,730
<TOTAL-REVENUES> 771,443 2,594,730
<CGS> 2,657,168 3,775,836
<TOTAL-COSTS> 1,136,286 3,704,633
<OTHER-EXPENSES> (25,498) (106,691)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 169,511 477,233
<INCOME-PRETAX> (3,166,024) (5,256,280)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (3,166,024) (5,256,280)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,166,024) (5,256,280)
<EPS-BASIC> (0.46) (0.76)
<EPS-DILUTED> (0.46) (0.76)
</TABLE>
