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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended August 31, 1997 Commission File Number 0-23079
NEWCOM, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 95-4485355
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
31166 VIA COLINAS
WESTLAKE VILLAGE, CA 91362
(Address of principal executive offices)
Registrant's telephone number, including area code: (818) 597-3200
Former name, former address and former fiscal year, if changed since last
report: None
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
- ----
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 October 23, 1997
----- -------------------------------
Common Stock, par value 10,000,000 Shares
$.001 per share
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NEWCOM, INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. Financial Statements
<S> <C> <C>
Statement Regarding Financial Information 2
Condensed Balance Sheets as of August 31,
1997 and February 28, 1997 3
Condensed Statement of Operations for the
Three Months and Six months Ended August 31,
1997 and 1996 4
Condensed Statements of Cash Flows for the
Six Months Ended August 31, 1997 and 1996 5
Notes to Condensed Financial Statements 6
ITEM 2. Management's Discussion and Analysis 7
of Financial Condition and Results of Operations
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
</TABLE>
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NEWCOM, INC.
QUARTER ENDED AUGUST 31, 1997
PART I. FINANCIAL INFORMATION
The financial statements included herein have been prepared by Newcom, Inc. (the
"Company"), without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission (the "SEC"). As contemplated by the SEC
under Rule 10-01 of Regulation S-X, the accompanying financial statements and
footnotes have been condensed and therefore do not contain all disclosures
required by generally accepted accounting principles. However, the Company
believes that the disclosures are adequate to make the information presented not
misleading. These financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Form S-1 as
filed with the SEC (file number 333-31431).
2
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NEWCOM, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
AUGUST 31, FEBRUARY 28,
ASSETS 1997 1997
- ---------------------------------------- ------------- -------------
<S> <C> <C>
CURRENT ASSETS
- ----------------------------------------
Cash and equivalents $ 1,580,441 $ 2,813,631
Receivables-net 37,906,278 29,974,924
Inventories and contract in process 15,976,923 11,495,503
Prepayments and deposits 4,213,284 -
Other current assets 24,570 45,069
------------- -------------
TOTAL CURRENT ASSETS 59,701,496 44,329,127
------------- -------------
Property and equipment, at cost 2,757,634 2,532,278
Less accumulated depreciation
and amortization (302,608) (260,908)
------------- -------------
NET PROPERTY AND EQUIPMENT 2,455,026 2,271,370
Engineering designs and drawings-net 289,024 361,279
Other assets 1,041,931 473,395
------------- -------------
Total $ 63,487,477 $ 47,435,171
============= =============
LIABILITIES AND STOCKHOLDER'S EQUITY
- ----------------------------------------
CURRENT LIABILITIES:
Line of credit $ 7,000,000 $ 8,883,656
Accounts payable 18,605,202 13,354,178
Accrued expenses 2,201,194 174,740
------------- -------------
TOTAL CURRENT LIABILITIES 27,806,396 22,412,574
Due to Aura 24,593,120 17,249,874
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock par value $.001 per share
paid in capital. Issued and
outstanding 7,578,947 and 7,578,947
shares respectively. 10,001,000 10,001,000
Retained earnings (deficit) 1,086,961 (2,228,277)
------------- -------------
Total stockholders' equity 11,087,961 7,772,723
------------- -------------
Total $ 63,487,477 $ 47,435,171
============= =============
</TABLE>
See accompanying notes to condensed financial statements.
3
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NEWCOM, INC.
CONDENSED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED AUGUST 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
1997 1996 1997 1996
----------- ----------- ----------- -----------
GROSS REVENUES $27,292,831 $14,817,228 $43,374,223 $22,282,948
Less discounts given 32,792 21,763 63,470 46,100
Less returns and allowances 4,933,304 3,754,249 5,554,341 3,754,249
----------- ----------- ----------- -----------
NET REVENUES 22,326,735 11,041,216 37,756,412 18,482,599
Cost of revenues 15,225,628 7,401,456 25,623,511 12,255,968
----------- ----------- ----------- -----------
GROSS PROFIT 7,101,107 3,639,760 12,132,901 6,226,631
EXPENSES
Selling, general and administrative 3,410,659 2,769,972 6,146,386 4,401,670
----------- ----------- ----------- -----------
Total costs and expenses 3,410,659 2,769,972 6,146,386 4,401,670
INCOME FROM OPERATION 3,690,448 869,788 5,986,515 1,824,961
OTHER (INCOME) AND EXPENSE
Other income (30,071) (7,230) (47,221) (14,640)
Interest expense 715,364 436,572 1,251,099 676,743
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 3,005,155 440,446 4,782,637 1,162,858
Provision for income taxes 756,399 - 1,467,399 108,000
----------- ----------- ----------- -----------
Net income $ 2,248,756 $ 440,446 $ 3,315,238 $ 1,054,858
=========== =========== =========== ===========
NET INCOME PER SHARE $ .30 $ .06 $ .44 $ .14
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES USED
TO COMPUTE NET INCOME PER SHARE/A/ 7,578,947 7,578,947 7,578,947 7,578,947
=========== =========== =========== ===========
</TABLE>
/a/-Adjusted to reflect a 7,578.947 for 1 stock split which occurred in
September, 1997 in conjunction with the Company's initial public offering.
See accompanying notes to condensed financial statements.
4
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NEWCOM, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED AUGUST 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
------------- ------------
<S> <C> <C>
NET CASH PROVIDED BY (USED) IN
OPERATIONS $ (6,467,424) $(4,722,576)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property equipment (225,356) (63,768)
NET CASH PROVIDED BY (USED) IN
INVESTING ACTIVITIES (225,356) (63,768)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds(payments) from borrowing (1,883,656) 183,188
Cash advances from Aura 19,777,113 9,236,429
Cash repayments to Aura (12,433,867) (6,020,081)
------------ -----------
NET CASH PROVIDED BY (USED) IN
FINANCING ACTIVITIES: 5,459,590 3,399,536
------------ -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (1,233,190) (1,386,808)
Cash and cash equivalents at beginning
of year 2,813,631 2,102,183
------------ -----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 1,580,441 $ 715,375
============ ===========
Supplemental disclosures of cash flow
information
Cash paid during the period for:
Interest $ 250,154 $ 138,093
Income Tax 800 800
============ ===========
</TABLE>
See accompanying notes to condensed financial statements.
5
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NEWCOM, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1) MANAGEMENT OPINION
The condensed financial statements include the accounts of Newcom, Inc.
("The Company").
In the opinion of management, the accompanying condensed financial
statements reflect all adjustments (which include only normal recurring
adjustments) and reclassifications for comparability necessary to present fairly
the financial position and results of operations as of and for the three and six
months ended August 31, 1997.
2) SIGNIFICANT CUSTOMERS
The Company sold communication and multi-media products to three
significant customers during the six months ended August 31, 1997. Sales of
communication and multi-media products to major mass merchandisers Best Buy,
Circuit City, and Computer City accounted for approximately $19.1 million in the
six months ended August 31, 1997. There were no sales to these customers in the
prior year comparable period.
None of the above customers are related or affiliated with the Company or
any customers of the Company. The Company has no reason to believe that sales
to any of these customers will not continue.
3) CONTINGENCIES
The Company is engaged in legal actions arising in the ordinary course of
business. In the opinion of management based upon the advice of counsel, the
ultimate resolution of these matters will not have a material adverse effect.
Therefore, no provision for these matters has been made in the Company's
consolidated financial statements.
4). SUBSEQUENT EVENTS
On September 19, 1997 the Company completed an initial public offering of
2,300,000 Units at $9.50 per Unit, each Unit consisting of one share of NewCom
Stock and one Warrant to purchase NewCom Common Stock at $14.25 for a period of
five years. Of the units offered to the public, 300,000 shares were sold by the
Company's parent, Aura Systems, Inc. NewCom received proceeds of approximately
$16.6 million, net of underwriting commissions, discounts and expenses of the
offering.
6
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report may contain forward-looking statements, which involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in such statements. Certain factors that could cause actual
results to differ materially from those discussed in such forward-looking
statements include the risks described in the Company's Registration Statement
on Form S-1 filed with the SEC in connection with its September 1997 initial
public offering, which factors are incorporated herein by reference.
RESULTS OF OPERATIONS
The Company earned $2,248,756 on net revenues of $22,326,735 for the
quarter ended August 31, 1997, compared to earnings of $440,446 on net revenues
of $11,041,216 for the comparable prior year quarter. For the six months ended
August 31, 1997, the Company earned $3,315,238 on net revenues of $37,756,412,
compared to earnings of $1,054,858 on revenues of $18,482,599 for the prior year
six month period.
The increase in net revenues of $11,285,519 and $19,273,813 for the three
and six month periods ended August 31, 1997 over the corresponding prior year
periods is a result of an increase in the volume of product sold including
products such as the 56K modem and higher speed multi media kits.
Gross margins for the three months ended August 31, 1997 declined slightly
to 31.8% from 33.0% in the prior year quarter, and for the six months ended
August 31, 1997 declined to 32.1% from 33.7% in the prior year comparable
period, due primarily to the mix of products sold in the periods.
Selling, general and administrative expense for the three and six month
periods ended August 31, 1997 increased by $640,687 and $1,744,716 over the
prior year like periods due primarily to increased levels of advertising support
associated with the increased sales levels and increased staffing as the Company
built up its infrastructure to support higher levels of sales.
Interest expense increased by $278,792 from $436,572 and $574,356 from
$676,743 for the three and six month periods ended August 31, 1997 due to higher
level of borrowing on the Company's line of credit and higher levels of
borrowing from the Company's parent.
The provision for income taxes increased to $756,399 from nil and
$1,467,399 from $108,000 in the three and six months ended August 31, 1997
compared to the prior year periods due to the full utilization of the Company's
net operating loss carry forward.
LIQUIDITY AND CAPITAL RESOURCES
In the six months ended August 31, 1997, cash decreased by $1,233,190 to
$1,580,441 from $2,813,631, at February 28, 1997. Accounts payable and accrued
expenses increased by $7,277,478 from February 28,1997 due to increased
purchasing of products for resale and beneficial terms from vendors.
Inventories increased by $4,481,420 due to the need to increase inventories
available for the anticipated increase in sales for the fall selling season.
The increase in receivables of $7,931,354 is due to the increase in sales
volume which was concentrated in the last month of the quarter as sales began to
increase for the fall selling season.
The increase in prepayments was due to the deposits required for long lead
items for the Company's Web Pal product and was partially offset by extended
payment terms upon delivery of the product.
7
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Cash flows used in operations increased by $1,744,848 compared to the prior
year six months. Working capital increased to $31,895,100 from $21,916,553 over
the fiscal year end level, with the current ratio improving to 2.15:1 from
1.98:1.
In the past, the Company's cash flow generated from operations has not been
sufficient to completely fund its working capital needs. Accordingly, the
Company has also relied upon external sources of financing to maintain its
liquidity, principally advances from the Company's parent, Aura Systems, and
bank indebtedness. No assurances can be provided that these funding sources
will be available in the future. The Company expects that, with the increasing
shipments of the multimedia kits, modems, sound cards and other products the
Company will bring to market, cash flows and results of operations should be
favorably impacted in the future.
8
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PART II - OTHER INFORMATION
ITEM 6 Exhibits and Reports on Form 8-K
a) Exhibits:
See Exhibit Index
b) Reports On Form 8-K:
None
9
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEWCOM, INC.
-------------------
(Registrant)
Date: OCTOBER 23, 1997 By: /s/Steven C. Veen
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STEVEN C. VEEN
Senior Vice President
Chief Financial Officer
(Principal Financial and Accounting Officer)
10
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Sequential
Number Page No.
<S> <C> <C>
EX-27 Financial Data Schedule
</TABLE>
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> JUN-01-1997
<PERIOD-END> AUG-31-1997
<CASH> 1,580,441
<SECURITIES> 0
<RECEIVABLES> 37,906,278
<ALLOWANCES> 0
<INVENTORY> 15,976,923
<CURRENT-ASSETS> 59,701,496
<PP&E> 2,757,634
<DEPRECIATION> (302,608)
<TOTAL-ASSETS> 63,487,477
<CURRENT-LIABILITIES> 27,806,396
<BONDS> 0
0
0
<COMMON> 10,001,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 63,487,477
<SALES> 37,756,412
<TOTAL-REVENUES> 37,756,412
<CGS> 25,623,511
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,146,386
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,203,878
<INCOME-PRETAX> 4,782,637
<INCOME-TAX> 1,467,399
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,315,238
<EPS-PRIMARY> .44
<EPS-DILUTED> 0
</TABLE>
