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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 November 30, 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 January 13, 1998
----- -------------------------------
Common Stock, par value 10,000,000 Shares
$.001 per share
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NEWCOM, INC.
INDEX
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<CAPTION>
Page No.
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Statement Regarding Financial Information 2
Condensed Balance Sheets as of November 30, 1997
and February 28, 1997 3
Condensed Statement of Operations for the Three
Months and Nine Months Ended November 30, 1997
and 1996 4
Condensed Statements of Cash Flows for the Nine
Months Ended November 30, 1997 and 1996 5
Notes to Condensed Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
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NEWCOM, INC.
QUARTER ENDED NOVEMBER 30, 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>
NOVEMBER 30, FEBRUARY 28,
1997 1997
------------ ------------
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS
Cash and equivalents $ 3,835,061 $ 2,813,631
Receivables-net 40,123,733 29,974,924
Inventories and contract in process 31,695,752 11,495,503
Prepayments and deposits 2,163,000 -
Other current assets 16,071 45,069
----------- -----------
TOTAL CURRENT ASSETS 77,833,617 44,329,127
----------- -----------
Property and equipment, at cost 3,356,261 2,532,278
Less accumulated depreciation
and amortization (359,608) (260,908)
----------- -----------
NET PROPERTY AND EQUIPMENT 2,996,653 2,271,370
Engineering designs and drawings-net 252,896 361,279
Other assets 2,885,086 473,395
----------- -----------
Total $83,968,252 $47,435,171
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Line of credit $ 8,721,101 $ 8,883,656
Accounts payable 23,756,780 13,354,178
Accrued expenses 302,292 174,740
----------- -----------
TOTAL CURRENT LIABILITIES 32,780,173 22,412,574
Due to Aura 17,303,494 17,249,874
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock par value $.001 per share paid
in capital. Issued and outstanding
10,000,000 and 7,578,947 shares respectively. 30,071,124 10,001,000
Retained earnings (deficit) 3,813,461 (2,228,277)
----------- -----------
Total stockholders' equity 33,884,585 7,772,723
----------- -----------
Total $83,968,252 $47,435,171
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
3
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NEWCOM, INC.
CONDENSED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED NOVEMBER 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
---------------- -----------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
GROSS REVENUES $36,588,449 $19,320,288 $79,962,672 $41,603,236
Less discounts given 131,932 30,722 195,402 76,822
Less returns and allowances 6,282,310 1,368,651 11,836,651 5,122,900
----------- ----------- ----------- -----------
NET REVENUES 30,174,207 17,920,915 67,930,619 36,403,514
Cost of revenues 21,604,389 14,192,913 47,227,900 26,448,881
----------- ----------- ----------- -----------
GROSS PROFIT 8,569,818 3,728,002 20,702,719 9,954,633
EXPENSES
Selling, general and administrative 4,299,283 2,327,698 10,445,669 6,729,368
----------- ----------- ----------- -----------
Total costs and expenses 4,299,283 2,327,698 10,445,669 6,729,368
INCOME FROM OPERATION 4,270,535 1,400,304 10,257,050 3,225,265
OTHER (INCOME) AND EXPENSE
Other income (55,333) (4,321) (102,554) (18,961)
Interest expense 628,653 382,625 1,879,752 1,059,368
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 3,697,215 1,022,000 8,479,852 2,184,858
Provision for income taxes 970,715 -- 2,438,114 108,000
----------- ----------- ----------- -----------
Net income $ 2,726,500 $ 1,022,000 $ 6,041,738 $ 2,076,858
=========== =========== =========== ===========
NET INCOME PER SHARE $.29 $.13 $.73 $.27
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES USED
TO COMPUTE NET INCOME PER SHARE 9,521,110 7,578,947/a/ 8,221,627 7,578,947/a/
=========== =========== =========== ===============
</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 NINE MONTHS ENDED NOVEMBER 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
NET CASH PROVIDED BY (USED) IN OPERATIONS $(17,931,739) $(7,410,777)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (823,983) (144,077)
NET CASH PROVIDED BY (USED) IN INVESTING
ACTIVITIES (823,983) (144,077)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 19,030,000 ---
Financing and other fees paid (2,959,877) ---
Net proceeds(payments) from borrowing (162,555) 833,881
Cash advances from Aura 19,777,113 11,749,871
Cash repayments to Aura (15,907,529) (7,131,081)
------------ -----------
NET CASH PROVIDED BY (USED) IN FINANCING
ACTIVITIES: 19,777,152 5,452,671
------------ -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 1,021,430 (2,102,183)
Cash and cash equivalents at beginning of year 2,813,631 2,102,183
------------ -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,835,061 $ 0
============ ===========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 411,807 $ 247,800
Income Tax 800 800
============ ===========
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SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
In September 1997, $4,000,000 of payables to the Company's parent, Aura Systems,
Inc. was converted to equity in conjunction with the Company's Initial Public
Offering.
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
nine months ended November 30, 1997.
2) CAPITAL
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
$16.1 million, net of underwriting commissions, discounts and expenses of the
offering.
3) SIGNIFICANT CUSTOMERS
The Company sold communication and multi-media products to three
significant customers during the nine months ended November 30, 1997. Sales of
communication and multi-media products to major mass merchandisers Best Buy,
Circuit City, and Computer City accounted for approximately $20.5 and $39.6
million in the three and nine months ended November 30, 1997 as compared to
approximately $6.7 million in the three and nine month periods in the prior
year.
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.
4) 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.
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 $2,726,500 on net revenues of $30,174,207 for the
quarter ended November 30, 1997, compared to earnings of $1,022,000 on net
revenues of $17,920,915 for the comparable prior year quarter. For the nine
months ended November 30, 1997, the Company earned $6,041,738 on net revenues of
$67,930,619, compared to earnings of $2,076,858 on net revenues of $36,403,514
for the prior year nine month period.
The increase in net revenues of $12,253,292 and $31,527,105 for the three
and nine month periods ended November 30, 1997 over the corresponding prior year
periods is a result of an increase in the volume of product sold primarily to
the Company's mass market retail customers, including products such as the 56K
modem, higher speed multimedia kits and CD rewritable drives (CDRW).
Gross margins for the three months ended November 30, 1997 increased to
28.4% from 20.8% in the prior year quarter, and for the nine months ended
November 30, 1997 increased to 30.5% from 27.3% in the prior year comparable
period, due primarily to the mix of products sold in the periods including the
56K modem, higher speed multimedia kits and the CDRW.
Selling, general and administrative expense for the three and nine month
periods ended November 30, 1997 increased by $1,971,585 and $3,716,301 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 to $628,653 from $382,625 and $1,879,752 from
$1,059,368 for the three and nine month periods ended November 30, 1997 over the
prior year comparable periods due to higher levels 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 $970,715 from nil and
$2,438,114 from $108,000 in the three and nine months ended November 30, 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 nine months ended November 30, 1997, cash increased by $1,021,430 to
$3,835,061 from $2,813,631, at February 28, 1997. Accounts payable and accrued
expenses increased by $7,972,730 from February 28, 1997 due to increased
purchasing of products for resale and beneficial terms from vendors.
Inventories increased by $20,200,249 due to the need to increase inventories to
support the higher levels of sales volume on a continuing basis. The increase
in inventories is also attributable to the need to purchase long term lead item,
such as chipsets, in advance for the Company's modems, sound cards and 3D cards
that are being sold to the major retailers. Inventory also increased due to the
initial shipments of the Company's Web-Pal product that were received in the
third quarter.
7
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The increase in receivables of $10,248,809 is due to the increase in sales
volume which was concentrated in the last month of the quarter as sales
increased to the mass merchandisers just prior to the Christmas holidays.
Receivables as a percentage of sales for the quarter ended November 30, 1997,
decreased by approximately 36% from the quarter ended August 30, 1997 levels.
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.
Cash flows used in operations increased to $17,931,739 from $7,410,777
compared to the prior year nine months due primarily to the increase in
receivables and the increase in the levels of inventory, partially offset by the
increase in payables. Working capital increased to $45,053,444 from $21,916,553
over the fiscal year end level, with the current ratio improving to 2.37:1 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. The Company does not believe that the recent
turmoil in the Asian countries will have a materially adverse effect on the
Company.
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: JANUARY 14, 1998 By: /s/ Steven C. Veen
---------------- ------------------------
STEVEN C. VEEN
Senior Vice President
Chief Financial Officer
(Principal Financial and Accounting Officer)
10
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INDEX TO EXHIBITS
Exhibit Sequential
Number Page No.
EX-27 Financial Data Schedule
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1997
<PERIOD-END> NOV-30-1997
<CASH> 3,835,061
<SECURITIES> 0
<RECEIVABLES> 40,123,733
<ALLOWANCES> 0
<INVENTORY> 31,695,752
<CURRENT-ASSETS> 2,179,071
<PP&E> 3,356,261
<DEPRECIATION> (359,608)
<TOTAL-ASSETS> 83,968,252
<CURRENT-LIABILITIES> 32,780,173
<BONDS> 0
0
0
<COMMON> 30,071,124
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 83,968,252
<SALES> 67,930,619
<TOTAL-REVENUES> 67,930,619
<CGS> 47,227,900
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 10,343,115
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,879,752
<INCOME-PRETAX> 8,479,852
<INCOME-TAX> 2,438,114
<INCOME-CONTINUING> 8,479,852
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,041,738
<EPS-PRIMARY> .73
<EPS-DILUTED> 0
</TABLE>
