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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
___________________________
FORM 10-Q/A
AMENDMENT #2
(MARK ONE)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1993
OR
[ ] 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: 0-9725
______________
AURORA ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
Delaware 75-1539534
- - - -------------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2030 Main Street, Suite 1120
Irvine, California 92714
- - - ---------------------------------------- ----------------------------------
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (714) 660-1232.
________________________________________________________________________________
(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 [ ]
Indicated below is the number of shares outstanding of
each class of the registrant's common stock, as of February 7,
1994.
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Title of Each Class of Common Stock Number Outstanding
- - - ----------------------------------- -----------------------------------
Common Stock, $0.03 par value 7,074,524 shares
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Page 1 of 10 sequentially numbered pages.
No Exhibits.
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THIS AMENDMENT #2 AMENDS ITEMS 1 AND 2 OF PART I OF THE FORM 10-Q OF AURORA
ELECTRONICS, INC. FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1993.
INDEX
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PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Signatures 10
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AURORA ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
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<CAPTION>
December 31, September 30,
1993 1993
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(Unaudited)
ASSETS
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Current assets:
Cash and cash equivalents $ 9,103 $ 16,201
Short - term investments 2,044 2,496
Trade receivables, less allowance for doubtful
accounts of $707 and $788, respectively 9,564 8,371
Inventories 8,374 5,954
Deferred income taxes 2,410 1,082
Other current assets 835 907
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Total current assets 32,330 35,011
Property, plant and equipment, net 4,492 4,108
Cost in excess of tangible net assets acquired, net of accumulated
amortization of $679 and $484, respectively 29,439 29,408
Non-compete agreement, net of accumulated
amortization of $1,000 and $800, respectively 3,000 3,200
Deferred income taxes 2,901 2,901
Net noncurrent assets of discontinued operations 1,751 1,701
Other assets 443 528
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$ 74,356 $ 76,857
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,974 $ 8,229
Short-term debt and current portion of long-term debt 2,939 4,777
Reserve for discontinued operations 5,668 5,166
Accrued acquisition expenses 969 3,725
Accrued interest 441 720
Other current liabilities 2,609 1,681
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Total current liabilities 20,600 24,298
9-1/4% Senior subordinated notes 8,326 8,276
7-3/4% Convertible subordinated debentures 10,255 10,249
7% Subordinated convertible promissory notes 7,379 7,379
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Total liabilities 46,560 50,202
Commitments and contingencies
Stockholders' equity:
Common stock, 7,744 shares issued 234 232
Preferred stock, 1,000 authorized, none issued - -
Additional paid-in capital 55,378 55,260
Accumulated deficit (21,974) (22,683)
Foreign currency translation (22) -
Treasury stock, at cost, 632 shares and 661 shares, respectively (5,820) (6,154)
-------- --------
Total stockholders' equity 27,796 26,655
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$ 74,356 $ 76,857
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The accompanying notes are an integral part of these statements.
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AURORA ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
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Three months ended
December 31,
---------------------
1993 1992
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Net revenues $ 21,248 $ 14,208
Cost of sales 17,144 10,974
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Gross profit 4,104 3,234
Selling, general and administrative expenses 2,269 1,229
Program development costs 233 -
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Operating income 1,602 2,005
Interest expense (556) (478)
Income from investments 17 103
Other income, net 81 81
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Earnings before provision for income taxes 1,144 1,710
Provision for income taxes 436 589
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Net income $ 708 $ 1,121
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Earnings per share of common stock:
Primary $ 0.10 $ 0.21
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Fully diluted $ 0.11 $ 0.18
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Weighted average number of common and
common equivalent shares:
Primary 7,338 5,342
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Fully diluted 8,894 7,238
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The accompanying notes are an integral part of these financial statements.
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AURORA ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
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For the three months ended
December 31,
--------------------------
1993 1992
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 708 $ 1,121
Adjustments to reconcile net income to
net cash flows from operating activities:
Foreign currency translation (22) -
Depreciation and amortization 655 353
Gain on sale of securities (17) -
Gain from investments and unconsolidated affiliates - (103)
Change in assets & liabilities:
Accounts receivable, inventories and other
current assets (3,622) (7,428)
Accounts payable and accrued liabilities (1,396) 271
Accrued interest and income taxes receivable/payable - 2,412
Other assets 85 (184)
Deferred income taxes - 591
Other 55 -
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Net cash flows from continuing operations (3,554) (2,967)
Net cash flows from discontinued operations (1,308) 1,807
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Net cash flows from operating activities (4,862) (1,160)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (653) (501)
Proceeds from sales of marketable securities 481 -
------- -------
Net cash flows from investing activities (172) (501)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on debt - (2,103)
Purchases of treasury stock (225) (123)
Repayment of advances under lines of credit (1,839) -
Exercise of stock options - 1,529
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Net cash flows from financing activities (2,064) (697)
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Net change in cash and cash equivalents (7,098) (2,358)
Cash and cash equivalents at beginning of period 16,201 7,855
------- -------
Cash and cash equivalents at end of period $ 9,103 $ 5,497
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The accompanying notes are an integral part of these financial statements.
5
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AURORA ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A. BASIS OF PRESENTATION
The consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. However, the Company believes that the
disclosures are adequate to make the information presented not misleading.
These unaudited consolidated financial statements should be read in conjunction
with the financial statements and the notes thereto included in the Company's
annual report on Form 10-K for the year ended September 30, 1993.
The accompanying unaudited consolidated financial statements include
the accounts of Aurora Electronics, Inc. and all of its subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation. Certain operating segments that have been sold and segments for
which a plan of disposal had been adopted as of September 30, 1992 have been
reported as discontinued operations. Investments in affiliated companies are
included based upon the equity or cost methods of accounting, as appropriate.
The Company is restating its financial information to primarily
reflect the write-off of previously capitalized costs.
NOTE B. PURCHASE OF FRS, INC. ("FRS")
On September 30, 1993, the Company acquired all of the outstanding
common stock of FRS, a provider of maintenance and repair services on selected
computer peripherals and products. FRS also provides inventory management
control services to certain manufacturers of electronic products and third
party maintenance organizations. Pursuant to the merger agreement the total
consideration paid to the former shareholders of FRS was approximately
$5,400,000. The $5,400,000 consideration comprised of cash of approximately
$100,000 and 743,859 shares of the Company's common stock.
NOTE C. EARNINGS PER SHARE OF COMMON STOCK
Earnings per share of common stock is based upon the weighted average
number of common and common equivalent shares outstanding during the periods.
Outstanding stock options and warrants are treated under the treasury stock
method as common stock equivalents when dilution results from their assumed
exercise. The Company's 7-3/4% Convertible Subordinated Debentures due April
15, 2001 and 7% Subordinated Convertible Promissory Notes due September 30,
1997 were not common stock equivalents at the time of issuance and are
therefore not included in the calculation of primary earnings per share. Fully
diluted earnings per share is computed as if the 7-3/4% Convertible
Subordinated Debentures net of income tax effect, applicable to these
convertible instruments and the 7% Subordinated
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Convertible Promissory Notes were converted into common stock at the beginning
of the period after giving retroactive effect to the elimination of interest
expense, net of income tax effect, applicable to these convertible instruments.
NOTE D. CONTINGENT PURCHASE PRICE CONSIDERATION
Pursuant to the terms of the purchase agreement for the acquisition of
Micro-C Corporation ("Micro-C"), the Company was required to pay certain
additional consideration to the sellers of Micro-C based upon Micro-C's
operating results and revenue for each year beginning September 30, 1993 for a
three-year period. As a result of actual operating results achieved by Micro-C
during the year, the Company issued 60,820 shares of common stock on December
31, 1993.
NOTE E. INVENTORIES
Inventories at December 31, 1993, and September 30, 1993 include
material, labor and overhead and consist of the following (amounts in
thousands):
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DECEMBER 31, 1993 SEPTEMBER 30, 1993
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Raw materials $1,568 $1,355
Work in process 2,511 2,349
Finished goods and purchased product 4,295 2,250
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$8,374 $5,954
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NOTE F. CONCENTRATION OF SUPPLY OF NON-CONFORMING INTEGRATED CIRCUITS ("ICS")
During the three months ended December 31, 1993, the Company derived
approximately 63% of its revenue from material received from one client. This
compares to 78% for the three months ended December 31, 1992. Although the
Company was able to obtain in total an acceptable supply of materials from its
clients, there can be no assurance that the Company will be able to secure a
continued supply in the future. If the Company's major client substantially
reduces, terminates, suspends, or delays its shipments to the Company in the
near term, there could be a substantial negative effect on the Company's
business and results of operations.
NOTE G. COMMITMENTS AND CONTINGENCIES
In June 1993, complaints were filed by four of the Company's
stockholders with the United States District Court for the Central District of
California against the Company, and certain of its present and former officers
and directors. Each complaint alleges claims under the federal securities law
relating to the Company's alleged failure to adequately disclose certain
information with respect to the supply of ICs to Micro-C. Each complaint
requests that the Court certify a class of plaintiffs consisting of persons who
purchased shares of the Company's common stock during a specified period. None
of the complaints specify an amount of damages sought. Management believes the
Company's disclosures have been full and adequate and intends to vigorously
defend against such actions.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1993 AS COMPARED TO THE THREE MONTHS ENDED
DECEMBER 31, 1992
The Company is restating its financial information and results of
operations as of December 31, 1993 and for the three months then ended,
primarily to reflect the write-off of program development costs previously
capitalized. The restatement resulted in net income decreasing $139,000, or
16.4% from previously reported net income of $847,000 to restated net income of
$708,000. The restatement resulted in a $.02 per share decrease of primary and
fully diluted earnings from a previously reported per share amount of $.12 to a
restated per share amount of $.10.
Net revenues for the three months ended December 31, 1993 were
$21,248,000 as compared to $14,208,000 in net revenue for the three months
ended December 31, 1992. This increase in revenue was partially due to the
addition of the business of FRS of approximately $4,000,000 and the continued
growth of the service and product line offerings of the Company, along with the
diversification of its client base.
Gross profit for the three months ended December 31, 1993 was
$4,104,000 (19.3% of net revenue) as compared to $3,234,000 in gross profit for
the three months ended December 31, 1992 (22.8% of net revenue). The gross
profit, as a percentage of revenue, is down from the comparable quarter last
year due to a change in the manner of doing business with the Company's largest
client towards a more standard distribution type arrangement. This is
partially offset by higher margins in the IC recycling product line and the
addition of the FRS business.
Selling, general and administrative expenses for the three months
ended December 31, 1993 were $2,269,000, or 10.7% of revenues as compared to
$1,229,000 or 8.7% for the comparable 1992 period. The increase of $1,040,000
relates to the investment the Company is making in marketing and selling of its
product and services and the inclusion of the FRS selling, general and
administrative expenses. Amortization expense, a component of selling, general
and administrative expenses, was $386,000, or 1.8% of revenues as compared to
$297,000, or 2.1% for the comparable 1992 period. This increase was caused by
the increase in intangible assets resulting from the acquisition of FRS.
Program development costs for the three months ended December 31, 1993
were $233,000, or 1.1% of revenues, as compared to $0 for the comparable 1992
period. The increase is related to developing a new service line to complement
the existing business acquired in the FRS acquisition.
Net interest expense for the three months ended December 31, 1993 was
$556,000 or 2.6% of revenues as compared to $478,000, or 3.4% of revenues for
the comparable 1992 period. The increase of $78,000 was principally due to
additional debt issued in the acquisition of Micro-C during fiscal year 1993.
8
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Income from investments was $17,000 for the three months ended
December 31, 1993 was related to net gains from the sale of marketable
securities as compared to $103,000 for the comparable 1992 period.
Other income for the three months ended December 31, 1993 was $81,000
and is primarily due to interest income earned on the cash invested by the
Company.
Net income for the three months ended December 31, 1993 were $708,000,
or 3.3% of revenues, as compared to net income of $1,121,000, or 7.9% for the
comparable period in 1992. This decrease in net income is primarily due to a
lower gross margin and the Company's investment in a cost structure which it
will need to support the future service and product offerings of the Company.
FINANCIAL CONDITION AND LIQUIDITY
The Company's primary requirements for capital are directly related to
its accounts receivable and inventories and investments in property and
equipment. The Company's cash and short-term investments decreased $7,550,000
from $18,697,000 to $11,147,000. This decrease is to due primarily to the
consolidation of the businesses, the paying off of the FRS line of credit after
the acquisition, and the requirement of higher accounts receivable and
inventories levels. The Company's working capital was $11,730,000, as of
December 31, 1993 as compared to $10,713,000, as of September 30, 1993. The
Company has an ongoing program to evaluate possible strategic acquisitions
which complement the Company's business. The Company intends to finance any
such acquisitions through the use of excess cash, additional indebtedness and
issuance of capital stock.
As of December 31, 1993, the Company held 727,549 shares, or
approximately 9%, of the outstanding common stock of Riddell. Based on the
current market price of Riddell common stock, the value of these shares is
approximately $2,000,000. Subject to certain transfer restrictions set forth
under federal and state securities law, the Company intends to dispose of its
holdings of Riddell common stock, but there can be no assurance that market
conditions will permit such a disposition at acceptable prices.
The Company believes that cash on hand, cash flows from operations,
and its line of credit will be sufficient to meet its working capital
requirements for its existing operations. As of December 31, 1993, the Company
had no material capital commitments outstanding.
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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.
AURORA ELECTRONICS, INC.
February 6, 1995 By: /s/ John P. Grazer
----------------------------------
John P. Grazer,
Vice President-Finance and
Administration and Chief Financial
Officer (Principal Accounting and
Financial Officer)
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