<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------
FORM 10-K/A
AMENDMENT #1
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1994
[ ] 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)
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)
Registrant's telephone number, including area code: (714) 660-1232
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered:
------------------- ------------------------------------------
<S> <C>
Common Stock, $.03 Par Value American Stock Exchange
9 1/4% Senior Subordinated Notes, Due 1996 American Stock Exchange
Series A and Series B
7 3/4% Convertible Subordinated American Stock Exchange
Debentures, Due 2001
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: 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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
The aggregate market value of the voting stock held by non-affiliates of
the registrant on December 30, 1994 based on the closing price of the Common
Stock on the American Stock Exchange was approximately $34,211,000.
Indicated below is the number of shares outstanding of each class of the
registrant's Common Stock, as of December 30, 1994.
<TABLE>
<CAPTION>
Title of Each Class of Common Stock Number of Outstanding
----------------------------------- ---------------------
<S> <C>
Common Stock, $.03 par value 7,396,911
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
Document Part of the Form 10-K
-------- ---------------------
<S> <C>
Proxy Statement for Annual Meeting of Part III
Stockholders currently expected to be held
March 22, 1995 Page 1 of 39 sequentially numbered pages.
Index to Exhibits begins on page 34.
</TABLE>
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<PAGE> 2
THIS AMENDMENT #1 AMENDS ITEMS 7 AND 8 OF PART II, AND EXHIBIT 23.1 OF THE FORM
10-K OF AURORA ELECTRONICS, INC. FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1994.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
(In thousands, except per share figures)
OVERVIEW
On September 30, 1992, the Company repositioned itself in the electronics
industry through the acquisition of Micro-C Corporation, a San Diego,
California based company founded in 1985, which provided integrated circuit
(IC) recycling services to semiconductor manufacturers and computer OEMs.
Effective September 30, 1993, the Company acquired FRS, Inc. ("FRS"), a
Sacramento, California based company founded in 1984, which provided subsystem
repair and field spare inventory management services to computer and peripheral
OEMs. Effective March 1, 1994, Aurora acquired substantially all of the assets
of Century Computer Marketing, a Marina del Rey, California based company
founded in 1984, which is the leading provider of spare parts procurement and
logistics services to the computer maintenance industry.
RESULTS OF OPERATIONS - YEAR ENDED SEPTEMBER 30, 1994, COMPARED WITH YEAR ENDED
SEPTEMBER 30, 1993.
Net revenues for the year ended September 30, 1994 were $120,386 as
compared to $58,328 in net revenues for the year ended September 30, 1993. The
increase in revenues was primarily due to the acquisitions of the Century and
FRS businesses and a 27.3% revenue growth in the ARS (IC recycling) and Premier
Computer Products product lines.
The Premier Computer Products Division's business depends on its ability
to continue to acquire a reliable stream of salable ICs. Generally, the
Division procures its supply of both non-conforming and conforming (sometimes
called reduced specification and full specification, respectively) ICs from
clients pursuant to short-term, non-exclusive contracts. These contracts do
not contain guaranteed or minimum quantities. During fiscal 1994, the Company
derived approximately 42% of its revenue from non-conforming material received
from one supplier, as compared to 66% for the prior fiscal year. On a pro
forma basis, the concentration of supply would have been approximately 37% if
Century had been part of Company for the 12 months ended September 30, 1994.
The Company has experienced intermittent interruptions, shifts or reductions in
that source of supply in the past, so there can be no assurance that the
Company will be able to secure a continued supply in the future.
A major goal of the Company is to diversify its supply of ICs in the
future to reduce its dependence on its major supplier and to increase its
revenues. On December 12, 1994 the Company announced that the major supplier
advised the Company that it had indefinitely suspended the program under which
it supplied reduced specification ICs to the Company. The December 12th
announcement also stated that the Company had established additional supply
relationships for both full and reduced specification products. However, these
new supply relationships do not contain guaranteed or minimum quantities and,
if these new relationships do not produce the expected revenues or profits, or
the Company's major supplier does not resume its shipments to the Company,
there would be a substantial negative effect on the Company's business and
results of operations.
Gross profit for the year ended September 30, 1994 was $26,350 or 21.9%
of net revenue as compared to $11,274 or 19.3% of net revenue for the same
period in 1993. The increase was primarily due to the acquisition of Century
and FRS businesses. This increase, along with the improvement in gross profit
performance in ARS, offset the decrease in gross profit that occurred in
Premier Computer Products. The primary reason for the decrease in Premier's
gross profit during 1994 was a change in the terms of trade with the Company's
largest supplier from a revenue sharing arrangement to a more standard
distribution (fixed price) arrangement.
2
<PAGE> 3
Selling, general and administrative expenses for the year ended September
30, 1994 were $17,573 or 14.6% of net revenue, as compared to $4,657 or 8.0% of
net revenue for the same period in 1993. The increase of $12,916 relates
principally to the inclusion of operating expenses of the acquisition of the
Century and FRS businesses, investment in information systems and an increase
in employees required to support increases in the Company's operations.
Amortization of intangibles included in operating expenses was $4,539 or
3.8% of net revenue, compared to $1,284 or 2.2% of net revenue for the same
period in 1993. In the fourth quarter of fiscal 1994, management determined
that the remaining unamortized balance of $2,400 which had been assigned to a
non-compete agreement with the sellers of Micro-C, should be charged to
operations. The non-compete agreement was determined to be of no continuing
value due to the decision of the Company's major supplier to indefinitely
suspend shipments (see above), the significant decrease in the Company's level
of business in the processing of reduced specification ICs (which was the
primary emphasis of the non-compete agreement) and a shift in the Premier
division's business mix toward the manufacture of products which utilize full
specification rather than reduced specification ICs. The additional $905
increase was caused by the increase in intangible assets resulting from the
Century and FRS acquisitions.
During the fourth quarter of fiscal 1994 the Company recorded a charge to
operating expense of $1,450 consisting primarily of $925 related to the cost
incurred to establish the "System Recovery" program (also known as the "TQR"
program). This program gave the Company the ability to refurbish, recondition
and redistribute systems received from manufacturing fallout, field
dispositions, excess and obsolete inventories, and customer trade-in and
exchange programs. Refurbished systems and subsystems are redistributed
worldwide in cost-conscious markets. Also included is $400 of costs incurred
in connection with evaluating the computer products distribution business.
Such effort was terminated.
During the fourth quarter of fiscal 1994, the Company recorded a $1,693
charge to reflect a preliminary agreement to settle the class action complaint
against the Company. See Item 3 -- Legal Proceedings. The settlement requires
the Company to issue $1,250 of common stock valued at fair market value at the
time of issuance and $250 in cash. The balance of the settlement ($1,500 in
cash) will be funded by the Company's insurer. The Company is involved in a
dispute submitted to binding arbitration concerning a claim against the former
owners of Micro-C for indemnification under the stock purchase agreement. On
December 27, 1994 the arbitrator awarded the Company approximately $3,507.
This award has been accounted for by a reduction of the 7% Subordinated
Convertible Promissory Notes and a corresponding reduction of goodwill (net of
expenses of $500.)
Net interest expense for the year ended September 30, 1994 was $4,449 or
3.7% of net revenue as compared to $1,965 or 3.4% of net revenue for the same
period in 1993. This increase was due to the additional debt incurred for the
Century acquisition and a higher revolving line of credit balance carried
during fiscal 1994. In addition, due to the disposition of substantially all
of the assets attributable to discontinued operations, the Company no longer
allocates interest expense to discontinued operations.
During the fourth quarter of fiscal 1994, the Company recognized a loss
of approximately $711 relating to the sale of its European repair operation and
the contribution of certain assets of Aurora Merchant Systems division (credit
card terminal repair and parts management) into a partnership with an
experienced provider of credit card terminal leasing programs. These
operations were not integral to the Company's strategic focus on the computer
maintenance, upgrade and recycling business.
Other income for the year ended September 30, 1994 was $197 as compared
to $635 for the same period in 1993. The primary component of other income is
interest income. The amount in 1993 included a $300 insurance claim received
from a previous insurer of the Company.
The loss from discontinued operations for the year ended September 30,
1994 was $2,400 as compared to charge of $2,234 in fiscal 1993. The current
year charge is the result of additional losses incurred and adjustment of the
reserve of discontinued operations to management's estimate of future
3
<PAGE> 4
obligations. The increase in the reserve relates primarily to the estimated
operating costs and early termination of the building lease in Chicago. For
other contingencies related to discontinued operations see Note M --
Commitments and Contingencies.
RESULTS OF OPERATIONS - YEAR ENDED SEPTEMBER 30, 1993, COMPARED WITH NINE
MONTHS ENDED SEPTEMBER 30, 1992.
Net revenues for the year ended September 30, 1993 were $58,328. There
were no revenues for the nine months ended September 30, 1992 due to the
discontinuation of all operating subsidiaries as described above. Net revenues
for fiscal 1993 were comprised primarily of sales of integrated circuits.
Gross profit for the year ended September 30, 1993 was $11,274 or 19.3% of net
revenue.
Selling, general and administrative expenses for the year ended September
30, 1993 were $4,657 or 8.0% of net revenue as compared to $1,864 for the nine
months ended September 30, 1992. The increase of $2,793 related principally to
the inclusion of selling, general and administrative expenses of Micro-C.
The amortization expense included in operating expenses was $1,284 or 2.2% of
net revenue (there was no comparable expense for the nine months ended
September 30, 1992). This increase was caused by the increase in intangible
assets resulting from the acquisition of Micro-C.
Net interest expense for the year ended September 30, 1993 was $1,965 or
3.4% of net revenue as compared to $1,153 for the nine months ended September
30, 1992. This increase was principally due to additional debt issued in the
acquisition of Micro-C.
Other income for the year ended September 30, 1993 was $635 as compared
to $167 for the nine months ended September 30, 1992. This increase was
principally due to a $300 insurance claim received from a previous insurer of
the Company.
The loss from discontinued operations for the year ended September 30,
1993 was $2,234 as compared to the loss of $12,666 in 1992. The loss is the
result of additional losses reduced by an income tax benefit of $1,489 as well
as a reversal in reserves of $500 for discontinued operations deemed to be
excess in the estimate of management.
Effective September 30, 1993 the Company adopted Financial Accounting
Statement No. 109 - Accounting for Income Taxes. The cumulative effect of the
adoption of FAS 109 relates primarily to the tax benefit on prior year losses
and reserves for discontinued operations. See Note H -- Income Taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary requirements for capital are directly related to
its accounts receivable, inventory levels and improvements to its property and
equipment, as well as costs resulting from the consolidation of its businesses.
The Company's working capital was $8,628 as of September 30, 1994, compared to
$10,713 as of September 30, 1993. The Company has financed acquisitions to
date using bank debt, internally generated cash and issuance of common stock.
During fiscal 1994, the Company had cash outlays of approximately $2,700
to consolidate and integrate the FRS business with the Company's other
businesses. The primary purpose of the consolidation was to take advantage of
certain economies of scale and avoid the duplication of certain costs. Such
consolidation and integration included closing the FRS facility located in
Oklahoma, relocating certain FRS employees to the Company's location in
Sacramento, California and integrating service and product line offerings.
4
<PAGE> 5
During fiscal 1994, the Company incurred approximately $390 in connection
with implementing a new computer system in the ARS and Premier divisions. The
implementation of the new computer system was a direct result of the
acquisition of Micro-C and resulted from the modification of the Company's
strategic focus. Additional integration and consolidation is planned to occur
during fiscal 1995 resulting in an estimated cash outlay of approximately $900,
primarily in the third and fourth quarters. This additional integration and
consolidation will be to relocate certain operations and certain facilities,
relating primarily to the Century acquisition, in an effort to avoid the
duplication of costs.
In May, 1994, the Company obtained a new $10,000 revolving line of
credit. The revolving line of credit is due and payable March 31, 1997. The
line of credit may be borrowed in $250 increments and is subject to a borrowing
base calculation as set forth in the loan agreement. The credit facilities
bear an interest rate of prime plus 1% or LIBOR plus 2.5%. As of September 30,
1994, the Company had borrowed $8,625 under the credit facilities.
In addition to the revolving line of credit, the Company obtained a
senior term loan of $25,000 for the Century acquisition and a $5,000
refinancing facility to be used to retire the 9-1/4 % Senior Subordinated
Notes. All indebtedness of the Company under the senior secured credit
facilities is secured by substantially all of the assets of the Company and
imposes a number of restrictions, covenants relating to the Company's financial
performance, and various other limitations on the Company. The Company is
restricted from entering into any transaction, other than in the ordinary
course of its business, including any merger, consolidation, dissolution or
corporate acquisition, without the lenders prior written consent. The Company
is restricted from paying or declaring any dividends on its outstanding common
stock or effecting any redemption, retirement or repurchase of its stock.
At September 30, 1994, the Company was not in compliance with a number of
the covenants and was required to obtain an agreement from its lenders to waive
such covenants for the period ended September 30, 1994. The financial
covenants not in compliance were the current ratio, debt service coverage
ratio, total interest coverage ratio, senior interest coverage ratio,
consolidated leverage ratio, and net profitability covenants. In consideration
for such waiver and the amending of certain covenants, the lenders received
from the Company a reduction in the exercise price of their existing warrants
to fair market value, warrants to purchase an additional 190 shares of the
Company's common stock at fair market value and $100 in cash. In addition, the
lenders suspended the $5,000 refinancing facility that was to be used for the
retirement of the 9 1/4% Senior subordinated notes. Although there can be no
assurance that management has accurately estimated the effect of the indefinite
suspension of the historically largest client's reduced specification program
or the addition of new IC suppliers, management believes the Company will be in
compliance with the amended bank covenants beginning with the quarter ended
December 31, 1994 and for the remainder of Fiscal 1995 based upon current
internally prepared financial projections.
In connection with the credit facility obtained in May 1994, the
Lenders received common stock purchase warrants to purchase shares of Common
Stock (the "Contingent Lender Warrants") at an exercise price equal to 50% of
the fair market value (as defined in the Warrant Agreements governing the
Contingent Lender Warrants) of one share of Common Stock as of March 31, 1995
(the "Exercise Price"). The number of shares of Common Stock underlying the
Contingent Lender Warrants is equal to (i) the balance of principal plus
accrued and unpaid interest outstanding on March 31, 1995 on the Company's 7%
Subordinated Convertible Promissory Notes due September 30, 1997 (the "7%
Notes"), divided by (ii) the Exercise Price. The Contingent Lender Warrants
will be declared null and void if certain conditions in the Senior Secured
Credit Agreement are satisfied. Management believes these conditions will be
met. See Note M -- Commitments and Contingencies.
5
<PAGE> 6
As of September 30, 1994 the Company held 553 shares, or approximately
7% of the outstanding common stock of Riddell Sports, Inc. ("Riddell"). On
October 31, 1994 the Company exchanged all of its Riddell common shares for 106
shares in Sport Supply Group, Inc. ("SSG" - NYSE) and $38 in cash. The Company
intends to dispose of its holdings in SSG and use the proceeds for reduction of
the revolving line of credit.
Other than the funds required for the anticipated move of certain
facilities and certain operations during fiscal 1995 and funds for the
remaining discontinued operations, the Company has no material capital
commitments outstanding at September 30, 1994.
Management believes that cash on hand, cash flow from operations, and
funds available under its credit facilities will be sufficient to meet the
Company's operating requirements, integration plans, capital commitments and
the required principal payments on the long-term debt in fiscal 1995. There is
no assurance that, if the Company requires additional financing, such financing
will be available upon acceptable terms.
6
<PAGE> 7
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
AURORA ELECTRONICS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1. Index to the Company's Financial Statements and Financial Statement Schedules.
------------------------------------------------------------------------------
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . 8
Consolidated Balance Sheets as of September 30, 1994 and September 30, 1993 . . . . . 9
Consolidated Statements of Operations for the years ended September 30, 1994 and 1993
and the nine months ended September 30, 1992 . . . . . . . . . . . . . . . . . . . 10
Consolidated Statements of Stockholders' Equity for the years ended September 30, 1994
and 1993 and the nine months ended September 30, 1992 . . . . . . . . . . . . . . 11
Consolidated Statements of Cash Flows for the years ended September 30, 1994 and 1993
and the nine months ended September 30, 1992 . . . . . . . . . . . . . . . . . . . 12
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . 14
Schedule I - Marketable Securities - Other Investments as of
September 30, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Schedule II - Amounts Receivable from Related Parties and Underwriters, Promoters,
and Employees other than Related Parties for the years ended September 30, 1994
and 1993 and the nine months ended September 30, 1992. . . . . . . . . . . . . . . 29
Schedule VIII - Valuation and Qualifying Accounts for the years ended
September 30, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Schedule IX - Short-Term Borrowings for the years ended September 30, 1994 and 1993
and the nine months ended September 30, 1992 . . . . . . . . . . . . . . . . . . 31
Schedule X - Supplementary Income Statement Information for the years ended
September 30, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
</TABLE>
All other financial statement schedules are omitted as the required information
is presented in the financial statements or the notes thereto or is not
necessary.
7
<PAGE> 8
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Aurora Electronics, Inc.:
We have audited the accompanying consolidated balance sheets of Aurora
Electronics, Inc. (a Delaware Corporation) and subsidiaries as of September 30,
1994 and 1993, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the years ended September 30, 1994 and
1993 and the nine months ended September 30, 1992. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Aurora Electronics,
Inc. and subsidiaries as of September 30, 1994 and 1993, and the results of
their operations and their cash flows for the years ended September 30, 1994
and 1993 and the nine months ended September 30, 1992 in conformity with
generally accepted accounting principles.
As explained in Note H -- Income Taxes to the consolidated financial
statements, the Company adopted Statement of Financial Accounting Standards No.
109 "Accounting for Income Taxes," effective October 1, 1992.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedules listed in
the index to financial statements are presented for purposes of complying with
the Securities and Exchange Commission's rules and are not part of the basic
financial statements. These schedules have been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly state in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
Orange County, California
December 30, 1994
ARTHUR ANDERSEN LLP
8
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AURORA ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
September 30,
--------------------
1994 1993
-------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,539 $ 16,201
Short - term investments 1,171 2,496
Trade receivables, less allowance for doubtful accounts
of $1,046 ($788 in 1993) 16,841 8,371
Inventories 9,445 5,954
Deferred income taxes 5,038 1,082
Other current assets 1,067 907
- --------------------------------------------------------------------------------------------
Total current assets $ 35,101 $ 35,011
Property, plant and equipment, net 6,075 4,108
Deferred income taxes - 3,956
Intangible and other assets 61,751 33,782
- --------------------------------------------------------------------------------------------
Total assets $102,927 $ 76,857
============================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 5,622 $ 1,606
Notes payable under line of credit - 3,171
Accounts payable 11,583 8,229
Accrued compensation 1,763 554
Accrued acquisition expenses 900 3,725
Accrued interest 980 720
Reserve for discontinued operations 5,024 5,166
Other current liabilities 601 1,127
- --------------------------------------------------------------------------------------------
Total current liabilities 26,473 24,298
- --------------------------------------------------------------------------------------------
Long-term debt 49,551 25,904
- --------------------------------------------------------------------------------------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, 1,000 shares authorized, none issued - -
Common stock, 8,020 shares issued (7,744 shares in 1993) 240 232
Additional paid-in capital 61,827 55,260
Accumulated deficit (29,300) (22,683)
Treasury stock, at cost, 638 shares (661 shares in 1993) (5,864) (6,154)
- --------------------------------------------------------------------------------------------
Total stockholders' equity 26,903 26,655
- --------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $102,927 $ 76,857
============================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE> 10
AURORA ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE FIGURES)
<TABLE>
<CAPTION>
Year ended Nine months
----------------------------- ended
September 30, September 30, September 30,
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
Net revenues 120,386 58,328 -
Cost of sales 94,036 47,054 -
- ----------------------------------------------------------------------------------------------------------------------------
Gross profit 26,350 11,274 -
Selling, general and administrative expenses 17,573 4,657 1,864
Amortization of intangibles, including write-off of $2,400 4,539 1,284 -
Program development costs 1,450 - -
Provision for litigation settlements 1,943 - -
- ----------------------------------------------------------------------------------------------------------------------------
Operating income (loss) 845 5,333 (1,864)
Interest expense (4,449) (1,965) (1,153)
Loss on disposition of assets (711) - -
Income from investments in unconsolidated affiliates - 54 3,255
Other income, net 197 635 167
- ----------------------------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing operations before provision for income taxes (4,118) 4,057 405
Provision for income taxes - 1,552 2,196
- ----------------------------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing operations (4,118) 2,505 (1,791)
Discontinued operations, net of income taxes:
Loss from operations - - (669)
Loss on disposal (2,400) (2,234) (11,997)
- ----------------------------------------------------------------------------------------------------------------------------
Loss from discontinued operations (2,400) (2,234) (12,666)
- ----------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before extraordinary item and change in accounting (6,518) 271 (14,457)
Extraordinary items:
Utilization of net operating loss carryforward - - 952
Cumulative effect of change in accounting for income taxes - 2,734 -
- ----------------------------------------------------------------------------------------------------------------------------
Net income (loss) (6,518) 3,005 (13,505)
============================================================================================================================
Earnings (loss) per share of common stock: $ (.055) $ 0.40 $ (0.38)
Continuing operations
Discontinued operations (0.32) (0.36) (2.67)
- ----------------------------------------------------------------------------------------------------------------------------
Before extraordinary item and change in accounting
(0.87) 0.04 (3.05)
Extraordinary item - - 0.20
Cumulative effect of change in accounting for income taxes - 0.44 -
- ----------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (0.87) $ 0.48 $ (2.85)
============================================================================================================================
Weighted average number of common and common equivalent shares 7,491 6,273 4,738
============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements
10
<PAGE> 11
AURORA ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Common stock Additional
------------------ paid-in Accumulated Treasury
Shares Par Value capital deficit stock Total
------ --------- ---------- ----------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1991 5,633 $169 $47,781 $(11,879) $(17,666) $18,405
Exercise of stock options 67 2 471 - - 473
Issuance of treasury stock - - - (16) 132 116
Purchase of treasury stock - - - - (361) (361)
Issuance of common stock purchase warrants - - 185 - - 185
Dividends declared to stockholders - - (603) - - (603)
Net loss - - - (13,505) - (13,505)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1992 5,700 171 47,834 (25,400) (17,895) 4,710
Exercise of stock options - including related income tax benefit 323 10 2,522 - 100 2,632
Issuance of Commom stock - acquisitions 744 22 5,280 - - 5,302
Purchase of treasury stock - - - - (122) (122)
Exercise of common stock purchase warrants 904 27 7,722 - 1,675 9,424
Stock split effected as a dividend - - (8,882) - 8,882 -
Conversion of debt to common stock 73 2 784 - - 786
Issuance of treasury stock - employment contract - - - (42) 368 326
Stock bonus with issuance of treasury stock - - - (246) 838 592
Net income - - - 3,005 - 3,005
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1993 7,744 232 55,260 (22,683) (6,154) 26,655
Issuance of common stock/treasury stock - acquisitions 271 8 4,718 (99) 560 5,187
Common stock to be issued - acquisition - - 559 - - 559
Exercise of stock options 5 - 40 - - 40
Purchase of treasury stock - - - - (226) (226)
Treasury stock - sale of assets - - - - (44) (44)
Common stock to be issued - litigation settlement - - 1,250 - - 1,250
Net loss - - - (6,518) - (6,518)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1994 8,020 $240 $61,827 $(29,300) $(5,864) $26,903
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE> 12
AURORA ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine months
Year ended Year ended ended
September 30, September 30, September 30,
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Earnings (loss) from continuing operations
and extraordinary item $ (4,118) $ 2,505 $ (839)
Adjustments to reconcile earnings (loss) from
continuing operations and extraordinary item
to net cash flows from operating activities:
Depreciation and amortization 6,451 1,503 221
Non-cash interest incurred in acquisition 352 - -
Non-cash stock bonus to employees - 592 -
Non-cash portion of litigation provision 1,250 - -
Loss on disposition of assets 711 - -
Gain from investments and unconsolidated affiliates - (54) (4,140)
Change in assets and liabilities, net of acquisitions:
Trade receivables, inventories and other assets (5,113) (7,337) 142
Accounts payable and other liabilities 454 (3,162) 60
Accrued interest and income taxes receivable/payable 260 (2,108) 2,541
Deferred income taxes - 1,801 (1,768)
- --------------------------------------------------------------------------------------------------------------------------
Net cash flows from continuing operations 247 (6,260) (3,783)
Net cash flows from discontinued operations (1,336) 5,447 1,193
- --------------------------------------------------------------------------------------------------------------------------
Net cash flows from operating activities (1,089) (813) (2,590)
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (1,993) (2,708) (1)
Payments for purchases of companies, net of cash acquired (12,131) (3,661) (7,591)
Purchase of marketable securities - - (1,600)
Proceeds from sales of marketable securities and SSG note 975 2,385 12,769
- --------------------------------------------------------------------------------------------------------------------------
Net cash flows from investing activities (13,149) (3,984) 3,577
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuances of debt - - 125
Payments on debt (5,840) (1,897) (1,461)
Issuances of common stock 40 11,991 473
Issuance of treasury stock - - 116
Purchases of treasury stock (226) (122) (361)
Advances under line of credit 22,238 3,171 -
Repayments under line of credit (16,636) - -
Dividends paid to stockholders - - (677)
- --------------------------------------------------------------------------------------------------------------------------
Net cash flows from financing activities (424) 13,143 (1,785)
- --------------------------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents (14,662) 8,346 (798)
Cash and cash equivalents at beginning of period 16,201 7,855 8,653
- --------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 1,539 $ 16,201 $ 7,855
==========================================================================================================================
</TABLE>
The accompanying notes aree an integral part of these financial statements.
12
<PAGE> 13
AURORA ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months
Year ended Year ended ended
September 30, September 30, September 30,
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES:
Cash paid (refunded) for :
Interest $ 3,837 $ 2,224 $ 1,266
===============================================================================================================================
Income taxes $ (337) $ 262 $ 330
===============================================================================================================================
In conjunction with the acquisition of the stock or assets of certain entities,
the following liabilities were assumed as follows:
Fair value of assets acquired $ 45,039 $ 12,207 $ 24,852
Cash paid for the acquisitions, net of cash acquired (7,356) 230 (7,591)
Imputed interest 352 - -
Debt issued for the acquisitions (27,345) - (4,959)
Common stock issued for the acquisitions (4,660) (5,302) -
- -------------------------------------------------------------------------------------------------------------------------------
Liabilities assumed $ 6,030 $ 7,135 $ 12,302
===============================================================================================================================
Stock dividends paid with treasury stock $ - $ 8,882 $ -
===============================================================================================================================
Conversion of debt to common stock $ - $ 786 $ -
===============================================================================================================================
Payment of employment contract with issuance of treasury stock $ - $ 326 $ -
===============================================================================================================================
Payment of stock bonus with issuance of treasury stock $ - $ 592 $ -
===============================================================================================================================
Issuance of promissory notes for additional acquisition costs $ - $ 2,420 $ -
===============================================================================================================================
Contingent shares issuable for additional acquisition costs $ 445 $ 464 $ -
===============================================================================================================================
Capital lease additions $ 1,040 $ - $ -
===============================================================================================================================
Reduction in 7% debt as a result of indemnity claim settlement $ 3,507 $ - $ -
===============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE> 14
AURORA ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousand, except per share figures)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization. Aurora Electronics, Inc. operates in one business
segment which is comprised of distributing computer service parts and system
upgrade products, and provides materials management and recycling services to
computer manufacturers and service organizations.
Principles of Consolidation and Change in Reporting Year. The
accompanying consolidated financial statements include the accounts of Aurora
Electronics, Inc. (the "Company") and 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.
Effective September 30, 1992, the Company changed its fiscal year end
from December 31 to September 30. Accordingly, the accompanying consolidated
statements of operations and cash flows for 1992 reflect the nine months ended
September 30, 1992.
Revenue Recognition. Revenue is recognized upon shipment of products
to customers. The Company warrants products against defects and has policies
permitting the return of products under certain circumstances. Provisions are
made for warranty costs and returns. Such costs generally have not been
material. The Company does not offer price protection to its customers.
The Company performs ongoing credit evaluations of its customers and
has established provisions for potential credit losses. Such costs generally
have not been material.
Interest Expense Allocation. The Company allocates interest expense
to its discontinued operations based on net asset book value of the
discontinued operations as it relates to consolidated net assets. Interest
allocated to discontinued operations amounted to approximately $0, $435 and
$441 during 1994, 1993 and 1992, respectively.
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. 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
(the "7% 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 net earnings per share is not
presented due to its anti-dilutive effect.
Cash Equivalents. The Company considers all liquid investments with a
maturity of three months or less at the date of purchase to be cash
equivalents.
Short-Term Investments. Short term investments are stated at the
lower of cost or market. The securities shown in the consolidated balance
sheet are carried at market, which is lower than cost.
Inventories. Inventories are stated at the lower of cost or market.
Cost is determined using the first-in, first-out method.
Property, Plant and Equipment. Property, plant and equipment is
recorded at cost and is depreciated over the estimated useful lives of the
related assets by the straight-line method for financial
14
<PAGE> 15
reporting purposes, and accelerated methods with respect to certain assets for
income tax purposes. Property, plant and equipment includes computer hardware,
software and implementation costs which are purchased, acquired and modified
for internal use. The Company's policy is to capitalize and accumulate such
costs as incurred and to commence amortization when placed in service. As of
September 30, 1994, substantially all the Company assets were being
depreciated. Leasehold improvements are amortized over the terms of the
related leases or their useful lives, whichever is shorter.
Intangible Assets. Goodwill associated with the acquisitions
discussed in Note B - Acquisitions, is amortized using the straight-line method
over forty years. The Company assesses the recoverability of its goodwill by
determining whether the amortization of the goodwill balance over its remaining
life can be recovered through projected non-discounted future cash flows over
the remaining amortization period. If projected future cash flows indicate
that unamortized goodwill will not be recovered, an adjustment is made to
reduce the net goodwill to an amount consistent with projected future cash
flows discounted at the Company's incremental borrowing rate. Cash flow
projections, although subject to a degree of uncertainty, are based on trends
of historical performance and management's estimate of future performance,
giving consideration to existing and anticipated competitive and economic
conditions.
Concentration Risk. During fiscal 1994, the Company derived
approximately 42% of its revenue from non-conforming material received by one
supplier, as compared to 66% for the prior fiscal year. On an unaudited pro
forma basis, the concentration of supply would have been approximately 37% if
Century had been part of Company for the 12 months ended September 30, 1994.
In December 1994, the major supplier indefinitely suspended the program under
which it supplied the non-conforming ICs to the Company. Although the Company
was able to obtain in total an acceptable supply of materials from this major
supplier and new suppliers during the last fiscal year, there can be no
assurance that the Company will be able to secure a continued supply in the
future. In the event these new relationships do not provide the expected
levels of revenue and profits, or the Company's major supplier does not resume
its shipments to the Company, there would be a substantial negative effect on
the Company's business and results of operations.
Post-retirement and Post-employment Benefits. The Company does not
provide post-retirement or post employment benefits to employees.
Impact of Recent Pronouncements. Effective in fiscal 1995, the
Company will be required to adopt two new pronouncements, FAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" and FAS No.
119, "Disclosure about Derivative Financial Instruments and Fair Value of
Financial Instruments". The impact of adopting these two pronouncements is not
expected to be material to the Company's financial position or results of
operations.
Reclassifications. Certain reclassifications have been made for
consistent presentation.
NOTE B - ACQUISITIONS
Micro - C Corporation ("Micro-C")
Effective September 30, 1992, the Company acquired all of the
outstanding common stock of Micro-C, a recycler of integrated circuits for the
electronics industry. The purchase price consisted of $10,949 in cash and the
issuance of the 7% Notes in the original principal amount of $7,379.
Additionally, the purchase agreement provided for the issuance of up to
approximately 447 shares of the Company's Common Stock valued at $11.20 per
share (subject to anti-dilution adjustments) to the sellers over a three year
period commencing in 1993. The actual number of shares to be issued is
contingent upon Micro-C's revenues and operating income for each year within
the three-year period. In fiscal 1994, the Company issued 61 shares in
connection with the fiscal 1993 operating results. The Company will issue 77
shares to
15
<PAGE> 16
the sellers in connection with the fiscal 1994 operating results. The Company
has determined that approximately 210 of the remaining 309 shares will not be
issuable in the future.
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
comprised of cash of approximately $100 and 744 shares of the Company's common
stock valued at $7.125 per share (the last closing share price of Aurora's
common stock prior to signing the Merger Agreement on September 12, 1993).
Century Computer Marketing ("Century")
Effective March 1, 1994, the Company acquired substantially all of the
assets and assumed substantially all of the liabilities of Century. Century is
a distributor of new and refurbished spare parts to the computer maintenance
market, supporting the products of over 500 manufacturers. Pursuant to the
terms of the Asset Purchase Agreement, the total consideration paid to Century
was approximately $29 million in cash and $4.7 million in common stock of the
Company. The Company financed the acquisition of Century with proceeds from a
five year $25 million senior term loan and internally generated cash.
All such acquisitions have been accounted for by the purchase method
of accounting, and accordingly each purchase price has been allocated to the
assets acquired and the liabilities assumed based on the estimated fair values
at the date of the acquisitions. The excess of the purchase price over the
estimated fair values of the net assets acquired has been recorded as goodwill,
which is being amortized over 40 years. The contingent consideration will be
recorded as additional goodwill when the related contingencies are resolved
and the consideration is determined. With the exception of the contingent
consideration and the final resolution of the indemnity claim in conjunction
with the purchase of Micro-C, the purchase price allocation period of the
acquisitions discussed above have been closed as of September 30, 1994.
The estimated fair value of assets and liabilities as of the date of
the acquisitions are summarized as follows:
<TABLE>
<CAPTION>
MICRO-C FRS CENTURY
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current assets $ 4,911 $ 3,588 $ 8,545
Machinery and equipment 497 1,082 947
Identifiable intangible and other assets 4,000 142 3,578
Goodwill 15,444 7,625 31,569
Liabilities (12,302) (7,135) (5,630)
------------------------------------------
$12,550 $ 5,302 $39,009
==========================================
</TABLE>
16
<PAGE> 17
The following table presents the unaudited pro forma results of
operations of the Company for the years ended September 30, 1994 and 1993,
assuming the above acquisitions had occurred on October 1, 1992.
<TABLE>
<CAPTION>
1994 1993
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net revenues $ 137,236 $ 118,457
Gross Profit 32,988 32,793
Operating income 2,315 8,966
Earnings (loss) from continuing operation before tax (3,510) 5,686
Net income (loss) (6,151) 4,053
Net income (loss) per share $ (0.82) $ 0.65
</TABLE>
NOTE C - DISCONTINUED OPERATIONS
Commencing in 1990, the Company began to discontinue its sporting
goods operations and divest itself of the related assets. Effective September
30, 1992, the Company announced that its remaining sporting goods operations
would be accounted for as discontinued operations and the remaining assets
would be sold. As of September 30, 1994, no material assets remained related
to the discontinued operations. During 1994, management revised the estimated
reserve for remaining contractual and contingent obligations resulting in a
provision for loss on disposal of $2,400. Such obligations and contingencies
relate primarily to a leased building, reserves for helmet litigation, and
estimation of liabilities due to an income tax dispute (See Note M --
Commitments and Contingencies). The Company recorded a provision for loss on
disposal of $2,234 (net of tax of $1,489) and $11,997 (net of tax of $420) in
1993 and 1992, respectively.
The Notes to Consolidated Financial Statements in this report exclude
discontinued operations unless stated otherwise. Additional information
relating to discontinued operations for the years ended September 30, 1994 and
1993, and the nine months ended September 30, 1992 is as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
1994 1993 1992
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net revenues $ -- $ 9,325 $ 10,731
Loss before provision for income taxes -- (4,085) (1,849)
Benefit for income taxes -- (1,430) (150)
Net loss from operations -- (2,655) (1,699)
</TABLE>
NOTE D - INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
1994 1993
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Spare and repair parts $ 1,083 $ 1,355
Work in process 1,152 2,349
Finished goods 7,210 2,250
-------------------------
Total Inventories $ 9,445 $ 5,954
=========================
</TABLE>
17
<PAGE> 18
NOTE E - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE 1994 1993
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Furniture, fixtures and equipment 3 - 5 years $ 6,779 $ 3,700
Leasehold improvements 1 - 6 years 654 664
-------------------------
7,433 4,364
Less accumulated depreciation and amortization (1,358) (256)
-------------------------
Total property, plant and equipment $ 6,075 $ 4,108
=========================
</TABLE>
NOTE F - INTANGIBLES AND OTHER ASSETS
<TABLE>
<CAPTION>
1994 1993
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Non-compete agreement $ -- $ 4,000
Goodwill 59,162 29,892
Database valuation 1,500 --
Debt issuance costs 2,000 102
Other 1,221 1,072
Less accrued amortization (2,132) (1,284)
------------------------
$61,751 $33,782
========================
</TABLE>
In the fourth quarter of fiscal 1994, management determined that the
remaining unamortized balance of $2,400, which had been assigned to a
non-compete agreement with the sellers of Micro-C, should be charged to
operations. The non-compete agreement was determined to be of no continuing
value due to the recent decision by the Company's major supplier of reduced
specification ICs to indefinitely suspend shipments and to the continuing
decline of the Company's activities in general in the reduced specification IC
business. Protecting the reduced specification ICs business, was the primary
purpose of the non-compete agreement, and under current condition, management
believes such agreement has substantially no value to the Company in the
future.
NOTE G - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1994 1993
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Term loan - FRS $ -- $ 1,606
Revolving line of credit 8,625 --
Senior term loan 23,000 --
9-1/4% Senior subordinated notes 8,486 8,276
7-3/4% Convertible subordinated debentures 10,273 10,249
7% Subordinated convertible promissory notes 3,872 7,379
Capital lease financing 917 --
-------------------------
55,173 27,510
Less current portion of long-term debt (5,622) (1,606)
-------------------------
$ 49,551 $ 25,904
=========================
</TABLE>
18
<PAGE> 19
Bank Financing
In May 1994 the Company entered into a $40,000 Senior Secured credit
facility (the "Agreement") with a group of financial institution (lenders).
The Agreement consists of a $10,000 revolving line of credit, a $25,000 senior
term loan and a $5,000 refinancing facility for the 9 1/4% senior subordinated
notes. All borrowings under the agreement are secured by substantially all of
the assets of the Company.
Borrowings under the $10,000 revolving promissory note agreement bear
interest at the rate of prime plus 1% (8.75% at September 30, 1994) and expires
on March 31, 1997.
Borrowings under the senior term loan bear interest at the rate of
LIBOR plus 3.0% (8.00% at September 30, 1994) and are due in quarterly
installments of principal plus accrued interest through March 31, 1999.
Additionally, the Company is required to repay principal outstanding under the
Agreement equal to 75% of excess cash flow (as defined in the Agreement)
annually each December 30 over the term of the Agreement. Based on the
Company's operating results in fiscal 1994, no payment will be required.
The $5,000 refinancing facility is to be used for retirement of the
9-1/4% Senior Subordinated Notes. Due to the non-compliance with financial
covenants as of September 30, 1994, the lenders have temporarily suspended this
facility. The lenders, in their sole and absolute discretion, can reinstate
this facility.
The Agreement includes covenants relating to the financial performance
of the Company including (as defined in the Agreement): required current
ratios; minimum quarterly debt service and interest coverage ratios; maximum
consolidated leverage ratios; required domestic to foreign asset ratios; and
required quarterly net profitability amounts. At September 30, 1994, the
Company was not in compliance with a number of the covenants and was required
to obtain an agreement from its lenders to waive such covenants for the period
ended September 30, 1994. See Note O -- Transactions with Related Parties.
Although there can be no assurance that management has accurately assessed the
effect of the indefinite suspension of the major supplier's reduced
specification program or the addition of new IC suppliers, management of the
Company believes it will be in compliance with bank covenants beginning in the
quarter ending December 31, 1994.
7% Subordinated Convertible Promissory Notes
In connection with the acquisition of Micro-C, the Company issued the
7% Notes to the sellers aggregating approximately $7,379. On December 27,
1994, the Company was awarded $3,507 in damages in connection with an
indemnification claim, which was recorded as a reduction of the original
principal amount of the 7% Notes to $3,872. See Note M -- Commitments and
Contingencies. Interest on the 7% Notes is payable on March 31 and September
30 of each year beginning March 31, 1993 through maturity. The principal
balance of the 7% Notes is due in equal installments on September 30, 1995,
1996 and 1997. The 7% Notes are convertible into shares of the Company's
common stock at a rate of $11.20 per share, subject to certain adjustments as
defined in the note agreements.
9-1/4% Senior Subordinated Notes
Notes in the amount of approximately $9,251 were issued in conjunction
with an exchange offer in 1989. The principal amount of the 9- 1/4% Notes are
due in November 1996. The 9-1/4% Notes are shown net of unamortized discount
of approximately $543 and $752 at September 30, 1994 and 1993, respectively.
19
<PAGE> 20
7-3/4% Convertible Subordinated Debentures
The 7-3/4% Convertible Subordinated Debentures mature April 15, 2001
(the "Convertible Debentures") and are shown net of unamortized discount of
approximately $178 and $201 at September 30, 1994 and 1993, respectively. The
Company is required to make partial sinking fund payments of approximately $117
and $2,516 in 1999 and 2000, respectively. The Convertible Debentures are
convertible into Common Stock of the Company at a conversion price, subject to
adjustment in certain instances, of $11.66 per share, and are redeemable at the
option of the Company at face value plus accrued interest thereon.
Other Long-term Debt
Additional long-term debt consists primarily of capital lease
obligations secured by equipment with interest rates of 8.9% due in monthly
installments through March 1997.
Aggregate maturities of long-term debt for the fiscal years ending
September 30 are as follows: 1995 - $5,622, 1996 - $14,650, 1997 - $15,616,
1998 - $6,009, 1999 - $3,120, and thereafter - $10,156.
Short term Debt
At September 30, 1993, the Company had a note payable under a
revolving line of credit agreement with a financial institution which was
secured by substantially all the assets of Micro-C. The note bore interest at
the institution's reference rate plus 1.5% (7.5% at September 30, 1993). At
September 30, 1993, the Company had $3,171 outstanding under the line of
credit. The Company repaid all amounts outstanding under the line of credit
agreement in May 1994.
At September 30, 1993, FRS had notes payable under a term loan and a
revolving line of credit with a financial institution. These notes were
secured by substantially all the assets of FRS. The notes bore interest at the
institution's reference rate plus 2% and 1%, respectively (8.0% and 7.0%,
respectively at September 30, 1993). At September 30, 1993, the Company had
approximately $1,600 outstanding under the term loan and line of credit. The
Company repaid the term loan and line of credit in October 1993.
20
<PAGE> 21
NOTE H - INCOME TAXES
The provision (benefit) for income taxes for the years ended September
30, 1994 and 1993, and the nine months ended September 30, 1992 consists of the
following:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30
1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current provision - Federal $ -- $ 1,334 $ 3,964
- State -- 312 --
------------------------------------------
Total current provision -- 1,646 3,964
------------------------------------------
Deferred provision (benefit):
Net operating loss generated (2,639) -- --
Net reversal of non-deductible accruals and reserves 1,935 -- --
Prepaid expenses and deferred charges currently deducted
for tax purposes -- -- 34
Reserve method for allowance for doubtful accounts (174) -- 43
Write-down of investment not currently deductible -- -- (3,465)
Depreciation (623) -- (11)
Deferred benefit not currently recognized 1,501 -- 1,700
Other -- (94) (69)
------------------------------------------
Total deferred provision (benefit) -- (94) (1,768)
------------------------------------------
Total federal income tax provision exclusive of
discontinued operations and extraordinary item $ -- $ 1,552 $ 2,196
==========================================
</TABLE>
The provision (benefit) for income taxes in the accompanying
consolidated statements of operations differs from the amount of tax based on
the statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30
1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Provision (benefits) for income taxes at statutory rate $ (1,400) $ 1,410 $ 138
Nondeductible expenses 331 198 50
Deferred benefit not currently recognized 1,501 - 1,700
Payments for RAR assessments - - 330
State taxes, net of Federal benefit (253) 203 -
FSC benefit (75) (126) -
Reversal of Riddell book gain - (62) -
Other (104) (71) (22)
-----------------------------------------
Total provision for income taxes $ - $1,552 $ 2,196
=========================================
</TABLE>
21
<PAGE> 22
The components of the Company's deferred income tax benefit
(liability) as of September 30, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
1994 1993
<S> <C> <C>
Reserves for discontinued operations $ 2,157 $ 2,255
Net operating loss carryforwards 6,064 3,425
Capital loss carryback 3,218 3,218
Allowance for doubtful accounts 419 154
Inventory reserves 204 386
Non-deductible accruals 1,588 2,124
Fixed asset reserves -- 410
Depreciation 628 5
Valuation allowance (9,240) (6,939)
---------------------------
$ 5,038 $ 5,038
===========================
</TABLE>
At September 30, 1994, the Company had tax basis NOLs of approximately
$16,800 available to offset future ordinary taxable income. These
carryforwards begin to expire during 2007. The income tax benefit related to
these NOLs, as well as to certain reserves recorded by the Company, have been
reflected in the deferred income tax asset accounts to the extent they are
considered realizable.
During the nine months ended September 30, 1992, the Company utilized
its entire NOLs of approximately $2,800 and reflected the related tax benefit
of $952 as an extraordinary credit in the accompanying consolidated statement
of operations for the nine months ended September 30, 1992. The NOLs were
primarily from losses relating to discontinued operations recognized for
financial reporting purposes in prior years for which no tax benefit was
recorded.
With the adoption of FAS No. 109 in 1993, the Company recorded income
and a deferred tax asset equal to the cumulative effect of the accounting
change of $2,734. In order to fully realize the deferred tax asset, the
Company will need to generate future taxable income of approximately $37,000
prior to the expiration of the NOLs which begin to expire in 2007. Based on
the historical and current pre-tax earnings of the Company's continuing
operations, management believes it is more likely than not that the Company
will realize the benefit of the NOLs existing at September 30, 1994, before the
net operating loss carryforwards begin to expire in 2007. Further, management
believes the existing net deductible temporary differences will reverse during
periods in which the Company generates net taxable income. There can be no
assurance, however, that the Company will generate any earnings or any specific
level of continuing earnings.
A valuation allowance is provided against the deferred tax asset when
it is more likely than not that some portion of the deferred tax asset will not
be realized. The Company has established a valuation allowance for the portion
of the deferred tax asset which is not likely to be realized within
approximately the next fiscal year based on management's best estimate of
results of operations for that upcoming period. As a result, no net income tax
benefit was recorded in fiscal 1994.
NOTE I - STOCKHOLDERS' EQUITY
Common Stock
The Company has 1,000 shares of authorized $.01 par value preferred
stock with none issued or outstanding. The Company has 14,000 shares of
authorized $.03 par value Common Stock with approximately 8,020 shares issued
and approximately 7,382 shares outstanding (7,083 at September 30, 1993).
22
<PAGE> 23
During fiscal 1993, the Company effected a five for four stock split
in the form of a stock dividend. The stock split was retroactively reflected
in the accompanying consolidated financial statements and footnotes.
Warrants
In connection with the $40,000 Senior Secured Credit Facility
discussed in Note G -- Long-Term Debt, the Company issued Warrants to the
Lenders to acquire 190 shares of Common Stock at $7.88 per share (the fair
market value at the date of issuance). In the event the Company issues common
shares in the future in connection with (i) the conversion of the 7% Notes;
(ii) contingent shares in connection with the CCM acquisition; or (iii) the
conversion of the 7-3/4% Convertible Subordinated Debentures, the Lenders would
be entitled to Warrants equal to 1- 1/4% of such common shares issued at $7.88
per share. (See Note M -- Commitments and Contingencies - Contingent Lender
Warrants and Note P -- Subsequent Event.)
In March 1993, the Company completed a Warrant call. As a result of
the Warrant call, approximately 904 Warrants were exercised resulting in the
issuance of approximately 904 shares of the Company's Common Stock. In
addition, 194 treasury shares were issued due to the effect of the five for
four stock split. As a result of the Warrant call, the Company received net
cash proceeds of approximately $9,424. For Warrants previously issued to
officers and directors, see Note O -- Transactions with Related Parties.
NOTE J - EMPLOYEE STOCK AND SAVINGS PLANS
Employee stock purchase plan. Effective October 1, 1994, the Company
established an employee stock purchase plan for all eligible employees. The
employee stock purchase plan is subject to shareholder approval at the
Company's next annual meeting. Under the plan, shares of the Company's common
stock may be purchased at three-month intervals at 85% of the lower of the fair
market value on the first or the last day of each three-month period.
Employees may purchase shares having a value not exceeding 15% of their gross
compensation during an offering period. At October 1, 1994, 350 shares were
reserved for future issuance.
Savings plan. The Company has a savings plan, which qualifies under
Section 401(k) of the Internal Revenue Code. Under the plan, participating
U.S. employees may defer up to 15% of their pretax salary, but not more than
statutory limits. The Company contributes a discretionary amount, set by the
Board of Directors, for each dollar contributed by a participant, with a
maximum of 6% of participant earnings. The Company's matching contribution to
the savings plan was $161, $50 and $23 for the years ended September 30, 1994,
1993 and the nine months ended September 30, 1992, respectively.
Stock option plan. The Company has a stock option plan for directors,
officers, and key employees which provides for incentive and nonqualified stock
options. A committee comprised of disinterested directors determines the
option price (not less than the fair market value of the stock at the date of
grant.) The options generally expire ten years from the date of grant and vest
over five years. As of September 30, 1994, options for 674 shares were issued
and 476 shares were available for future grants under the plan. Options for 294
shares were issued outside the Stock Option Plan.
23
<PAGE> 24
<TABLE>
<CAPTION>
Outstanding Options
- ------------------------------------------------------------------------------------------------------------
SHARES RANGE OF OPTION PRICES
---------------------------------------
<S> <C> <C>
Outstanding at December 31, 1991 556,077 $4.10 - 6.60
Granted - -
Exercised (131,661) 4.10 - 5.40
Forfeited (15,944) 5.00 - 6.60
-----------------------------------
Outstanding at September 30, 1992 408,472 4.10 - 6.60
Granted 585,150 6.40 -11.80
Exercised (408,472) 4.10 - 6.60
Forfeited - -
-----------------------------------
Outstanding at September 30, 1993 585,150 6.40 -11.75
Granted 487,200 7.00 - 8.13
Exercised (5,160) 7.00 - 7.50
Forfeited (99,440) 7.00 - 8.13
-----------------------------------
Outstanding at September 30, 1994 967,750 $6.40 -11.75
===================================
</TABLE>
NOTE K - INCOME FROM INVESTMENTS AND UNCONSOLIDATED AFFILIATE
Income from investments and unconsolidated affiliate is comprised of
the following (amounts in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gain on disposition of investment in SSG $ -- $ -- $11,371
Write-down of cost basis in Riddell common stock -- -- (9,662)
Gain on assignment of MacGregor license to SSG -- -- 450
Gain on sale of marketable securities -- 54 493
Interest income on SSG note receivable -- -- 603
-----------------------------------------
Total $ -- $ 54 $ 3,255
=========================================
</TABLE>
NOTE L - FAIR VALUE INFORMATION
The following disclosure of the estimated fair value of financial
instruments at September 30, 1994 and 1993 is made in accordance with the
requirements of SFAS No. 107 "disclosures about Fair Value of Financial
Instruments." The estimated fair value amounts have been determined by the
Company using available market information and appropriate valuation
methodologies. However, considerable judgment is required in interpreting
market data to develop estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts that the Company
could realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.
The carrying amounts of cash and cash equivalents, short - term
investments, trade receivables, and accounts payable are a reasonable estimate
of their fair value. The carrying amount of long - term debt approximates fair
value because the obligations either bear interest at floating rates, or
compare favorably with fixed rate obligations that would be available to the
Company.
24
<PAGE> 25
The fair value information presented herein is based on pertinent
information available to management as of September 30, 1994. Although
management is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
re-valued for purposes of these consolidated financial statements since that
date, and current estimates of fair value may differ significantly form the
amounts presented herein.
NOTE M - COMMITMENTS AND CONTINGENCIES
Operating leases
The Company leases office, processing and warehousing facilities under
various operating leases through 2000. Future minimum lease payments under
non-cancelable operating leases with remaining terms in excess of one year for
the fiscal year ending September 30 are as follows: 1995 - $1,361; 1996 -
$1,199; 1997 - $1,094; 1998 - $1,030; 1999 - $740; thereafter - $408. Rent
expense was approximately $1,393, $313, and $34 for the periods ended September
30, 1994, 1993 and 1992, respectively.
Discontinued operations
In conjunction with the sale of MHI Liquidation, Inc. and AA
Liquidation Corp. on September 23, 1991, the Company remains liable for (i)
certain then existing lawsuits in which the Company and/or MHI Liquidation and
AA Liquidation are named defendants relating to football helmets allegedly
involved in causing injury; and (ii) any liabilities resulting from certain
claims, lawsuits or proceedings instituted before September 23, 1994 that
relate to a claimant's alleged use of a helmet manufactured or reconditioned
under certain circumstances by MHI Liquidation, Inc. or AA Liquidation Corp.
As a result, the Company has obtained a three-year products liability insurance
policy specifically to cover any products liability claims that the Company
remains liable for, as previously explained, in connection with its former
operation of the Protective Equipment Division. Such policy is limited to
$1,000 per occurrence with a $250 deductible and $2,000 in the aggregate, per
year. As of September 30, 1994 the Company has one outstanding lawsuits
relating to a football helmet accident. In connection with this lawsuit, it is
not possible at this time to estimate the amount of a judgment, if any, that
the claimant would receive. However, management believes, based on historical
settlements of helmet liability cases, that insurance coverage is adequate to
cover such loss. In the opinion of the Company's management, any ultimate
liability arising out of currently pending claims and lawsuits will not have a
material adverse effect on the Company's results of operations or financial
condition.
The Company is subject to a non-cancelable building lease though 2005.
Management is pursuing various alternatives which would terminate this
obligation prior to the expiration of the lease and has recorded a reserve
which contemplates termination prior to the end of 1996. In estimating the
reserve management has considered operating costs, two years of lease payments,
an early termination payment and sublease rental income. However, additional
reserves may be needed in the event management is not able to successfully
negotiate an early termination of the lease prior to 1997.
The U.S. Internal Revenue Service ("IRS") examinations of the federal
income tax returns for the years 1986 through 1991 resulted in the issuance of
a deficiency notice. Based on the IRS's most recent offer to settle, the
Company would be required to pay additional taxes and interest of approximately
$600 and the net operating loss carryforward would be reduced by $2,200. The
Company is vigorously contesting this matter and management believes the amount
accrued is adequate.
Pursuant to a Tax Indemnity Agreement entered into between the Company
and SSG in connection with the SSG Public Offering, the Company agreed to
indemnify SSG against certain consolidated income tax liabilities of the
Company incurred prior to the SSG Public Offering. The Company does not believe
that amounts paid, if any, pursuant to these agreements will have a material
effect on the results of operations and financial condition of the Company.
25
<PAGE> 26
Settlement of Class Action Complaint
In the fourth quarter of fiscal 1994, the Company recorded a charge to
operations in the amount of $1,693 to reflect a preliminary agreement to settle
a securities class action complaint against the Company. The settlement
requires the Company to issue $1,250 of common stock valued at fair market
value at the time of issuance and $250 in cash. The balance of the settlement
of $1,500 will be funded by the Company's insurer. In addition, legal fees
incurred during the year of $193 relating to this complaint were included in
the charge to operations. The settlement is subject to mutually agreeable
settlement documents and court approvals.
Indemnification Claim
In accordance with the stock purchase agreement relating to the
Micro-C acquisition, the Company and the former owners of Micro-C (who
currently beneficially own directly and indirectly, through ownership of the
convertible 7% Notes, 9.7% of the Company's Common Stock), submitted to
arbitration a dispute concerning a claim by the Company against the former
owners for indemnification under the stock purchase agreement. On December 27,
1994, the arbitrator awarded the Company $3,507 in damages, a portion of the
interest previously paid on the 7% Notes and attorneys fees and costs. The
final resolution is subject to a future hearing, however, the Company has
recorded the $3,507 damages portion of the arbitration award as a reduction in
the principal balance of the 7% Notes and a corresponding reduction in cost in
goodwill, net of expenses of $500.
Contingent Lender Warrants
The Lenders are entitled to additional Warrants (Contingent Lender
Warrants) calculated by dividing the balance of the outstanding principal and
accrued interest on the 7% Subordinated Convertible Promissory Notes ("7%
Notes") on March 31, 1995 by 50% of the fair market value of the Company's
Common Stock on March 31, 1995 (the exercise price). However, upon the
occurrence of any of the following events prior to March 31, 1995, these
Warrants shall be null and void: (i) the 7% Notes are restructured to extend
the first principal payment beyond October 1, 1999; (ii) the 7% Notes are
converted to Common Stock; or (iii) payment of the 7% Notes with proceeds of a
Common Stock offering or subordinated debt with no principal payments prior to
October 1, 1999.
As discussed in Note G -- Long-Term Debt, the 7% Notes were reduced
from $7,379 to $3,872 based on a binding arbitration ruling. Management is
pursuing all options available to avoid issuing the Contingent Lender Warrants
and believes that they will be able to accomplish one of these events to render
these Warrants null and void. However, should the Company be unable to achieve
one of the events noted above, it would result in a non-cash charge to
operations during the six month period end March 31, 1995 for the amount of the
principal and accrued interest on the 7% Notes at that date ($4,130 as of
September 30, 1994).
NOTE N - EXPORT SALES AND MAJOR CUSTOMERS
Export sales to customers in foreign countries amounted to
approximately $15,600, $11,800 and $0 in fiscal 1994, 1993 and the nine months
ended September 30, 1992, respectively. Revenues from the Company's foreign
operations approximated $8,100 in 1994 and none in 1993 and 1992. No customer
accounted for 10 percent or more of sales in fiscal 1994. In fiscal 1993, the
Company's three major customers accounted for 18 percent, 17 percent and 10
percent of sales.
NOTE O - TRANSACTIONS WITH RELATED PARTIES
The Company's Chairman and Chief Executive Officer and President are
owners of Aurora Management, Inc. (Aurora Management"), a private capital firm
previously retained by the Company for consulting and investment banking
services. During fiscal 1992, the Company agreed to pay the owners of
26
<PAGE> 27
Aurora Management $355 in cash and issued to them warrants to purchase an
aggregate of 463 shares of the Company's Common Stock at a per share price of
$5.60 as compensation for certain consulting and investment banking services
rendered to the Company in connection with the acquisition of Micro-C and the
redemption of a certain note and preferred issued by Sport Supply Group, Inc.
Such warrants have a ten year term and were completely vested upon issuance.
On September 30, 1992, the Company issued warrants to purchase an aggregate of
237 shares of its Common Stock at a per share price of $6.40 to the owners of
Aurora Management and also agreed to pay Aurora Management a monthly fee of $15
(plus out of pocket expenses) for its engagement as a consultant and financial
advisor to the Company from time to time. The warrants issued pursuant to this
arrangement have a ten year term and vest only upon the occurrence of certain
specified "Liquidity Events." The first such Liquidity Event occurred on March
22, 1993 when a majority of holders of the Company's then outstanding public
warrants exercised such warrants. The occurrence of this Liquidity Event
resulted in the vesting of an aggregate installment of 100 shares (or 50 shares
each) of common stock underlying the warrants described in this note. The
second such Liquidity Event occurred on December 30, 1993 when the Company
issued certain earnout shares to the former owners of Micro-C in accordance
with a Stock Purchase Agreement dated September 30, 1992. The occurrence of
this second Liquidity Event resulted in the vesting of an aggregate installment
of 81 shares (or 41 shares each) of Common Stock underlying the Warrants. Any
such warrants that have not vested are subject to cancellation if they do not
vest by September 30, 1995. During fiscal 1993 and the first quarter of
fiscal 1994, the Company did not pay the Chairman and Chief Executive Officer
and the President salaries as they were not employees of the Company until
January 1, 1994. The Company paid Aurora Management $180 and $45 for
consulting and investment banking services for fiscal 1993 and the first
quarter of fiscal 1994, respectively. Additionally, the Company paid Aurora
Management $200 for services rendered in the acquisition of FRS in fiscal 1993
and $303 and $21 in fiscal 1993 and the first quarter of fiscal 1994,
respectively, for reimbursement of incurred expenses. The $200 was included as
part of the acquisition cost of FRS. Effective January 1, 1994, the Company's
Chairman and Chief Executive Officer and President became employees of the
Company.
NOTE P - SUBSEQUENT EVENT
Subsequent to year end, the Company exchanged its investment in the
common stock of Riddell for the common stock of SSG. The Company has made an
adequate provision as of September 30, 1994 to provide for the decline in
value since the exchange date. See the 5th paragraph of Item 7 -- Management's
Discussion and Analysis of Financial Condition and Results of Operation -
Liquidity and Capital Resources.
In connection with obtaining the waivers and amendments to covenants
under the Credit Agreement discussed in Note G -- Long-Term Debt, the Company
(i) paid the various lenders amounts totaling $100 in cash, (ii) reduced the
exercise price of approximately 190 warrants previously issued to the lender
from $7-5/8 to the fair market value at the time of the waiver and (iii)
granted the various lenders warrants to purchase and an additional 190 shares
of common stock at the fair market value. The terms of the additional warrants
issued to the lenders are identical to the terms of the warrants previously
issued to the lenders.
27
<PAGE> 28
SCHEDULE I
AURORA ELECTRONICS, INC. AND SUBSIDIARIES
MARKETABLE SECURITIES-OTHER INVESTMENTS
<TABLE>
<CAPTION>
Market Value of Balance Sheet
Each Share at Carrying Cost at
Number of Cost of each Respective Respective
Description Shares Share Year-End Year-End
--------- ------------ --------------- ----------------
<S> <C> <C> <C> <C>
September 30, 1994
Riddell Sports Inc., Common Stock 553,000 (1) 8 $ 2.12 1,171,000 (1)
September 30, 1993
Riddell Sports Inc., Common Stock 876,000 (1) 8 $ 3.125 2,496,000 (1)
</TABLE>
(1) Represents the carrying value of 799,000 shares as of September 30, 1993,
respectively. Effective June 30, 1994 and September 30, 1992, the
Company wrote down its historical investment in Riddell from $8 per share
to $2.12 and $3.125, respectively which reflected the market price on that
date. Excludes 77,000 shares with a carrying value of $240,000 as of
September 30,1993 which is included in other assets.
The carrying value of Riddell common stock was as follows:
<TABLE>
<CAPTION>
Balance sheet caption September 30, 1994 September 30, 1993
- ----------------------------------------------------------------------------------------- ---------------------------
Number of Number of
Shares Carrying Costs Shares Carrying Costs
--------- -------------- --------- --------------
<S> <C> <C> <C> <C>
Short-term investments 553,000 1,171,000 799,000 2,496,000
Net non-current assets of discontinued
operations - - 77,000 240,000
------- --------- ------- ---------
553,000 1,171,000 876,000 2,736,000
======= ========= ======= =========
</TABLE>
28
<PAGE> 29
SCHEDULE II
AURORA ELECTRONICS, INC. AND SUBSIDIARIES
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS AND
EMPLOYEES OTHER THAN RELATED PARTIES
<TABLE>
<CAPTION>
Balance at Balance at End of Period
beginning Amounts Amounts ------------------------
Name of Debtor of period Additions Collected Written Off Current Noncurrent
----------- --------- --------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
For the nine months ended September 30, 1992
Michael J. Blumenfeld (A) 264,000 $16,000 $280,000 $ - $ - $ -
</TABLE>
(A) In 1991, the Company had a promissory note due from the President and
Chairman of the Board of the Company. Interest payable at 8.5% and certain
real property were pledged to secure the loan. In lieu of extending this
agreement during 1992, the Company and Mr. Blumenfeld mutually agreed to
offset the amount due under this agreement at September 30, 1992 against
the amount due Mr. Blumenfeld in connection with his Employment Agreement.
29
<PAGE> 30
SCHEDULE VIII
AURORA ELECTRONICS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
------------------------------
Balance at Charged to Charged to
beginning of costs and other Balance at end
period expenses accounts Deductions of period
------------ ------------------------------ ---------- -------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED SEPTEMBER 30, 1994
Allowance for doubtful accounts $ 788,000 $ 205,000 $ 300,000 (3) $ 247,000 (1) $1,046,000
==========
Inventory reserves $ 882,000 $ 725,000 $ 363,000 (3) $1,313,000 $ 657,000
==========
Reserve for discontinued operations $5,166,000 $2,400,000 $ - $2,542,000 $5,024,000
==========
FOR THE YEAR ENDED SEPTEMBER 30, 1993
Allowance for doubtful accounts $ 875,000 $ 7,000 $ 231,000 (2) $ 325,000 (1) $ 788,000
==========
Inventory reserves $ 948,000 $1,259,000 $ 500,000 (2) $1,825,000 $ 882,000
==========
Reserve for discontinued operations $4,186,000 $2,234,000 $ 972,000 $2,226,000 $5,166,000
==========
</TABLE>
1 Uncollectible accounts written off, net of recoveries
2 FRS Acquisition
3 Century Acquisition
30
<PAGE> 31
SCHEDULE IX
AURORA ELECTRONICS, INC. AND SUBSIDIARIES
SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
Maximum Average Weighted
Weighted amount amount average
Average outstanding outstanding interest
Balance at end Interest during during rate during
Category of Aggregate Short-Term Borrowings of period Rate the period the period the period
- ------------------------------------------- -------------- --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED SEPTEMBER 30, 1994
Banks $ - 7.54% $ 3,171,438 $ 931,803 11.82%
FOR THE YEAR ENDED SEPTEMBER 30, 1993
Banks $ 4,777,438 7.82% $ 4,777,438 $ 629,034 5.08%
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1992
Banks $ 1,950,000 8.13% $ 1,950,000 $1,950,000 8.13%
Other $ 22,000 6.50% $ 125,000 $ 74,000 6.50%
</TABLE>
Other borrowings consisted primarily of a short-term loan to finance
certain annual insurance premium payments and financing of security
purchases. Weighted average interest rate and average amount
outstanding during the periods were determined based on the average
outstanding balances at each month-end. The weighted average interest
rate during the period was computed by dividing the actual interest
expense by average short-term debt outstanding.
31
<PAGE> 32
SCHEDULE X
AURORA ELECTRONICS, INC. AND SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
Charged to Cost and
Item Expenses
- -------------------------------------------------------------------------------------------------
<S> <C>
Year ended September 30, 1994
Amortization of intangible assets $ 4,539,000
===========
Year ended September 30, 1993
Amortization of intangible assets $ 1,284,000
===========
</TABLE>
Note: All other expense categories required by this
schedule are omitted because they are less 1% of revenue.
32
<PAGE> 33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this Amendment
#1 to this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: February 6, 1995
AURORA ELECTRONICS, INC.
By: /s/ John P. Grazer
-----------------------------------
John P. Grazer,
Chief Financial Officer and
Senior Vice President, Finance and
Administration (Principal
Accounting and Financial Officer)
33
<PAGE> 34
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibits Page
- ------- -------------------------------------------------------------- ----
<S> <C> <C>
3.1 The Restated Certificate of Incorporation of the Company, as --
amended (incorporated by reference from Exhibit 3.1 to the
Company's Transition Report on Form 10-K for the transition
period from December 31, 1991 to September 30, 1992).
3.2 Bylaws of the Company, as amended (incorporated by reference --
from Exhibit 4.2 to the Company's Registration
Statement on Form S-8 (Registration No. 33-79426).
4.1 Indenture between the Company and MBank Dallas, National --
Association relating to the Company's 7-3/4% Convertible
Subordinated Debentures due 2001, including form of Debenture
(incorporated by reference from Exhibit 4.1 to the Company's
Registration Statement on Form S-2 (Registration No.
33-4276)).
4.2 First Supplemental Indenture relating to the Company's 7-3/4% --
Convertible Subordinated Debentures, dated December 1, 1987,
between the Company and MTrust Corp., National Association,
appointing MTrust Corp. as successor trustee to MBank Dallas
(incorporated by reference from Exhibit 4.2 to the Company's
Annual Report on Form 10-K for the fiscal year ended September
30, 1993).
4.3 Tripartite Agreement relating to the Company's 7-3/4% --
Convertible Subordinated Debentures, dated as of January 7,
1990, by and among MTrust Corp., National Association,
Ameritrust Texas N.A., and the Company (incorporated by
reference from Exhibit 4.3 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1989).
4.4 Second Supplemental Indenture relating to the Company's 7-3/4% --
Convertible Subordinated Debentures, dated to be effective as
of November 30, 1992, between the Company and Society National
Bank (incorporated by reference from Exhibit 4.4 to the
Company's Post- Effective Amendment No. 1 to Registration
Statement on Form S-3 (No. 33-32377)).
4.5 Indenture, dated as of November 15, 1989, between the Company --
and Ameritrust Texas N.A. (formerly MTrust Corp., National
Association), relating to the Company's 9-1/4% Senior
subordinated Notes due 1996, including form of Note
(incorporated by reference from Exhibit (a) (1) to Schedule
13E-3 filed October 19, 1989).
</TABLE>
34
<PAGE> 35
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibits Page
- ------- -------------------------------------------------------------- ----
<S> <C> <C>
4.6 First Supplemental Indenture relating to the Company's 9-1/4% --
Senior Subordinated Notes due 1996, dated as of June 29,
1990, by and between Ameritrust Texas, N.A. and the Company
(incorporated by reference to Exhibit 4 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1990).
4.7 Agreement relating to the Company's 9-1/4% Senior --
Subordinated Notes due 1996, dated March 31, 1991, among the
Company, Ameritrust Texas N.A. and American Stock Transfer &
Trust Company (incorporated by reference from Exhibit 4 to
the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1991).
4.8 Second Supplemental Indenture relating to the Company's --
9-1/4% Senior Subordinated Notes due 1996, dated to be
effective as of November 30, 1992, between the Company and
American Stock Transfer & Trust Company (incorporated by
reference from Exhibit 4.8 to the Company's Post- Effective
Amendment No. 1 to Registration Statement on Form S-3 (No.
33-32377)).
4.9 Forms of Warrants to Messrs. Lahar and Cowart, two of which --
are dated August 8, 1992, and one of which is dated September
30, 1992 (incorporated by reference from Exhibit 10.17 to the
Company's Transition Report on Form 10-K for the transition
period from December 31, 1991 to September 30, 1992).
4.10 Common Stock Purchase Warrant (Paribas), Form of Warrant to --
Purchase 94,903 Shares of Common Stock of Aurora Electronics,
Inc., dated May 12, 1994, issued to each of Banque Paribas
and Banque Indosuez (incorporated by reference from Exhibit
4.2 to the Company's Report on Form 8-K dated May 26, 1994).
4.11 Common Stock Warrant (Lender) Banque Indosuez, Form of --
Warrant to Purchase Shares of Common Stock of Aurora
Electronics, Inc., dated May 12, 1994, issued to each of
Banque Paribas, Banque Indosuez and Union Bank (incorporated
by reference from Exhibit 4.3 to the Company's Report on Form
8-K dated May 26, 1994).
10.1 Aurora Electronics, Inc. 1993 Stock Option Plan, as amended --
by Amendment No. 1 dated to be effective as of March 1, 1994
and by Amendment No. 2 dated to be effective as of March 1,
1994 (incorporated by reference from Exhibit 4.3 to the
Company's Registration Statement on Form S-8 (Registration
No. 33-79426)).
</TABLE>
35
<PAGE> 36
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibits Page
- ------- -------------------------------------------------------------- ----
<S> <C> <C>
10.2 Form of Indemnification Agreement entered into between the --
Company and each of the directors of the Company
(incorporated by reference from Exhibit 10.3 to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1991).
10.3 Letter Agreement, dated August 5, 1993, between the Company --
and Robert G. Allison relating to employment (incorporated by
reference from Exhibit 10.3 to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1993).
10.4 Letter Agreement, dated March 19, 1993, between the Company --
and John P. Grazer relating to employment (incorporated by
reference from Exhibit 10.4 to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1993).
10.5 Letter Agreement, dated March 1, 1994, between the Company --
and Jim C. Cowart relating to employment.
10.6 Letter Agreement, dated March 1, 1994, between the Company --
and David A. Lahar relating to employment.
10.7 Standard Multi-Tenant Net Lease, dated November 3, 1992, by --
and between Sorrento Mesa Properties, Inc. and Micro-C
Corporation (now Aurora Electronics Group, Inc.)
(incorporated by reference from Exhibit 10.7 to the Company's
Annual Report on Form 10-K for the fiscal year ended
September 30, 1993).
10.8 Standard Industrial Lease - Net, dated March 27, 1984, by and --
between Northgate Investment Company (now David Pick) and
Repair Services, Inc. (now Aurora Electronics Group, Inc.)
(incorporated by reference from Exhibit 10.8 to the Company's
Annual Report on Form 10-K for the fiscal year ended
September 30, 1993).
10.9 Standard Industrial / Commercial Single Tenant Lease - Net --
dated November 30, 1994, by and between The Equitable Life
Assurance Society of the United States and Aurora Electronics
Group, Inc.
10.10 Standard Lease Agreement dated October 27, 1992, by and --
between Crow-Brindell-Mitchell and Aurora Electronics Group,
Inc. as Assignee of CCB Computer Brokers, Inc. d/b/a Century
Computer Services, Inc.
10.11 Lease Agreement Shelby Distribution Center dated November 11, --
1994 by and between J. Shea Leatherman, William A.
Leatherman, Jr., Irwin L. Zanone and Aurora Electronics
Group, Inc.
</TABLE>
36
<PAGE> 37
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibits Page
- ------- -------------------------------------------------------------- ----
<S> <C> <C>
10.12 Lease dated July 14, 1988, by and between American National --
Bank and Trust Company of Chicago and BSN Corp. (now Aurora
Electronics, Inc.)
10.13 Form of Tax Indemnity Agreement by and between the Company --
and SSG (incorporated by reference from Exhibit 10.9 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1991).
10.14 Stock Purchase Agreement, dated as of September 30, 1992, by --
and among the Company, Robert E. Morris and Norma J. Morris,
Trustees of the Robert and Norma Morris Family Trust and The
Robert and Norma Morris Charitable Remainder Unitrust
(incorporated by reference from Exhibit 2.1 to Form 8-K filed
on October 19, 1992).
10.15 Merger Agreement and Plan of Reorganization, dated September --
12, 1993, by and between the Company and FRS, Inc.
(incorporated by reference from Exhibit 2.1 to the Company's
Current Report on Form 8-K, dated October 15, 1993).
10.16 Asset Purchase Agreement, dated March 15, 1994 to be --
effective as of March 1, 1994, as amended, by and among the
Company, Aurora Electronics Group, Inc. and CCB Computer
Brokers, Inc. and CCM Computers International, Ltd.
(incorporated by reference from Exhibit (b)(1) to the
Company' Quarterly Report on Form 10-Q for the quarter ended
March 31, 1994).
10.17 Senior Secured Credit Agreement dated as of May 12, 1994, by --
and among Aurora Electronics Group, Inc., Banque Paribas,
Banque Indosuez, Union Bank and Banque Paribas, as Agent
(incorporated by reference from Exhibit 4.1 to the Company's
Report on Form 8-K dated May 26, 1994).
10.17.1 First Amendment to Senior Secured Credit Agreement and First --
Amendment to Guaranty dated as of December 27, 1994, by and
among Aurora Electronics Group, Inc., Aurora Electronics,
Inc., Banque Paribas as Agent on behalf of itself, Banque
Indosuez and Union Bank.
10.18 Aurora Electronics, Inc. 401-K Plan (incorporated by --
reference from Exhibit 10.13 to the Company's Annual Report
on Form 10-K for the fiscal year ended September 30, 1993).
11 Computation of Earnings Per Share --
</TABLE>
37
<PAGE> 38
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibits Page
------ ---------------------------------------------------------------- ----
<S> <C> <C>
21.1 Subsidiaries of the Company:
JURISDICTION
NAME OF INCORPORATION
------------------------------- ----------------
Aurora Electronics Group, Inc. California
Aurora Electronics Limited United Kingdom
Micro-C (Barbados) Ltd. Barbados
*23.1 Consent of Arthur Andersen LLP 39
</TABLE>
- --------------------
*Filed herewith.
38
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report included in this amended Form 10-K/A, into the
Company's previously filed Registration Statements on Form S-8 File No.
33-62102, Form S-8 File No. 33-62104, Form S-8 File No. 33-79426 and Form S-3
File No. 33-73758.
Orange County, California
February 1, 1995
ARTHUR ANDERSEN LLP
39
