<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
___________________________
FORM 10-Q/A
AMENDMENT #2
(MARK ONE)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____.
Commission File Number: 0-9725
AURORA ELECTRONICS, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 75-1539534
----------------------------------------- -----------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2030 Main Street, Suite 1120
Irvine, California 92714
----------------------------------------- -----------------------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (714) 660-1232.
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months ( or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [x] No [ ]
Indicated below is the number of shares outstanding of each class of the
registrant's common stock, as of May 10, 1994.
<TABLE>
<S> <C>
Title of Each Class of Common Stock Number Outstanding
----------------------------------------- -----------------------------------------
Common Stock, $0.03 par value 7,114,806 shares
</TABLE>
Page 1 of 12 sequentially numbered pages.
No Exhibits.
<PAGE> 2
THIS AMENDMENT #2 AMENDS ITEMS 1 AND 2 OF PART I OF THE FORM 10-Q OF AURORA
ELECTRONICS, INC. FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1994.
<TABLE>
<CAPTION>
INDEX
<S> <C> <C>
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2.
Management's Discussion and Analysis of Financial 9
Condition and Results of Operations
Signatures 12
</TABLE>
2
<PAGE> 3
AURORA ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, September 30,
1994 1993
--------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,948 $ 16,201
Short-term investments 1,583 2,496
Trade receivables, less allowance for doubtful accounts
of $737 and $788, respectively 16,736 8,371
Inventories 8,204 5,954
Deferred income taxes 2,496 1,082
Other current assets 1,174 907
-------- -------
Total current assets 38,141 35,011
Property, plant and equipment, net 6,316 4,108
Cost in excess of tangible net assets acquired, net of
accumulated amortization of $876 and $484, respectively 62,104 29,408
Non-compete agreement, net of accumulated
amortization of $1,200 and $800, respectively 2,800 3,200
Deferred income taxes 2,901 2,901
Net noncurrent assets of discontinued operations 1,745 1,701
Other assets 3,140 528
-------- -------
Total assets $117,147 $76,857
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 9,332 8,229
Short-term debt and current portion of long-term debt 15,440 4,777
Reserve for discontinued operations 5,773 5,166
Accrued acquisition expenses 2,446 3,725
Accrued interest 865 720
Other current liabilities 2,363 1,681
------- -------
Total current liabilities 36,219 24,298
------- -------
Long -term debt (See note H) 21,687 -
9-1/4% Senior subordinated notes 8,377 8,276
7-3/4% Convertible subordinated debentures 10,261 10,249
7% Subordinated convertible promissory notes 7,379 7,379
------- -------
Total liabilities 83,923 50,202
------- -------
Commitments and contingencies
Stockholders' equity:
Common stock, 8,000 and 7,744 shares issued, respectively 242 232
Preferred stock, 1,000 authorized, none issued - -
Additional paid-in capital 60,031 55,260
Accumulated deficit (21,207) (22,683)
Foreign currency translation (22) -
Treasury stock, at cost, 632 shares and 661 shares,
respectively (5,820) (6,154)
-------- -------
Total stockholders' equity 33,224 26,655
-------- -------
Total liabilities and stockholders' equity $117,147 $76,857
======== =======
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
AURORA ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE FIGURES)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Six months ended
March 31, March 31,
------------------- ------------------
1994 1993 1994 1993
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net revenues $31,002 $15,201 $52,250 $29,409
Cost of sales 24,581 11,426 41,725 22,400
------- ------- ------- -------
Gross profit 6,421 3,775 10,525 7,009
Selling, general and administrative
expenses 4,122 1,437 6,391 2,666
Program development costs 398 - 631 -
------- ------- ------- -------
Operating income 1,901 2,338 3,503 4,343
Interest expense (761) (470) (1,317) (870)
Income from investments - (60) 17 42
Other income, net 57 301 138 304
------- ------- ------- -------
Earnings before provision for income
taxes 1,197 2,109 2,341 3,819
Provision for income taxes 406 769 842 1,358
------- ------- ------- -------
Net income 791 1,340 1,499 2,461
======= ======= ======= =======
Earnings per share of common stock:
Primary $ 0.11 $ 0.22 $ 0.20 $ 0.44
======= ======= ======= =======
Weighted average number of common and
common equivalent shares:
Primary 7,414 5,983 7,376 5,621
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
AURORA ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
For the six months ended
March 31,
------------------------
1994 1993
-------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,499 $ 2,461
Adjustments to reconcile net income to
net cash flows from operating activities:
Foreign currency translation (22) -
Depreciation and amortization 1,406 682
Gain on sale of securities (17) -
Gain from investments and unconsolidated affiliates - (43)
Change in assets & liabilities, net of acquisition:
Accounts receivable, inventories and other current
assets (2,151) (2,196)
Accounts payable and accrued liabilities (4,127) (3,808)
Accrued interest and income taxes receivable/payable - 1,787
Other assets 87 (4,133)
Deferred income taxes (1,229) 1,110
Other 89 -
------- -------
Net cash flows from continuing operations (4,465) (4,140)
Net cash flows from discontinued operations 402 1,397
------- -------
Net cash flows from operating activities (4,063) (2,743)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (1,991) (763)
Proceeds from sales of marketable securities 481 3,144
------- -------
Net cash flows from investing activities (1,510) 2,381
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on debt - (2,054)
Exercise of stock options - 1,842
Exercise of common stock purchase warrants - 9,463
Purchases of treasury stock (225) (123)
Repayment of advances under lines of credit (2,455) -
------- -------
Net cash flows from financing activities (2,680) 9,128
------- -------
Net change in cash and cash equivalents (8,253) 8,766
Cash and cash equivalents at beginning of period 16,201 7,855
------- -------
Cash and cash equivalents at end of period $ 7,948 $16,621
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
AURORA ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A. BASIS OF PRESENTATION
The consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. However, the Company believes that the
disclosures are adequate to make the information presented not misleading.
These unaudited consolidated financial statements should be read in conjunction
with the financial statements and the notes thereto included in the Company's
annual report on Form 10-K for the year ended September 30, 1993.
The accompanying unaudited consolidated financial statements include
the accounts of Aurora Electronics, Inc. and all of its subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation. Certain operating segments that have been sold and segments for
which a plan of disposal had been adopted as of September 30, 1992 have been
reported as discontinued operations. Investments in affiliated companies are
included based upon the equity or cost methods of accounting, as appropriate.
The Company is restating its financial information to primarily
reflect the write-off of previously capitalized costs.
NOTE B. PURCHASE OF CENTURY COMPUTER MARKETING ("CENTURY")
Effective March 1, 1994, the Company acquired substantially all of
the assets and liabilities of Century Computer Marketing. 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
new five year $25 million bank term loan facility and internally generated
cash.
The acquisition was accounted for under the purchase method and
therefore the results of operations of Century were included in the Company's
Consolidated Financial Statements beginning March 1, 1994.
6
<PAGE> 7
The unaudited pro forma results of operation of the Company for the
three months and the six months ended March 31, 1994, respectively (in
thousands, except per share amounts) assuming the above acquisition had
occurred at the beginning of each period, are summarized below:
<TABLE>
<CAPTION>
Three months ended Six months ended
March 31, 1994 March 31, 1994
------------------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C>
Net revenues $37,995 $69,926
Net income 982 1,954
Earnings per share of common stock
Primary $0.12 $0.25
Fully diluted $0.13 $0.25
</TABLE>
NOTE C. EARNINGS PER SHARE OF COMMON STOCK
Earnings per share of common stock is based upon the weighted average
number of common and common equivalent shares outstanding during the periods.
Outstanding stock options and warrants are treated under the treasury stock
method as common stock equivalents when dilution results from their assumed
exercise. The Company's 7-3/4% Convertible Subordinated Debentures due April
15, 2001 and 7% Subordinated Convertible Promissory Notes due September 30,
1997 were not common stock equivalents at the time of issuance and are
therefore not included in the calculation of primary earnings per share. Fully
diluted earnings per share is computed as if the 7-3/4% Convertible
Subordinated Debentures and the 7% Subordinated Convertible Promissory Notes
were converted into common stock at the beginning of the period after giving
retroactive effect to the elimination of interest expense, net of income tax
effect, applicable to these convertible instruments.
NOTE D. CONTINGENT PURCHASE PRICE CONSIDERATION
Pursuant to the terms of the purchase agreement for the acquisition of
Micro-C Corporation ("Micro-C"), the Company was required to pay certain
additional consideration based upon Micro-C's operating results and revenue for
each year beginning September 30, 1993 for a three-year period. As a result of
actual operating results achieved by Micro-C during the year, the Company
issued 60,820 shares of common stock on December 31, 1993.
NOTE E. INVENTORIES
Inventories at March 31, 1994, and September 30, 1993 include
material, labor and overhead and consist of the following (amounts in
thousands):
<TABLE>
<CAPTION>
MARCH 31, 1994 SEPTEMBER 30, 1993
-------------- ------------------
<S> <C> <C>
Raw materials $1,333 $1,355
Work in process 934 2,349
Finished goods and purchased product 5,937 2,250
------ -------
$8,204 $5,954
====== ======
</TABLE>
7
<PAGE> 8
NOTE F. CONCENTRATION OF SUPPLY
During the three and six months ended March 31, 1994, the Company
derived approximately 55% of its revenue from material received from one
client. This compares to 66% and 72% for the three and six months ended March
31, 1993. Although the Company was able to obtain in total, an acceptable
supply of materials from its clients, there can be no assurance that the
Company will be able to secure a continued supply in the future. If the
Company's major client substantially reduces, terminates, suspends, or delays
its shipments to the Company in the near term, there could be a substantial
negative effect on the Company's business and results of operations.
NOTE G. COMMITMENTS AND CONTINGENCIES
In June 1993, complaints were filed by four of the Company's
shareholders with the United States District Court for the Central District of
California against the Company, and certain of its present and former officers
and directors. Each complaint alleges claims under the federal securities law
relating to the Company's alleged failure to adequately disclose certain
information with respect to the supply of ICs to Micro-C. Each complaint
requests that the Court certify a class of plaintiffs consisting of persons who
purchased shares of the Company's common stock during a specified period. None
of the complaints specify an amount of damages sought. Management believes the
Company's disclosures have been full and adequate and intends to vigorously
defend against such actions.
NOTE H. SUBSEQUENT EVENT
The Company entered into a $40,000,000 Senior Secured Financing
facility on May 12, 1994. This facility was comprised of the $25,000,000 term
loan to finance the acquisition of Century, a $10,000,000 replacement for the
Company's existing revolving line of credit, and a $5,000,000 senior
refinancing facility for the retirement of the 9 1/4 % Subordinated Debt on
scheduled maturity.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1994 AS COMPARED TO THE THREE MONTHS ENDED
MARCH 31, 1993
The Company is restating its financial information and results of
operations as of March 31, 1994 and for the three months and six months then
ended, primarily to reflect the write-off of program development costs
previously capitalized. The restatement resulted in net income decreasing
$257,000, or 24.5% and $396,000, or 20.9% for the three and six months ended
March 31, 1994, respectively, from a previously reported net income of
$1,048,000 and $1,895,000 for the same comparable period. The restatement
resulted in a primary earnings per share decrease of $.03 and $.06 per share
for the three and six months ended March 31, 1994, respectively.
Net revenues for the three months ended March 31, 1994 were
$31,002,000 as compared to $15,201,000 in net revenue for the three months
ended March 31, 1993. This increase in revenue was partially due to the
addition of the business of FRS of approximately $5,782,000, the acquisition of
Century of approximately $4,865,000 and the continued growth of the service and
product line offerings of the Company, along with the diversification of its
client base.
Gross profit for the three months ended March 31, 1994 was $6,421,000
(20.7% of net revenue) as compared to $3,775,000 in gross profit for the three
months ended March 31, 1993 (24.8% of net revenue). Gross profit is up as
compared to the same period last year due to the additions of the FRS and
Century businesses, and the growth in the service and product line offerings of
the Company. Gross profit, as a percentage of revenue, is down from the
comparable quarter last year due to a change in the manner of doing business
with the Company's largest client towards a more standard distribution type
arrangement. This is partially offset by higher margins in the IC recycling
product line and the addition of the FRS and Century businesses.
Selling, general and administrative expenses for the three months
ended March 31, 1994 were $4,122,000, or 13.3% of revenues, as compared to
$1,437,000, or 9.5% for the comparable 1993 period. The increase of $2,685,000
relates to the investment made by the Company in marketing and selling its
expanded service and product line offerings and the inclusion of the FRS and
Century selling, general and administrative expenses. Amortization expense, a
component of selling, general and administrative expenses, was $459,000, or
1.5% of revenues, as compared to $312,000, or 2.1% for the comparable 1993
period. This increase was caused by the increase in intangible assets
resulting from the acquisitions of FRS and Century.
Program development costs for the three months ended March 31, 1994
were $398,000, or 1.3% of revenues, as compared to $0 for the comparable 1993
period. The increase is related to developing a new service line to complement
the existing business acquired in the FRS acquisition.
Net interest expense for the three months ended March 31, 1994 was
$761,000, or 2.5% of revenues, as compared to $470,000, or 3.1% of revenues for
the comparable 1993
9
<PAGE> 10
period. The increase of $291,000 was principally due to additional debt issued
in the acquisition of Century and the interest expense related to the working
capital facilities.
Other income for the three months ended March 31, 1994 was $57,000 and
is primarily due to interest income earned on the cash invested by the Company.
For the three months ended March 31, 1993 other income included a one-time
insurance settlement of approximately $300,000.
Net income for the three months ended March 31, 1994 was $791,000, or
2.6% of revenues, as compared to net income of $1,340,000, or 8.8% for the
comparable period in 1993. This decrease in net income is primarily due to
higher amortization and interest expense carried by the Company and the
one-time insurance settlement received in the comparable quarter in 1993.
SIX MONTHS ENDED MARCH 31, 1994 AS COMPARED TO THE SIX MONTHS ENDED
MARCH 31, 1993
Net revenues for the six months ended March 31, 1994 were $52,250,000
as compared to $29,409,000 in net revenue for the six months ended March 31,
1993. This increase in revenue was due to the addition of the business of FRS
of approximately $10,112,000, and the acquisition of Century of approximately
$4,865,000, and the continued growth of the service and product line offerings
of the Company, along with the diversification of its client base.
Gross profit for the six months ended March 31, 1994 was $10,525,000
(20.1% of net revenue) as compared to $7,009,000 in gross profit for the six
months ended March 31, 1993 (23.8% of net revenue). Gross profit is up as
compared to the same period last year due to the additions of the FRS and the
Century businesses and the growth in the service and product line offerings of
the Company. Gross profit, as a percentage of revenue, is down from the
comparable period last year due to a change in the manner of doing business
with the Company's largest client towards a more standard distribution type
arrangement. This is partially offset by higher margins in the IC recycling
product line and the addition of the FRS and Century businesses.
Selling, general and administrative expenses for the six months ended
March 31, 1994 were $6,391,000, or 12.2% of revenues, as compared to
$2,666,000, or 9.1% for the comparable 1993 period. The increase of $3,725,000
relates to the inclusion of the FRS and Century selling, general and
administrative expenses. Amortization expense, a component of selling, general
and administrative expenses, was $845,000, or 1.6% of revenue, as compared to
$609,000, or 2.1% for the comparable 1993 period. This increase was caused by
the increase in intangible assets resulting from the acquisitions of FRS and
Century.
Program development costs for the six months ended March 31, 1994 were
$631,000, or 1.2% of revenues, as compared to $0 for the comparable 1993
period. The increase is related to developing a new service line to complement
the existing business acquired in the FRS acquisition.
Net interest expense for the six months ended March 31, 1994 was
$1,317,000, or 2.5% of revenues, as compared to $870,000, or 3% for the
comparable 1993 period. The increase of $456,000 in net interest expense was
principally due to the additional debt issued in the acquisition of Century and
the interest expense related to the working capital facilities.
10
<PAGE> 11
Income from investments of $17,000 for the six months ended March 31,
1994 was related to net gains from the sale of marketable securities as
compared to $42,000 for the comparable 1993 period.
Other income, net of $138,000 for the six months ended March 31, 1994
is due to interest income earned on the cash invested by the Company. The
comparable 1993 period includes the one-time insurance settlement of
approximately $300,000.
Net income for the six months ended March 31, 1994 was $1,499,000, or
2.9% of net revenue, as compared to $2,461,000, or 8.4% of net revenue for the
comparable period in 1993. This decrease in net income is primarily due to the
higher amortization and interest expense carried by the Company and the
one-time insurance settlement in the 1993 period.
FINANCIAL CONDITION AND LIQUIDITY
The Company's primary requirements for capital are directly related to
its accounts receivable, inventories, and investment in property and equipment.
During the six months ended March 31, 1994, the Company's cash and cash
equivalents and short-term investments decreased $9,166,000, from $18,697,000
to $9,531,000. This decrease was primarily due to net cash generated from
operating activities ($4,063,000), investments made in property, plant and
equipment ($1,991,000), and net cash used for financing activities ($2,680,000
including repayment of the FRS line of credit and the repurchase of the
Company's common stock). In addition to $9,531,000 in cash and cash
equivalents and short- term investments at March 31, 1994, the Company had
available $5,550,000 under its revolving line of credit.
As of March 31, 1994 the Company held 573,000 shares, or approximately
7%, of the outstanding common stock of Riddell. Based on the current market
price of Riddell common stock, the value of these shares is approximately
$1,800,000. Subject to certain transfer restrictions set forth under federal
and state securities law, the Company intends to dispose of its holdings of
Riddell common stock, but there can be no assurance that market conditions will
permit such a disposition at acceptable prices.
The Company believes that cash on hand, cash flows from operations,
and its availability under the revolving line of credit will be sufficient to
meet its working capital requirements for its existing operations. As of March
31, 1994, other than the completion of the Century acquisition, the Company had
no material capital commitments outstanding.
11
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AURORA ELECTRONICS, INC.
February 6, 1995 By: /s/ John P. Grazer
--------------------------------
John P. Grazer,
Vice President-Finance and
Administration and Chief Financial
Officer (Principal Accounting
and Financial Officer)
12
