<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 June 30, 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)
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.
__________________________________________________________
(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 August 8,
1994.
<TABLE>
<S> <C>
Title of Each Class of Common Stock Number Outstanding
- ----------------------------------- --------------------------
Common Stock, $0.03 par value 7,381,686 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 JUNE 30, 1994.
INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
PART I. FINANCIAL INFORMATION PAGE
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 10
Signatures 12
</TABLE>
2
<PAGE> 3
AURORA ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, September 30,
1994 1993
--------- -------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 584 $ 16,201
Short - term investments 1,416 2,496
Trade receivables, less allowance for doubtful accounts
of $971 and $788, respectively 18,176 8,371
Inventories 10,298 5,954
Deferred income taxes 3,546 1,082
Other current assets 1,438 907
-------- -------
Total current assets 35,458 35,011
Property, plant and equipment, net 6,516 4,108
Cost in excess of tangible net assets acquired, net of accumulated
amortization of $1,396 and $484, respectively 59,775 29,408
Non-compete agreement, net of accumulated
amortization of $1,400 and $800, respectively 2,600 3,200
Deferred income taxes 2,901 2,901
Net noncurrent assets of discontinued operations 1,767 1,701
Other assets 2,653 528
-------- -------
Total assets $111,670 $76,857
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 10,512 $ 8,229
Short-term debt and current portion of long-term debt 11,330 4,777
Reserve for discontinued operations 4,979 5,166
Preacquisition contingencies 1,650 3,725
Accrued interest 436 720
Other current liabilities 1,706 1,681
-------- -------
Total current liabilities 30,613 24,298
Long - term debt 20,717 -
9-1/4% Senior subordinated notes 8,430 8,276
7-3/4% Convertible subordinated debentures 10,267 10,249
7% Subordinated convertible promissory notes 7,379 7,379
-------- -------
Total liabilities 77,406 50,202
Commitments and contingencies
Stockholders' equity:
Common stock, 8,000 and 7,744 shares issued, respectively 242 232
Preferred stock, 1,000 shares authorized, none issued - -
Additional paid-in capital 60,031 55,260
Accumulated deficit (20,159) (22,683)
Foreign currency translation (30) -
Treasury stock, at cost, 632 shares and 661 shares, respectively (5,820) (6,154)
Total stockholders' equity 34,264 26,655
-------- -------
Total liabilities and stockholders' equity $111,670 $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
June 30, March 31,
------------------------ ------------------------
1994 1993 1994 1993
----------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Net revenues $ 35,744 $ 9,960 $ 87,994 $ 39,369
Cost of sales 26,972 8,609 68,697 31,010
-------- -------- -------- --------
Gross profit 8,772 1,351 19,297 8,359
Selling, general and administrative expenses 6,078 1,602 12,469 4,267
Program development costs 294 - 925 -
------- ------- -------- -------
Operating income (loss) 2,400 (251) 5,903 4,092
Interest expense (1,178) (498) (2,495) (1,369)
Income from investments - 12 17 55
Other income, net 53 54 191 357
------- ------- -------- -------
Income (loss) before provision (benefit)
for income taxes 1,275 (683) 3,616 3,135
Provision (benefit) for income taxes 228 (204) 1,070 1,153
Gain from discontinued operations, net of
income taxes - 500 - 500
------- ------- -------- -------
Net income $ 1,047 $ 21 $ 2,546 $ 2,482
======= ======= ======== =======
Net income per share of common stock
Primary $ 0.13 $ 0.00 $ 0.34 $ 0.41
======= ======= ======= =======
Weighted average number of common and
common equivalent shares:
Primary 7,976 6,829 7,576 6,030
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
<TABLE>
<CAPTION>
For the nine months ended
June 30,
-------------------------
1994 1993
--------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,546 $ 2,482
Adjustments to reconcile net income to
net cash flows from operating activities:
Foreign currency translation (30) -
Depreciation and amortization 2,566 1,039
Noncash stock bonus to employees 592
Gain on sale of securities (17) -
Gain from investments and unconsolidated affiliates - (55)
Change in assets & liabilities, net of acquisition:
Accounts receivable, inventories and other current assets (5,999) (6,584)
Accounts payable and accrued liabilities (3,464) (5,520)
Accrued interest and income taxes receivable/payable (248) 1,288
Other assets 574 (3,723)
Deferred income taxes 94 1,197
-------- -------
Net cash flows from continuing operations (3,978) (9,284)
Net cash flows from discontinued operations 547 1,685
--------- -------
Net cash flows from operating activities (3,431) (7,599)
--------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (2,528) (1,771)
Proceeds from sales of marketable securities 481 2,840
Acquisition of marketable securities (11,032) -
--------- -------
Net cash flows from investing activities (13,079) 1,069
--------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on debt (1,111) (2,018)
Exercise of stock options - 1,854
Exercise of common stock purchase warrants - 9,464
Purchases of treasury stock (225) (123)
Payment under lines of credit 2,229 -
-------- -------
Net cash flows from financing activities 893 9,177
-------- -------
Net change in cash and cash equivalents (15,617) 2,647
Cash and cash equivalents at beginning of period 16,201 7,855
-------- -------
Cash and cash equivalents at end of period $ 584 $10,502
======== =======
The accompanying notes are an integral part of these financial statements.
</TABLE>
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. In the opinion of management, the
statements reflect all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position as of June 30,
1994 and the results of operations and cash flows for the periods shown.
Operating results for the interim periods ending June 30, 1994 are not
necessarily indicative of the results that may be expected for the year ending
September 30,1994.
The Company is restating its financial information, primarily to
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. The Company has
made an estimate at this time of the Century purchase price allocation and is
in the process of conducting a more comprehensive evaluation of the fair value
of tangible assets, liabilities and pre-acquisition contingencies. Therefore,
the Company believes it is premature to close the purchase price allocation
period for the Century acquisition, but anticipates that such purchase price
allocation period will be closed as of September 30, 1994, the close of the
Company's fiscal accounting period.
6
<PAGE> 7
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 June 30, 1994 and September 30, 1993 include material,
labor and overhead and consist of the following (amounts in thousands):
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1994 1993
------------- -------------
<S> <C> <C>
Raw materials $1,419 $1,355
Work in process 3,416 2,349
Finished goods 5,463 2,250
------- -------
$10,298 $5,954
======= =======
</TABLE>
NOTE F. CONCENTRATION OF SUPPLY
During the three and nine months ended June 30, 1994, the Company
derived approximately 31% and 43%, respectively, of its revenue from material
received from one client. On a pro forma basis, had Century been part of the
Company for the nine months ended June 30, 1994, concentration would have been
approximately 35.6%. This compares to 24% and 62%, respectively for the three
and nine months ended June 30, 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, there could be a substantial
negative effect on the Company's business and results of operations.
7
<PAGE> 8
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. In December 1993, the Court certified a class of plaintiffs and
consolidated the complaints. The consolidated class action complaint asserts
violations of Section 10(b) and Rule 10b-5 promulgated under the Securities
Exchange Act of 1934 by all the defendants and Section 20(a) promulgated under
the Securities Exchange Act of 1934 by the individual defendants. The
consolidated class action complaint relates to the Company's alleged failure to
adequately disclose certain information with respect to the supply of
integrated circuits (IC) to Micro-C (including the temporary suspension of
shipments by its principal suppliers in the Spring of 1993). The consolidated
class action complaint does not specify an amount of damages sought.
Management believes the Company's disclosures have been full and adequate and
intends to vigorously defend against such action.
NOTE H. GOODWILL
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.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1994 AS COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1993
The Company is restating its financial information and results of
operations as of June 30, 1994 and for the three and nine months then ended,
primarily to reflect the write-off of program development costs previously
capitalized. The restatement resulted in net income decreasing $233,000, or
18.2% and $629,000, or 19.8% for the three and nine months ended June 30, 1994,
respectively, from a previously reported net income of $1,280,000 and
$3,175,000 for the same comparable period. The restatement resulted in a
primary earnings per share decrease of $.03 and $.08 per share for the three
and nine months ended June 30, 1994, respectively.
Net revenues for the three months ended June 30, 1994 were $35,744,000
as compared to $9,960,000 in net revenues for the three months ended June 30,
1993. This increase in revenue was primarily due to the addition of the
businesses of Century and FRS of approximately $15,545,000 and the continued
growth of the service and product line offerings of the Company. The net
revenues for the three months ended June 30, 1993 were at lower levels due to
the Company's major client substantially reducing and delaying shipments
during that period.
Gross profit for the three months ended June 30, 1994 was $8,772,000,
or 24.5% of net revenues, as compared to $1,351,000, or 13.6% of net revenues,
in gross profit for the three months ended June 30, 1993. Gross profit is up
as compared to the same period last year due to the growth in the core business
and the additions of the Century and FRS businesses. The 1994 gross profit
increase also reflects the higher margins of the Century business and
improvement made in the IC recycling and consumer grade IC product lines.
Selling, general and administrative expenses for the three months
ended June 30, 1994 were $6,078,000, or 17.0% of net revenues, as compared to
$1,602,000, or 16.1% of net revenues, for the comparable 1993 period. The
increase of $4,476,000 relates to the investment made by the Company in
marketing and selling its expanded service and product line offerings and the
inclusion of the Century and FRS selling, general and administrative expenses.
Amortization expense, a component of selling, general and administrative
expenses, was $622,000, or 1.7% of net revenues, as compared to $336,000, or
3.4% of net revenues, for the comparable 1993 period. This increase was caused
by the increase in intangible assets resulting from the acquisitions of Century
and FRS.
Program development costs for the three months ended June 30, 1994
were $294,000, or .8% 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 June 30, 1994 was
$1,178,000, or 3.3% of net revenues, as compared to $498,000, or 5% of net
revenues, for the comparable 1993 period. The increase of $680,000 was
principally due to additional debt issued in the
9
<PAGE> 10
acquisition of Century and the interest expense related to greater use of the
working capital facilities to support higher sales.
Other income for the three months ended June 30, 1994 was $53,000 and
is primarily due to interest income earned on the cash invested by the Company.
This compares to $54,000 for the comparable 1993 period.
Net income for the three months ended June 30, 1994 was $1,047,000, or
2.9% of net revenues, as compared to net income of $21,000, or 0.2% of net
revenues, for the comparable period in 1993.
NINE MONTHS ENDED JUNE 30, 1994 AS COMPARED TO THE NINE MONTHS ENDED JUNE 30,
1993
Net revenues for the nine months ended June 30, 1994 were $87,994,000
as compared to $39,369,000 in net revenues for the nine months ended June 30,
1993. This increase in revenue was due to the addition of the business of
Century and FRS of approximately $30,522,000 and the continued growth of the
service and product line offerings of the Company. The net revenues for the
nine months ended June 30, 1993 were at lower levels due to the Company's major
client substantially reducing and delaying shipments during the third quarter
of fiscal year 1993.
Gross profit for the nine months ended June 30, 1994 was $19,297,000,
or 21.9% of net revenues, as compared to $8,359,000, or 21.2% of net revenues,
in gross profit for the nine months ended June 30, 1993. Gross profit is up as
compared to the same period last year due to the additions of the Century and
FRS businesses and the improvement in margin performance in the IC recycling
product line.
Selling, general and administrative expenses for the nine months ended
June 30, 1994 were $12,469,000, or 14.2% of net revenues, as compared to
$4,267,000, or 10.8% of net revenues, for the comparable 1993 period. The
increase of $8,202,000 relates to the inclusion of the Century and FRS selling,
general and administrative expenses, and investments made by the Company to
support expanded service and product line offerings. Amortization expense, a
component of selling, general and administrative expenses, was $1,462,000, or
1.7% of revenue, as compared to $942,000, or 2.4% of revenue, for the
comparable 1993 period. This increase was caused by the intangible assets
resulting from the acquisitions of Century and FRS.
Program development costs for the nine months ended June 30, 1994 were
$925,000, or 1.1% 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 nine months ended June 30, 1994 was
$2,495,000, or 2.8% of net revenues, as compared to $1,369,000, or 3.5% of net
revenues, for the comparable 1993 period. The increase of $1,126,000 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
Other income, net of $191,000 for the nine months ended June 30, 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 nine months ended June 30, 1994 was $2,546,000, or
2.9% of net revenues, as compared to $2,482,000, or 6.3% of net revenues, for
the comparable period in 1993. The increase in net income is due to the
improvement in gross margins partially offset by the increase in operating
expenses.
FINANCIAL CONDITION AND LIQUIDITY
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 $4,845,000, as of June 30, 1994, compared to
$10,713,000, as of September 30, 1993. The Company has financed acquisitions
to date using internally generated cash, additional indebtedness and issuance
of common stock.
On May 12, 1994, the Company obtained a new $10,000,000 revolving line
of credit. The revolving line of credit is collateralized by substantially all
the Company's assets and is all due and payable March 31, 1997. The line of
credit may be borrowed in $250,000 increments and is subject to borrowing base
calculations set forth in the loan agreement. The credit facilities bear an
interest rate of prime plus 1% or LIBOR plus 2.5%. As of June 30, 1994, the
Company had borrowed $6,748,000 under the credit facilities.
As of June 30, 1994, the Company held 563,000 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
$1,500,000. 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 funds available under its credit facilities will be sufficient to meet its
working capital requirements for the foreseeable future. As of June 30, 1994,
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
