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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(MARK ONE)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 29, 1996
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 92614
(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 February 7, 1997:
Title of Each Class of Common Stock Number Outstanding
----------------------------------- ------------------
Common Stock, $0.03 par value 5,742,523 shares
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INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of December 29, 1996 and September 30, 3
1996
Consolidated Statements of Operations for the Three Months Ended 4
December 29, 1996 and December 31, 1995
Consolidated Statements of Cash Flows for the Three Months Ended 5
December 29, 1996 and December 31, 1995
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and 7
Results of Operations
PART II. OTHER INFORMATION 9
Signatures 10
Index to Exhibits 11
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AURORA ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
December 29, September 30,
1996 1996
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 135 $ 1,537
Trade receivables, net 7,646 8,629
Inventories 4,411 4,098
Deferred income taxes 500 500
Other current assets 582 716
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Total current assets 13,274 15,480
Property, plant and equipment, net 5,398 4,811
Intangible and other assets 32,124 32,497
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$ 50,796 $ 52,788
================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,979 $ 1,974
Accounts payable 7,772 8,465
Accrued compensation 1,141 1,912
Accrued interest 598 433
Current portion of reserve for discontinued operations 702 702
Other current liabilities 1,517 1,384
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Total current liabilities 13,709 14,870
Reserve for discontinued operations 2,252 2,366
Long-term debt 27,439 25,842
Redeemable convertible preferred stock 42,100 41,400
Stockholders' equity:
Common stock, 10,486 shares issued 315 315
Additional paid-in capital 61,680 61,679
Accumulated deficit (80,060) (77,045)
Treasury stock, at cost, 4,743 shares (16,639) (16,639)
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Total stockholders' equity (34,704) (31,690)
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$ 50,796 $ 52,788
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</TABLE>
The accompanying notes are an integral part of these financial statements.
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AURORA ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
---------------------------------
December 29, December 31,
1996 1995
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<S> <C> <C>
Net revenues $17,248 $29,920
Cost of sales 13,379 21,928
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Gross profit 3,869 7,992
Selling, general and administrative expenses 5,063 6,248
Amortization of intangible assets 251 366
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Operating loss (1,445) 1,378
Interest expense (901) (1,250)
Other income (expense), net 22 21
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Loss before provision for income taxes (2,324) 149
Provision for income taxes (8) 45
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Net loss (2,316) 104
Dividends on preferred stock (700) 0
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Net loss available for common stockholders ($3,016) $104
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Net loss per share of common stock ($0.48) $0.01
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Weighted average number of common and common equivalent shares 6,273 9,997
==============================================================================================================
</TABLE>
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AURORA ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
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December 29, December 31,
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($2,316) $ 104
Adjustments to reconcile net income (loss) to
net cash flows from continuing operations:
Depreciation and amortization 722 957
Changes in assets and liabilities, net of acquisitions:
Trade receivables, inventories and other assets 859 2,156
Accounts payable and other liabilities (1,331) (537)
Accrued interest and income taxes deferred, receivable or payable (56) 905
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Net cash flows from continuing operations (2,122) 3,585
Net cash flows from discontinued operations (114) (239)
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Net cash flows from operating activities (2,236) 3,346
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CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (631) (194)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on debt (116) (1,037)
Changes in borrowings under line of credit 1,581 (745)
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Net cash flows from financing activities 1,465 (1,782)
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Net change in cash and cash equivalents (1,402) 1,370
Cash and cash equivalents at beginning of period 1,537 81
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Cash and cash equivalents at end of period $ 135 $ 1,451
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</TABLE>
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AURORA ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
NOTE A. BASIS OF PRESENTATION
In the opinion of management, the accompanying balance sheets and
related interim statements of operations and cash flows include all adjustments
(consisting only of normal recurring items) necessary for their fair
presentation. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues, and expenses. Actual results could differ from those estimates.
Interim results are not necessarily indicative of results for a full year.
Certain information in footnote disclosure normally included in
financial statements has been condensed or omitted in accordance with the rules
and regulations of the Securities and Exchange Commission. The information
included in this Form 10-Q should be read in conjunction with Management's
Discussion and Analysis and financial statements and notes thereto included in
the Aurora Electronics, Inc. 1996 Annual Report on Form 10-K.
NOTE B. 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, less cumulative
dividends to holders of the Company's preferred stock. 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 Redeemable, Convertible Preferred Stock, 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 as it is anti-dilutive.
NOTE C. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 29, 1996 SEPTEMBER 30, 1996
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<S> <C> <C>
Spare and repair parts $ 369 $ 395
Work in process 43 59
Finished goods and purchased product 3,999 3,644
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Total inventories $4,411 $4,098
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</TABLE>
NOTE D. WARRANTS
The Company received from its largest shareholder a limited guarantee
of up to $8 million in revolving indebtedness in order to obtain from its
lenders a waiver of noncompliance and amendments to certain covenants related
to its lending facilities. The guarantee also includes up to $4 million in
additional acquisition-related indebtedness under the facilities, should the
Company consummate an acceptable business acquisition. In return, the Company
granted this shareholder and its affiliates
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warrants that if fully vested, would give the shareholder and its affiliates
the right to buy a number of shares equal to the indebtedness guaranteed
divided by the lower of the Common Stock price on the date the guarantees were
initially issued or on certain anniversary dates. The warrants vest 20% on
issuance, 20% on June 1, 1997, 20% on March 1, 1998 and 100% if at any time the
bank calls the guarantees. The guarantees will be released, and unvested
warrants will expire, if and when the Company returns to full compliance with
the original financial covenants under the Credit Agreement.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(In thousands)
OVERVIEW
Aurora Electronics, Inc. (the "Company" or "Aurora") operates in one
business segment providing spare parts distribution and electronics recycling
services to major personal computer manufacturers and field service
organizations. Aurora operates worldwide, with facilities in the United
States, Canada, United Kingdom and the Netherlands.
COMPARATIVE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 29, 1996
AND DECEMBER 31, 1995
Net revenues for the first quarter of fiscal 1997 were $17,248 as
compared to $29,920 in net revenues for the corresponding quarter in the prior
fiscal year. The Company's decline in revenues was due to the significant
decline in revenues from electronics recycling services ($6,672 or 57.6%) and
spare parts distribution ($6,170 or 35.8%) which was offset by a slight gain in
revenues from repair services. The decline of revenues in electronics
recycling is due primarily to a substantial industry wide decline in selling
prices in dynamic random access memory and other integrated circuits. The
decline in revenues from spare parts distribution was due primarily to the
decrease in orders from a major customer.
Gross profit for the first quarter of fiscal 1997 was $3,870 (22.4% of
net revenues), as compared to $7,991 in gross profit (26.7% of net revenues)
for the first quarter of fiscal 1996. The decrease in gross profit was due
primarily to the decline in revenues from electronics recycling and spare parts
distribution mentioned above.
Selling, general and administrative expenses for the first quarter of
fiscal 1997 were $5,314 (30.8% of net revenues), as compared to $6,614 (22.1%
of net revenues) for the same quarter of the prior fiscal year. The decrease
in the amount of these expenses was primarily due to efficiencies obtained in
the recently completed merging of the Company's formerly separate divisions.
The increase as a percent of revenues was due to the significant decline in
revenues noted above. Amortization expense for the first quarter of fiscal
1997 was $251 compared to $366 for the first quarter of fiscal 1996. The
decrease was due to the write-off in the fourth quarter of fiscal 1996 of
goodwill related to the acquisition of Micro-C Corporation.
Net interest expense for the first quarter of fiscal 1997 was $901 or
5.2% of revenues as compared to $1,250 or 4.2% of revenues for the same period
in fiscal 1996. The decrease in interest expense is due to the reduced debt
levels which resulted from the recapitalization of the Company completed in the
second quarter of fiscal 1996.
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Provision for income taxes for the first quarter of fiscal 1997 was a
credit of $8 as compared to a charge of $45 for the first quarter of fiscal
1996.
Net loss available for common stockholders for the quarter was $3,016,
as compared to net income of $104 for the first quarter of fiscal 1996. The
loss in the quarter is the result of operating losses from electronics
recycling and spare parts distribution.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary requirements for capital are directly related to
its levels of accounts receivable, inventories, additions to its property and
equipment, and required debt principal payments. The Company's working capital
deficit was $436 as of December 29, 1996 compared to working capital of $610 as
of September 30, 1996. The primary reason for the working capital deficit is
due to the Company's focus of applying all available cash to the working
capital revolving credit facility.
As of December 29, 1996, the Company had insufficient collateral to
support borrowings under its Credit Agreement dated March 29, 1996. The major
shareholder of the Company has agreed to support the Company with $8 million of
additional collateral. Consideration for this additional collateral is in the
form of warrants to buy additional shares of Common Stock of the Company (see
Note D above).
Other than the funds for the remaining discontinued operations, the
Company had no material capital commitments at December 29, 1996.
Management believes existing cash on hand, funds generated from
operations, and funds available under its credit facilities will be sufficient
to meet the operating requirements for the next twelve months.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Inapplicable.
ITEM 2. CHANGES IN SECURITIES
Inapplicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Inapplicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Inapplicable.
ITEM 5. OTHER INFORMATION
Inapplicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Item Page
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(a)(1) Exhibit 11 - Computation of Per Share Loss 12
(a)(2) Exhibit 27 -- Financial Data Schedule 13
9
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AURORA ELECTRONICS, INC.
February 11, 1997 By: /s/ John P. Grazer
-----------------------------------
John P. Grazer,
President and Chief Financial
Officer
(Principal Financial Officer)
February 11, 1997 By: /s/ Jonathan Shultz
-----------------------------------
Jonathan Shultz,
Vice President - Finance and
Administration
(Principal Accounting Officer)
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Item Description of Exhibits Page
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<S> <C> <C>
Exhibit 11 Computation of Per Share Earnings 12
Exhibit 27 Financial Data Schedule -- Article 5 of Regulation S-X 13
</TABLE>
11
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EXHIBIT 11
AURORA ELECTRONICS, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
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December 29, December 31,
1996 1995
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<S> <C> <C>
Net loss available to common stockholders ($3,016) $ 104
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Adjusted Number of Common Shares
Weighted average shares outstanding 5,743 7,923
Incremental shares for exercise of stock
options and warrants and common stock
issuable 530 2,074
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Adjusted number of common shares 6,273 9,997
======= ======
Net loss per common share ($0.48) $0.01
======= ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-29-1996
<CASH> 135
<SECURITIES> 0
<RECEIVABLES> 7,646
<ALLOWANCES> 1,075
<INVENTORY> 4,411
<CURRENT-ASSETS> 13,274
<PP&E> 9,036
<DEPRECIATION> 3,638
<TOTAL-ASSETS> 50,796
<CURRENT-LIABILITIES> 13,709
<BONDS> 0
42,100
0
<COMMON> 315
<OTHER-SE> (7,381)
<TOTAL-LIABILITY-AND-EQUITY> 50,796
<SALES> 17,248
<TOTAL-REVENUES> 17,248
<CGS> 13,379
<TOTAL-COSTS> 5,314
<OTHER-EXPENSES> (22)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 901
<INCOME-PRETAX> (2,324)
<INCOME-TAX> (8)
<INCOME-CONTINUING> (2,316)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,316)
<EPS-PRIMARY> (.48)
<EPS-DILUTED> (.48)
</TABLE>
