<PAGE> 1
================================================================================
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 March 30, 1997
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.)
9477 WAPLES STREET, SUITE 150, SAN DIEGO, CALIFORNIA 92121
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (619) 552-1213.
- --------------------------------------------------------------------------------
(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 9, 1997:
Title of Each Class of Common Stock Number Outstanding
----------------------------------- ------------------
Common Stock, $0.03 par value 5,962,523 shares
================================================================================
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 30, 1997 and September
30, 1996 3
Consolidated Statements of Operations for the Three Months
Ended March 30, 1997 and March 31, 1996 4
Consolidated Statements of Cash Flows for the Three Months
Ended March 30, 1997 and March 31, 1996 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II. OTHER INFORMATION 10
Signatures 11
Index to Exhibits 12
</TABLE>
2
<PAGE> 3
AURORA ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
March 30, September 30,
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,068 $ 1,537
Trade receivables, net 8,711 8,629
Inventories 4,851 4,098
Deferred income taxes 500 500
Other current assets 628 716
- --------------------------------------------------------------------------------------------------
Total current assets 15,758 15,480
Property, plant and equipment, net 5,743 4,811
Intangible and other assets 31,815 32,497
- --------------------------------------------------------------------------------------------------
$ 53,316 $ 52,788
==================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,440 $ 1,974
Accounts payable 10,720 8,465
Accrued compensation 1,570 1,912
Accrued interest 472 433
Current portion of reserve for discontinued operations 702 702
Other current liabilities 957 1,384
- --------------------------------------------------------------------------------------------------
Total current liabilities 15,861 14,870
Reserve for discontinued operations 2,031 2,366
Long-term debt 30,964 25,842
Redeemable convertible preferred stock 42,800 41,400
Stockholders' equity:
Common stock, 10,706 shares issued 318 315
Additional paid-in capital 62,086 61,679
Accumulated deficit (84,105) (77,045)
Treasury stock, at cost, 4,743 shares (16,639) (16,639)
- --------------------------------------------------------------------------------------------------
Total stockholders' equity (38,340) (31,690)
- --------------------------------------------------------------------------------------------------
$ 53,316 $ 52,788
==================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
AURORA ELECTRONICS, INC. AND SUBSIDARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
------------------------------- -------------------------------
March 30, 1997 March 31, 1996 March 30, 1997 March 31, 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net revenues $ 17,922 $ 28,251 $ 35,181 $ 58,171
Cost of sales 14,107 20,940 27,497 42,868
- ---------------------------------------------------------------------------------------------------------------------------------
Gross profit 3,815 7,311 7,684 15,303
Selling, general and administrative expenses 5,786 7,197 10,849 13,444
Amortization of intangible assets 251 366 501 731
- ---------------------------------------------------------------------------------------------------------------------------------
Operating loss (2,222) (252) (3,666) 1,128
Interest expense (1,048) (3,485) (1,949) (4,736)
Other income (expense), net (34) (21) (12) 1
- ---------------------------------------------------------------------------------------------------------------------------------
Loss before provision for income taxes (3,304) (3,758) (5,627) (3,607)
Provision for income taxes 41 3,405 33 3,450
- ---------------------------------------------------------------------------------------------------------------------------------
Net loss (3,345) (7,163) (5,660) (7,057)
Dividends on preferred stock (700) -- (1,400) --
- ---------------------------------------------------------------------------------------------------------------------------------
Net loss available for common stockholders $ (4,045) $ (7,163) $ (7,060) $ (7,057)
=================================================================================================================================
Net loss per share of common stock $ (0.61) $ (1.14) $ (1.07) $ (0.87)
=================================================================================================================================
Weighted average number of common and common equivalent shares 6,681 6,297 6,571 8,147
=================================================================================================================================
</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>
Six months ended
----------------------------------
March 30, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (5,660) $ (7,057)
Adjustments to reconcile net loss to
net cash flows from continuing operations:
Depreciation and amortization 1,299 2,772
Changes in assets and liabilities, net of acquisitions:
Trade receivables, inventories and other assets (635) 2,702
Accounts payable and other liabilities 1,486 3,228
Accrued interest and income taxes deferred, receivable or payable 39 2,729
- -------------------------------------------------------------------------------------------------------------------------------
Net cash flows from continuing operations (3,471) 4,374
Net cash flows from discontinued operations (335) (537)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash flows from operating activities (3,806) 3,837
- -------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (1,661) (1,096)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on debt 190 (19,310)
Sale of redeemable preferred shares -- 37,746
Purchases of treasury stock -- (12,271)
Changes in borrowings under line of credit 4,808 (7,143)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash flows from financing activities 4,998 (978)
- -------------------------------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents (469) 1,763
Cash and cash equivalents at beginning of period 1,537 81
- -------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 1,068 $ 1,844
===============================================================================================================================
</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
(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 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>
MARCH 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------
<S> <C> <C>
Spare and repair parts $ 369 $ 395
Work in process 77 59
Finished goods and purchased product 4,405 3,644
------------------ ------------------
Total inventories $ 4,851 $ 4,098
================== ==================
</TABLE>
NOTE D. WARRANTS
The Company's largest shareholder has agreed in principle to a
limited guarantee of $12,000,000 for use as additional collateral to support
borrowings under its Credit Agreement dated March 29, 1996 (the "Credit
Agreement") and is currently in discussions with its lenders to receive a waiver
of noncompliance and amendments to certain covenants related to its lending
facilities. In return, the Company granted this shareholder and its affiliates
warrants that if fully vested would give the
6
<PAGE> 7
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 asset recovery
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 MARCH 30, 1997 AND
MARCH 31, 1996
Net revenues for the second quarter of fiscal 1997 were
$17,922 as compared to $28,251 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 asset recovery services ($4,292 or 46.2%)
and spare parts distribution ($6,154 or 32.2%). The decline of revenues in asset
recovery services is due primarily to a substantial industry wide decline in
selling prices in dynamic random access memory ("DRAM") 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 second quarter of fiscal 1997 was $3,815
(21.3% of net revenues) as compared to $7,311 in gross profit (25.9% of net
revenues) for the second quarter of fiscal 1996. The decrease in gross profit
was due primarily to the decline in revenues from asset recovery service and
spare parts distribution mentioned above.
Selling, general and administrative ("SG&A") expenses for the
second quarter of fiscal 1997 were $5,786 (32.3% of net revenues) as compared to
$7,197 (25.5% of net revenues) for the second quarter of fiscal 1996. The
decrease in the amount of these expenses was primarily due to efficiencies
obtained in the merging of the Company's formerly separate divisions and the
Company's cost reduction programs. The increase as a percent of revenues was due
to the significant decline in revenues noted above.
Amortization expense for the second quarter of fiscal 1997
was $251 as compared to $366 for the second 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 second quarter of fiscal 1997 was
$1,048 (5.9% of net revenues) as compared to $3,485 (12.3% of net revenues) for
the second quarter of 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 same quarter of the prior fiscal year.
7
<PAGE> 8
Provision for income taxes for the second quarter of fiscal
1997 was a charge of $41 as compared to a charge of $3,405 for the second
quarter of fiscal 1996. The fiscal 1996 provision includes the increase of the
deferred income tax valuation allowance in the amount of $3,652 due to
management's determination that the deferred tax asset will not be fully
realized. Management reached this conclusion as a result of the limitation in
the utilization of the Company's net operating loss carryforwards caused by the
change of ownership pursuant to the Recapitalization.
Net loss available for common stockholders for the quarter was
$4,045 as compared to net loss of $7,163 for the second quarter of fiscal 1996.
The loss in the current quarter is the result of operating losses from asset
recovery services and spare parts distribution. The loss in fiscal 1996 was
attributable primarily due to approximately $6,620 of one-time charges incurred
in the second quarter of fiscal 1996 due to the Recapitalization.
COMPARATIVE RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED MARCH 30, 1997 AND
MARCH 31, 1996
Net revenues for the first two quarters of fiscal 1997 were
$35,181 as compared to $58,171 for the first two quarters of fiscal 1996. The
Company's decline in revenues was due to the significant decline in revenues
from asset recovery services ($10,964 or 52.5%) and spare parts distribution
($12,286 or 32.7%). The decline of revenues in asset recovery services 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 two quarters of fiscal 1997 was
$7,684 (21.8% of net revenues) as compared to $15,303 (26.3% of net revenues)
for the comparable fiscal 1996 period. The decrease in gross profit was due
primarily to the decrease in asset recovery services of approximately $3,024 in
gross profit as compared to the same period a year ago due to the decline in the
DRAM prices as discussed above and the decline in revenue from the spare parts
distribution business.
SG&A expenses for the first two quarters of fiscal 1997 were
$10,849 (30.8% of net revenues) as compared to $13,444 (23.1% of net revenues)
for the comparable fiscal 1996 period. The decrease in the amount of these
expenses was primarily due to efficiencies obtained in the merging of the
Company's formerly separate divisions and the Company's cost reduction programs.
The increase of the SG&A expenses as a percentage of revenue was due to the
decline in revenue as discussed above.
Amortization expense for the first two quarters of fiscal
1997 was $501 (1.4% of net revenues) as compared to $731 (1.3% of net revenues)
for the comparable fiscal 1996 period. 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 two quarters of fiscal 1997
was $1,949 (5.5% of net revenues) as compared to $4,736 (8.1% of net revenues)
for the comparable fiscal 1996 period. The decrease in interest expense is due
to the reduced debt levels which resulted from the Recapitalization of the
Company completed in the same quarter of the prior fiscal year. The interest
expense for the fiscal 1996 includes approximately $2,242 of one-time charges
related to the early payment of indebtedness in connection with the
Recapitalization.
Provision for income taxes for the first two quarters of
fiscal 1997 was $33 ( 1% of net revenues) as compared to $3,450 (5.9% of net
revenues) for the comparable fiscal 1996 period. The fiscal 1996
8
<PAGE> 9
provision includes the increase of the deferred income tax valuation allowance
in the amount of $3,652 due to management's determination that the deferred tax
asset will not be fully realized. Management reached this conclusion as a result
of the limitation in the utilization of the Company's net operating loss
carryforwards caused by the change of ownership pursuant to the
Recapitalization.
Net loss for the first two quarters of fiscal 1997 was $5,660
as compared to net loss of $7,057 for the comparable fiscal 1996 period. The
loss in the first two quarters are the result of operating losses from asset
recovery services and spare parts distribution. The loss in fiscal 1996 was
attributable primarily due to approximately $6,620 of one-time charges incurred
in the second quarter of fiscal 1996 due to the Recapitalization.
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 $103 as of March 30, 1997 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 March 30, 1997, the Company was not in compliance with
certain financial covenants under the Credit Agreement. Management is currently
in discussions with its lenders to amend the financial covenants of the Credit
Agreement and to allow the Company to use both credit facilities. The major
shareholder of the Company has agreed in principle to support the Company's
efforts by providing $12 million of additional collateral in the form of a
limited guarantee. In consideration for the guarantee provided by the major
shareholder, the Company expects to issue warrants to the shareholder to buy
additional shares of Common Stock of the Company. The Company expects the
warrants to be five-year warrants to purchase a number of shares equal in value
to 20% of the amount of guaranteed indebtedness divided by the current stock
price. If the guarantees were ever called, the shareholder would have a warrant
to purchase 100% of the guaranteed amount at the current stock price. The
guarantees would be released if and when the Company returns to full compliance
with the original financial covenants under the Credit Agreement (see Note D
above).
Other than the funds for the remaining discontinued
operations, the Company had no material capital commitments at March 30, 1997.
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.
9
<PAGE> 10
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
The Company held its annual meeting of shareholders on March
25, 1997. At the March meeting, shareholders were requested to vote on the
election of Directors.
The results of the vote on the election of directors were as
follows:
<TABLE>
<CAPTION>
DIRECTORS VOTES FOR AUTHORITY WITHHELD
--------- --------- ------------------
<S> <C> <C>
Harvey B. Cash 22,595,703 579,327
Jim C. Cowart 22,595,653 579,377
Amin J. Khoury 22,595,703 579,327
David A. Lahar 22,595,703 579,327
Thomas E. McInerney 22,595,703 579,327
Richard H. Stowe 22,595,703 579,327
William H. Watkins, Jr. 22,595,546 579,484
</TABLE>
There were present at the annual meeting, in person or by
proxy, shareholders holding 4,822,089 shares of Common Stock and 390,000 shares
of Preferred Stock. The Preferred stock votes on an "as converted basis" and
thus represented 18,352,941 votes at the meeting. Accordingly an aggregate of
23,175,030 votes were represented at the annual meeting in person or by proxy,
or approximately 94.34% of the eligible number of votes.
ITEM 5. OTHER INFORMATION
Inapplicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Item Page
---- ----
(a)(1) Exhibit 11 - Computation of Per Share Loss 13
(a)(2) Exhibit 27 - Financial Data Schedule 14
10
<PAGE> 11
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.
May 14, 1997 By: /s/ John P. Grazer
--------------------------------
John P. Grazer,
President and Chief Financial Officer
(Principal Accounting and Financial
Officer)
11
<PAGE> 12
INDEX TO EXHIBITS
Item Description of Exhibits Page
- ---------- ----------------------------------------------------- ----
Exhibit 11 Computation of Per Share Earnings 13
Exhibit 27 Financial Data Schedule - Article 5 of Regulation S-X 14
12
<PAGE> 1
Exhibit 11
AURORA ELECTRONICS, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
---------------------------------- ----------------------------------
March 30, 1997 March 31, 1996 March 30, 1997 March 31, 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net loss available to common stockholders $ (4,045) $ (7,163) $ (7,060) $ (7,057)
============== ============== ============== ==============
ADJUSTED NUMBER OF COMMON SHARES
Weighted average shares outstanding 5,963 5,702 5,853 7,552
Incremental shares for exercise of stock
options and warrants and common stock
issuable 718 595 718 595
-------------- -------------- -------------- --------------
Adjusted number of common shares 6,681 6,297 6,571 8,147
============== ============== ============== ==============
Net loss per common share $ (0.61) $ (1.14) $ (1.07) $ (0.87)
============== ============== ============== ==============
</TABLE>
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-30-1997
<CASH> 1,068
<SECURITIES> 0
<RECEIVABLES> 8,711
<ALLOWANCES> 1,080
<INVENTORY> 4,851
<CURRENT-ASSETS> 15,748
<PP&E> 9,760
<DEPRECIATION> 4,017
<TOTAL-ASSETS> 53,516
<CURRENT-LIABILITIES> 15,861
<BONDS> 0
42,800
0
<COMMON> 318
<OTHER-SE> (38,658)
<TOTAL-LIABILITY-AND-EQUITY> 53,516
<SALES> 17,922
<TOTAL-REVENUES> 17,922
<CGS> 14,107
<TOTAL-COSTS> 20,144
<OTHER-EXPENSES> 34
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,048
<INCOME-PRETAX> (3,304)
<INCOME-TAX> (41)
<INCOME-CONTINUING> (3,345)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,345)
<EPS-PRIMARY> (.61)
<EPS-DILUTED> (.61)
</TABLE>
