10-Q 1 0001.txt AURA SYSTEMS 10Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended November 30, 2000 Commission File Number 0-17249 AURA SYSTEMS, INC. (Exact name of Registrant as specified in its charter) Delaware 95-4106894 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 2335 Alaska Ave. El Segundo, California 90245 (Address of principal executive offices) Registrant's telephone number, including area code: (310) 643-5300 Former name, former address and former fiscal year, if changed since last report: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: YES X NO Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at January 11, 2000 Common Stock, par value 281,376,809 Shares $.005 per share AURA SYSTEMS, INC. AND SUBSIDIARIES INDEX Page No.
PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements Statement Regarding Financial Information 2 Condensed Consolidated Balance Sheets as of 3 November 30, 2000 and February 29, 2000 Condensed Consolidated Statement of Operations for the Three Months and Nine 4 Months Ended November 30, 2000 and 1999 Condensed Consolidated Statements of Cash Flows for the 5 Nine Months Ended November 30, 2000 and 1999 Notes to Condensed Consolidated Financial Statements 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings 11 ITEM 2. Changes in Securities 11 ITEM 5. Other Information 11 ITEM 6. Exhibits and Reports on Form 8-K 11 SIGNATURES 12
AURA SYSTEMS, INC. AND SUBSIDIARIES QUARTER ENDED NOVEMBER 30, 2000 PART I. FINANCIAL INFORMATION The financial statements included herein have been prepared by Aura Systems, Inc. (the "Company"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). As contemplated by the SEC under Rule 10-01 of Regulation S-X, the accompanying financial statements and footnotes have been condensed and therefore do not contain all disclosures required by generally accepted accounting principles. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Form 10-K for the year ended February 29, 2000 as filed with the SEC (file number 0-17249).
AURA SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) November 30, February 29, Assets 2000 2000* ------ ------------- --------------- Current assets: Cash and equivalents $ 423,843 $ 260,437 Receivables-net 392,022 2,459,200 Inventories 9,727,202 11,189,227 Notes receivable 2,485,611 3,557,007 Other current assets 592,346 360,177 --------------- --------------- Total current assets 13,621,024 17,826,048 --------------- --------------- Property and equipment, at cost 41,298,736 42,219,417 Less accumulated depreciation and amortization (19,396,034) (15,184,362) ---------------- ---------------- Net property and equipment 21,902,702 27,035,055 Long-term investments 2,123,835 2,123,835 Long-term receivables 3,793,775 1,250,000 Patents and trademarks- net 4,430,072 4,615,769 Other assets 3,252,980 3,271,831 --------------- --------------- Total $ 49,124,388 $ 56,122,538 ========== =============== Liabilities and Stockholder's Equity Current liabilities: Notes payable $ 6,853,038 $ 9,899,531 Accounts payable 2,571,714 4,216,004 Accrued expenses 1,849,912 1,634,300 Convertible note-unsecured -- 1,250,000 --------------- -------------- Total current liabilities 11,274,664 16,999,835 --------------- ------------ Notes payable and other liabilities 31,592,774 37,606,695 --------------- --------------- COMMITMENTS AND CONTINGENCIES Stockholders' equity Common stock par value $.005 per share and additional paid in capital. Issued and outstanding 281,376,809 and 196,975,392 shares respectively. 262,059,413 234,196,092 Common stock not issued -- 9,132,774 Cumulative currency translation adjustment (CTA) (365,932) (365,932) Accumulated deficit (255,436,531) (241,446,926) ----------------- ---------------- Total stockholders' equity 6,256,950 1,516,008 ------------- --------------- Total $ 49,124,388 $ 56,122,538 ============== ===============
See accompanying notes to condensed consolidated financial statements. *Amounts at February 29, 2000 have been derived from audited financial statements
AURA SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS THREE AND NINE MONTHS ENDED NOVEMBER 30, 2000 AND 1999 (Unaudited) Three Months Nine Months 2000 1999 2000 1999 ---- ---- ---- ---- Net Revenues $ 501,803 $ 1,089,984 $ 1,270,209 $ 6,315,065 Cost of goods and overhead 2,382,663 2,808,880 7,453,082 11,077,263 --------- --------- --------------- --------------- Gross Profit (1,880,860) (1,718,896) (6,182,873) (4,762,198) Expenses Selling, general and administrative 1,628,208 1,483,544 7,164,686 7,285,309 Research and development 246,384 128,594 332,335 373,215 ------------- ------------- -------------- -------------- Total costs and expenses 1,874,592 1,612,138 7,497,021 7,658,524 -------------- -------------- -------------- -------------- Loss from operations (3,755,452) (3,331,034) (13,679,894) (12,420,722) Other (income) and expense (Gain) loss on sale of subsidiary -- -- -- (877,512) (Gain) loss on disposition of assets -- 144,248 (1,756,746) 1,549,297 Other income (707,185) (249,801) (2,161,813) (272,460) Legal settlements and costs 1,046,792 60,124 2,611,288 279,635 Interest expense-net 557,960 904,042 1,616,982 2,476,214 ---------------- -------------- ----------------- -------------- Net loss $ (4,653,019) $ (4,189,647) $(13,989,605) $(15,575,896) =============== =============== ============= ============ Net loss per common share-basic $ (.02) $ (.04) $ (.06) $ (.14) ================= =============== ================ =============== Weighted average shares used to compute net loss per share 274,403,680 107,822,043 253,849,598 107,810,152 =========== ============= ================ ================
See accompanying notes to condensed consolidated financial statements.
AURA SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED NOVEMBER 30, 2000 AND 1999 (Unaudited) 2000 1999 ------------ ------------- Net cash (used) in operations $ (9,012,671) $ (6,796,443) ----------- ----------------- Cash flows from investing activities: Proceeds from sale of subsidiary 64,311 1,000,000 Additions to property and equipment (17,123) (324,194) Note receivable 1,363,551 2,696,000 --------------- --------------- Net cash provided by (used) in investing activities 1,410,739 3,371,806 Cash flows from financing activities: Net proceeds (repayment) from short-term borrowing (400,000) -- Repayment of debt (1,718,977) (115,757) Net proceeds from sale of stock 9,884,315 -- Proceeds from exercise of warrants -- 9,300 ---------------- ---------------- Net cash provided (used) by financing activities: 7,765,338 (106,457) --------- ------------ Net increase (decrease) in cash and cash equivalents 163,406 (3,531,094) Cash and cash equivalents at beginning of year 260,437 3,822,210 --------------- --------------- Cash and cash equivalents at end of period $ 423,843 $ 291,116 =============== ================ Supplemental disclosures of cash flow information Cash paid during the period for: Interest $ 1,519,221 $ 231,098 Income Tax 0 0 ============== ==============
Supplemental disclosure of noncash investing and financing activities: In the nine months ended November 30, 2000, $2,363,019 of notes payable and accrued interest were converted into 5,648,918 shares of the Company's common stock. The Company issued 12,042,627 shares of common stock to satisfy liabilities of $6,509,189. Effective March 1, 2000, the Company sold the assets of its Ceramics subsidiary for $3.5 million in the form of a note receivable of $2.5 million, a cash down payment of $64,311, included above, and the payment of $800,000 to third parties in satisfaction of liabilities. In the nine months ended November 30, 1999, the Company sold its MYS subsidiary for $4.2 million in the form of a note receivable in the amount of $3.2 million and a cash down payment of $1 million. The Company also sold the assets of its AuraSound subsidiary for a note receivable of $2 million. See accompanying notes to condensed consolidated financial statements. AURA SYSTEMS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1) Management Opinion The condensed consolidated financial statements include the accounts of Aura Systems, Inc. ("the Company") and subsidiaries from the effective dates of acquisition. All material inter-company balances and inter-company transactions have been eliminated. Certain reclassifications have been made to the November 1999 financial statements to conform with November 2000 classifications. These reclassifications have no effect on the reported net loss amount for November 1999. In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments (which include only normal recurring adjustments) and reclassifications for comparability necessary to present fairly the financial position and results of operations as of and for the three and nine months ended November 30, 2000. 2) Capital In the nine months ended November 30, 2000, the Company received net proceeds of $9,884,315 in exchange for 28,113,974 shares of common stock. In the nine months ended November 30, 1999, warrants to purchase 70,000 shares of common stock were exercised. 3) Contingencies The Company is engaged in various legal actions. See the Company's Form 10-K, Item 3- Legal Proceedings, for the year ended February 29, 2000 as filed with the SEC (file number 0-17249) for a description of the legal actions. To the extent that judgment has been rendered, appropriate provision has been made in the financial statements. Deutsche Financial Services v. Aura In June, 1999, a lawsuit naming Aura was filed in the United States District Court for the Central District of California, Deutsche Financial Services ("DFS") vs. Aura (Case No. 99-03551 GHK (BQRx)). The complaint follows DFS' termination of its credit facility with NewCom of $11,000,000 and seizure of substantially all of NewCom's collateral in April, 1999. It alleges, among other things, that Aura is liable to DFS for NewCom's indebtedness under the secured credit facility purportedly guaranteed by Aura in 1996, well prior to the NewCom initial public offering of September 1997. In the proceeding, DFS sought an order to attach Aura's assets which was denied following an evidentiary hearing before the Honorable Brian Quinn Robbins, U.S. Magistrate, and the matter has been ordered by the District Court to binding arbitration. Aura has now responded in arbitration, denying DFS' claims and has asserted in its defense, among other things, that the guarantee, if any, is discharged. In addition, Aura through its counsel, has asserted cross-claims for, among other things, tortuous lender liability, alleging that DFS wrongfully terminated the NewCom credit facility, wrongfully seized the NewCom collateral and wrongfully foreclosed upon NewCom collateral, acting in a commercially unreasonably manner. A panel of three arbitrators has been selected and appointed by the American Arbitration Association, and a hearing set for May, 2000 was suspended by the panel without scheduling a new hearing date. Hearing dates have now been scheduled beginning April 24, 2001. The Company believes it has meritorious defenses and cross-claims. However, no assurances can be given as to the ultimate outcome of this proceeding. Excalibur v. Aura On November 12, 1999, a lawsuit was filed by three investors against Aura and Zvi Kurtzman, Aura's Chief Executive Officer, in Los Angeles Superior Court entitled Excalibur Limited Partnership v. Aura Systems, Inc. (Case No. BC220054) arising out of two NewCom, Inc. financings consummated in December 1998. The NewCom financings comprised (1) a $3 million investment into NewCom in exchange for NewCom Common Stock, Warrants for NewCom Common Stock, and certain "Repricing Rights" which entitled the investors to receive additional shares of NewCom Common Stock in the event the price of NewCom Common Stock fell below a specified level, and (2) a loan to NewCom of $1 million in exchange for a Promissory Note and Warrants to purchase NewCom Common Stock. As part of these financings Aura agreed with the investors to allow their Repricing Rights with respect to NewCom Stock to be exercised for Aura Common Stock, at the investors' option. Aura also agreed to register Aura Common Stock relating to these Repricing Rights. The Plaintiffs allege in their complaint that Aura breached its agreements with the Plaintiffs by, among other things, failing to register the Aura Common Stock relating to the Repricing Rights. The Plaintiffs further allege that Aura misrepresented its intention to register the Aura shares in order to induce the Plaintiffs to loan $1.0 million to NewCom. The Complaint seeks damages of not less than $4.5 million. In January 2000 Aura filed counterclaims against the Plaintiffs, including claims that the Plaintiffs made false representations to Aura in order to induce Aura to agree to issue its Common Stock pursuant to the Repricing Rights. The parties had agreed to submit this matter to mediation on June 28, 2000, which did not finally resolve the matters. Trial is scheduled to begin on April 17, 2001. The Company believes that it has meritorious defenses and counterclaims to the Plaintiffs' allegations. However, no assurances can be given as to the ultimate outcome of this proceeding. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations This Report may contain forward-looking statements, which involve risks and uncertainties. The Company's actual results may differ materially from the results discussed in such statements. Certain factors could also cause actual results to differ materially from those discussed in such forward-looking statements, including factors discussed in the Company's Form 10-K for the period ended February 29, 2000, and factors discussed in this Report. Net revenue for the three and nine month periods ended November 30, 2000 decreased by $588,181 and $5,044,856 to $501,803 and $1,270,209 from the corresponding periods in the prior year. The decrease in revenue is primarily attributable to the sale of the assets of the Company's wholly owned subsidiaries Aura Ceramics and AuraSound. With the recently announced addition of major companies as distributors for the AuraGen, the Company expects that revenue growth will begin to increase at an accelerating rate. The accelerating increase in the rate of revenue growth is expected to favorably impact the Company's operations in terms of cash flow from operations and net earnings. Cost of goods and overhead for the three and nine months ended November 30, 2000 decreased by $659,569 and $3,857,533 in comparison with the corresponding periods in the prior year due primarily to the disposition of the Company's AuraSound and Aura Ceramics subsidiaries' assets. General and administrative expenses increased for the three and decreased for the nine month periods by $144,664 and $120,623 respectively, as the Company has recently begun to expand its activities in the sales and marketing area. While the Company expects general and administrative expenses to moderately increase as the Company continues to expand its sales and marketing efforts, the Company expects the rate of increase in these expenses to be substantially below the rate of increase in revenue growth. Included in cost of goods and overhead and general and administrative costs for the three and nine months ended November 30, 2000, is depreciation and amortization of $1.7 million and $5.0 million, respectively. Research and development costs increased for the three and decreased for the nine months ended November 30, 2000 by $117,790 and $40,880. The Company has recently begun to increase its research and development activities in order to expand its line of AuraGen products and expects these activities and expenses to continue to grow as the Company's cash flow from operations allows the Company to develop more variations on the Company's basic 5KW AuraGen, including, but not limited to, the 6KW, 8KW, 10KW, 25KW, AC/DC versions, inverter and battery charger versions, and marine and other applications. In the nine months ended November 30, 2000, the Company recorded a gain of $1,756,746 on the disposition of the assets of the Aura Ceramics facility. In the nine months ended November 30, 1999, the Company recorded a gain of $877,512 on the sale of its MYS subsidiary and a loss on the disposition of the assets of the AuraSound subsidiary of $1,405,049. Net interest expense decreased by $346,082 to $577,960 and $859,232 to $1,616,982 in the three and nine months ended November 30, 2000 due primarily to the reduction in outstanding debt of the Company as a result of the restructuring. Liquidity and Capital Resources In the nine months ended November 30, 2000, cash increased by $163,406 to $423,843 from $260,437 at February 29, 2000. Accounts payable and accrued expenses decreased by $1,428,678 from February 29, 2000. Inventories decreased by $1,462,025 and accounts receivable decreased by $2,067,178. Cash flows used in operations increased by $2,216,228 compared to the prior year nine months. Working capital was $2,346,360 as compared to $826,213 at the fiscal year end level, with the current ratio improving to 1.21:1 from 1.05:1. In the nine months ended November 30, 2000, the Company received net proceeds of $9,884,315 from the sale of its common stock. In the nine months ended November 30, 1999, the Company received proceeds of $9,300 from the exercise of warrants. In the past the Company's cash flow generated from operations has not been sufficient to completely fund its working capital needs. Accordingly, the Company has also relied upon external sources of financing to maintain its liquidity. In order to finance its existing operations it will be necessary for the Company to obtain additional working capital from external sources. The Company is presently seeking additional sources of financing, including debt and equity financing. No assurances can be provided that these funding sources will be available at the times and in the amounts required. The inability of the Company to obtain sufficient working capital at the times and in the amounts required would have a material adverse effect on the Company's business and operations. For additional information regarding the Company's financial condition, see the Company's Form 10-K, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations for the year ended February 29, 2000 as filed with the SEC (file number 0-17249). Forward Looking Statements The Company wishes to caution readers that important factors, in some cases, have affected, and in the future could affect, the Company's actual results and could cause the Company's actual consolidated results for the fourth quarter of Fiscal 2001, and beyond, to differ materially from those expressed in any forward-looking statements made by, or on behalf of the Company. Such factors include, but are not limited to, the following risks and contingencies: changed business conditions in the automotive industry and the overall economy; increased marketing and manufacturing competition and accompanying price pressures; contingencies in initiating production at new factories along with their potential underutilization, resulting in production inefficiencies and higher costs and start-up expenses and; inefficiencies, delays and increased depreciation costs in connection with the start of production in new plants and expansions. Relating to the above are potential difficulties or delays in the development, production, testing and marketing of products, including, but not limited to, a failure to ship new products and technologies when anticipated. There might exist a difficulty in obtaining raw materials, supplies, power and natural resources and any other items needed for the production of Company and other products, creating capacity constraints limiting the amounts of orders for certain products and thereby causing effects on the Company's ability to ship its products. Manufacturing economies may fail to develop when planned, products may be defective and/or customers may fail to accept them in the consumer marketplace. In addition to the above, risks and contingencies may exist as to the amount and rate of growth in the Company's selling, general and administrative expenses, and the impact of unusual items resulting from the Company's ongoing evaluation of its business strategies, asset valuations and organizational structures. Furthermore, any financing or other financial incentives by the Company under or related to major infrastructure contracts could result in increased bad debt or other expenses or fluctuation of profit margins from period to period. The focus by some of the Company's businesses on any large system order could entail fluctuating results from quarter to quarter. The effects of, and changes in, trade, monetary and fiscal policies, laws and regulations, other activities of governments, agencies and similar organizations, and social and economic conditions, such as trade restrictions impose yet other constraints on any Company statements. The cost and other effects of legal and administrative cases and proceedings present another factor which may or may not have an impact. PART II - OTHER INFORMATION ITEM 1 Legal Proceedings For information regarding pending legal proceedings, see Note 3 to the Company's Condensed Consolidated Financial Statements appearing elsewhere herein. ITEM 2 Changes in Securities Private Placement for Debt Conversion In the third quarter of Fiscal 2001 the Company conducted a private offering to a group of accredited investors whereby the Company converted or exchanged approximately $4.7 million of outstanding indebtedness for 5,795,903 shares of Common Stock. The offering was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933 as the offering was a private placement to a limited number of accredited investors. ITEM 5 Other Information Appointment of Independent Accountants: On January 9, 2001, the Company appointed Singer Lewak Greenbaum & Goldstein LLP as its Independent Accountants. ITEM 6 Exhibits and Reports on Form 8-K a) Exhibits: See Exhibit Index b) Reports On Form 8-K: none SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AURA SYSTEMS, INC. (Registrant) Date: January 16, 2001 By: /s/Steven C. Veen ----------------------- --------------------------------------- Steven C. Veen Senior Vice President Chief Financial Officer (Principal Financial and Accounting Officer) INDEX TO EXHIBITS Exhibit Sequential Number Page No. EX-27 Financial Data Schedule