-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BJ54BxzhZEBLnZneEoNM1zwDrlfvY5dP30G9gWpdojksA1yMlu22r59NF/kNoBVa 3SddY+qbQWziyNjftbUuSQ== 0000898430-96-000131.txt : 19960117 0000898430-96-000131.hdr.sgml : 19960117 ACCESSION NUMBER: 0000898430-96-000131 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19951130 FILED AS OF DATE: 19960116 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AURA SYSTEMS INC CENTRAL INDEX KEY: 0000826253 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS, NEC [3679] IRS NUMBER: 954106394 STATE OF INCORPORATION: DE FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-17249 FILM NUMBER: 96503847 BUSINESS ADDRESS: STREET 1: 2335 ALASKA AVE CITY: EL SEGUNDO STATE: CA ZIP: 90245 BUSINESS PHONE: 3106435300 MAIL ADDRESS: STREET 1: 2335 ALASKA AVE CITY: EL SEGUNDO STATE: CA ZIP: 90245 10-Q 1 FORM 10-Q FOR PERIOD ENDED 11/30/95 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, 1995 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 of incorporation or organization) Identification No.) 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 12 , 1996 ----- --------------------------------- Common Stock, par value 59,978,052 Shares $.005 per share AURA SYSTEMS, INC. AND SUBSIDIARIES INDEX Page No. PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements Statement Regarding Financial Information 1 Condensed Consolidated Balance Sheets as of November 30, 1995 and February 28, 1995 2 Condensed Consolidated Statement of Operations for the Three Months and Nine Months Ended November 30, 1995 and 1994 3 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended November 30, 1995 and 1994 4 Notes to Condensed Consolidated Financial Statements 5 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings 12 ITEM 6. Exhibits and Reports on Form 8-K 12 SIGNATURES 13 AURA SYSTEMS, INC. AND SUBSIDIARIES QUARTER ENDED NOVEMBER 30, 1995 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 28, 1995 as filed with the SEC (file number 0-17249). 1 AURA SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
NOVEMBER 30, FEBRUARY 28, ASSETS 1995 1995 - ------ ------------ ------------ CURRENT ASSETS Cash and equivalents $ 19,657,820 $ 3,827,500 Trade receivables and other 47,303,067 28,333,898 Insurance proceeds in escrow for class action settlement - 1,720,000 Inventories and Contracts in progress 25,706,250 13,039,030 Other current assets 5,168,123 1,960,279 ------------ ------------ TOTAL CURRENT ASSETS 97,835,260 48,880,707 ------------ ------------ PROPERTY AND EQUIPMENT, AT COST 27,016,082 22,471,598 Less accumulated depreciation and amortization (6,767,578) (5,151,073) ------------ ------------ NET PROPERTY AND EQUIPMENT 20,248,504 17,320,525 Patents - net 2,109,183 2,039,881 Investments and Joint Ventures 5,855,924 645,626 Deferred charges 2,498,178 3,123,552 Other assets 1,451,628 1,456,712 ------------ ------------ $129,998,677 $ 73,467,003 ============ ============ LIABILITIES AND STOCKHOLDER'S EQUITY - ------------------------------------ CURRENT LIABILITIES: Current installments of notes payable $ 1,925,825 $ 545,006 Class action settlement - 5,720,000 Accounts payable and accrued expenses 9,464,198 8,819,520 ------------ ------------ TOTAL CURRENT LIABILITIES 11,390,023 15,084,526 Convertible Notes 3,787,900 3,662,900 Notes payable and other liabilities 811,116 466,158 STOCKHOLDERS' EQUITY Common stock, issued and out- standing 59,896,906 and 43,073,634 shares, respectively 157,605,776 95,826,986 Accumulated deficit (43,596,138) (41,573,567) ------------ ------------ Net stockholders' equity 114,009,638 54,253,419 ------------ ------------ $129,998,677 $ 73,467,003 ============ ============
See accompanying notes to condensed consolidated financial statements. 2 AURA SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS THREE AND NINE MONTHS ENDED NOVEMBER 30, 1995 AND 1994 (UNAUDITED)
THREE MONTHS NINE MONTHS ------------ ----------- 1995 1994 1995 1994 ---- ---- ---- ---- GROSS REVENUES $28,117,313 $18,372,429 $55,716,103 $32,214,127 Less returns and allowances (118,444) - (502,861) - ----------- ----------- ----------- ----------- NET REVENUES 27,998,869 18,372,429 55,213,242 32,214,127 Cost of revenues 22,138,410 11,399,003 43,890,839 20,715,877 ----------- ----------- ----------- ----------- GROSS PROFIT 5,860,459 6,973,426 11,322,403 11,498,250 EXPENSES General and administrative 5,321,563 5,465,567 11,472,459 10,328,525 Research and development 932,914 593,780 1,921,718 1,366,560 ----------- ----------- ----------- ----------- Total costs and expenses 6,254,477 6,059,347 13,394,177 11,695,085 ----------- ----------- ----------- ----------- INCOME (LOSS) FROM OPERATIONS (394,018) 914,079 (2,071,774) (196,835) OTHER (INCOME) AND EXPENSE Interest income (262,273) (1,902) (446,614) (80,458) Interest expense 155,876 88,758 397,411 273,027 ----------- ----------- ----------- ----------- NET INCOME (LOSS) $ (287,621) $ 827,223 $(2,022,571) $ (389,404) =========== =========== =========== =========== NET INCOME (LOSS) PER SHARE $ (.005) $ .02 $ (.04) $ (.01) =========== =========== =========== =========== WEIGHTED AVERAGE SHARES USED TO COMPUTE NET INCOME (LOSS) PER SHARE 58,043,251 37,885,043 51,374,076 35,819,115 =========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements. 3 AURA SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED NOVEMBER 30, 1995 AND 1994 (UNAUDITED)
1995 1994 ------------ ------------ NET CASH (USED) IN OPERATIONS $(31,351,791) $(24,407,254) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (4,366,141) (2,438,267) Equity investments (3,020,000) - ------------ ------------ NET CASH PROVIDED BY (USED) IN INVESTING ACTIVITIES (7,386,141) (2,438,267) ------------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Cash released from escrow - 5,000,000 Net borrowings on line of credit 1,674,967 - Proceeds from issuance of convertible debt 1,174,830 - Proceeds from long term debt 338,322 - Repayment of debt (492,855) (282,789) Proceeds from warrant exercises 100,000 225,000 Proceeds from exercise of stock options 647,860 644,332 Proceeds from issuance of common stock 51,200,298 21,271,985 Legal and other financing fees paid (75,170) (490,639) ------------ ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 54,568,252 26,367,889 ------------ ------------ NET INCREASE (DECREASE) IN CASH 15,830,320 (477,632) Cash and cash equivalents at beginning of year 3,827,500 4,560,312 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 19,657,820 $ 4,082,680 ============ ============ Supplemental disclosures of cash flow information Cash paid during the period for: Interest $ 325,349 $ 195,425 Income tax 6,400 7,383 ============ ============
Supplemental disclosure of noncash investing and financing activities: In the nine months ended November 30, 1995, the Company entered into financing arrangements whereby it acquired equipment in exchange for three notes payable in the amount of $178,343. In the nine months ended November 30, 1995 the Company issued 49,046 shares of common stock to its 401-K plan. The Company also issued 1,032,314 shares at market in settlement of a class action liability and other liabilities. Additionally, the Company issued 315,000 shares of common stock for the acquisition of assets. In the nine months ended November 30, 1995, 260,960 shares of common stock were issued for the conversion of $1,125,000 of 9% convertible debt and the payment of $33,094 in associated interest. In June 1994, the Company entered into a financing arrangement whereby it acquired equipment in exchange for a note payable in the amount of $88,300. In the nine months ended November 30, 1994 the Company issued 282,863 shares of common stock for $950,000 of 7% Convertible Secured Notes that holders voluntarily converted. In the nine months ended November 30, 1994, the Company issued 364,468 shares of common stock in connection with the settlement of a previously recorded liability, a consulting arrangement, and the acquisition of patents. The Company also issued 1,497,700 shares of common stock at market value in consideration of liabilities. In the nine months ended November 30, 1994, the Company acquired Electrotec Productions, Inc. for the payment of $89,000 in cash and a $350,000 note payable. See accompanying notes to condensed consolidated financial statements. 4 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 dates of acquisition. All material inter-company balances and inter-company transactions have been eliminated. 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 six months ended August 31, 1994. 2) CONVERTIBLE NOTES In Fiscal 1993, the Company issued its 7% Secured Convertible Debentures due 2002 in the total amount of $5,500,000. The notes are secured by a first lien on the Company's headquarters facility and are convertible at the holder's option into Aura's common stock at an average conversion price of $3.38 per share. The loan agreement also provides for mandatory conversion into common stock in the event the market price of the common stock exceeds $10.00 per share for ten consecutive trading days. The balance outstanding at November 30, 1995 of $3,662,900 reflects voluntary conversions of $1,837,100 by holders who have elected to receive 550,281 shares of common stock in exchange for their Notes. In the second quarter of Fiscal 1996, the Company issued $1,250,000 of 9% convertible notes. As of November 30, 1995, $1,125,000 of principle plus $33,094 in interest has been converted into 260,960 shares of common stock. 3) AURA CERAMICS, INC. In June 1993, the Company formed Aura Ceramics, Inc. to acquire the assets of the Ceramics Center of Alliant Techsystems solely for the assumption of liability for environmental cleanup with no current cash payments required. The cost of environmental cleanup necessary has been estimated to be $750,000 and would be payable upon vacancy of the leased premises. The estimated cleanup cost was determined after consultation with an engineering firm that has dealt with environmental cleanups at these types of facilities. The lease has a term of 5 years, with options for renewal for two additional 5 year periods. It is anticipated that the Company will occupy the premises for 10 years and as such the Company has recorded a value of $300,000 for the assets involved and a corresponding liability representing the amortized present value, included in Notes payable and other liabilities, after application of a 9.25% discount rate, of the future payment which may be required upon vacancy. Aura Ceramics, Inc. began operations shortly after formation. 4) JOINT VENTURES AND OTHER AGREEMENTS (a) Daewoo Agreement ---------------- In August 1992, the Company entered into a definitive joint development and licensing agreement with Daewoo Electronics Co., Ltd. to exploit certain of the Company's AMA technology as it applies to the development of a high resolution projection system for use in television sets. The agreement as modified provides for the payment of a $1,500,000 licensing fee and approximately $2,000,000 of reimbursement to Aura for development costs. Further, Aura is to receive royalties on a scheduled basis per television set manufactured upon the commencement of commercial production which is estimated to begin in calendar 1996. The entire license fee has been received by the Company and recognized as income as all technical milestones delineated in the agreement have been achieved by the Company. 5 In December 1993, the Company entered into a long term supply agreement with Daewoo Electronics, Co., Ltd. Pursuant to this agreement, the Company will produce speakers solely for Daewoo (or a company designated by Daewoo) using the Company's patented technology in accordance with specifications supplied by Daewoo, and Daewoo will have the exclusive right in Korea for the sale of such speakers and the non-exclusive right in the Asian Zone (except for the ASEAN territories). Under the agreement, Daewoo will use its best efforts for marketing to other users in the Korean market. The Company has granted Daewoo the exclusive selling right in Korea for the current year. (b) Malaysian Joint Venture ----------------------- On September 23, 1993, the Company entered into an agreement with Burlington Technopole SDN. BHD., a Malaysian corporation ("Burlington"), for the formation of a joint venture to manufacture and sell speakers using Aura's proprietary technology. The joint venture, which has been named Audiora Sound SDN. BHD and was established under Malaysian law to operate in Malaysia, has the exclusive right to sell speakers using Aura technology in the ASEAN countries and the non-exclusive right to sell such speakers in the United States. Under the terms of the agreement, the Company owns 49% of the joint venture and Burlington owns 51%. The capitalization of the joint venture involves a total of $500,000 ($250,000 from each party) in initial investments by the Company and Burlington. In addition Burlington intends to borrow $8 million. The Company has granted all licenses as necessary to enable the joint venture to manufacture the speakers, and in return may receive up to $1 million in license fee, of which $500,000 was collected in January 1994 and included in revenues. There is no further obligation on the Company's part with regards to the license fee recorded as income. The Company further agreed to purchase a minimum of 3 million speakers per year (at an estimated cost of $5 million to $7 million) for the five years following the start of production of the speakers at prices equal to the wholesale market prices to the end users of the speakers. Payment for these speakers will be made with a revolving letter of credit based on 30 day revolving terms for each monthly purchase of speakers (based on the previous month's shipment). The production facility has been completed and production runs began in the second quarter of Fiscal 1996. At November 30, 1995, the Company's investment is $371,392, representing the initial investment plus other costs. (c) Intergroup Joint Venture ------------------------ In February 1994, the Company entered into an agreement with Intergroup Corporation ("Intergroup") for the formation of a joint venture, to manufacture and sell platform motion simulators using Aura's proprietary technology. The joint venture known as Magforce is 50% owned by Aura and 50% owned by Intergroup. Under the terms of the agreement, Aura granted to Intergroup an exclusive, worldwide right to Aura's technology regarding platform motion simulators in consideration of a license fee of $740,000, all of which has been received by the Company. The joint venture will be capitalized by a contribution of $10,000 in cash by each of the parties, the contribution to the joint venture of Intergroup's exclusive, worldwide license regarding the platform motion simulator, and the contribution by Aura of a platform motion simulator. The Company also entered into a separate agreement with Intergroup for the sale of an additional license for $1,000,000, related to the Companys' actuator technology as used in vibration isolation. $500,000 of this license fee has been received by the Company. (See also Note 7). (d) Industrial Equipment Agreement ------------------------------ In May 1994, the Company entered into an agreement with an unrelated group of investors to exploit machine tool, robotic and industrial hand tool applications of the Company's electromagnetic technology. Concurrently, the Company granted these investors a license for the exclusive rights under Aura's patents and proprietary technology for use in such applications. Consideration for the license was a nonrefundable $1,000,000 fee, all of which has been received by the Company. The Company has no further obligation with respect to this license. In exchange for providing a working prototype of an initial product, the Company will also have a 50% participation in future operating results of an entity established to manufacture and market products. 6 (e) K & K Enterprises Joint Venture (Speakers) ------------------------------------------- On July 19, 1995, the Company entered into an agreement with K&K Enterprises for the formation of a joint venture to manufacture and sell speakers using Aura's proprietary technology. K&K has obtained a license to the Company's technology and will grant an exclusive sub-license to the joint venture. The joint venture has the exclusive right to build and sell speakers using Aura's technology in the republic of Taiwan, Indian Subcontinent, Middle East and the European market. The Company owns 49% of the joint venture and K&K owns 51%. As consideration for the license to K&K Enterprises, the Company will receive a $1,000,000 fee. In addition, the joint venture could, at Aura's discretion, build speakers for Aura's needs in other parts of the world. The Company has committed to order twenty million speakers over a seven year period as the Company shall determine in its sole discretion. The speakers are needed to meet the Company's demand for multimedia applications. K&K Enterprises obtained part of their rights under this joint venture in a novation executed by Zylux Acoustic, a former joint venture partner with the Company. (f) K&K Enterprises Joint Venture (Bass Shakers) -------------------------------------------- On July 12, 1995 the Company entered into an agreement with K&K Enterprises, for the formation of a joint venture to manufacture Aura's bass shaker, an audio enhancement sound system incorporating Aura's proprietary electromagnetic transducer technology. The joint venture, established to operate and manufacture within India, is owned 49% by the Company, and 51% by K&K Enterprises. In connection with the agreement, Aura granted to K&K Enterprises, an exclusive license to use Aura's patented and proprietary technology. As consideration for the license to K&K Enterprises, the Company will receive license fee payments quarterly over the life of the patent. Scheduled payments for the first five years total approximately $2.9 million. The Company has agreed to purchase two hundred eighty thousand bass shakers in the first year increasing to four hundred forty thousand units and five hundred sixty thousand units in years two and three. Thereafter, manufacturing commitments are now set at one hundred fifty thousand units of bass shakers per quarter. Pursuant to the agreement: (i) Aura will contribute to the new joint venture a working prototype of an exemplary product of the type to be manufactured; (ii) K&K will contribute a sublicense of the rights and obligations under the exclusive license; (iii) Aura and K&K will initially contribute $400,000 pro rata as paid in capital for the share certificates to be issued and; (iv) Aura will provide training to K&K personnel with reimbursement to Aura at cost. K&K Enterprises obtained part of their rights under this joint venture in a novation executed by Twilight International, a former joint venture partner with the Company. 5) AURA MEDICAL SYSTEMS, INC. As a result of a series of stock purchase transactions entered into as of and subsequent to November 30, 1991 the Company reduced its ownership in AMS to 49.7% of total shares outstanding by February 28, 1993. Gross proceeds from the stock sale transactions aggregated $4,000,000 of which $3,000,000 was paid in cash prior to February 28, 1993 with the remaining $1,000,000 paid in Fiscal 1995. Included in this $4,000,000 was the sale to a then director of the Company for $1,000,000. The $4,000,000 gross amount, less costs of $560,000 for shares purchased from other AMS shareholders as part of this transaction, have been included in proceeds from sale of stock in AMS and deferred on previously presented balance sheets. The agreements under which the sale occurred contained provisions whereby the shares purchased by these individuals are exchangeable for the Company's shares during the period from November 30, 1993 through November 30, 1998, subject to certain "acceleration events" as defined in the stock purchase agreements. In November 1994, the individuals exercised their right to exchange their stock in AMS for stock in the Company. AMS is consolidated in the Company's financial statements as of 7 February 28, 1995 since the exchange resulted in the Company owning a majority of the outstanding shares of AMS as of February 28, 1995. The Company has elected not to restate the consolidated financial statements for the prior years, due to the immateriality of the amounts. 6) CAPITAL In the nine months ended November 30, 1995, options to purchase 203,000 shares of common stock were exercised resulting in proceeds of $647,860. Additionally, proceeds of $100,000 were realized from the exercise of warrants to purchase 35,165 shares of common stock. During the nine months ended November 30, 1995, the Company issued 15,051,280 shares of common stock for which it received proceeds of $51,200,298. During the nine months ended November 30, 1994, options to purchase 169,000 shares of common stock were exercised resulting in proceeds of $644,332. An additional $225,000 in proceeds was realized from the exercise of warrants to purchase 45,000 shares of common stock. In the nine months ended November 30, 1994, the Company issued 4,184,554 shares of common stock for which it received $21,271,985. 7) CONTINGENCIES The Company is engaged in various legal actions listed below. To the extent that judgment has been rendered, appropriate provision has been made in the financial statements. Intergroup Arbitration ---------------------- On March 14, 1995, the Intergroup Corp. filed against the Company a Demand for Arbitration (Case No. 72 133 00276 95) before the American Arbitration Association (AAA) in Los Angeles, California, under its commercial arbitration rules. The Company filed its general denial, affirmative defenses and counterclaim to the Demand on March 27, 1995. The claim Intergroup, and the defenses and counterclaims of the Company were disclosed in the Company's 10-K filed May 30, 1995. The Company does not believe that the outcome of the arbitration will have a material adverse effect on the financial condition of the Company. The AAA has selected the arbitration panel which will decide this dispute. A preliminary hearing has been held to assess the scope of the issues to be decided and the extent of the discovery to be conducted. Discovery is now opened and continuing. The Company intends to vigorously defend this action and pursue its counterclaims. Shareholder Litigation ---------------------- On May 17, 1995 two lawsuits naming Aura, certain of its directors and executive officers and a former executive officer as defendants, were filed in the United States District Court for the Central District of California (Case Nos. CV-95-3295 and CV-95-3296). Both complaints (the "Complaints") purport to be class actions on behalf of all persons who purchased common stock of Aura during the period from May 28, 1993 through January 17, 1995, inclusive (the "Class Period"). The Complaints allege that as a result of false and misleading information disseminated by the defendants, the market price of Aura's common stock was artificially inflated during the Class Period. Specifically, the Complaints allege that (i) in its periodic reports filed with the SEC during the Class Period and/or certain public announcements made during that period, the Company increased its reported revenues by overstating product sales and certain licensing fees and (ii) the Company misstated the sophistication and quality of, and commitments for the Company's "Interactor Vest." The Complaints request damages in an unspecified amount under certain federal securities laws. The Company believes that this action is frivolous and that it has meritorious defenses to all these claims. The Company filed motions to dismiss the complaints on August 4, 1995. The plaintiffs did not oppose the motions to dismiss but instead filed a consolidated amended complaint on September 1, 1995. On October 2, 1995, the Company filed its motion to dismiss 8 the consolidated amended complaint. On November 20, 1995, the court dismissed the consolidated amended complaint without prejudice and granted plaintiffs 10 days leave to amend. Plaintiffs filed their second amended complaint on December 5, 1995. The Company filed motion to dismiss the second amended complaint on December 22, 1995. A hearing on defendant's motion is scheduled for January 16, 1996. Other Litigation ---------------- The Company is also engaged in other legal actions arising in the ordinary course of business. In the opinion of management based in part upon the advice of counsel, the ultimate resolution of these matters will not have a material adverse effect. Therefore, no provision for these matters has been made in the Company's consolidated financial statements. 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS For the three months ended November 30, 1995, the Company lost $287,621 on revenues of $28,117,313 compared to income of $827,223 on revenues of $18,372,429 for the comparable period of Fiscal 1995. For the nine months ended November 30, 1995, the Company lost $2,022,571 on revenues of $55,716,103, compared to a loss of $389,404 on revenues of $32,214,127 in the prior year nine months. Contributing to the loss in the three and nine months was a reduction in license fee revenue of $1/2 million and $2.5 million, respectively, and an increase of approximately $460,000 and $1,760,000 in depreciation and amortization. Revenue for the three and nine month periods ended November 30, 1995 increased by $9,744,844 and $23,501,976 respectively, from the corresponding periods in the prior year. The increased revenues resulted primarily from sales from the Company's new subsidiaries. Sales of computer related products to five unrelated parties in the nine months ended November 30, 1995, totaled $27,164,554 or 48.8% of revenues compared to $4,969,345 or 15.4% of revenues to a single unrelated customer in the comparable prior year period. This increase is primarily the result of sales of the Company's Newcom subsidiary. There were no license fee revenues in the three and nine months periods ended November 30, 1995. License fee revenues for the three and nine months ended November 30, 1994 totaled $500,000 and $2,500,000, or 2.7% and 7.8% of revenues, respectively. Since there is no further obligation on the Company's part with respect to these license fees, they have been recorded as revenue in the three and nine month periods. License agreements have a pronounced effect on operating results because associated direct costs are insignificant. At the same time, the nature of transactions underlying these revenues means that such revenues are likely to be erratic and difficult to predict. However, the Company believes that revenues from licensing of its technology may increase as more applications of the Company's technology are licensed to third parties. Cost of revenues for the three and nine months ended November 30, 1995 increased by $10,739,407 and $23,174,962 in comparison with the corresponding periods in the prior year as a result of the increase in purchased parts associated with the increase in sales of the Company's products. Gross margins for the periods ended November 30, 1995 were negatively impacted by the increase in depreciation and amortization which is primarily due to the amortization of deferred charges. These charges are being amortized over a two year period. The prior years gross margin was favorably impacted by the inclusion of license fees which have little or no associated direct costs. Research and development costs for the three and nine months ended November 30, 1995 increased by $339,134 and $555,158 as the Company increased development of new applications for its patented technologies. General and administrative costs for the three and nine month periods decreased by $144,004 and increased by $1,143,934 respectively due principally to the addition of the Company's two new subsidiaries Electrotec Productions, Inc. and Newcom Inc. Depreciation and amortization for the three and nine months ended November 30, 1995 totaled $1,273,280 and $3,192,599 compared to $815,312 and $1,432,599 in the prior year periods. The Company had net interest income of $106,397 and $49,203 for the three and nine months ended November 30, 1995, compared with net interest expense of $86,856 and $192,569 for the prior year periods due partially to the voluntary redemption of a portion of the Company's Secured 7% Convertible Notes and partially to the increased amount of cash available to be invested in the current year periods. 10 LIQUIDITY AND CAPITAL RESOURCES In the nine month period, cash increased from $3,827,500 at February 28, 1995 to $19,657,820 at November 30, 1995. Inventories increased by $12,667,220 as the Company built inventory levels to an amount necessary to support sales. Accounts receivable increased by $8,604,277 at November 30, 1995 from the quarter ended August 31, 1995 on sales of $28.1 million while increasing $18,969,169 on sales of $55.7 million from the prior fiscal year end level. Cash flows used in operations increased by $6,944,537 compared to the prior year nine months. Working capital increased to $86,445,237 from $33,796,181 over the fiscal year end level, with the current ratio improving to 8.59:1 from 3.24:1. In the nine months ended November 30, 1995, financing activities contributed $644,332 from the exercise of options to purchase 169,000 shares of common stock, $100,000 from the exercise of warrants to purchase 35,165 shares of common stock, and $51,200,298 from the sale of 15,051,280 shares of common stock. In the nine months ended November 30, 1995, 1,032,314 shares of common stock were issued for the settlement of previously recorded liabilities, and 315,000 shares of common stock were issued for the acquisition of assets. In the nine months ended November 30, 1994, financing activities contributed $869,322 from the exercise of options and warrants to purchase 214,000 shares of stock and $21,271,985 from the sale of 4,184,554 shares of common stock. 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, principally private and bank indebtedness and equity financing. No assurances can be provided that these funding sources will be available in the future. The Company expects that, with the expansion of production and sales of its interactive products, speaker products and computer related products, the Company's cash flow and results of operations will be favorably impacted in the future. 11 PART II - OTHER INFORMATION ITEM 1 Legal Proceedings For information regarding pending legal proceedings, see Note 8 to the Company's Condensed Consolidated Financial Statements appearing elsewhere herein. ITEM 6 Exhibits and Reports on Form 8-K -------------------------------- a) Exhibits: See Exhibit Index b) Reports On Form 8-K: None 12 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 15, 1996 By: /s/ Steven C. Veen ------------------------- ---------------------- STEVEN C. VEEN Senior Vice President Chief Financial Officer (Principal Financial and Accounting Officer) 13 INDEX TO EXHIBITS Exhibit Sequential Number Page No. EX-27 Financial Data Schedule 14 EX-27 2 FINANCIAL DATA SCHEDULE
5 9-MOS FEB-28-1995 MAR-01-1995 NOV-30-1995 19,657,820 0 47,303,067 0 25,706,250 97,835,260 27,016,082 6,767,578 129,998,677 11,390,023 0 0 0 157,605,776 0 129,998,677 55,716,103 55,716,103 43,890,839 43,890,839 13,394,177 0 (49,203) (2,022,571) 0 0 0 0 0 (2,022,571) (.04) 0
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