-----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, Kokd/ceK6VbNw7/NxotPnb0EuXIq8/ZveuNmJVPG5zn7/qcDDi2PkfkQlCSsmzG0 A1HXzJqoyCUF3Ao48QFhyg== 0000898430-95-002030.txt : 19951017 0000898430-95-002030.hdr.sgml : 19951017 ACCESSION NUMBER: 0000898430-95-002030 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950831 FILED AS OF DATE: 19951016 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: 95580872 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 ================================================================================ 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 August 31, 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 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 October 13, 1995 ----- -------------------------------- Common Stock, par value 55,575,612 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 August 31, 1995 and February 28, 1995 2 Condensed Consolidated Statement of Operations for the Three Months and Six Months Ended August 31, 1995 and 1994 3 Condensed Consolidated Statements of Cash Flows for the Six Months Ended August 31, 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 AUGUST 31, 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)
AUGUST 31, FEBRUARY 28, ASSETS 1995 1995 - ------ ------------ ------------- CURRENT ASSETS Cash and equivalents $ 17,457,230 $ 3,827,500 Trade receivables and other 38,698,790 28,333,898 Insurance proceeds in escrow for class action settlement 1,720,000 1,720,000 Inventories and Contracts in progress 23,510,509 13,039,030 Other current assets 4,476,716 1,960,279 ------------ ------------ TOTAL CURRENT ASSETS 85,863,245 48,880,707 ------------ ------------ PROPERTY AND EQUIPMENT, AT COST 26,166,893 22,471,598 Less accumulated depreciation and amortization (6,179,630) (5,151,073) ------------ ------------ NET PROPERTY AND EQUIPMENT 19,987,263 17,320,525 Patents - net 2,058,492 2,039,881 Investments and Joint Ventures 862,423 645,626 Deferred charges 2,623,356 3,123,552 Other assets 2,096,587 1,456,712 ------------ ------------ $113,491,366 $ 73,467,003 ============ ============ LIABILITIES AND STOCKHOLDER'S EQUITY - ------------------------------------ CURRENT LIABILITIES: Current installments of notes payable $ 696,508 $ 545,006 Class action settlement 5,720,000 5,720,000 Accounts payable and accrued expenses 12,096,940 8,819,520 ------------ ------------ TOTAL CURRENT LIABILITIES 18,513,448 15,084,526 Convertible Notes 4,600,400 3,662,900 Notes payable and other liabilities 536,941 466,158 STOCKHOLDERS' EQUITY Common stock, issued and outstanding 54,424,864 and 43,073,634 shares, respectively 133,149,094 95,826,986 Accumulated deficit (43,308,517) (41,573,567) ------------ ------------ Net stockholders' equity 89,840,577 54,253,419 ------------ ------------ $113,491,366 $ 73,467,003 ============ ============
See accompanying notes to condensed consolidated financial statements. 2 AURA SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS THREE AND SIX MONTHS ENDED AUGUST 31, 1995 AND 1994 (Unaudited)
THREE MONTHS SIX MONTHS ------------ ---------- 1995 1994 1995 1994 ---- ---- ---- ---- GROSS REVENUES $18,073,422 $ 9,393,432 $27,598,790 $13,841,698 Less returns and allowances (384,417) -- (384,417) -- ----------- ----------- ----------- ----------- NET REVENUES 17,689,005 9,393,432 27,214,373 13,841,698 Cost of revenues 14,480,395 5,820,833 21,752,429 9,316,874 ----------- ----------- ----------- ----------- GROSS PROFIT 3,208,610 3,572,599 5,461,944 4,524,824 EXPENSES General and administrative 3,677,333 2,790,826 6,150,896 4,859,655 Research and development 526,741 473,058 988,804 772,780 Equity loss from investment in AMS -- 1,651 -- 3,303 ----------- ----------- ----------- ----------- Total costs and expenses 4,204,074 3,265,535 7,139,700 5,635,738 ----------- ----------- ----------- ----------- INCOME (LOSS) FROM OPERATIONS (995,464) 307,064 (1,677,756) (1,110,914) OTHER (INCOME) AND EXPENSE Interest income (162,529) (44,151) (184,341) (78,556) Interest expense 142,472 93,361 241,535 184,269 ----------- ----------- ----------- ----------- NET INCOME (LOSS) $ (975,407) $ 257,854 $(1,734,950) $(1,216,627) =========== =========== =========== =========== NET INCOME (LOSS) PER SHARE $ (.02) $ .01 $ (.04) $ (.03) =========== =========== =========== =========== WEIGHTED AVERAGE SHARES USED TO COMPUTE NET INCOME (LOSS) PER SHARE 50,721,313 35,742,975 48,075,734 34,797,379 =========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements. 3 AURA SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED AUGUST 31, 1995 AND 1994 (Unaudited)
1995 1994 ------------ ------------ NET CASH (USED) IN OPERATIONS $(20,812,653) $(14,619,440) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (3,516,952) (1,850,990) Purchase of stock -- (89,000) ------------ ------------ NET CASH PROVIDED BY (USED) IN INVESTING ACTIVITIES (3,516,952) (1,939,990) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Cash released from escrow -- 5,000,000 Net Proceeds from short-term borrowing 254,225 -- Proceeds from issuance of convertible debt 1,174,830 Repayment of debt (460,578) (80,092) Proceeds from exercise of stock options 96,160 62,792 Proceeds from issuance of common stock 36,894,698 12,220,000 Legal and other financing fees paid -- (469,076) ------------ ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 37,959,335 16,733,624 ------------ ------------ NET INCREASE (DECREASE) IN CASH 13,629,730 174,194 Cash and cash equivalents at beginning of year 3,827,500 4,559,681 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 17,457,230 $ 4,733,875 ============ ============ Supplemental disclosures of cash flow information Cash paid during the period for: Interest $ 232,207 $ 185,842 Income tax 6,400 7,383 ============ ============
Supplemental disclosure of noncash investing and financing activities: In the six months ended August 31, 1995, the Company entered into financing arrangements whereby it acquired equipment in exchange for three notes payable in the amount of $178,343. 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 August 1995, 81,950 shares of common stock were issued for the conversion of $312,500 of 9% convertible debt and the payment of $18,750 in associated interest. In the six months ended August 31, 1994, the Company issued 221,135 shares of common stock in connection with the settlement of a previously recorded liability, a consulting arrangement, and the acquisition of patents. In the six months ended August 31, 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 August 31, 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 August 31, 1995, $312,500 of principle plus $18,750 in interest has been converted into 81,950 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 5 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. 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 Company has not entered into any contracts specifically for the sale of these speakers. The production facility has been completed and test production runs began in the first quarter of Fiscal 1996. At August 31, 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). 6 (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. The investor group has agreed to provide that entity up to $2,000,000 in the form of a working capital loan and the use of their exclusive rights under the license agreement. (e) Zylux Acoustic Joint Venture ---------------------------- On February 22, 1995, the Company entered into an agreement with Zylux Acoustic for the formation of a joint venture to manufacture and sell speakers using Aura's proprietary technology. The joint venture has the exclusive right to build and sell speakers using Aura's technology in the republic of Taiwan and the European market. The Company owns 49% of the joint venture and Zylux owns 51%. As consideration for this license, 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 already placed an order with the joint venture for approximately 2.4 million speakers to be delivered in equal monthly quantities over a one year period beginning July 1995. The speakers ordered are needed to meet the Company's demand for multimedia applications. Subsequent to the end of the second quarter of Fiscal 1996, the Company, Zylux Acoustic, and K&K Enterprises, an Indian Corporation agreed mutually to a novation, K&K Enterprises now assuming the obligations of the Joint Venture. (f) Thailand Joint Venture ---------------------- On February 20,1995 the Company entered into an agreement with Kunland Company, Ltd., and now held by Twilight Electric, Ltd., a Thailand Corporation, and Narit Pungkanonda, an individual and citizen of Thailand, 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 the Royal Kingdom of Thailand, is owned 45% by the Company, 45% by Twilight Electric, and 10% by Mr. Pungkanonda. In connection with the agreement, Aura granted to Twilight Electric an exclusive license in February, 1995, to use Aura's patented and proprietary technology. Twilight Electric agreed to pay Aura quarterly installments, for the life of Aura's patent, and Aura has received the first payment of $125,000. The Company has agreed to purchase one hundred forty thousand bass shakers in the first year increasing to two hundred twenty thousand and two hundred eighty thousand in years two and three. Thereafter, manufacturing commitments are now set at seventy five thousand 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) Twilight Electric will contribute a sublicense of the rights and obligations under the exclusive license; (iii) Aura and Twilight Electric will contribute $104,167 each as paid in capital for the share certificates to be issued and; (iv) Aura will provide training to Twilight Electric personnel with reimbursement to Aura at cost. Subsequent to the end of the second quarter of Fiscal 1996, the Company, Twilight Electric, Ltd. and K&K Enterprises, an Indian Corporation agreed mutually to a novation, K&K Enterprises now assuming the obligations of the Joint Venture. 7 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 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 six months ended August 31, 1995, options to purchase 33,000 shares of common stock were exercised resulting in proceeds of $96,160. During the six months ended August 31, 1995, the Company issued 11,236,280 shares of common stock for which it received proceeds of $36,894,698. During the six months ended August 31, 1994, options to purchase 22,000 shares of common stock were exercised resulting in proceeds of $62,792. In the six months ended August 31, 1994, the Company issued 1,800,000 shares of common stock for which it received $12,220,000. 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. Trademark Litigation (Settled) ------------------------------ On August 10, 1994, the Company was served with a complaint which was filed in the United States District Court for the Central District of California (Everview, Inc. v. Korea Data Systems, et al., CV-94-3376) relating to the use -------------------------------------------- of the trademark "EVERVIEW" when applied to computer video monitors which the Company has previously sold. The Company on January 6, 1995 entered into a settlement agreement and mutual release of all claims with the plaintiff Everview. Under the settlement, Aura shall not be liable for any monetary damages, costs or fees. In addition, the Company did not occur any outside legal expense in this action. The Court entered its Order of Dismissal upon Settlement of Case on March 20, 1995. 8 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 the consolidated amended complaint. The Company believes the filing of this complaint is sanctionable and will seek all appropriate remedies. 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 August 31, 1995, the Company lost $975,407 on revenues of $18,073,422 compared to income of $257,854 on revenues of $9,393,432 for the comparable period of Fiscal 1995. For the six months ended August 31, 1995, the Company lost $1,734,950 on revenues of $27,598,790, compared to a loss of $1,216,627 on revenues of $13,841,698 in the prior year six months. Contributing to the loss in three and six months was a reduction in license fee revenue of $1 million and $2 million, respectively, and an increase of approximately $650,000 and $1.3 million in depreciation and amortization. Revenue for the three and six month periods ended August 31, 1995 increased by $8,679,990 and $13,757,092 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 components to four unrelated parties in the six months ended August 31, 1995, totaled $13,779,784 or 50% of revenues compared to $2,664,387 or 19% 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 six months periods ended August 31, 1995. License fee revenues for the three and six months ended August 31, 1994 totaled $1,000,000 and $2,000,000, or 11% and 14% 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 six 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 six months ended August 31, 1995 increased by $8,659,562 and $12,435,555 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. Research and development costs for the three and six months ended August 31, 1995 increased by $53,683 and $216,024 as the Company increased its attention on finding new applications for its patented technologies. General and administrative costs for the three and six month periods increased by $886,507 and $1,291,241 respectively due to the addition of the Company's two new subsidiaries Electrotec Productions, Inc. and Newcom Inc. Depreciation and amortization for the three and six months ended August 31, 1995 totaled $1,031,961 and $2,126,819 compared to $377,761 and $826,813 in the prior year periods. The Company had net interest income of $20,057 and net interest expense of $57,194 for the three and six months ended August 31, 1995, compared with net interest expense of $49,210 and $105,713 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 six months ended August 31, 1995, cash increased from $3,827,500 to $17,457,230 or $13,629,730, from February 28, 1995. Inventories increased by $10,471,479 as the Company built inventory levels to an amount necessary to support projected sales. Approximately $4.2 million of this buildup was due to shipments of goods that arrived late in August and were shipped out in early September. The increase in receivables of $10,364,892 is due partially to an increase in receivables under long term contracts of $1,673,578 (these typically are collected over a longer a period of time than trade receivables). Additionally, second quarter sales were concentrated in the third month of the quarter as sales began to accelerate as production was able to be increased. Cash flows used in operations increased by $6,193,213 compared to the prior year six months. Working capital increased to $67,349,797 from $33,796,181 over the fiscal year end level, with the current ratio improving to 4.64:1 from 3.24:1. In the six months ended August 31, 1995, financing activities contributed $96,160 from the exercise of options to purchase 33,000 shares of common stock and $36,894,698 from the sale of 11,236,280 shares of common stock. Subsequent to the end of the second quarter, the Company received proceeds of $8,679,550 from the sale of common stock. In the six months ended August 31, 1994, financing activities contributed $62,792 from the exercise of options to purchase 22,000 shares of stock and $12,220,000 from the sale of 1,800,000 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 equipment, the Company's cash flow and results of operations will continue to 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: OCTOBER 13, 1995 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 ART. 5 FINANCIAL DATA SCHEDULE
5 6-MOS FEB-28-1995 MAR-01-1995 AUG-31-1995 17,457,230 0 38,698,790 0 23,510,509 85,863,245 26,166,893 6,179,630 113,491,366 18,513,448 0 133,149,094 0 0 0 113,491,366 27,598,790 27,598,790 21,752,429 21,752,429 7,139,700 0 57,194 (1,734,950) 0 0 0 0 0 (1,734,950) (.04) 0
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