-----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, KOo8bnihzGugpq8F+vjUisI9E9QruWET+IrPq0rFcfZ7HZJ8Yh7YAAhWuTlDSYUB 1uFKkarMXDKuVTjGqb+HFQ== 0000898430-96-003193.txt : 19960716 0000898430-96-003193.hdr.sgml : 19960716 ACCESSION NUMBER: 0000898430-96-003193 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960531 FILED AS OF DATE: 19960715 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AURA SYSTEMS INC CENTRAL INDEX KEY: 0000826253 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS, NEC [3679] IRS NUMBER: 954106894 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: 96594935 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 QUARTERLY REPORT DATED 5/31/96 ================================================================================ 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 May 31, 1996 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 July 11, 1996 ----- ---------------------------- Common Stock, par value 66,438,411 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 May 31, 1996 and February 29, 1996 2 Condensed Consolidated Statement of Operations for the Three Months Ended May 31, 1996 and 1995 3 Condensed Consolidated Statements of Cash Flows for the Three Months Ended May 31, 1996 and 1995 4 Notes to 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 13 ITEM 6. Exhibits and Reports on Form 8-K 13 SIGNATURES 14 AURA SYSTEMS, INC. AND SUBSIDIARIES QUARTER ENDED MAY 31, 1996 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 in annual financial statements. 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 and any amendments thereto for the year ended February 29, 1996 as filed with the SEC (file number 0-17249). 1 AURA SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
MAY 31, FEBRUARY 29, ASSETS 1996 1996 - ------ ------------- ------------- CURRENT ASSETS Cash and equivalents $ 10,849,303 $ 21,900,364 Trade receivables and other 38,576,038 37,512,564 Inventories and Contracts in progress 26,726,010 23,883,964 Other current assets 9,285,918 9,257,060 ------------ ------------ TOTAL CURRENT ASSETS 85,437,269 92,553,952 ------------ ------------ Property and equipment, at cost 31,480,760 30,012,084 Less accumulated depreciation and amortization (7,304,322) (6,698,849) ------------ ------------ NET PROPERTY AND EQUIPMENT 24,176,438 23,313,235 Long-term Investments 6,753,323 4,165,000 Long-term Receivables 4,986,344 4,414,344 Patents- net 2,334,525 2,294,059 Investments and Joint Ventures 4,721,152 3,002,225 Deferred charges 1,164,662 1,376,506 Other assets 5,132,461 2,961,247 ------------ ------------ $134,706,174 $134,080,568 ============ ============ LIABILITIES AND STOCKHOLDER'S EQUITY - ------------------------------------ CURRENT LIABILITIES: Current installments of notes payable $ 4,360,976 $ 3,378,758 Accounts payable and accrued expenses 8,432,824 17,812,312 ------------ ------------ TOTAL CURRENT LIABILITIES 12,793,800 21,191,070 Convertible Notes 12,662,900 11,662,900 Notes payable and other liabilities 5,196,978 2,063,492 STOCKHOLDERS' EQUITY Common stock, issued and out- standing 63,428,283 and 62,222,438 shares, respectively 171,128,855 166,845,201 Accumulated deficit (67,076,359) (67,682,095) ------------ ------------ Net stockholders' equity 104,052,496 99,163,106 ------------ ------------ $134,706,174 $134,080,568 ============ ============
See accompanying notes to condensed consolidated financial statements. 2 AURA SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MAY 31, ---------------------------------- 1996 1995 ------------ ------------ GROSS REVENUES $22,124,432 $ 9,525,368 Cost of goods and overhead 15,630,526 7,272,034 ----------- ----------- GROSS PROFIT 6,493,906 2,253,334 ----------- ----------- EXPENSES General and administrative 4,385,327 2,473,563 Research and development 1,462,288 462,063 ----------- ----------- Total costs and expenses 5,847,615 2,935,626 ----------- ----------- INCOME (LOSS) FROM OPERATIONS 646,291 (682,292) OTHER (INCOME) AND EXPENSE Interest income (105,598) (21,812) Interest expense 146,153 99,063 ----------- ----------- NET INCOME (LOSS) $ 605,736 $ (759,543) =========== =========== NET INCOME (LOSS) PER SHARE $.01 $(.02) =========== =========== WEIGHTED AVERAGE SHARES USED TO COMPUTE NET INCOME (LOSS) PER SHARE 62,720,093 45,430,156 =========== ===========
See accompanying notes to condensed consolidated financial statements. 3 AURA SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MAY 31, ---------------------------------- 1996 1995 ------------- ------------ NET CASH (USED) IN OPERATIONS $(13,566,652) $(9,779,574) ------------ ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (740,477) (1,353,283) ------------ ----------- NET CASH PROVIDED BY (USED) IN INVESTING ACTIVITIES (740,477) (1,353,283) ------------ ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from borrowings 1,016,758 233,295 Proceeds from issuance of convertible notes payable 1,000,000 - Repayment of debt (297,190) (381,422) Net proceeds from sale of stock 1,501,500 16,332,330 Proceeds from exercise of stock options 35,000 20,000 ------------ ----------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 3,256,068 16,204,203 ------------ ----------- NET INCREASE (DECREASE) IN CASH (11,051,061) 5,071,346 Cash and cash equivalents at beginning of year 21,900,364 4,031,545 ------------ ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,849,303 $ 9,102,891 ============ =========== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 80,153 $ 35,671 Income tax 800 0 ============ ===========
Supplemental disclosure of noncash investing and financing activities: During the quarter ended May 31, 1996, the Company acquired MYS Corp. for stock valued at $2,000,000. Subsequent to the end of the first quarter, $9,000,000 in convertible notes payable have been converted into common stock. 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 months ended May 31, 1995. 2) 7% CONVERTIBLE SECURED 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. 3. MYS CORPORATION On February 20, 1996 the Company entered into a Memorandum of Understanding ("MOU") with the principal shareholders of MYS Corporation of Japan setting forth the Company's intent to purchase and the shareholder's intent to sell 100% of the outstanding shares of MYS, in exchange for shares of Aura common stock in an amount and number to be determined. The MOU established a framework in which the Company could conduct its due diligence and negotiate a definitive sale and purchase agreement. In the quarter ended May 31, 1996, the Company concluded its due diligence and executed a definitive Stock and Investment Purchase Agreement with all the MYS shareholders. The principal terms of the Stock and Investment Purchase Agreement require the Company to issue common stock in such number of shares as would equal Two Million Dollars in exchange for all outstanding shares of MYS and its subsidiaries. In addition, the Company would assume existing long term liabilities not to exceed Four Million Dollars and all assets of MYS and its subsidiaries. In addition to its corporate offices in Japan, MYS has manufacturing operations in Malaysia and the U.S.A. MYS provides speakers to an OEM customer base which includes Radio Shack as its most significant customer. 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, all of which has been received. Further, Aura is to receive 5 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. (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 purchase of these speakers. The production facility has been completed and production runs began in December 1995. (c) Auratech Industrial Equipment Venture ------------------------------------- In May 1994, the Company entered into an agreement to establish a joint venture company with an unrelated group of investors to exploit machine tool, robotic and industrial hand tool applications of the Company's electromagnetic technology. The Company received 49% ownership of the joint venture. 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 Fiscal 1996, the Company purchased the 51% of the joint venture from a group of investors and now operates the former joint venture as a wholly owned subsidiary. (d) K & K Enterprises Joint Venture -------------------------------- 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 $400,000 of which was received in Fiscal 1996. 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. 6 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. 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 of which $500,000 was received in Fiscal 1996. 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 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 a 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 (Thailand) partner with the Company. Without any changes to the terms, the joint ventures were merged in the quarter ended May 31, 1996 into one joint venture. The new venture was renamed Dewan Aura. 5) CAPITAL In the quarter ended May 31, 1996, options to purchase 10,000 shares of common stock were exercised resulting in proceeds of $35,000. Additionally the Company received proceeds of $1,501,500 from the sale of common stock 6) SIGNIFICANT CUSTOMERS Sales of computer monitors to a single unrelated party in the three months ended May 31, 1996 totalled $5,844,470 or 26% of revenues as compared to $3,039,005 or 32% of sales in the comparable prior year period. This customer is not related or affiliated with any other customer of the Company. Although no long term agreement exists with this customer, the Company does not believe that sales to this customer will be abruptly curtailed. The Company anticipates that these sales will decrease as a percentage of sales in the upcoming quarters. Sales of speakers to a single unrelated customer totalled approximately $4.1 million in the quarter ended May 31, 1996. There were no sales to this customer in the prior year quarter. This customer is not related to or affiliated with any other customer of the Company. The Company has no reason to believe that these sales will not continue. 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. 7 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 Demand, without benefit of supporting allegations, concludes "(B)reaches of Licensing Agreements regarding vibration isolation/noise cancellation technology...and platform motion simulators...and breach of Joint Venture Agreement; breaches of Master Distributorship Agreements...in violation of exclusivity provisions; Accounting...; Declaratory relief; Fraud." The Demand does not contain any definite factual allegations in support of these conclusions. Additionally, the answering statement includes the Company's counterclaims that Intergroup has breached the vibration isolation/noise cancellation license for failure to remit to the Company the final payment of the license fee of $500,000 due on or before February 28, 1995; breached and repudiated the simulator license agreements; breached the simulator joint venture agreement; breached each Master Distributorship Agreement; and breached the playground equipment agreement and license for failure to remit to the Company $30,000 due for payment of the license fee. In addition to the above stated monetary damages, the counterclaim further seeks declaratory relief and damages in quasi contract. The parties have entered into a definitive settlement of this matter on May 28, 1996. The parties have filed a stipulated dismissal of the action and an order dismissing the action with prejudice has been entered by the arbitration panel. The settlement provides for the cancellation of the Joint Venture Agreement, and does not have any effect on the financial condition of the Company. 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-95-3296). 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 products 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. On November 20, 1995, the court dismissed the consolidated amended complaint without prejudice and granted plaintiffs 10 days leave to amend. Plaintiff's filed their second amended complaint on December 5, 1995. The Company filed motion to dismiss the second amended complaint on December 22, 1995. At a hearing on the defendant's motion on January 16, 1996, the Court denied the motion. On February 16, 1996, the Company filed its motion for summary judgment. At a hearing on the summary judgment motion on April 15, 1996, the court granted the Company's motion. Judgment dismissing the action was entered on April 16, 1996. 8 Plaintiffs filed a Notice of Appeal to the judgment on May 16, 1996. Plaintiff's appeal brief is to be filed on or before September 3, 1996. SEC Claims ---------- As previously reported, the SEC began an investigation relating to Aura in 1992. The Staff of the SEC's Division of Enforcement ("Staff") has advised Aura that it intends to recommend to the Commission the institution of civil enforcement proceedings against Aura, Mr. Kurtzman and a former officer. The Staff is not claiming that Mr. Kurtzman or anyone else personally benefited in any way from these events, nor is the Staff alleging that these events had any material impact on Aura's financial results. Accordingly it is anticipated by Aura and its outside counsel that resolution of this matter will not require Aura to restate any of its previously issued financial statements or otherwise require it to amend any of its prior reports filed with the SEC. Neither is it anticipated by Aura and its outside counsel that the Staff will seek any monetary penalties from Aura, Mr. Kurtzman or the former officer. The Company and the Securities and Exchange Commission Staff have reached an agreement in principle under which Aura and Zvi (Harry) Kurtzman, the company's chairman and CEO, as well as a former officer, will consent to a SEC administrative order, without admitting or denying the Commission's findings. The events giving rise to the Staff's intent to recommend an enforcement action concern the reporting of two subject in reports previously filed with the SEC in Fiscal 1993 and Fiscal 1994. Aura's outside counsel has been meeting with the Staff in an effort to resolve this matter. However, there can be no assurance that such a resolution will be achieved. The first subject, for which the Staff has indicated it intends to allege violations of the reporting and the books and records provisions of the securities laws, relates only to the business that Aura engaged in with Micro Computer Distribution Power ("MCDP"). The Staff claims that, in addition to disclosing that MCDP was a significant customer of Aura's, Aura should have disclosed more details about the nature of the transactions. As disclosed in later filings, these transactions, which generated little or no profit, were part of Aura's long range strategy to develop relationships with manufacturers, suppliers and distributors for a series of computer related applications that Aura has since introduced into the market. The transaction had no material impact on Aura's reported loss. The second subject, for which the Staff has indicated it intends to allege violations of the reporting, the books and records and the anti-fraud provisions of the securities laws, related to Aura's original reporting in its form 10-Q for the nine months ending November 30, 1993, on its business arrangement with John Jory Corporation ("Jory"). In 1994, Aura's form 10-Q for November 30, 1993, was amended with respect to the Jory transaction. Most of the revenue and expenses originally reported from the Jory transaction were excluded from Aura's financial statements for the year ended February 28, 1994. This adjustment had no material impact on Aura's reported losses. 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 May 31, 1996, the Company earned $605,736 on revenue of $22,124,432 as compared to a loss of $(759,543) on revenue of $9,525,368 in the comparable prior year period. The increase of $12,599,064 is due primarily to the increase in sales of computer and sound related products over the prior year quarter and the inclusion of the Company's newly acquired subsidiary MYS Corp., which was acquired effective March 1, 1996. Of this amount approximately $7.8 million is due to the increase in sales over the prior year quarter of sound cards, speakers, multimedia kits, modems and computer monitors. Computer monitors accounted for approximately $2.8 million of the increase, and approximately $4.3 million is due to the inclusion of MYS Corp. (See Note 3). The Company expects continued revenue growth in the current fiscal year, however, the rate of increase may not be as great as in the first quarter. Sales of computer monitors to a single unrelated party in the three months ended May 31, 1996 totalled $5,844,470 or 26% of revenues as compared to $3,039,005 or 32% of sales in the comparable prior year period. This customer is not related or affiliated with any other customer of the Company. Although no long term agreement exists with this customer, the Company does not believe that sales to this customer will be abruptly curtailed. The Company anticipates that these sales will decrease as a percentage of sales in the upcoming quarters. Sales of speakers to a single unrelated customer totalled approximately $4.1 million in the quarter ended May 31, 1996. There were no sales to this customer in the prior year quarter. This customer is not related to or affiliated with any other customer of the Company. The Company has no reason to believe that these sales will not continue. Cost of goods and overhead increased by $8,358,492 to $15,630,526 for the three months ended May 31, 1996 as compared to $7,272,034 for the three months ended May 31, 1995. This increase is due primarily to the inclusion of the Company's new subsidiary MYS Corp., and its' associated cost of goods, and the increase in the cost of goods associated with the increase of sales over the prior year quarter by the Company's NewCom subsidiary. The increase in general and administrative expenses of $1,911,764 results primarily from an increase in personnel, the inclusion of MYS Corp., and an increased level of advertising support for the distributors and retail customers of the Company's NewCom subsidiary. Research and development expense increased by $1,000,225 to $1,462,288 in the three months ended May 31, 1996, as the Company continued the trend began late in Fiscal 1996 of expanding its efforts in the automotive area, particularly with respect to the Company's Flywheel Alternator Starter (FAS) project. LIQUIDITY AND CAPITAL RESOURCES In the first quarter of Fiscal 1997, the level of cash decreased to $10,849,303 from $21,900,364 at February 29, 1996. Inventories increased by $2,842,046 as the Company built inventory to prepare for increasing shipments of the Company's speakers, Bass Shakers, multimedia kits, modems and sound cards. 10 Cash flows used in operations increased by $3,787,074 as compared to the prior year quarter. The Company's working capital increased by $1,280,587 to $72,643,469 from the fiscal year end level, while the current ratio improved to 6.7:1 from 4.4:1. In the first quarter of Fiscal 1997, financing activities contributed $35,000 from the exercise of options to purchase 10,000 shares of stock. Additionally, the Company received proceeds of $1,501,500 from the sale of common stock. The Company also received proceeds of $1,000,000 from the issuance of convertible notes payable. In the first quarter of Fiscal 1996 financing activities contributed $20,000 from the exercise of options to purchase 5,000 shares of common stock and $16,332,330 from the sale 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 increasing shipments of the Bass Shakers, speakers, multimedia kits, modems and sound cards, cash flows and results of operations should be favorably impacted in the future. ITEM 3. CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 The Company desires to take advantage of the new "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 and hereby invokes such provisions. 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 first quarter of Fiscal 1997, 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 consumer electronic and automotive industries and the overall economy; increased marketing and manufacturing competition and accompanying prices 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 another 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 11 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 impose another factor which may or may not have an impact. 12 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 13 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: JULY 12, 1996 By: /s/Steven C. Veen ------------- ----------------------------------- STEVEN C. VEEN Senior Vice President Chief Financial Officer (Principal Financial and Accounting Officer) 14 INDEX TO EXHIBITS Exhibit Sequential Number Description Page No. - ------- ----------- ---------- Ex-27 Article 5, Financial Data Schedule 15 EX-27 2 ARTICLE 5, FINANCIAL DATA SCHEDULE
5 3-MOS FEB-29-1996 MAR-01-1996 MAY-31-1996 10,849,303 0 38,576,038 0 26,726,010 85,437,269 31,480,760 7,304,322 134,706,174 12,793,800 0 0 0 171,128,855 0 134,706,174 22,124,432 22,124,432 15,630,526 15,630,526 5,847,615 0 40,555 605,736 0 0 0 0 0 605,736 .01 0
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