<PAGE>
================================================================================
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
================================================================================
<PAGE>
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
<PAGE>
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
<PAGE>
AURA SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MAY 31, FEBRUARY 29,
ASSETS 1996 1996
- ------ ------------- -------------
<S> <C> <C>
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
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
AURA SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MAY 31,
----------------------------------
1996 1995
------------ ------------
<S> <C> <C>
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
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
AURA SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MAY 31,
----------------------------------
1996 1995
------------- ------------
<S> <C> <C>
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
============ ===========
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
INDEX TO EXHIBITS
Exhibit Sequential
Number Description Page No.
- ------- ----------- ----------
Ex-27 Article 5, Financial Data Schedule
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-START> MAR-01-1996
<PERIOD-END> MAY-31-1996
<CASH> 10,849,303
<SECURITIES> 0
<RECEIVABLES> 38,576,038
<ALLOWANCES> 0
<INVENTORY> 26,726,010
<CURRENT-ASSETS> 85,437,269
<PP&E> 31,480,760
<DEPRECIATION> 7,304,322
<TOTAL-ASSETS> 134,706,174
<CURRENT-LIABILITIES> 12,793,800
<BONDS> 0
0
0
<COMMON> 171,128,855
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 134,706,174
<SALES> 22,124,432
<TOTAL-REVENUES> 22,124,432
<CGS> 15,630,526
<TOTAL-COSTS> 15,630,526
<OTHER-EXPENSES> 5,847,615
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40,555
<INCOME-PRETAX> 605,736
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 605,736
<EPS-PRIMARY> .01
<EPS-DILUTED> 0
</TABLE>
