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, 2000 Commission File Number 0-17249
AURA SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 95-4106894
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
2335 Alaska Ave.
El Segundo, California 90245
(Address of principal executive offices)
Registrant's telephone number, including area code: (310) 643-5300
Former name, former address and former fiscal year, if changed since last
report: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: YES X NO
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at October 12, 2000
Common Stock, par value 280,588,674 Shares
$.005 per share
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AURA SYSTEMS, INC. AND SUBSIDIARIES
INDEX
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Page No.
PART I. FINANCIAL INFORMATION
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ITEM 1. Financial Statements
Statement Regarding Financial Information 2
Condensed Consolidated Balance Sheets as of August 31, 2000 3
and February 29, 2000
Condensed Consolidated Statement of Operations for the Three Months and Six 4
Months Ended August 31, 2000 and 1999
Condensed Consolidated Statements of Cash Flows for the Six Months Ended 5
August 31, 2000 and 1999
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of 7
Operations
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 9
ITEM 2. Changes in Securities 9
ITEM 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
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1
AURA SYSTEMS, INC. AND SUBSIDIARIES
QUARTER ENDED AUGUST 31, 2000
PART I. FINANCIAL INFORMATION
The financial statements included herein have been prepared by Aura Systems,
Inc. (the "Company"), without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission (the "SEC"). As contemplated by the SEC
under Rule 10-01 of Regulation S-X, the accompanying financial statements and
footnotes have been condensed and therefore do not contain all disclosures
required by generally accepted accounting principles. However, the Company
believes that the disclosures are adequate to make the information presented not
misleading. These financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Form 10-K for
the year ended February 29, 2000 as filed with the SEC (file number 0-17249).
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AURA SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
August 31, February 29,
Assets 2000 2000*
------ ------------- ---------------
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Current assets:
Cash and equivalents $ 558,891 $ 260,437
Receivables-net 330,693 2,459,200
Inventories 9,846,519 11,189,227
Notes receivable 2,535,732 3,557,007
Other current assets 757,589 360,177
--------------- ---------------
Total current assets 14,029,424 17,826,048
---------- ----------
Property and equipment, at cost 41,112,318 42,219,417
Less accumulated depreciation
and amortization (17,799,788) (15,184,362)
---------------- ----------------
Net property and equipment 23,312,530 27,035,055
Long-Term investments 2,123,835 2,123,835
Long-Term receivables 3,845,810 1,250,000
Patents and trademarks- net 4,492,031 4,615,769
Other assets 3,272,471 3,271,831
--------------- ---------------
Total $ 51,076,101 $ 56,122,538
=============== ===============
Liabilities and Stockholder's Equity
Current liabilities:
Notes payable $ 8,745,615 $ 9,899,531
Accounts payable 4,161,928 4,216,004
Accrued expenses 1,362,760 1,634,300
Convertible note-unsecured 125,000 1,250,000
--------------- --------------
Total current liabilities 14,395,303 16,999,835
---------- ----------
Notes payable and other liabilities 36,222,161 37,606,695
--------------- ---------------
COMMITMENTS AND CONTINGENCIES
Stockholders' equity
Common stock par value $.005 per share and additional paid in
capital. Issued and outstanding 261,296,741 and 196,975,392 shares
respectively. 251,608,081 234,196,092
Common stock not issued - 9,132,774
Cumulative currency translation adjustment (CTA) (365,932) (365,932)
Accumulated deficit (250,783,512) (241,446,926)
------------- ----------------
Total stockholders' equity 458,637 1,516,008
--------------- ---------------
Total $ 51,076,101 $ 56,122,538
=============== ===============
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See accompanying notes to condensed consolidated financial statements.
*Amounts at February 29, 2000 have been derived from audited financial
statements
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AURA SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED AUGUST 31, 1999 AND 1998
(Unaudited)
Three Months Six Months
2000 1999 2000 1999
---- ---- ---- ----
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Net Revenues $ 386,885 $2,644,388 $ 768,406 $5,225,081
Cost of goods and overhead 2,556,062 3,622,715 5,070,419 8,268,383
--------- --------- --------- ---------
Gross Profit (2,169,177) (978,327) (4,302,013) (3,043,302)
Expenses
Selling, general and administrative 3,642,773 2,522,474 5,536,478 5,801,765
Research and development 53,903 128,494 85,951 244,621
--------- -------------- ----------- ---------------
Total costs and expenses 3,696,676 2,650,968 5,622,429 6,046,386
--------- -------------- --------- --------------
Loss from operations (5,865,853) (3,629,295) (9,924,442) (9,089,688)
Other (income) and expense
(Gain) loss on sale of subsidiary - - (1,756,746) (877,512)
Loss on disposition of assets - 1,405,049 - 1,405,049
Other (income) (891,227) (110,701) (1,454,628) (22,659)
Legal settlements and costs 1,254,685 201,376 1,564,496 219,511
Interest expense-net 497,009 774,350 1,059,022 1,572,172
------- ------------ --------- -------------
Net loss $(6,726,320) $ (5,899,369) $(9,336,586) $ (11,386,249)
============ ============== ============ ============
Net loss per common
share-basic $ (.03) $ (.06) $ (.04) $ (.11)
============== ============== ============== ==============
Weighted average shares used to
compute net loss per share 250,037,915 107,822,043 243,572,557 107,804,271
============== ================ =============== ================
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See accompanying notes to condensed consolidated financial statements.
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AURA SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED AUGUST 31, 2000 AND 1999
(Unaudited)
2000 1999
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Net cash (used) in operations $(5,820,796) $(6,074,253)
------------ ------------
Cash flows from investing activities:
Proceeds from sale of subsidiary and assets 64,311 1,000,000
Additions to property and equipment (5,918) (70,704)
Note receivable 1,261,395 1,329,204
-------------- ---------------
Net cash provided by (used) in investing
Activities 1,319,788 2,258,000
-------------- --------------
Cash flows from financing activities:
Net proceeds (repayment) from short-term
borrowing (200,000) __-
Repayment of debt (1,154,138) (15,757)
Net proceeds from sale of stock 6,153,600
Proceeds from exercise of warrants - 9,300
---------------- ----------------
Net cash provided (used) by financing activities:
4,799,462 (6,457)
-------------- ---------------
Net increase (decrease) in cash 298,454 (3,822,210)
Cash and cash equivalents at beginning of year 260,437 3,822,210
------- ---------------
Cash and cash equivalents at end of period $558,891 $ 0
======== ================
Supplemental disclosures of cash flow information Cash paid during the period
for:
Interest $ 997,108 $ 145,188
Income Tax 0 0
================ ==============
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Supplemental disclosure of noncash investing and financing activities:
In the six months ended August 31, 2000, $1,125,000 of notes payable plus
accrued interest of $10,602.75 was converted into 3,542,411 shares of the
Company's common stock. The Company also issued 3,246,724 shares of its common
stock to satisfy liabilities in the amount of $990,012.41. Effective March 1,
2000, the Company sold the assets of its Ceramics subsidiary for $3.5 million in
the form of a note receivable of $2.5 million, a cash down payment of $64,311,
included above, and the payment of $800,000 to third parties in satisfaction of
liabilities and an additional $100,000 payment on June 1, 2000.
In the six months ended August 31, 1999 the Company sold its MYS subsidiary for
$4.2 million in the form of a note receivable in the amount of $3.2 million and
a cash down payment of $1 million. The Company also sold the assets of its
AuraSound subsidiary for a note receivable of $2 million. The Company also
satisfied a liability of $20,000 through the exercise of 40,000 warrants.
See accompanying notes to condensed consolidated financial statements.
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AURA SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Unaudited)
1) Management Opinion
The condensed consolidated financial statements include the accounts of
Aura Systems, Inc. ("the Company") and subsidiaries from the effective dates of
acquisition. All material inter-company balances and inter-company transactions
have been eliminated.
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, 2000.
2) Capital
In the six months ended August 31, 2000, 18,936,315 shares of common
stock of the Company were sold for net proceeds of $6,153,600. In the six months
ended August 31, 1999, warrants to purchase 70,000 shares of common stock of the
Company were exercised.
3) Contingencies
The Company is engaged in various legal actions See the Company's Form
10-K, Item 3 - Legal Proceedings, for the year ended February 29, 2000 as filed
with the SEC (file number 0-17249) for a description of the legal actions. To
the extent that judgment has been rendered, appropriate provision has been made
in the financial statements.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Report may contain forward-looking statements which involve risks
and uncertainties. The Company's actual results may differ materially from the
results discussed in such statements. Certain factors could also cause actual
results to differ materially from those discussed in such forward-looking
statements, including factors discussed in the Company's Form 10-K for the
period ended February 29, 2000, and factors discussed in this Report.
Results of Operations
Revenue for the three and six month periods ended August 31, 2000
decreased by $2,257,503 and $4,456,675 to $386,885 and $768,406 from the
corresponding periods in the prior year. The decrease in revenue is primarily
attributable to the sale of the Company's wholly owned subsidiary Aura Ceramics
and the discontinuation of the AuraSound business.
Cost of goods and overhead for the three and six months ended August
31, 2000 decreased by $1,066,653 and $3,197,964 in comparison with the
corresponding periods in the prior year as a result of the decrease in sales
discussed above.
Selling, general and administrative costs increased for the three
months and decreased for the six months by $1,120,299 and $265,287 respectively,
due primarily to the reserving of $1.3 million of receivables associated with
lines of business the Company is no longer engaged in. While the Company intends
to continue its collection efforts on these receivables, the Company has elected
to fully reserve for the balance of these receivables.
Included in cost of goods and overhead and selling, general and
administrative costs for the three and six months ended August 31, 2000, is
depreciation and amortization of $1.7 million and $3.3 million, respectively.
Research and development costs for the three and six months ended
August 31, 2000 decreased by $74,591 and $158,670 as the Company continued to
focus its reduced resources on marketing and sales of the Company's product, the
AuraGen.
Legal costs and settlements for the three and six months ended August
31, 2000 increased to $1,254,685 and $1,564,496, respectively from $201,376 and
$219,511 in the prior year like periods. These costs can vary substantially from
quarter to quarter depending on when settlements are arrived at and the level of
ongoing legal activity associated with the litigation that the Company is
involved in.
Net interest expense decreased by $277,341 to $479,009 and $513,150 to
$1,059,022 in the three and six months ended August 31, 2000.
Liquidity and Capital Resources
At August 31, 2000, the Company had cash of $558,891 as compared to a
cash balance of $260,437 at February 29, 2000. Accounts payable and accrued
expenses decreased by $325,616 from February 29, 2000. Inventories decreased by
$1,342,708, and accounts receivable decreased by $2,128,507.
Cash flows used in operations decreased by $253,457 compared to the
prior year six months. Working capital was a negative $365,879 at August 31,
2000 compared to $826,213 at the Fiscal year ended February 29, 2000, with the
current ratio declining to .97:1 from 1.05:1 at February 29, 2000.
In the six months ended August 31, 2000, the Company received net
proceeds of $6,153,600 from the sale of its common stock. In the six months
ended August 31, 1999, the Company received proceeds of $9,300 from the exercise
of warrants.
In the past the Company's cash flow generated from operations has not
been sufficient to completely fund its working capital needs. Accordingly, the
Company has also relied upon external sources of financing to maintain its
liquidity. In order to finance its existing operations it will be necessary for
the Company to obtain additional working capital from external sources. The
Company is presently seeking additional sources of financing, including bank and
equity financing. No assurances can be provided that these funding sources will
be available at the times and in the amounts required. The inability of the
Company to obtain sufficient working capital at the times and in the amounts
required would have a material adverse effect on the Company's business and
operations.
For additional information regarding the Company's financial condition,
see the Company's Form 10-K, Item 7-Management's Discussion and Analysis of
Financial Condition and Results of Operations for the year ended February 29,
2000 as filed with the SEC (file number 0-17249).
Forward Looking Statements
The Company wishes to caution readers that important factors, in some
cases, have affected, and in the future could affect, the Company's actual
results and could cause the Company's actual consolidated results for the third
quarter of Fiscal 2001, and beyond, to differ materially from those expressed in
any forward-looking statements made by, or on behalf of the Company.
Such factors include, but are not limited to, the following risks and
contingencies: changed business conditions in the automotive industry and the
overall economy; increased marketing and manufacturing competition and
accompanying 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 margins from
period to period. The focus by some of the Company's businesses on any large
system order could entail fluctuating results from quarter to quarter.
The effects of, and changes in, trade, monetary and fiscal policies,
laws and regulations, other activities of governments, agencies and similar
organizations, and social and economic conditions, such as trade restrictions
impose yet other constraints on any company statements. The cost and other
effects of legal and administrative cases and proceedings present another factor
which may or may not have an impact.
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PART II - OTHER INFORMATION
ITEM 1 Legal Proceedings
For information regarding pending legal proceedings, see Note 3 to
the Company's Condensed Consolidated Financial Statements
appearing elsewhere herein.
ITEM 2 Changes in Securities
Private Placement of Units
Subsequent to the end of Fiscal 2000 the Company conducted
a private offering to a group of accredited investors for the sale
of approximately 27 million shares of Common Stock with one-half
warrant to purchase a share of Common Stock at $0.48 per share for
each share sold, for total gross proceeds of approximately $6.2
million. The offering was exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933 as the offering was a
private placement to a limited number of accredited investors.
Common Stock Private Placement
Subsequent to the end of Fiscal 2000 the Company conducted
a private offering to a group of accredited investors for the sale
of 2,175,000 shares of Common Stock for total gross proceeds of
approximately $1.6 million. The offering was exempt from
registration pursuant to Section 4(2) of the Securities Act of
1933 as the offering was a private placement to a limited number
of accredited investors.
Private Placement for Debt Conversion
Subsequent to the end of Fiscal 2000 the Company conducted
a private offering to a group of accredited investors whereby the
Company converted or exchanged approximately $5.2 million of
outstanding indebtedness for 5,809,427 shares of Common Stock The
offering was exempt from registration pursuant to Section 4(2) of
the Securities Act of 1933 as the offering was a private placement
to a limited number of accredited investors.
Settlement of Court-Approved Class Action
Subsequent to the end of Fiscal 2000 the Company issued
14,687,972 shares of Common Stock and 3,500,000 warrants to
purchase Common Stock at $2.25 per share as part of a
court-approved settlement of a class action lawsuit against the
Company. The offering was exempt from registration pursuant to
Section 3(a)(10) of the Securities Act of 1933 as the offering was
the same as the terms that were approved by the U.S. District
Court after a duly noticed hearing as to the fairness of such
settlement.
ITEM 6 Exhibits and Reports on Form 8-K
a) Exhibits:
See Exhibit Index
b) Reports On Form 8-K:
On August 30, 2000, the Company filed a report on Form 8-K
regarding the resignation of the Company's Independent
Accountants.
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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 16, 2000 By: /s/Steven C. Veen
------------------------------ ---------------------------------
Steven C. Veen
Senior Vice President
Chief Financial Officer
(Principal Financial and Accounting Officer)
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INDEX TO EXHIBITS
Exhibit Sequential
Number Page No.
EX-27 Financial Data Schedule
