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, 1999 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 NO X
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 February 4, 2000
Common Stock, par value 177,249,203 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 2
Condensed Consolidated Balance Sheets as of August 31, 1999 3
and February 28, 1999
Condensed Consolidated Statement of Operations for the Three Months and Six 4
Months Ended August 31, 1999 and 1998
Condensed Consolidated Statements of Cash Flows for the Six Months Ended 5
August 31, 1999 and 1998
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 12
ITEM 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
<PAGE>
AURA SYSTEMS, INC. AND SUBSIDIARIES
QUARTER ENDED AUGUST 31, 1999
PART I. FINANCIAL INFORMATION
The financial statements included herein have been prepared by Aura Systems,
Inc. (the "Company"), without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission (the "SEC"). As contemplated by the SEC
under Rule 10-01 of Regulation S-X, the accompanying financial statements and
footnotes have been condensed and therefore do not contain all disclosures
required by generally accepted accounting principles. However, the Company
believes that the disclosures are adequate to make the information presented not
misleading. These financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Form 10-K for
the year ended February 28, 1999 as filed with the SEC (file number 0-17249).
<PAGE>
AURA SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
August 31, February 28,
Assets 1999 1999
<S> <C> <C>
------------- ---------------
Current assets
Cash and equivalents $ -- $ 3,822,210
Receivables-net 1,301,967 8,380,414
Inventories 11,963,602 18,477,058
Notes Receivable 2,416,776 250,000
Prepayments -- 3,435,645
Other current assets 129,279 2,124,535
--------------- ---------------
Total current assets 15,811,624 36,489,862
Property and equipment, at cost 42,941,669 47,976,699
Less accumulated depreciation
and amortization (12,354,613) (10,994,734)
---------------- ---------------
Net property and equipment 30,587,056 36,981,965
Long-Term investments 2,373,835 2,923,835
Long-Term receivables 3,901,774 2,500,000
Patents and trademarks, net 4,949,772 5,293,278
Goodwill, net -- 5,383,208
Other assets 3,524,283 571,244
--------------- ----------------
Total $ 61,148,344 $ 90,143,392
========== ================
Liabilities and Stockholder's Equity
Current liabilities:
Notes payable $ 3,606,701 $ 8,787,113
Convertible note-unsecured 2,000,000 2,000,000
Accounts payable 15,216,251 22,515,842
Accrued expenses 8,652,298 8,056,783
--------------- ----------------
Total current liabilities 29,475,250 41,359,738
Notes payable and other liabilities 20,221,918 25,955,529
--------------- ----------------
Convertible notes 36,481,782 36,481,782
--------------- ----------------
COMMITMENTS AND CONTINGENCIES
Stockholders' equity
Common stock par value $.005 per share paid in
capital. Issued and outstanding 107,822,043
and 107,752,043 shares respectively. 218,702,545 218,693,245
Cumulative currency translation adjustment (365,932) (365,932)
Accumulated deficit (243,367,219) (231,980,970)
--------------- -------------------
Total stockholders' equity (25,030,606) (13,653,657)
---------------- ----------------
Total $ 61,148,344 $ 90,143,392
============== =================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
AURA SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED AUGUST 31, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Revenues $2,644,388 $39,103,054 $5,225,081 $ 71,555,592
Cost of goods and overhead 3,622,715 31,132,222 8,268,383 55,550,241
--------- ---------- --------- ----------
Gross Profit (978,327) 7,970,832 (3,043,302) 16,005,351
Expenses
Selling, general and administrative 2,723,850 9,236,673 6,021,276 16,334,154
Research and development 128,494 525,387 244,621 821,733
-------------- -------------- --------------- --------------
Total costs and expenses 2,852,344 9,762,060 6,265,897 17,155,887
-------------- -------------- -------------- ----------
Income (loss) from operations (3,830,671) (1,791,228) (9,309,199) (1,150,536)
Other (income) and expense
Equity in losses of unconsolidated
joint ventures -- 175,000 -- 500,000
(Gain) loss on sale of subsidiary -- -- (877,512)
Loss on disposition of assets 1,405,049 -- 1,405,049
Other income 110,701 (170,906) (22,659) (1,740,729)
Legal settlements and legal costs -- 6,300,000 -- 6,300,000
Interest expense-net 774,350 3,005,190 1,572,172 5,744,663
------------ ------------ ------------- -------------
Income (loss) before income taxes and minority
interests (5,899,369) (11,100,512) (11,386,249) (11,954,470)
Provision for taxes -- 314,000 -- 942,000
Minority interests in income of consolidated subsidiaries
-- 264,863 -- 765,860
------------ ------------ ------------- -------------
Net income (loss) $ (5,899,369) $(11,679,375) $ (11,386,249) $(13,662,330)
============== ========== ============ ============
Net income (loss) per common
share-basic (.06) $ (.14) $ (.11) $ (.17)
=============== ====== ============== ======
Weighted average shares used to
compute net income (loss) per share 107,822,043 82,630,599 107,804,271 81,328,557
================ ========== ================ ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
AURA SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED AUGUST 31, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
----------- -------------
<S> <C> <C>
Net cash (used) in operations $ (6,074,253) $ (8,196,839)
--------------- ---------------
Cash flows from investing activities:
Proceeds from sale of subsidiary 1,000,000 --
Equity investments -- (5,000,000)
Additions to property and equipment (70,704) (10,736,873)
Note Receivable 1,329,204 --
Net cash provided by (used) in investing
activities 2,258,000 (15,736,873)
-------------- ---------------
Cash flows from financing activities:
Net proceeds (repayment) from short-term
borrowing -- 5,419,324
Proceeds from issuance of convertible debt -- 8,000,000
Net proceeds (repayment) of debt (15,757) 1,505,300
Proceeds from exercise of stock options -- 103,000
Proceeds from exercise of warrants 9,300 7,574,358
--------------- ---------------
Net cash provided by financing activities: (6,457) 22,601,982
--------------- ---------------
Net increase (decrease) in cash (3,822,210) (1,331,730)
Cash and cash equivalents at beginning of year 3,822,210 6,079,411
--------------- ---------------
Cash and cash equivalents at end of period $ 0 $ 4,747,681
================ ===============
Supplemental disclosures of cash flow information Cash paid during the period
for:
Interest $ 145,188 $ 2,975,814
Income Tax 0 949,200
============== ==============
</TABLE>
Supplemental disclosure of noncash investing and financing activities:
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.
See accompanying notes to condensed consolidated financial statements.
<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 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, 1999.
2) Capital
In the six months ended August 31, 1999, warrants to purchase 70,000
shares of common stock of the Company were exercised. In the six months ended
August 31, 1998, the Company received proceeds of $7,677,358 from the exercise
of warrants and options to purchase the Company's common stock.
3) Significant Customers
Sales of communication and multimedia products to three major mass
merchandisers accounted for approximately $34.5 million in the six months ended
August 31, 1998. None of the above customers are related or affiliated with the
Company or any customers of the Company.
4) 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 28, 1999 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.
<PAGE>
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 28, 1999, and factors discussed in this Report.
Results of Operations
Revenue for the three and six month periods ended August 31, 1999
decreased by $36,458,666 and $66,330,511 to $2,644,388 and $5,225,081 from the
corresponding periods in the prior year. The decrease in revenue is primarily
attributable to the cessation of operations by the Company's previously majority
owned subsidiary, NewCom, and the sale of the Company's wholly owned subsidiary
MYS. Approximately 88% of the sales in the proceeding year six months were
attributable to these two subsidiaries.
The Company's NewCom subsidiary sold computer related products to three
significant customers during the six months ended August 31, 1998. Sales of
communication and multimedia products to these three major mass merchandisers
accounted for approximately $34.5 million in the six months ended August 31,
1998. There are no such sales in the current year period. None of the above
customers are related or affiliated with the Company or any customers of the
Company.
Cost of goods and overhead for the three and six months ended August
31, 1999 decreased by $27,509,507 and $47,281,858 in comparison with the
corresponding periods in the prior year as a result of the decrease in sales
discussed above.
General and administrative costs decreased for the three and six month
periods by $6,512,823 and $10,312,878 due primarily to the decrease in personnel
and support services related to the disposition of the two subsidiaries noted
above.
Included in cost of goods and overhead and general and administrative
costs for the three and six months ended August 31, 1999, is depreciation and
amortization of $1,800,002 and $3,672,016, respectively.
Research and development costs for the three and six months ended
August 31, 1999 decreased by $396,893 and $577,112 as the Company focused its
reduced resources on marketing and sales of the Company's product, the AuraGen.
In the period ended August 31, 1999, the Company recorded a gain on the
sale of its MYS subsidiary of $887,512, and a loss on the disposition of assets
from the sale of its sound assets of $1,405,049. In the six months ended August
31, 1998, the Company recorded a gain on the sale of stock in its then majority
owned subsidiary NewCom of approximately $1.4 million.
Net interest expense decreased by $2,230,840 to $774,350 and $4,172,491
to $1,572,172 in the three and six months ended August 31, 1999. Interest
expense in the prior year periods included a quarterly fee being charged to
interest expense, and higher borrowing rates associated with the two
subsidiaries disposed of in the current year.
Liquidity and Capital Resources
At August 31, 1999, the Company had no cash as compared to a cash
balance of $3,822,210 at February 28, 1999. Accounts payable and accrued
expenses decreased by $6,704,076 from February 28, 1999. Inventories decreased
by $6,513,456, and accounts receivable decreased by $7,078,447.
Cash flows used in operations decreased by $2,122,586 compared to the
prior year six months. Working capital was a negative $13,663,626 at August 31,
1999 compared to a negative $4,869,876 at the Fiscal year ended February 28,
1999, with the current ratio declining to .54:1 from .88:1 at the Fiscal year
end.
In the six months ended August 31, 1999, the Company received proceeds
of $9,300 from the exercise of warrants. In the six months ended August 31,
1998, the Company received proceeds of $7,677,358 from the exercise of warrants
and options to purchase the Company's 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. In order to finance continued growth 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 28,
1999 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 2000, 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 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.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 Legal Proceedings
For information regarding pending legal proceedings, see Note 4 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:
Form 8-K Filed on June 16, 1999 regarding Item 5 - Other Events
<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: February 10, 2000 By: /s/Steven C. Veen
------------------------------ ----------------------------------
Steven C. Veen
Senior Vice President
Chief Financial Officer
(Principal Financial and Accounting Officer)
<PAGE>
INDEX TO EXHIBITS
Exhibit Sequential
Number Page No.
EX-27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-29-2000
<PERIOD-START> MAR-01-1999
<PERIOD-END> AUG-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 1,301,967
<ALLOWANCES> 0
<INVENTORY> 11,963,602
<CURRENT-ASSETS> 15,811,624
<PP&E> 42,941,669
<DEPRECIATION> (12,354,613)
<TOTAL-ASSETS> 61,148,344
<CURRENT-LIABILITIES> 29,475,250
<BONDS> 0
<COMMON> 218,702,545
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 61,148,344
<SALES> 5,225,081
<TOTAL-REVENUES> 5,225,081
<CGS> 8,268,383
<TOTAL-COSTS> 14,534,280
<OTHER-EXPENSES> 504,878
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,572,172
<INCOME-PRETAX> (11,386,249)
<INCOME-TAX> 0
<INCOME-CONTINUING> (11,386,249)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,386,249)
<EPS-BASIC> (.11)
<EPS-DILUTED> (.11)
</TABLE>
