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, 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
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Statement Regarding Financial Information 1
Condensed Consolidated Balance Sheets as of
May 31, 1999 and February 28, 1999 2
Condensed Consolidated Statement of Operations for the three
Months Ended May 31, 1999 and 1998 3
Condensed Consolidated Statements of Cash Flows for the Three
Months Ended May 31, 1999 and 1998 4
Notes to Consolidated Financial Statements 5
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 10
ITEM 6. Exhibits and reports on Form 8-K 11
SIGNATURES 12
<PAGE>
AURA SYSTEMS, INC. AND SUBSIDIARIES
QUARTER ENDED MAY 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>
May 31, February 28,
1999 1999
<S> <C> <C>
------------- ---------------
Assets
Current assets
Cash and equivalents $ -- $ 3,822,210
Receivables-net 2,234,741 8,380,414
Inventories 15,914,584 18,477,058
Notes Receivable 3,229,313 250,000
Prepayments 60,804 3,435,645
Other current assets 297,328 2,124,535
--------------- ---------------
Total current assets 21,736,770 36,489,862
Property and equipment, at cost 43,840,650 47,976,699
Less accumulated depreciation
and amortization (11,152,589) (10,994,734)
---------------- ---------------
Net property and equipment 32,688,061 36,981,965
Long-Term investments 2,523,835 2,923,835
Long-Term receivables 2,500,000 2,500,000
Patents and trademarks, net 5,109,735 5,293,278
Goodwill, net -- 5,383,208
Other assets 3,531,931 571,244
--------------- ----------------
Total $68,090,332 $ 90,143,392
=========== ================
Liabilities and Stockholder's Equity
Current liabilities:
Notes payable $ 3,622,458 $ 8,787,113
Convertible note-unsecured 2,000,000 2,000,000
Accounts payable 16,266,657 22,515,842
Accrued expenses 7,622,180 8,056,783
--------------- ----------------
Total current liabilities 29,511,295 41,359,738
Notes payable and other liabilities 21,228,492 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 (237,467,850) (231,980,970)
------------ ------------------
Total stockholders' equity (19,131,237) (13,653,657)
----------- ------------------
Total $ 68,090,332 $ 90,143,392
=============== =================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
AURA SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MAY 31,1999 & 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---------------- ---------------
<S> <C> <C>
Net Revenues $2,580,693 $32,452,538
Cost of goods and overhead 4,645,668 24,418,019
--------- ----------
Gross Profit (2,064,975) 8,034,519
----------- --------------
Expenses
General and administrative 3,297,426 7,097,481
Research and development 116,127 296,346
------------ --------------
Total costs and expenses 3,413,553 7,393,827
--------- --------------
Income (loss) from operations (5,478,528) 640,692
----------- --------------
Other (income) and expense
Equity in losses of unconsolidated joint
ventures -- 325,000
(Gain) loss on sale of subsidiary (877,512) --
Other (income) expense 88,042 (1,569,823)
Interest expense - net 797,822 2,681,079
------------- -------------
Income (loss) before income taxes and
minority interests (5,486,880) (795,564)
Provision for taxes -- 628,000
Minority interests in income of consolidated
subsidiary -- 500,997
--------------- --------------
Net income (loss) $(5,486,880) $ (1,924,561)
============ ============
Net income (loss) per common share-basic $ (.05) $ (.02)
=============== ===============
Weighted average shares used
to compute net income (loss) per share 107,786,500 80,026,516
=========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
AURA SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MAY 31, 1999 & 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
------------ -------------
<S> <C> <C>
Net cash (used) in operations $ (5,277,473) $ (4,656,612)
--------------- ----------------
Cash flows from investing activities:
Proceeds from sale of subsidiary 1,000,000 --
Notes receivable 516,667 --
Equity Investments -- (5,000,000)
Purchase of property and equipment (70,704) (4,655,154)
Net cash provided by (used) in investing
activities 1,445,963 (9,655,154)
--------------- ----------------
Cash flows from financing activities:
Net proceeds (repayments) from short-term borrowings -- 6,767,541
Proceeds from exercise of warrants 9,300
Proceeds from issuance of convertible
debt -- 8,000,000
Repayment of debt -- (77,729)
Net cash provided (used) by financing
activities 9,300 14,689,812
--------------- ---------------
Net increase (decrease) in cash (3,822,210) 378,046
Cash and cash equivalents at beginning of year 3,822,210 6,079,411
-------------- --------------
Cash and cash equivalents at end of period $ 0 $ 6,457,457
=============== ===============
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 71,568 $ 1,611,137
Income Tax 0 635,200
================ ==============
</TABLE>
Supplemental disclosure of non-cash investing and financing activities:
Effective March 1, 1999, the Company sold its MYS subsidiary for $4.2 million in
the form of a note receivable of $3.2 million and a cash down payment of $1
million, included above.
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" or "Aura") 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, 1999.
2) Capital
In the quarter ended May 31, 1999, warrants to purchase 70,000 shares
of common stock of the Company were exercised.
3) Significant Customers
Sales of communication and multimedia products by NewCom to
four major mass merchandisers accounted for approximately $17.7 million, or
54.5% of revenues in the fiscal quarter ended May 31, 1998. Sales of speakers to
a major electronics retailer accounted for approximately $2.7 million, or 8.3%
of net revenues in the fiscal quarter ended May 31, 1998. These sales were
generated by the Company's subsidiaries NewCom and MYS, which are not included
in the current years financial statements. None of the above customers are
related or affiliated with the Company or any other 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 discussion of the legal activities. In
the case of a judgment or settlement, appropriate provisions have 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
For the three months ended May 31, 1999, the Company lost $5,486,880 on
net revenues of $2,580,693 compared to a loss of $1,924,561 on net revenue of
$32,452,538 in the prior year comparable period. 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 86% of the sales in the comparable
prior fiscal year quarter were attributable to these two subsidiaries.
Sales of communication and multimedia products by NewCom to four major
mass merchandisers accounted for approximately $17.7 million, or 54.5% of
revenues in the fiscal quarter ended May 31, 1998. There were no such sales in
the comparable current year quarter. Sales of speakers to a major electronics
retailer by MYS Corporation accounted for approximately $2.7 million, or 8.3% of
net revenues in the fiscal quarter ended May 31, 1998, with no such comparable
sales in the current year quarter. Neither of the above two subsidiaries are
included in the current year financial statements. None of the above customers
are related or affiliated with the Company or any other customers of the
Company.
Cost of goods and overhead decreased from $24.4 million in the quarter
ended May 31, 1998 to $4.6 million in the quarter ended May 31, 1999, due
primarily to the disposition of the Company's NewCom and MYS subsidiaries, and
the resultant decrease in product purchased for resale.
General and administrative expenses decreased from $7.1 million in the
quarter ended May 31, 1998 to $3.3 million in the quarter ended May 31, 1999,
due primarily to the decrease in personnel and support services resulting from
the sale of the Company's wholly owned MYS subsidiary and the cessation of
business of the Company's previously majority owned NewCom subsidiary.
Research and development expense decreased from $296,346 in the quarter
ended May 31, 1998 to $116,127 in the quarter ended May 31, 1999 as the Company
focused its reduced resources on the sales and marketing of the Company's
product, the Auragen.
In the Fiscal quarter ended May 31, 1999, the Company sold its MYS
subsidiary and recorded a gain of $877,512. In the fiscal quarter ended May 31,
1998, the Company recorded a gain on the sale of stock in its previously
majority owned subsidiary NewCom of approximately $1.4 million. No such sales
occurred in the current year fiscal quarter.
Net interest expense for the quarter ended May 31, 1999, decreased to
$797,822 from $2,681,079 in the prior year quarter. Interest expense in the
prior year quarter included a quarterly fee being charged to interest expense on
the note that was renegotiated in September 1997. There was no such fee in the
current year quarter.
Liquidity and Capital Resources
In the fiscal quarter ended May 31, 1999, the Company had no cash as
compared to a cash level of $3,822,210 at February 28,1999. Inventories
decreased by $2,562,474.
Cash flows used in operations increased by $620,861 as compared to the
fiscal quarter ended May 31, 1998. The Company's working capital was a negative
$7,774,525 at May 31, 1999 as compared to a negative $4,869,876 at the fiscal
year ended February 28, 1999, while the current ratio declined to .74:1 at May
31, 1999 from .88:1 at February 28, 1999.
In the fiscal quarter ended May 31, 1999, the Company received proceeds
of $9,300 from the exercise of warrants. The Company also satisfied a liability
of $20,000 by the exercise of warrants. In the fiscal quarter ended May 31,
1998, the Company received proceeds of $8,000,000 from the issuance of
convertible notes payable.
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. 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.
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.
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 second
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 impose 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.
<PAGE>
ITEM 6 Exhibits and Reports on Form 8-K
a) Exhibits:
See Exhibit Index
b) Reports On Form 8-K:
None.
<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
Office and Duly Authorized Officer)
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number
EX-27 Article 5, Financial Data Schedule
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-29-2000
<PERIOD-START> MAR-01-1999
<PERIOD-END> MAY-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 2,234,741
<ALLOWANCES> 0
<INVENTORY> 15,914,584
<CURRENT-ASSETS> 21,736,770
<PP&E> 43,840,650
<DEPRECIATION> (11,152,589)
<TOTAL-ASSETS> 68,090,332
<CURRENT-LIABILITIES> 29,511,295
<BONDS> 0
<COMMON> 218,702,545
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 68,090,332
<SALES> 2,580,693
<TOTAL-REVENUES> 2,580,693
<CGS> 4,645,975
<TOTAL-COSTS> 8,059,221
<OTHER-EXPENSES> (789,470)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 797,822
<INCOME-PRETAX> (5,486,880)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,486,880)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,486,880)
<EPS-BASIC> (.05)
<EPS-DILUTED> (.05)
</TABLE>
