Registration No. 333-37602
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment No. 2 to
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
----------------------------
Aura Systems, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 95-4106894
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2335 Alaska Avenue, El Segundo,
California 90245 (Address, including zip code,
and telephone number, including area code,
of Registrant's principal executive office)
Zvi (Harry) Kurtzman, Chief Executive Officer
Aura Systems, Inc.
2335 Alaska Avenue
El Segundo, CA 90245
(310) 643-5300
(Name, Address, including zip code, and
telephone number, including area code, of agent for service)
Copy to:
Samuel S. Guzik, Esq.
Guzik & Associates
1800 Century Park East, Fifth Floor
Los Angeles, CA 90067
(310) 788-8600
Approximate date of proposed sale to the public: From time to time after the
effective date of the Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
<PAGE>
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
Calculation of Registration Fee
Proposed
Title of each class Proposed maximum
of securities to be Amount to be maximum offering aggregate offering Amount of
registered registered(3) price per share (1) price registration fee(1)
--------------------- ------------------ --------------------- ----- -------------------
<S> <C> <C> <C> <C>
Common Stock,
$.005 par value 20,833,334 $0.60 $12,500,000 $1,650*
Common Stock,
$.005 par value 100,000 $0.30 $30,000 $8.00*
Common Stock,
$.005 par value 96,279,298(2) $1.01 $98,204,884 $25,672*
</TABLE>
* Previously paid.
(1) Estimated for the purpose of calculating the registration fee pursuant
to Rule 457(c) on the basis of the high and low price
of the Registrant's Common Stock on October 6, 2000.
(2) Includes 19,454,445 shares issuable upon exercise of outstanding
Warrants.
(3) In addition to the shares set forth in the table, the amount to be
registered includes an indeterminate number of shares issuable as a
result of stock splits, stock dividends, anti-dilution and similar
provisions in accordance with Rule 416.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE SELLING
STOCKHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
IS NOT AN OFFER TO SELL THESE SECURITIES AND THE SELLING STOCKHOLDERS ARE NOT
SOLICITING THE OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE SUCH OFFER OR
SALE IS NOT PERMITTED.
Subject to completion, dated October , 2000
PROSPECTUS
AURA SYSTEMS, INC.
The stockholders of Aura Systems, Inc. listed below may, but are not
required to, offer and sell from time to time shares of our common stock under
this prospectus. These shares include:
o 76,924,853 shares of common stock sold by us to stockholders in
private sales;
o 19,454,445 shares of common stock which certain stockholders are
entitled to acquire from us upon exercise of warrants issued by us
in private sales; and
o Up to 20,000,000 shares which may be acquired by certain noteholders
upon conversion of up to $12,000,000 original principal amount of
notes issued by us in February 2000, but only if the notes are in
default.
Although we will be entitled to receive proceeds from the exercise of
warrants by the selling stockholders, we will not receive any part of the
proceeds from sales of common stock by the selling stockholders.
Our common stock is traded on the over-the-counter market under the
trading symbol "AURA". On October 4, 2000, the last reported sales price of our
common stock on the over-the-counter market was $1.14.
THE PURCHASE OF OUR SECURITIES INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS," AT PAGE 7, FOR A DISCUSSION OF CERTAIN MATTERS THAT YOU SHOULD
CONSIDER BEFORE PURCHASING OUR COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is __________ ____, 2000
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUMMARY
RISK FACTORS
FORWARD-LOOKING STATEMENTS.
USE OF PROCEEDS
DIVIDEND POLICY
CAPITALIZATION
DILUTION
SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION
SELECTED FINANCIAL DATA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
CHANGES IN ACCOUNTANTS
BUSINESS
MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
DESCRIPTION OF CAPITAL STOCK
SHARES ELIGIBLE FOR FUTURE SALE
LEGAL MATTERS
EXPERTS
WHERE YOU CAN FIND MORE INFORMATION
INDEX TO FINANCIAL STATEMENTS
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information and financial statements and notes thereto appearing elsewhere in
this prospectus.
The Company
We develop, commercialize and sell products, systems and components
using our patented and proprietary electromagnetic technology. We also license
our proprietary actuated mirror array electro-optic technology to a third party
for consumer and commercial display systems, including televisions, computer
displays and theaters. To date, a combination of Aura funds and commercial and
governmental development contracts have been utilized in the process of
developing product applications.
We were founded as a Delaware corporation in 1987 to engage in the
development, commercialization and sales of products, systems and components
using our patented and proprietary electromagnetic and electro-optical
technology. Prior to Fiscal 1992 we were engaged in various classified military
programs, which allowed us to develop our electromagnetic and electro-optical
technologies and applications. A number of "one-of-a-kind" systems were built
and successfully tested in these fields. Subsequently, we developed additional
electromagnetic and electro-optics know-how and technology and transitioned from
a supplier of defense technology to a supplier of consumer and industrial
related products and services.
In 1994, we founded NewCom, Inc. ("NewCom"), a Delaware corporation,
which engaged in the manufacture, packaging, selling and distribution of
computer related communications and sound related products, including modems,
CD-ROMs, sound cards, speaker systems and multimedia products, thereby expanding
presence in the growing multimedia, communication and sound-related consumer
electronics market.
In 1996, we acquired 100% of the outstanding shares of MYS Corporation
of Japan ("MYS") to expand the range of our sound products and speaker
distribution network. MYS engaged in the manufacture and sale of speakers and
speaker systems for home, entertainment and computers. Subsequent to Fiscal
1999, we sold MYS to MYS management.
In September 1997, NewCom completed an initial public offering,
resulting in our owning a majority interest in NewCom at the conclusion of the
offering. During the second half of Fiscal 1999 NewCom's business suffered from
adverse industry conditions, including increased price reductions and a decline
in demand resulting from increased incorporation of computer peripherals at the
OEM level. These conditions resulted in heavy losses to NewCom and its
competitors, causing a buildup in inventory and difficulty in collecting
receivables from mass merchants. NewCom's business reached a critical juncture
in the fourth quarter of Fiscal 1999 when Deutsche Financial Services, which
maintained NewCom's working capital line, announced that it was unwilling to
continue to advance working capital to NewCom under its credit facility. This,
in conjunction with the actions of the retail mass merchants, resulted in NewCom
ceasing most of its operations by the end of Fiscal 1999 and the ultimate
cessation of its business shortly thereafter.
We anticipated that our working capital needs in Fiscal 1999 would be
met from a number of sources, including the repayment by NewCom of approximately
$20 million of indebtedness, which was due in September 1998, and proceeds from
external debt and equity financing. NewCom was ultimately unable to meet its
obligations to us in September 1998, ultimately creating a significant cash
shortfall to us. This required us, beginning in late January 1999, to refocus
our operations by shutting down certain operating divisions, selling our MYS
subsidiary, licensing and selling proprietary based AuraSound speaker technology
and assets, and leasing our Electrotec concert touring sound equipment. We have
temporarily suspended our development of certain electro-magnetic projects,
including the electromagnetic valve actuator (EVA). Subsequent to Fiscal 1999 we
entered into agreements providing for the restructuring of more than $85 million
of debt and contingent liabilities. Of this amount, over $37 million was either
converted into equity or forgiven.
Following the end of Fiscal 1999 our operations are now focused on
manufacturing and commercializing the AuraGen(R) family of electromagnetic
products, with applications for military, industry and the consumer. The AuraGen
is a unique, patented electromagnetic generator that is mounted to the
automobile engine, which generates both 110 and 220 volt AC power at all engine
speeds including idle. Commercial production of the AuraGen commenced in Fiscal
1999 and product is being distributed and sold through dealers, distributors and
OEMs.
We intend to continue to focus our business on the AuraGen line of
products during the current fiscal year and beyond. In addition, we are entitled
to receive royalties from Daewoo Electronics for our electro-optics technology
which we licensed to Daewoo in 1992.
References to the "Company," "Aura," "We," "Our," or "Us," include Aura
Systems, Inc. and its subsidiaries, unless the context indicates otherwise. Our
headquarters are located at 2335 Alaska Avenue, El Segundo, California 90245,
and our telephone number is (310) 643-5300.
<PAGE>
<TABLE>
<CAPTION>
The Offering
The securities offered include the following:
<S> <C>
Shares of Common Stock issuable upon exercise of Outstanding Warrants .................................19,454,445
Shares of Common Stock issuable upon conversion of Outstanding Notes (1).............................. 20,000,000
Other Shares of Common Stock Offered by the Selling Stockholders...................................... 76,924,853
hares Outstanding:
Common Stock Outstanding before
the Offering....................................................................... 280,588,674
Common Stock Outstanding after the Offering (assuming the
exercise or conversion of all Warrants and Notes) (2).................................... 320,043,119
Use of Proceeds Although we
will receive up to
$20,916,119 of proceeds
from the exercise of
Warrants from time to time,
we will not receive any
proceeds from this Offering
by Selling Stockholders.
Common Stock Symbol............................................................................................AURA
</TABLE>
(1) The Notes are convertible only upon default at $.60 per share. For further
information see "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Debt Restructuring."
(2) Based upon the number of shares outstanding as of October 4, 2000. Excludes
(i) approximately 3,500,000 shares not covered by this Prospectus which are
reserved for issuance upon conversion of outstanding warrants and options, and
(ii) 22,659,500 shares issuable upon exercise of outstanding options under our
Employee Stock Option Plans.
<PAGE>
Summary Financial Information
Aura Systems, Inc. and Subsidiaries
The following Summary Financial Information has been taken or derived
from our audited consolidated financial statements and should be read in
conjunction with and is qualified in its entirety by the full consolidated
financial statements, related notes and other information included elsewhere in
this Prospectus. The data for Fiscal 2000, 1999 and 1998 has been restated to
reflect discontinued operations. The data for Fiscal 1997 and 1996 has not been
revised as the change in the scope of our operations would not provide
additional relevant comparison.
<TABLE>
<CAPTION>
AURA SYSTEMS, INC. AND SUBSIDIARIES
February 29, February 28, February 28, February 28, February 29,
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
Net Revenues $ 5,788,221 $53,650,025 $103,939,641 $109,950,202 $77,088,850
------------- ---------- ----------- ----------- ----------
Cost of goods and overhead 13,424,304 130,437,194 71,774,522 86,350,828 71,849,204
Expenses:
Research and development 148,443 1,996,198 475,992 6,022,586 5,225,735
Impairment of long-lived assets -- 5,838,466 -- -- --
Selling, general and administrative 10,725,397 64,131,072 35,266,048 18,542,840 26,399,794
------------- ---------- ---------- ---------- ----------
expenses
Total expenses 24,298,144 202,402,930 107,516,562 110,916,254 103,474,733
------------- ----------- ----------- ----------- -----------
Loss From Operations (18,509,922) (148,752,905) (3,576,921) (966,052) (26,385,883)
Other (Income) and Expense
Net interest expense 4,476,690 11,577,990 6,450,741 1,415,934 (298,793)
Termination of license agreements -- -- 3,114,030 -- --
Loss on disposal of assets and investments (259,724) 5,809,811 -- -- --
Gain on sale & issuance of subsidiary -- (811,657) (12,632,265) (250,000) --
stock
Class action litigation & other 2,777,762 7,717,518 1,700,000 -- --
settlements
Equity in losses of unconsolidated joint
ventures -- 6,268,384 1,937,747 -- --
Other (1,101,279) 406,576 (220,291) 40,642 --
Provision (benefit) for taxes -- 566,635 (1,275,555) 570,484 --
Minority interests -- (36,934,376) 946,405 -- --
Loss in excess of basis of subsidiary -- (8,080,695) -- -- --
-------------- ----------- --------------- --------- ---------
Loss from continuing operations (24,403,371) (135,273,091) (3,597,733) (2,880,111) (26,087,090)
Discontinued Operations:
Loss from Discontinued Operations,
Net of Income taxes (4,131,501) (14,875,065) (8,038,807) -- --
Extraordinary Item
Gain on extinguishment of debt
obligations, net of income taxes 19,068,916 -- -- -- --
-------------- ----------- ----------- --------- ---------
Net loss $ (9,465,956) $(150,148,156) $(11,636,540) $(2,880,111) $(26,097,090)
============= ============= =========== =========== ===========
NET LOSS PER COMMON SHARE $ (0.08) $ (1.74) $ $ (.04) $ (.48)
============== ============= ============== ========= ==============
(.15)
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES 124,293,861 85,831,688 79,045,290 68,433,521 53,860,527
=========== =========== ========== ========== ==========
Working capital (deficit) 1,376,215 (4,869,876) 78,143,895 62,310,715 71,362,882
Total assets 56,122,478 90,143,392 227,302,629 182,528,399 134,080,568
Total liabilities and deferrals 54,959,832 103,797,049 110,400,761 57,050,812 34,917,462
Net stockholders' equity (deficit) 1,162,646 (13,653,657) 116,901,868 125,477,587 99,163,106
</TABLE>
<PAGE>
RISK FACTORS
Should you choose to make an investment in our common stock, you must
understand that this investment involves a high degree of risk. You should not
purchase our common stock unless you can afford to lose your entire investment.
Before purchasing our common stock you should carefully consider the following
risk factors as well as the other information in this prospectus. Some of the
statements contained in this Prospectus involve forward looking statements. You
should read the cautionary statements in this Prospectus as applying to all
related forward looking statements wherever they appear in this prospectus. Our
actual results may differ significantly from our projections. The risks
discussed below, as well as others, could have a material adverse effect on our
business, operating results or financial condition.
OUR LIMITED OPERATING HISTORY IN OUR CURRENT LINE OF BUSINESS MAKES IT DIFFICULT
TO PREDICT HOW OUR BUSINESS WILL DEVELOP AND FUTURE OPERATING RESULTS
We have a limited operating history in our current line of business, which
is centered around the development, manufacture and sales of the AuraGen family
of products, and we face many of the risks and uncertainties encountered by
early-stage companies in newly evolving markets:
These risks and uncertainties include:
o no history of profitable operations;
o uncertain market acceptance of our products;
o our reliance on a limited number of products;
o the risks that competition, technological change or evolving
customer preferences could adversely affect sales of our products;
o the need to expand our sales and support capabilities; and o the risk
that our management will not be able to effectively manage growth.
WE HAVE A HISTORY OF LOSSES, AND WE MAY NOT BE PROFITABLE IN ANY FUTURE PERIOD
In each Fiscal year since our organization in 1987 we have not made a
profit. We have an accumulated deficit of approximately $251 million from our
inception through August 31, 2000. Our current business strategy may not be
profitable and we may not be profitable in any future period.
OUR OPERATING RESULTS HAVE BEEN UNEVEN AND MAY CONTINUE TO FLUCTUATE
Because our efforts have been directed towards product development and
the introduction of new products, our revenues and operating results have been
uneven and may continue to be so during our current fiscal year and beyond.
OUR BUSINESS WILL REQUIRE ADDITIONAL CAPITAL; THERE IS NO ASSURANCE IT WILL BE
AVAILABLE
The cash flow generated from our operations to date has not been
sufficient to fund our working capital needs. Accordingly, we have relied upon
external sources of financing to maintain liquidity, principally private and
bank indebtedness and equity financing. We expect to fund any operating
shortfall in our current fiscal year from cash on hand, and we expect to
continue to seek external sources of capital such as debt and equity financing.
We have no assurances that such funds will be available at the times or in the
amounts required by us. If future financing involves the issuance of equity
securities, existing stockholders may suffer dilution in net tangible book value
per share. The unavailability of funds could have a material adverse effect on
our financial statements, results of operations and our ability to expand
operations.
THE MARKET ACCEPTANCE OF OUR AURAGEN PRODUCT IS UNCERTAIN
Our business is dependent upon sales generated from our AuraGen family
of products. This product has only recently been introduced into the
marketplace. We are dependent on the broad acceptance by businesses and
consumers of our products. Because this market is emerging, the potential size
of this market and the timing of its development cannot be predicted.
OUR BUSINESS IS HIGHLY COMPETITIVE
The industries in which we operate are extremely competitive and are
characterized by rapid technological change. Many of our competitors have
substantially greater financial resources, spend considerably larger sums than
us on research, new product development and marketing, and have long-standing
customer relationships. Furthermore, we must compete with many larger and better
established companies in the hiring and retention of qualified personnel.
Although we believe we have certain technological advantages over our
competitors, realizing and maintaining such advantages will require us to
develop customer relationships and will also depend on market acceptance of our
products. Our future revenues and profits will be largely dependent on the
introduction of new products. Competitive pressures could reduce market
acceptance of our products. We may not have the financial resources, technical
expertise or marketing and support capabilities to compete successfully in the
future.
PROTECTION OF PATENTS AND PROPRIETARY TECHNOLOGY
We protect our proprietary technology by means of patent protection,
trade secrets and unpatented proprietary know-how. There is no assurance that
pending or future patent applications will issue as patents or that any issued
patents will provide us with adequate protection for the covered products or
technology. A portion of our proprietary technology depends upon unpatented
trade secrets and know-how. Although we enter into confidentiality agreements
with individuals and companies having access to our proprietary technology
whenever practicable, these agreements may not provide meaningful protection for
any unauthorized use or disclosure of such know-how. Also, where we do not have
patent protection, competitors may independently develop substantially
equivalent technology or otherwise gain access to our trade secrets, know-how or
other proprietary information.
OUR FUTURE GROWTH COULD BE IMPAIRED IF WE ARE UNABLE TO INCREASE OUR DIRECT
SALES INFRASTRUCTURE
Our future revenue growth will depend in large part on our ability to
successfully expand our direct sales force. We may not be able to successfully
manage the expansion of this function or to recruit and train additional direct
sales support personnel. There is presently a shortage of qualified personnel to
fill these positions. If we are unable to hire and retain additional highly
skilled direct sales personnel, we may not be able to increase our revenue to
the extent necessary to achieve profitability. If we are unable to hire highly
trained consulting support personnel we may be unable to meet customer demands.
We are not likely to be able to increase our revenues as we plan if we fail to
expand our direct sales force. Even if we are successful in expanding our direct
sales force capability, the expansion may not result in revenue growth.
WE DEPEND UPON THIRD PARTY MANUFACTURERS
We currently have limited capability to manufacture some of our
existing and proposed products or certain of their components on a commercial
scale. Therefore, we rely extensively on subcontracts with third party
manufacturers for such products and components. The use of third party
manufacturers increases the risk of delay of shipments to our customers and
increases the risk of higher costs if our manufacturers are not available when
required.
OUR COMMON STOCK PRICE MAY BE ADVERSELY AFFECTED BY SALES OF OUR COMMON STOCK BY
SELLING STOCKHOLDERS
Upon effectiveness of this Prospectus, selling stockholders will be
able to sell their common stock in the secondary market. Large sales volumes by
selling stockholders or market expectations of such sales could adversely affect
the market price of our common stock. Our common shares presently trade on the
over-the-counter market, and therefore may be subject to reduced liquidity.
FORWARD-LOOKING STATEMENTS
Certain matters discussed under the captions "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business" and elsewhere in this Prospectus constitute
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Some of the
forward-looking statements can be identified by the use of forward-looking words
such as "believes," "expects," "may," "will," "should," "seeks,"
"approximately," "intends," "plans," "estimates," or "anticipates" or the
negative of those words or other comparable terminology. The discussion of
financial trends, strategy, plans or intentions may also include forward-looking
statements. Forward-looking statements involve risks and uncertainties that
could cause actual results to differ materially from those projected. These
include factors discussed in this prospectus.
USE OF PROCEEDS
All net proceeds from the sale of the shares of our Common Stock will
go to the stockholders who offer and sell their shares. Although we are entitled
to receive proceeds from the exercise of Warrants by selling stockholders from
time to time, we will not receive any of the proceeds from the sales of the
shares of our Common Stock by the selling stockholders.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock.
We currently intend to retain any future earnings to fund the development and
growth of our business and we do not anticipate paying cash dividends in the
foreseeable future.
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company on a
consolidated basis, (i) as of August 31, 2000, and (ii) as adjusted on a pro
forma basis to give effect to the issuance of 40,287,779 shares by the Company
covered by this Prospectus upon the exercise of 19,454,445 Warrants and
conversion of the Notes. For further information regarding the Notes, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" herein.
<TABLE>
<CAPTION>
Securities
Issued
Actual As Adjusted
<S> <C> <C> <C>
Total Debt:
Current Installments of
Notes Payable $8,745,615 $8,745,615
========== ==========
Long term debt $23,722,161 $23,722,161
Infinity Notes 12,500,000 $(12,500,000) 0
Stockholders' equity:
Preferred Stock, $.005 par
value; 10,000,000 shares
authorized; no shares issued
and outstanding. 0 0
Common Stock, $.005 par
value, 500,000,000 shares
authorized, and
261,296,741 shares issued
and outstanding, and 1,306,483 201,439 1,507,922
279,354,844 as adjusted.
Additional paid-in capital 250,301,598 33,241,680 283,543,278
Accumulated deficit 251,149,444) 0 (251,149,444)
------------- ------------------ -------------
Net stockholders' equity (deficit) 458,637 33,416,119 33,874,756
------- ---------- ----------
Total Capitalization $45,426,413 $20,916,119 $66,342,532
=========== =========== ===========
</TABLE>
Based upon the number of shares outstanding as of October 4, 2000. Excludes (i)
approximately 3,500,000 shares not covered by this Prospectus which are reserved
for issuance upon conversion of outstanding warrants, and (ii) approximately
22,659,500 shares issuable upon exercise of outstanding options under the
Company's Employee Stock Option Plans.
<PAGE>
DILUTION
As of August 31, 2000, the net tangible book value of the Company was
approximately $(4.0) million or $(.015) per share of Common Stock. Net tangible
book value is computed as follows:
TOTAL ASSETS $51,076,101
Less:
Current Liabilities $14,395,303
Long Term Debt 36,222,161
Intangible Assets 4,492,031 (55,109,495)
--------- ----------
Net Tangible Assets $ (4,033,394)
==============
Shares Outstanding 261,296,741
Net Tangible Assets Per Share $(0.015)
Without taking into account changes in net tangible book value after
August 31, 2000, (other than to give effect to the issuance of 19,454,445 shares
issuable upon exercise of Warrants exercisable at an average price of $1.075 per
share, and the conversion of the notes, the pro forma net tangible book value of
the Company as of August 31, 2000, would have been $29,382,725, or approximately
$0.098 per share of Common Stock, representing dilution for shares yet to be
issued as follows:
SHARES DILUTION
(Negative)
Aggregate Dilution if the above Warrants
were exercised and notes converted ,454,445 $0.123
No recognition has been given in any of the above calculations to (i)
approximately 3,500,000 shares reserved for issuance upon conversion of
outstanding warrants not covered by this Prospectus, and (ii) approximately
22,659,500 shares issuable upon exercise of outstanding options under the
Company's Employee Stock Option Plans.
--------------------
(1) Intangible assets include patents, deferred costs, and miscellaneous other
items.
<PAGE>
SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION
The stockholders of Aura Systems, Inc. listed below may offer and sell from
time to time shares of our common stock ("Shares") under this Prospectus. These
shares include:
o 76,924,853 shares of common stock sold by us to stockholders in
private sales;
o 19,454,445 shares of common stock which certain stockholders are
entitled to acquire from us upon exercise of Warrants issued by us
in private sales; and
o 20,000,000 shares which may be acquired by certain noteholders
upon conversion of up to $12,000,000 principal amount of notes
issued by us in February 2000, but only if the notes are in
default.
All of the shares of Common Stock of the Company covered by this
Prospectus may be offered and sold from time to time for the account of the
selling stockholders named in the table below under "Shares of Common Stock
Offered by Selling Stockholders" and their pledgees, donees, transferees and
other successors in interest (the "Selling Stockholders").
19,454,445 shares are being offered by the Selling Stockholders upon
the exercise of outstanding, unexercised Warrants ("Warrants") at exercise
prices between $.0375 and $4.00 per share. Also included in the shares of Common
Stock which may be resold under this Prospectus are up to 20,000,000 shares of
Common Stock which may be issuable after the date of this Prospectus upon
conversion of Notes issued to certain Selling Stockholders. The Notes are
convertible into shares of Common Stock only upon the occurrence of an uncured
event of default under the Notes at $0.60 per share. For additional information
regarding these Notes, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The shares being offered by the Selling Stockholders or their
respective pledgees, donees, transferees or other successors in interest, may be
sold in one or more transactions (which may involve block transactions) on the
over-the-counter market or on such other market on which the Common Stock may
from time to time be trading, in privately-negotiated transactions, through the
writing of options on the shares, short sales or any combination thereof. The
sale price to the public may be the market price prevailing at the time of sale,
a price related to such prevailing market price or such other price as the
Selling Stockholders determine from time to time. The shares may also be sold
pursuant to Section 4(1) of the Securities Act of 1933 or Rule 144 thereunder
rather than pursuant to this Prospectus.
The Selling Stockholders or their respective pledgees, donees,
transferees or other successors in interest, may also sell the Shares directly
to market makers acting as principals and/or broker-dealers acting as agents for
themselves or their customers. Brokers acting as agents for the Selling
Stockholders will receive usual and customary commissions for brokerage
transactions, and market makers and block purchasers purchasing the shares will
do so for their own account and at their own risk. It is possible that a Selling
Stockholder will attempt to sell shares of Common Stock in block transactions to
market makers or other purchasers at a price per share which may be below the
then market price. There can be no assurance that all or any of the shares
offered hereby will be issued to, or sold by, the Selling Stockholders. The
Selling Stockholders and any brokers, dealers or agents, upon effecting the sale
of any of the shares offered hereby, may be deemed "underwriters" as that term
is defined under the Securities Act or the Exchange Act, or the rules and
regulations thereunder.
The Selling Stockholders and any other persons participating in the
sale or distribution of the shares will be subject to applicable provisions of
the Securities Exchange Act of 1934 and the rules and regulations thereunder,
which provisions may limit the timing of purchases and sales of any other such
person. The foregoing may affect the marketability of the shares.
The Company has agreed to indemnify the Selling Stockholders, or their
transferees or assignees, against certain liabilities, including liabilities
under the Securities Act, or to contribute to payments the Selling Stockholders
or their respective pledgees, donees, transferees or other successors in
interest, may be required to make in respect thereof.
Listed below are the names of each selling stockholder (the "Selling
Stockholders"), the total number of shares owned and the number of shares to be
sold in this offering by each Selling Stockholder as of August 31, 2000, and the
percentage of Common Stock owned by each Selling Stockholder after this
Offering:
<TABLE>
<CAPTION>
Shares of Common Stock Offered by Selling Stockholders
Shares of Common Number of Shares of Shares of Common stock
Stock Owned of Common Stock to be Owned After Completion of
Record Prior to Offered for Selling Offering (1)
Offering* Stockholder's
Account*
Name Number Number Percent
---- ------ ------- -------
<S> <C> <C> <C> <C>
Adrienne Rubin 75,090 75,090 0 0
Alan Talesnick 300,300 300,300 0 0
Alaris Inc. 13,974,074 13,974,074 0 0
Alco Precision, Inc. 15,400 15,400 0 0
Alpha Dynamics 5,100,000 5,100,000 0 0
Antoine D'Espous 750,000 750,000 0 0
Arthur Liu 13,500,000 13,500,000 0 0
Band & Co. 2,600,000 2,600,000 0 0
Benson Lin 200,000 200,000 0 0
Brauser Enterprises Ltd. 500,000 500,000 0 0
Bruce Cowen 1,606,451 1,606,451 0 0
Bruce C. Friedman 198,000 198,000 0 0
American Casualty Company of Reading 2,600,000 2,600,000 0 0
Pennsylvania
Calrice Ka Sin Ho 50,000 50,000 0 0
Canacord Capital Inc. 412,000 412,000 0 0
Capital Consulting 410,157 410,157 0 0
Carmen Ka Man Ho 50,000 50,000 0 0
Chana Kurtzman 771,571 700,000 71,571 0
Hiler Industries 115,997 115,997 0 0
Clement DiMuro 400,000 400,000 0 0
Cliff E. McCurdy IV 750,000 750,000 0 0
Congregation Oir HaChaim 1,300,000 1,300,000 0 0
David F. Hadley 785,185 185,185 600,000 0
David Liu 100,000 100,000 0 0
Duchess Foundation Vaduz 200,000 200,000 0 0
Edgar O. Appleby 300,000 300,000 0 0
EPO Science and Technology 353,952 353,952 0 0
Evelyn Gutkin 401,070 400,000 1,070 0
Gerald A. Tomsic Trust 300,300 300,300 0 0
Glacier Capital Limited 1,404,509 1,404,509 0 0
Global Growth Limited 687,806 687,806 0 0
Grant Fraser 150,000 150,000 0 0
GSS/Array Technology, Inc 1,485,519 1,485,519 0 0
Harry Haisfield 1,241,700 1,241,700 0 0
Hedge Fund Partners 200,000 200,000 0 0
William and Marie Henderson Foundation 400,000 400,000 0 0
Henry Brien 6,985 6,985 0 0
Infinity Investors Limited 17,353,214 17,353,214 0 0
Interwest Transfer 215,000 215,000 0 0
Isosceles 3,050,000 3,050,000 0 0
James T. Kelly 200,000 200,000 0 0
Jan Levy 30,000 30,000 0 0
Jay Gutkin 420,000 400,000 20,000 0
Jeanette Guzik 462,963 462,963 0 0
Jerome Belson 1,500,000 1,500,000 0 0
JNC Opportunity Fund, Ltd. 113,000 113,000 0 0
R. Joseph Decker 50,000 50,000 0 0
Joe Lam 200,000 200,000 0 0
John E. Allen, Jr. 375,000 375,000 0 0
Joseph Giamanco 500,000 500,000 0 0
Koyah Leverage Partners 9,645,798 7,500,000 2,145,798 0
Koyah Partners 2,275,000 1,875,000 400,000 0
Lancer Offshore Inc. 3,800,000 3,800,000 0 0
Lawrence A. Diamant 185,185 185,185 0 0
Lawrence A. Domont 498,000 498,000 0 0
Lawrence Domont Custodian For Andrew 50,000 50,000 0 0
Domont
Lawrence Domont Custodian for Zacharry 50,000 50,000 0 0
Domont
Leon Brauser 500,000 500,000 0 0
Maurice Zeitlin 2,702,088 2,701,500 588 0
Maurice I. Zeitlin, M.D. A Medical 952,380 952,380 0 0
Corporation Profit Sharing Plan
Michael Lauer 1,755,556 1,755,556 0 0
Michelle Watson-Bitar 750,000 750,000 0 0
Neal Meehan 140,625 140,625 0 0
Paragon Steel 21,158 21,158 0 0
PHB Inc. 205,339 205,339 0 0
Prindle, Decker & Amaro 575,657 575,657 0 0
Raymond Evans 750,020 750,020 0 0
Raymond Yu 1,500,000 1,500,000 0 0
Rhino Metals, Inc. 291,546 291,546 0 0
Rick and Valerie Meyer, Joint Tenants 93,750 93,750 0 0
Robert Lempert 187,500 187,500 0 0
Robinson, Diamant & Brill 468,750 468,750 0 0
Rogers Saxon 50,000 50,000 0 0
Rose Glen Capital 2,557,311 2,557,311 0 0
Samuel S. Guzik 375,000 375,000 0 0
Seymour Weintraub Trust 1,050,000 1,050,000 0 0
SMACS Holding corp 200,000 200,000 0 0
Small Assemblies 13,693 13,693 0 0
Stanley Penner 83,334 83,334 0 0
Stephen A. Talesnick 2,557,698 1,472,730 1,084,968 0
Summit Capital Limited 1,404,509 1,404,509 0 0
Suryakant and Nancy Shah 1,100,000 1,100,000 0 0
Ted Telesky 50,000 50,000 0 0
Telco Intercontinental Corporation 17,751 17,751 0 0
Tempel Steel, Inc. 410,678 410,678 0 0
Tim Yu 285,549 285,549 0 0
Todd and Beverly Smith, Joint Tenants 351,597 351,597 0 0
Travelbank Inc, 3,620,257 3,222,657 397,600 0
Vinson Investment Holdings 400,000 400,000 0 0
Waltz Brothers, Inc. 131,439 131,439 0 0
William Ho 300,000 200,000 100,000 0
William Taft 1,027,260 750,000 277,260 0
</TABLE>
----------------------------
*Assumes the exercise of all Warrants and conversion of the Note.
(1) Assumes the sale of all shares offered pursuant to this Prospectus.
<PAGE>
SELECTED FINANCIAL DATA
The following Selected Financial Data has been taken or derived from
the audited consolidated financial statements of the Company and should be read
in conjunction with and is qualified in its entirety by the full consolidated
financial statements, related notes and other information included elsewhere
herein. The data for Fiscal 2000, 1999 and 1998 has been restated to reflect
discontinued operations. The data for Fiscal 1997 and 1996 has not been revised
as the change in the scope of the Company's operations would not provide
additional relevant comparison.
<TABLE>
<CAPTION>
AURA SYSTEMS, INC. AND SUBSIDIARIES
Six Months Ended Year Ended
------------------- ------------------------------------------------------------
August 31, August 31, February 29, February 28, February 28, February 28, February 29,
2000 1999 2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C> <C>
Net Revenues $ 768,406 $ 5,225,081 $5,788,221 $53,650,025 $103,939,641 $109,950,202 $77,088,850
--------- ----------- ---------- ---------- ----------- ----------- ----------
Cost of goods and overhead 5,070,419 8,268,383 13,424,304 130,437,194 71,774,522 86,350,828 71,849,204
Expenses:
Research and development 85,951 244,621 148,443 1,996,198 475,992 6,022,586 5,225,735
Impairment of long-lived assets ---- ---- -- 5,838,466 -- -- --
Selling, general and administrative 5,536,478 5,801,765 10,725,397 64,131,072 35,266,048 18,542,840 26,399,794
---------- ----------- ---------- ------------- ---------- ---------- ----------
expenses
Total costs and expenses 10,692,848 14,314,769 24,298,144 202,402,930 107,516,562 110,916,254 103,474,733
-------------- ---------- ----------- ----------- ----------- ----------- -----------
Loss From Operations (9,924,442) (9,089,688)(18,509,922) (148,752,905) (3,576,921) (966,052) (26,385,883)
Other (Income) and Expense
Net interest expense 1,059,022 1,572,172 4,476,690 11,577,990 6,450,741 1,415,934 (298,793)
Termination of license agreements --- -- -- -- 3,114,030 -- --
(Gain)Loss on disposal of assets and (1,756,746) 527,537 (259,724) 5,809,811 -- -- --
investments
Gain on sale & issuance of subsidiary ---- -- -- (811,657) (12,632,265) (250,000) --
stock
Class action litigation, other 1,564,496 219,511 2,777,762 7,717,518 1,700,000 -- --
settlements & legal costs
Equity in losses of unconsolidated ---- ---- -- 6,268,384 1,937,747 -- --
joint ventures
Other (1,454,628) (22,659) (1,101,279) 406,576 (220,291) 40,642 --
Provision (benefit) for taxes ---- -- -- 566,635 (1,275,555) 570,484 --
Minority interests ---- ---- -- (36,934,376) 946,405 -- --
Loss in excess of basis of subsidiary --- -- -- (8,080,695) -- --
-------- ----- --------- ------------- --------- ------
--
Loss from continuing operations (9,336,586) (11,386,249) (24,403,371) (135,273,091) (3,597,733) (2,880,111) (26,087,090)
Discontinued Operations:
Loss from Discontinued Operations, ---- ---- (4,131,501) (14,875,065) (8,038,807) -- --
Net Income taxes
Extraordinary Item
Gain on extinguishment of debt
obligations, net of income taxes ---- 19,068,916 -- -- -- --
---- ----------- --------- ---------- ----------- --------- ------
Net loss $(9,336,586 $(11,386,249 (9,465,956) $(150,148,156) $(11,636,540) $(2,880,111)(26,097,090)
============ =========== ========== ============== =========== ========== ===========
NET (LOSS) PER COMMON SHARE $ (.04) $ (.11) $ (0.08) $ (1.74) $ (.15) $ (.04)$ (.48)
========== ========== ======= =========== ============ ========= ==========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES 243,572,557 107,804,271 124,293,861 85,831,688 79,045,290 68,433,521 53,860,527
=========== ========== =========== ========== ========== ========== ==========
Working capital (deficit) (365,879) (13,663,626) 1,376,215 (4,869,876) 78,143,895 62,310,715 71,362,882
Total assets 51,076,101 61,148,344 56,122,478 90,143,392 227,302,629 182,528,399 134,080,568
Total liabilities and deferrals 50,617,464 86,178,950 54,959,832 103,797,049 110,400,761 57,050,812 34,917,462
Net stockholders' equity (deficit) 458,637 (25,030,606) 1,162,646 (13,653,657) 116,901,868 125,477,587 99,163,106
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
Statements in this Prospectus, including those concerning our
expectations of future sales revenues, gross profits, research and development,
sales and marketing, and administrative expenses, product introductions and cash
requirements include forward-looking statements. As such, our actual results may
vary materially from our expectations. Factors which could cause our actual
results to differ from expectations include, but are not limited to, the
following risks and contingencies: changed business conditions in the industrial
and automotive industries and the overall economy; increased marketing and
manufacturing competition and accompanying price 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, natural
resources and any other items needed for the production of Company and other
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 marketplace.
In addition to these factors, 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 the Company's business on any large
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.
Overview
During the Fiscal Year ended February 28, 1999 the Company devoted
substantial financial and human resources in furtherance of its plan to
manufacture and sell its patented, proprietary AuraGen product. As is often the
case with the introduction of a capital intensive product launch, Aura
anticipated that in order to implement its business plan, working capital would
be required in an amount that would exceed cash flow generated from any initial
sales of the AuraGen.
The Company expected that its working capital needs would be met from,
among other things, the repayment by NewCom Inc. ("NewCom") of approximately $20
million of indebtedness which was due in September 1998 and with proceeds from
external debt and equity financing. NewCom was ultimately unable to meet its
obligations to Aura in September 1998, creating a significant cash shortfall to
Aura. NewCom's operations in the third quarter of Fiscal 1999 were severely
impacted by an industry-wide slump in the computer peripherals industry, causing
a buildup in inventory and difficulty in collecting receivables from the mass
merchants. NewCom's business reached a critical juncture in the fourth quarter
of Fiscal 1999 when Deutsche Financial Services ("DFS"), which provided NewCom's
principal working capital line, announced that it was unwilling to continue to
advance working capital to NewCom under its credit facility. This, coupled with
the retail mass merchants failure to pay NewCom for significant receivables past
due and owing, resulted in NewCom ceasing its day-to-day operations, in early
Fiscal 2000. These events substantially impacted Aura's results of operations
for Fiscal 1999.
Commencing January 1999 Aura's management was forced to take steps to
curtail and refocus its plans and implement measures to reduce its overhead
until such time as additional working capital could be obtained. These steps
included employee layoffs, selling the Company's MYS speaker division to its
former owners, eliminating the display division, temporarily suspending
development activities associated with the EVA program, leasing all the assets
of Electrotec, selling the AuraSound subsidiary assets and the licensing of the
proprietary NRT and Line Source speaker technologies. In Fiscal 2000 the Company
reached an agreement in principle to sell the ceramics assets located in New
Hope, Minnesota, to the president of the subsidiary, which was consummated in
May 2000.
The Company's ability to maintain its focused AuraGen operations
required an infusion of working capital and the restructure of Aura's principal
indebtedness. The Company believed that the restructure of this indebtedness was
required in order to obtain working capital from other third parties. Management
therefore developed an informal restructure plan under which approximately $35.0
million of indebtedness consisting of convertible debt and other debt
obligations would be eliminated. By the end of the fourth quarter of Fiscal 2000
the Company had entered into agreements to eliminate approximately $32.2 million
of debt, and providing for the conversion of most of such debt into equity. In
addition, the Company has restructured approximately $17.4 million of additional
debt ("Infinity Note") into a $12.5 million, 36 month 8 percent note, with
interest only payments and a balloon payment at the end of the 36 months.
In the third quarter of Fiscal 2000 the Company completed a private
placement of $6.9 million in the form of common stock and debt that converted
into common stock upon the restructuring of the Infinity Note. Subsequent to the
end of Fiscal 2000 the Company raised approximately $7.7 million from the sale
of its equity securities for cash and converted approximately $5.2 million of
indebtedness into Common Stock.
Since January 1999 the Company's limited resources have been devoted
almost entirely to the AuraGen product, the restructure of debt and the raising
of new working capital. Although the Company has experienced delays in the
shipping of AuraGen products since the beginning of 1999 as a result of
insufficient working capital, necessary parts started to be obtained by late
1999 and shipments of AuraGens are now being made. Over 33 state and city
governments across the U.S. have purchased evaluation units and some cities have
already specified the AuraGen as a requirement for some of their vehicles. Over
23 utilities in the U.S. have also purchased and are evaluating the AuraGen for
their applications and requirements. The Company has shipped a number of AuraGen
units to two major telecommunication companies and numerous state and federal
agencies are evaluating the AuraGen for their specific applications. The Company
continues to support the U.S. Army in its evaluation of the AuraGen (known to
the U.S. Army as VIPER). The Company has continued to develop different engine
mounts for the AuraGen. As of January 2000, the Company has started production
of mounts that will fit most of the trucks, pickups and SUV's built in North
America by the three major OEMs. The Company's 5KW model is now available for
more than 70 different vehicle models and engine configurations.
Results of Operations
Three and Six Months Ended August 31, 2000, as Compared to Three and Six Months
Ended August 31, 1999
Revenues
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 Sold
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
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.
Depreciation
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
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
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.
Interest Expense
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.
Fiscal 2000 as Compared to Fiscal 1999
Revenues
Net revenues in Fiscal 2000 declined to $5.8 million from $53.7 million
in Fiscal 1999, a decrease of 89.2%. In Fiscal 1999, net revenues included the
revenues from the NewCom subsidiary in which it held an approximate 41% interest
at February 28,1999. NewCom ceased operations shortly after the end of Fiscal
1999, resulting in no revenue being recorded for NewCom in the current Fiscal
year. Included in Fiscal 2000 revenues are license fees pertaining to sound
related patents of $1.5 million or 25.9% of revenues. License fees have a
pronounced effect on the results of operations since there is little or no cost
involved.
Cost of Goods and Overhead
Cost of goods and overhead decreased to $13.4 from $130.4 million in
the prior Fiscal year primarily as a result of the shutdown of the Company's
subsidiary previously mentioned. Cost of goods and overhead for this subsidiary
totaled approximately $98.8 million in Fiscal 1999. Included in cost of goods
and overhead for Fiscal 2000 is approximately $4.9 million in depreciation
related to the AuraGen product.
Gross Profit and Net Loss
Gross profit for Fiscal 2000 was a negative 131.9% compared to a
negative 143% in Fiscal 1999. The negative gross profit in the prior Fiscal year
was primarily a result of the Company's NewCom subsidiary. The current year
negative gross profit is a result of insufficient sales in the Company's
remaining business to cover the overhead costs associated with the ongoing
operations.
Research and Development
Research and development expense for Fiscal 2000 decreased to $.1
million from $2.0 million in Fiscal 1999. This is a result of the Company
focusing its efforts on marketing and selling the AuraGen.
Selling, General and Administrative
Selling, general and administrative expenses decreased to $10.7 million
in Fiscal 2000 from $64.1 million in Fiscal 1999. The primary reason for the
decrease is the shutdown of the Company's subsidiary as previously mentioned.
The Company also reduced the number of employees at the Company's headquarters
in conjunction with the restructuring the Company has undergone in the current
Fiscal year. Included in selling, general and administrative expenses for Fiscal
2000 are legal costs and expenses of approximately $1.7 million, and
depreciation and amortization of approximately $950,000.
Bad Debt Expense
Bad debt expense decreased to approximately $163,000 in Fiscal 2000
from $12.8 million in the prior Fiscal year.
Interest Expense
Interest expense for Fiscal 2000 declined to approximately $ 4.5
million from $11.6 million in Fiscal 1999. This was primarily a result of the
elimination of interest expense from the subsidiaries that were either sold or
shutdown, and a result of the conversion of debt into equity and the forgiveness
of debt.
Discontinued Operations
Effective March 1, 1999, the Company sold its MYS group of subsidiaries
to the management of MYS and in June 1999, the Company sold the assets of its
AuraSound division. Accordingly, the results of these operations have been
classified as a single item as a discontinued operation.
Fourth Quarter Adjustments
Certain events occurred in the fourth quarter of Fiscal 2000 which
impact the financial statements. The primary item that occurred was the
forgiveness of debt by certain of the Company's creditors in the approximate
amount of $19.1 million.
Fiscal 1999 as Compared to Fiscal 1998
The Company continued its activity in development of commercial
applications of its proprietary magnetic technologies. The second half of Fiscal
1999 had significant negative results from operations which caused significant
cash shortfall problems that affected the entire operation. Revenues
Net revenues in Fiscal 1999 declined to $53.7 million from $103.9
million, a decrease of 48.4%. The decrease was primarily due to the virtual
shutdown of operations of NewCom in the last quarter of the fiscal year, coupled
with the decline in sales of NewCom in the third quarter of the Fiscal year. The
decline in sales was primarily a result of price pressures in the retail channel
as well as a substantial decline in sales to one of NewCom's major customers. In
the last half of the fiscal year, as NewCom's business began to deteriorate in
conjunction with the overall deterioration of the computer peripherals industry,
the levels of returned goods began to accelerate. In the last quarter of the
fiscal year, when NewCom's operations virtually shutdown, returns increased
dramatically as retailers began to ship back product for fear that NewCom would
go out of business and would not be able to fulfill warranty and other business
obligations. Magnification of this stemmed from its lender "DFS" and a judgement
creditor each sending correspondence to the retail mass merchants asking that
they remit payments to them. A court battle produced an order describing whom to
pay, which was sent to the retail customer. The above actions added to the
uncertainties of NewCom's future and further deteriorated NewCom's relationships
with its customers.
Cost of Goods and Overhead
Cost of goods and overhead increased to $130.4 million in Fiscal 1999
from $71.8 million in Fiscal 1998. This increase both in dollar terms and as a
percentage of revenues is primarily a result of the price pressures from the
retail mass merchants which included the substantial rebates that were required
in order to maintain shelf space, as well as the overall business conditions at
the Company's NewCom subsidiary as described above.
Gross Profit and Net Loss
Gross profit for Fiscal 1999 was a negative 143% compared to 30.95% in
Fiscal 1998, primarily due to the substantial drop in gross profit at NewCom in
the third and fourth quarters of the Fiscal year. In the third and fourth
quarters of the Fiscal year, price pressure applied by NewCom's major customers
and inventory write-downs which reflected the change in the computer peripherals
industry resulted in substantially higher costs of product sold as a percentage
of the selling price. Coupled with the substantial rebates NewCom was required
to offer, the resulting gross profit was negative.
During the fourth quarter of Fiscal 1999 the Company experienced severe
cash flow problems that had a major impact on the entire operations of the
Company. The Company began to consolidate its operations around the AuraGen
technology and product. The Company terminated all of its joint ventures due to
its inability to support them. As the Company was cutting down and scaling back
its operations the Company evaluated its asset utilization and concluded that
certain asset values had been impaired. In addition numerous assets such as
machinery and equipment that were no longer needed were sold at a loss. The
Company over the years has made strategic investments in order to improve its
utilization of certain technologies. As the Company eliminated operations, these
investments no longer retained their economic value. In addition to the
Company`s heavy losses in its NewCom investment the Company was also a party to
certain explicit written guarantees that were triggered when NewCom's business
deteriorated.
The following table summarizes certain fourth quarter events that contribute to
the loss in Fiscal 1999.
Termination of Joint Ventures $5.6 million
Depreciation Expense $4.6 million
Accounts Receivable reserves and write-off's $13.0 million
Asset Impairment $9.4 million
Interest Expense $3.5 million
Disposed Assets $1.2 million
Investment write-off's and losses $7.0 million
Guarantees for NewCom $9.9 million
NewCom loss (Aura Share) $45.8 million
-------------
Total $100.0 million
Research and Development
Research and development expense for Fiscal 1999 increased to $2.0
million from $.5 million in Fiscal 1998 as the Company focused all its remaining
resources on developing additional engine mounts for the AuraGen, and
researching ways to expand its applications.
Selling, General & Administrative
Selling, general and administrative expenses increased to $64.1 million
in Fiscal 1999 from $35.3 million in Fiscal 1998. The increase is primarily
attributable to a substantial increase in sales and marketing related expenses
at NewCom as the major retailers required higher levels of sales promotions and
marketing allowances. Further, increased amortization of product design related
costs were necessary to account for impairment of these assets due to shorter
life cycles of products.
Bad Debt Expense
Bad debt expense in Fiscal 1999 increased to $13.3 million from $3.6
million in Fiscal 1998.
Interest Expense
Net interest expense for Fiscal 1999 increased to $11.6 million from
$6.5 million in the prior Fiscal year. The increase is attributable to higher
levels of borrowing and a quarterly fee being charged to interest expense on the
$15 million note that was renegotiated in September of 1997.
Liquidity and Capital Resources
The working capital deficit improved by approximately $6.2 million to
positive working capital of approximately $1.4 million at Fiscal 2000 year end,
with the current ratio improving slightly to 1.05:1 from .88:1. The principal
differences in the Company's accounts from February 28, 1999 to February 29,
2000 are a decrease in cash and equivalents of $3.6 million, a decrease in net
receivables of $5.9 million, a decrease in inventories of $7.3 million and a
decrease in accounts payable and accrued expenses of $24.7 million. The primary
reason for these changes is the sale of the Company's MYS Corporation subsidiary
and the sale of the speaker assets of AuraSound Inc.
The Company's cash balances were $260,437 at February 29, 2000, $3,822,210
at February 28, 1999 and $6,079,411 at February 28, 1998.
In Fiscal 2000 the Company received net proceeds of $7.4 million in a
private placement and proceeds of $24,800 from the
exercise of warrants.
The net cash used in operating activities of $(15,568,917) decreased by
$8,745,083 due primarily to the decrease in the loss incurred in addition to the
decreases in accounts receivable, inventory and accounts payable as a result of
the cessation of NewCom's business.
Spending for property and equipment amounted to $16,103 in Fiscal 2000,
$4,053,848 in Fiscal 1999 and $18,006,394 in Fiscal 1998. Of the Fiscal 2000,
1999 and 1998 amounts, nil, $1,910,611 and $16,096,180 respectively was due to
the manufacture of tooling and the remainder was due to the expansion of
facilities and purchases of equipment which was necessary in connection with
research and development activities, services performed under various
subcontracts and manufacturing requirements.
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.
The Company's cash flow generated from operating activities has to date
not been sufficient to fund its working capital needs. In the past, the Company
has relied upon external sources of financing to maintain its liquidity,
principally private and bank indebtedness and equity financing, and the sale of
assets. No assurances can be provided that these funding sources will be
available in the future, or at the times and in the amounts necessary. The
Company currently intends that funding required for future growth, operations or
any joint ventures entered into would occur through a combination of existing
working capital, operating profits, equity, sale of non-essential assets and
favorable financial terms from vendors. 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.
Current fixed monthly expenses corporate wide, average approximately
$900,000, principally for labor, overhead, travel and professional fees.
The Company owns its buildings located in El Segundo. Rent expense was
approximately $.9 million for Fiscal 2000, $1.8 million for Fiscal 1999, and
$1.3 million for Fiscal 1998. At February 29, 2000, the Company has no long term
operating leases.
Debt Restructuring
Following is a description of the principal components of Aura's debt
restructuring:
Restructuring of RGC International Investors, LDC, Debt.
Between October 1997 and March 1998 the Company issued an aggregate of
$21.5 million of its convertible unsecured debentures to RGC International
Investors, LDC ("RGC"). The debentures accrued interest at the rate of 7% per
annum, with the entire principle amount due and payable between 2002 and 2003,
and were convertible into common stock based upon a formula related to the
market price of the Common Stock. In October 1998 the Company issued to RGC a $3
million convertible note which was secured by a lien on certain of the Company's
assets.
In October 1999 the Company entered into an agreement with RGC
International Investors, LDC and a third party investor (AuraSound's assets
purchaser) whereby RGC (i) sold to the third party the Company's three
Convertible Unsecured Debentures (the "RGC Debentures"), in the aggregate
principal amount of $17,365,000, (ii) exchanged with the Company its $3 million
Secured Convertible Note for a new non-convertible Secured Note (the "New RGC
Note") in the principal amount of $3 million, and (iii) cancelled Warrants to
purchase 9,000,770 shares of the Company's Common Stock in exchange for new
Warrants to purchase 1,000,000 shares of common stock exercisable at $0.375 per
share. The New RGC Note bears interest at the rate of 8% per annum, with
principal and interest payable no less frequently than quarterly. The New RGC
Note continues to be secured by a lien on certain assets of the Company,
including inventory and accounts receivable.
Under the agreement with the new holder of the RGC Debentures, the RGC
Debentures were convertible into a maximum of 46,500,000 shares of the Company's
Common Stock unless Aura failed to complete the restructuring with Infinity. The
holder of the RGC Debentures converted a portion of the RGC Debentures into
46,500,000 shares of Common Stock and canceled the remaining outstanding
principal and interest owed under the RGC Debentures as of the consummation of
the restructuring of approximately $17.4 million of outstanding Debentures held
by Infinity. See "Restructuring of Infinity Investors Debt" below.
Retirement of JNC Debt
In June 1997 the Company issued a $4 million convertible debenture in a
private placement to JNC Opportunity Fund, Ltd. ("JNC"). The debenture accrued
interest at the rate of 7% per annum, payable quarterly, and was due and payable
in June 1999. The Debenture was convertible into shares of the Company's Common
Stock at the then current market price at the time of conversion. The investor
also received 318,000 warrants exercisable at $3.50 per share.
In December 1999, the Company consummated an agreement with JNC
Opportunity Fund, Ltd. resulting in the surrender for cancellation by JNC of the
Company's Convertible Debenture and 318,000 warrants in exchange for a cash
payment of $430,000, 3,500,000 shares of the Company's Common Stock and 113,000
Warrants exercisable at $0.375 per share expiring December 1, 2002.
Restructuring of Infinity Investors Debt
In March 1997 the Company issued $15 million of convertible Debentures
to a group of accredited investors in a private placement. The Debentures were
convertible into Common Stock of the Company in accordance with a stated
formula. In October 1997 the Company and the investors entered into an Agreement
modifying the Debentures to eliminate the conversion feature in exchange for
increasing the interest rate on the principal to 18% and the payment of a
quarterly fee of $935,000 for each quarter during which the Debentures remain
outstanding. The stated maturity of the Debentures was shortened from March 2000
to September 1998. The Debentures, as modified, are secured by a Note from
NewCom to Aura in the original principal amount of $17 million and 1,250,000
shares of NewCom stock, subject to adjustment under certain circumstances. As
part of the modification, the Company issued warrants for an aggregate of
2,500,000 shares of Common Stock at an exercise price of $2.50 per share,
subject to adjustment after one year under certain circumstances. The Company
was unable to retire the Debentures upon their maturity in September 1998. As of
February 28, 1999 these debentures had an outstanding balance of approximately
$17.4 million.
Subsequent to September 1998 the Company engaged in extensive
negotiations with the holders of these Debentures. In February 2000 the Company
consummated an agreement with these holders and a third party to exchange (the
"Exchange") the Debentures for $3 million in cash, 1,111,111 shares of common
stock, 100,000 Warrants exercisable at $0.375 per share, and new Secured Notes
(the "New Secured Notes") in the aggregate original principal amount of $12.5
million of which $12 million was outstanding as of August 31, 2000. The New
Secured Notes are secured by a lien on the Company's assets, bear interest at
the rate of 8% per annum, interest only payable quarterly, with the principal
due three years from the date of the exchange. In the event of an uncured
default under the New Secured Notes, the holder is entitled to convert the
unpaid principal and interest into Common Stock of the Company, at $.60 per
share. The Company is entitled to a discount if the New Secured Note is prepaid,
which discount is initially 20% of the amount prepaid, and the discount declines
ratably over the three year term of the New Secured Note.
Restructuring of Trade Debt
In December 1999, the Company implemented a restructuring of
approximately $10.8 million of trade debt held by certain trade creditors
whereby the holders of a substantial portion of the trade debt have agreed to
the repayment of outstanding trade debt over a period of three years, with
interest at 8% per annum, commencing January 2000. Certain trade payables are
subject to continuing negotiations with the creditors.
Completion of Common Stock Private Placement
In November 1999 the Company completed a private placement of approximately
27 million shares of its Common Stock at $0.27 per share, resulting in gross
proceeds of approximately $6.9 million.
Changes in Accountants
In August 2000 the Company received a notice of resignation from its
independent auditors, Pannell Kerr Forster, Certified Public Accountants, A
Professional Corporation ("PKF"). Having served as the independent auditors of
the Company since 1992, PKF has never had nor does it currently have any
disagreements with the Company on any matter of accounting principles or
practices, financial statement disclosure, auditing scope or procedure or any
reportable events. The auditors reports on the financial statements for the past
eight years during its entire engagement period have not contained any adverse
opinion or disclaimer of opinion and have not been qualified or modified as to
uncertainty, audit scope or accounting principles except for fiscal years 1999
and 2000 when the audit reports were modified with a going concern uncertainty.
The Company has been informed that PKF's decision was due to business reasons.
PKF is fully cooperating with the auditor selection and
transition process, which the audit committee expects to complete as soon as
possible. The Company as part of its restructuring strategy and focus on the
AuraGen, will now seek to reduce its costs associated with its audits. The
Company's next audited financial report for the year ending February 28, 2001 is
due to be filed on May 31, 2001.
Unrelated to its decision and pursuant to SEC rules, under
Item 304(a)(1)(v)(C)(1)(i) of Regulation S-K, PKF advised that information had
come to its attention which, if further investigated, may materially impact the
fairness or reliability of previously issued audit reports or the underlying
financial statements of Aura Systems Inc. and Subsidiaries. The information was
contained in court filings of the SEC in regards to the Staff's response to
motions to quash subpoenas. These motions were filed in connection with a
pending SEC investigation, reported publicly by the Company in a press release
dated January 20, 1999.
The Staff of the SEC has advised the Company that the
investigation is confidential and should not be construed as an indication that
any violation of law has occurred or as a reflection upon any person, entity or
security. The Company is cooperating fully with the inquiry. The Company does
not believe that the matters referred to in the SEC Staff's requests will have a
material effect on the Company's future financial condition or results of
operations.
<PAGE>
BUSINESS
I. INTRODUCTION
Aura Systems, Inc. ("Aura" or the "Company"), a Delaware corporation,
was founded in 1987 to engage in the development, commercialization and sales of
products, systems and components using its patented and proprietary
electromagnetic and electro-optical technology. Since 1987 the Company's
proprietary and patented technology has been developed for use in systems and
products for commercial, industrial, consumer, and government use.
Prior to Fiscal 1992, the Company was engaged in various classified
military programs, which allowed the Company to develop its electromagnetic and
electro-optical technologies and applications. A number of "one-of-a-kind"
systems were built and successfully tested in these fields. Subsequently, the
Company developed additional electromagnetic and electro-optics know-how and
technology and transitioned from a supplier of defense technology to a supplier
of consumer and industrial-related products and services.
In 1994, the Company founded NewCom, Inc. ("NewCom"), a Delaware
corporation, which engaged in the manufacture, packaging, selling and
distribution of computer-related communications and sound-related products,
including modems, CD-ROMs, sound cards, speaker systems and multimedia products.
As a result, the Company expanded its presence in the growing multimedia,
communication and sound-related consumer electronics market.
In 1996, the Company acquired 100% of the outstanding shares of MYS
Corporation of Japan ("MYS") to expand the range of its sound products and
speaker distribution network. MYS engaged in the manufacture and sale of
speakers and speaker systems for home, entertainment and computers. In Fiscal
2000, the Company sold MYS to MYS management.
In September 1997, NewCom completed an initial public offering,
decreasing Aura's ownership in NewCom down to a majority interest at the
conclusion of the offering. During the second half of Fiscal 1999 NewCom's
business suffered from adverse industry conditions, including increased price
reductions and a decline in demand resulting from increased incorporation of
computer peripherals at the OEM level. These conditions resulted in heavy losses
to NewCom and its competitors, causing a buildup in inventory and difficulty in
collecting receivables from mass merchants. NewCom's business reached a critical
juncture in the fourth quarter of Fiscal 1999 when Deutsche Financial Services,
which maintained NewCom's working capital line, announced that it was unwilling
to continue to advance working capital to NewCom under its credit facility.
This, in conjunction with the actions of the retail mass merchants, resulted in
the cessation of NewCom operations in early Fiscal 2000.
Aura anticipated that its working capital needs in Fiscal 1999 would be
met from a number of sources, including the repayment by NewCom of approximately
$20 million of indebtedness, which was due in September 1998, and proceeds from
external debt and equity financing. NewCom was unable to meet its obligations to
Aura in September 1998, ultimately creating a significant cash shortfall to
Aura. This required Aura beginning in late January 1999 to refocus its
operations by shutting down certain operating divisions, selling its MYS
subsidiary, licensing and selling proprietary based AuraSound speaker technology
and assets, and leasing its Electrotec concert touring sound equipment. The
Company also temporarily suspended the further development of certain
electro-magnetic projects, including the electromagnetic valve actuator ("EVA").
In Fiscal 2000 the Company entered into agreements providing for the
restructuring of more than $85 million of debt and contingent liabilities. Of
this amount, over $37 million was either converted into equity or forgiven.
Subsequent to Fiscal 2000 the Company sold its Aura Ceramics division. See "Item
7 Management Discussion and Analysis of Financial Condition and Results of
Operations."
The Company's operations are now focused on manufacturing and
commercializing the AuraGen(R) ("AuraGen") family of electromagnetic products,
with applications for military, industry and the consumer. The AuraGen is a
unique, patented electromagnetic generator that is mounted to the vehicle
engine, which generates both 110 and 220 volt AC power at all engine speeds
including idle. Commercial production of the AuraGen commenced in Fiscal 1999
and product is being distributed and sold through dealers, distributors and
OEMs.
The Company intends to continue to focus its business on the AuraGen
line of products (See "Description of Business Magnetic Technology"). In
addition, the Company is entitled to receive royalties from Daewoo Electronics
Co., Ltd. ("Daewoo") for its electro-optics technology ("AMA") licensed to
Daewoo in 1992 (See "Description of business - Electro-Optical Technology").
II. DESCRIPTION OF BUSINESS
A. Technology
1. Magnetic Technology
The Company has developed and patented highly efficient magnetic
circuits, which the Company believes provides substantial improvements over
devices of similar purpose, available prior to Aura's technology. These designs
include the Ferrodisk Induction Motor applied in the Company's electromagnetic
power generator technology and electromagnetic actuators, such as the HFATM and
the EMATM actuator designs.
Ferrodisk Induction Motor (AuraGen(R))
In Fiscal 1993, the Company's research discovered that certain magnetic
circuit equations could apply, with different parameters, to describe linear
actuators that could provide exceptional high force levels in a device of
relatively small volume and weight. As this concept extended from a linear
actuator to a rotary actuator, an electrical induction motor called the
"Ferrodisk Motor" was developed by the Company.
In the latter half of 1995 and in early 1996, a device named the
Ferrodisk Alternator Starter (FAS(TM)) was designed, built, tested, installed on
a Ford Ranger truck, and displayed publicly at the Society of Automotive
Engineers (SAE) trade show. FAS(TM) used its large torque capacity to start the
engine with direct drive, that is, with no gearing. After starting, its function
converted to that of an alternator, which had a capacity for generating power
several times that of a conventional alternator. The Company called this
electromagnetic power generation feature the "AuraGen".
The AuraGen contains aluminum bars and rings embedded in it. AC
voltages, similar to household currents, set up electric currents in the
electromagnets, creating a series of magnetic poles that whirl around the rings.
When the disk of steel is forced to spin faster than the motion of the magnetic
poles, there is an interaction between the magnetism in the disk and the coils
of the electromagnets. The electric currents in the wires are pushed so they
flow backwards against the voltages, and this effect builds up the electrical
energy content in the electronics at the expense of mechanical energy provided
by the rotor. The electronic box of the AuraGen provides the alternating
voltages to make the device work, stores the electrical energy generated, and
prepares the exact type of voltages as in household wiring. The device is
controlled by a computer processor that continuously measures the speed of the
AuraGen rotor and the power drawn by the user, so that alternating voltages of
the best phase and frequency are sent to the electromagnets.
Magnetic High Fidelity Actuators (HFATM)
Actuators are used in a wide range of applications, including high
speed, precision computer-controlled applications such as the control of
aircraft flaps, and heavy-duty applications such as the lifting of the bed of a
dump truck. Actuators are generally hydraulic, pneumatic, mechanical or voice
coil.
The Company believes that its high fidelity electromagnetic actuator
HFATM, is the first "Lorenz's Law" actuator to provide both the high forces and
long strokes produced by hydraulic or pneumatic actuators at the speed and
precision of response produced by voice coil actuators. This ability is
attributable to the patented magnetic design. The Company has commercially used
its HFATM technology in applications such as actuated weld heads and shakers.
Electromagnetic Actuator (EMA(TM))
During Fiscal 1995, the Company developed, built and demonstrated a new
type of actuator, called the Electromagnetic Actuator, or "EMATM." The Company
developed EMATM to fill the performance gap between linear actuators and
solenoids. To date, the principal application of the EMATM has been in Aura's
Electromagnetic Valve Actuator System ("EVA(TM)"), a patented
electromagnetically powered system which opens and closes engine valves at any
user specified time interval.
An advantage of EMATM over a solenoid is its actuator-like ability,
which provides consistent force over much longer lengths. To be used for an
application requiring proportional control, a "proportional" solenoid requires
complex electronics to compensate for this inherent non-linearity. An EMATM
basically "spreads" the solenoid's peak force over the entire stroke, providing
linear force over a greatly extended stroke length without the need for complex
electronics.
2. ELECTRO-OPTICAL
Light Efficient Displays - Actuated Mirror Array (AMATM)
The Company has developed and patented a technology (a "light valve")
for generation of images called the Actuated Mirror Array (AMATM). The AMA(TM)
utilizes an array of micro actuators in order to control tiny mirrors whose
position change is used to cause a variation in intensity. The Company expects
this device could have a major impact on applications where light efficiency is
paramount, such as in large screen television, movie and exhibition displays,
and the testing of electro-optical devices for military or civilian use.
Although there can be no assurances, the Company believes that the
AMATM can be manufactured at a competitive cost in large quantities, thus making
it commercially feasible. Thus, AMATM based devices are expected to potentially
offer the combination of increased display intensity at a competitive production
cost. The Company believes that the AMATM technology has a technical advantage
over other technologies in achieving higher contrast, more intensity and longer
lived elements.
Light displays, such as projectors and large screen televisions, can be
made by a number of techniques, many of which are currently available. These
include liquid crystal displays ("LCD"), cathode ray tubes ("CRT"), deformable
mirror displays ("DMD"), oil film projectors and plasma tubes. For the segment
of the display market addressing large images, the principal requirement is to
get more light out per unit watt of electricity in. However, each of these
technologies requires the utilization of an element, which causes a loss of
light efficiency in order to create the image.
Liquid crystals utilize an electric field to change the light
polarization properties of a surface, which is divided into an array of cells to
paint an image. Cathode ray tubes utilize an electron beam, which is bent by the
video signal to create images by colliding with a phosphor on the front surface
to create light. DMD's utilize an electric field to bend a mirror at a large
angle to switch it to either "on" or "off". Oil film projectors change the
transmissive properties of an oil film allowing an image to be created. Plasma
tubes create an electrical discharge in a tiny tube with gas. The gas glows
allowing an image to be created by an array of such tiny tubes. Each of these
technologies has their own advantages and limitations, thus creating niches
within the display market where competitive advantages can be achieved.
The Company has entered into a license and manufacturing agreement with
Daewoo Electronics Co., Ltd. to manufacture televisions and other devices based
on AMATM technology (See " Description of Business-Certain Product Risk
Factors-AMA").
B. Products
1. AuraGen(R)
The AuraGen is a patented technology (US Patent No. 5,734,217) that
could potentially have substantial benefits in size, weight and cost for
induction type electric motors and generators. The technology allows the
construction of induction machines of somewhere between one-half to two-thirds
reduction in weight and size for the same output. The machine itself does not
use any exotic materials and the components are simple to manufacture with
conventional tooling. In addition to the mechanical advantages the system uses a
proprietary control system which optimizes efficiency as a function of required
load. The AuraGen could potentially offer substantial cost savings due to
reduced material requirements and simpler components. While the technology has
wide applications over a large range of horsepower it is best utilized for
machines in the range of 1.5 to 50 horsepower. The Company has invested
substantial resources to develop the technology into a rugged system that can be
sold commercially.
The first family of products using the AuraGen technology are
generators designed to fit under the hood of a full size pickup truck, Sports
Utility Vehicle (SUV) or other large vehicle. In the under-the-hood application
the AuraGen can provide an effective torque to weight ratio of 0.648 ft-lb/lb
with efficiency of 86% as compared to a typical heavy duty brush-less alternator
which has an effective torque to weight ratio of 0.109 ft-lb/lb and efficiency
of 65%. Thus the AuraGen produces nearly six times more power per pound than
typical heavy-duty alternators.
The Company has gone through extensive testing of its 5kw (5000 watts)
continuous power rated mobile electric generator in both the laboratory and in
the field. Over 1000 units have been in the field for up to two years. The
Company has begun selling the 5KW 120/240V pure sine wave systems with total
harmonic distortion of less than 4%. Aura currently offers systems that fit in
over 70 different engine configurations in popular GM, Ford and Chrysler
vehicles, as well as some models of full size trucks. In addition, the Company
is developing other power rated generators between 3.5KW and 12.5KW, all of
which will fit under-the-hood of the types of vehicles described above.
The North American market for mobile generators is estimated to be in
excess of $4 billion per year and growing at 4% to 5% per year. The worldwide
use is estimated to be over $10 billion per year. Traditional mobile power users
are found in construction, cable, emergency/rescue, marine, railroad,
recreational vehicles, telecommunications, tool sales truck, utilities,
municipalities and personal use. In addition to the traditional mobile power
market for generators, due to its compactness and clean power, the AuraGen could
potentially allow for applications that were not practical until now,
particularly in areas that require computers and other sensitive instruments.
One area where the AuraGen could be used with great advantages in both
cost and logistics is the military. In military applications, getting quiet
clean power from vehicles at low speed could potentially be critical as the Army
changes to digital applications with numerous sophisticated electronics and
sensors. The US Army has been testing the AuraGen product for over two years for
numerous applications and to date the results show a reliable and effective
system that can be used by the military. The Company is currently working with
the US Army for the use of the AuraGen in multiple army vehicle types.
Another area where the AuraGen could potentially offer unique
possibilities is in the telecommunication industry. Currently the AuraGen is
used by a number of broadcasting TV stations in their mobile news vehicles. The
AuraGen is also being used by cable companies for numerous applications. The
technical possibilities of the AuraGen have generated numerous interests from
utilities as well as municipalities across the nation. Over 23 utilities in the
U.S. have also purchased and are evaluating the AuraGen for their applications
and requirements. The Company has shipped a number of AuraGen units to two major
telecommunication companies and numerous state and federal agencies are
evaluating the AuraGen for their specific applications.
The Company is positioning itself in the market place as a turn key mobile
power solution that is safer, more reliable, more convenient, with better
quality at an effective cost. The safer solution is based on the following: a)
no need to carry fuel in a container, b) no exposed hot components to
touch/start, c) nothing heavy to lift, d) no pull start required, e) power
outlets located away from hot components and f) not easily stolen.
The increased reliability is based on using the standard vehicle
engines as compared to small stand-alone engines. The system does not require
any maintenance (except normal belt wear and tear) and does not have any
starting problems associated with gensets. The system uses the standard vehicle
exhaust system, which results in a quieter, cleaner power generating system.
The AuraGen solution provides convenient power by: a) not using up valuable
cargo space, b) not requiring an additional fuel tank, c) no need to wait for
the genset to cool down, d) available power while driving or parked and e) the
power setup and use is totally transparent to the user. The quality of power
delivered by the AuraGen system is pure 60 or 50 Hz sine wave at a constant
voltage. As a result one can operate sensitive equipment such as computers and
coarse power such as tools and compressors at the same time.
2. Electromagnetic Valve Actuator (EVA(TM))
EVATM is an electromagnetic actuator capable of opening and closing
internal combustion engine valves, replacing the mechanical camshaft on an
engine. Two major benefits arise from the EVA's ability to open and close the
valve electromagnetically: 1) the camshaft and associated mechanical hardware
can be eliminated; and 2) the opening and closing of the intake and exhaust
valves can be commanded by the engine computer. Computer control of the valve
timing has potentially material benefits to engine performance, fuel economy and
emissions. With EVATM, the computer can precisely control the amount of air that
is allowed into the engine in the same way that modern fuel injectors control
the amount of fuel. By optimizing this "fuel-air mixture" dynamically as a
function of engine RPM and load, optimum engine performance can be achieved over
the entire operating range of the engine. With a standard camshaft, the engine
can be optimized at only one range of RPM and load conditions. That is why very
high performance engines idle "rough", as they are optimized for high RPM,
thereby sacrificing smoothness at low RPM.
By optimizing the fuel-air mixture dynamically, both performance
(horsepower) and fuel economy will increase, while emissions are expected to
decrease. The entire camshaft assembly, which includes the timing chain,
camshaft and rockerarms is replaced by very simple valve actuators. Other
emission systems currently on the vehicle, such as the EGR (exhaust gas
recirculation) and IMRC (intake manifold runner control) valves can be
eliminated. The throttle assembly can also be eliminated by using EVATM to
control the amount of air going into the engine.
In recent years, the Company has entered into agreements with 15
companies to retrofit EVA's on different types of diesel, automobile and
motorcycle engines for evaluation and testing. During Fiscal 1998 an EVA system
was delivered to a major domestic Original Equipment Manufacturer (OEM) for the
purpose of evaluating EVA for possible use in its automobile production. In
Fiscal 1998, the Company developed a new, more reliable servo control system
that provides reduced power usage and reduced noise over the entire RPM range.
In addition, the Company started work on an improved latching mechanism for EVA
that will further reduce noise in the system.
In Fiscal 1999 as part of its refocus, the Company temporarily
suspended its activities on further EVA development and commercialization to
focus its resources on the AuraGen. The Company is however, pursuing licensing
of this technology to third parties. The Company has not yet entered into any
licensing agreements for EVA.
C. Certain Product Risk Factors
The Company's business on a going-forward basis is focused on the
AuraGen family of products and on royalties for the AMA technology. While the
technology for the AuraGen has been extensively tested and verified , there are
significant risks associated with developing a market place for such a new
product. The Company is totally dependent on Daewoo Electronics for exploiting
the AMA technology. Certain of these risk factors are discussed below.
1. AuraGen(R)
The AuraGen is a new product with limited history in the market place.
There can be no assurances that the product will succeed in the marketplace.
Currently, the Company's AuraGen is being evaluated by the U.S. Army
with a potential for a contract to install the AuraGen in thousands of military
vehicles. No assurances can be given when or if the contract will materialize
and what the ultimate size of the contract may be.
The U.S. Army has recently completed the field test of 5kW and 10kW
AuraGens. No assurances can be given as to if and when the U.S. Army will
conduct other tests.
The Company has recently delivered to the U.S. Army 10kW AuraGens. No
assurances can be given that the Army will purchase any material quantities of
this product.
The U.S. Marine Corp. has recently purchased 5kW AuraGens for evaluation.
No assurances can be given that any sizable contract will develop.
The AuraGen is currently configured for 110 and 240 volts. The 240V
systems that are in use in other countries are different from the U.S. 240-Volt
system. The Company is currently providing a solution that requires an
additional transformer. A future solution may incorporate the required changes
into the Electronic Control Unit ("ECU"). While the Company expects it is
straightforward to make the changes to the international 240 Volt, it has not
been done as yet. No assurances can be given as to when or if the changes will
be made.
The Company has recently completed the development of a 10kW AuraGen in
the same geometric envelope as the 5kW unit. No assurances can be given that
such a device will succeed in the market place.
2. Actuated Mirror Array (AMA(TM))
The Company licensed its AMA technology to Daewoo Electronics, Co.,
Ltd. of Korea ("Daewoo"). Since 1992, Daewoo has been responsible for the
commercialization, production and sale of the AMA products. Daewoo in Fiscal
1999 announced the completion of the commercialization of the AMA. Due to
Daewoo's financial crisis, no assurances can be given as to the future plans of
the AMA technology at Daewoo.
The AMA(TM)/Aurascope(TM) is a new product without a history in the
marketplace. There can be no assurances that the product will succeed in the
marketplace.
The Company's rights under the license agreement provide for a royalty
to be paid on every unit sold by Daewoo and 50% of all sublicensing fees
collected by Daewoo. No assurances can be given as to when and if the royalty
stream will start.
D. Competition
The Company is involved in the application of its technology to a
variety of products and services and, as such, faces substantial competition
from companies offering different and competitive technologies.
The Company believes the principal competitive factors in the markets
for the Company's products include the ability to develop and market
technologically advanced products to meet changing market conditions, price,
reliability, product support and the ability to secure sufficient capital
resources for the often substantial periods between technological concept and
commercialization. The Company's ability to compete will also depend on its
continued ability to attract and retain skilled and experienced personnel, to
develop and secure patent and other protection for its technology and to exploit
commercially its technology prior to the development of competing products by
others.
The Company competes with many companies that have more experience,
name recognition, financial and other resources and expertise in research and
development, manufacturing, testing, and obtaining regulatory approvals,
marketing and distribution. Other companies may also prove to be significant
competitors, particularly through their collaborative arrangements with research
and development companies.
Portable generators ("Gensets") meet a large market need for auxiliary
power. Millions of units per year are sold in North America alone, and millions
more are sold across the world to meet market demands for 1 to 10 kilowatts of
portable power. The market for these power levels basically addresses the
commercial, leisure and residential markets, and divide essentially into: a)
higher power, higher quality and higher price commercial level units; and b)
lower power, lower quality and lower price level units.
There is significant competition in the auxiliary power market from
portable generator sets with such companies as Onan, Honda and Kohler which are
well-established and respected brand names in the genset market for high
reliability auxiliary power generation. There are presently 44-registered genset
manufacturers.
The following table is a summary comparing the leading Genset products
with the AuraGen(R).
<TABLE>
<CAPTION>
TABLE 1: GENERATORS
Onan Honda Honda Kohler AuraGen(TM)
Parameters Marquis 5000 EG5000X EX5500 5CKM G5000
------------------------- ------------------- ----------------- ------------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Rated Power 5,000 W 4,500 W 5,000 W 5,000 W 5,000 W
Weight 258 lbs/117.3 kg 146 lbs/66.4 kg 393 lbs/178.6 kg 268 lbs/122 kg 68 lbs/30.9 kg
Cubic Feet/
Cubic Meters 6.72/.19 5.39/.15 26.80/.76 3.71/0.11 0.25/0.01
Output 120 V 120/240 V 120/240 V 120/240 V 120/240 V
Engine RPM
@ Rated Output 1,800 3,600 3,600 1,800 1,300
Noise (db @10 Ft.)` 73.5 82 65 88.5 64
Load-Follower
Economy No No No No Yes
</TABLE>
In addition to competition from Gensets, there are six major
manufacturers of Inverters in the United States including Vanner, Dimension and
Heart.
Inverters provide strong competition in specific markets of the overall
market place for mobile power. The specific markets where inverters are strong
competitors are ambulance, fire and rescue, small recreational vehicles and
telecommunications.
Limitations of Inverters:
o Inverters address a much more limited and specialized market than gensets;
o The most significant portion of inverter sales are in the lower power
range: i.e., 2500 watts or lower.
o True quality inverter power above 2500 watts requires a 24-volt automotive
electrical system (twice 12 volts); and the maximum output for quality
power in the commercial market is on the order of 4800 watts. (See Table
2).
o Higher quality power (pure sine wave and well-regulated 60Hz) is a
significant cost factor in inverters (Table 2).
o Often, inverters require upgraded vehicle alternator and battery harness,
and--for extended use period without battery charging--an additional
battery pack.
<TABLE>
<CAPTION>
TABLE 2: INVERTERS
Heart I/F Vanner Vanner Vanner AuraGen(TM)
Parameters Freedom 25 Bravo 2600 TB30-12 A40-120X G5000
<S> <C> <C> <C> <C> <C>
1. Max Rated Power (Watts) 2500 2600 2800 4800 5000
2. Weight (LBS) 56 70 75 110 68
2A. Weight Battery Pack Add/No Add/No Add/No No No
3. Overall Cubic In. 1207.5 1866.73 1800 2595.94 432.73
4. 60 Hz Yes Yes Yes Yes Yes
5. Sine Wave @ All RPM Modified Modified Yes Modified Yes
6. Battery Discharge Operation Yes Yes Yes No No
7. Vehicle Engine Noise
(db @ 10Ft.) 64 64 64 64 64
8. Load Follower-Economy Yes Yes Yes Yes Yes
</TABLE>
E. Manufacturing
The AuraGen is assembled at Aura's facility in El Segundo, California
with parts which are produced by various suppliers. In Fiscal 1996 the Company
acquired a 27,692 square foot manufacturing facility in El Segundo for the
AuraGen production line. In Fiscal 1998, the Company set up the production
facilities in the acquired building. This facility is for assembly and testing
and has a production capability of 5,000 units per month per operating shift.
The Company leased an approximate 38,000 square foot ceramics facility in New
Hope, Minnesota. Subsequent to Fiscal 2000 year end the Company sold its
ceramics division and no longer leases this facility.
F. Quality Assurance and Testing
As the Company focuses its activities on the AuraGen, quality assurance
and testing is a very important component. The Company performs qualification
testing on the AuraGen hardware components, the Electronic Control Unit ("ECU"),
all software and on installed in-vehicle systems to ensure reliability in the
field. The qualification testing includes; 1) in-house endurance testing, 2)
in-house parametric thermal testing, 3) in-house power quality testing and 4)
independent laboratory environmental testing. In addition, field failure testing
is performed on all returned units.
In addition to the qualification testing, the Company has established a
Quality Management system, and is in pursuit of both ISO and QS 9000
registration. Elements include a controlled manufacturing lot traceability
system, documentation and configuration control system, as well as acceptance
test and compliance procedures at all manufacturing levels, including suppliers.
The Company also uses automated tools for SPC, In-Process Inspection and
Functional Test on its AuraGen assembly line.
G. Product Development Expenditures
During the fiscal years ended February 29, 2000, February 28, 1999, and
February 28, 1998 the Company spent approximately $ 0.1 million, $ 2.0 million
and $.5 million, respectively, on Company sponsored research and development
activities. The Company plans to continue its research and may incur substantial
costs in doing so. All of the Company's sponsored R & D is focused on
technological enhancements and product developments for the AuraGen.
H. Patents
Since Aura is engaged in the development and commercialization of
proprietary technology, it believes patents and the protection of proprietary
technology are important to its business. The Company's policy is to protect its
technology by, among other ways, filing patent applications for technology which
it considers important to the development of its business. The U.S. Patent
Office has to date issued 78 patents. A majority of these patents expire between
the years 2008 and 2015. The Company's first issued Auragen patent however,
expires in the year 2017. Of the issued patents, 29 pertain to its
automotive/industrial applications, 21 pertain to its electrooptical
applications and 28 pertain to sound applications. There are additional patent
applications in various stages of preparation for filing and numerous patents
are pending. There are no assurances that any of the patent applications or any
new other patents will be issued in the future. The Company believes that its
issued and allowed patents enhance its competitive position.
I. Employees
As of February 29, 2000 the Company employed approximately 85 persons.
The Company believes that its relationship with its employees is good. The
Company is not a party to any collective bargaining agreements.
J. Principal Sources of Revenues
For the year ended February 29, 2000, ceramics products were the
largest single source of revenue on a consolidated basis, constituting
approximately $2.9 million or 40% of net revenues. Sound related products
totaled approximately $.6 million or 8% of net revenues. License fees for sound
related patents constituted $1.5 million or 21% of revenues. For the year ended
February 28, 1999, multi-media products and modems were approximately $46.8
million or 57.4% of net revenues, sound related products were approximately $29
million or 35.6% of net revenues. With the sale of the sound related operations
in Fiscal 2000, and the sale of the ceramics facility subsequent to Fiscal 2000,
the principal source of revenue going forward will be related to the Company's
AuraGen products.
K. Significant Customers
The Company sold ceramics related products to a single significant
customer during Fiscal 2000 for a total of approximately $2.1 million or 29.7%
of net revenues. After Fiscal 2000 this customer will not be a significant
customer as the Company has sold the ceramics division.
PROPERTIES
The Company owns a 46,000 square foot headquarters facility in El
Segundo, California and a 27,692 square foot manufacturing facility also in El
Segundo, California for its AuraGen product. These properties are encumbered by
a deed of trust securing a Note in the original principal amount of $5,450,000.
The Company leases an approximate 38,000 square foot ceramic facility in New
Hope, Minnesota. Subsequent to year end the Company sold its ceramics division
and no longer leases this facility.
LEGAL PROCEEDINGS
The Company is engaged in various legal actions listed below. In the
case of a judgment or settlement, appropriate provisions have been made in the
financial statements.
Shareholder Litigation
Barovich/Chiau v. Aura
In May, 1995 two lawsuits naming Aura, certain of its directors and
executive officers and a former officer as defendants, were filed in the United
States District Court for the Central District of California, Barovich v. Aura
Systems, Inc. et. al. (Case No. CV 95-3295) and Chiau v. Aura Systems, Inc. et.
al. (Case No. CV 95-3296), before the Honorable Manuel Real. The complaints
purported to be securities 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 complaints alleged 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. The complaints were
consolidated as Barovich v. Aura Systems, Inc., et. al.
A settlement agreement for this proceeding was submitted to the Court
on July 20, 1998, for preliminary approval, at which time the Court denied the
plaintiffs' motion for approval of the settlement. On September 22, 1998, the
Company and certain of its officers and directors renoticed their motion for
summary judgment. Thereafter, on January 8, 1999, the plaintiffs and the
defendants in the Barovich action executed a Stipulation of Settlement pursuant
to which the Barovich action would be settled in return for payments by Aura and
its insurer to the plaintiff's settlement class and plaintiff's attorneys in the
amount of $2.8 million in cash (with $800,000 to be contributed by Aura and $2
million to be contributed by Aura's insurer, subject to a reservation of rights
by the insurer against the insureds) and $1.2 million in cash or common stock,
at the Company's option, to be paid by Aura. Subsequently the parties and the
insurer entered into an amended settlement agreement. As amended the settlement
calls for the total settlement amount of $4 million to remain the same, with the
insurer contributing $1.8 million, and the remaining $2.2 million to be paid by
Aura in cash over a period of three years, with accrued interest at the rate of
8% per annum. The settlement was preliminarily approved by the Court on December
6, 1999, and finally approved in or about April, 2000.
Morganstein v. Aura
On April 28, 1997, a lawsuit naming Aura, certain of its directors and
officers, and the Company's independent accounting firm was filed in the United
States District Court for the Central District of California, Morganstein v.
Aura Systems, Inc., et. al. (Case No. CV 97-3103), before the Honorable Steven
Wilson. A follow-on complaint, Ratner v. Aura Systems, Inc., et. al. (Case No.
CV 97-3944), was also filed and later consolidated with the Morganstein
complaint. The consolidated amended complaint purports to be a securities class
action on behalf of all persons who purchased common stock of Aura during the
period from January 18, 1995 to April 25, 1997, inclusive. The complaint alleges
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. The complaint contains allegations which assert that
the Company violated federal securities laws by selling Aura Common stock at
discounts to the prevailing U.S. market price under Regulation S without
informing Aura's shareholders or the public at large.
In June, 1998, the Court entered an order staying further discovery in
order to facilitate completion of settlement discussions between the parties. On
October 12, 1998, the parties entered into a stipulation for settlement of all
claims, subject to approval by the Court. Under the stipulation for settlement
Aura agreed to pay $4.5 million in cash or stock, at Aura's option, plus 3.5
million warrants at an exercise price of $2.25. In addition, Aura's insurance
carrier agreed to pay $10.5 million. The settlement was finally approved by the
Court in October 1999 and was thereafter amended in December 1999 to allow Aura
to defer payment of the settlement amount until April 2000 in exchange for an
additional 2 million shares of Aura Common Stock, subject to certain
adjustments. The deferral resulted from the limitations on the number of shares
authorized. The final distribution of stock and warrants to class members
occurred in April and May 2000.
NewCom Related Litigation
Deutsche Financial Services v. Aura
In June, 1999, a lawsuit naming Aura was filed in the United States
District Court for the Central District of California, Deutsche Financial
Services ("DFS") vs. Aura (Case No. 99-03551 GHK (BQRx)). The complaint follows
DFS' termination of its credit facility with NewCom of $11,000,000 and seizure
of substantially all of NewCom's collateral in April, 1999. It alleges, among
other things, that Aura is liable to DFS for NewCom's indebtedness under the
secured credit facility purportedly guaranteed by Aura in 1996, well prior to
the NewCom initial public offering of September 1997. In the proceeding, DFS
sought an order to attach Aura's assets which was denied following an
evidentiary hearing before the Honorable Brian Quinn Robbins, U.S. Magistrate,
and the matter has been ordered by the District Court to binding arbitration.
Aura has now responded in arbitration, denying DFS'claims and has asserted in
its defense, among other things, that the guarantee, if any, is discharged. In
addition, Aura through its counsel, has asserted cross-claims for, among other
things, tortious lender liability, alleging that DFS wrongfully terminated the
NewCom credit facility, wrongfully seized the NewCom collateral and wrongfully
foreclosed upon NewCom collateral, acting in a commercially unreasonably manner.
A panel of three arbitrators has been selected and appointed by the American
Arbitration Association, and a hearing set for May, 2000 was suspended by the
panel without yet scheduling a new hearing date. The Company believes it has
meritorious defenses and cross-claims. However, no assurances can be given as to
the ultimate outcome of this proceeding.
Excalibur v. Aura
On November 12, 1999, a lawsuit was filed by three investors against Aura
and Zvi Kurtzman, Aura's Chief Executive Officer, in Los Angeles Superior Court
entitled Excalibur Limited Partnership v. Aura Systems, Inc. (Case No. BC220054)
arising out of two NewCom, Inc. financings consummated in December 1998.
The NewCom financings comprised (1) a $3 million investment into NewCom
in exchange for NewCom Common Stock, Warrants for NewCom Common Stock, and
certain "Repricing Rights" which entitled the investors to receive additional
shares of NewCom Common Stock in the event the price of NewCom Common Stock fell
below a specified level, and (2) a loan to NewCom of $1 million in exchange for
a Promissory Note and Warrants to purchase NewCom Common Stock. As part of these
financings Aura agreed with the investors to allow their Repricing Rights with
respect to NewCom Stock to be exercised for Aura Common Stock, at the investors'
option. Aura also agreed to register Aura Common Stock relating to these
Repricing Rights.
The Plaintiffs allege in their complaint that Aura breached its
agreements with the Plaintiffs by, among other things, failing to register the
Aura Common Stock relating to the Repricing Rights. The Plaintiffs further
allege that Aura misrepresented its intention to register the Aura shares in
order to induce the Plaintiffs to loan $1.0 million to NewCom. The Complaint
seeks damages of not less than $4.5 million. In January 2000 Aura filed
counterclaims against the Plaintiffs, including claims that the Plaintiffs made
false representations to Aura in order to induce Aura to agree to issue its
Common Stock pursuant to the Repricing Rights. The parties submitted this matter
to mediation in June 2000. The Company believes that it has meritorious defenses
and counterclaims to the Plaintiffs' allegations. However, no assurances can be
given as to the ultimate outcome of this proceeding.
Securities and Exchange Commission Settlement.
In October, 1996, the Securities and Exchange Commission ("Commission")
issued an order (Securities Act Release No. 7352) instituting an administrative
proceeding against Aura Systems, Zvi Kurtzman, and an Aura former officer. The
proceeding was settled on consent of all the parties, without admitting or
denying any of the Commission's findings. In its order, the Commission found
that Aura and the others violated the reporting, recordkeeping and anti-fraud
provisions of the securities laws in 1993 and 1994 in connection with its
reporting on two transactions in reports previously filed with the Commission.
The Commission's order directs that each party cease and desist from committing
or causing any future violation of these provisions.
The Commission did not require Aura to restate any of the previously
issued financial statements or otherwise amend any of its prior reports filed
with the Commission. Neither Mr. Kurtzman nor anyone else personally benefited
in any way from these events. Also, the Commission did not seek any monetary
penalties from Aura, Mr. Kurtzman or anyone else. For a more complete
description of the Commission's Order, see the Commission's release referred to
above.
Other Legal Actions
The Company is also engaged in other legal actions. In the opinion of
management, based upon the advice of counsel, the ultimate resolution of these
matters will not have a material adverse effect.
<PAGE>
MANAGEMENT
The following sets forth certain information regarding the
Directors and Executive Officers of the Company as of August 31, 2000.
<TABLE>
<CAPTION>
Name Age Title
<S> <C>
Zvi Kurtzman 52 Chief Executive Officer, Chairman, Board of Directors
Harvey Cohen 66 Director, member of Audit Committee
Salvador Diaz-Verson, Jr. 47 Director, member of Audit and Compensation Committees
Stephen A. Talesnick 50 Director
Norman Reitman 76 Director
David F. Hadley 35 Director
Sanford R. Edlein 56 Director
Gerald S. Papazian 45 President, Chief Operating Officer
Arthur J. Schwartz, Ph.D. 52 Executive Vice President
Cipora Kurtzman Lavut 43 Senior Vice President
Neal B. Kaufman 54 Senior Vice President
Steven C. Veen 44 Senior Vice President, Chief Financial Officer
Michael Froch 38 Senior Vice President, General Counsel and Secretary
Keith O. Stuart 43 Senior Vice President Sales and Marketing
Ronald J. Goldstein 58 Senior Vice President Sales and Marketing
Jacob Mail 49 Senior Vice President, Operations
</TABLE>
Business Experience of Directors and Executive
Officers During the Past Five Years
Zvi Kurtzman is the CEO and Chairman of the Board of Directors of the
Company and has served in this capacity since 1987. Mr. Kurtzman also served as
the Company's President from 1987 to 1997. Mr. Kurtzman obtained his B.S. and
M.S. degrees in physics from California State University, Northridge in 1970 and
1971, respectively, and completed all course requirements for a Ph.D. in
theoretical physics at the University of California, Riverside. He was employed
as a senior scientist with the Science Applications International Corp. a
scientific research company in San Diego, from 1984 to 1985 and with Hughes
Aircraft Company, a scientific and aerospace company, from 1983 to 1984. Prior
thereto, Mr. Kurtzman was a consultant to major defense subcontractors in the
areas of computers, automation and engineering.
In October, 1996, the Securities and Exchange Commission ("Commission")
issued an order (Securities Act Release No. 7352) instituting an administrative
proceeding against Aura Systems, Zvi Kurtzman, and an Aura former officer. The
proceeding was settled on consent of all the parties, without admitting or
denying any of the Commission's findings. In its order, the Commission found
that Aura and the others violated the reporting, recordkeeping and anti-fraud
provisions of the securities laws in 1993 and 1994 in connection with its
reporting on two transactions in reports previously filed with the Commission.
The Commission's order directs that each party cease and desist from committing
or causing any future violation of these provisions. The Commission did not
require Aura to restate any of the previously issued financial statements or
otherwise amend any of its prior reports filed with the Commission. Neither Mr.
Kurtzman nor anyone else personally benefited in any way from these events.
Also, the Commission did not seek any monetary penalties from Aura, Mr. Kurtzman
or anyone else. For a more complete description of the Commission's Order, see
the Commission's release referred to above.
Harvey Cohen is a director of the Company and has served in this
capacity since August 1993. Mr. Cohen is President of Margate Advisory Group,
Inc., an investment advisor registered with the Securities and Exchange
Commission, and a management consultant since August 1981. Mr. Cohen has
consulted to the Company on various operating and growth strategies since June
1989 and assisted in the sale of certain of the Company's securities. From
December 1979 through July 1981, he was President and Chief Operating Officer of
Silicon Systems, Inc., a custom integrated circuit manufacturer which made its
initial public offering in February 1981 after having raised $4 million in
venture capital in 1980. From 1975 until 1979, Mr. Cohen served as President and
Chief Executive Officer of International Communication Sciences, Inc., a
communications computer manufacturing start-up company for which he raised over
$7.5 million in venture capital. From 1966 through 1975, Mr. Cohen was employed
by Scientific Data Systems, Inc. ("S.D.S."), a computer manufacturing and
service company, which became Xerox Data Systems, Inc. ("X.D.S.") after its
acquisition by Xerox in 1979. During that time, he held several senior
management positions, including Vice President-Systems Division of S.D.S. and
Senior Vice President-Advanced Systems Operating of the Business Planning Group.
Mr. Cohen received his B.S.
(Honors) in Electrical Engineering in 1955 and an MBA in 1957 from Harvard
University.
Salvador Diaz-Verson, Jr. is a director of the Company and has served in
this capacity since September 1997. Mr. Diaz-Verson is the founder, and since
1991 has been the Chairman and President of Diaz-Verson Capital Investments,
Inc., an Investment Adviser registered with the Securities and Exchange
Commission. Mr. Diaz-Verson served as president and member of the Board of
Directors of American Family Corporation (AFLCAC Inc.) a publicly held insurance
holding company, from 1979 until 1991. Mr. Diaz-Verson also served as Executive
Vice President and Chief Investment Officer of American Family Life Assurance
Company, subsidiary of AFLCAC Inc. from 1976 through 1991. Mr. Diaz-Verson is a
graduate of Florida State University. He is currently a director of the board of
Miramar Securities, Clemente Capital Inc., Regions Bank of Georgia and The
Philippine Strategic Investment Holding Limited.
Stephen A. Talesnick is a director of the Company and has served in
this capacity since September 1999, following appointment by resolution of the
Board of Directors to fill a vacancy pursuant to the Bylaws of the corporation.
Mr. Talesnick has owned and maintained a private law practice since 1977, which
is presently located in Beverly Hills. Mr. Talesnick specializes in business and
financial transactions in addition to entertainment industry related matters. He
originally practiced as an associate in the New York law firm of White & Case.
In 1992, Mr. Talesnick became a financial advisor in the financial services
industry and is registered with the Securities and Exchange Commission. Mr.
Talesnick is a graduate of The Wharton School Of Finance And Commerce at The
University Of Pennsylvania and received his Juris Doctor degree from Columbia
University School Of Law.
Norman Reitman has served as a director since March 2000 and previously
served as a director of the Company from January 1989 to September 1998. Mr.
Reitman obtained his B.B.A. degree in business administration from St. Johns
University in 1946 and became licensed as a public accountant in New York in
1955. Mr. Reitman is the retired Chairman of the Board and President of Norman
Reitman Co., Inc., insurance auditors, where he served from 1979 until June
1990. Mr. Reitman was a senior partner in Norman Reitman Co., a public
accounting firm, where he served from 1952 through 1979. Mr. Reitman served on
the Board of Directors and was a Vice President of American Family Life
Assurance Co., a publicly held insurance company, from 1966 until April 1991.
David F. Hadley is the founder and president of D.F. Hadley & Co., Inc.
("DFH&Co"). DFH&Co is a boutique financial services firm that provides
consulting and advisory services to emerging growth companies located in the
western United States. The principals of DFH&Co also seek to invest as
principals in the equity securities of DFH&Co clients. Prior to founding DFH&Co
in August 1999, Mr. Hadley was a managing director in the global investment
banking group of BT Alex. Brown Inc., focusing on the media and communications
sector. Mr. Hadley was employed by subsidiaries of Bankers Trust Corporation
from 1986 to June 1999. He received his MSc. In Economic History (with
distinction) from the London School of Economics and his A.B. from Dartmouth
College (summa cum laude).
Sanford R. Edlein, a Certified Public Accountant, has served as a
consultant and senior executive for privately held and public companies for more
than thirty years and has assisted in financial and operating matters, corporate
governance, crisis management and mergers and acquisitions. He has served on the
boards of public companies including Sport Supply Group, Inc., BSN Corporation,
Tennis Lady, Escalade Corporation and American Equity Financial Corporation.
Since 1998 he has been employed with Glass & Associates, Inc. Previously, from
1996 to 1998 he was CEO, COO and a member of the board of directors of Sport
Supply Group, Inc. From 1965 through 1980 and 1989 through 1994, respectively,
Mr. Edlein served as a partner and then managing partner of Grant Thornton LLP.
Mr. Edlein has a AAS degree from Bronx Community College and a BBA degree from
City of New York.
Gerald S. Papazian has been the Company's President and Chief Operating
Officer since July 1997. He joined the Company in August 1988 from Bear, Stearns
& Co., an investment-banking firm, where he served from 1986 as Vice President,
Corporate Finance. His responsibilities there included valuation of companies
for potential financing, merger or acquisition. Prior to joining Bear Stearns,
Mr. Papazian was an Associate in the New York law firm of Stroock & Stroock &
Lavan, where he specialized in general corporate and securities law with the
extensive experience in public offerings. He received a BA, Economics (magna cum
laude) from the University of Southern California in 1977 and a JD and MBA from
the University of California, Los Angeles in 1981. He served as a trustee of the
University of Southern California from 1994 to 1999.
Arthur J. Schwartz, Ph.D. has been the Executive Vice President of the
Company since February 1987. Dr. Schwartz obtained his M.S. degree in physics
from the University of Chicago in 1971 and a Ph.D. in physics from the
University of Pittsburgh in 1978. Dr. Schwartz was employed as a Technical
Director with Science Applications International Corp., a scientific research
company in San Diego, California from 1983 to 1984 and was a senior physicist
with Hughes Aircraft Company, a scientific and aerospace company, from 1980 to
1984. While at Hughes, he was responsible for advanced studies and development
where he headed a research and development effort for new technologies to
process optical signals detected by space sensors. While at Aura, he served for
3 years on a Joint Tri Services Committee reporting to the U.S. Government on
certain technology issues.
Cipora Kurtzman Lavut is Senior Vice President, Corporate
Communications, and has served in this capacity since December 1991. She
previously served as Vice President in charge of Marketing and Contracts for the
Company since 1988. She graduated in 1984 from California State University at
Northridge with a B.S. degree in Business Administration.
Neal B. Kaufman is Senior Vice President, Management Information
Systems, and has served in this capacity since 1988. Mr. Kaufman graduated from
the University of California, Los Angeles, in 1967 where he obtained a B.S. in
engineering. He was employed as a software project manager with Abacus
Programming Corp., a software development firm, from 1975 to 1985. He headed a
team of software specialists on the Gas Centrifuge Nuclear Fuel enrichment
program for the United States Department of Energy and developed software
related to the Viking and Mariner projects for the California Institute of
Technology Jet Propulsion Laboratory in Pasadena, California.
Steven C. Veen, a certified public accountant, is Senior Vice
President, Chief Financial Officer, and has served in this capacity since March
1994. He joined the Company as its Controller in December 1992. Before that, he
had over 12 years experience in varying capacities in the public accounting
profession. Mr. Veen served from 1983 to December 1992 with Muller, King, Black,
Mathys & Acker, Certified Public Accountants. He received a B.A. in accounting
from Michigan State University in 1981.
Michael I. Froch is Senior Vice President, General Counsel and
Secretary of the Company and has served as General Counsel since March 1997 and
as Secretary since July 1997. He joined the Company in 1994 as its corporate
counsel. From 1991 through 1994, Mr. Froch was engaged in private law practice
in California. Mr. Froch is admitted to the California and District of Columbia
bars. He received his Juris Doctor degree from Santa Clara University School of
Law in 1989, during which time he served as judicial extern to the Honorable
Spencer M. Williams, United States District Judge for the Northern District of
California. He received his A.B. degree from the University of California at
Berkeley in 1984, serving from 1982 through 1983 as Staff Assistant to the
Honorable Tom Lantos, Member of Congress.
Keith O. Stuart is Senior Vice President, Sales and Marketing and has
served in this capacity since November, 1999. Previously he served as President
of the Research Center, from 1995 to 1999 and has been in charge of Hardware
Development for Aura since 1988. Mr. Stuart obtained his B.S. and M.S. degrees
in electrical engineering from the University of California Los Angeles in 1978
and 1980, respectively. Mr. Stuart worked for Cyphermaster, Inc. during 1986 and
was employed by Hughes Aircraft Company, a scientific and aerospace company,
prior thereto. Mr. Stuart has designed and fabricated digitally controlled,
magnetically supported gimbals that isolate the seeker portion of a United
States Space Defense Initiative and has also developed a multi-computer
automated test station for the evaluation of sophisticated electro-optical
devices.
Ronald J. Goldstein is Senior Vice President, Sales and Marketing,
serving in the capacity since November, 1999. He is responsible for the
marketing and sales of AuraGen for worldwide government agencies, military and
OEMs, and has served in various capacities at Aura since 1989. He holds two M.S.
degrees in Computing Technology and the Management of R & D from George
Washington University and has completed coursework for a Ph.D. in Nuclear
Engineering from North Carolina State University. Mr. Goldstein has over 25
years of experience in high technology both in government and industry. Since
1989 Mr. Goldstein has been responsible for all marketing and business
development activities for the Company and has served since 1995 as President of
Aura Automotive. Prior to joining Aura, Mr. Goldstein was Manager of Space
Initiatives at Hughes Aircraft Company, a scientific and research company, where
he was responsible for the design, production and marketing of a wide variety of
aerospace systems and hardware. Prior to joining Hughes in 1982, Mr. Goldstein
was the Special Assistant for National Programs in the Office of the Secretary
of Defense, and before that held high level program management positions with
the Defense Department and Central Intelligence Agency.
Jacob Mail is Senior Vice President, Operations, serving in this
capacity since November 1999. Previously he has served as Vice President of
Operations from 1995 to 1999. Mr. Mail served over 20 years at Israeli Aircraft
Industries, starting as a Lead Engineer and progressing to Program Manager. He
was responsible for the development and production of hydraulic actuation,
steering control systems, rotor brake systems and other systems and subsystems
involved in both commercial and military aircraft. Systems designed by Mr. Mail
are being used today all over the western world. In addition, Mr. Mail has
extensive experience in the preparation of technical specifications planning and
organizing production in accordance with customer specifications at full quality
assurance.
Family Relationships
Cipora Kurtzman Lavut, a Senior Vice President, is the sister of Zvi
Kurtzman, who is the Chief Executive Officer and a director of the Company.
Jacob Mail, Vice President, Operations is a first cousin of Cipora Kurtzman
Lavut and Zvi Kurtzman.
Board of Directors Meetings and Committees
Since August 1993, the Company has maintained a Compensation Committee
which presently consists of Salvador Diaz-Verson, Jr., Stephen A. Talesnick and
David F. Hadley. Since January 1989, the Company has maintained an Audit
Committee which presently consists of Sanford Edlein, Harvey Cohen and Norman
Reitman. The Audit Committee approves the selection and engagement of
independent accountants and reviews with them the plan and scope of their audit
for each year, the results of the audit when completed, and their fees for
services performed.
Effective March 2000 each non-employee director is entitled to receive
$20,000 per year for serving as a director.
<PAGE>
EXECUTIVE COMPENSATION
Cash Compensation For Executives
The following table summarizes all compensation paid to the Company's
Chief Executive Officer, and to the four most highly compensated executive
officers of the Company other than the Chief Executive Officer whose total
compensation exceeded $100,000 during the fiscal year ended February 29, 2000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Long Term All Other
Compensation(1)Compensation Awards Compensation(2)
Name and
Principal Position Year Salary Options/SARs
<S> <C> <C> <C> <C>
Zvi (Harry) Kurtzman 2000 $386,232 0 $ 0
Chief Executive Officer 1999 384,290 1,000,000
1998 245,018 0
Gerald S. Papazian 2000 $217,777 0 $2,392
President and Chief Operating 1999 203,025 100,000
Officer 1998 154,737 0
Arthur J. Schwartz 2000 $210,192 0 $ 0
Executive Vice President 1999 204,895 500,000
1998 172,115 0
Steven C. Veen 2000 $205,469 0 $2,257
Senior Vice President and 1999 196,412 100,000
Chief Financial Officer 1998 150,127 0
Cipora Kurtzman-Lavut 2000 $203,942 0 $ 0
Senior Vice President 1999 199,221 500,000
1998 162,225 0
</TABLE>
(1) The amounts shown are the amounts actually paid to the named officers during
the respective fiscal years. Because of the timing of the payments, these
amounts do not represent the actual salary accrued by each individual during the
period. The actual salary rate for these individuals which was accrued during
the fiscal year ended February 2000, 1999 and 1998, respectively, were as
follows: Zvi Kurtzman - $385,000, $385,000, $200,000; Gerald S. Papazian -
$210,000, $210,000, $140,000; Arthur J. Schwartz - $205,000, $205,000, $160,000;
Steven C. Veen - $200,000, $200,000, $150,000; Cipora Kurtzman-Lavut - $195,000,
$195,000, $150,000.
Of the compensation paid in Fiscal 2000, $144,561, $34,781, $78,201,
$44,918 and $58,520 was paid in the form of restricted common stock of the
Company to Mr. Kurtzman, Mr. Papazian, Mr. Schwartz, Mr. Veen and Ms.
Kurtzman-Lavut, respectively.
(2) Such compensation consisted of total Company contributions made to the plan
account of each individual pursuant to the Company's Employees Stock Ownership
Plan during the fiscal year ended February 29, 2000.
No cash bonuses or restricted stock awards were granted to the above
individuals during the fiscal years ended February 29, 2000, February 28, 1999
and February 28, 1998. Effective September 1997, each non-employee director is
entitled to receive $30,000 per year for serving as a director, and $5,000 per
year for each director who serves on the audit committee.
The following table summarizes certain information regarding the number
and value of all options to purchase Common Stock of the Company held by the
Chief Executive Officer and those other executive officers named in the Summary
Compensation Table.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
Number of Unexercised Value of Unexercised
Options/SARs at Fiscal In-the-Money Options/
Name Year End SARs at Fiscal Year End*
Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C>
Zvi Kurtzman 870,000 600,000 $ 0 $ 0
Gerald S. Papazian 166,000 60,000 $ 0 $ 0
Arthur J. Schwartz 515,000 300,000 $ 0 $ 0
Steven C. Veen 215,000 210,000 $ 0 $ 0
Cipora Kurtzman-Lavut 515,000 300,000 $ 0 $ 0
</TABLE>
*Based on the average high and low reported prices of the Company's Common Stock
on the last day of the fiscal year ended February 29, 2000.
No options were exercised by the above individuals during the fiscal year ended
February 29, 2000.
Employment Agreements
Effective as of March 5, 1998 the Company, following unanimous approval
of all five outside, disinterested, directors of the Board of Directors, entered
into employment agreements with each of Messrs. Kurtzman, Schwartz, Kaufman and
Ms. Kurtzman Lavut. The employment agreements provide for a term of three years,
in each case with provision for automatic one year extensions until either the
executive or the Company notifies the other that such party does not wish to
extend the agreement. Messrs. Kurtzman, Schwartz, Kaufman and Ms. Kurtzman Lavut
are paid base salaries of $385,000, $205,000, $195,000, $195,000 per year
pursuant to their respective employment agreements. In addition, such agreements
provide for discretionary annual bonuses as determined by the Board of Directors
and target bonuses of up to 50% of the executive's base salary based on the
attainment of certain criteria determined by the Compensation Committee. The
employment agreements also provide for standard employee benefits, including
participation in the Company's stock incentive plan. In addition, the Company is
required to maintain, during the executive's term of employment, a life
insurance policy with a face value of two times the executive's base salary,
provided such premiums do not exceed $10,000 per year.
Each of the employment agreements provides that if the Company
terminates the executive's employment without "cause" (as defined in the
employment agreements), then such executive is entitled to receive the base
salary at the rate then in effect for the remainder of the term (or for a period
of six months if greater), a bonus equal to the highest annual discretionary
bonus in the preceding three year period prior to such termination for each
fiscal year during the Severance Period, continuation of all life insurance
premium payments and all outstanding equity awards would vest. Pursuant to the
terms of the employment agreements Messrs. Kurtzman, Schwartz, Kaufman and Ms.
Kurtzman Lavut also received a one time option grant to purchase, respectively,
1,000,000, 500,000, 500,000 and 500,000 shares of Common Stock under the
Company's Option Plan, which options vest over five years. The per share
exercise price of such grant is $3.31, which is 5% above the fair market value
of the options on the date such options were granted.
The employment agreements provide that during the term of employment,
each executive will be subject to certain confidentiality and non-solicitation
restrictions.
Severance Agreements
Effective as of March 5, 1998, the Company, following unanimous
approval of all five outside, disinterested, directors of the Board of
Directors, entered into severance agreements with each of Messrs. Kurtzman,
Schwartz, Kaufman and Ms. Kurtzman Lavut. The severance agreements provide for a
term of three years, with a provision for automatic one-year extensions until
either the executive or the Company notifies the other that such party does not
wish to extend the agreement. If a Change in Control (as defined in the
agreement) occurs, the agreements will continue for at least 24 months following
the date of such Change in Control. The agreements provide that if, following a
Change in Control, the executive's employment is terminated without Cause (as
defined in the agreement) or with Good Reason (as defined in the agreement) or
the executive terminates his or her employment for any reason during the one
month period commencing on the first anniversary of the Change in Control, the
executive would be entitled to receive (i) three times the sum of the base
salary plus the highest annual bonus earned by the executive in the three year
period immediately preceding such termination; (ii) continued employee benefits
for three years, reduced to the extent benefits of the same type are received by
or made available to the executive during the 36 month period following
termination; and (iii) accelerated vesting of stock options. To the extent the
executive becomes subject to the "golden parachute" excise tax imposed under
Section 4999 of the Internal Revenue Code of 1986, the executive would receive
an additional cash payment in an amount sufficient to offset the effects of such
excise tax.
Compensation Committee Interlocks and Insider Participation
Decisions regarding compensation of executive officers for the fiscal
year ended February 29, 2000, including stock option grants, were made
unanimously by the outside, disinterested, directors of the Board of Directors,
after reviewing recommendations of the Compensation Committee.
Employee Stock Option Plans
In 1989 the Company adopted the 1989 Stock Option Plan, which provided
for grants of options to employees of up to 8% of the outstanding Common Stock
from time to time. As of January 31, 2000, options for 6,525,300 shares were
outstanding under the 1989 Plan and options for 504,400 shares had been
exercised. The 1989 Plan expired in 1999. Therefore, no further option grants
may be made under the 1989 Plan.
Therefore, on January 14, 2000 the Board of Directors adopted the 2000
Stock Option Plan (the New Plan), subject to Stockholder approval. The New Plan
allows the Company to grant options to purchase the Company's Common Stock to
designated employees, executive officers, directors, consultants, advisors and
other corporate and divisional officers of the Company and its subsidiaries
("Participants"). The Board adopted the New Plan to provide employee and
non-employee Participants with additional incentives to make significant and
extraordinary contributions to the long-term performance and growth of the
Company and to attract and retain employees, directors, consultants and advisors
of exceptional ability.
Principal Features of the New Plan
The New Plan authorizes the Committee to grant stock options
exercisable for up to an aggregate of 10% of the Company's outstanding shares of
Common Stock, based upon the number of shares outstanding from time to time of
the Company's Common Stock. As of October 4, 2000, there were 280,588,674
outstanding shares of Common Stock. Therefore, as of such date 28,058,867 option
shares were available for grant under the New Plan. No stock options may be
granted under the New Plan after February 1, 2010. If a stock option expires,
terminates or is cancelled for any reason without having been exercised in full,
the shares of Common Stock not purchased thereunder are available for future
grants.
Stock options under the New Plan are intended to qualify as incentive
stock options within the meaning of Section 422 of the Internal Revenue Code of
1986 (the Code), if so designated on the date of grant. Stock options that are
not designated or do not qualify as incentive stock options are non-statutory
stock options and are not eligible for the tax benefits applicable to incentive
stock options.
The New Plan is administered by a Committee of three or more persons
established by the Board of Directors from time to time. The current Committee
members are the full Board of Directors. The Committee has complete authority,
subject to the express provisions of the New Plan, to approve the persons
nominated by the management of Aura to be granted stock options, to determine
the number of stock options to be granted to Participants, to set the terms and
conditions of stock options, to remove or adjust any restrictions and conditions
upon stock options and to adopt such rules and regulations, and to make all
other determinations, deemed necessary or desirable for the administration of
the New Plan.
In selecting optionees, consideration is given to factors such as
employment position, duties and responsibilities, ability, productivity, length
of service, morale, interest in the Company and recommendations of supervisors.
Awards may be granted to the same Participant on more than one occasion. Each
stock option is evidenced by a written option agreement in a form approved by
the Committee.
The purchase price (exercise price) of option shares must be at least
equal to the fair market value of such shares on the date the stock option is
granted or such later date as the Committee specifies. The stock option term is
for a period of ten years from the date of grant or such shorter period as is
determined by the Committee. Each stock option may provide that it is
exercisable in full or in cumulative or non-cumulative installments, and each
stock option is exercisable from the date of grant or any later date specified
therein, all as determined by the Committee. The Committee's authority to take
certain actions under the New Plan includes authority to accelerate vesting
schedules and to otherwise waive or adjust restrictions applicable to the
exercise of stock options.
Each stock option may be exercised in whole or in part (but not as to
fractional shares) by delivering a notice of exercise to the Company together
with payment of the exercise price. The exercise price may be paid in cash, by
cashier's or certified check.
Except as otherwise provided below or unless otherwise provided by the
Committee, an optionee may not exercise a stock option unless from the date of
grant to the date of exercise the optionee remains continuously in the employ of
the Company. If the employment of the optionee terminates for any reason other
than death, disability or retirement at or after the age of 65, the stock
options then currently exercisable remain exercisable for a period of 90 days
after such termination of employment (except that the 90 day period is extended
to 12 months if the optionee dies during such 90 day period), subject to earlier
expiration at the end of their fixed term. If the employment of the optionee
terminates because of death, disability or retirement at or after the age of 65,
the stock options then currently exercisable remain in full force and effect and
may be exercised at any time during the option term pursuant to the provisions
of the New Plan; unless otherwise provided by the Committee, all stock options
to the extent then not presently exercisable shall terminate as of the date of
termination of employment.
An employee may receive incentive stock options covering option shares
of any value, provided that the value of all option shares subject to one or
more of such incentive stock options which are first exercisable in any one
calendar year may not exceed the maximum amount permitted under Section 422 of
the Code (currently $100,000).
Each stock option granted under the New Plan is exercisable during an
optionee's lifetime only by such optionee. Stock options are transferable only
by Will or the laws of intestate succession unless otherwise determined by the
Committee.
The Board of Directors may at any time suspend, amend or terminate the
New Plan. Shareholder approval is required, however, to materially increase the
benefits accruing to optionees, materially increase the number of securities
which may be issued (except for adjustments under anti-dilution clauses) or
materially modify the requirements as to eligibility for participation. The New
Plan authorizes the Committee to include in stock options provisions which
permit the acceleration of vesting in the event of a change in control of the
Company resulting from certain occurrences. The Company intends to maintain a
current registration statement under the Securities Act of 1933 with respect to
the shares of Common Stock issuable upon the exercise of stock options granted
under the New Plan.
Option Grants Under the New Plan
There are currently 92 employees (including 7 executive officers) and 6
non-employee directors eligible to participate in the New Plan. The New Plan
also allows grants of stock options to consultants and advisors. As of September
25, 2000, 16,720,000 options had been granted under the New Plan. Future grants
under the New Plan will be made at the discretion of the Committee and are not
yet determinable.
Summary of Federal Income Tax Consequences under the New Plan
The following discussion of the federal income tax consequences of the
New Plan is intended to be a summary of applicable U.S. federal law. State,
local and foreign tax consequences may differ. Because the federal income tax
rules governing options and related payments are complex and subject to frequent
change and because the tax treatment may be governed by laws of non-U.S.
jurisdictions, optionees are advised to consult their tax advisors prior to
exercise of options or dispositions of stock acquired pursuant to an option
exercise.
Tax Consequences to Optionees
Incentive Stock Options. An optionee recognizes no taxable income upon
the grant of an incentive stock option. In addition, there will be no taxable
income recognized by the optionee at the time of exercise of an incentive stock
option provided the optionee has been in the employ of Aura at all times during
the period beginning on the date of grant and ending on the date three months
before the date of exercise.
Gain recognized upon a disposition of the option shares generally will
be taxable as long-term capital gain if the shares are not disposed of within
(i) two years from the date of grant of the incentive stock option and (ii) one
year from the exercise date. If both of these conditions are not satisfied, the
disposition is a "disqualifying disposition". In that event, gain equal to the
excess of the fair market value of the option shares at the exercise date over
the exercise price generally will be taxed as ordinary income and any further
gain will be taxed as long-term capital gain if the shares were held more than
12 months. Shares acquired upon the exercise of an incentive stock option will
have a basis equal to the exercise price of the stock option.
Upon the exercise of an incentive stock option, an amount equal to the
excess of the fair market value of the option shares at the exercise date over
the exercise price is treated as alternative minimum taxable income for purposes
of the alternative minimum tax.
Incentive stock options exercised by an optionee who has not satisfied
the applicable requirements as to continuous employment do not qualify for the
tax treatment discussed above. Instead, the exercise of such options will be
subject to the rules which apply to the exercise of non-statutory stock options.
Non-statutory Stock Options. An optionee recognizes no taxable income
upon the grant of a non-statutory stock option. In general, upon the exercise of
a non-statutory stock option, the optionee will recognize ordinary income in an
amount equal to the excess of the fair market value of the option shares on the
exercise date over the exercise price.
Shares acquired upon the exercise of a non-statutory stock option by
the payment of cash will have a basis equal to their fair market value on the
exercise date and have a holding period beginning on the exercise date. Gain or
loss recognized on a disposition of the option shares generally will qualify as
long-term capital gain or loss if the shares have a holding period of more than
12 months.
Aura generally must collect and pay withholding taxes upon the exercise
of a non-statutory stock option.
Tax Consequences to Aura
Aura generally is allowed an income tax deduction for amounts that are
taxable to optionees as ordinary income under the foregoing rules, if it
satisfies all Federal income tax withholding requirements. Amounts deemed to be
compensation to executive officers as a result of the exercise of stock options
or the sale of option shares will not be taken into account in determining
whether the compensation paid to the executive exceeds the limits on
deductibility imposed under Section 162(m) of the Code.
<PAGE>
Related Transactions
December 1998 Private Placement
In December 1998 the Company completed a private placement of Units,
each Unit consisting of 10 shares of Common Stock and Warrants to purchase four
shares of Common Stock at an exercise price of $1.00 per share for five years.
The original subscription price was $10.00 per Unit. Of the total gross offering
proceeds of approximately $1.8 million, $100,000 was invested by the mother of
Zvi Kurtzman, and $400,000 was invested by Stephen Talesnick, who subsequently
became a member of the Board of Directors in 1999. The terms of the offering
called for, among other things, the prompt registration of the purchased
securities with the SEC. As a result principally of delays in completing the
Company's audit for the fiscal year ended February 1999, the Company was unable
to timely file the required registration. Consequently in amendments to the
offering terms which culminated in March 2000, the Company agreed to increase
the number of shares received by each investor based upon an agreed price of
$.33 per share and the investors agreed to surrender the Warrants and their
right to receive interest from the Company.
Convertible Note Exchange
As part of the Company's financial restructuring in Fiscal 1999 the
Company offered to exchange convertible notes issued to investors in 1993 for
Common Stock. As a result of the restructuring the Company converted the notes
at a price of $.27 per share. These investors among others included Zvi Kurtzman
and Arthur J. Schwartz, whose notes entitled them to receive from the Company
$100,000 and $80,000, respectively, plus accrued and unpaid interest. Both
Messrs. Kurtzman and Schwartz exchanged their notes for Common Stock in March
2000.
Transactions with Algo Technologies, Inc. and Affiliates
In October 1999 the Company entered into an agreement with RGC
International Investors, LDC, an institutional investor ("RGC") and Algo
Technologies, Inc. ("Algo") whereby RGC (i) sold to Algo and a group of
unrelated investors (the "Algo Investors") the Company's three Convertible
Unsecured Debentures (the "RGC Debentures"), in the aggregate principal amount
of $17,365,000, (ii) exchanged with the Registrant its $3 million Secured
Convertible Note for a new non-convertible Secured Note (the "New RGC Note") in
the original principal amount of $3 million, and (iii) cancelled Warrants to
purchase 9,000,770 shares of the Registrant's Common Stock in exchange for new
Warrants to purchase 1,000,000 shares of common stock exercisable at $0.375 per
share. The New RGC Note bears interest at the rate of 8% per annum, with
principal and interest payable no less frequently than quarterly. The New RGC
Note continues to be secured by a lien on certain assets of the Company,
including inventory and accounts receivable.
Under the agreement between the Company and the Algo Investors, the RGC
Debentures were convertible into a maximum of 46,500,000 shares of the
Registrant's Common Stock unless the Registrant failed to complete the
restructuring with a group of three investors, including Infinity Investors
Limited ("Infinity"). The Algo Investors converted a portion of the RGC
Debentures into 46,500,000 shares of Common Stock and canceled the remaining
outstanding principal and interest owed under the RGC Debentures upon the
consummation of the restructuring with another investor group of approximately
$17.4 million of outstanding Debentures described below.
In February 2000 the Company consummated a restructuring agreement with
Infinity whereby the Algo Investors acquired $4 million of Debentures from
Infinity in exchange for $3 million from the Algo Investors and 1,111,111 shares
of Common Stock owned by Algo, and Aura exchanged with the Investor Group the
remaining outstanding Debentures evidencing more than $13 million of
indebtedness for 100,000 Warrants exercisable at $0.375 per share, and new
Secured Notes in the aggregate principal amount of $12.5 million. The Debentures
acquired by the Algo Investors were converted into 18,534,445 shares of Aura
Common Stock in full satisfaction of such Debentures as part of the
restructuring.
In October 1999 Algo acquired 10 million shares of Aura Common Stock
from Aura at $0.25 in a private placement. In May 2000 Arthur Liu, who may be
deemed to be an affiliate of Algo, participated in a private placement whereby
Mr. Liu received Units consisting of 9 million shares of Aura Common Stock and
Warrants to purchase 5 million shares of Common Stock at $0.48 per share. Algo
may be deemed to be the beneficial owner of more than 5% of Aura's outstanding
Common Stock. Mr. Liu is the beneficial owner of a majority of the capital stock
of Algo. See "Security Ownership of Certain Beneficial Owners and Management"
elsewhere herein.
In June 1999 Alaris, Inc., an affiliate of Algo, acquired or licensed
the principal assets and technology of Aura's AuraSound division. For further
information regarding the terms of this acquisition, see Note 23 to the
Company's Consolidated Financial Statements contained elsewhere in this
Prospectus.
Limitations on Liability and Indemnification of Officers and Directors
Section 145 of the Delaware General Corporation Law provides for the
indemnification of officers, directors, and other corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement of expenses incurred) arising under the
Securities Act of 1933, as amended (the "Act"). The Company has entered into
agreements with its directors to provide indemnity to such persons to the
maximum extent permitted under applicable laws. In addition, the Company's
Certificate of Incorporation provides that a director shall not be liable to the
Company or its stockholders for monetary damages arising out of a breach of such
person's fiduciary duty to the Company unless such breach involves intentional
misconduct, fraud or a knowing violation of law, or the payment of an unlawful
dividend. Insofar as indemnification for liabilities under the Securities Act of
1933 may be permitted to directors, officers or controlling persons, of the
Company, pursuant to the foregoing provisions or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the Company's
Common Stock owned as of August 31, 2000, (i) by each person who is known by
Aura to be the beneficial owner of more than five percent (5%) of its
outstanding Common Stock, (ii) by each of the Company's directors and those
executive officers named in the Summary Compensation Table, and (iii) by all
directors and executive officers as a group:
<TABLE>
<CAPTION>
Shares of Percent of
Common Stock Common Stock
Name Beneficially Owned Beneficially Owned
<S> <C> <C>
Gardner Lewis Asset Management 19,980,436 ** 7.38%
Alaris, Inc. 13,974,074 5.16%
Zvi (Harry) Kurtzman 3,391,314 (1)(2) 1.25%
Arthur J. Schwartz 2,544,838 (1)(3)(4) *
Cipora Kurtzman Lavut 1,874,512 (5) *
Neal B. Kaufman 1,736,870 (1)(7) *
Harvey Cohen 468,287 (6) *
Salvador Diaz-Verson, Jr. 1,006,037 *
Stephen A. Talesnick 2,787,698 1.03%
Gerald S. Papazian 443,810 (8) *
Steven C. Veen 659,763 (9) *
Michael I. Froch 342,735 (10) *
Keith O. Stuart 161,188 (11) *
Ronald Goldstein 207,579 (12) *
Jacob Mail 278,841 (13) *
Norman Reitman 587,142 (14) *
Sanford R. Edlein 0 *
David F. Hadley 785,185 *
Richard Van Allen 91,973 (15) *
All executive officers and directors 51,322,285
as a group (16 persons)
</TABLE>
--------------------
* Less than 1% of outstanding shares.
** Based upon information contained in Schedule 13G filed by such person with
the SEC in February 2000.
(1) Includes 175,000 shares held of record by Advanced Integrated Systems,
Inc.
(2) Includes 870,000 shares which may be purchased pursuant to options and
convertible securities exercisable within 60 days of August 31, 2000.
(3) Includes 515,000 shares which may be purchased pursuant to options and
convertible securities exercisable within 60 days of August 31, 2000.
(4) Includes 32,000 shares held by Dr. Schwartz as custodian for his
children, and 74,000 owned by Dr. Schwartz' children, to which Dr.
Schwartz disclaims any beneficial ownership.
(5) Includes 515,000 shares which may be purchased pursuant to options
exercisable within 60 days of August 31, 2000.
(6) Includes 31,250 shares beneficially owned, and 265,000 shares which
may be purchased pursuant to options within 60 days of August 31, 2000
of which 100,000 are beneficially owned.
(7) Includes 470,000 shares which may be purchased pursuant to options
exercisable within 60 days of August 31, 2000.
(8) Includes 166,000 shares which may be purchased pursuant to options
exercisable within 60 days of August 31, 2000.
(9) Includes 215,000 shares which may be purchased pursuant to
options exercisable within 60 days of August 31, 2000, and 20,000
shares held by Mr. Veen as custodian for his children, to which Mr.
Veen disclaims any beneficial ownership.
(10) Includes 130,000 shares which may be purchased pursuant to options
exercisable within 60 days of August 31, 2000.
(11) Includes 150,000 shares which may be purchased pursuant to options
exercisable within 60 days of August 31, 2000.
(12) Includes 140,000 shares which may be purchased pursuant to options
exercisable within 60 days of August 31, 2000.
(13) Includes 150,000 shares which may be purchased pursuant to options
exercisable within 60 days of August 31, 2000.
(14) Includes 345,000 shares which may be purchased pursuant to
options exercisable within 60 days of August 31, 2000 and 12,500
shares owned by Mr. Reitman's wife, as to which 12,500 shares he
disclaims any beneficial ownership.
(15) Includes 24,000 shares which may be purchased pursuant to
options exercisable within 60 days of August 31, 2000, and 3,000
shares held by Dr. Van Allen as custodian for his children to which
Dr. Van Allen disclaims any beneficial ownership.
The mailing address for Gardner Lewis Asset Management, L.P. is 285
Wilmington - West Chester Pike, Chadds Ford, Pa. 19317. The mailing address for
the others is c/o Aura Systems, Inc., 2335 Alaska Avenue, El Segundo, CA 90245.
<PAGE>
DESCRIPTION OF CAPITAL STOCK
As of the date of this Prospectus, the authorized capital stock of the
Company consists of 500,000,000 shares of Common Stock, par value $.005 per
share, of which 280,588,674 were issued and outstanding as of October 4, 2000,
and 10,000,000 shares of Preferred Stock, par value $.005 per share, none of
which are outstanding.
Common Stock
Holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Common stockholders are entitled
to receive such dividends, if any, as may be declared from time to time by the
Board of Directors out of funds legally available therefor. The Common Stock has
no preemptive or conversion rights or other subscription rights and there are no
redemptive or sinking funds provisions applicable to the Common Stock. All
outstanding shares of Common Stock are fully paid and nonassessable, and all the
shares of Common Stock offered by the Company hereby will, when issued, be fully
paid and nonassessable.
Preferred Stock
The Company's Board of Directors is authorized, without further action
by the Company's stockholders, to issue Preferred Stock from time to time in one
or more series and to fix, as to any such series, the voting rights, if any,
applicable to such series and such other designations, preferences and
specialrights as the Board of Directors may determine, including dividend,
conversion, redemption and liquidation rights and preferences.
Anti-Takeover Provisions
The Company is subject to Section 203 of the Delaware General
Corporation Law ("Section 203"). In general, Section 203 prohibits certain
publicly held Delaware corporations from engaging in a "business combination"
with an "interested stockholder" for a period of three years following the date
of the transaction in which the person or entity became an interested
stockholder, unless the business combination is approved in a prescribed manner.
For purposes of Section 203, "business combination" is defined broadly to
include mergers, asset sales and other transactions resulting in a financial
benefit to the interested stockholder. An "interested stockholder" is any person
or entity who, together with affiliates and associates, owns (or within the
three immediately preceding years did own) 15% or more of the Company's voting
stock. The provisions of Section 203 requiring a super majority vote to approve
certain corporate transactions could enable a minority of the Company's
stockholders to exercise veto powers over such transactions.
Transfer Agent and Registrar
The transfer agent and registrar for the Company's Common Stock is
Interwest Transfer Co., Inc., Salt Lake City, Utah.
Market for the Company's Common Stock
Since 1988, Aura Common Stock has been quoted on the Nasdaq Stock
Market under the trading symbol "AURA". On May 21, 1991, Aura shares became
listed on the Nasdaq National Stock Market.
On July 21, 1999 the Company's shares were delisted from Nasdaq
National Market. This action was taken as a result of the Company's failure to
meet the filing, minimum $1.00 bid price and listing of additional shares as
stated in the Market Place Rules.
Since that date the Company's stock has traded on the over-the-counter market.
Set forth below are high and low sales prices for the Common Stock of
Aura for each quarterly period in each of the two most recent fiscal years. Such
quotations reflect inter-dealer prices, without retail mark-up, markdown or
commissions and may not necessarily represent actual transactions in the Common
Stock. The Company had approximately 11,300 stockholders of record as of August
31, 2000.
Period High Low
Fiscal 1999
First Quarter ended May 31, 1998 $3.69 $2.59
Second Quarter ended August 31, 1998 $1.25 $1.00
Third Quarter ended November 30, 1998 $1.81 $0.91
Fourth Quarter ended February 28, 1999 $1.50 $0.34
Fiscal 2000
First Quarter ended May 31, 1999 $0.50 $0.22
Second Quarter ended August 31, 1999 $0.28 $0.06
Third Quarter ended November 30, 1999 $0.51 $0.06
Fourth Quarter ended February 29, 2000 $0.42 $0.17
On October 4, 2000, the average of the high and low reported sales
price for the Company's Common Stock was $1.11.
Dividend Policy
The Company has not paid any dividends on its Common Stock and
currently intends to retain any future earnings for use in its business. The
Company does not anticipate paying any dividends on its Common Stock in the
foreseeable future but has no restrictions preventing it from paying dividends.
LEGAL MATTERS
Certain legal matters with respect to the validity of the shares of
Common Stock offered hereby will be passed upon for the Company by Guzik &
Associates, Los Angeles, California. Included in this Prospectus are 462,963
shares of Common Stock owned by Jeanette Guzik and 375,000 shares of Common
Stock owned by Samuel S. Guzik. Mr. Guzik may be deemed to be the beneficial
owner of all such shares and is a principal in the firm of Guzik & Associates.
EXPERTS
The consolidated financial statements of the Company and subsidiaries
for the years ended February 29, 2000, February 28, 1999 and February 28, 1998,
included in this Prospectus and Registration Statement, have been audited by
Pannell Kerr Forster, Certified Public Accountants, A Professional Corporation.
Such financial statements and schedules have been so included in reliance upon
such report given the authority of such firm as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 covering the shares being sold in this offering. We have
not included in this prospectus some information contained in the registration
statement, and you should refer to the registration statement, including
exhibits and schedules filed with the registration statement, for further
information. You may review a copy of the registration statement from the public
reference section of the Securities and Exchange Commission in Room 1024,
Judiciary Plaza, 450 5th Street, N.W., Washington, D.C. 20549; and at the SEC's
Regional Office located at: 7 World Trade Center, Suite 1300, New York, New York
10048 and 1400 Citicorp Center, 500 West Madison Street, Chicago, IL 60661. You
may also obtain copies of such materials at prescribed rates from the public
reference section at the Commission, Room 1024, Judiciary Plaza, 450 5th Street,
N.W., Washington, D.C. 20549. In addition, the Securities and Exchange
Commission maintains a Web site on the Internet at the address
http://www.sec.gov that contains reports, proxy information statements and other
information regarding registrants that file electronically with the Securities
and Exchange Commission.
<PAGE>
___________ Shares To Be Sold
by Selling Stockholders
Common Stock
PROSPECTUS
, 2000
Dealer Prospectus Delivery Obligation:
Until , 2000 (25 days after the date of this prospectus), all dealers
that buy, sell or trade these shares of common stock, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the expenses payable by the Registrant
in connection with the sale and distribution of the securities being registered
hereby. All amounts are estimated except the Securities and Exchange Commission
registration fee.
SEC registration fee ........................................... $ 27,330
Blue Sky fees and expenses ..........................................1,000.00
Accounting fees and expenses ....................................... 1,000.00
Legal fees and expenses ........................................... 15,000.00
Printing and engraving expenses ................................... 1,000.00
Registrar and Transfer Agent's fees .................................. 500.00
Miscellaneous fees and expenses ...................................... 500.00
Total ........................................................... $ 46,330
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law provides for the
indemnification of officers, directors, and other corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement of expenses incurred) arising under the
Securities Act of 1933, as amended (the "Act"). The Registrant has entered into
agreements with its directors to provide indemnity to such persons to the
maximum extent permitted under applicable laws. In addition, the Registrant's
Certificate of Incorporation provides that a director shall not be liable to the
Registrant or its stockholders for monetary damages arising out of a breach of
such person's fiduciary duty to the Registrant unless such breach involves
intentional misconduct, fraud or a knowing violation of law, or the payment of
an unlawful dividend.
Item 15. Recent Sales of Unregistered Securities
During the past three years the Registrant has issued the securities
set forth below which were not registered under the Securities Act of 1933.
RGC Financings
On October 30, 1997, the Registrant issued and sold $10 million of
Convertible Debentures (the "Debentures") to RGC International Investors, LDC,
an institutional investor ("RGC"), for cash proceeds of $9.7 million, net of
commissions. The Debentures bore interest at the rate of 7% per annum, payable
quarterly, with the entire principal amount due and payable on October 30, 2002,
subject to prior redemption or conversion. The Debentures were convertible, at
the option of the holder, into the Registrant's Common Stock at a fixed
conversion price of $3.04 per share, which was 110% of the average closing bid
price of the Common Stock over the five trading days ending on the day prior to
the closing of the financing. The Debentures were subject to redemption at the
option of the holder, at any time on or after July 30, 1998, at a price equal to
115% of the principal amount.
As part of the financing, RGC received 3,619,910 five-year Warrants,
exercisable at $2.85 per share (which price was set at the higher of (i) the
average closing bid price of the Common Stock over the five trading days prior
to closing and (ii) the closing bid price on the day prior to closing). RGC was
granted an option exercisable on or before April 30, 1998, to invest up to an
additional $10 million on substantially the same terms and conditions except
that the conversion price of the additional Debentures and the exercise price of
the Warrants were to be a premium to the market price of the Common Stock at the
time of the closing of the additional financing.
On March 30, 1998, the Registrant sold $8 million of Convertible
Debentures RGC for cash. The Convertible Debentures bore interest at the rate of
7% per annum, with the entire principal amount due and payable on March 30,
2003, subject to prior redemption or conversion. The Convertible Debentures were
convertible, at the option of the holder, into Common Stock at a fixed
conversion price of $3.13 per share. As part of the financing, the investor
received warrants to purchase up to 2,415,094 shares exercisable at $3.64 per
share.
On July 13, 1998, the Registrant entered into an agreement with RGC to
reduce the exercise price of Warrants for 2,415,094 shares from $3.64 to $1.91
which was the closing bid price of the Common Stock on July 12, 1998 (the "July
1998 market price") and RGC agreed to fully exercise the Warrants on such date,
resulting in proceeds to the Registrant of $4,603,773. The Registrant agreed
that if 101% of the average bid price for the five trading days ending October
30, 1998 is less than the July 1998 market price, the Registrant would further
reduce the exercise price retroactively to 101% of the October 1998 market price
by issuing to RGC additional shares to reflect the difference between the July
1998 market price and 101% of the October 1998 market price. The Registrant
further agreed that if 101% of the average bid price for the five trading days
ending April 30, 1999 was less than the July 1998 exercise price or the adjusted
October 1998 exercise price, the Registrant would further reduce the exercise
price retroactively to 101% of the April 1998 market price by issuing to RGC
additional shares to reflect the difference between the July 1998 or October
1998 exercise price and the adjusted exercise price in April 1999.
In addition, on July 13, 1998 the Registrant issued to RGC a new five
year Warrant (the "July 1998 Warrant") exercisable for 2,415,094 shares of
Common Stock at an initial exercise price equal to 110% of the July 1998 market
price, or $2.10 per share. The exercise price of the July 1998 Warrant is
subject to reduction on or after October 30, 1998 and April 30, 1999 to 101% of
the October 1998 market price and 101% of the April 1999 market price,
respectively, if at either time such price would be lower than the initial
exercise price of $2.10. The Registrant further agreed that if the exercise
price of the July 1998 Warrant, as adjusted from time to time, was less than the
exercise price for any other warrants held by RGC, then the exercise price of
the other warrants would be reduced to equal the exercise price of the July 1998
Warrant. These other warrants include warrants exercisable for: 3,619,910 shares
at $2.85 per share; 757,757 share at $3.50 per share; and 1,009,009 shares at
$2.52 per share.
In October 1998 the Registrant completed a private placement to RGC of
a $3,000,000 Convertible Senior Secured Note and Warrants to purchase 1,200,000
of the Registrant 's Common Stock in consideration of $3,000,000 gross cash
proceeds. The Note bore interest at the rate of 14% per annum and was due and
payable on the earlier of April 1, 1999, and the closing of an equity or
convertible debt financing resulting in at least $6,000,000 of net proceeds to
the Company. The Note was secured by a junior lien on inventory and receivables
of the Registrant and its subsidiaries other than NewCom. The Warrants were
exercisable at $1.40 per share until January 1, 1999; from February 1, 1999
until June 30, 1999, the Warrants were exercisable at the lesser of $1.40 and
101% of the average closing bid price of the Common Stock for the five
consecutive trading days ended January 31, 1999 (the "January Price"); and from
July 1, 1999 until October 2003 the Warrants were exercisable at the lower of
$1.40, the January Price or 101% of the average closing bid price of the Common
Stock for the five consecutive trading days ended June 30, 1999.
In October 1999 the Registrant entered into an agreement with RGC and a
third party investor whereby RGC (i) sold to the third party the Registrant's
three Convertible Unsecured Debentures (the "RGC Debentures"), in the aggregate
principal amount of $17,365,000, (ii) exchanged with the Registrant its $3
million Secured Convertible Note for a new non-convertible Secured Note (the
"New RGC Note") in the principal amount of $3 million, and (iii) cancelled
Warrants to purchase 9,000,770 shares of the Registrant's Common Stock in
exchange for new Warrants to purchase 1,000,000 shares of common stock
exercisable at $0.375 per share. The New RGC Note bears interest at the rate of
8% per annum, with principal and interest payable no less frequently than
quarterly. The New RGC Note continues to be secured by a lien on certain assets
of the RGC, including inventory and accounts receivable.
Under the agreement with the new holder of the RGC Debentures, the RGC
Debentures were convertible into a maximum of 46,500,000 shares of the
Registrant's Common Stock unless the Registrant failed to complete the
restructuring with Infinity. The holder of the RGC Debentures converted a
portion of the RGC Debentures into 46,500,000 shares of Common Stock and
canceled the remaining outstanding principal and interest owed under the RGC
Debentures as of the consummation of the restructuring of approximately $17.4
million of outstanding Debentures held by Infinity. See "Restructuring of
Infinity Investors Debt" below.
The securities issued to RGC were issued pursuant to the exemption from
registration under Section 4(2) of the Securities Act of 1933 as the offering
was to a single accredited investor in a private transaction.
In November 1998 the Registrant completed a financing with an institutional
investor of a $1,000,000 Convertible Senior Secured Note and Warrants to
purchase 400,000 shares of the Registrant 's Common Stock. The Note was secured
by a junior lien on inventory and receivables of the Registrant and its
subsidiaries other than NewCom. The Warrants were exercisable at $1.40 per share
until January 1, 1999; from February 1, 1999 until June 30, 1999, the Warrants
were exercisable at the lesser of $1.40 and 101% of the average closing bid
price of the Common Stock for the five consecutive trading days ended January
31, 1999 (the "January Price"); and from July 1, 1999 until October 2003 the
Warrants were exercisable at the lower of $1.40, the January Price or 101% of
the average closing bid price of the Common Stock for the five consecutive
trading days ended June 30, 1999. In March 2000 the Registrant entered into an
agreement with the investor providing for the conversion of the entire amount of
the Secured Note into 3 million shares and the exchange of the original 400,000
Warrants for 50,000 Warrants at $0.375 per share. 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 single accredited investor.
December 1998 Unit Offering
In December 1998 the Company completed a private placement of Units,
each Unit consisting of 10 shares of Common Stock and Warrants to purchase four
shares of Common Stock at an exercise price of $1.00 per share for five years,
resulting in the issuance of 3,597,300 shares for total net proceeds of
$1,797,642. The terms of the offering called for, among other things, the prompt
registration of the purchased securities with the SEC. As a result principally
of delays in completing the Company's audit for the fiscal year ended February
1999, the Company was unable to timely file the required registration.
Consequently in amendments to the offering terms which culminated in March 2000,
the Company agreed to increase the number of shares received by each investor
based upon an agreed price of $.33 per share, resulting in the issuance of an
additional 1,798,650 shares of Common Stock, and the investors agreed to
surrender all of the 1,798,650 outstanding Warrants and their right to receive
interest from the Company. 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.
Convertible Note Exchange
As part of the Company's financial restructuring in Fiscal 1999 the
Company exchanged with 7 investors approximately $687,000 of convertible notes
issued in 1993 for 2,520,000 shares of Common Stock, at an exchange price of
$.27 per share. The convertible notes were originally convertible at an average
conversion price of $3.28. 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.
NewCom, Inc. Financing
On December 1, 1998 (the "Initial Closing Date"), NewCom, Inc, a
subsidiary of the Registrant ("NewCom"), consummated a private placement of its
Common Stock, warrants and Repricing Rights pursuant to Section 4(2) of the
Securities Act of 1933 to three private investors. On the Initial Closing Date
NewCom received gross proceeds of $3 million in exchange for the issuance of
871,288 shares of its Common Stock, Warrants exercisable for five years for up
to 166,337 shares of Common Stock at an exercise price of $4.545, and 792,088
Repricing Rights.
On December 28, 1998, the same investors consummated an additional
financing with NewCom pursuant to certain Notes of NewCom secured by a junior
lien on Newcom's inventory and accounts receivable and issued an aggregate of
75,000 Warrants to purchase NewCom Common Stock. The Repricing Rights entitled
the holder to purchase that number of shares of Common Stock of NewCom
("Repricing Shares") determined by multiplying the number of Repricing Rights by
a fraction, the numerator of which is the Repricing Price minus the Average
Market Price (as defined below), and the denominator of which is the Average
Market Price (defined as the two lowest closing bid prices during the 20 trading
days immediately preceding the exercise date of the Repricing Rights). The
"Repricing Price" for the 792,088 Repricing Rights received on the Initial
Closing Date was $4.32, being 114% of the Initial Closing Date price of $3.79
(computed based upon the average closing bid prices for the five consecutive
trading days ending on the day immediately preceding the Initial Closing Date)
if the Repricing Rights are exercised within 135 days of the Initial closing
Date; $4.40, being 116% of the Initial closing Date Price, if the Repricing
Rights are exercised between the 136th and the 180th day of the Initial Closing
Date; and an additional 2% during each 45 day period following 180 days from the
Initial Closing Date.
The Repricing Price is increased by 7.5% if the Common Stock is listed
for trading on the Nasdaq SmallCap Market, and 15% if the Common stock is not
listed on a national stock exchange or the Nasdaq Stock Market or upon the
occurrence of a "Repurchase Event" as described below.
The investors also were given the right to elect to receive shares of
Aura Common Stock upon exercise of the Repricing rights in lieu of NewCom Common
Stock, based upon the Average Market Price of Aura Common stock at the time of
exercise of the Repricing Rights. 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.
Retirement of JNC Debt
In June 1997 the Company issued a $4 million convertible debenture in a
private placement to JNC Opportunity Fund, Ltd. ("JNC"). The debenture accrued
interest at the rate of 7% per annum, payable quarterly, and was due and payable
in June 1999. The Debenture was convertible into shares of the Company's Common
Stock at the then current market price at the time of conversion. The investor
also received 318,000 warrants exercisable at $3.50 per share.
In December 1999, the Company consummated an agreement with JNC
resulting in the surrender for cancellation by JNC of the Company's Convertible
Debenture and 318,000 warrants in exchange for a cash payment of $430,000,
3,500,000 shares of the Company's Common Stock and 113,000 Warrants exercisable
at $0.375 per share expiring December 1, 2002. 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.
Restructuring of Infinity Investors Debt
In March 1997 the Company issued $15 million of convertible Debentures
to a group of accredited investors in a private placement. The Debentures were
convertible into Common Stock of the Company in accordance with a stated
formula. In October 1997 the Company and the investors entered into an Agreement
modifying the Debentures to eliminate the conversion feature in exchange for
increasing the interest rate on the principal to 18% and the payment of a
quarterly fee of $935,000 for each quarter during which the Debentures remain
outstanding. The stated maturity of the Debentures was shortened from March 2000
to September 1998. The Debentures, as modified, are secured by a Note from
NewCom to Aura in the original principal amount of $17 million and 1,250,000
shares of NewCom stock, subject to adjustment under certain circumstances. As
part of the modification, the Company issued warrants for an aggregate of
2,500,000 shares of Common Stock at an exercise price of $2.50 per share,
subject to adjustment after one year under certain circumstances. The Company
was unable to retire the Debentures upon their maturity in September 1998. As of
February 28, 1999 these debentures had an outstanding balance of approximately
$17.4 million.
In February 2000 the Company consummated an agreement with these
holders and a third party to exchange (the "Exchange") the Debentures for $3
million in cash, 1,111,111 shares of common stock, 100,000 Warrants exercisable
at $0.375 per share, and new Secured Notes (the "New Secured Notes") in the
aggregate principal amount of $12.5 million. The New Secured Notes are secured
by a lien on the Company's assets, bear interest at the rate of 8% per annum,
interest only payable quarterly, with the principal due three years from the
date of the exchange. In the event of an uncured default under the New Secured
Notes, the holder is entitled to convert the unpaid principal and interest into
Common Stock of the Company, at $.60 per share. The Company is entitled to a
discount if the New Secured Note is prepaid, which discount is initially 20% of
the amount prepaid, and the discount declines ratably over the three year term
of the New Secured Note. 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.
November 1999 Common Stock Private Placement
In November 1999 the Company completed a private placement of
approximately 27 million shares of its Common Stock at $0.27 per share,
resulting in gross proceeds of approximately $6.9 million. The securities were
issued pursuant to the exemption from registration under Section 4(2) of the
Securities Act of 1933 as the offering was to a limited number of accredited
investors in a private transaction.
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 $8.6 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.
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 terms
were approved by the U.S. District Court after a duly noticed hearing as to the
fairness of such settlement.
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
Exhibits:
Description of Documents
3.1(1) Certificate of Incorporation of Registrant.
3.2(1) Bylaws of Registrant.
5.1 Opinion of Guzik & Associates.
10.1(1) Aura Systems, Inc. 1987 Stock Option Plan for Non-Employee
Directors.
10.2(1) Form of Aura Systems, Inc. Non-Statutory Stock Option
Agreement.
10.3(1) Deed of Trust and Assignment of Rents, dated as of February
27, 1989, by the Registrant in favor of Chicago Title
Insurance Company, as Trustee, for the benefit of City
National Bank.
10.4(2) Indenture, dated as of March 1, 1989, between the Registrant
and Interwest Transfer Co., Inc. as Trustee, relating to the
7% Secured Convertible Non-Recourse Notes due 1999.
10.5(2) Form of 7% Secured Convertible Non-Recourse Notes due 1999.
10.6(2) Deed of Trust, Assignment of Leases and Rents and Fixture
Filing, dated as of March 1, 1989, by the Registrant in favor
of Ticor Title Insurance Company, as Trustee, for the benefit
of Interwest Transfer Co., Inc., as trustee under the
Indenture.
10.7(3) Form of 7% Secured Convertible Non-Recourse Note due 2000.
10.8(4) 1989 Stock Option Plan.
10.9(5) Joint Development and License Agreement, dated August 24,
1992, between the Registrant and Daewoo Electronics Co., Ltd.
10.10(6) Agreement, dated September 23, 1993, between the Registrant
and Burlington Technopole SDN. BHD.
10.11(7) Dedicated Supplier Agreement, dated December 2, 1993, between
the Registrant and Daewoo Electronics Co., Ltd.
10.12(8) Form of 7% Secured Convertible Non-Recourse Note due 2002.
10.13(9) Agreement dated July 19, 1995 between the Company and K&K
Enterprises.
10.14(9) Agreement dated July 19, 1995 between the Company
and K&K Enterprises.
10.15(9) Agreement dated July 12, 1995 between the Company and K&K
Enterprises.
10.16(9) Agreement dated July 12, 1995 between the Company and K&K
Enterprises.
10.17(9) Stock Purchase and Sale Agreement dated April 30, 1996
between the Company and MYS Corporation
10.18(9) Joint Venture Agreement dated July 26, 1995 between the
Company and Microbell
10.19(10)AuraSound Asset Purchase
10.19.1(10) Asset Purchase Agreement dated December 1, 1999
among AuraSound, Inc., Aura Systems, Inc., AlgoSound,
Inc., and Algo Technology, Inc.
10.19.2(10) Amendment dated December 22, 1999 to Asset Purchase
Agreement dated December 1, 1999.
10.19.3(10) Assignment and License Agreement as of July 15, 1999
between Speaker Acquisition Sub, Algo Technology, Inc.,
Aura Systems, Inc., AuraSound Inc.
10.20(10) MYS Stock Purchase
10.20.1(10) Escrow Agreement as of March 26, 1999 among the
Company, Inc.,Yoshikazu Masayoshi, Sadao Masayoshi,
Sachie Masayoshi, Kazuaki Masayoshi, and Wolf
Haldenstein Adler Freeman & Herz, LLP.
10.20.2(10) Promissory Note in the amount of $1,000,000 dated March
26, 1999 payable to the Company by Yoshikazu Masayoshi,
Sadao Masayoshi, Sachie Masayoshi and Kazuaki Masayoshi.
10.20.3(10) Promissory Note in the amount of $3,200,000 dated March
26, 1999 payable to the Company by Yoshikazu Masayoshi,
Sadao Masayoshi, Sachie Masayoshi and Kazuaki Masayoshi.
10.20.4(10) Stock Purchase Agreement dated March 26, 1999 between
the Company and Yoshikazu Masayoshi, Sadao Masayoshi,
Sachie Masayoshi and Kazuaki Masayoshi.
10.21(10) Agreement with RGC International Investors, LDC
10.21.1(10) First Amendment to Security Agreement dated October 22,
1999 between RGC International Investors, LDC and the
Company.
10.21.2(10) Settlement Agreement and Complete Release of all Claims
dated October 22, 1999 between RGC International
Investors, LDC, and the Company
10.21.3(10) Stock Purchase Warrant issued to RGC International
Investors, LDC by the Company.
10.21.4(10) Amended and Restated Convertible Senior Secured Note dated
October 7, 1998 in the amount of $3,000,000 issued to RGC
International Investors, LDC by the Company.
10.22(10) Settlement Agreement and Release of Claims dated as of
December 1, 1999 between JNC Opportunity Fund, Ltd., and
the Company.
10.23(10) Payment Agreement by and between Credit Managers
Association of California and Aura Systems, Inc.
10.24(10) Release from Infinity Investors Limited et al. to Aura
Systems, Inc.
10.25(10) Release from Aura Systems, Inc. to Infinity Investors
Limited et al.
10.26(10) Exchange Agreement dated as of February 22, 2000, by and
among Aura Systems, Inc.,Infinity Investors Limited et al.
10.27(10) Guaranty dated as of February 22, 2000, by Aura Systems,
Inc. and certain of its subsidiaries.
10.28(10) Stock Pledge Agreement dated as of February 22, 2000,
between Aura Systems, Inc. and HW Partners, L.P. as agent.
10.29(10) Security Agreement dated as of February 22, 2000,
between Aura Systems, Inc., certain subsidiaries of Aura
Systems, Inc. and HW Partners L.P.
10.30(10) Secured Note dated February 22, 2000, from Aura Systems,
Inc. to Infinity Investors Limited.
10.31(10) Secured Note dated February 22, 2000, from Aura Systems,
Inc. to Global Growth Limited.
10.32(10) Secured Note dated February 22, 2000, from Aura Systems,
Inc. to Summit Capital Limited.
10.33(10) General Assignment and Bill of Sale dated February 29,
2000, between Alpha Ceramics, Inc. and Aura Ceramics, Inc.
10.34(10) Assignment and Assumption of Specified Liabilities dated
as of May 3, 2000, by and between Alpha Ceramics, Inc.
and Aura Ceramics, Inc.
10.35(10) Assignment and Assumption of Lease dated as of May 3,
2000, by and between Alpha Ceramics, Inc. and Aura
Ceramics, Inc.
10.36(10) Revolving Credit and Term Loan Agreement dated as of May
2000, by and between Alpha Ceramics, Inc. and Excel Bank.
10.37(10) Asset Purchase Agreement dated February 29, 2000, between
Alpha Ceramics, Inc. and Aura Ceramics, Inc.
10.38(10) Subordination Agreement dated as of May 2000, by Aura
Ceramics, Inc. and Aura Systems, Inc.
10.39(10) Escrow Agreement dated March 6, 2000, by and among Guzik
& Associates, Aur Systems, Inc.and Isosceles Fund Limited.
10.40(10) Subscription Agreement from Isosceles Fund Limited to Aura
Systems, Inc.
10.41(10) Stock Purchase Warrant of Aura Systems, Inc. issued to
Isosceles Fund Limited.
10.42(10) Settlement Agreement and Release of Claim dated as of
March 6, 2000, between Aura Systems, Inc. and Isosceles
Fund Limited.
21.1(10) Aura Systems, Inc. and Subsidiaries
23.1 Consent of Pannell Kerr Forster, Certified Public
Accountants, A Professional Corporation.
*23.2 Consent of Guzik & Associates.
24.1 Power of Attorney previously filed in amendment No. 1.
EX-27 Data Schedule
---------------------------------
* Included in Exhibit 5.1.
(1) Incorporated by reference to the Exhibits to the Registration Statement
on Form S-1 (File No. 33-19530).
(2) Incorporated by reference to the Exhibits in the Registrant's
Current Report on Form 8-K dated March 24, 1989 (File No.
0-17249).
(3) Incorporated by reference to the Exhibits to Post-Effective Amendment
No. 2 to the Registration Statement on Form S-1 (File No. 33-27164).
(4) Incorporated by reference to the Exhibits to the Registration
Statement on Form S-8 (File No. 33-32993).
(5) Incorporated by Reference to the Exhibit to the Registration Statement
on Form S-1 (File No. 35-57 454).
(6) Incorporated by reference to the Registrants Current Report in Form
10-Q dated November 30, 1993.
(7) Incorporated by reference to the Exhibits to the Registration
Statement on Form S-1 (File No.-33-57454).
(8) Incorporated by reference to the Exhibits to the registrants Annual
Report Form 10-K for the fiscal year ended February 28, 1994
(File No. 0-17249).
(9) Incorporated by reference to the Registrants Annual Report Form 10-K
for the fiscal year ended February 29, 1996 (File No. 0-17249).
(10) Incorporated by reference to the Registrant's Annual Report Form
10-K for the fiscal year ended February 29, 2000 (File No. 0-17249).
(b) Financial Statement Schedules
None.
Item 17. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by section 10(a) (3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected
in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement which, individually or in the aggregate, represent
a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed
that which was registered) and any deviation from the low or
high end of the estimated maximum offering may be reflected
in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement.
(iii)To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) of this section do
not apply if the registration statement is on Form S-3, Form S-8 or Form F-3,
and the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(3) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be a part of this Registration
Statement as of the time it was declared effective.
(4) For the purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of El Segundo,
State of California, on the 20th day of October, 2000.
AURA SYSTEMS, INC.
By /s/ Zvi (Harry) Kurtzman
------------------------
Zvi (Harry) Kurtzman
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Zvi (Harry) Kurtzman President and Director October 20, 2000
------------------------------------ (Chief Executive Officer)
Zvi (Harry) Kurtzman
/s/ Steven C. Veen Vice President, Chief October 20, 2000
----------------------------------------
Steven C. Veen Financial Officer, Director
(Principal Financial Officer and
Principal Accounting Officer)
* Director October 20, 2000
-----------------------------------------------------
Norman Reitman
* Director October 20, 2000
-----------------------------------------------------
Harvey Cohen
* Director October 20, 2000
----------------------------------------------------
Salvatore Diaz-Verson, Jr.
* Director October 20, 2000
--------------------------------------------------
Sanford R. Edlein
* Director October 20, 2000
--------------------------------------------------
David F. Hadley
* Director October 20, 2000
-----------------------------------------------------
Stephen A. Talesnick
*/s/ Zvi (Harry) Kurtzman Attorney in fact October 20,2000
Zvi (Harry) Kurtzman
</TABLE>
<PAGE>
EXHIBIT 5.1
Guzik & Associates
1800 Century Park East, Fifth Floor
Los Angeles CA 90067
(310) 788-8600
October 20, 2000
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
We have acted as counsel to Aura Systems, Inc., a Delaware corporation
(the "Company"), in connection with the preparation and filing by the Company of
its Registration Statement on Form S-1 (the "Registration Statement") under the
Securities Act of 1933, as amended, pertaining to the offering and sale from
time to time by and for of the account of the Selling Stockholders named therein
of up to 117,212,632 shares (the "Shares") of the Company's common stock, par
value $.005 per share ("Common Stock"), including 40,287,779 shares issuable
upon exercise or conversion of Warrants or other rights to acquire Common Stock
(the "Warrant Shares"), and 76,924,853 shares ("Common Shares") which are issued
and outstanding.
In so acting, we have examined originals or copies, certified or
otherwise identified to our satisfaction, of the Company's Certificate of
Incorporation and Bylaws, and such other corporate records, agreements,
documents and other instruments, and such certificates or comparable documents
of public officials and of officers and representatives of the Company, and have
made such inquiries of such officers and representatives, as we have deemed
relevant and necessary as a basis for the opinions hereinafter set forth. In
such examination, we have assumed the genuineness of all signatures, the legal
capacity of natural persons, the authenticity of all documents submitted to us
as originals, the conformity to original documents of all documents submitted to
us as certified or photostatic copies and the authenticity of the originals of
such latter documents. As to all questions of fact material to this opinion that
have not been independently established, we have relied upon certificates or
comparable documents of officers and representatives of the Company.
Based on the foregoing, and subject to the qualifications stated
herein, we are of the opinion that the Shares have been duly authorized, the
76,924,853 Common Shares are validly issued, fully paid and non-assessable, and
the 40,287,779 Warrant Shares, when issued and delivered pursuant to and in
accordance with the terms and conditions of such Warrants, will be validly
issued, fully paid and non-assessable. The opinions expressed herein are limited
to the corporate laws of the State of Delaware and we express no opinion as to
the effect on the matters covered by this letter of the laws of any other
jurisdiction. The opinions expressed herein are rendered solely for your benefit
in connection with the transactions described herein.
We hereby consent to the filing of this opinion letter as an exhibit to
the Registration Statement and to the reference to our Firm under the caption
"Legal Matters" in the Prospectus contained therein.
Very truly yours,
/s/ Guzik & Associates
<PAGE>
EXHIBIT 23.1
CONSENT OF PANNELL KERR FORSTER,
CERTIFIED PUBLIC ACCOUNTANTS,
A PROFESSIONAL CORPORATION
We hereby consent to the inclusion in Amendment No. 2 in the Registration
Statement on Form S-1 (SEC File No. 333-37602) of our report dated June 12,
2000, on our audits of the consolidated financial statements of Aura Systems,
Inc. as of February 29, 2000, February 28, 1999, and February 28, 1998, and for
each of the three years then ended. We also hereby consent to the reference to
our firm under the caption "Experts" in the Registration Statement and related
Prospectus.
PANNELL KERR FORSTER, CERTIFIED
PUBLIC ACCOUNTANTS, A PROFESSIONAL
CORPORATION
Los Angeles, California
October 20, 2000
