As filed with the Securities and Exchange Commission on May 22, 2000
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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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]
<PAGE>
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. [ ]
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. [ ] Calculation of Registration Fee
<TABLE>
Proposed
Title of each class Proposed maximum
of securities to be Amount to be maximum offering aggregate offering Amount of
registered registered(2) price per share price
registration fee
<S> <C> <C> <C> <C>
Common Stock,
$.005 par value 20,833,334 $0.30 $6,250,000 $1,650,000
Common Stock,
$.005 par value 100,000 $0.30(3) $30,000 $8.00
Common Stock,
</TABLE>
(1) Estimated for the purpose of calculating the registration fee pursuant to
Rule 457(c) on the basis of the last sale price of the Registrant's
Common Stock on May 18, 2000.
(2) 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.
(3) Common Stock issuable upon exercise of Warrants at $0.375 per share.
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 May 22, 2000
PROSPECTUS
20,933,334 SHARES OF COMMON STOCK
AURA SYSTEMS, INC.
The stockholders of Aura Systems, Inc. listed below may offer and sell from
time to time shares of our common stock under this prospectus. These shares
include:
100,000 shares of common stock which certain stockholders are
entitled to acquire from us upon exercise of warrants issued by us
in private sales; and
20,833,334 shares which may be acquired by certain stockholders upon
conversion of up to $12,500,000 principal amount of notes issued
by us if there is an uncured default under the notes.
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 May 19, 2000, the last reported sales price of our
common stock on the over-the-counter market was $0.30.
THE PURCHASE OF OUR SECURITIES INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS," AT PAGE ____, 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 ...................................................
SELECTED FINANCIAL DATA.................................................
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION..............................................
BUSINESS................................................................
MANAGEMENT .............................................................
RELATED PARTY TRANSACTIONS .............................................
PRINCIPAL STOCKHOLDERS..................................................
DESCRIPTION OF CAPITAL STOCK............................................
SHARES ELIGIBLE FOR FUTURE SALE.........................................
SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION...........................
LEGAL MATTERS...........................................................
EXPERTS ................................................................
WHERE YOU CAN FIND MORE INFORMATION ....................................
FINANCIAL STATEMENTS....................................................F-1
<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 in 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.
The Offering
The securities offered include the following:
Shares of Common Stock issuable upon exercise of Outstanding Warrants....100,000
..
Shares of Common Stock issuable upon conversion of outstanding Notes1.20,833,334
Shares Outstanding:
Common Stock Outstanding before
the Offering.......................................... 240,144,826
Common Stock Outstanding after the Offering (assuming the
exercise or conversion of all Warrants and Notes)2.. 261,078,160
Use of Proceeds Although the Company will receive up to $37,500
of proceeds from the exercise of Warrants from time to time, the
Company will not receive any proceeds from this Offering by
Selling Stockholders.
Common Stock Symbol...............................................AURA
- --------
1 The Notes are convertible under certain circumstances at $.60 per share. For
further information see "Management's Discussion and Analysis of Results of
Operation - Debt Restructuring."
2 Based upon the number of shares outstanding as of May 19, 2000. Excludes
(i) approximately _________ shares not covered by this Prospectus which are
reserved for issuance upon conversion of outstanding warrants and options, and
(ii) Approximately 5,939,000 shares issuable upon exercise of outstanding
options under the Company's Employee Stock Option Plans.
<PAGE>
Summary Financial Information
Aura Systems, Inc. and Subsidiaries
<TABLE>
<CAPTION>
- ------------------------------------- ------------- -------------- -------------- -------------- ------------- --------------
(Unaudited) (Unaudited)
Nine Months Nine Months Year Ended Year Ended Year Ended
Ended Ended February 28, February 28, February 28,
November 30, November 1999 1998 1997
---- ---- ----
1999 30,
----
1998
<S> <C> <C> <C> <C> <C> <C>
Operating Data:
Net Revenues $ 6,315,065 $ 105,487,348 $ 81,518,162 $ 136,715,385 $109,950,202
Net (loss) (15,575,896) (36,797,205) (150,148,156) (11,636,540) (2,880,111)
Net (loss) per share $ (.14) $ (.44) $ (1.74) $ (.15) $ (.04)
Weighted average
shares outstanding 107,810,152 83,011,249 85,831,688 79,045,290 68,433,521
Balance Sheet Data:
Working Capital (deficit) $(13,503,121) $ 32,267,405 $ (4,869,876) $ 78,143,895 $ 62,310,715
Total Assets $ 57,624,641 218,559,107 90,143,392 227,302,629 182,528,399
Total Liabilities and deferrals $ 60,008,020 $ 126,949,200 $ 103,797,049 110,400,761 57,050,812
Net Stockholders' Equity (deficit) $(28,898,279) $ 91,609,907 $(13,653,657) 116,901,868 125,477,587
</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. 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 $248 million from our
inception through November 30, 1999. 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
<PAGE>
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
market acceptance of our AuraGen 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. 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 registration statement, selling stockholders
will be able to sell their common stock in the secondary market if the warrants
are exercised or the notes are converted into common stock. 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 Results of Operations" and "Business"
and elsewhere in this Prospectus or in the information incorporated by reference
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 November 30, 1999, and (ii) and as adjusted on a
pro forma basis to give effect to the issuance of 20,933,333 shares by the
Company covered by this Prospectus upon the exercise of 100,000 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
Actual Issued As Adjusted
<S> <C> <C> <C>
Total Debt:
Current Installments of
Notes Payable $5,506,701 $5,506,701
Notes Payable 20,580,142 20,582,142
Stockholders equity:
Preferred Stock,$.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 107,822,043
shares issued and
outstanding,and 128,755,376
as adjusted. 539,110 104,667 643,777
Additional paid-in capital 218,485,409 12,432,833 230,918,242
Accumulated deficit (247,922,798) (247,922,798)
Net stockholders equity (deficit) (28,898,279) (16,360,779)
Total Capitalization 3 33,660,346 33,707,846
</TABLE>
3 Excludes (i) approximately _________ shares not covered by this Prospectus
which are reserved for issuance upon conversion of outstanding warrants and
options, and (ii) approximately 5,939,000 shares issuable upon exercise of
outstanding options under the Company's Employee Stock Option Plans.
<PAGE>
DILUTION
As of November 30, 1999, the net tangible book value of the Company was
approximately $(33,689,907) or $(.31) per share of Common Stock. Net tangible
book value is computed as follows:
<TABLE>
<S> <C> <C>
TOTAL ASSETS $57,624,641
Less:
Current Liabilities 29,460,996
Long Term Debt 57,061,924
Intangible Assets 4,791,628 (91,314,548)
Net Tangible Assets $(33,689,907)
Shares Outstanding 107,822,043
Net Tangible Assets Per Share $(.31)
</TABLE>
Without taking into account changes in net tangible book value after
November 30, 1999, (other than to give effect to the issuance of _________
shares issuable upon exercise of Warrants initially exercisable at an average
price of $.375 per share, the pro forma net tangible book value of the Company
as of November 30, 1999 would have been $(.31), or approximately $_____ per
share of Common Stock, representing dilution for shares yet to be issued as
follows:
SHARES DILUTION
Warrants (at exercise price of $.0375) 100,000
Aggregate Dilution if the above Warrants -- --
were exercised
No recognition has been given in any of the above calculations to (i)
approximately _________ shares reserved for issuance upon conversion of
outstanding warrants not covered by this Prospectus, and 5,939,000 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:
100,000 shares of common stock which certain
stockholders are entitled to acquire from us upon exercise of
Warrants issued by us in private sales; and
20,883,334 shares which may be acquired by certain
stockholders upon conversion of up to $12,500,000 principal
amount of notes issued by us.
All of the shares of Common Stock of the Company covered by this
Prospectus are being sold 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").
100,000 shares are being offered by the Selling Stockholders upon the
exercise of outstanding, unexercised Warrants ("Warrants") exercisable at $0.375
per share . Also included in the shares of Common Stock which may be resold
under this Prospectus are up to 20,833,334 shares of Common Stock which may be
issuable after the date of this Prospectus upon conversion of Notes issued to
the selling shareholders. 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
Dission 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 beneficially owned and the number of
shares to be sold in this offering by each Selling Stockholder as of May 15,
2000, and the percentage of Common Stock owned by each Selling Stockholder after
this Offering:
<PAGE>
<TABLE>
<CAPTION>
Number of
Shares of Shares of
Common Stock to Common Stock
Shares of be Offered for Owned
Common Stock Selling After
Owned Stockholder's Completion of
Prior to Offering* Account* Offering (1)
Name Number Number Percent
- ---- ------ ------ -------
<S> <C> <C> <C> <C>
Glacier Capital Limited 1,404,509 1,404,509 -- --
Global Growth Limited 687,806 687,806 -- --
Infinity Investors Limited 17,353,214 17,353,214 -- --
Summit Capital Limited 1,404,509 1,404,509 -- --
</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 are qualified in their entirety
by reference to, and you should read them in conjunction with, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the audited financial statements and notes to such financial statements included
in this prospectus. We have derived the statements of operations data from our
audited financial statements that appear in this prospectus, and these data are
qualified by reference to the financial statements.
<TABLE>
<CAPTION>
AURA SYSTEMS, INC. AND SUBSIDIARIES
Years Ended Nine Months Ended
(Unaudited)
February 28, February 28, February 28, November 30, November 30,
1999 1998 1997 1999 1998
<S> <C> <C> <C> <C> <C>
Net Revenues $ 81,518,162 $136,715,385 $109,950,202 $6,315,065 $ 105,487,348
------------- ----------- ----------- ---------- ------------
Cost of goods and overhead 158,024,723 101,622,051 86,350,828 11,310,615 100,358,647
Research and development expenses 2,831,847 1,395,160 6,022,586 373,215 1,105,371
Impairment of long-lived assets 9,403,687 -- -- -- --
Selling, General and administrative
Expenses 74,419,812 45,018,066 18,542,840 7,331,592 31,625,291
-------------- ---------- ---------- ---------- ------------
Total costs and expenses 244,680,069 148,035,277 110,916,254 7,704,807 32,730,662
(Loss) from operations (163,161,907) (11,319,892) (966,052) (12,700,357) (27,601,961)
Other income and expense
Gain on sale and issuance of
Subsidiary stock and other assets (1,042,665) (12,952,757) (250,000) (877,512) (1,432,627)
Interest expense net 12,014,690 6,827,269 1,415,934 2,476,214 8,766,274
Class action litigation and
Other settlements 7,717,518 1,700,000 -- -- 7,600,000
Loss on disposal of assets 1,188,329 -- -- 1,549,297 --
Other Income -- -- -- (272,460) (1,214,530)
Termination of license
Arrangements -- 3,114,030 -- -- --
Loss on disposal of investment 4,877,839 -- -- -- --
Equity in losses of unconsolidated
Joint ventures 6,268,384 1,937,747 -- -- 675,000
Minority interests in income
(loss) of Consolidated subsidiary (10,372,895) 946,405 -- -- (4,551,673)
Loss in excess of basis of
consolidated subsidiary 8,080,695 -- -- -- --
Excess loss of minority interest 26,561,481 -- -- -- --
Provision (benefit) for income
Taxes 570,641 (1,256,046) 570,484 -- (647,200)
Foreign currency translation
adjustment (406,576) -- 40,642 -- --
--------------- ------------ ----------- ------------ -----------
Net (loss) $(150,148,156) $(11,636,540) $(2,880,111) $(15,575,896) $(36,797,205)
============== =========== =========== ============ ============
Net (loss) per common share $ (1.74) $ (.15) $ (.04) $ (.14) $ (.44)
============== =========== =========== ============= ============
Weighted average number of
Common shares 85,831,688 79,045,290 68,433,521 107,810,152 83,011,249
================ ============ ========== ============ ===========
Working capital (deficit) (4,869,876) 78,143,895 62,310,715 (13,503,121) 32,267,405
Total assets 90,143,392 227,302,629 182,528,399 57,624,641 218,559,107
Total liabilities and deferrals 103,797,049 110,400,761 57,050,812 60,008,020 126,949,200
Net stockholders' equity (deficit) (13,653,657) 116,901,868 125,477,587 (28,898,279) 91,609,907
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<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 another
products, creating capacity constraints limiting the amounts of orders for
certain products and thereby causing effects on the Company's ability to ship
its products. Manufacturing economies may fail to develop when planned, products
may be defective and/or customers may fail to accept them in the 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 it's 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 January
1999. 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.
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 third 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.
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 limited 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.
The Company continues to work closely with General Motors which has displayed
the AuraGen on both the Sierra 2000 professional concept vehicle and the
Terradyne concept vehicle.
Results of Operations
Nine Months Ended November 30, 1999, Compared to Nine Months Ended November
30, 1998
Net revenue for the nine month period ended November 30, 1999 decreased
by $99,172,283 to $6,315,065 from the corresponding period in the prior year.
The decrease in revenue is primarily attributable to the cessation of operations
by the Company's previously majority owned subsidiary, NewCom, the sale of the
Company's wholly owned subsidiary MYS, and the sale of the assets of AuraSound.
These subsidiaries accounted for approximately 92% of sales in the prior year
nine month period.
The Company sold sound related products and computer related products
to four significant customers during the nine months ended November 30, 1998.
Sales of speakers to a single major electronics retailer accounted for
approximately $7.6 million in the period ended November 30, 1998 as compared to
approximately $11.1 million in the prior year comparable period. Sales of
communication and multimedia products to three major mass merchandisers
accounted for approximately $49.9 million in the nine months ended November 30,
1998 as compared to approximately $39.6 million in the prior year period. None
of the above customers are related or affiliated with the Company or any
customers of the Company. Neither of the above two subsidiaries are included in
the Fiscal 2000 financial statements.
Cost of goods and overhead for the nine months ended November 30, 1999
decreased by $89,048,032 in comparison with the corresponding period in the
prior year due primarily to the disposition of the Company's NewCom, MYS and
AuraSound subsidiaries.
General and administrative costs decreased for the nine month period by
$24,293,699 primarily due to the decrease in personnel and support services
resulting from the sale of the Company's MYS subsidiary, the assets of the
Company's AuraSound subsidiary and the cessation of business of the Company's
previously owned subsidiary, NewCom.
Included in cost of goods and overhead and general and administrative
costs for the nine months ended November 30, 1999, is depreciation and
amortization of $5,472,297.
Research and development costs for the nine months ended November 30, 1999
decreased by $732,156 as the Company focused its reduced resources on the sales
and marketing of the Company's AuraGen product.
In the nine months ended November 30, 1999, the Company recorded a gain
of $877,512 on the sale of its MYS subsidiary and a loss on the disposition of
the assets of the AuraSound subsidiary of $1,405,049. In the nine months ended
November 30, 1998, the Company recorded a gain on the sale of stock in its
majority owned subsidiary NewCom of approximately $1.4 million.
Net interest expense decreased by $6,290,060 to $2,476,214 in the nine
month ended November 30, 1999 due to a quarterly fee being charged to interest
expense in the prior year period and the inclusion of the Company's MYS and
NewCom subsidiary in the prior year period.
Fiscal 1999 as Compared to Fiscal 1998
The Company continued its activity in development of commercial
applications of its proprietary magnetic technologies. The Company has reported
a net loss for each of its five most recent fiscal years. 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 $81.5 million from $136.7
million, a decrease of 40.4%. 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 $158.0 million in Fiscal 1999
from $101.6 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 Margin and Net Loss
Gross margins for Fiscal 1999 were a negative 93.9% compared to 25.7%
in Fiscal 1998, primarily due to the substantial drop in gross margin 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 margins were 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 $2.8
million from $1.4 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 $74.4 million
in Fiscal 1999 from $45 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 $12.0 million from
$6.8 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.
Fiscal 1998 as Compared to Fiscal 1997
The Company continued its activity in the development of commercial
applications of its proprietary technologies as well as sales of commercial
products. The Company has reported a net loss for each of its five most recent
fiscal years.
Revenues
Net revenues were $136.7 million as compared to $110.0 million in
Fiscal 1997, or an increase of 24.3%. The increase in revenue was due primarily
to the increase in sales of computer products by the Company's NewCom subsidiary
along with an increase in sales in speakers from the sound group.
Sales of computer monitors to two unrelated parties declined to
approximately $10 million in Fiscal 1998 or 6.2% of revenues, from $16.5 million
or 12.3% of revenues in Fiscal 1997. These sales are expected to continue to
decline both in dollar terms and as a percentage of revenues as the Company
continues to expand its product line and its customer base. Although the Company
does not have any long term agreement with any customers, it has no reason to
believe that sales to customers will be abruptly curtailed.
Cost of Goods and Overhead
Cost of goods and overhead increased to $101.6 million in Fiscal 1998
from $86.4 million in Fiscal 1997. While the dollar value increased as a result
of the increase in sales, as a percentage of net revenues, cost of goods
decreased to 74.3% from 78.5% in the prior fiscal year. As the Company continues
to bring new products to market and introduce new variations of existing
products, this percentage may fluctuate substantially in future periods.
Gross Margin and Net Loss
Gross margins for Fiscal 1998 increased to 25.7% from 21.5% in Fiscal
1997 partially due to the increase in gross margin for the Company's subsidiary
NewCom to 34.8% in Fiscal 1998 from 33.6% in Fiscal 1997.
Due to the increase of the Company's business and in particular as it
relates to consumer electronics, the Company in the fourth quarter increased its
reserve for potential returns of merchandise as well as product obsolescence and
potential bad debts. On a consolidated basis the reserve increased to
approximately $10.5 million or 4.6% of assets as compared to $5.8 million or
3.2% of assets in the prior year.
The following table summarizes the above discussion in the form of
percentages.
FY 98 FY 97
----- -----
Net Revenues 100% 100%
Cost of Goods Sold 74.3% 78.5%
Gross Margins 25.7% 21.5%
SG&A and R&D 33.9% 22.6%
Loss from Operations 8.3% 1.1%
Net Loss 8.5% 2.7%
During the fourth quarter the Company attended two major tradeshows.
The CES show in January and the SAE show in February. Both of these had a bias
effect on expenses for the fourth quarter by approximately $0.9 million. During
the fourth quarter the Company experienced an incremental increase in interest
of approximately $1.2 million due to the conversion of a $15 million convertible
note to a straight note in late 3rd quarter and additional interest incurred on
a $10 million financing that also occurred in late 3rd quarter. Legal expenses
increased above other periods in the fourth quarter as legal activities
increased in numerous areas. After a careful analysis and review of expenses the
Company consolidated and relocated its main warehouse facilities from San Diego,
California to Kansas City, Missouri. The cost of approximately $0.8 million
associated with this consolidation will be saved in approximately one year. Due
to uncertainties created by India's detonation of nuclear devices and U.S.
sanctions against India the Company reserved $3.1 million in license fee due
from K&K in India for the AuraGen. The Company also incurred losses from foreign
non-consolidated Joint Ventures of approximately $1.9 million. After year-end
the Company settled one class action suit and other litigation and took a charge
of $1.7 million in Fiscal 1998.
The following table summarizes certain fourth quarter events
contributed to the loss in Fiscal 1998 as described above.
a. Seasonal expenses during the fourth quarter $0.9 million
b. Increment increase in 4th quarter interest expense $1.2 million
c. Increment increase in 4th quarter legal expenses $0.5 million
d. Consolidate and relocate warehouse facilities in Kansas City $0.8 million
e. Reserve on AuraGen License in India due to US sanctions $3.1 million
f. Loss on foreign joint ventures $1.9 million
g. Legal settlements $1.7 million
-----------
Total $10.1 million
Research & Development
Research and development costs for Fiscal 1998 decreased to $1.4
million from $6.0 million in Fiscal 1997. The Company continues its research and
development in the areas of displays and micromachines, automotive applications
of magnetics and sound systems. As a percentage of net revenues research and
development expenses declined in Fiscal 1998 to 1.0% as compared 5.5% in the
prior year.
Selling, General & Administrative
Selling, general and administrative expenses increased to $45 million
in Fiscal 1998 from $18.8 in Fiscal 1997, for an increase of $26.2 million. The
increase is comprised principally of the following: $8.86 million increase from
the NewCom subsidiary; an increase in bad debts over the prior year due to the
write-off of $4.9 million in license fees; an increase in legal fees over the
prior year of approximately $1.0 million; an increase in sales promotion of
approximately $1.5 million, an increase of payroll and associated benefits of
approximately $2.7 million with the addition of 40 new employees and an increase
in depreciation and amortization of approximately $1.3 million.
Bad Debt Expense
Bad debt expense in Fiscal 1998 increased to $3.6 million from $0.7
million in Fiscal 1997.
Interest Expense
Net interest expense for Fiscal 1998 was $6.8 million as compared to
net interest expense of approximately $1.4 million in the prior fiscal year. The
increase was due to increased lines of credit that were utilized throughout the
year, higher levels of debt issued by the Company, premiums paid on the
repurchase of convertible notes, and a higher interest rate on a $15 million
note.
Liquidity and Capital Resources
As a result of the decline in the Company's ownership percentage in
NewCom to below 50%, the balance sheet, as of February 28, 1999 does not reflect
NewCom on a consolidated basis. This resulted in a significant decrease in
current assets and current liabilities for 1999 in comparison to 1998.
Net working capital decreased by $64.5 million to $(4.8) million at
Fiscal 1999 year end, with the current ratio decreasing to .88:1 from 1.76:1.
The principal differences in the Company's accounts from February 28, 1998 to
February 28, 1999 are a decrease in cash and equivalents of $2.3 million, a
decrease in net receivables of $46 million, a decrease in inventories of $40
million a decrease in notes payable of $20.4 million and a decrease in accounts
payable and accrued expenses of $17.4 million.
The Company's cash balances were $3,822,210 at February 28, 1999,
$6,079,411 at February 28, 1998 and $7,112,354 at February
28, 1997.
The net cash used in operating activities of $24.3 million decreased by
$5.3 million due primarily to the increase in the loss incurred offset by the
decreases in accounts receivable, inventory and accounts payable as a result of
the cessation of NewCom's business.
The level of inventories has decreased primarily due to NewCom.
In the nine months ended November 30, 1999, cash decreased by
$3,531,094 to $291,116 from $3,822,210 at February 28, 1999. Accounts payable
and accrued expenses decreased by $6,618,330 from February 28, 1999. Inventories
decreased by $6,708,006 and accounts receivable decreased by $6,432,332.
Cash flows used in operations decreased by $7,174,346 during the nine
months ended November 30, 1999, compared to the prior year nine months. Working
capital was a negative $13,503,121 as compared to a negative $4,869,876 at the
fiscal year end level, with the current ratio declining to .54:1 from .88:1.
In the nine months ended November 30, 1999, the Company received
proceeds of $9,300 from the exercise of warrants. In the nine months ended
November 30, 1998, the Company received proceeds of $12,000,000 from the sale of
convertible notes payable. In this same period $3,741,878 of previously issued
convertible notes were converted into common stock of the Company.
In Fiscal 1998, the Company raised $584,850 from the exercise of
warrants, $900,000 from the sale of warrants and $51,500 from the exercise of
stock options. The Company also received proceeds of $34,500,000 from the
issuance of convertible notes payable.
In June 1998 the Company completed a refinancing of two properties
owned by Aura in El Segundo, consisting of its headquarters and an adjacent
facility. As part of the financing the Company encumbered these properties with
a first deed of trust securing a Note in the amount of $5,450,000, resulting in
net cash to the Company of approximately $3.0 million.
Spending for property and equipment amounted to $4,053,848 in Fiscal
1999, $18,006,394 in Fiscal 1998 and $22,855,000 in Fiscal 1997. Of the Fiscal
1999, 1998 and 1997 amounts, $1,910,611, $16,096,180 and $16,539,899
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.
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
$850,000, principally for labor, overhead, travel and professional fees.
The Company and its subsidiaries lease space located in, New Hope,
Minnesota. Minimum monthly rents under the leases approximate $45,000. Rent
expense was approximately $1.8 million for Fiscal 1999, $1.3 million, for Fiscal
1998, and $1.3 million for Fiscal 1997. Assuming no lease terminations or lease
extensions, rent expense is expected to be approximately $650,000 for Fiscal
2000, $680,000 for Fiscal 2001, and $570,000 for Fiscal 2002. The Company has no
other material long-term capital commitments.
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 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 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.
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.
Recently Issued Accounting Pronouncements
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position No. 98-5 (SOP No. 98-5), "Reporting on Costs of
Start-up Activities." Adoption of SOP No. 98-5 will have no material impact on
the Company's financial statement.
<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,
thereby expanding 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. Subsequent
to Fiscal 1999, the Company sold MYS to MYS management.
In September 1997, NewCom completed an initial public offering,
resulting in Aura 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.
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 ultimately 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 in 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 development of certain electro-magnetic
projects, including the electromagnetic valve actuator ("EVA"). Subsequent to
Fiscal 1999 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. See "Item 7 -
Management Discussion and Analysis of Financial Condition and Results of
Operations.
Following the end of Fiscal 1999 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 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.
Aura intends to continue to focus its business on the AuraGen line of
products during the remainder of Fiscal 2000 and beyond ( See "Description of
Business - Magnetic Technology"). In addition, Aura is entitled to receive
royalties from Daewoo Electronics 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 unusually high force levels in a device of
relatively small volume and weight. As this concept extended from a linear
actuator to a rotary actuator, a 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)
An actuator is a device that creates a lateral force upon command.
Actuators are used in a wide range of applications, including high speed,
precision applications such as audio speaker drivers, 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. Hydraulic, pneumatic and
mechanical actuators can produce extremely high forces and long strokes in
relatively small packages. Voice coil actuators provide high precision and
high-speed operation, producing short stroke and very little force. Actuators
are most commonly used to position objects, or to create or cancel vibrations by
producing a force upon command.
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. High-energy permanent magnets are
arranged to focus nearly all of their magnetic energy into useful work. Standard
voice coil actuators typically utilize about 40% of the available magnetic
energy whereas Aura's HFATM uses nearly 90% of that energy. The magnetic
arrangement also allows virtually unlimited stroke potential. Standard voice
coil actuators typically provide less than one inch of stroke whereas the
HFA(TM)'s stroke is virtually unlimited. For example, Aura's HFATM is capable of
producing more than 1,000 pounds of force over a 32 inch stroke. The Company has
commercially used its HFATM technology in applications such as actuated weld
heads and is currently employing HFA(TM) technology in industrial 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.
Like a solenoid, EMATM operates on purely electromagnetic principles,
and therefore uses no permanent magnets. The Company developed it initially for
the industrial and automotive markets, but believes it may also be incorporated
into the test equipment market as well. An EMA(TM) is physically equivalent in
size to solenoids with comparable force capacities and can be operated at
temperatures exceeding 450 degrees Fahrenheit.
What sets EMATM apart from a standard solenoid is its ability to
custom-tailor the force produced as a function of stroke. For example, an
automotive EGR valve requires peak force at the beginning of the stroke in order
to "crack" the valve open. A standard solenoid, by its very nature, produces
peak force at the end of its stroke, not at the beginning. Therefore, a solenoid
will require a large amount of power to compensate for its inherent limitation.
Conversely, the force profile of an EMATM can be customized to provide high
force at the beginning of the stroke, resulting in a more efficient device that
is much easier to control.
Another 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 Technology
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") technology.
The AMA(TM) technology 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 to 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 offer the
combination of increased display intensity at a competitive production cost.
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 believes that the AMATM technology has a technical
advantage over other technologies in achieving higher contrast, more intensity
and longer lived elements.
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 type machine 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, 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 full turnkey plug and
play 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 one year 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 on a limited basis 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. Currently
over 23 utilities across the nation have bought AuraGens as samples and are
evaluating the product. Similarly over 33 state and city governments have bought
the AuraGen for evaluation and testing.
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 and 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 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 electromagneticaly: 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 timing chain, camshaft,
rockerarms, etc., 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) which is
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 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. Similarly, the Company is totally dependent on Daewoo Electronics for
exploiting the AMA technology.
a. 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 US Army will conduct
other and future tests.
The Company has a U.S. Army contract for 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 will incorporate the required changes
into the Electronic Control Unit ("ECU"). While 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 the changes will be made or if they 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.
The Company is currently cooperating and working closely with General
Motors, a major automotive OEM in regard to the AuraGen. Recently General Motors
has exhibited the AuraGen as a potential option in selected future vehicles. No
assurances can be given that the Company's AuraGenwill be offered by General
Motors as an OEM option.
b. AMA(TM)
The Company licensed its AMA technology to Daewoo Electronics
Limited of Korea. 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. While the
Company anticipates that the AMA will be available in the market place in the
near future, no assurances can be given as to if and when it will be available.
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 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 ("Genset") 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 ("Gensets").
The following table is a summary comparing the leading Genset products
with the AuraGen(TM).
<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 (DBA @
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 U.S.; representative of the leaders are
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 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
(DBA @ 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's ceramic division manufactures its products at its leased
38,000 square foot ceramic facility in New Hope, Minnesota.
The class 100 clean room fabrication facility for the AMA product in
El Segundo, California was closed in Fiscal 1999 as the Company terminated all
manufacturing activities in the electro-optical area.
Subsequent to the end of Fiscal 1999 the Company either sold, leased
or terminated all of its sound related activities, including all the off-shore
facilities and joint ventures. The Company sold MYS Corporation, AuraSound
assets, leased the assets of Electrotec, and licensed the AuraSound technology.
NewCom ceased most of its operations by the end of Fiscal 1999 after
Deutsche Financial Services seized NewCom's inventory.
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, 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 implemented a
fully 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 "In Process Inspection" on its AuraGen assembly line.
G. Product Development Expenditures
During the fiscal years ended February 28, 1999, February 28, 1998, and
February 28, 1997 the Company spent approximately $ 2.8 million, $1.4 million
and $6.0 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 28, 1999 the Company employed approximately 500 persons
worldwide. During Fiscal 1999 and continuing into Fiscal 2000 the Company has
gone through a major down-sizing and restructure. As of February 2, 2000, the
Company employed 95 persons. Thirteen people are dedicated to the ceramics
operation and 82 to the AuraGen activities. 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 28, 1999, multimedia products and modems
were the largest single source of revenues on a consolidated basis, constituting
approximately $46.8 million or 57.4% of net revenues. Sound related products
contributed approximately $29 million or 35.6% of net revenues. During Fiscal
1998 multimedia products on a consolidated basis accounted for approximately $52
million, or 32.3% of gross revenues. Sound related products contributed
approximately $31 million or 19.3% of revenues. Modems on a consolidated basis
contributed approximately $38 million or 23.6% of Fiscal 1998 revenues. No other
products accounted for more than 10% of revenues during the foregoing periods.
After the down-sizing, ceasing of NewCom operations and selling the
sound related operations, the principal sources of revenues going forward will
be related to the Company's AuraGen technology. The AuraGen is a new product
with no historical basis for comparison.
K. Significant Customers
The Company sold sound related products and computer related products
on a consolidated basis to four significant customers during Fiscal 1999. Sales
of speakers to a major electronics retailer accounted for approximately $16.3
million or 20.1% of revenues. Sales of communications and multimedia products on
a consolidated basis to major mass merchandisers Best Buy, Circuit City and
Staples accounted for approximately $12.6 million or 15.5% of revenues.
Since the end of Fiscal 1999 none of the above have been significant
customers since the Company is no longer in the consumer electronics business as
it has sold or leased all the sound related operations and NewCom has ceased
operations.
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 Fiscal 1999 the Company as part of its refocus
and downsizing, vacated approximately 135,000 square feet of facilities. In
addition, the Company sold or terminated all of its joint ventures and foreign
activities. The Company retains approximately 115,000 square feet in facilities
and believes that such is adequate for its present needs.
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 it 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 approved by the Court in April, 2000.
<PAGE>
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 in the arbitration has been set for May,
2000. 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 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.
MANAGEMENT
The following sets forth certain information regarding the Directors
and Executive Officers of the Company as of May 15, 2000.
<TABLE>
<CAPTION>
Name Age Title
---------------------------------------------------------------------------------------------------------------------
<S> <C> <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 44 President, Chief Operating Officer
Arthur J. Schwartz, Ph.D. 52 Executive Vice President
Cipora Kurtzman Lavut 43 Senior Vice President
Neal B. Kaufman 55 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 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, Operational Planning 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 Messrs. Diaz-Verson, Jr. Since January 1989, the
Company has maintained an Audit Committee which presently consists of Salvador
Diaz-Verson, Jr., 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 28, 1999.
<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 (1) 1999 $384,290 1,000,000 $1,966
Chief Executive Officer 1998 245,018 0
1997 212,549 0
Arthur J. Schwartz (1) 1999 $204,895 500,000 $1,872
Executive 1998 172,115 0
Vice President 1997 163,971 0
Gerald Papazian (1) 1999 $203,025 100,000 $1,846
President and Chief Operating 1998 154,737 0
Officer 1997 143,122 0
Steven Veen(1) 1999 $196,412 100,000 $1,811
Senior Vice President and 1998 150,127 0
Chief Financial Officer 1997 151,817 0
Yoshikazu Masayoshi 1999 $290,500 0 $ 0
President, MYS Corporation 1998 273,242 0
1997 270,000 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 1999, 1998 and 1997, respectively, were as
follows: Zvi Kurtzman - $385,000, $200,000, $200,000; Arthur J. Schwartz,-
$205,000, $160,000, $160,000; Gerald S. Papazian - $210,000, $140,000, $140,000,
Steven C. Veen - $200,000, $150,000, $150,000.
(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 28, 1999.
No cash bonuses or restricted stock awards were granted to the above
individuals during the fiscal years ended February 28, 1999, February 28, 1998
and February 28, 1997.
Option Grants in the Last Fiscal Year
The following table sets forth certain information at February 28,
1999, and for the year then ended, with respect to stock options granted to the
individuals named in the Summary Compensation Table above. No options have been
granted at an option price below the fair market value of the Common Stock on
the date of grant.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Potential Realized
Number of % of Total Value at Assumed
Securities Options/SARS Annual Rates of
Underlying Granted to Stock Price
Options/SARs Employees In Exercise Price Expiration Appreciation for
Name Granted Fiscal Year Per Share Date Option Term
---- ------- ----------- --------- ---- -----------
<S> <C> <C> <C> <C> <C> <C>
5% 10%
-- ---
Zvi (Harry) Kurtzman 1,000,000 35.7% 3.31 3/5/08 0 0
Arthur J. Schwartz 500,000 17.9% 3.31 3/5/08 0 0
Gerald Papazian 100,000 3.6% 3.31 3/5/08 0 0
Steven C. Veen 100,000 3.6% 3.31 3/5/08 0 0
Yoshikazu Masayoshi -- -- -- -- -- --
</TABLE>
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 EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION 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
Arthur Schwartz 515,000 300,000 $ 0 $ 0
Gerald Papazian 166,000 60,000 $ 0 $ 0
Steven Veen 215,000 210,000 $ 0 $ 0
Yoshikazu Masayoshi 0 0 $ 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 28, 1999.
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
The Compensation Committee in Fiscal 1999 was comprised of Brigadier
Ashok Dewan and Salvador Diaz-Verson, Jr. Decisions regarding compensation of
executive officers for the Fiscal year ended February 28, 1999 were made
unanimously by the outside, disinterested, directors of the Board of Directors,
after reviewing recommendations of the Compensation Committee. Decisions
regarding option grants under the 1989 Option Plan for the Fiscal year ended
February 28, 1999 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 May 19, 2000, there were 240,144,826
outstanding shares of Common Stock. Therefore, as of such date 24,014,483
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
As of May 19, 2000, no 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.
RELATED PARTY TRANSACTIONS
Related Transactions
None.
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 May 15, 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> <C>
Gardner Lewis Asset Management 20,517,936 8.5%
Zvi (Harry) Kurtzman 3,391,314 (1)(2) 1.1%
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 (6) *
Salvador Diaz-Verson, Jr. 1,006,037 *
Stephen A. Talesnick 2,493,152 (8) *
Gerald S. Papazian 443,810 (9) *
Steven C. Veen 659,763 (10) *
Michael I. Froch 342,735 (11) *
Keith O. Stuart 161,188 (12) *
Ronald Goldstein 207,579 (13) *
Jacob Mail 278,841 (14) *
Norman Reitman 587,142 (15) *
Sanford R. Edlein 0 *
</TABLE>
All executive officers and directors %
as a group (15 persons)
- --------------------
* Less than 1% of outstanding shares.
(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 May 31, 2000.
(3) Includes 515,000 shares which may be purchased pursuant to options and
convertible securities exercisable within 60 days of May 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 May 31, 2000.
(6) Includes 31,250 shares beneficially owned, and _______ shares which may be
purchased pursuant to options within 60 days of May 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 May 31, 2000.
(8) Includes 196,364 shares which may be purchased pursuant to warrants
exercisable within 60 days of May 31, 2000. Mr. Talesnick joined the Board of
Directors in September 1999.
(9) Includes 166,000 shares which may be purchased pursuant to options
exercisable within 60 days of May 31, 2000.
(10) Includes 215,000 shares which may be purchased pursuant to options
exercisable within 60 days of May 31, 2000, and 20,000 shares held by Mr. Veen
as custodian for his children, to which Mr. Veen disclaims any beneficial
ownership.
(11) Includes 130,000 shares which may be purchased pursuant to options
exercisable within 60 days of May 31, 2000.
(12) Includes 150,000 shares which may be purchased pursuant to options
exercisable within 60 days of May 31, 2000. In Fiscal 2000 these options were
divided equally pursuant to a court order as part of a marital dissolution
proceeding.
(13) Includes 140,000 shares which may be purchased pursuant to options
exercisable within 60 days of May 31, 2000.
(14) Includes 150,000 shares which may be purchased pursuant to options
exercisable within 60 days of May 31, 2000.
(15) Includes 345,000 shares which may be purchased pursuant to options
exercisable within 60 days of May 31, 2000 and 12,500 shares owned by Mr.
Reitman's wife, as to which 12,500 shares he 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.
DESCRIPTION OF CAPITAL STOCK
As of the date of this Prospectus, the authorized capital stock of the
Company consists of 100,000,000 shares of Common Stock, par value $.005 per
share, of which 240,144,826 are issued and outstanding 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
fullypaid 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 special
rights 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 [4450] stockholders of record as of May 19,
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 May 19, 2000, the average high and low reported sales price for the
Company's Common Stock was $0.31.
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.
EXPERTS
The consolidated financial statements of the Company and subsidiaries
for the years ended February 28, 1999, February 28, 1998 and February 28, 1997,
included in this Prospectus and Registration Statement, have been audited by
Pannell Kerr Forster, independent auditors. 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>
AURA SYSTEMS, INC.
AND SUBSIDIARIES
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report on Consolidated Financial Statements and
Financial Statement Schedule F-2
Consolidated Financial Statements of Aura Systems, Inc. and Subsidiaries:
Consolidated Balance Sheets-February 28, 1999 and February 28, 1998 F-3 to F-4
Consolidated Statements of Operations and Comprehensive Income (Loss) -
Years ended February 28, 1999, February 28, 1998 and February 28,
1997 F-5 Consolidated Statements of Stockholders' Equity (Deficit)-Years ended
February 28, 1999, February 28, 1998 and February 28, 1997 F-6
Consolidated Statements of Cash Flows-Years ended February 28, 1999,
February 28, 1998 and February 28, 1997 F-7 to F-8
Notes to Consolidated Financial Statements F-9 to F-25
Consolidated Financial Statement Schedule:
II Valuation and Qualifying Accounts F-26
Schedules other than those listed above are omitted because they are not
required or are not applicable, or the required information is shown in the
respective consolidated financial statements or notes thereto.
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Aura Systems, Inc.
El Segundo, California
We have audited the consolidated balance sheets of Aura Systems, Inc. and
subsidiaries as of February 28, 1999, and February 28, 1998 and the related
consolidated statements of operations and comprehensive loss, stockholders'
equity (deficit), and cash flows for each of the three years in the period ended
February 28, 1999 and the related financial statement schedule listed in the
accompanying Index at Item 14. These consolidated financial statements, and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Aura Systems, Inc.
and subsidiaries as of February 28, 1999, and February 28, 1998 and the results
of their operations and their cash flows for each of the three years in the
period ended February 28, 1999, and the financial statement schedule presents
fairly, in all material respects, the information set forth therein, all in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming Aura Systems,
Inc. will continue as a going concern. As discussed in note 1 to the
consolidated financial statements, the Company has generated significant losses
from operations, all major debt obligations were in default as of year-end and
the Company is currently in the process of restructuring all major debt
obligations. If the Company continues to suffer recurring losses from operations
and continues to have a net capital deficiency, there may be substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are described in Note 1.
Pannell Kerr Forster
Certified Public Accountants
A Professional Corporation
Los Angeles, California 90017
February 4, 2000
<PAGE>
AURA SYSTEMS, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
February 28, February 28,
1999 1998
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 3,822,210 $ 6,079,411
Receivables, net 8,380,414 54,418,141
Inventories 18,477,058 58,713,875
Prepayments 3,435,645 13,326,789
Other current assets 2,124,535 5,925,642
Deferred income taxes -- 838,000
Note receivable 250,000 --
------------- -------------
Total current assets 36,489,862 139,301,858
------------- -------------
PROPERTY AND EQUIPMENT, AT COST 47,976,699 66,667,671
Less accumulated depreciation and
amortization (10,994,734) (11,888,586)
----------------- --------------
Net property and equipment 36,981,965 54,779,085
JOINT VENTURES -- 6,903,918
LONG-TERM Investments 2,923,835 7,476,299
long-term receivables 2,500,000 3,627,098
Patents and trademarks-Net 5,293,278 6,410,771
GOODWILL-NET 5,383,208 6,146,642
OTHER ASSETS 571,244 2,656,958
------------- -------------
Total $ 90,143,392 $ 227,302,629
============== =============
See accompanying notes to consolidated financial statements.
<PAGE>
AURA SYSTEMS, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
February 28, February 28,
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) 1999 1998
----------- -------
CURRENT LIABILITIES:
Notes payable $ 8,787,113 $ 31,147,572
Convertible note, unsecured 2,000,000 --
Accounts payable 22,515,842 43,995,364
Accrued expenses 8,056,783 3,990,027
------------- -------------
Total current liabilities 41,359,738 79,132,963
------------- -------------
25,955,529 3,282,003
------------- -------------
NOTES PAYABLE AND OTHER LIABILITIES
convertible Notes-SECURED 4,000,000 2,112,900
------------- -------------
CONVERTIBLE NOTES-UNSECURED 32,481,782 15,500,000
------------- -------------
MINORITY INTERESTS IN SUBSIDIARY -- 10,372,895
------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock par value $.005 per share
and additional paid in capital. Issued
and outstanding 107,752,042 and
80,001,244 shares respectively. 218,693,245 199,100,614
Cumulative currency translation
adjustment (CTA) (365,932) 40,642
Accumulated deficit (231,980,970) (82,239,388)
-------------- --------------
Total stockholders' equity (deficit) (13,653,657) 116,901,868
-------------- -----------
Total $ 90,143,392 $227,302,629
============= ===========
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
AURA SYSTEMS, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive
Loss Years ended February 28, 1999, February 28,
1998 and February 28, 1997
1999 1998 1997
------------- ------------- -------
<S> <C> <C> <C>
Net Revenues $81,518,162 $136,715,385 $109,950,202
Cost of GOODS AND OVERHEAD 158,024,723 101,622,051 86,350,828
------------- ------------- -------------
GROSS PROFIT (LOSS) (76,506,561) 35,093,334 23,599,374
-------------- ------------- -------------
EXPENSES:
Research and development 2,831,847 1,395,160 6,022,586
Impairment of long-lived assets 9,403,687 -- --
Selling, general and administrative expenses 74,419,812 45,018,066 18,761,123
------------- ------------- -------------
Total expenses 86,655,346 46,413,226 24,783,709
------------- ------------- -------------
(LOSS) FROM OPERATIONS (163,161,907) (11,319,892) (1,184,335)
OTHER (INCOME) AND EXPENSE
Gain on sale and issuance of subsidiary stock and
other assets (1,042,665) (12,952,757) (250,000)
Legal settlements 7,717,518 1,700,000 --
Equity in losses of unconsolidated joint ventures 6,268,384 1,937,747 --
Loss on disposal of assets 1,188,329 -- --
Loss on disposal of investment 4,877,839 -- --
Termination of license arrangement -- 3,114,030 --
Interest income (184,168) (224,385) (475,758)
Interest expense 12,198,858 7,051,654 1,891,692
------------- ------------- -------------
(LOSS) BEFORE INCOME TAXES AND OTHER ITEMS
(194,186,002) (11,946,181) (2,350,269)
Provision (benefit) for taxes 570,651 (1,256,046) 570,484
Minority interests in consolidated subsidiary:
Income -- 946,405 --
Loss 10,372,895 -- --
Loss in excess of basis of consolidated subsidiary
Aura 8,080,695 -- --
Minority interests 26,561,481 -- --
-------------- ------------- -------------
NET (LOSS) (149,741,582) (11,636,540) (2,920,753)
--------------= --------------= -------------=
Other comprehensive income (loss), net of taxes:
Foreign currency translation adjustments (406,574) -- 40,642
--------------- -------------- -------------
Comprehensive loss $ (150,148,156) $ (11,636,540) $ (2,880,111)
=============== ============== =============
NET (LOSS) PER COMMON SHARE $ (1.74) $ (.15) $ (.04)
=============== ============== =============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES 85,831,688 79,045,290 68,433,521
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
AURA SYSTEMS, INC.
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
Years ended February 28, 1999, February 28, 1998 and February 28, 1997
<TABLE>
<CAPTION>
Accumulated
Additional other
Common Stock Paid-in Accumulated Comprehensive
Shares Amount Capital Deficit (CTA) Income (Loss) Total
<S> <C> <C> <C> <C> <C> <C>
Balances at February 29, 1996 62,222,438 $311,112 $166,534,089 $(67,682,095) $ -- $99,163,106
Private placements, net of
issuance cost 385,000 1,925 1,499,575 -- -- 1,501,500
Notes payable converted 12,815,368 64,077 24,679,389 -- -- 24,743,466
Exercise of warrants 300,000 1,500 598,500 -- -- 600,000
Exercise of stock options 10,000 50 34,950 -- -- 35,000
Stock issued to acquire assets 748,860 3,744 2,310,882 -- -- 2,314,626
Other comprehensive income (CTA) -- -- -- -- 40,642 40,642
Net (loss) -- -- -- (2,920,753) (2,920,753)
----------- ------ ------------- ----------- -------- -----------
Balances at February 28, 1997 76,481,666 382,408 195,657,385 (70,602,848) 40,642 125,477,587
Notes payable converted 3,164,001 15,820 4,528,958 -- -- 4,544,778
Exercise of warrants 241,688 1,208 583,642 -- -- 584,850
Exercise of stock options 25,000 125 51,375 -- -- 51,500
Proceeds from issuance of
warrants -- -- 900,000 -- -- 900,000
Repurchase of warrants -- -- (1,679,956) -- -- (1,679,956)
Stock issued to acquire assets 88,889 445 199,555 -- -- 200,000
Expenses of issuances -- -- (1,540,351) -- -- (1,540,351)
Net (loss) -- -- -- (11,636,540) (11,636,540)
----------- ------ ------------- ------------ -------- ------------
Balances at February 28, 1998 80,001,244 400,006 198,700,608 (82,239,388) 40,642 116,901,868
Notes payable converted 16,513,282 82,566 10,126,867 -- -- 10,209,433
Exercise of warrants 7,475,383 37,377 7,971,198 -- -- 8,008,575
Exercise of stock options 50,000 250 102,750 -- -- 103,000
Stock issued to acquire assets 114,833 574 28,134 -- -- 28,708
Private placements 3,597,300 17,986 1,779,656 -- -- 1,797,642
Expenses of issuances -- -- (554,727) -- -- (554,727)
Other comprehensive income (CTA) -- -- -- -- (406,574) (406,574)
Net (loss) -- -- -- (149,741,582) -- (149,741,582)
Balances at February 28, 1999 107,752,042 $538,759 $218,154,486 $(231,980,970) $(365,932) $(13,653,657)
============== ======== =============== ============== ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
AURA SYSTEMS, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended February 28, 1999, February 28, 1998 and
February 28, 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(149,741,582) $(11,636,540) $(2,920,753)
-------------- ---------- ---------
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 12,985,278 8,362,110 4,797,436
Provision for environmental cleanup 44,516 40,597 37,021
(Gain) Loss on disposition of assets 6,066,168 (555,326) (255,665)
Equity in losses of unconsolidated joint ventures 6,268,384 1,937,747 --
Gain on sale of subsidiary and other stock investments (262,804) (12,144,740) --
Impairment of long-lived assets 9,403,687 -- 2,005,000
Foreign currency translation adjustment (406,574) -- 172,617
Assets-(Increase) Decrease:
Receivables 46,037,727 (674,443) (12,830,713)
Inventories 40,236,817 (24,866,579) (9,410,343)
Prepayments 9,891,144 (5,631,521) --
Other current assets 3,801,107 (5,534,281) 1,245,613
Deferred income taxes 838,000 (940,000) --
Liabilities-Increase (Decrease):
Accounts payable (21,479,522) 20,279,113 3,270,971
Accrued expenses 4,614,005 2,086,583 323,435
Litigation and other liabilities 7,389,649 (345,372) --
------------ ------------ -----------
Total adjustments 125,427,582 (17,986,112) (11,986,546)
----------- ---------- ----------
Net cash used by operating activities (24,314,000) (29,622,652) (13,565,381)
------------ ---------- -------------
Cash flows from investing activities:
Proceeds from sale of assets 2,721,000 920,000 286,217
Purchase of property and equipment (2,143,237) (1,910,214) (8,606,686)
Manufacture of special tools and equipment (1,910,611) (16,096,180) (16,539,899)
Purchase of subsidiary -- -- (1,101,278)
Investment in joint ventures (164,466) 1,202,138 (3,163,475)
Long-term investments (4,940,000) (1,117,465) (2,430,756)
Long-term receivables 3,436,809 3,347,144 (2,450,959)
Patents and trademarks (467,167) (1,903,718) (696,677)
Goodwill and other assets 1,425,794 (2,398,400) (645,241)
Proceeds from subsidiary stock 1,611,873 5,472,656 --
----------- ----------- -----------
Net cash used by investing activities (430,005) (12,484,039) (35,348,754)
------------ ----------= -----------
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
AURA SYSTEMS, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Net proceeds from borrowings $17,922,584 $26,287,632 $ 9,772,600
Repayment of notes payable (3,396,083) (10,874,683) (2,624,214)
Proceeds from exercise of options 103,000 -- --
Net proceeds from issuance of common stock 1,675,873 636,350 2,136,500
Net proceeds from exercise of warrants 7,884,325 -- --
Proceeds from issuance of warrants -- 900,000 --
Net proceeds from issuance of convertible notes
11,720,000 13,959,649 24,841,239
Repayment of convertible notes (3,050,000) (5,905,223) --
Minority interest adjustment (10,372,895) 17,749,979 --
Repurchase of warrants -- (1,679,956) --
------------ --------- -----------
Net cash provided by financing activities 22,486,804 41,073,748 34,126,125
------------ ---------- -----------
Net decrease in cash and equivalents (2,257,201) (1,032,943) (14,788,010)
Cash and equivalents at beginning of year 6,079,411 7,112,354 21,900,364
------------ ----------- ----------
Cash and equivalents at end of year $ 3,822,210 $ 6,079,411 $ 7,112,354
============ =========== ===========
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest $ 3,374,992 $ 6,280,859 $1,065,796
============ =========== =========
Income Taxes $ 2,244,762 $ 186,310 $ 8,000
============ =========== ===========
</TABLE>
Supplemental disclosures of non-cash investing and financing activities:
During the year ended February 28, 1997, the Company issued 748,860 shares
in connection with the acquisitions of MYS Corporation., Phillips Sound
Labs and Revolver U.K. Limited valued at $2,314,626. During the year ended
February 28, 1997, $25,900,000 of convertible notes and accrued interest
were converted into 12,815,368 shares of common stock.
During the year ended February 28, 1998, $4,544,778 of convertible notes
and accrued interest were converted into 3,164,001 shares of common stock.
Effective January 29, 1998, the Company executed a contract to purchase
title and interest to the "Aura" trademark name in several locations in
Europe, Hong Kong and Taiwan. Partial consideration paid included $200,000
worth of Aura common stock or 88,889 shares, and $1,587,678 of operating
assets transferred to the seller of the trademark name. During the year
ended February 28, 1998 the Company entered into financing arrangements
whereby it acquired assets for notes payable in the amount of $493,781.
During the year ended February 28, 1999, $10,209,433 of convertible notes
and accrued interest were converted into 16,513,282 shares of common stock.
Additionally, 90,510 shares of common stock were issued for services
received totaling $90,510. During the year ended February 28, 1999,
2,000,000 shares of the Company's investment in NewCom Inc., valued at
$2,820,000, were surrendered to a NewCom creditor pursuant to a security
agreement that collateralized a NewCom note in the amount of $1,000,000.
During the year ended February 28, 1999, $800,000 in joint ventures assets
were transferred to long term investments. During the year ended February
28, 1999, the Company sold a stock investment for $5,499,000, of which
$2,750,000 was recorded as a note receivable. During the year ended
February 28, 1999, the Company assumed explicitly certain obligations of
NewCom, effectively transferring approximately $9,900,000 from current
notes and trade payables to litigation payable. The $9,900,000 represents
NewCom obligations guaranteed by the Company, including a line of credit
with a commercial lending institution and two other trade creditors.
See accompanying notes to consolidated financial
statements.
<PAGE>
AURA SYSTEMS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years ended February 28, 1999, February 28, 1998 and February 28, 1997
(1) Business and Summary of Significant Accounting Policies
Business
Aura Systems, Inc. ("Aura" or the "Company"), a Delaware
corporation, is engaged in the development,
commercialization and sales of products, systems and
components using its patented and proprietary
electromagnetic and electro-optical technology.
In 1994, the Company founded its subsidiary NewCom, Inc. ("NewCom"), a
Delaware corporation, which was 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 its presence in the
growing multimedia, communication and sound-related consumer
electronics market. NewCom ceased operations in 1999.
The Company acquired 100% of the outstanding shares of MYS Corporation
of Japan ("MYS") in 1996 to expand the range of its sound products and
speaker distribution network. Subsequent to Fiscal 1999, the Company
sold MYS to its management.
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, 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.
Basis of Presentation and Going Concern
The accompanying consolidated financial statements of the Company have been
prepared on the basis that it is a going concern, which contemplates the
realization of assets and satisfaction of liabilities, except as otherwise
disclosed, in the normal course of business. However, as a result of the
Company's losses from operations and inability to service its debt
obligations, such realization of assets and liquidation of liabilities is
subject to significant uncertainties. Further, the Company's ability to
continue as a going concern is dependent upon the successful restructuring
of obligations, achievement of profitable operations and the ability to
generate sufficient cash from operations and financing sources to meet the
restructured obligations. Management is currently seeking or obtaining
additional sources of funds and the Company has restructured a significant
portion of its debt obligations. The Company intends to focus its business
on the AuraGen line of products. Except as otherwise disclosed, the
consolidated financial statements do not include any adjustments to reflect
the possible future effects on the recoverability and classification of
assets or the amount and classification of liabilities that may result from
the possible inability of the Company to continue as a going concern as
otherwise disclosed.
Principles of Consolidation
The consolidated financial statements include accounts of the Company
and its wholly owned subsidiaries, MYS and its subsidiaries Audio-MYS,
MYS America and MYS U.S.A, Aura Ceramics, Inc., Aura Sound Inc. and
Electrotec Productions, Inc. (and its wholly owned subsidiary
Electrotec Europe). For the years ended February 28, 1998 and 1997, the
Company's interest in NewCom, a majority owned subsidiary, is reported
on a consolidated basis, the consolidated financial statements include
100 percent of the assets and liabilities of the subsidiary, and the
ownership percentage of minority interests is recorded as "Minority
Interests in Subsidiary." In February 1999, the Company reduced its
interest in NewCom to approximately 41%. Accordingly, for the year
ended February 28, 1999, the Statement of Operations and Comprehensive
Loss reflects the operating results of NewCom through the period of
majority ownership. The balance sheet as of February 28, 1999 reflects
the Company's investment on an equity basis of accounting. In
consolidation, all significant intercompany balances and transactions
have been eliminated.
For the year ended February 28, 1999, the Company's losses from NewCom,
on a consolidated basis, were in excess of the Company's allocation of
losses as accounted for under the equity method. In accordance with
Accounting Principles Board Opinion No. 18 "The Equity Method of
Accounting for Investments in Common Stock" the Company has recognized
losses up the amount of their investment, advances, and guarantees of
indebtedness. Losses related to the consolidation of NewCom in excess
of losses appropriate under the equity method, in the amount of
$8,080,695, are reflected as an other item in the Statement of
Operations and Comprehensive Loss.
For the year ended February 28, 1999, the minority interest in loss of
subsidiary are in excess of minority interests investments. The
minoritiy interests loss in excess of investment in the amount of
$26,561,481, are reflected as an Other Item in the Statement of
Operations and Comprehensive Loss.
Revenue Recognition
The Company recognizes revenue for product sales upon shipment. The
Company provides for estimated returns and allowances based upon
experience. The Company also earns a portion of its revenues from
license fees, and generally records these fees as income when the
Company has fulfilled its obligations under the particular agreement.
Comprehensive Income
In March 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes standards for reporting and display
of comprehensive income and its components in a full set of
general-purpose financial statements. This statement requires that all
items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement
that is displayed with the same prominence as other financial
statements. This standard requires that an enterprise classify items of
other comprehensive income by their nature in a financial statement;
display the accumulated balances of other comprehensive income
separately from retained earnings and additional paid-in capital in the
equity section of a statement of financial position. the Company
adopted SFAS 130 in Fiscal 1999. The adoption of this statement
did not have any impact on the Company's results of operations,
financial position, or cash flows.
Cash Equivalents
maturity of less than three months, to be cash equivalents.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenues
and expenses during the reporting period. Actual future results could
differ from those estimates.
Long-Term Investments
Investments in equity securities with no readily determinable fair
value are stated at cost. Management periodically evaluates these
investments as to whether fair value is less than cost. In the event
fair value is less than cost, and the decline is determined to be other
than temporary, the Company will reduce the carrying value accordingly.
Goodwill
Goodwill represents the excess purchase price over the fair market
value of the assets acquired of certain acquisitions. Goodwill is being
amortized over 40 years on a straight-line basis.
The carrying value of goodwill is based on management's current
assessment of recoverability. Management evaluates recoverability using
both objective and subjective factors. Objective factors include
management's best estimates of projected future earnings and cash flows
and analysis of recent sales and earnings trends. Subjective factors
include competitive analysis and the Company's strategic focus.
Inventories
Inventories are stated at the lower of (first-in,first-out) or market.
Per Share Information
The consolidated net loss per common share is based on the weighted
average number of common shares outstanding during the year. Common
share equivalents have been excluded since inclusion would dilute the
reported loss per share.
Patents and Trademarks
The Company capitalizes the costs of obtaining or acquiring patents and
trademarks. Amortization of patent costs is provided for by the straight
line method over the shorter of the legal or estimated economic life. If a
patent or trademark is rejected, abandoned, or otherwise invalidated the
un-amortized cost is expensed in that period.
Joint Ventures
The Company initially records investments in joint ventures at cost.
These cost amounts are adjusted quarterly to reflect the Company's
share of venture income or losses.
Impairment of long-lived assets
The Company reviews long-lived assets and identifiable intangibles
whenever events or circumstances indicate that the carrying amount of
such assets may not be fully recoverable. The Company evaluates the
recoverability of long-lived assets by measuring the carrying amounts
of the assets against the estimated undiscounted cash flows associated
with these assets. At the time such evaluation indicates that the
future undiscounted cash flows of certain long-lived assets are not
sufficient to recover the assets' carrying value, the assets are
adjusted to their fair values (based upon discounted cash flows).
During 1999, the Company's management redirected its strategy to focus
on the AuraGen production. The Company made the decision to cease
operations in various divisions, reduce overhead and sell or lease
Company assets that were not compatible with the Company's strategy.
Management reviewed the estimated future cash flows related to these
operations and deemed them to be insufficient to fully recover the
carrying value of the assets. Accordingly, the Company has recognized
an $9,403,687 impairment expense to reduce the assets to their
estimated fair value. The impairment includes a write down of
property and equipment and goodwill of $8,893,259 and $510,428,
respectively.
Research and Development
Research and development costs are expensed as incurred.
Advertising Costs
Advertising costs are expensed as incurred. Advertising charged to
expense in Fiscal 1999, 1998 and 1997 approximated $ 9.4 million, $5.8
million and $4.5 million, respectively, including approximately nil,
$300,000 and $700,000 for the production of the advertising, which is
continuing to be used but has been expensed.
Buildings, Equipment and Leasehold Improvements
Buildings, equipment and leasehold improvements are stated at cost and
are being depreciated using the straight-line method over their
estimated useful lives as follows:
Buildings 40 years
Machinery and equipment 5-10 years
Furniture and fixtures 7 years
Leasehold improvements Life of lease
During 1999 and 1998, the Company capitalized costs of $1,910,611 and
$16,096,180, respectively, on special tools and equipment, which have
been designed for the manufacturing and development of actuators,
speakers and related products, automotive products, actuator mirror
array wafers and internet access and multimedia computer products. The
capitalized amounts, included in machinery and equipment, include
allocated costs of direct labor and overhead. During 1999, management
reduced previously capitalized amounts to their estimated fair value,
due to impairment of assets. See note on Impairment of long-lived
assets.
Depreciation and amortization expense of buildings,
machinery and equipment, furniture and fixtures and leasehold
improvements approximated $11.9 million, $5.4 million and $3.2 million
for Fiscal 1999, 1998 and 1997, respectively.
Product Return Risks
The Company has been exposed to the risk of product returns from its
retailer mass merchant and distributor customers as a result of several
factors, including returns from their customers, contractual stock
rotation privileges, returns of defective products or product
components, primarily through NewCom. In addition, the Company
generally accepts returns of unsold product from customers with whom
the Company has severed its customer relationship. Overstocking by the
Company's customers could lead to higher than normal returns, which
could have a material adverse effect on the Company's results of
operations. The Company also has a policy of offering price protection
to its customers for some or all of their inventory, whereby when the
Company reduces its prices for a product, the customer receives a
credit for the difference between the original purchase price of the
product and the Company's reduced price for the product. As a result of
this policy, significant reductions in price have had, and may in the
future have, a material adverse effect on the Company's results of
operations. In management's opinion, the financial statements include
adequate provisions to reserve for future product returns.
(2) Receivables
Receivables consist of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Commercial receivables:
Amounts billed $16,548,666 $59,277,378
Recoverable costs and accrued profits not billed -- 931,056
----------- -----------
Total commercial receivables 16,548,666 60,208,434
Advances due from related parties 102,773 210,837
Less allowance for uncollectible receivables and (8,271,025) (6,001,130)
----------- ----------
sales returns
$8,380,414 $54,418,141
</TABLE>
Bad debt expense was approximately $13.3 million, $3.6 million and
$.7 million in Fiscal 1999, 1998 and 1997 respectively.
(3) Long Term Investments
Long-term investments consist of the following:
1999 1998
---- ----
Telemac Cellular C $ -- $4,782,500
Aquajet Corporation 923,835 883,834
Alaris Industries, 1,200,000 1,200,000
Other 800,000 609,965
---------- -----------
$2,923,835 $7,476,299
========== ==========
During Fiscal 1999, the Company sold a portion of its shares in Telemac
Cellular Corp.(Telemac) back to Telemac. The Company then entered into a
cancellation of shares agreement whereby it tendered its shares to Telemac
in exchange for a note receivable from Telemac resulting in a gain
recognized of approximately $850,000.
In February 1998, NewCom, Inc. entered into an Equipment Buy-Sell
Agreement with Fourth Communications Network ("FCN") whereby NewCom
purchased 200,000 shares of FCN Series F Preferred Stock, which is
convertible into Common Stock at a conversion price of $25.00 per
share, and received warrants to purchase 200,000 shares of Common Stock
at $15.00 per share, in consideration of a cash payment of $5,000,000
of which $150,000 was paid in February 1998 with the balance of
$4,850,000 paid in March 1998. In Fiscal 1999, NewCom pledged the
investment as collateral to a secured creditor. The investment has been
foreclosed upon.
(4) Joint Ventures and Other Agreements
(a) Malaysian Joint Venture
In 1993, the Company entered into an agreement with Burlington
Technopole SDN. BHD., a Malaysian corporation (Burlington) for the
formation of a joint venture to manufacture and sell speakers using
Aura's proprietary technology. In Fiscal 1999 the joint venture was
terminated, and a total of $1,064,911 in joint venture losses and
write-off's were recorded during Fiscal 1999.
(b) Aura-Dewan Joint Venture
In 1995, the Company entered into an agreement with K&K Enterprises of
India ("K&K") for the formation of a joint venture to manufacture and
sell speakers using Aura's proprietary technology. In 1995 the Company
also entered into an agreement with K&K for the formation of a joint
venture to manufacture Aura's Bass ShakerTM. In Fiscal 1999 the joint
venture was terminated, and a total of $534,911 in joint venture losses
and write-off's were recorded during Fiscal 1999. The Company's
remaining investment in property of the joint venture, for the amount
of $800,000 has been reclassified to long term investments.
(c) Daewoo Agreement
In 1992, the Company entered into a joint development and licensing
agreement with Daewoo Electronics Co., Ltd. ("Daewoo") to develop and
commercialize televisions using Aura's AMA(TM) display technology. Aura
is to receive a fixed royalty (depending on television size), for each
television set manufactured by Daewoo or licensed by Daewoo to a third
party. Due to Daewoo's existing financial difficulties, it is currently
undeterminable if Daewoo will be able to commercialize a television
using Aura's AMA(TM) display technology.
(d) Eric Joint Venture
In 1997, the Company entered into an agreement with the European Group
to form a joint venture for sales, marketing and further development of
motion base simulators using the Company's proprietary technology. In
Fiscal 1999, as a result of financial crisis the Company ceased on its
commitment to continue to develop improvements to the Company's motion
base simulator technology. The parties agreed to terminate the joint
venture, and $3,856,091 was written-off to loss in joint ventures.
(e) Microbell Joint Venture
In 1995 the Company entered into an agreement with Microbell to form a
joint venture to further develop and commercialize patented and
proprietary technology developed by Microbell.
Aura's inability to continue to fund the joint venture as required, the
joint venture was terminated, and $635,902 was written-off to loss in
joint venture.
(5) Related Party Transactions
Notes and advances due from related parties, aggregated $102,773 and
$210,837 at February 28, 1999 and February 28, 1998, respectively,
included in current receivables, and $0 and $19,000 included in
(6) Inventories
Inventories, stated at the lower of cost (first-in, first-out) or
market, consist of the following:
1999 1998
---- ----
Raw materials $11,318,263 $19,202,024
Finished goods 15,034,795 44,046,851
Reserves for product obsolence (7,876,000) (4,535,000)
--------------- ---------------
$18,477,058 $58,713,875
============== ==============
Inventories at February 28, 1999 and 1998 include approximately $3.5 million and
$5.0 million, respectively, that was received subsequent to year end, but was
shipped F.O.B. shipping point, requiring the Company to include this amount in
its reported inventory and to record the corresponding liability in accounts
payable. At February 28, 1999, inventories consist primarily of components and
completed units for the Company's AuraGen product, along with speaker components
and finished product.
(7) Property and Equipment
Property and Equipment, at cost is comprised as follows:
1999 1998
---- ----
Land $ 3,877,074 $ 3,870,361
Buildings 9,396,392 9,366,512
Machinery and equipment 32,354,243 48,610,238
Furniture, fixtures and
leasehold improvements 2,348,990 4,820,560
------------ -----------
$47,976,699 $66,667,671
=========== ==========
(8) Notes Payable and Other Liabilities
Notes Payable and Other Liabilities consist of the following:
All major debt obligations were in default as of February 28, 1999, see
note 21.
1999 1998
---- --- ----
Litigation payable $17,302,047 $ --
Lines of Credit 3,000,000 9,569,235
Notes payable-equipment (a) 194,296 2,870,971
Notes payable-buildings (b) 8,549,854 3,553,187
Unsecured notes payable (c) 4,907,068 17,975,000
Unsecured bonds payable (d) 283,679 --
-------------- -----------
34,236,944 33,968,393
Less: current portion 8,787,113 31,147,572
-------------- ----------
Long term portion 25,449,831 2,820,821
Reserve for environmental cleanup 505,698 461,182
-------------- -----------
$25,955,529 $ 3,282,003
============== ===========
(a) Notes payable-equipment consists of various notes maturing at various
dates through September 2000 bearing interest at various rates and are
collaterized by equipment.
(b)
Notes payable-buildings consists of a 1st Trust Deed on a building in
California, due in Fiscal 2009, and a note due October 2000
collateralized by a building in Malaysia.
(c) Unsecured notes payable consists of two notes.
(d) There are five unsecured bonds payable.
Annual maturities of long term notes payable and litigation payable for
the next fiscal years are as follows:
Fiscal Year Amount
2000 $8,787,113
2001 7,825,765
2002 2,686,351
2003 2,493,440
2004 925,941
thereafter 11,518,334
----------
$34,236,944
==========
(9) Convertible Notes Payable
In Fiscal 1993, the Company issued its Secured 7% Convertible Notes due 2002 in
the total amount of $5.5 million. In Fiscal 1999, the remaining $2,122,900 of
these notes were redeemed by the Company.
In Fiscal 1997, the Company issued $26,350,000 of unsecured convertible notes
due at various dates, $17.9 million of these notes plus accrued interest of
$228,534 were converted into 10,069,924 shares of common stock in Fiscal 1997.
In Fiscal 1998, the Company issued $34.5 million of unsecured notes payable to
investors. During the fiscal year the Company redeemed $3.8 million of notes
issued in Fiscal 1997 and $2 million of notes issued in Fiscal 1998.
Additionally, $4.5 million of notes issued in Fiscal 1997 were converted into
3,164,001 shares of common stock. In Fiscal 1999, the Company issued $8 million
of unsecured notes payable to investors and $4,662,900 of secured notes payable
to investors. During the Fiscal year the Company redeemed $1.6 million of
convertible notes issued in Fiscal 1998. Additionally $9,662,184 worth of
convertible notes issued in Fiscal 1998 plus interest of $547,249, were
converted into 16,513,282 shares of common stock.
(10) Accrued Expenses
Accrued expenses consist of the following:
1999 1998
---- ----
Accrued payroll and related expenses $1,076,185 $1,092,082
Bond interest payable 4,535,789 880,158
Other 2,444,809 2,017,787
------------- ---------
$8,056,783 $3,990,027
(11) Income Taxes
At February 28, 1999, the Company had net operating loss carry-forwards for
Federal and state income tax purposes of approximately $216 million and $95
million respectively, which expire through 2014.
Under SFAS 109 "Accounting for Income Taxes" the Company utilizes the liability
method of accounting for income taxes. Accordingly, the Company has recorded a
deferred tax benefit of approximately $93 million for Fiscal 1999 and $23
million for Fiscal 1998. The Company has also recorded a valuation account to
fully offset the deferred benefit due to the uncertainty of the realization of
this benefit.
As of September 19, 1997, NewCom, Inc. is no longer included in the
Company's consolidated Federal tax return since the Company's ownership
percentage was reduced below 80% as of that date. In connection with the
deconsolidation of NewCom, Inc. for Federal income tax reporting purposes, the
Company recognized an income tax benefit of approximately $1.3 million for
financial reporting purposes in the accompanying statement of operations for
Fiscal 1998. The Company's Japanese subsidiary, MYS Corporation, pays income
taxes to the Japanese government at an effective rate of approximately fifty
eight percent. At February 28, 1999 and February 28, 1998, MYS Corporation had a
current income tax receivable and liability of approximately $153,000 and
$176,000, respectively.
(12) Common Stock, Stock Options and Warrants
The Company has 200,000,000 shares of $.005 par value common stock
authorized for issuance.
The Company has granted nonqualified stock options to certain directors and
employees. Options are granted at fair market value at the date of grant, vest
immediately, and are exercisable at any time within a five-year period from the
date of grant.
A summary of activity in the directors stock option plan follows:
<TABLE>
<CAPTION>
Shares Exercise Price
<S> <C> <C>
Options outstanding at February 29, 1996 1,009,578 $1.44-$5.50
Grants -- --
Cancellations -- --
Exercises -- --
---------- -------------
Options outstanding at February 28, 1997 1,009,578 1.44-5.50
Grants 50,000 2.30
Cancellations -- --
Exercises -- --
Options outstanding at February 28, 1998 1,059,578 1.44-5.50
Grants -- --
Cancellations -- --
Exercises -- --
Expired 499,578 1.44-5.50
-------------- --------------
Options outstanding at February 28,1999 560,000 $2.06-$4.75
============== ==============
</TABLE>
The following table summarizes information about director
stock options at February 28, 1999:
<TABLE>
<CAPTION>
Number Weighted Number
Range of Outstanding at Average Average Exercise Exercisable As
Exercise Price 2/28/99 Remaining Life Price of 2/28/99 Exercise Price
<S> <C> <C> <C> <C> <C>
$2.30 50,000 8.13 2.30 50,000 $2.30
$2.06 400,000 8.36 2.06 400,000 $2.06
$3.06 70,000 0.33 3.00 70,000 $3.06
$4.75 40,000 0.09 4.75 40,000 $4.75
</TABLE>
(13) Employee Stock Plans
The Company has two employee benefit plans: The Employee Stock
Ownership Plan (ESOP) and the 1989 Stock Option Plan (the Stock Option
Plan). A previous plan, the 1989 Employee Stock Ownership Plan, was
terminated in Fiscal 1992 and all plan assets were distributed to
participants.
The ESOP is a qualified discretionary employee stock ownership plan
that covers substantially all employees. This plan was formally
approved by the Board of Directors during Fiscal 1990. The Company made
no contributions to the ESOP in Fiscal 1999, 1998 and 1997
respectively.
During Fiscal 1990, the Company's Board of Directors adopted the Stock
Option Plan, a nonqualified plan which was subsequently approved by the
shareholders. The Stock Option Plan authorizes the grant of options to
purchase the greater of up to 8% of the Company's outstanding common
shares or 4,170,000 common shares. Shares currently under option
generally vest ratably over a five year period.
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123 "Accounting for Stock-Based Compensation," which contains a
fair value-based method for valuing stock-based compensation that
entities may use, which measure compensation cost at the grant date
based on the fair value of the award. Compensation is then recognized
over the service period, which is usually the vesting period.
Alternatively, the standard permits entities to continue accounting for
employee stock option and similar equity instruments under APB Opinion
No. 25, "Accounting for Stock Issued to Employees." Entities that
continue to account for stock options using APB Opinion No. 25 are
required to make pro forma disclosures of net income and earnings per
share, as if the fair value-based method of accounting defined is SFAS
No. 123 had been applied. Management accounts for options under APB
Opinion No. 25. If the alternative accounting-related provisions of
SFAS No. 123 had been adopted as of the beginning of 1995, any effect
on 1999, 1998 and 1997 net loss and loss per share would have
been immaterial.
A summary of activity in the employee stock option plan is as follows:
<TABLE>
<CAPTION>
Shares Exercise Price
<S> <C> <C>
Options outstanding at February 29, 1996 3,889,800 $1.44-7.31
----------- -------------
Grants -- --
Cancellations -- --
Exercises (10,000) 3.50
Options outstanding at February 28, 1997 3,879,800 1.44-7.31
--------- -------------
Grants 2,983,000 1.79-2.15
Cancellations (3,002,800) 1.44-3.06
Exercises (25,000) 2.06
----------- -------------
Options outstanding at February 28, 1998 3,835,000 1.44-7.31
-------------- -------------
Grants 2,800,000 3.31
Cancellations (59,700) 1.44-7.31
Exercises (50,000) 2.06
--------------- -------------
Options outstanding at February 28, 1999 6,525,300 $1.44-7.31
============== =============
</TABLE>
The following table summarizes information about employee stock options at
February 28, 1999:
<TABLE>
<CAPTION>
Number Weighted Number
Range of Outstanding at Average Average Exercise Exercisable As
Exercise Price 2/28/99 Remaining Life Price of 2/28/99 Exercise Price
<S> <C> <C> <C> <C> <C>
$3.06-$4.12 131,800 0.44 3.26 131,800 $3.06-$4.12
$1.44 431,000 1.92 1.44 431,000 $1.44
$7.25 7,500 2.75 7.25 7,500 $7.25
$3.00-$4.00 215,000 3.62 3.47 215,000 $3.00-$4.00
$3.50-$7.31 32,000 4.60 5.89 32,000 $3.50-$7.31
$1.79-$2.15 2,908,000 8.42 2.04 2,628,000 $2.06
$3.31 2,800,000 9.05 3.31 -- $3.31
</TABLE>
(14) Leases
The Company leases office facilities and equipment under operating leases
that expire through Fiscal 2009. Other costs, such as property taxes, insurance
and maintenance, are also paid by the Company. Rental expense charged to
operations approximated $ 1.8 million, $1.3 million and $1.3 million in Fiscal
1999, 1998 and 1997, respectively.
At February 28, 1999, minimum rentals under non-cancelable operating leases
are as follows: Fiscal year:
Gross Rents Sublease Net Rents
2000 $1,238,623 $77,472 $1,161,151
2001 1,030,348 18,005 1,012,343
2002 995,209 -- 995,209
2003 998,728 -- 998,728
2004 959,456 -- 959,456
2005-2009 3,049,967 -- 3,049,967
-------------- -------------- --------------
$8,272,331 $95,477 $8,176,854
============== ============== ==============
(15) Significant Customers
The Company on a consolidated basis sold sound related products and
computer related products to five significant customers during Fiscal
1999. Sales by MYS Corporation to a major electronics retailer
accounted for approximately $16.3 million or 20.1% of revenues. Sales
of communications and multimedia products to major mass merchandisers
Best Buy, Circuit City, and Staples accounted for $12.6 million or
15.5% of revenues. None of these customers are related to the Company
or any other customer of the Company.
(16) Commitments and Contingencies
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.
At February 28, 1999, the Company had approximately $2.8 million in
firm non-cancelable commitments related to tooling costs incurred by
independent contractors and for the purchase of inventory.
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 is subject to final confirmation by the
Court on March 20, 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.
NewCom Related Litigation
American Casualty v. Aura
On June 22, 1999, a lawsuit naming Aura was filed in the United States
District Court for the Central District of California, American
Casualty Company of Reading, Pennsylvania ("American Casualty") vs.
Aura et. al. (Case No. CV-99-06343). The complaint alleges that
American Casualty, as surety, executed and delivered a performance bond
on behalf of NewCom to Actrade Capital, Inc. ("Actrade") in 1998, which
American Casualty became liable to obligee Actrade when NewCom
defaulted on repayment of the penal sum of $4,427,093.92. In seeking
damages from NewCom, American Casualty further alleged that Aura was
liable because it executed an express general agreement of indemnity,
indemnifying American Casualty on the referenced NewCom bond and a
rider which became the subject of the litigation. Aura answered the
complaint and NewCom defaulted. Subsequently, in December, 1999, the
parties reached mutually an agreement in principal to settle the
matter, Aura agreeing to pay American Casualty: (i) $1,000,000 plus
interest at a rate of 8% per annum from December 1, 1999, in thirty-six
equal monthly installments commencing March 2000; (ii) $1,000,000 plus
interest at a rate of 8% per annum from December 1, 1999, in
twenty-four equal monthly installments commencing December 1, 2002; and
(iii) warrants to purchase up to 1,000,000 shares of the Company's
common stock thirty three months from November 1, 1999 at a pre-reverse
stock split exercise price of $2.46 per share. The Company expects to
enter into the settlement prior to February 29, 2000, which is in
accordance with the Aura's informal restructure .
NEC Technologies v. NewCom
In 1998, a lawsuit naming NewCom, Inc. was filed in the
Superior Court of the State of California, Los Angeles County, NEC
Technologies vs. NewCom et. al (Case No. YC 033592). The complaint
alleged that NewCom failed to pay NEC for products purchased in the sum
of approximately $3,000,000. Subsequently, NEC and NewCom entered into
a stipulated settlement where Aura guaranteed expressly NewCom's
performance on the settlement. NewCom thereafter defaulted on the
settlement and the stipulated judgment was filed in April, 1999.
Following negotiation by Aura and NEC, in November, 1999, a settlement
was entered into whereby NEC is to receive $2,479,142.50 plus interest
at eight percent per annum in thirty-six equal monthly installments,
which is in accordance with Aura's informal restructure.
Deutsche Financial Services v. Aura
In June, 1999, a lawsuit naming Aura was filed in 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 in the
arbitration has been set for May, 2000. 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 "Re-pricing 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 Re-pricing 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 Re-pricing 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 Re-pricing 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 Re-pricing Rights. 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, record-keeping 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. Also, the Commission did not seek any
monetary penalties from Aura, Mr. Kurtzman or anyone else. Neither Mr.
Kurtzman nor anyone else personally benefited in any way from these
events. 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.
(17) Concentrations of Credit Risk
Financial instruments that subject the Company to concentration of
credit risk are cash equivalents, trade receivables, notes receivable,
trade payables and notes payable. The carrying value of these financial
instruments approximate their fair value at February 28, 1999. Cash
equivalents consist principally of short-term money market funds, these
instruments are short term in nature and bear minimal risk.
The Company performs credit background checks and evaluates the credit
worthiness of all potential new customers prior to granting credit. UCC
financing statements are filed, when deemed necessary.
(18) Recently Issued Accounting Pronouncements
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position No. 98-5 (SOP No. 98-5), "Reporting on Costs
of Start-up Activities." Adoption of SOP No. 98-5 will have no material
impact on the Company's financial statements.
(19) Fourth Quarter Adjustments
Certain fourth quarter adjustments were made in Fiscal 1999 that are
significant to the quarter and to comparisons between quarters.
Presented below are the approximate amount of adjustments which are the
result of fourth quarter events and their effects recorded in the
fourth quarter.
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
(20) Segment Reporting
The Company adopted Statement of Financial Accounting Standards No. 131
("SFAS 131"), Disclosures about Segments of an Enterprise and Related
Information," as of February 28, 1999. SFAS 131 establishes standards
for the way public business enterprises report information about
operating segments in annual financial statements and requires those
enterprises to report selected information about operating segments in
interim financial reports issued to shareholders. It also establishes
standards for related disclosures about products and services
geographic areas and major customers. SFAS 131 defined operating
segments as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief
operating decision makers in deciding how to allocate resources and in
assessing performance. The Company has aggregated its business
activities into three operating segments: electromagnetic and
electro-optical technology (Aura), computer related communications
(NewCom) and sound and professional and consumer sound system
components (AuraSound).
The electromagnetic and electro-optical technology operating segment
consists of the development, commercialization and sales of products,
systems and components using patented and proprietary electromagnetic
and electro-optical technology. The Company has aggregated all
electromagnetic and electro-optical operating units due to commonality
of economic characteristics, technology employed, and class of
customer. In addition, this segment also includes our corporate
headquarters and revenues generated from the sale of computer monitors.
The overall management and operating results for this segment are based
on the activities and operations as noted.
The computer related communications and sound related products
operating segment consists of the manufacturing and selling of high
performance computer communication and multimedia products for the
personal computer market. The segment also includes internal and
external data fax modems, speaker phones, sound cards, and multimedia
kits. This operating segment suffered significant operating losses
during the year ended February 28, 1999 and ceased operations
subsequent to the year ended February 28, 1999.
The sound segment consists of the manufacture and sale of professional
and consumer sound system components and products, including speakers,
amplifiers, and Bass Shakers. We aggregated the sound segment operating
units due to economic characteristics, products and services, the
production process class of customer and distribution process.
Subsequent to February 28, 1999, the Company elected to discontinue
this segment and the segment was sold in two separate transactions, see
note 21.
<TABLE>
<CAPTION>
Aura NewCom AuraSound Consolidated
Net Revenues* (in thousands)
<S> <C> <C> <C> <C>
1999 $ 6,830 $ 46,820 $ 27,868 $ 81,518
1998 $ 10,252 $ 93,687 $ 32,776 $ 136,715
1997 $ 27,547 $ 50,632 $ 31,771 $ 109,950
Income (loss) from Operations
1999 $ (54,396) $ (94,357) $ (14,409) $ (163,162)
1998 $ (19,238) $ 11,872 $ (3,954) $ (11,320)
1997 $ (4,913) $ 5,164 $ (1,435) $ (1,184)
Identifiable Assets
1999 $ 63,754 $ -- $ 26,389 $ 90,143
1998 $ 96,735 $ 96,127 $ 34,441 $ 227,303
1997 $ 86,957 $ 47,435 $ 48,136 $ 182,528
Depreciation and Amortization
1999 $ 7,375 $ 1,511 $ 4,099 $ 12,985
1998 $ 3,621 $ 1,274 $ 3,467 $ 8,362
1997 $ 2,591 $ 348 $ 1,858 $ 4,797
Capital Expenditures
1999 $ 2,450 $ 161 $ 1,443 $ 4,054
1998 $ 15,322 $ 1,455 $ 1,229 $ 18,006
1997 $ 14,008 $ 2,121 $ 9,018 $ 25,147
Number of operating locations at year-end (unaudited)
1999 2 2 5 9
1998 2 2 5 9
1997 4 1 5 10
</TABLE>
* Includes revenue from external customers for all groups of products and
services in each segment reported. Products and services sold by each
segment are generally similar in nature; also it is impracticable to
disclose revenues by product.
Segment Reporting
Revenue from customer geographical segments are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
U.S., Canada, Latin America $58,871 72.22% $120,517 88.15% $84,862 77.18%
Europe $ 772 0.95 451 0.33 1,404 1.28
Pacific Rim 21,875 26.83 15,747 11.52 23,684 21.54
------- ------ -------- ------ -------- ------
$81,518 100.00% $136,715 100.00% $109,950 100.00%
======= ======= ========= ======= ========= =======
</TABLE>
The majority of the Company's operating long-lived assets are located
in the United States
(21) Subsequent Events
Sale of MYS Corp.
In March 1999, the Company entered into an agreement for the sale of
MYS Corp. and subsidiaries to the management of MYS. The terms of the
agreement called for a purchase price of $4.2 million with a down
payment of $1.0 million, which was paid on April 15, 1999, and the
balance, including interest at 8% per annum, due in twelve equal
monthly installments.
Sale of Assets of AuraSound
In July 1999, the Company entered into an agreement for the sale of
the assets of the Company's AuraSound speaker division with a supplier
to Sound. The terms of the agreement called for a purchase price of
$2.0 million plus the assumption of up to $1.6 million in debt. The
terms further stated that the liabilities assumed would not exceed the
net realizable value of the accounts receivable by more than $300,000.
In addition to the sale of the assets, the Company entered into a
licensing agreement with the purchaser which calls for a license fee of
$1.5 million payable in monthly installments, with an additional option
to purchase the patents under license. The option may be exercised at
any time prior to the third year anniversary for an additional payments
of $1,500,000.
Restructuring of RGC International Investors, LDC, debt
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
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 are convertible into a maximum of 46,500,000 shares of the
Company's Common Stock. The holder of the RGC Debentures has agreed to
cancel the outstanding principal and interest owed under the RGC
Debentures upon consummation of the restructuring of approximately
$14.7 million of outstanding Debentures held by a third party. See
"Restructuring of Infinity Investors debt" below.
Retirement of JNC Debt
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 November 1999 the Company entered into an agreement with the holders
of approximately $14.7 million of Debentures which were due in
September 1998. Under the terms of the agreement the Investors have
agreed to exchange (the "Exchange") the Debentures and Warrants to
purchase 1,111,111 shares of the Company's Common Stock for $3 million
in cash and a new Secured Note (the "New Secured Note") in the
principal amount of $12.5 million. The New Secured Note will be secured
by a lien on the Company's assets, will bear interest at the rate of 8%
per annum, payable quarterly, with the principal due three years from
the date of the exchange. In the event of a default under the New
Secured Note, 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.
Consummation of the Exchange is subject to completion of a definitive
agreement with the holders of the Debentures.
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.
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.
<PAGE>
SCHEDULE II
AURA SYSTEMS, INC.
AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended February 28, 1999, February 28, 1998 and February 28, 1997
<TABLE>
<CAPTION>
Balance at Charged to Charged to Balance at
beginning of costs and other end
period expenses Accounts Deductions of period
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowances are deducted from the
assets to which they apply
Year ended February 28, 1999 Allowance for:
Uncollectible Accounts $ 5,431,525 $13,314,320 $10,000,000 $20,596,294 $ 8,149,551
Reserve for returns 569,605 24,741,084 -- 25,189,215 121,474
Reserve for potential product
obsolescence 4,535,000 15,906,337 -- 12,565,337 7,876,000
--------- ---------- ------------ ---------- ---------
$10,536,130 $53,961,741 $10,000,000 $58,350,846 $16,147,025
========== ========== ========== =========== ==========
Year ended February 28, 1998:
Allowance for:
Uncollectible Accounts $2,090,652 $ 3,617,056 $ -- $ 276,183 $5,431,525
Reserve for returns 1,512,679 23,504,148 -- 24,447,222 569,605
Reserve for potential product
obsolescence 2,255,000 4,030,000 -- 1,750,000 4,535,000
--------- ------------ ---------- ----------- ----------
$5,858,331 $31,151,204 $ -- $26,473,405 $10,536,130
========= ========== ========== ========== ==========
Year ended February 28, 1997:
Allowance for:
Uncollectible Accounts $ 1,947,883 $ 737,577 $ -- $ 594,808 $2,090,652
Reserve for returns 535,119 977,560 -- -- 1,512,679
Reserve for potential product
obsolescence -- 2,255,000 -- -- 2,255,000
---------- --------- ----------- ----------- ---------
$2,483,002 $3,970,137 $ -- $ 594,808 $5,858,331
========= ========= ========== ========== =========
</TABLE>
Amounts charged to other accounts include amounts charged for price protection
and rebates.
AURA SYSTEMS, INC. AND SUBSIDIARIES
NINE MONTHS ENDED NOVEMBER 30, 1999
PART I. FINANCIAL INFORMATION
The financial statements included herein have been prepared by Aura Systems,
Inc. (the "Company"), without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission (the "SEC"). As contemplated by the SEC
under Rule 10-01 of Regulation S-X, the accompanying financial statements and
footnotes have been condensed and therefore do not contain all disclosures
required by generally accepted accounting principles. However, the Company
believes that the disclosures are adequate to make the information presented not
misleading. These financial statements should be read in conjunction with the
financial statements and notes thereto included elsewhere in this Prospectus for
the year ended February 28, 1999.
<PAGE>
AURA SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
November 30, February 28,
Assets 1999 1999
------------- ---------------
<S> <C> <C>
Current assets
Cash and equivalents $ 291,116 $ 3,822,210
Receivables-net 1,948,082 8,380,414
Inventories 11,769,052 18,477,058
Note Receivable 1,443,323 250,000
Prepayments -- 3,435,645
Other current assets 506,302 2,124,535
--------------- ---------------
Total current assets 15,957,875 36,489,862
Property and equipment, at cost 43,195,159 47,976,699
Less accumulated depreciation
and amortization (13,979,824) (10,994,734)
---------------- ---------------
Net property and equipment 29,215,335 36,981,965
Long-Term investments 2,223,835 2,923,835
Long-Term receivables 2,500,000 2,500,000
Patents and trademarks, net 4,791,628 5,293,278
Goodwill, net -- 5,383,208
Other assets 2,935,968 571,244
--------------- ----------------
Total $ 57,624,641 $ 90,143,392
=============== ================
Liabilities and Stockholder's Equity
Current liabilities:
Notes payable $ 3,506,701 $ 8,787,113
Convertible note-unsecured 2,000,000 2,000,000
Accounts payable 15,334,386 22,515,842
Accrued expenses 8,619,909 8,056,783
--------------- ----------------
Total current liabilities 29,460,996 41,359,738
Notes payable and other liabilities 20,580,142 25,955,529
--------------- ----------------
Convertible notes 36,481,782 36,481,782
--------------- ----------------
COMMITMENTS AND CONTINGENCIES
Stockholders' equity
Common stock par value $.005 per share paid in
capital. Issued and outstanding 107,822,043 and
107,752,043 shares respectively. 219,024,519 218,693,245
Cumulative currency translation adjustment (365,932) (365,932)
Accumulated deficit (247,556,866) (231,980,970)
----------------- -------------------
Total stockholders' equity (28,898,279) (13,653,657)
---------------- ------------------
Total $ 57,624,641 $ 90,143,392
=============== =================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
AURA SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED NOVEMBER 30, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
1999 1998
---- ----
<S> <C> <C>
Net Revenues $ 6,315,065 $ 105,487,348
Cost of goods and overhead 11,310,615 100,358,647
-------------- ---------------
Gross Profit (4,995,550) 5,128,701
Expenses
Selling, general and administrative 7,331,592 31,625,291
Research and development 373,215 1,105,371
-------------- --------------
Total costs and expenses 7,704,807 32,730,662
-------------- ----------
Income (loss) from operations (12,700,357) (27,601,961)
Other (income) and expense
Equity in losses of unconsolidated --
joint ventures 675,000
(Gain) loss on sale of subsidiary (877,512) --
Loss on disposition of assets 144,248 -- 1,549,297 --
Gain on sale and issuance of
subsidiary stock and other assets -- (1,432,627)
Other income (272,460) (1,214,530)
Legal settlements and costs -- 7,600,000
Interest expense-net 2,476,214 8,766,274
-------------- --------------
Income (loss) before income taxes and minority interests
(15,575,896) (41,996,078)
Provision (benefit) for taxes -- (647,200)
Minority interest in income (loss)
of consolidated subsidiary -- (4,551,673)
--------------- ----------------
Net income (loss) $(15,575,896) $ (36,797,205)
============ ==============
Net income (loss) per common share-basic
$ (.14) $ (.44)
=============== ===============
Weighted average shares used
to compute net income (loss) per share
107,810,152 83,011,249
================ ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
AURA SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED NOVEMBER 30, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
------------ -------------
<S> <C> <C>
Net cash (used) in operations $ (6,796,443) $ (13,970,789)
----------------- ------------
Cash flows from investing activities:
Proceeds from sale of subsidiary 1,000,000 --
Additions to property and equipment (324,194) (11,896,567)
Note receivable 2,696,000 --
Equity investments -- (5,000,000)
Proceeds from sale of subsidiary stock -- 1,611,873
-------------- --------------
Net cash provided by (used) in investing
activities 3,371,806 (15,284,694)
Cash flows from financing activities:
Net proceeds (repayment) from short-term
borrowing -- 5,360,734
Proceeds from issuance of convertible debt -- 12,000,000
Net proceeds (repayment) of debt (115,757) 1,450,000
Proceeds from exercise of stock options -- 103,000
Proceeds from exercise of warrants 9,300 7,574,358
---------------- ----------------
Net cash provided (used) by financing
activities: (106,457) 26,488,092
--------------- ---------------
Net increase (decrease) in cash and cash equivalents
(3,531,094) (2,767,391)
Cash and cash equivalents at beginning of year 3,822,210 6,079,411
--------------- ---------------
Cash and cash equivalents at end of period $ 291,116 $ 3,312,020
================ ===============
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 231,098 $ 3,746,051
Income Tax 0 942,000
============== ==============
</TABLE>
Supplemental disclosure of noncash investing and financing activities:
In the nine months ended November 30, 1999, the Company sold its MYS subsidiary
for $4.2 million in the form of a note receivable in the amount of $3.2 million
and a cash down payment of $1 million. The Company also sold the assets of its
AuraSound subsidiary for a note receivable of $2 million. In the nine months
ended November 30, 1998, $3,741,878 of convertible notes payable were converted
into common stock.
See accompanying notes to condensed consolidated financial statements.
<PAGE>
AURA SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Unaudited)
1) Management Opinion
The condensed consolidated financial statements include the accounts of
Aura Systems, Inc. ("the Company") and subsidiaries from the effective dates of
acquisition. All material inter-company balances and inter-company transactions
have been eliminated.
In the opinion of management, the accompanying condensed consolidated
financial statements reflect all adjustments (which include only normal
recurring adjustments) and reclassifications for comparability necessary to
present fairly the financial position and results of operations as of and for
the three and nine months ended November 30, 1998.
2) Capital
In the nine months ended November 30,1999, warrants to purchase 70,000
shares of common stock were exercised. In the nine months ended November 30,
1998, $3,741,878 of convertible notes were converted into common stock of the
Company.
3) Significant Customers
The Company sold sound related products and computer related products
to four significant customers during the nine months ended November 30, 1998.
Sales of speakers to a single major electronics retailer accounted for
approximately $7.6 million in the period ended November 30, 1998 as compared to
approximately $11.1 million in the prior year comparable period. Sales of
communication and multimedia products to three major mass merchandisers
accounted for approximately $49.9 million in the nine months ended November 30,
1998 as compared to approximately $39.6 million in the prior year period. None
of the above customers are related or affiliated with the Company or any
customers of the Company.
4) Contingencies
The Company is engaged in various legal actions. See the Company's Form
10-K, Item 3- Legal Proceedings, for the year ended February 28, 1999 as filed
with the SEC (file number 0-17249) for a description of the legal actions. To
the extent that judgment has been rendered, appropriate provision has been made
in the financial statements.
<PAGE>
20,933,334 Shares To Be Sold
by Current Shareholders
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 ............................................ $1,654.00
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 ...........................................................$20,654.00
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.
[ To be furnished by amendment. ]
Item 16. Exhibits and Financial Statement Schedules
(a)......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 AuraSound Asset Purchase
10.19.1 Asset Purchase Agreement dated December 1, 1999 among
AuraSound, Inc., Aura Systems, Inc., AlgoSound, Inc., and Algo
Technology, Inc.
10.19.2 Amendment dated December 22, 1999 to Asset Purchase
Agreement dated December 1, 1999.
10.19.3 Assignment and License Agreement as of July 15, 1999 between
Speaker Acquisition Sub, Algo Technology, Inc., Aura Systems,
Inc., AuraSound Inc.
10.20 MYS Stock Purchase
10.20.1 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 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 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 Stock Purchase Agreement dated March 26, 1999 between the
Company and Yoshikazu Masayoshi, Sadao Masayoshi, Sachie
Masayoshi and Kazuaki Masayoshi.
10.21 Agreement with RGC International Investors, LDC
10.21.1 First Amendment to Security Agreement dated October 22, 1999
between RGC International Investors, LDC and the Company.
10.21.2 Settlement Agreement and Complete Release of all Claims dated
October 22, 1999 between RGC International Investors, LDC, and
the Company
10.21.3 Stock Purchase Warrant issued to RGC International Investors,
LDC by the Company.
10.21.4 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 Settlement Agreement and Release of Claims dated as of
December 1, 1999 between JNC Opportunity Fund, Ltd., and the
Company.
10.23 Payment Agreement by and between Credit Managers Association
of California and Aura Systems, Inc.
21.1(10) Aura Systems, Inc. and Subsidiaries
*23.1 Consent of Pannell Kerr Forster, certified public accountants.
*23.2 Consent of Guzik & Associates.
24.1 Power of Attorney (included in signature page)
EX-27 Data Schedule
(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 Registrants 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.
<PAGE>
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.
(b) 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:(1) 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.
(2) 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 22nd day of May, 2000.
AURA SYSTEMS, INC.
By /s/ Zvi (Harry) Kurtzman
------------------------
Zvi (Harry) Kurtzman
Chief Executive Officer
KNOW BY ALL MEN THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Steven C. Veen or Zvi (Harry) Kurtzman or
either of them, his true and lawful attorney-in-fact and agent, with full power
of substitution, for him and his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and ratifying
and confirming all that said attorney-in-fact and agent or his substitute or
substitutes may lawfully do or cause to be done by virtue thereof.
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.
/s/ Zvi (Harry) Kurtzman CEO and Director May 22, 2000
- ------------------------------------
Zvi (Harry) Kurtzman (Chief Executive Officer)
/s/ Steven C. Veen Vice President, Chief May 22, 2000
- ------------------------------------
Steven C. Veen Financial Officer,
(Principal Financial Officer and
Principal Accounting Officer)
- ------------------------ Director May , 2000
Stephen A. Talesnick
- ------------------------ Director May , 2000
Norman Reitman
- ----------------------- Director May , 2000
Harvey Cohen
- ----------------------- Director May , 2000
Salvado Diaz-Verson, Jr.
- ----------------------- Director May , 2000
Sanford R. Edlein
- ----------------------- Director May , 2000
David F. Hadley
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