SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended November 30, 1999 Commission File Number 0-17249
AURA SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 95-4106894
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
2335 Alaska Ave.
El Segundo, California 90245
(Address of principal executive offices)
Registrant's telephone number, including area code: (310) 643-5300
Former name, former address and former fiscal year, if changed since last
report: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: YES X NO
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at February 4, 2000
Common Stock, par value 177,249,203 Shares
$.005 per share
<PAGE>
AURA SYSTEMS, INC. AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Statement Regarding Financial Information 2
Condensed Consolidated Balance Sheets as of 3
November 30, 1999 and February 28, 1999
Condensed Consolidated Statement of Operations for the Three Months and Nine 4
Months Ended November 30, 1999 and 1998
Condensed Consolidated Statements of Cash Flows for the 5
Nine Months Ended November 30, 1999 and 1998
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 13
ITEM 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
<PAGE>
AURA SYSTEMS, INC. AND SUBSIDIARIES
QUARTER 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 in the Company's Form 10-K for
the year ended February 28, 1999 as filed with the SEC (file number 0-17249).
<PAGE>
AURA SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
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
THREE AND NINE MONTHS ENDED NOVEMBER 30, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Revenues $ 1,089,984 $ 33,931,756 $ 6,315,065 $ 105,487,348
Cost of goods and overhead 3,042,232 44,808,406 11,310,615 100,358,647
--------- ---------- --------------- ---------------
Gross Profit (1,952,248) (10,876,650) (4,995,550) 5,128,701
Expenses
Selling, general and administrative 1,310,316 15,291,137 7,331,592 31,625,291
Research and development 128,594 283,638 373,215 1,105,371
------------- -------------- -------------- --------------
Total costs and expenses 1,438,910 15,574,775 7,704,807 32,730,662
-------------- -------------- -------------- ----------
Income (loss) from operations (3,391,158) (26,451,425) (12,700,357) (27,601,961)
Other (income) and expense
Equity in losses of unconsolidated --
joint ventures -- 175,000 675,000
(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 (249,801) (906,428) (272,460) (1,214,530)
Legal settlements and costs -- 1,300,000 -- 7,600,000
Interest expense-net 904,042 3,021,611 2,476,214 8,766,274
-------------- -------------- -------------- --------------
Income (loss) before income taxes and minority interests
(4,189,647) (30,041,608) (15,575,896) (41,996,078)
Provision (benefit) for taxes -- (1,589,200) -- (647,200)
Minority interest in income (loss)
of consolidated subsidiary -- (5,317,533) -- (4,551,673)
------------- ----------- --------------- ----------------
Net income (loss) $ (4,189,647) $(23,134,875) $(15,575,896) $ (36,797,205)
=============== ============ ============ ==============
Net income (loss) per common share-basic
$ (.04) $ (.27) $ (.14) $ (.44)
=============== ================ =============== ===============
Weighted average shares used
to compute net income (loss) per share
107,822,043 86,413,616 107,810,152 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>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
This Report may contain forward-looking statements, which involve risks
and uncertainties. The Company's actual results may differ materially from the
results discussed in such statements. Certain factors could also cause actual
results to differ materially from those discussed in such forward-looking
statements, including factors discussed in the Company's Form 10-K for the
period ended February 28, 1999, and factors discussed in this Report.
Net revenue for the three and nine month periods ended November 30,
1999 decreased by $33,822,758 and $99,172,283 to $1,089,984 and $6,315,065 from
the corresponding periods in the prior year. The decrease in revenue is
primarily attributable to the cessation of operations by the Company's
previously majority owned subsidiary, NewCom, 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 current year financial statements.
Cost of goods and overhead for the three and nine months ended November
30, 1999 decreased by $41,766,174 and $89,048,032 in comparison with the
corresponding periods 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 three and nine month
periods by $13,980,821 and $24,293,699 respectively 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 majority owned subsidiary,
NewCom.
Included in cost of goods and overhead and general and administrative
costs for the three and nine months ended November 30, 1999, is depreciation and
amortization of $1,800,281 and $5,472,297, respectively.
Research and development costs for the three and nine months ended
November 30, 1999 decreased by $155,044 and $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 $2,117,569 to $904,042 and $6,290,060
to $2,476,214 in the three and nine months 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.
Liquidity and Capital Resources
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 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 the past the Company's cash flow generated from operations has not
been sufficient to completely fund its working capital needs. Accordingly, the
Company has also relied upon external sources of financing to maintain its
liquidity. In order to finance its existing operations it will be necessary for
the Company to obtain additional working capital from external sources. The
Company is presently seeking additional sources of financing, including debt and
equity financing. No assurances can be provided that these funding sources will
be available at the times and in the amounts required. The inability of the
Company to obtain sufficient working capital at the times and in the amounts
required would have a material adverse effect on the Company's business and
operations.
For additional information regarding the Company's financial condition, see the
Company's Form 10-K, Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations for the year ended February 28, 1999 as
filed with the SEC (file number 0-17249).
Forward Looking Statements
The Company wishes to caution readers that important factors, in some
cases, have affected, and in the future could affect, the Company's actual
results and could cause the Company's actual consolidated results for the fourth
quarter of Fiscal 2000, and beyond, to differ materially from those expressed in
any forward-looking statements made by, or on behalf of the Company.
Such factors include, but are not limited to, the following risks and
contingencies: Changed business conditions in the consumer electronic and
automotive industries and the overall economy; increased marketing and
manufacturing competition and accompanying prices pressures; contingencies in
initiating production at new factories along with their potential
underutilization, resulting in production inefficiencies and higher costs and
start-up expenses and; inefficiencies, delays and increased depreciation costs
in connection with the start of production in new plants and expansions.
Relating to the above are potential difficulties or delays in the
development, production, testing and marketing of products, including, but not
limited to, a failure to ship new products and technologies when anticipated.
There might exist a difficulty in obtaining raw materials, supplies, power and
natural resources and any other items needed for the production of Company and
another products, creating capacity constraints limiting the amounts of orders
for certain products and thereby causing effects on the Company's ability to
ship its products. Manufacturing economies may fail to develop when planned,
products may be defective and/or customers may fail to accept them in the
consumer marketplace.
In addition to the above, risks and contingencies may exist as to the
amount and rate of growth in the Company's selling, general and administrative
expenses, and the impact of unusual items resulting from the Company's ongoing
evaluation of its business strategies, asset valuations and organizational
structures. Furthermore, any financing or other financial incentives by the
Company under or related to major infrastructure contracts could result in
increased bad debt or other expenses or fluctuation of profit margins from
period to period. The focus by some of the Company's businesses on any large
system order could entail fluctuating results from quarter to quarter.
The effects of, and changes in, trade, monetary and fiscal policies,
laws and regulations, other activities of governments, agencies and similar
organizations, and social and economic conditions, such as trade restrictions
impose yet other constraints on any company statements. The cost and other
effects of legal and administrative cases and proceedings present another factor
which may or may not have an impact.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 Legal Proceedings
For information regarding pending legal proceedings, see Note 4 to
the Company's Condensed Consolidated Financial Statements
appearing elsewhere herein.
ITEM 6 Exhibits and Reports on Form 8-K
a) Exhibits:
See Exhibit Index
b) Reports On Form 8-K:
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AURA SYSTEMS, INC.
(Registrant)
Date: February 10, 2000 By: /s/Steven C. Veen
------------------------------ ----------------------------------
Steven C. Veen
Senior Vice President
Chief Financial Officer
(Principal Financial and Accounting Officer)
<PAGE>
INDEX TO EXHIBITS
Exhibit Sequential
Number Page No.
EX-27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-29-2000
<PERIOD-START> MAR-01-1999
<PERIOD-END> NOV-30-1999
<CASH> 291,116
<SECURITIES> 0
<RECEIVABLES> 1,948,082
<ALLOWANCES> 0
<INVENTORY> 11,769,052
<CURRENT-ASSETS> 15,957,875
<PP&E> 43,195,159
<DEPRECIATION> (13,979,824)
<TOTAL-ASSETS> 57,624,641
<CURRENT-LIABILITIES> 29,460,996
<BONDS> 0
<COMMON> 219,024,519
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 57,624,641
<SALES> 6,315,065
<TOTAL-REVENUES> 6,315,065
<CGS> 11,310,615
<TOTAL-COSTS> 19,015,922
<OTHER-EXPENSES> 399,325
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,476,214
<INCOME-PRETAX> (15,575,896)
<INCOME-TAX> 0
<INCOME-CONTINUING> (15,575,896)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,575,896)
<EPS-BASIC> (.14)
<EPS-DILUTED> (.14)
</TABLE>
