SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT
TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the
Quarter Ended November 30, 2003
Commission File Number 000-17249
AURA
SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
|
Delaware |
95-4106894 |
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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 January 14, 2004 |
|
Common Stock, par value $0.005 per share |
430,923,150 Shares |
|
Page
No.
|
||
| PART I. FINANCIAL INFORMATION | ||
| ITEM 1. Financial Statements |
1
|
|
| Statement Regarding Financial Information |
1 |
|
| Condensed Consolidated Balance Sheets as of November 30, 2003(Unaudited) and February 28, 2003 |
2 |
|
| Condensed Consolidated Statements of Cash Flows for the Nine Months Ended November 30, 2003 (Unaudited) and 2002 (Unaudited) |
4 |
|
| Notes to Condensed Consolidated Financial Statements (Unaudited) |
5 |
|
| ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations |
10 |
|
| ITEM 4. Controls and Procedures |
19 |
|
| PART II. OTHER INFORMATION | ||
| ITEM 1. Legal Proceedings |
19 |
|
| ITEM 2. Changes in Securities |
21 |
|
| ITEM 6. Exhibits and Reports on Form 8-K |
22 |
|
| SIGNATURES AND CERTIFICATIONS |
23 |
The consolidated 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 consolidated financial statements and footnotes have been condensed and therefore do not contain all disclosures required by accounting principles generally accepted in the United States of America. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These consolidated 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, 2003 as filed with the SEC (file number 000-17249) and any amendments thereto.
1
|
Assets |
November
30, 2003 |
February 28, 2003 |
|
Current assets: |
||
| Cash and cash equivalents |
$ 256,067 |
$ 163,693 |
| Receivables, net |
624,692 |
410,717 |
| Inventories, net |
1,882,738 |
1,414,500 |
|
Notes receivable |
223,230 |
210,272 |
|
Other current assets |
471,402 |
166,589 |
|
Total current assets |
3,458,129 |
2,365,771 |
|
Property and equipment, at cost |
13,839,236 |
13,839,351 |
|
Less accumulated depreciation and amortization |
( 6,853,967) |
(6,495,840) |
|
Net property and equipment |
6,985,269 |
7,343,511 |
|
Non-current inventories |
6,881,321 |
7,573,225 |
|
Long term investments |
585,000 |
1,000,000 |
|
Long term receivables |
1,837,041 |
2,006,121 |
|
Patents and trademarks, net |
626,670 |
2,753,603 |
|
Other assets |
600,634 |
725,635 |
|
Total assets |
$ 20,974,064 |
$ 23,767,866 |
| Liabilities and Stockholder's Equity | ||
|
Current liabilities: |
||
|
Accounts payable |
$ 2,745,413 |
$ 2,753,503 |
|
Notes payable |
9,211,768 |
9,542,786 |
|
Convertible notes |
4,597,342 |
3,762,317 |
|
Accrued expenses |
1,848,673 |
1,772,936 |
|
Deferred income |
160,500 |
160,500 |
|
Total current liabilities |
18,563,696 |
17,992,042 |
|
Notes payable and other liabilities |
34,808 |
40,275 |
|
Minority interest in consolidated subsidiary |
905,466 |
1,023,373 |
|
COMMITMENTS AND CONTINGENCIES |
||
|
Stockholders' equity Series A Convertible, Redeemable Preferred stock par value $0.005 per share and additional paid in capital. 1,500,000 shares authorized, 591,110 shares issued and outstanding at November 30, 2003; none at February 28, 2003. |
3,937,176 |
- |
|
Common stock par value $0.005 per share and additional paid in capital. 500,000,000 shares authorized, 430,923,150 issued and outstanding at November 30 and February 28, 2003. |
305,898,468 |
305,429,815 |
|
Committed common stock. 20,653,668 at November 30, 2003; 13,790,923 at February 28, 2003 |
3,102,958 |
3,102,958 |
|
Accumulated deficit |
(311,468,508) |
(303,820,597) |
|
Total stockholders' equity |
1,470,094 |
4,712,176 |
|
Total liabilities and stockholders' equity |
$ 20,974,064 |
$ 23,767,866 |
See accompanying notes to condensed consolidated financial statements.
2
AURA SYSTEMS, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED NOVEMBER 30, 2003 AND 2002
|
(Unaudited)
|
||||
|
Three
Months
|
Nine
Months
|
|||
|
2003
|
2002
|
2003
|
2002
|
|
|
Net Revenues |
$ 726,692 |
$ 423,066 |
$ 1,343,983 |
$ 879,783 |
|
Cost of goods |
302,463 |
199,154 |
658,195 |
425,259 |
|
Gross Profit |
424,229 |
223,912 |
685,788 |
454,524 |
|
Expenses |
||||
|
Engineering, research and development expenses |
636,628 |
914,890 |
1,595,565 |
3,086,865 |
|
Selling, general and administrative |
1,217,000 |
1,542,284 |
3,477,538 |
5,830,328 |
|
Impairment loss on long-lived assets |
- |
- |
1,956,338 |
2,300,000 |
|
Total costs and expenses |
1,853,628 |
2,457,174 |
7,029,441 |
11,217,193 |
|
Loss from operations |
(1,429,399) |
(2,233,262) |
(6,343,653) |
(10,762,669) |
|
Other (income) and expense |
||||
|
Impairment of investments |
- |
- |
- |
700,000 |
|
Interest expense, net |
381,626 |
163,279 |
1,393,813 |
631,263 |
|
Other (income) expense, net |
126,846 |
(61,992) |
93,946 |
(107,143) |
|
Minority interest in net loss of consolidated subsidiary |
(51,694) |
- |
(117,907) |
- |
|
Loss before extraordinary item |
(1,886,177) |
(2,334,549) |
(7,713,505) |
(11,986,789) |
|
Extraordinary item Gain on extinguishment of debt obligations, net of income taxes of $0 |
- |
- |
65,594 |
- |
|
Net loss |
$(1,886,177) |
$(2,334,549) |
$(7,647,911) |
$(11,986,789) |
|
Basic and diluted loss available to common shareholders per share |
||||
|
Before extraordinary item Extraordinary item |
$ (0.005) $ - |
$ (0.006) $ - |
$ (0.018) $ - |
$ (0.029) $ - |
|
Total basic and diluted loss per share |
$ (0.005) |
$ (0.006) |
$ (0.018) |
$ (0.029) |
|
Weighted average shares used to compute basic and diluted loss available to common shareholders per share |
430,923,150 |
421,086,112 |
430,923,150 |
410,794,584 |
See
accompanying notes to condensed consolidated financial statements.
3
(Unaudited)
|
2003 |
2002 |
||
|
Net cash used in operations |
$ (4,897,308) |
$ (8,567,844) |
|
|
Investing activities: |
|||
|
Proceeds from sale of investment |
415,000 |
85,000 |
|
|
Additions to property and equipment |
- |
(6,491) |
|
|
Note receivable |
156,122 |
249,746 |
|
|
Net cash provided by investing activities |
571,122 |
328,255 |
|
|
Financing activities: |
|||
|
Issuance of debt |
200,000 |
2,628,750 |
|
|
Repayment of debt |
(446,449) |
(1,126,182) |
|
|
Issuance of convertible notes |
4,405,509 |
- |
|
|
Net proceeds from sale of common stock |
- |
5,670,398 |
|
|
Net proceeds from sale of Series A preferred stock |
259,500 |
- |
|
|
Net cash provided by financing activities: |
4,418,560 |
7,172,966 |
|
|
Net increase (decrease) in cash |
92,374 |
(1,066,624) |
|
|
Cash and cash equivalents at beginning of period |
163,693 |
1,143,396 |
|
|
Cash and cash equivalents at end of period |
$ 256,067 |
$ 76,772 |
|
|
Supplemental disclosures of cash flow information |
|||
|
Cash paid during the period for: |
|||
|
Interest |
$317,541 |
$378,065 |
|
Unaudited supplemental disclosure of noncash investing and financing activities:
During the nine
months ended November 30, 2003, the Company:
- issued
$11,047 of convertible notes payable to satisfy a fee reimbursement obligation
to Koyah Leverage Partners, LLP
- exchanged
$3,605,973 of convertible notes payable, plus accrued interest, for 534,020
shares of Series A Convertible, Redeemable Preferred Stock.
During the nine
months ended November 30, 2002, the Company:
- issued
659,175 shares of the Company's common stock in satisfaction of $169,740 in
liabilities.
See accompanying notes to condensed consolidated financial statements.
4
AURA SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2003
(Unaudited)
The condensed consolidated financial statements include the accounts of Aura Systems, Inc. and subsidiaries (the "Company"). All 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 normal recurring adjustments) and reclassifications for comparability necessary to present fairly the financial position of Aura Systems, Inc. and subsidiaries at November 30, 2003 and the results of its operations for the three and nine months ended November 30, 2003 and 2002.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.
In connection with the audit of its consolidated financial statements for the year ended February 28, 2003, the Company received a report from its independent auditors that includes an explanatory paragraph describing uncertainty as to the Company's ability to continue as a going concern. Except as otherwise disclosed, the condensed consolidated financial statements have been prepared on the basis that it is a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. . The Company's consolidation and reduction of the scope of its operations has resulted in several writedowns of assets, which have occurred over time as the Company determines, based on its current information, that such asset is impaired. Further writedowns may occur and would occur were the Company to cease operations.
The Company continues to experience acute liquidity challenges. The Company had cash of approximately $260,000 and $160,000 at November 30 and February 28, 2003, respectively. For the nine months ended November 30, 2003 and the year ended February 28, 2003, the Company incurred a net loss of approximately $7,600,000 and $16,100,000, respectively, on net revenues of approximately $1,300,000 and $1,100,000, respectively. The Company had working capital deficiencies at November 30 and February 28, 2003 of approximately $15,100,000 and $15,600,000, respectively. These conditions, combined with the Company's historical operating losses, raise substantial doubt as to the Company's ability to continue as a going concern. At December 31, 2003, the Company had approximately $150,000 of cash.
5
The cash flow generated from the Company's operations to date has not been sufficient to fund its working capital needs, and the Company does not expect that operating cash flow will be sufficient to fund its working capital needs in the remainder of its current fiscal year, ending February 29, 2004, and its next fiscal year, ending February 28, 2005. In order to maintain liquidity, the Company has relied and continues to rely upon external sources of financing, principally equity financing and private and bank indebtedness. The Company has no bank line of credit.
The Company is seeking to raise additional capital; however, there can be no assurance that the Company will raise sufficient capital to fund ongoing operations. Currently, the Company has no firm commitments from third parties to provide additional financing and there can be no assurance that financing will be available at the times or in the amounts required. The issuance of additional shares of equity in connection with such financing could dilute the interests of existing stockholders of the Company and such dilution could be substantial. The Company must increase its authorized shares in order to be able to sell common equity and intends to propose to stockholders such action as well as a reverse stock split of its common shares; there can be no assurance that either such action will be approved. If financing cannot be arranged in the amounts and at the times required, the Company will cease operations.
The Company is currently in default on many of its payment obligations and needs to restructure its existing obligations. Management is seeking to raise financing for the Company and to restructure the Company's obligations but there can be no assurance that the Company will be successful.
In March 25, 2003, the Board of Directors of the Company authorized 1,500,000 shares of Series A convertible, redeemable preferred stock (the "Series A Preferred") with a par value of $0.005. Each Series A Preferred share is convertible into common stock at $0.08 per share. The Series A Preferred can be converted at the option of the holder provided that the Company does not exercise the mandatory conversion on any date on or after March 31, 2004. The Company may exercise its right to mandatory conversion provided that the current market value of the Company's common stock equal or exceeds 120% of the then prevailing conversion price. As the redemption of the Series A Preferred is at the option of the Company, all preferred outstanding has been classified as equity in the accompanying condensed consolidated financial statements.
The Series A Preferred has liquidation preference of $10 per share plus accrued but unpaid dividends. The holders of the Series A Preferred are entitled to cumulative dividends at a rate of 5% per annum, payable in arrears on the first day of each quarter, commencing on September 1, 2003. The Company may redeem the shares on or after March 31, 2004 in whole or in part at a redemption price equal to $10 per share, plus the amount of any accumulated and unpaid dividends.
In the nine months ended November 30, 2003, Series A Preferred outstanding increased by a total of 591,110 shares as follows: 534,020 shares were issued in exchange for convertible notes payable, plus accrued interest, totaling approximately $3,700,000 and 57,090 shares were issued for $259,500 cash proceeds. As of November 30, 2003 cumulative preferred dividends of approximately $198,000 have accrued but have not been declared or paid. These unpaid dividends represent an increase in the liquidation preference for the outstanding Series A Preferred.
The Company did not issue shares of Common Stock during the nine months ended November 30, 2003.
6
During the nine months ended November 30, 2003, the Company issued stock options to executive officers and members of the Board of Directors to purchase, in the aggregate, 16,650,000 shares of the Company's common stock at prices at or above the market price at the date of grant.
During the quarter ended August 31, 2003, the Board of Directors authorized the issuance of 8,000 shares of Series A Preferred in settlement of a $57,423 payable to a law firm in which a Board member is a partner. As of August 31, 2003, these shares have not been issued and this amount continues to be included in Accounts Payable.
Inventories, stated at the lower of cost (first in, first out) or market, consist of the following:
|
November 30, 2003 (unaudited) |
February 28, |
|
|
Raw materials |
$ 3,994,647 |
$ 3,846,439 |
|
Finished goods |
6,447,412 |
6,819,286 |
|
Reserved for potential product obsolescence |
(1,678,000) |
(1,678,000) |
|
8,764,059 |
8,987,725 |
|
|
Non-current portion |
6,881,321 |
7,573,225 |
|
$ 1,882,738 |
$ 1,414,500 |
Inventories consist primarily of components and completed units for the Company's AuraGen product.
The Company does not expect to realize all of its inventories within the 12-month period ending November 30, 2004. Because of this, the Company has assessed the net realizability of these assets, the proper classification of the inventory, and the potential obsolescence of inventory. The net inventories as of November 30 and February 28, 2003 which are not expected to be realized within a 12-month period have been reclassified as long term. The Company has also recorded a reserve for obsolescence of $1,678,000 at November 30 and February 28, 2003.
During the second quarter of fiscal 2004, the Company reevaluated its intentions with regard to its patents and trademarks related to products outside its core business and wrote off patents related to products not in development. This was recorded as an impairment loss on long-lived assets and classified as an operating expense.
7
Notes payable and other liabilities consist of the following:
|
November
30, 2003 |
February 28,2003 |
|
|
Notes payable-buildings (a) |
$ 4,979,058 |
$ 5,058,774 |
|
Convertible notes payable (b) |
- |
2,012,320 |
|
Convertible notes payable (c) |
625,000 |
1,750,000 |
|
Convertible notes payable (d) |
3,972,342 |
- |
|
Litigation payable (e) |
2,201,604 |
2,201,604 |
|
Trade debt (f) |
1,056,793 |
1,308,533 |
|
Note payable-related party (g) |
1,000,000 |
1,000,000 |
|
Notes payable-equipment (h) |
9,121 |
14,147 |
|
13,843,918 |
13,345,378 |
|
|
Less: current portion |
13,809,110 |
13,305,103 |
|
Long-term portion |
$ 34,808 |
$ 40,275 |
(a) Notes payable-buildings consist of a 1st Trust Deed on two buildings in California bearing interest at the rate of 7.625%. A final balloon payment is due in Fiscal 2009. In April 2003, the Company defaulted on these notes payable and the notes remain in default at November 30, 2003. As such, these notes payable were classified as current liabilities at November 30 and February 28, 2003.
(b) The notes payable bear interest at 5% per annum, mature at various dates, and are convertible into shares of the Company's Series A Preferred at a rate of $1.00 principal amount of notes for each $2.20 of Series A Preferred. On March 31, 2003, these notes were converted into shares of Series A Preferred (see Note 3).
(c) The notes carry an 8% interest rate and are convertible into common stock at various conversion rates. In March 2003, $1,125,000 of the notes were converted into Series A Preferred (see Note 3).
(d) Represents Secured Notes payable on March 31, 2004, bearing interest at 10% per annum and convertible at the option of the holder into new debt or equity securities at of the Company at a 20% discount to the best terms by which such new debt or equity is sold to any new investor. The Secured Notes may be prepaid on notice at a 20% premium. Repayment of the Secured Notes is secured by substantially all the assets of the Company (with limited exceptions).
(e) The litigation payable represents the legal settlements entered into by Aura with various parties. These settlements call for payment terms with 8% interest rate to the plaintiffs through fiscal 2004.
(f) Represents trade debt restructured with payment terms over a three-year period with interest at 8% per annum commencing in January 2000.
8
During the quarter ended May 31, 2003 and the year ended February 28, 2003, the Company settled $59,818 and $1,456,213, respectively, of this trade debt, including accrued interest, for $14,356 and $385,142, respectively. The gains on the extinguishment of debt of $65,594 and $1,050,995, which are reflected as extraordinary items in the nine months ended November 30, 2003 and the year ended February 28, 2003, respectively, resulted in extraordinary income per share of less than $0.01 in each period. To fund these transactions, the Company issued $307,862 of the convertibles notes payable described in (b) above in the year ended February 28, 2003.
(g) Note payable - related party consisted of a $1,000,000 note payable, which was entered into in connection with the sale of a minority interest in Aura Realty. The note bears interest at 12.3% per annum and is secured by a security interest in a certain note receivable. The Company is required to make interest only payments for the first 17 months of the term, and the $1,000,000 principal is due on May 31, 2004.
(h) Notes payable-equipment consists of a note maturing in February 2005 with an interest rate of 8.45%.
In the nine months ended November 30, 2003, the Company sold AuraGen related products to three significant customers for a total of approximately $858,000 or 64% of net revenues. None of these customers is related to or affiliated with the Company.
In June 2003, the Company received an order for over $1,000,000 of AuraGen(R) units, including mounting brackets and installation, from one of its significant customers. During the nine months ended November 30, 2003, approximately $275,000 of this order was delivered. The remainder of this order will be delivered at the customer's request through June 2006.
At November 30, 2003, the Company held accounts receivable from these significant customers for approximately $413,000 or 66% of net receivables.
The Company is engaged in certain material legal proceedings as described in Part II, Item 2 of this Form 10-Q. Provisions have been made in the financial statements for all judgments and settlements noted therein, and as otherwise stated in such discussion.
9
Aura Systems, Inc., a Delaware corporation, ("Aura" or the "Company") designs, assembles and sells the AuraGen(R), the Company's patented mobile power generator that uses the engine of a vehicle to generate power. It installs under-the-hood in many motor vehicles and delivers on-location, plug-in electricity for any end use including industrial, commercial, recreational and military applications. The Company began commercializing the AuraGen(R) in late 1999. To date, AuraGen(R) units have been sold to more than 500 customers in more than 10 industries, including recreational, utilities, telecommunications, emergency/rescue, public works, catering, oil and gas, transportation, government and the military.
The Company was founded in 1987 and, until 1992, primarily engaged in supplying defense technology to classified military programs. In 1992 the Company transitioned to being primarily a supplier of consumer and industrial products and services using its developed technology. In 1994, the Company founded NewCom, Inc., which sold and distributed computer communications and sound products such as CD-ROMs and sound cards. In 1997, the Company acquired MYS Corporation of Japan, a manufacturer of speaker systems. NewCom ceased operations in 1999 and the Company experienced severe financial hardship from this and other causes. In fiscal 2000, the Company sold MYS, the Company's business divisions providing sound products, and other assets, restructured substantial indebtedness and concentrated its focus on the AuraGen(R) product. Sales and support of the AuraGen(R) currently provide all the Company's operating revenues.
10
Early in its AuraGen(R) program, the Company determined it was most cost-effective to outsource production of components and subassemblies to volume-oriented manufacturers, rather than produce these parts in house. As a result of this decision, and based on then anticipated sales, the Company purchased, prior to fiscal 2001, a substantial inventory of components at volume prices, most of which was then assembled into finished AuraGen(R) units. Since sales did not meet such expectations, the Company has been selling product from this inventory for several years. It is important to note that these assembled units and components in inventory do not deteriorate with age and that even though there have been improvements and modifications to the AuraGen(R) product over this period, the units in inventory require only minor applications of parts and labor to bring them to current specifications. In fiscal 2002 and fiscal 2003, the Company has substantially reduced its internal staffing to be more appropriate to the slower-than-anticipated level of sales. The Company has also suspended substantially all research and development activities.
The Company's financial statements have been prepared on the assumption the Company continues as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. However, as a result of the Company's losses from operations and its default on certain of its obligations (see Note 6 in the Condensed Consolidated Financial Statements), there is substantial doubt about its ability to continue as a going concern. 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.
The Company's ability to continue as a going concern is dependent upon the successful achievement of profitable operations and the ability to generate sufficient cash from operations and financing sources to meet the Company's obligations. In order to attract additional financing, the Company expects that payment terms of its obligations will need to be restructured, including resolution of the current defaults on many of its payment obligations. The Company is currently seeking to restructure payment terms of its outstanding obligations in connections with its efforts to raise additional financing through a private placement. There can be no assurance that such efforts will be successful.
The Company's current level of sales reflects the Company's efforts to introduce a new product into the marketplace. Many purchases of the product are being made for evaluation purposes. The Company seeks to achieve profitable operations by obtaining market acceptance of the AuraGen as a competitive - if not superior - product providing mobile power, thereby causing sales to increase dramatically to levels which support a profitable operation. There can be no assurance that this success will be achieved.
As of January 14, 2004, the Company had outstanding warrants, options and convertible securities to purchase approximately 170 million shares of common stock. The Company also had commitments to issue approximately 20 million shares of common Stock without further consideration. The aggregate number of outstanding options, warrants, and common share equivalents is in excess of the authorized, but unissued number of shares of the Company's common stock. Management intends to seek shareholder approval of an increase in the Company's authorized shares sufficient to satisfy all existing commitments and create available shares for potential future investments. However, there can be no assurance that such approval will be obtained.
11
For the three and nine months period ended November 30, 2003
The Company's net loss for the nine months ended November 30, 2003 (the "Nine Months FY2004") was $7,647,911 compared to a net loss of $11,986,789 for the nine months ended November 30, 2002 (the "Nine Months FY2003"). Substantially all of the improvement is due to the Company's ongoing efforts to reduce its costs of operations, primarily through reductions in headcount and cost of labor. The net loss was also favorably impacted by a 53% increase in sales. Because the Company is selling from inventory, the Company's cost of goods is relatively constant and an increase in revenues results in a decrease in the Company's loss. Net operating revenues and gross profit were $1,343,983 and $685,788, respectively, in the Nine Months FY2004 and $879,783 and $454,524, respectively, in Nine Months FY2003.
The Company's net loss for the three months ended November 30, 2003 (the "Third Quarter FY2004") was $1,886,177 compared to a net loss of $2,334,549 for the three months ended November 30, 2002 (the "Third Quarter FY2003"). Net operating revenues and gross profit were $726,692 and $424,229, respectively, in the Third Quarter FY2004 and $423,066 and $223,912, respectively, in Third Quarter FY2003.
Net revenues for the Nine Months FY2004 of $1,343,983 represent an increase of $464,200 (53%) from $879,783 in the Nine Months FY2003. Net revenues for the Third Quarter FY2004 of $726,692 represent an increase of $303,626 (72%) from $423,066 in the Third Quarter FY2003. Revenues are higher in Fiscal 2004 due largely to Third Quarter FY2004 delivery of approximately $240,000 of product against a $1,000,000 order from an existing customer and strengthening sales in the military sector. The Company is seeking to increase sales by educating purchasers and potential purchasers on the advantages of the Company's product as compared to competing technology and sales have varied in response to the relative success of the Company's efforts.
Cost of goods increased to $658,195 for the Nine Months FY2004 from $425,259 in the Nine Months FY2003; a $232,936 (55%) increase. Cost of Goods increased to $302,463 in the Third Quarter FY2004 from $199,154 in the Third Quarter FY2003; a $103,309 (52%) increase. Cost of goods includes only the direct material and labor costs incurred in production and does not include any allocation of rent, depreciation, overhead or other administrative expenses. Gross margin for Nine Months FY2004 of 51% is comparable to the gross margin of 52% for Nine Months FY2003. Gross margin for Third Quarter FY2004 of 58% is improved from the 53% gross margin in Third Quarter FY2003 due to sales in Third Quarter FY2004 consisting of a greater percentage of military sales, which tend to have higher margins.
Engineering, research and development expenses decreased by $1,491,300 (48%) to $1,595,565 in the Nine Months FY2004 from $3,086,865 in the Nine Months FY2003 and decreased by $278,262 (30%) to $636,628 in the Third Quarter FY2004 from $914,890 in the Third Quarter FY2003. The decrease was primarily due to the cost control efforts taken throughout fiscal 2003 and into the Nine Months FY2004, most significantly, reductions in headcount. Labor and labor related costs included in engineering expense amounted to approximately $1,260,000 in the Nine Months Quarter FY2004, compared to approximately $2,140,000 in the Nine Months FY2003. The Company also reduced its research and development activities throughout fiscal 2003 and expects these efforts to continue at or below this reduced level at least through the remainder of fiscal 2004.
12
Selling, general and administrative ("SG&A") expenses decreased to $3,477,538 in the Nine Months FY2004 from $5,830,328 in the Nine Months FY2003; a reduction of $2,352,790 (40%) and decreased to $1,217,000 in the Third Quarter FY2004 from $1,542,284 in the Third Quarter FY2003; a reduction of $325,284 (21%). The SG&A expenses were lower due primarily to cost control efforts taken throughout fiscal 2003 and into the Nine Months FY2004, most significantly, reductions in headcount. Labor and labor related costs included in SG&A amounted to approximately $1,650,000 in the Nine Months FY2004, compared to approximately $3,310,000 in the Nine Months Quarter FY2003.
In the Second Quarter FY2004, the Company recorded a $1,956,338 long-lived asset impairment charge resulting from the write off of some of the Company's patents and trademarks. During the Second Quarter FY2004, the Company reevaluated its intentions with regard to its patents and trademarks related to products outside its core business and wrote off patents related to products not in active development. In the Second Quarter FY2003, the Company recorded a $2,300,000 long-lived asset impairment charge resulting from a decline in the realizable value of the Company's headquarters facilities.
In the Second Quarter FY2003, the Company recorded a $700,000 impairment of investments charge resulting from a decline in realizable value of certain non-core investments. There was no similar impairment charge recorded in FY2004.
Net interest expense for the Nine Months FY2004 of $1,393,813 was $762,550 (121%) greater than the $631,263 of net interest expense recorded in the Nine Months FY2003. This increase was due principally to the recording of $466,500 of expense, in the First Quarter FY2004, representing the beneficial conversion feature of the notes payable that were converted into Series A Preferred and penalty interest triggered by the defaults on the mortgage note payable on the Company's headquarters facility (see Financial Position, Liquidity and Capital Resources). Net interest expense for the Third Quarter FY2004 of $381,626 was $218,347 (134%) greater than the $163,279 of net interest expense recorded in the Third Quarter FY2003. This increase was due principally to the approximately $120,000 of penalty interest and late fees related to the defaults on the mortgage note payable on the Company's headquarters facility and interest accruing on the convertible notes payable issued in FY2004.
Other expense was $93,946 in the Nine Months FY2004 and $126,846 of other expense in Third Quarter FY2004 compared to other income of $107,143 and $61,992 in the Nine Months FY2003 and Third Quarter FY2003, respectively. The other expense in Third Quarter FY2004 was primarily to record the judgment entered in the Waltco Engineering lawsuit (see Legal Proceedings).
The Company's discussion and analysis of its financial conditions and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of financial statements requires management to make estimates and disclosures on the date of the financial statements. On an on-going basis, the Company evaluates its estimates, including, but not limited to, those related to revenue recognition. The Company uses authoritative pronouncements, historical experience and other assumptions as the basis for making judgments. Actual results could differ from those estimates. The Company believes that the following critical accounting policies affect its more significant judgments and estimates in the preparation of its consolidated financial statements.
13
Aura is required to make judgments based on historical experience and future expectations, as to the reliability of shipments made to its customers. These judgments are required to assess the propriety of the recognition of revenue based on Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition," and related guidance. Because sales are currently in limited volume and many sales are for evaluative purposes, the Company has not booked a general reserve for returns. The Company will consider an appropriate level of reserve for product returns when its sales increase to commercial levels.
Inventories consist primarily of components and completed units for the Company's AuraGen(R) product. Inventories are valued at the lower of cost (first-in, first-out) or market. Provision is made for estimated amounts of current inventories that will ultimately become obsolete due to changes in the product itself or vehicle engine types that go out of production. Due to continuing lower than projected sales, the Company is holding inventories in excess of what it expects to sell in the next fiscal year. The net inventories which are not expected to be realized within a 12-month period based on current sales forecasts have been reclassified as long term. Management believes that existing inventories can, and will, be sold in the future without significant costs to upgrade it to current models and that the valuation of the inventories, classified both as current and long-term assets, accurately reflects the realizable values of these assets. The AuraGen(R) product being sold currently is not technologically different from those in inventory. Existing finished goods inventories can be upgraded to the current model with only a small amount of materials and manpower. We make these assessments based on the following factors: i) existing orders, ii) age of the inventory, iii) historical experience and iv) the Company's expectations as to future sales. If expected sales volumes do not materialize, there would be a material impact on the Company's financial statements.
Long-lived assets, consisting primarily of property and equipment, and patents and trademarks, comprise a significant portion of the Company's total assets. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying values may not be recoverable. Recoverability of assets is measured by a comparison of the carrying value of an asset to the future net cash flows expected to be generated by those assets. Net cash flows are estimated based on expectations as to the realizability of the asset. Factors that could trigger a review include significant changes in the manner of an asset's use or the Company's overall strategy.
Specific asset categories are treated as follows:
Accounts Receivable: The Company records an allowance for doubtful accounts based on management's expectation of collectibility of current and past due accounts receivable.
Property, Plant and Equipment: The Company depreciates its property and equipment over various useful lives ranging from five to ten years. Adjustments are made as warranted when market conditions and values indicate that the current value of an asset is less than its net book value.
14
Long-Term Investments: As the Company does not hold a sufficient interest in its investments to exercise significant influence and the fair market value of the investments are not readily determinable, long-term investments have been accounted for under the cost method. Management reviews financial and other available information pertaining to such investments to determine if and when a decline, other than temporary, in the value of any investment has occurred and an adjustment is warranted.
Patents and trademarks: As the Company's business depends on using new technology to create new products, impairments in patents can be triggered by changed expectations regarding the foreseeable commercial production of products underlying such patents.
When the Company determines that an asset is impaired, it measures any such impairment by discounting an asset's realizable value to the present using a discount rate appropriate to the perceived risk in realizing such value. When the Company determines that an impaired asset has no foreseeable realizable value, it writes such asset down to zero.
The Company continues to experience acute liquidity challenges. The Company had cash of approximately $260,000 and $160,000 at November 30 and February 28, 2003, respectively. For the nine months ended November 30, 2003 and the year ended February 28, 2003, the Company incurred a net loss of approximately $7,600,000 and $16,100,000, respectively, on net revenues of approximately $1,300,000 and $1,100,000, respectively. The Company had working capital deficiencies at November 30 and February 28, 2003 of approximately $15,100,000 and $15,600,000, respectively. These conditions, combined with the Company's historical operating losses, raise substantial doubt as to the Company's ability to continue as a going concern. At December 31, 2003, the Company had approximately $150,000 of cash.
The cash flow generated from the Company's operations to date has not been sufficient to fund its working capital needs, and the Company does not expect that operating cash flow will be sufficient to fund its working capital needs in the remainder of its current fiscal year, ending February 29, 2004, and its next fiscal year, ending February 28, 2005. In order to maintain liquidity, the Company has relied and continues to rely upon external sources of financing, principally equity financing and private and bank indebtedness. The Company has no bank line of credit.
The Company is seeking to raise additional capital; however, there can be no assurance that the Company will raise sufficient capital to fund ongoing operations. Currently, the Company has no firm commitments from third parties to provide additional financing and there can be no assurance that financing will be available at the times or in the amounts required. The issuance of additional shares of equity in connection with such financing could dilute the interests of existing stockholders of the Company and such dilution could be substantial. The Company must increase its authorized shares in order to be able to sell common equity and intends to propose to stockholders such action as well as a reverse stock split of its common shares; there can be no assurance that either such action will be approved. If financing cannot be arranged in the amounts and at the times required, the Company will cease operations.
15
Due to the Company's acute liquidity challenges, it has defaulted in payments under many of its financial obligations (see Note 6 in the Condensed Consolidated Financial Statements). These defaults effectively render these obligations payable on demand and the entire principal balance of each obligation has been included in current liabilities in the accompanying Consolidated Financial Statements. Actions by the parties to these obligations to enforce their rights to collect the amounts due could require the Company to cease operations.
At November 30, 2003, the Company had accounts receivable, net of allowance for doubtful accounts, of $624,692; $410,717 at February 28, 2003. As of December 31, 2003, the Company had net accounts receivable of approximately $610,000.
From April 1 through June 11, 2003, the Company sold a portion of one of its long-term investments realizing net proceeds of approximately $415,000. The Company intends to sell the remainder of this investment and is actively seeking buyers but has no commitments from any buyers at this time. In May 2003, the Company borrowed $200,000, secured by a portion of the remainder of this investment. In August 2003, this secured borrowing, including accrued interest, was paid with proceeds of borrowing under the Secured Notes referred to below.
There was no spending for property and equipment in the Nine Months FY2004 and only $6,491 spent in the Nine Months FY2003. The Company has no material capital project that would require funding. The Company's current plant and equipment is sufficient to support its current level of sales.
Debt repayments of $446,449 were made in Nine Months FY2004 as compared to $1,126,182 in Nine Months FY2003.
During fiscal 2003, the Company agreed to sell its Aura Realty, Inc. subsidiary ("Aura Realty") to a group of individuals, including five members of the Company's former management including Zvi Kurtzman and Steve Veen, (the "Purchasers") and to lease back the Company's headquarters facility, which is owned by Aura Realty. The purchase price of $7,350,000 was to be paid by assumption or refinancing of the current mortgage on the property (which had a principal balance of approximately $5.1 million). Net of this mortgage, $0.6 million of security deposits and prepayments paid to the Purchasers to secure the Company's performance, $0.1 million of past due amounts owed to certain of the Purchasers and $0.1 million of fees to Purchasers, the Company received approximately $1.5 million, of which $0.9 million was advanced to the Company by the Purchasers prior to closing and $0.6 million was transferred to the Company at the initial closing on December 1, 2002. Also on December 1, 2002, the Company transferred 49.9% of the common stock of Aura Realty to the Purchasers, issued to Purchasers a $1.0 million term note and granted Purchasers a security interest in a note receivable to secure the Company's performance under the agreement. The Purchasers also received warrants to purchase 15,000,000 shares of common stock, exercisable through November 30, 2007, at exercise prices ranging from $0.15 to $0.25 per share. The value of the warrant was calculated at $0.7 million using the Black-Scholes method of valuation. The Purchasers also purchased 21,366,347 shares of the Company's common stock for $1.5 million. The Company is required to issue approximately 6,900,000 additional shares and has issued 5,500,000 additional warrants to Purchasers due to its failure to register the shares for resale.
16
The holder of the mortgage did not consent to the transfer of the Company's remaining 51.1% interest in Aura Realty and the Company failed to make certain payments to the Purchasers as required under the agreement. During June 2003, the Company entered into a forbearance agreement with the Purchasers, whereby the Company agreed to issue the additional warrants required under the agreements for failure to register the previously issued shares for resale to the public, assign the receivable (a note issued by Alpha Ceramic) to the Purchasers, promptly engage an exclusive listing agent for the sale of the property and pay certain amounts in default on the mortgage. The Company is currently in negotiations with the Purchasers and the holder of the mortgage relative to these matters. The Company originally recorded and reported the Aura Realty transaction as a sale of 100% of its Aura Realty subsidiary. The events subsequent to year end raise significant doubt that the remainder of the transaction contemplated by the agreement will ever be completed. As a result, the transaction has been recorded at February 28, 2003 as a sale of a minority interest in Aura Realty.
On or about September 25, 2003, the Company was notified that the mortgagor holding a deed of trust on the Company's headquarters facility had begun foreclosure proceedings for nonpayment of the mortgage. The notice states that the mortgagor may sell the property if the Company does not pay all past due payments plus permitted costs, which the notice states totaled $479,828.31 as of September 8, 2003. See Part II, Item 1, Legal Proceedings. Through the Nine Months FY2004 and to the date of this report, the Company has taken steps toward curing these defaults and continues to negotiate with the mortgage note holder and the Purchasers. Actions by the parties to these obligations to enforce their rights to collect the amounts due could require the Company to cease operations.
In March 2003, the Company issued approximately $400,000 of "5% Discounted Notes". All of these notes (together with other 5% Discounted Notes previously issued) were converted into Series A Preferred on March 31, 2003 as discussed below.
On March 25, 2003, the Company designated 1,500,000 shares of its authorized preferred stock as Series A Convertible Redeemable Preferred Stock (the "Series A Preferred"). Each share of Series A Preferred has a par value of $.005, a liquidation preference of $10.00 plus accrued unpaid dividends and is convertible into common stock at $.080 per share, based on the liquidation preference. Dividends accrue on each share at the rate of 5% of the liquidation preference per annum. The Company may call the Series A Preferred for redemption on or after March 31, 2004 subject to certain conditions. As of November 30, 2003, 591,110 shares of Series A Preferred were outstanding, issued as set forth below.
On March 31, 2003, the Company exchanged $1,125,000 of 8% Notes and converted $1,101,573 of 5% Notes and $1,342,900 of 5% Discounted Notes, plus accrued interest in all cases, into 534,020 shares of Series A Preferred. The average effective net acquisition price of the shares of Common Stock underlying the conversion feature, based on the mounts paid for the notes, is $0.054 per share.
17
Between May 29 and July 11, 2003, the Company received $600,000 of interim funding from Koyah Leverage Partners, LLP to meet its immediate cash needs and issued term notes bearing interest at 5% per annum, convertible into shares of Series A Preferred (the "Term Notes"). From July 24, 2003 through November 30, 2003, the Company has received an additional $3,372,242 of interim funding. These amounts are evidenced by secured notes payable (the "Secured Notes") on March 31, 2004. The Secured Notes bear interest at 10% per annum and are convertible at the option of the holder into new debt or equity securities at of the Company at a 20% discount to the best terms by which such new debt or equity is sold to any new investor. The Secured Notes may be prepaid on notice at a 20% premium. Repayment of the Secured Notes is secured by substantially all the assets of the Company (with limited exceptions). The $600,000 of Term Notes were replaced with Secured Notes as part of this transaction.
From December 1, 2003 through January 14, 2004, the Company has received an additional $680,000 of interim funding evidenced by additional Secured Notes. In connection with this financing, the Company agreed to issue warrants to purchase an aggregate of 3,200,000 shares of common stock at a price per share of $0.11, exercisable through January 7, 2011, as an inducement to the lender to continue providing funding and in resolution of a prior commitment of the Company. Although the Company is in discussions with the investor with regard to further financing, there can be no assurance that additional financing will be obtained.
- the Company issued 57,090 shares of Series A Preferred in a private placement for net cash proceeds of $259,500. The effective net acquisition price of the shares of Common Stock underlying the conversion feature, based on the amounts paid for the preferred stock is $0.036 per share.
- the Company issued a $200,000 note in exchange for a loan. The note and $10,000 fixed fee interest became due on June 7, 2003. As part of this borrowing, the Company issued warrants to purchase 3,000,000 shares of common stock at $0.050 per share. The Company paid this note in full in August 2003.
18
(a) The Company's chief executive officer and its chief financial officer, after evaluating the effectiveness of the Company's disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c) and 15-d-14(c)) as of a date within 90 days of the filing date of this quarterly report (the "Evaluation Date") have concluded that as of the Evaluation Date, the Company's disclosure controls and procedures were adequate and effective to ensure that material information relating to the Company and its consolidated subsidiaries would be made known to them timely by others within those entities.
(b) There were no significant changes in the Company's internal controls or in other factors that could significantly affect the Company's disclosure controls and procedures subsequent to the Evaluation Date, nor were there any significant deficiencies or material weaknesses in such disclosure controls and procedures requiring corrective actions. As a result, no corrective actions were taken.
Due to the Company's acute liquidity challenges, it has defaulted in payments under many of its financial obligations (see Part I, Item 2. - Liquidity and Capital Resources and Note 6 in the Condensed Consolidated Financial Statements). These defaults effectively render these obligations payable on demand and the entire principal balance of each obligation has been included in current liabilities in the accompanying Condensed Consolidated Financial Statements. The Company is engaged in numerous legal actions by creditors seeking payment of sums owed. Actions by the parties to these obligations to enforce their rights to collect the amounts due could require the Company to cease operations.
On or about September 25, 2003, the Company was notified that the mortgagor holding a deed of trust on the Company's headquarters facility had begun foreclosure proceedings for nonpayment of the mortgage. The notice states that the mortgagor may sell the property if the Company does not pay all past due payments plus permitted costs, which the notice states totaled $479,828.31 as of September 8, 2003. Penalty interest and late charges accrue at the rate of approximately $42,000 per month. Due to the defaults on the mortgage, the entire mortgage has been classified as a current payable on the Company's financial statements. The loss of the Company's headquarters facility, without relocation of the Company, would cause the Company to cease operations.
The Company has been addressing this situation through making monthly payments equal to the required monthly payment under the mortgage plus and additional amount to reduce the arrearages for the past several months. The Company has engaged in discussions with the mortgagor and indicated its intention to intention to cure the unpaid amounts.
19
The defaults under the mortgage also result in defaults in the Agreement for Sale and Leaseback under which the Company was selling its Aura Realty subsidiary, which owns the buildings subject to this mortgage (see discussion above under Item 2 - Financial Position, Liquidity and Capital Resources).
The Company has also undertaken efforts to sell these buildings and move its headquarters and processing facilities to a new location. If not otherwise done sooner, the Company expects that the defaults under the mortgage and the Agreement for Sale and Leaseback would be cured from the proceeds of such sale.
In June 2002, the Securities and Exchange Commission ("SEC") brought a civil action against the Company, NewCom (a former subsidiary of Aura), and certain former members of the Company's management team, including Zvi (Harry) Kurtzman (the Company's former Chief Executive Officer) and Steven Veen (the Company's former Chief Financial Officer) for violations of the antifraud and books and records provisions of the securities laws. The complaint relates to the financial statements for various transactions during fiscal years 1996 through 1999. The Company originally disclosed the investigation by press release in January 1999. The SEC brought a related action against Gerald Papazian (the Company's former President). Without admitting or denying the allegations in the complaint, the Company as well as the former officers filed consents agreeing to settle the case. The Company consented to a permanent injunction against violations of specified sections of the securities laws, with no penalty imposed based on the Company's financial condition. Mr. Kurtzman consented to a permanent injunction against violations of specified sections of the securities laws, a $75,000 civil penalty and a permanent bar from serving as an officer or director of a publicly-traded company. Mr. Veen consented to a permanent injunction against violations of specified sections of the securities laws, a $50,000 civil penalty and a five-year suspension from appearing or practicing before the SEC. Mr. Papazian consented to a permanent injunction against violations of specified sections of the securities laws and a $25,000 civil penalty.
In September 2002, a federal grand jury indicted three officers of NewCom, including Mr. Veen, on various conspiracy and fraud charges related to NewCom's financial statements.
Barovich/Chiau et. al. v. Aura Systems, Inc. et. al. (Case No. CV -95-3295).
As previously reported in its Fiscal 2000 report on Form 10K, the Company settled shareholder litigation in the referenced matter in January 1999. On November 20, 1999, the parties entered into an Amended Stipulation of Settlement, providing that the Company make payment of $2,260,000 (plus interest) in thirty-six equal monthly installments of $70,350. On October 22, 2002, after the Company had failed to make certain monthly payments, Plaintiffs applied for and obtained a judgment against the Company for $935,350, representing the balance due with respect to the original principal amount of $2,260,000. The Company has subsequently made only two monthly payments of $70,350 each, reducing the amount owed to $794,650 (plus interest). Subsequent to year end, the Plaintiffs took further legal actions to enforce the October 2002 judgment, culminating in a lien on one of the Company's smaller bank accounts. The Company has made appropriate provisions in its financial statements to fully reflect this liability.
20
Waltco Engineering Co. v. Aura Systems, Inc. et. al. (YC045396).
On December 11, 2002, Plaintiff, Waltco Engineering Co. ("Waltco"), filed a suit in California Superior Court for Breach of Written Agreement against the Company and related common counts. Waltco asserted that the Company breached the terms of a payment plan. Waltco claimed damages of $283,296.41 and has received a summary judgment for that amount plus costs. The Company is continuing settlement discussions with Waltco but to date no settlement has been reached. The Company has made appropriate provisions in its financial statements to fully reflect its estimated liability in this case.
Arthur Schwartz v. Aura Systems, Inc.
A group of former officers of the Company, who resigned on February 28, 2002 following the commencement of an SEC investigation into the Company's accounting practices (as described above) filed a lawsuit against the Company, on July 24, 2003, seeking payment of amounts owed under a consulting arrangement. The Company had renegotiated the amounts payable under the consulting arrangement, but defaulted on such amounts. The suit filed by these former officers seeks full payment based on their original employment agreements. The accruals reflected on the Company's financial statements were based on the revised agreements in place at the time of their resignations and, should these former officers be awarded the full amount sought in this suit, the Company would be required to record additional expense of approximately $1,100,000.
The Company intends to contest this action vigorously and may bring counterclaims against the individuals.
For a discussion of recent sales of securities, see Management's Discussion and Analysis.
All of the noted sales of unregistered securities were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933 as these offerings were a private placement to a limited number of accredited investors.
21
a) Exhibits:
99.1 - Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
99.2 - Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
b) Reports on Form 8-K:
None.
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: January 14, 2004 By: /s/David A. Rescino
David A. Rescino
22
CERTIFICATION
I, Neal F. Meehan, Chairman and Chief Executive Officer of Aura Systems, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Aura Systems, Inc. and,
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function):
a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
/s/ Neal F. Meehan
23
CERTIFICATION
I, David A. Rescino, Interim Chief Financial Officer of Aura Systems, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Aura Systems, Inc. and,
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function):
a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
/s/ David A. Rescino
24
EXHIBIT 99.1
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Aura Systems, Inc. (the "Company") on Form 10-Q for the period ending November 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Neal F. Meehan, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge:
1.The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods indicated.
/s/ Neal F. Meehan
EXHIBIT 99.2
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Aura Systems, Inc. (the "Company") on Form 10-Q for the period ending November 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, David A. Rescino, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods indicated.
/s/ David A. Rescino