Attached files
| file | filename |
|---|---|
| EX-31.1 - AURA SYSTEMS INC | exhibit31-1.htm |
| EX-32.1 - AURA SYSTEMS INC | exhibit32-1.htm |
| EX-31.2 - AURA SYSTEMS INC | exhibit31-2.htm |
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-Q
[X ] QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the
quarterly period ended.................................................November
30, 2009
OR
[ ] TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
transition period
from..........................to.............................
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)
|
1310
E. Grand 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: 2330 Utah Avenue, El Segundo, CA
90245
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
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files). YES [ X
] NO [ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated file, a non-accelerated filer, or a smaller reporting company (as
defined in Rule 12b-2 of the Act).
|
Large
Accelerated Filer ¨
|
Accelerated
Filer ¨
|
|
|
Non-accelerated
filer ¨
|
Smaller
Reporting Company
x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes¨ No x
APPLICABLE
ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate
by check mark whether the registrant has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court. Yesx 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
January 7, 2010
|
|
|
Common
Stock, par value $0.0001 per share
|
50,715,001
shares
|
AURA
SYSTEMS, INC. AND SUBSIDIARIES
INDEX
|
Index
|
Page
No.
|
|||
|
PART
I.
|
FINANCIAL
INFORMATION
|
|||
|
ITEM
1.
|
Financial
Statements (Unaudited)
|
|||
|
Statement
Regarding Financial Information
|
4
|
|||
|
Unaudited
Condensed Consolidated Balance Sheets as of November 30, 2009 and February
28, 2009
|
5
|
|||
|
Unaudited
Condensed Consolidated Statements of Operations for the Three and Nine
Months Ended November 30, 2009 and 2008
|
6
|
|||
|
Unaudited
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
November 30, 2009 and 2008
|
7
|
|||
|
Notes
to Unaudited Condensed Consolidated Financial Statements
|
8
|
|||
|
ITEM
2.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
15
|
||
|
ITEM
4T.
|
Controls
and Procedures
|
19
|
||
|
PART
II.
|
OTHER
INFORMATION
|
|||
|
ITEM
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
20
|
||
|
ITEM
6.
|
Exhibits
|
20
|
||
|
SIGNATURES
AND CERTIFICATIONS
|
21
|
|||
AURA
SYSTEMS, INC. AND SUBSIDIARIES
NINE
MONTHS ENDED NOVEMBER 30, 2009
PART
I. FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS
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, 2009 as filed with the SEC
(file number 000-17249).
AURA
SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(Unaudited)
|
As
at November 30, 2009
|
As
at February 28, 2009
|
|||||||
|
ASSETS
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$
|
21,224
|
$
|
317,256
|
||||
|
Accounts
receivable, net of allowance for doubtful accounts of
$60,000
|
608,542
|
319,249
|
||||||
|
Current
inventories
|
1,500,000
|
1,500,000
|
||||||
|
Other
current assets
|
363,373
|
255,620
|
||||||
|
Total
current assets
|
2,493,139
|
2,392,125
|
||||||
|
Property,
plant, and equipment, net
|
579,143
|
353,444
|
||||||
|
Non-current
inventories net of allowance for obsolete inventories of $2,544,547 and
$2,425,994
|
2,330,376
|
2,545,978
|
||||||
|
Total
assets
|
$
|
5,402,658
|
$
|
5,291,547
|
||||
|
Current
liabilities:
|
||||||||
|
Accounts
payable
|
$
|
1,350,707
|
$
|
1,075,202
|
||||
|
Current
portion of notes payable, net of debt discount
|
897,500
|
225,000
|
||||||
|
Notes
payable- related party
|
4,400,000
|
1,800,000
|
||||||
|
Customer
advances
|
335,033
|
418,612
|
||||||
|
Accrued
expenses
|
2,018,908
|
1,037,917
|
||||||
|
Total
current liabilities
|
9,002,148
|
4,556,731
|
||||||
|
Convertible
notes payable, net of current portion
|
500,000
|
500,000
|
||||||
|
Total
liabilities
|
9,502,148
|
5,056,731
|
||||||
|
Commitments
and contingencies
|
||||||||
|
Stockholders'
equity (deficit):
|
||||||||
|
Common
stock, $0.0001par value, 75,000,000 and 50,000,000 shares authorized,
49,380,431 and 46,344,470 issued and outstanding at November 30, 2009 and
February 28, 2009
|
4,938
|
4,634
|
||||||
|
Additional
paid-in capital
|
373,416,442
|
364,222,963
|
||||||
|
Subscription receivable
|
(27,416
|
)
|
(27,416
|
)
|
||||
|
Accumulated
deficit
|
(377,493,454
|
)
|
(363,965,365
|
)
|
||||
|
Total
stockholders' equity (deficit)
|
(4,099,490
|
)
|
234,816
|
|||||
|
Total
liabilities and stockholders' equity
|
$
|
5,402,658
|
$
|
5,291,547
|
||||
See
accompanying notes to these un-audited condensed consolidated financial
statements.
AURA
SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE
AND NINE MONTHS ENDED NOVEMBER 30, 2009 AND 2008
(Unaudited)
|
Three
Months
|
Nine
Months
|
||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
|
Net
Revenues
|
$
|
1,160,577
|
$
|
1,065,172
|
$
|
2,425,383
|
$
|
1,891,157
|
|||||||
|
Cost
of goods sold
|
563,148
|
492,837
|
1,384,184
|
1,276,508
|
|||||||||||
|
Gross
Profit
|
597,429
|
572,335
|
1,041,199
|
614,649
|
|||||||||||
|
Operating
Expenses
|
|||||||||||||||
|
Engineering,
research and development expenses
|
562,082
|
556,779
|
1,626,357
|
1,494,894
|
|||||||||||
|
Selling,
general and administrative expenses
|
1,828,847
|
2,040,489
|
5,560,397
|
5,819,237
|
|||||||||||
|
Stock
option compensation expense
|
162,900
|
73,749
|
6,807,418
|
280,913
|
|||||||||||
|
Total
operating expenses
|
2,553,829
|
2,671,017
|
13,994,172
|
5,785,942
|
|||||||||||
|
Loss
from operations
|
(1,956,400,)
|
(2,098,682)
|
(12,952,973)
|
(5,326,402)
|
|||||||||||
|
Other
income and (expense)
|
|||||||||||||||
|
Interest
expense, net
|
(217,032)
|
(422,306)
|
(553,265)
|
(548,328)
|
|||||||||||
|
Other
income (expense), net
|
-
|
229
|
(21,850)
|
144,003
|
|||||||||||
|
Total
other income (expense)
|
(217,032)
|
(422,078)
|
(575,115)
|
(404,325)
|
|||||||||||
|
Net
Loss
|
$
|
(2,173,432)
|
$
|
(2,520,759)
|
$
|
(13,528,088)
|
$
|
(7,384,720)
|
|||||||
|
Total
basic and diluted loss per share
|
$
|
(0.05)
|
$
|
(0.06)
|
$
|
(0.29)
|
$
|
(0.18)
|
|||||||
|
Weighted
average shares used to
compute
basic and diluted income (loss) per share
|
48,171,882
|
43,011,743
|
47,412,895
|
40,628,425
|
|||||||||||
Basic and
diluted weighted average number of shares outstanding are equivalent because the
effect of dilutive securities is anti-dilutive
See
accompanying notes to these un-audited condensed consolidated financial
statements.
AURA
SYSTEMS, INC. AND SUBSIDIARI,S
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR
THE NINE MONTHS ENDED NOVEMBER 30, 2009 AND 2008
(Unaudited)
|
2009
|
2008
|
||||||||||||
|
Cash
flow from operating activities:
|
|||||||||||||
|
Net
Loss
|
$
|
(13,528,088
|
)
|
$
|
(7,384,720
|
)
|
|||||||
|
Adjustments
to reconcile Net loss to net cash used in operating
activities
|
|||||||||||||
|
Depreciation
Expense
|
92,452
|
36,319
|
|||||||||||
|
Issuance
of stock as per employment agreement
|
-
|
100,000
|
|||||||||||
|
Amortization
of debt discount
|
220,289
|
-
|
|||||||||||
|
Beneficial
conversion feature expense
|
-
|
368,900
|
|||||||||||
|
Loss
on settlement of debt
|
22,750
|
-
|
|||||||||||
|
Stock
options and warrants expense
|
6,807,417
|
280,913
|
|||||||||||
|
(Increase)
decrease in:
Accounts
receivable
|
(289,293
|
)
|
304,312
|
||||||||||
|
Inventory
|
343,820
|
269,665
|
|||||||||||
|
Other
current assets and deposit
|
(107,753
|
)
|
9,571
|
||||||||||
|
Increase
(decrease) in:
|
|||||||||||||
|
Accounts
payable, customer deposits and accrued expenses
|
1,291,101
|
741,997
|
|||||||||||
|
Net
cash used in operations
|
(5,147,305)
|
(5,273,043
|
)
|
||||||||||
|
Investing
activities:
|
|||||||||||||
|
Acquisition
of plant and equipment
|
(318,151
|
)
|
(119,211
|
)
|
|||||||||
|
Net
cash used in investing activities
|
(318,151
|
)
|
(119,211
|
)
|
|||||||||
|
Financing
activities:
|
|||||||||||||
|
Issuance
of common stock
|
1,667,496
|
1,877,077
|
|||||||||||
|
Proceeds
from notes payable, net
|
3,407,500
|
1,063,863
|
|||||||||||
|
Collections
on (increase in) subscriptions receivable
|
-
|
245,750
|
|||||||||||
|
Exercise
of warrants
|
94,428
|
2,205,277
|
|||||||||||
|
Net
cash provided by financing activities:
|
5,169,424
|
5,391,966
|
|||||||||||
|
Net
decrease in cash & cash equivalents
|
(296,032
|
)
|
(287)
|
||||||||||
|
Cash
and cash equivalents at beginning of period
|
317,256
|
37,532
|
|||||||||||
|
Cash
and cash equivalents at end of period
|
$
|
21,224
|
$
|
37,245
|
|||||||||
|
Supplemental
disclosures of cash flow information
|
|||||||||||||
|
Cash
paid during the period for:
|
|||||||||||||
|
Interest
|
$
|
26,088
|
$
|
120,601
|
|||||||||
|
Income
taxes
|
$
|
-
|
$
|
-
|
|||||||||
Un-audited
supplemental disclosure of non-cash investing and financing
activities:
During
the nine months ended November 30, 2009, $273,227 of notes payable and accrued
interest were converted into 333,231 shares of common stock, $108,175 of
accounts payables were converted into 153,005 shares of common stock and
$128,218 of inventory was acquired through the issuance of notes
payable.
See
accompanying notes to these un-audited condensed consolidated financial
statements.
AURA
SYSTEMS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
November
30, 2009
(Unaudited)
1) Basis
of Presentation
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, 2009
and the results of its operations for the three and nine months ended November
30, 2009 and 2008.
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.
2) Summary
of Significant Accounting Policies
Principles
of Consolidation
The
consolidated financial statements include the accounts of Aura and subsidiary,
Aura Realty, Inc. Investments in affiliated companies are accounted for by the
equity or cost method, as appropriate. Significant inter-company amounts and
transactions have been eliminated in consolidation.
Comprehensive
Income
We
utilize Statement of Financial Accounting Standards ("SFAS") No. 130 (ASC 220) ,
"Reporting Comprehensive Income." This statement establishes standards for
reporting comprehensive income and its components in a financial statement.
Comprehensive income as defined includes all changes in equity (net assets)
during a period from non-owner sources. Examples of items to be included in
comprehensive income, which are excluded from net income, include foreign
currency translation adjustments and unrealized gains and losses on
available-for-sale securities. Comprehensive income is not presented in our
financial statements since we did not have any of the items of comprehensive
income in any period presented.
Revenue
Recognition
The
Company’s revenue recognition policies are in compliance with Staff accounting
bulletin (SAB) 104(ASC 605). Sales revenue is recognized at the date of shipment
to customers when a formal arrangement exists, the price is fixed or
determinable, the delivery is completed, no other significant obligations of the
Company exist and collect-ability is reasonably assured. Payments received
before all of the relevant criteria for revenue recognition are satisfied are
recorded as unearned revenue.
We
recognize revenue for product sales upon shipment and when title is transferred
to the customer. When Aura performs the installation of the product, revenue and
cost of sales are recognized when the installation is complete. We have in the
past earned a portion of our revenues from license fees and recorded those fees
as income when we fulfilled our obligations under the particular
agreement.
Terms of
our sales generally provide for Shipment from our facilities to customers FOB
point of shipment. Title passes to customers at the time the products leave our
warehouse.
The
Company does not offer a general right of return on any of its sales and
considers all sales as final. However, if a customer determines that a different
system configuration would better suit their application, we will allow them to
exchange the system and bill them the incremental cost, or credit them if there
is a decrease in the system cost. While some sales are for evaluative purposes,
they are still considered final sales. The customer’s evaluation is for them to
determine if there is a benefit to them to outfit additional vehicles in their
fleets.
The only
potential post delivery obligation the Company might have is for the
installation of the unit. However, the unit is typically delivered at the time
of installation, and the billing is done when the installation is complete. Any
discounts that are offered are done as a reduction of the invoiced amount at the
time of billing. The Company does not utilize bill and hold. The Company does
provide customers with a warranty; however, due to the low sales volume to date,
the amount has not been material and is expensed as incurred.
Cash
and Cash Equivalents
Cash and
cash equivalents include cash in hand and cash in time deposits, certificates of
deposit and all highly liquid debt instruments with original maturities of three
months or less.
Accounts
Receivable
Accounts
receivable consist primarily of amounts due from customers. We have provided for
an allowance for doubtful accounts, which management believes to be sufficient
to account for all un-collectible amounts. Allowance for doubtful debts on
un-collectible amounts as of November 30, 2009 and February 28, 2009, amounted
to $60,000.
Inventories
Inventories
are valued at the lower of cost (first-in, first-out) or market. Due to
continuing lower than projected sales, we are holding inventories in excess of
what we expect to sell in the next fiscal year.
Property,
Plant, and Equipment
Property,
plant, and equipment, including leasehold improvements, are recorded at cost,
less accumulated depreciation and amortization. Depreciation is provided using
the straight-line method over the estimated useful lives of the respective
assets as follows:
|
Buildings
|
40
years
|
|
Machinery
and equipment
|
5
to 10 years
|
|
Furniture
and fixtures
|
7
years
|
Improvements
to leased property are amortized over the lesser of the life of the lease or the
life of the improvements. Amortization expense on assets acquired under capital
leases is included with depreciation and amortization expense on owned
assets.
Maintenance
and minor replacements are charged to expense as incurred. Gains and losses on
disposals are included in the results of operations.
Income Taxes
We
utilize SFAS No. 109(ASC 740), "Accounting for Income Taxes," which requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each period end based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized.
Estimates
The
preparation of financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Going Concern
The
accompanying financial statements have been prepared on a going concern basis
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. As shown in the financial statements, during
the nine month periods ended November 30, 2009 and 2008, the Company incurred
losses of $13,528,088 and $7,384,720, respectively and had negative cash flows
from operating activities of $5,147,305 and $5,273,043, respectively, during the
nine month periods ended November 30, 2009 and 2008.
If the
Company is unable to generate profits or continue to obtain financing for its
working capital requirements, it may have to curtail its business sharply or
cease business altogether.
The
financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern. The Company's continuation
as a going concern is dependent upon its ability to generate sufficient cash
flow to meet its obligations on a timely basis, to retain its current financing,
to obtain additional financing, and ultimately to attain
profitability.
Recently
Issued Accounting Pronouncements
In March
2008, the FASB issued FASB Statement No. 161 (ASC 815), Disclosures
about Derivative Instruments and Hedging Activities. The new standard is
intended to improve financial reporting about derivative instruments and hedging
activities by requiring enhanced disclosures to enable investors to better
understand their effects on an entity’s financial position, financial
performance, and cash flows. It is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008, with early
application encouraged. The new standard also improves transparency about the
location and amounts of derivative instruments in an entity’s financial
statements; how derivative instruments and related hedged items are accounted
for under Statement 133; and how derivative instruments and related hedged items
affect its financial position, financial performance, and cash flows. Management
is currently evaluating the effect of this pronouncement on financial
statements.
In May of
2008, FASB issued SFASB No.162 (ASC 105), “The Hierarchy of Generally Accepted
Accounting Principles”. The pronouncement mandates the GAAP hierarchy reside in
the accounting literature as opposed to the audit literature. This has the
practical impact of elevating FASB Statements of Financial Accounting Concepts
in the GAAP hierarchy. This pronouncement will become effective 60 days
following SEC approval. Management is currently evaluating the effect of this
pronouncement on financial statements.
In
December 2007, the FASB issued SFAS No. 141(R) (ASC 805), “Business
Combinations”. This Statement replaces SFAS No. 141, Business Combinations. This
Statement retains the fundamental requirements in Statement 141 that the
acquisition method of accounting (which Statement 141 called the purchase
method) be used for all business combinations and for an acquirer to be
identified for each business combination. This Statement also establishes
principles and requirements for how the acquirer: a) recognizes and measures in
its financial statements the identifiable assets acquired, the liabilities
assumed, and any non-controlling interest in the acquiree; b) recognizes and
measures the goodwill acquired in the business combination or a gain from a
bargain purchase and c) determines what information to disclose to enable users
of the financial statements to evaluate the nature and financial effects of the
business combination. SFAS No. 141(R) (ASC 805), will
apply prospectively to business combinations for which the acquisition date is
on or after Company’s fiscal year beginning March 1, 2010. While the Company has
not yet evaluated this statement for the impact, if any, that SFAS No. 141(R)
(ASC 805), will have on its consolidated financial
statements, the Company will be required to expense costs related to any
acquisitions after February 28, 2010.
In May
2009, the FASB issued SFAS No. 165(ASC 855), "Subsequent Events" . SFAS 165(ASC
855) sets forth the period after the balance sheet date during which management
of a reporting entity should evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements, the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements, and the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. SFAS 165 (ASC 855) will be effective for
interim or annual period ending after June 15, 2009 and will be applied
prospectively. The Company will adopt the requirements of this pronouncement for
the quarter ended November 30, 2009. The Company does not anticipate the
adoption of SFAS 165 (ASC 855) will have an impact on its consolidated results
of operations or consolidated financial position.
In
June 2009, the FASB issued SFAS 168(ASC 105), The FASB Accounting Standard
Codification and the Heirarchy of Generally Accepted Accounting Principles—a
Replacement of FASB Statement No. 162 (the Codification) as a single
source of authoritative nongovernmental U.S. Generally Accepted Accounting
Principles (GAAP) to be launched July 1, 2009. The Codification does
not change current U.S. GAAP, but is intended to simplify user access to all
authoritative U.S. GAAP by providing all the authoritative literature related to
a particular topic in one place. The Codification is effective for interim and
annual periods ending after September 15, 2009. The Codification is
effective for the Company in the interim period ending September 30, 2009,
and at that time all references made to U.S. GAAP will use the new Codification
numbering system prescribed by the FASB. However, as the Codification is not
intended to change existing GAAP, it is not expected to have any impact on the
Company’s financial position or cash flows.
Reclassifications
Certain
reclassifications have been made to the 2008 financial statements to conform to
the 2009 presentation.
3) Inventories
Inventories,
stated at the lower of cost (first in, first out) or market, consist of the
following:
|
November
30, 2009
|
February
28, 2009
|
|||||||
|
Raw
materials
|
$
|
2,835,998
|
$
|
2,642,833
|
||||
|
Finished
goods
|
3,538,925
|
3,829,139
|
||||||
|
Reserved
for potential product obsolescence
|
(2,390,088
|
)
|
(2,271,535
|
)
|
||||
|
3,984,835
|
4,200,437
|
|||||||
|
Non-current
portion
|
(2,330,376
|
)
|
(2,545,978
|
)
|
||||
|
Discount
on long term inventory
|
(154,459
|
)
|
(154,459
|
)
|
||||
|
Current
portion
|
$
|
1,500,000
|
$
|
1,500,000
|
||||
Inventories
consist primarily of components and completed units for the Company's AuraGen
product.
We do not
expect to realize all of our inventories within the 12-month period ending
November 30, 2010. Because of this, we have assessed the net realize-ability 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, 2009, which are not expected to be realized within a 12-month
period, have been reclassified as long term. We have also recorded a reserve for
obsolescence of $2,390,088 and $2,271,535 at November 30 and February 28,
2009.
4) Property,
Plant & Equipment
Property,
plant, and equipment at November 30, 2009 and February 28, 2009 consisted of the
following:
|
November
30, 2009
|
February
28, 2009
|
|||||||
|
Machinery
and equipment
|
$
|
1,060,519
|
$
|
1,054,422
|
||||
|
Furniture
and fixtures
|
1,468,603
|
1,438,312
|
||||||
|
Leasehold
Improvements
|
481,887
|
200,124
|
||||||
|
3,011,009
|
2,692,858
|
|||||||
|
Less
accumulated depreciation and amortization
|
2,431,866
|
2,339,414
|
||||||
|
Property,
plant and equipment, net
|
$
|
579,143
|
$
|
353,444
|
||||
Depreciation
and amortization expense was $92,452 and $36,319 for the nine month periods
ended November 30, 2009, and 2008.
5) Accrued
expenses
Accrued
expenses at November 30, 2009 and February 28, 2009 consisted of the
following:
|
November
30, 2009
|
February
28, 2009
|
|||||||
|
Accrued
payroll and related expenses
|
$
|
1,609,726
|
$
|
904,849
|
||||
|
Other
|
409,182
|
133,068
|
||||||
|
Total
|
$
|
2,018,908
|
$
|
1,037,917
|
||||
6) Notes
Payable and Other Liabilities
Notes
payable and other liabilities consist of the following:
|
November
30, 2009
|
February
28, 2009
|
|||||||
|
Demand
notes payable (a)
|
$
|
140,000
|
$
|
225,000
|
||||
|
Convertible
notes payable (b)
|
1,257,500
|
500,000
|
||||||
|
1,397,500
|
725,000
|
|||||||
|
Less:
Current portion
|
897,500
|
225,000
|
||||||
|
Long-term
portion
|
$
|
500,000
|
$
|
500,000
|
||||
|
|
(a)
|
Consists
of one demand note payable, with interest at an annual rate of 10%, on
which $5,857 in interest was accrued during the nine months ended November
30, 2009, and one demand note with an original balance of $140,000 and a
remaining balance of $90,000 with a flat interest fee of $10,000, which
has already been paid. During the nine month period ended November 30,
2009, the Company settled $35,000 of the notes in 58,333 shares of the
common stock of the Company. The Company recorded a loss on settlement
of debt of $22,750 on the partial
settlement.
|
|
|
(b)
|
Consists
of a convertible note payable totaling $500,000, bearing interest at a
rate of 7%, due in 2013. The note is convertible into our common stock at
a price of $3.00 per share. The Company paid interest of $26,088 on the
note during the nine months ended November 30, 2009. In April 2009, the
Company arranged a debt financing aggregating $192,500 from unrelated
parties in exchange for the issuance of 120 day 10% secured convertible
promissory notes and 30,800 warrants at an exercise price of $1.25 for the
first year. The performance of the notes is secured by all the inventory
of the Company specifically pertaining to the WePower purchase order
including all the proceeds arising from the sale or lease of all or any
part thereof. The notes are convertible into our common stock at a price
of $0.75 per share. The Company accrued interest of $11,732 on the notes
during the nine months ended November 30, 2009. Also consists of six
convertible notes entered into during the second quarter of fiscal 2010
totaling $565,000. The notes carry an interest rate of 10%, are for a term
of 180 days, and are convertible into common stock of the company at $0.75
per share. The company accrued interest of $26,211 on the notes during the
nine months ended November 30,
2009.
|
The
Company allocated the investment proceeds to the debt and warrants based on
their relative fair values. The relative fair value of the warrants using the
Black Scholes method assuming a volatility of the stock of 107%, term of five
years and a discount of 2.625% was determined to be $ 18,661 which was recorded
as debt discount, a reduction of the carrying amount of the debt. The beneficial
conversion feature on the notes was $57,161 which was also recorded as debt
discount. The debt discount will be amortized over the term of the note and
charged to interest expense. During the nine month period ended November 30,
2009 $75,822 was expensed.
Future
maturities of notes payable at November 30, 2009 are as follows:
|
Year
Ending February 28,
|
||||
|
2010
|
$
|
897,500
|
||
|
2011
|
-
|
|||
|
2012
|
-
|
|||
|
2013
|
500,000
|
|||
|
Total
|
$
|
1,397,500
|
||
7) Notes
Payable- Related Party
Consists
of notes payable to a member of our Board of Directors, payable on demand,
bearing interest at a rate of 10% per annum. During the nine month period ended
November 30, 2009, the Company received additional financing of $2,600,000 from
the related party, also at an interest rate of 10%, and $238,080 accrued and
unpaid interest for the period was included in accrued expenses.
8) Capital
During
the nine months ended November 30, 2009, we issued 2,288,630 shares of Common
Stock for cash consideration of $1,667,496. We also issued 94,428 shares of
common Stock upon the exercise of 94,428 warrants, for cash consideration of
$94,428, and issued 333,231 shares of Common Stock for the conversion of
$273,227 of notes payable and accrued interest. We also issued 153,005
shares of common stock for the conversion of $108,175 of accounts payable. We
also issued 166,667 shares of common stock for consultancy fees of
$125,000.
During the nine months ended November
30, 2008, we issued 1,915,000 shares of Common Stock for cash
consideration of $1,877,077. We also issued 400,000 shares of Common Stock for
the acquisition of $400,000 worth of inventory and supplies in connection with
the acquisition of the assets of Emerald Commercial Leasing, and 100,000 shares
of Common Stock pursuant to an employment agreement we entered into with our
Vice President. 2,205,277 shares of Common Stock were issued upon the exercise
of warrants for total consideration of $2,205,277, 430,329 shares of Common
Stock were issued for the exercise of warrants in lieu of payments on our
secured notes payable, and 1,603,912 shares of Common Stock upon the conversion
of $1,603,912 of secured notes payable and associated accrued interest. We also
issued 41,855 shares of Common Stock in settlement of accounts
payable.
Employee
Stock Options
In
September, 2006, our Board of Directors adopted the 2006 Employee Stock Option
Plan. Activity in this plan is as follows:
|
2006
Plan
|
|||||||
|
Weighted-Average
Exercise Price
|
Aggregate
Intrinsic Value
|
Number
of Options
|
|||||
|
Outstanding,
February 28, 2009
|
$2.00-3.00
|
$0.00
|
1,913,000
|
||||
|
Issued
|
$1.50
|
$0.00
|
6,915,500
|
||||
|
Cancelled
|
$2.00-3.00
|
(1,913,000)
|
|||||
|
Outstanding,
November 30, 2009
|
$1.50
|
$0.00
|
6,915,500
|
||||
The
exercise prices for the options outstanding at November 30, 2009, and
information relating to these options is as follows:
|
Options
Outstanding
|
Exercisable
Options
|
||||||||||||||||||
|
Range
of Exercise
Price
|
Number
|
Weighted
Average Remaining Life
|
Weighted
Average Exercise Price
|
Weighted
Average Remaining Life
|
Number
|
Weighted
Average Exercise Price
|
|||||||||||||
|
$1.50
|
6,915,500
|
4.50
years
|
$
|
1.50
|
4.50
years
|
6,110,615
|
$
|
1.50
|
|||||||||||
During
the second quarter of fiscal 2010, the Board of Directors determined that, in
order to provide incentives to its employees, it was in the best interest of the
Company to cancel and replace the outstanding employee options that had been
granted. With the employees consent, the company cancelled all
outstanding employee options that previously had exercise prices ranging from
$2.00 to $3.00, and issued new options with a grant date of June 18, 2009 and an
exercise price of $1.50. Employees were given credit towards the three year
vesting period extending from the date of their original hire.
Warrants
Activity
in issued and outstanding warrants is as follows:
|
Number
of Shares
|
Exercise
Prices
|
|
|
Outstanding,
February 28, 2009
|
3,452,511
|
$2.00-4.00
|
|
Issued
|
3,185,996
|
$1.25-1.50
|
|
Exercised
|
(94,428)
|
$1.00
|
|
Outstanding,
November 30, 2009
|
6,544,079
|
$1.25-4.00
|
The
exercise prices for the warrants outstanding at November 30, 2009, and
information relating to these warrants is as follows:
|
Range
of Exercise Prices
|
Stock
Warrants Outstanding
|
Stock
Warrants Exercisable
|
Weighted-Average
Remaining Contractual Life
|
Weighted-Average
Exercise Price of Warrants Outstanding
|
Weighted-Average
Exercise Price of Warrants Exercisable
|
Intrinsic
Value
|
||||||
|
$1.25
|
1,285,996
|
1,285,996
|
56
months
|
$1.25
|
$1.25
|
$0.00
|
||||||
|
$1.50
|
1,900,000
|
1,900,000
|
55
months
|
$1.50
|
$1.50
|
$0.00
|
||||||
|
$2.00-$3.00
|
1,934,991
|
1,782,908
|
15
months
|
$2.44
|
$2.49
|
$0.00
|
||||||
|
$3.50
|
805,589
|
805,589
|
25months
|
$3.50
|
$3.50
|
$0.00
|
||||||
|
$4.00
|
617,503
|
617,503
|
14
months
|
$4.00
|
$4.00
|
$0.00
|
||||||
|
6,544,079
|
6,391,996
|
9) Segment
Information
We are a
United States based company providing advanced technology products to various
industries. The principal markets for our products are North America, Europe,
and Asia. All of our operating long-lived assets are located in the
United States. We operate in one segment.
Total net
revenues from customer geographical segments are as follows for the nine month
periods ended November 30, 2009 and 2008:
|
2009
|
2008
|
|||||||
|
United
States
|
$
|
1,737,148
|
$
|
1,201,522
|
||||
|
Canada
|
231,849
|
253,930
|
||||||
|
Asia
|
439,495
|
429,566
|
||||||
|
Europe
|
16,891
|
6,139
|
||||||
|
Total
|
$
|
2,425,383
|
$
|
1,891,157
|
||||
10) Significant
Customers
In the
six months ended November 30, 2009, we sold AuraGen related products to three
significant customers whose sales comprised 25%, 17% and 12% of net sales,
respectively. These customers are not related to or affiliated with
us.
At
November 30, 2009, we held accounts receivable from these customers for totaling
16%, 0% and 13%, respectively, of net accounts receivable.
|
11)
|
Subsequent
Events
|
Subsequent
to the end of the quarter, we issued 400,000 shares of common stock upon the
conversion of $300,000 of notes payable, 308,077 shares of common stock for the
satisfaction of $282,000 of outstanding accounts payable, and 626,493 shares of
common stock for cash proceeds of $469,870.
ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Forward
Looking Statements
This
Report contains forward-looking statements within the meaning of the federal
securities laws. Statements other than statements of historical fact
included in this Report, including the statements under the heading
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations,” regarding future events or prospects are forward-looking
statements. The words “approximates,” “believes,” “expects,” “anticipates,”
“estimates,” “intends,” “plans” “would “should,” “may,” or other
similar expressions in this Report, as well as other statements regarding
matters that are not historical fact, constitute forward-looking statements. We
caution investors that any forward-looking statements presented in this Report
are based on the beliefs of, assumptions made by, and information currently
available to, us. Such statements are based on assumptions and the actual
outcome will be affected by known and unknown risks, trends, uncertainties and
factors that are beyond our control or ability to predict. Although we believe
that our assumptions are reasonable, they are not guarantees of future
performance and some will inevitably prove to be incorrect. As a result, our
actual future results may differ from our expectations, and those differences
may be material. Accordingly, investors should use caution in relying on
forward-looking statements to anticipate future results or trends.
Some of
the risks and uncertainties that may cause our actual results, performance or
achievements to differ materially from those expressed or implied by
forward-looking statements include the following.
|
·
|
Our
ability to generate positive cash flow from
operations;
|
|
·
|
Our
ability to obtain additional financing to fund our
operations;
|
|
·
|
Our
business development and operating development;
and
|
|
·
|
Our
expectations of growth in demand for our
products.
|
For
further information regarding these and other risks and uncertainties, we refer
you to Part I, Item 1A of our Form 10-K for the fiscal year ended February 28,
2009.
We do not
intend to update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise except to the extent required by
law. You should interpret all subsequent written or oral forward-looking
statements attributable to us or persons acting on our behalf as being expressly
qualified by the cautionary statements in this Report. As a result, you should
not place undue reliance on these forward-looking statements.
Overview
We
design, assemble and sell the AuraGen®, our patented mobile power
generator that uses the engine of a vehicle to generate power. The AuraGen® delivers on-location, plug-in
electricity for any end use, including industrial, commercial, recreational and
military applications. We began commercializing the AuraGen® in late 1999. To date,
AuraGen® units have been
sold in numerous industries, including recreational, utilities,
telecommunications, emergency/rescue, public works, catering, oil and gas,
transportation, government and the military.
We
have not yet achieved a level of AuraGen® sales sufficient to generate
positive cash flow. Accordingly, we have depended on repeated infusions of cash
in order to maintain liquidity as we have sought to develop sales.
Our
financial statements included in this report have been prepared on the
assumption that we will continue 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 our losses from operations, there is
substantial doubt about our 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 our possible
inability to continue as a going concern.
Our
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 obtain financing resources to meet our
obligations. There is no assurance that such efforts will be
successful.
Our
current level of sales reflects our efforts to introduce a new product into the
marketplace. Many purchases of the product are being made for evaluation
purposes. We seek 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.
Critical
Accounting Policies and Estimates
Our
discussion and analysis of our financial condition and results of operations are
based upon our 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, we evaluate our estimates, including, but not limited to,
those related to revenue recognition. We use authoritative pronouncements,
historical experience and other assumptions as the basis for making
judgments. Actual results could differ from those estimates. We
believe that the following critical accounting policies affect our more
significant judgments and estimates in the preparation of our consolidated
financial statements.
Revenue
Recognition
We are
required to make judgments based on historical experience and future
expectations, as to the reliability of shipments made to our customers. These
judgments are required to assess the propriety of the recognition of revenue
based on Staff Accounting Bulletin ("SAB") No. 104, "Revenue Recognition," and
related guidance. Because sales are currently in limited volume and many sales
are for evaluative purposes, we have not booked a general reserve for
returns. We will consider an appropriate level of reserve for product
returns when our sales increase to commercial levels.
Inventory Valuation and
Classification
Inventories
consist primarily of components and completed units for our AuraGen® 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, we are holding
inventories in excess of what we expect 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® 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) our expectations as to future sales. If expected sales
volumes do not materialize, there would be a material impact on our financial
statements.
Valuation of Long-Lived
Assets
Long-lived
assets, consisting primarily of property and equipment, and patents and
trademarks, comprise a portion of our 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 realize-ability of the asset.
Factors that could trigger a review include significant changes in the manner of
an asset’s use or our overall strategy.
Specific
asset categories are treated as follows:
Accounts
Receivable: We record an allowance for doubtful accounts based on our
expectation of collect-ability of current and past due accounts
receivable.
Property,
Plant and Equipment: We depreciate our 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.
When we
determine that an asset is impaired, we measure 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 we determine
that an impaired asset has no foreseeable realizable value, we write such asset
down to zero.
Results
of Operations
Three
months ended November 30, 2009 compared to three months ended November 30,
2008
Net
revenues for the three months ended November 30, 2009 (the “Third Quarter
FY2010”) increased $95,405 to $1,160,577 from $1,065,172 in the three months
ended November 30, 2008 (the “Third Quarter FY2009”), an increase of
9%.
Cost of
goods increased $70,311 (14%) to $563,148 in the Third Quarter FY2010 from
$492,837 in the Third Quarter FY2009. In the prior year period, there was a
charge of $270,000 for inventory items that were scrapped as obsolete. Excluding
this charge, cost of goods in the prior year would have been $222,837 resulting
in a current year increase in cost of goods of $340,311, or 152%.
Engineering,
research and development expenses increased $5,303 (1%) to $562,083 in the Third
Quarter FY2010 from $556,779 in the Third Quarter FY 2009. We believe these
expenses should remain relatively stable for the near future based on the
projects the Company currently is working on.
Selling,
general and administrative expense decreased $211,642 (10%) to $1,828,847 in the
Third Quarter FY2010 from $2,040,489 in the Third Quarter FY2009. These expenses
have decreased as we have reduced personnel in this area and reduced the use of
outside personnel, and made a concerted effort to control other
costs.
Stock
option compensation expense increased $89,151over the prior year period as a
result of the non-cash charges for the issuance of employee stock options in the
current year period, which was determined utilizing the Black Scholes
method assuming a volatility of the stock of 107%, term of five years and a
discount of 2.625%. During the second quarter of fiscal 2010, the Board of
Directors determined that, in order to provide incentives to its’ employees, it
was in the best interest of the company to cancel and replace the outstanding
employee options that had been granted. With the employees consent,
the company cancelled all outstanding employee options that previously had
exercise prices ranging from $2.00 to $3.00, and issued new options with a grant
date of June 18, 2009 and an exercise price of $1.50. Employees were given
credit towards the three year vesting period extending from the date of their
original hire.
Net
interest expense in the Third Quarter FY2010 decreased $205,274 (49%) to
$217,032 from $422,306 in the Third Quarter FY2009. The decrease is due to the
inclusion in the prior year of $368,900 of interest expense for the beneficial
conversion of convertible notes, partially offset by increased interest expense
associate with our higher levels of debt, primarily the 10% demand note due to
one of our board members, which has increased from $1.3 million in the prior
year period to $4.4 million in the current year period.
Our net
loss for the Third Quarter FY2010 decreased $347,327 to $2,173,432 from
$2,520,759 in the Third Quarter FY2009, due to the higher gross profit recorded
as a result of higher sales levels, the reduction in selling, general and
administrative expenses, and the reduction in the third quarter interest
charges.
Nine
months FY 2010 compared to Nine months FY 2009
Net
revenues for the nine months ended November 30, 2009 (the “Nine Months FY2010”)
increased $534,226 to $2,425,383, from $1,891,157 in the nine months ended
November 30, 2008 (the “Nine Months FY2009”), an increase of 28%. The increase
is primarily due to the current year sales to a single customer in the
refrigeration trucking industry. Sales in this industry did not begin until the
second quarter of fiscal 2009. These sales are expected to continue to increase
as we expand our business in the refrigeration trucking industry.
Cost of
goods increased $107,676 to $1,384,184 in the Nine Months FY2010, from
$1,276,508 in the Nine Months FY2009, an increase of 8%. In the prior year
period, there was a charge of $270,000 for inventory items that were scrapped as
obsolete. Excluding this charge, cost of goods in the prior year would have been
$1,006,508 resulting in a current year increase in cost of goods of $377,676, or
37%.
Engineering,
research and development expenses increased $131,463 (9%) to $1,626,357 in the
Nine Months FY2010 from $1,494,894 in the Nine Months FY2009. These expenses
have increased primarily as a result of an increase in personnel in the
engineering area, that occurred in last years second and third quarter, as we
began to work to expand the applications of the AuraGen.
Selling,
general and administrative expenses decreased $258,840 (4%) to $5,560,397 in the
Nine Months FY2010 from $5,819,237 in the Nine Months
FY2009. We do not expect these expenses to increase
significantly in the near future, as we feel we have sufficient resources in
this area for our anticipated near term growth projections.
Stock
option compensation expense increased $6,526,505 over the prior year
period as a result of the non-cash charges for the issuance of employee stock
options in the current year period, which was determined
utilizing the Black Scholes method assuming a volatility of the stock
of 107%, term of five years and a discount of 2.625%.
Net
interest expense in the nine Months FY2010 increased $4,937 (1%) to $553,265
from $548,328 in the Nine Months FY2009. The increase is attributable to the
increased level of debt we currently have, primarily the 10% demand note from a
member of our Board of Directors, which has increased from $1,800,000 at
February 28, 2009, to $4,400,000 at November 30, 2009. The prior year also
included a charge of $368,900 related to the beneficial conversion of
convertible notes payable.
Other
income (expense) in the current period is net expense of $21,850 compared to
income of $144,003 in the prior year period. The prior year income
was primarily a result of a favorable purchase of inventory items
that a vendor had manufactured without an order from us. This predated our
bankruptcy filing and the vendor allowed us to purchase the items for
approximately 6% of the actual cost of the goods.
Our net
loss for the Nine Months FY2010 increased $6,143,368 to $13,528,088 from
$7,384,720 in the Nine Months FY2009 primarily as a result of the non-cash
charge for the amortization of expenses associated with the employee stock
option plan in the current year.
Liquidity and Capital
Resources
We had
cash of approximately $21,000 and $317,000 at November 30, 2009, and February
28, 2009, respectively. We had a working capital deficit at November 30,
2009, and February 28, 2009 of $(6,509,009) and $(2,164,606),
respectively. At November 30, 2009, we had accounts receivable, net
of allowance for doubtful accounts, of $608,542 compared to $319,249 at February
28, 2009.
Net cash
used in operations for the nine months ended November 30, 2009, was
$(5,147,305), a decrease of approximately $125,000 from the comparable nine
months in the prior fiscal year. Net cash provided by financing activities
during the nine months ended November 30, 2009, was $5,169,424, resulting
primarily from proceeds from notes payable of approximately $3.4 million, of
which $2,600,000 was from a member of our Board, along with proceeds from the
exercise of outstanding warrants and sales of Common Stock totaling
approximately $1,760,000.
We paid
$318,151 for acquisitions of property and equipment, which is primarily the cost
of the build-out of our new facility, in the nine months FY2010 compared to
acquisitions of property and equipment totaling $119,211 in the nine months
FY2009.
Accrued
expenses and accounts payable at November 30, 2009, increased approximately
$1,250,000 from the February 28, 2009 balance. The increase is primarily due to
an increase in accrued payroll and payroll related expenses resulting from the
deferral of salaries by several members of senior management, until such time as
cash flow allows these amounts to be paid, and an increase in accrued
interest.
Net
proceeds from the issuance of debt totaled $3,407,500 in the nine months FY
2010, compared with net proceeds of $1,063,863 in the nine months FY
2009. Included in the debt proceeds in the nine months FY2010 was a
total of $2,600,000 from a member of our Board. As of January 11, 2009, the
total amount of the 10% demand note owing this board member is $4,650,000. The
Company also entered into six convertible notes during the second quarter of
fiscal 2010 totaling $565,000. The notes carry an interest rate of 10%, are for
a term of 180 days, and are convertible into common stock of the company at
$0.75 per share.
The
Company had a deficit in shareholders’ equity at November 30, 2009 of
$4,009,490, compared to stockholders’ equity of $234,816 at February 28, 2009.
The deficit is attributable to the nine months FY 2010 loss of $13,528,008,
partially offset by proceeds from the sale of common stock and the exercise of
warrants of approximately $1,760,000, and the increase in paid in capital of
approximately $6.8 million from the expense related to the employee stock
options.
The
Company anticipates the need for approximately $7.5 million to fund our
operations for the upcoming twelve months, and is expecting to raise this
funding through a private placement of common stock we are currently engaged in.
The offering is for units consisting of one share of common stock, and a warrant
to purchase one-half share of common stock, with a price of $0.75 per unit. The
warrants are five year warrants and are exercisable at a price of $1.25 per
share for the first twelve months, $1.50 per share for the second twelve months,
and $2.00 per share for the remaining life of the warrant.
Since
2002 substantially all of our revenues from operations have been derived from
sales of the AuraGen®. The
cash flow generated from our operations to date has not been sufficient to fund
our working capital needs, and we cannot predict when operating cash flow will
be sufficient to fund working capital needs. Since fiscal 2002 we were forced to
scale back operations due to inadequate working capital and in June 2005 we were
forced to file for protection under Chapter 11 of the U.S. Bankruptcy Code, from
which we emerged under a court-approved plan of reorganization in January
2006.
In the
past, in order to maintain liquidity we have relied upon external sources of
financing, principally equity financing and private indebtedness. We have no
bank line of credit and require additional debt or equity financing to fund
ongoing operations. We commenced a private placement for up to $7.5
million of common stock in September, 2009, of which $204,000 of subscriptions
have been received as of October 14, 2009. The company intends to use the
proceeds from this offering for general working capital purposes and the
repayment of a portion of its short-term debt obligations. We anticipate that
the $7.5 million would be sufficient to implement our current business plan.
However, we cannot assure you that we will be able to complete this private
placement or that additional financing will be available at the times or in the
amounts required to fund our working capital needs or to repay outstanding
indebtedness as it comes due. The issuance of additional shares of equity in
connection with such financing could dilute the interests of our existing
stockholders, and such dilution could be substantial. If we cannot raise needed
funds, we would also be forced to make further substantial reductions in our
operating expenses, which could adversely affect our ability to implement our
current business plan and ultimately our viability as a company.
Capital
Transactions
During
the first quarter fiscal 2010, we issued 799,582 shares of Common Stock for cash
consideration of $465,000. We also issued 94,428 shares of common Stock upon the
exercise of 94,428 warrants, for cash consideration of $94,428, and issued
58,333 shares of Common Stock for the conversion of $35,000 of notes payable.
During the second quarter fiscal 2010, we issued 465,000 shares of Common Stock
for cash consideration of $320,000. During the third quarter fiscal 2010, we
issued 1,190,415 shares of Common Stock for cash consideration of $882,496. We
also issued 427,903 shares of Common Stock upon the conversion of $346,401 of
notes payable and accounts payable.
During
the first quarter fiscal 2009, we issued 200,000 shares of Common Stock for
consideration of $250,000. We also issued 1,402,062 shares of Common Stock upon
the exercise of 1,402,062 warrants, for consideration of $1,402,062, and issued
430,329 shares of Common Stock for the exercise of warrants in lieu of payments
on our secured notes payable. During the second quarter fiscal 2009, we issued
425,000 shares of Common Stock for cash consideration of $418,370, 400,000
shares of Common Stock for the acquisition of $400,000 worth of inventory and
supplies in connection with the acquisition of the assets of Emerald Commercial
Leasing, 100,000 shares of Common Stock pursuant to an employment agreement we
entered into with our Vice President, and 803,215 shares of Common Stock upon
the exercise of warrants for total consideration of $803,215. During the third
quarter fiscal 2009, we issued 1,208,707 shares of Common Stock for cash
consideration of $1,290,000. We also issued 1,603,912 shares of Common Stock
upon the conversion of $1,603,912 of notes payable and 41,855 shares of Common
Stock upon the conversion of $41,855 of accounts payable.
ITEM
4T. Controls
and Procedures
Evaluation
of Disclosure Controls and Procedures
Disclosure
controls and procedures are designed to provide reasonable assurance that
information required to be disclosed by us in the reports that we file or
submit, is recorded, processed, summarized and reported, within the time periods
specified in the U.S. Securities and Exchange Commission’s rules and forms,
and such information is accumulated and communicated to management as
appropriate to allow timely decisions regarding required
disclosures. Our Chief Executive Officer and Chief Financial Officer
have evaluated our disclosure controls and procedures and have concluded, as of
November 30, 2009, that they were effective.
Changes
in Internal Control over Financial Reporting
There
have been no changes in our internal control over financial reporting during our
fiscal quarter ended November 30, 2009, that have materially affected or are
reasonably likely to materially affect our internal control over financial
reporting.
PART
II - OTHER INFORMATION
ITEM
2. Unregistered Sales of Equity Securities and Use of Proceeds
During
the quarter ended November 30, 2009, we issued 1,190,415 shares of Common Stock
for cash consideration of $882,496. We also issued 427,903 shares of common
stock upon the conversion of $346,401 of notes payable and accounts
payable.
All of
the sales of unregistered securities are believed to be 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 qualified investors without public
solicitation or advertising.
ITEM
6. Exhibits
31.1 Certifications
pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
31.2 Certifications
pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
32.1 Certification
of CEO and CFO Pursuant to 18 U.S.C. § 1350, as Adopted Pursuant to § 906 of the
Sarbanes-Oxley
Act of
2002.
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,
2010
By: /s/
Melvin Gagerman
Melvin
Gagerman
Acting
Chief Financial Officer
(Principal
Financial and Accounting Officer
and Duly
Authorized Officer)