Delaware
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95-4106894
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(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification No.)
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PART I
|
||
ITEM 1. BUSINESS
|
1 | |
ITEM 1A. RISK FACTORS
|
12 | |
ITEM 1B. UNRESOLVED STAFF COMMENTS
|
15 | |
ITEM 2. PROPERTIES
|
16 | |
ITEM 3. LEGAL PROCEEDINGS
|
16 | |
ITEM 4. (Reserved)
|
16 | |
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|
16 | |
PART II
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||
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
17 | |
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
23 | |
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
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23 | |
ITEM 9A(T). CONTROLS AND PROCEDURES
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24 | |
ITEM 9B. OTHER INFORMATION
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25 | |
PART III
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||
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
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25 | |
ITEM 11. EXECUTIVE COMPENSATION
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29 | |
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
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34 | |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
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35 | |
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
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36 | ||
PART IV
|
||
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
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37 | |
SIGNATURES
|
40 | |
·
|
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.
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·
|
Gensets (AKA APUs),
Gensets are standalone power generation units that are not incorporated into a vehicle and require external fuel, either gasoline or diesel, in order to generate electricity. Gensets (i) are generally noisy and cumbersome to transport because of their weight and size, (ii) typically run at constant speed to generate 50 or 60 Hz of AC power, (iii) must be operated at a significant part of the rated power to avoid wet staking, (iv) are significantly derated in the presence of harmonics in the loads and (v) require significant scheduled maintenance and service. Genset technology has been utilized since the 1950s.
|
·
|
High-Output Alternators,
High-output alternators are traditionally found in trucks and commercial vehicles and the vehicle’s engine is used as the prime mover. All high-output alternators provide their rated power at very high RPM and significantly less power at lower RPM. In addition, high-output alternators are generally only 30% efficient at the low RPM range and increase to 50% efficiency at the high end of the RPM range. The power generated by high-output alternators is 12 or 24 Volt DC and an inverter is required if 120 Volt AC power is needed. In addition, due to the low power output at low RPMs, in order to get significant power, a throttle controller is used to speed-up the engine.
|
·
|
Inverters,
Inverters are devices that invert battery DC to AC. Inverters as mobile power generators are traditionally used in low power requirements, typically less than 2,500 watts, and do not have the ability to recharge the batteries used as the source of power. Thus, typical inverter users require other means to recharge the used batteries such as “shore-power” or gensets. More recently dynamic inverters became available. Dynamic inverters use power from the alternator to augment power from the batteries and are able to achieve power levels in excess of 6,000 watts. Dynamic inverters introduce significant stresses on both the batteries and alternators, which causes significant life shortening for both. Dynamic inverters use power from the alternator. When the inverter is turned on, the alternator is switched off from the vehicle battery and tied into a transformer that uses electronic controls to change the DC alternator inputs to AC inverter output. A separate transformer winding provides battery charging so that fully regulated 120 Volt AC and 12 Volt DC power is available as long as the engine is running at high enough RPM to provide power for the load and the battery charging. All dynamic inverters require a high-output alternator to be able to output significant AC power. As is often the case, the limiting factor is the high-output alternator. In order to get stable output, a very accurate throttle controller is also needed to maintain steady speed on the engine.
|
·
|
Permanent-Magnet Alternators.
Recently a number of companies have introduced alternators using exotic permanent magnets. These alternators tend to have higher power generation capabilities than regular alternators at lower engine RPM. In order to be practical in an under-the–hood environment (200
o
F) active cooling must be added, since the magnets are demagnetized at approximately 176
o
F. There are other issues that require an active control system that will add and subtract magnetic field strength as the engine RPM increases. Over 95% of the magnets used for electric machines comes from China and starting in 2011 the price of the magnets has sky rocketed. In addition China started limiting export of the magnets in order to have sufficient supplies for local consumption.
|
·
|
Fuel Cells.
Fuel cells are solid-state devices that produce electricity by combining a fuel containing hydrogen with oxygen. They have a wide range of applications and can be used in place of the internal combustion engine and traditional lead-acid and lithium-ion batteries. The most widely deployed fuel cells cost about $3,000 per kilowatt.
|
·
|
Batteries
. Batteries convert stored chemical energy to electrical energy.
|
Name
|
Age
|
Title
|
Melvin Gagerman
|
69
|
Chief Executive Officer, Chief Financial Officer, and Chairman of the Board of Directors
|
Arthur J. Schwartz, Ph.D.
|
63
|
Chief Technical Officer, Director
|
James Marvin Simmons
|
62
|
Director, Chairman of the Nominating Committee, Member of the Compensation Committee and Audit Committee
|
Warren Breslow
|
68
|
Director, Chairman of the Audit Committee, Member of the Nominating Committee and Compensation Committee
|
Salvador Diaz-Verson, Jr.
|
56
|
Director, Chairman of the Compensation Committee, Member of the Audit Committee and Nominating Committee
|
Roger L. Howsmon
|
67
|
Director, Member of the Nominating Committee and Compensation Committee
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Lon E. Bell Ph.D.
|
71
|
Director, Member of the Nominating Committee and Compensation Committee
|
Name and Principal Position
|
Fiscal Year
|
Salary ($)
|
Option
Awards
($) (2)
|
Non-Equity Incentive Plan Compensation
|
All Other
Compensation ($)
|
Total
($)
|
|||
Melvin Gagerman (1)
|
2012
|
360,000
|
376,747
|
-
|
23,359(3)
|
760,106
|
|||
Chief Executive Officer,
Chief Financial Officer
|
2011
|
360,000
|
23,911
|
-
|
27,118(3)
|
411,029
|
|||
Arthur J. Schwartz
|
2012
|
200,000
|
-
|
-
|
1,023(4)
|
201,023
|
|||
Chief Technical Officer
|
2011
|
180,000
|
23,911
|
-
|
1,108(4)
|
205,019
|
|||
(1)
|
Mr. Gagerman was elected Chairman and Chief Financial Officer effective February 1, 2006 and was elected President and Chief Executive Officer effective May 25, 2006.
|
(2)
|
Reflects the fair market value amount at the date of grant using the assumptions set forth in Note 9 to the financial statements included elsewhere in this Annual Report.
|
(3)
|
Represents automobile and country club dues allowances, the cost of life insurance premiums, and medical expense reimbursements.
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(4)
|
Represents Company matching contributions to the 401(k) plan.
|
Option Awards
|
||||||
Number of
Securities
Underlying
Unexercised
Options
(#)
|
Number of
Securities
Underlying
Unexercised
Options
(#)
|
Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
||
Name
|
Exercisable
|
Un-exercisable
|
||||
Melvin Gagerman
|
1,400,000
|
0
|
--
|
$0.75
|
6/18/14
|
|
Melvin Gagerman
|
1,000,000
|
0
|
--
|
$1.00
|
8/25/16
|
|
Arthur J. Schwartz
|
900,000
|
0
|
--
|
$0.75
|
6/18/14
|
|
Arthur J. Schwartz
|
200,000
|
0
|
-
|
$0.75
|
12/15/15
|
|
·
|
Death or Permanent Disability
– The agreement automatically terminates upon Mr. Gagerman’s death or disability (as determined under our Long-Term Disability Plan, which provides for a benefit of 50% of his monthly salary to a maximum of $6,000 per month).
|
·
|
By the Company For Cause
- We may terminate the agreement for “cause”. The agreement defines “cause” to include:
|
·
|
a breach by Mr. Gagerman of his obligations not to compete with us during the term of his employment;
|
·
|
a breach by Mr. Gagerman of his obligation to maintain confidential information
|
·
|
commission of an act of fraud, embezzlement or dishonesty which is injurious to us;
|
·
|
intentional misconduct which is detrimental to our business or reputation
|
·
|
By the Company for Non-Performance
– We may terminate the agreement upon 120 days prior notice in the event of “non-performance” by Mr. Gagerman. The agreement defines “non-performance” to mean a determination by not less than 75% of the members of our Board of Directors that Mr. Gagerman is not performing his duties as CEO and the continuation of the non-performance for 15 days after receiving notice of the Board’s determination.
|
·
|
By The Company Without Cause or Non-Performance
– We may terminate the agreement upon not less than 12 months notice, without regard to Mr. Gagerman’s performance.
|
·
|
By Mr. Gagerman For Cause
– Mr. Gagerman may terminate the agreement for “cause” upon not less than 45 days notice. The agreement defines “cause” to include:
|
·
|
By Mr. Gagerman Without Cause
– Mr. Gagerman may terminate the agreement upon not less than 120 days notice without regard to whether we are meeting our obligation under the agreement.
|
·
|
By Mr. Gagerman Upon a Change of Control
- Mr. Gagerman may terminate the agreement upon not less than 30 days notice at any time following a “change in control.” The agreement defines change of control to mean:
|
·
|
The acquisition by a new investor of more than 50% of our common stock, or
|
·
|
The change of a majority of our board members either by an individual or by one or more groups acting together.
|
·
|
termination is a result of a “change in control”; or
|
·
|
We terminate the agreement other than for “cause” or “non-performance.”
|
·
|
termination is a result of a “change in control”;
|
·
|
Mr. Gagerman terminates the agreement for “cause”; or
|
·
|
We terminate the agreement other than for “cause” or “non-performance.”
|
Name
|
Fees
Earned
or Paid
in Cash
($)
|
Stock
Awards
($)
|
Option
Awards
($) (1)(2)
|
Non-Equity
Incentive Plan
Compensation
($)
|
All Other
Compensation
($)
|
Total
($)
|
James Simmons (3)
|
-
|
-
|
75,349
|
-
|
-
|
75,349
|
Warren Breslow (4)
|
-
|
-
|
1,205,589
|
-
|
-
|
1,205,589
|
Salvador Diaz-Verson, Jr. (5)
|
-
|
-
|
75,349
|
-
|
-
|
75,349
|
Lon E. Bell
|
-
|
-
|
75,207
|
-
|
-
|
75,207
|
Roger Howsmon
|
-
|
-
|
75,207
|
-
|
-
|
75,207
|
(1)
|
Reflects the fair market value amount at the date of grant using the assumptions set forth in Note 9 to the financial statements included elsewhere in this Annual Report.
|
(2)
|
In fiscal 2012 Mssrs. Simmons, Diaz-Verson, Bell and Howsmon were each granted director warrants (options) to acquire 200,000 shares of our common stock at an exercise price of $1.00 per share, and Mr. Breslow was granted 1,300,000 Director Warrants(options) of our common stock at an exercise price of $1.00 per share, being not less than the fair market value on the date of grant, which options vest immediately and expire in June 2014. In fiscal 2011 Messrs. Diaz-Verson and Breslow were each granted Director Warrants(options) to acquire 50,000 shares of our common stock at an exercise price of $0.75 per share In fiscal 2010 Mr. Diaz-Verson was granted Director Warrants(options) to acquire 300,000 shares of our common stock at an exercise price of $1.50 per share, and Mr. Breslow was granted 1,300,000 Director Warrants(options) of our common stock at an exercise price of $1.50 per share, being not less than the fair market value on the date of grant, which options vest immediately and expire in June 2014. In fiscal 2008 Messrs. Breslow and Diaz-Verson were each granted Director Warrants (options) to acquire 25,000 shares of our common stock at an exercise price of $2.50 per share, respectively, being not less than the fair market value of our common stock on the date of grant, which options vest at a rate of 25% every six months and expire in October 2012.
|
(3)
|
The director had 200,000 options outstanding as of February 29, 2012.
|
(4)
|
The director had 4,275,000 options outstanding as of February 29, 2012.
|
(5)
|
The director had 575,000 options outstanding as of February 29, 2012.
|
(6)
|
The director had 200,000 options outstanding as of February 29, 2012.
|
(7)
|
The director had 200,000 options outstanding as of February 29, 2012.
|
Beneficial Owner
|
Number of Shares
of Common Stock
|
Percent of
Common Stock (1)
|
Melvin Gagerman (2)
|
6,724,273
|
8.7%
|
Arthur Schwartz (3)
|
3,038,176
|
4.0%
|
Warren Breslow (4)
|
5,925,878
|
7.7%
|
Salvador Diaz-Verson, Jr. (5)
|
690,934
|
*
|
James Simmons(6)
|
2,932,383
|
4.0%
|
Lon E. Bell(7)
|
200,000
|
*
|
Roger Howsmon(8)
|
220,000
|
*
|
All current executive officers and Directors as a group (seven)
|
19,731,644
|
23.4%
|
5% Shareholders
|
||
Harry Kurtzman(9)
|
8,285,955
|
10.5%
|
Number of Securities
|
||||||||||||
Weighted-average
|
Remaining Available for
|
|||||||||||
Number of Securities to
|
Exercise Price of
|
Future Issuance Under Equity
|
||||||||||
be Issued Upon Exercise
|
Outstanding
|
Compensation Plans
|
||||||||||
of Outstanding Options,
|
Options, Warrants and Rights
|
(Excluding Securities Reflected in Column (a))
|
||||||||||
Plan Category
|
Warrants and Rights
(a)
|
(b)
|
(c)
|
|||||||||
Equity compensation plans approved by security holders (1)
|
6,285,500
|
$
|
0.75
|
-
|
||||||||
Equity compensation plans not approved by security holders
|
13,025,000
|
$
|
0.75
|
-
|
||||||||
To
|
(1)
|
Reflects options under the 2006 Stock Option Plan. The 2006 Stock Option Plan authorizes the Company to grant stock options exercisable for up to an aggregate number of shares of common stock equal to the greater of (i) 3,000,000 shares of common stock, or (ii) 10% of the number of shares of common stock outstanding from time to time. The numbers in this table are as of February 29, 2012.
|
Year Ended February 28,
|
||||||||
2012
|
2011
|
|||||||
Audit Fees(1)
|
$
|
82,500
|
$
|
82,500
|
||||
Audit-related fees(2)
|
-
|
-
|
||||||
Tax fees(3)
|
-
|
-
|
||||||
All other fees
|
-
|
-
|
||||||
Total
|
$
|
82,500
|
$
|
82,500
|
||||
(1)
|
Included fees for professional services rendered for the audit of our annual financial statements and review of our annual report on Form 10-K and for reviews of the financial statements included in our quarterly reports on Form 10-Q for the first three quarters of the years ended February 29, 2012 and February 28, 2011.
|
|
(2)
|
Includes fees for professional services rendered in connection with our evaluation of internal controls.
|
|
(3)
|
Includes fees for professional services rendered in connection with the preparation of our income tax returns.
|
2.1
|
First Amended Plan of Reorganization of Aura Systems, Inc.(2)
|
3.1
|
Amended and Restated Certificate of Incorporation of Aura Systems, Inc. (1)
|
3.2
|
Amended and Restated Bylaws of Aura Systems, Inc. as amended to date. (1)
|
10.1
|
Form of Unsecured Creditor Warrants issued under First Amended Plan of Reorganization of the Company. (3)
|
10.2
|
Form of Management Warrants issued under First Amended Plan of Reorganization of Aura Systems, Inc.(3)
|
10.3
|
Form of Director Warrants issued under First Amended Plan of Reorganization of t Aura Systems, Inc. (3)
|
10.4
|
Aura Systems, Inc. 2006 Stock Option Plan. (3)
|
10.5
|
Form of Aura Systems, Inc. Non-Statutory Stock Option Agreement. (3)
|
10.6
|
Employment Agreement dated January 4, 2007, by and between the Company and Melvin Gagerman. (3)
|
10.7
|
Full Release dated as of January 31, 2006, by Aura Systems, Inc. for the benefit of Koyah Leverage Partners, L.P., Koyah Partners, L.P. Koyah Ventures LLC, Raven Partners, L.P., Koyah Microcap Partners Master Fund, L.P. and James M. Simmons. (3)
|
10.8
|
Consolidated, Amended and Restated Security Agreement dated as of January 31, 2006, by Aura Systems, Inc. for the benefit of Koyah Leverage Partners, L.P., Koyah Partners, L.P. Koyah Ventures LLC, Raven Partners, L.P., and Koyah Microcap Partners Master Fund, L.P. (3)
|
10.9
|
Consolidated, Amended and Restated Stock Pledge Agreement dated as of January 31, 2006, by Aura Systems, Inc. for the benefit of Koyah Leverage Partners, L.P., Koyah Partners, L.P. Koyah Ventures LLC, Raven Partners, L.P., and Koyah Microcap Partners Master Fund, L.P. (3)
|
10.10
|
Amended and Restated Intercreditor Agreement dated as of January 31, 2006, by and among Aura Systems, Inc., Koyah Leverage Partners, L.P., Koyah Partners, L.P. Koyah Ventures LLC, Raven Partners, L.P., and Koyah Microcap Partners Master Fund, L.P. (3)
|
10.11
|
Amended and Restated Promissory Note dated January 31, 2006, by Aura Systems, Inc. in favor of Raven Partners, L.P. (3)
|
10.12
|
Amended and Restated Promissory Note dated January 31, 2006, by Aura Systems, Inc. in favor of Koyah Ventures, LLC (3)
|
10.13
|
Consolidated, Amended and Restated Promissory Note dated January 31, 2006, by Aura Systems, Inc. in favor of Koyah Partners, L.P. (3)
|
10.14
|
Consolidated, Amended and Restated Promissory Note dated January 31, 2006, by Aura Systems, Inc. in favor of Koyah Microcap Partners Master Fund, L.P. (3)
|
10.15
|
Consolidated, Amended and Restated Promissory Note dated January 31, 2006, by Aura Systems, Inc. in favor of Koyah Leverage Partners, L.P. (3)
|
10.16
|
Lease between Aura Systems Inc., and Alliance Commercial Partners (3)
|
10.17
|
Lease between Aura Systems Inc., and Derek Lidow as Trustee for the Lidow Family Trust and Alexander Lidow (3)
|
10.18
|
Form of 7% Convertible Subordinated Debenture (4)
|
10.19
|
Asset Purchase Agreement by and among Aura Systems, Inc. and Emerald Commercial Leasing, Inc. (4)
|
10.20
|
Mutual Agreement Ending AuraGen Distributorship Exclusivity between Emerald Commercial Leasing, Inc. and Aura Systems Inc.(4)
|
10.21
|
Employment Agreement Dated May 15, 2008, by and between Joseph Dickman and the Company. (4)
|
10.22
|
Conversion Agreement dated as of September 1, 2008, by and among Aura Systems, Inc., Koyah Leverage Partners, L.P., Koyah Partners, L.P. Koyah Ventures LLC, and Raven Partners, L.P. (5)
|
10.23
|
Distributorship Agreement dated February 27, 2009, by and between Aura Systems, Inc. and WePower LLC. (6)
|
10.24
|
Executive Employment Agreement by and between Don Macleod and Aura Systems, Inc. (7)
|
10.25
|
Strategic Alliance Agreement dated March 18, 2010, by and between Aura Systems, Inc. and Zanotti East Inc.
|
10.26
|
Amended and Restated Distributorship Agreement dated March 19, 2009, by and between Aura Systems, Inc. and WePower LLC (7)
|
10.27
|
Demand Promissory Note dated December 18, 2007 by and between the Company and Warren Breslow in the original principal amount of $500,000. (8)
|
10.28
|
Demand Promissory Note dated June 18, 2008 by and between the Company and Warren Breslow in the original principal amount of $200,000. (8)
|
10.29
|
Demand Promissory Note dated August 1, 2008 by and between the Company and Warren Breslow in the original principal amount of $200,000. (8)
|
10.30
|
Demand Promissory Note dated October 14, 2008 by and between the Company and Warren Breslow in the original principal amount of $200,000. (8)
|
10.31
|
Demand Promissory Note dated October 23, 2008 by and between the Company and Warren Breslow in the original principal amount of $200,000. (8)
|
10.32
|
Demand Promissory Note dated December 18, 2008 by and between the Company and Warren Breslow in the original principal amount of $500,000. (8)
|
10.33
|
Demand Promissory Note dated March 12, 2009 by and between the Company and Warren Breslow in the original principal amount of $200,000. (8)
|
10.34
|
Demand Promissory Note dated April 24, 2009 by and between the Company and Warren Breslow in the original principal amount of $500,000. (8)
|
10.35
|
Demand Promissory Note dated June 1, 2009 by and between the Company and Warren Breslow in the original principal amount of $20,000. (8)
|
10.36
|
Demand Promissory Note dated June 30, 2009 by and between the Company and Warren Breslow in the original principal amount of $500,000. (8)
|
10.37
|
Demand Promissory Note dated August 13, 2009 by and between the Company and Warren Breslow in the original principal amount of $400,000. (8)
|
10.38
|
Demand Promissory Note dated August 27, 2009 by and between the Company and Warren Breslow in the original principal amount of $500,000. (8)
|
10.39
|
Demand Promissory Note dated October 22, 2009 by and between the Company and Warren Breslow in the original principal amount of $480,000. (8)
|
10.40
|
Demand Promissory Note dated December 4, 2009 by and between the Company and Warren Breslow in the original principal amount of $250,000. (8)
|
10.41
|
Demand Promissory Note dated January 4, 2010 by and between the Company and Warren Breslow in the original principal amount of $250,000. (8)
|
10.42
|
Demand Promissory Note dated January 29, 2010 by and between the Company and Warren Breslow in the original principal amount of $250,000. (8)
|
10.43
|
Demand Promissory Note dated April 7, 2010 by and between the Company and Warren Breslow in the original principal amount of $400,000. (8)
|
10.44
|
Demand Promissory Note dated May 7, 2010 by and between the Company and Warren Breslow in the original principal amount of $100,000. (8)
|
10.45
|
Demand Promissory Note dated May 11, 2010 by and between the Company and Warren Breslow in the original principal amount of $400,000. (8)
|
10.46
|
Demand Promissory Note dated May 28, 2010 by and between the Company and Warren Breslow in the original principal amount of $150,000. (8)
|
10.47
|
Demand Promissory Note dated June 3, 2010 by and between the Company and Warren Breslow in the original principal amount of $350,000. (8)
|
10.48
|
Demand Promissory Note dated June 15, 2010 by and between the Company and Warren Breslow in the original principal amount of $500,000. (8)
|
10.49
|
Demand Promissory Note dated July 2, 2010 by and between the Company and Warren Breslow in the original principal amount of $300,000. (8)
|
10.50
|
Demand Promissory Note dated October 8, 2010 by and between the Company and Warren Breslow in the original principal amount of $200,000. (8)
|
10.51
|
Demand Promissory Note dated November 3, 2010 by and between the Company and Warren Breslow in the original principal amount of $300,000. (8)
|
10.52
|
Demand Promissory Note dated November 10, 2010 by and between the Company and Warren Breslow in the original principal amount of $50,000. (8)
|
10.53
|
Demand Promissory Note dated December 2, 2010 by and between the Company and Warren Breslow in the original principal amount of $350,000. (9)
|
10.54
|
Demand Promissory Note dated January 20, 2011 by and between the Company and Warren Breslow in the original principal amount of $200,000.(9)
|
10.55
|
Demand Promissory Note dated February 28, 2011 by and between the Company and Warren Breslow in the original principal amount of $250,000.(9)
|
10.56
|
Demand Promissory Note dated March 18, 2011 by and between the Company and Warren Breslow in the original principal amount of $150,000.(10)
|
10.57
|
Demand Promissory Note dated April 7, 2011 by and between the Company and Warren Breslow in the original principal amount of $300,000.(10)
|
10.58
|
Demand Promissory Note dated May 20, 2011 by and between the Company and Warren Breslow in the original principal amount of $200,000.(10)
|
10.59
|
Demand Promissory Note dated July 5, 2011 by and between the Company and Warren Breslow in the original principal amount of $250,000.(11)
|
Dated:
|
May 29, 2012
|
By:
|
/s/ Melvin Gagerman
|
Melvin Gagerman
|
|
Chief Executive Officer
|
Signatures
|
Title
|
Date
|
/s/ Melvin Gagerman
|
Chief Executive Officer, Acting Chief Financial Officer Director and Chairman of the Board (Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer)
|
May 29, 2012
|
Melvin Gagerman
|
||
/s/ Arthur Schwartz
|
Director
|
May 29, 2012
|
Arthur Schwartz
|
||
/s/ Maurice Zeitlin
|
Director
|
May 29, 2012
|
Maurice Zeitlin
|
||
/s/ James Simmons
|
Director
|
May 29, 2012
|
James Simmons
|
||
/s/Salvador Diaz-Verson, Jr.
|
Director
|
May 29, 2012
|
Salvador Diaz-Verson, Jr.
|
||
/s/Roger L. Howsmon
|
Director
|
May 29, 2012
|
Roger L. Howsmon
|
||
/s/Lon E. Bell
|
Director
|
May 29, 2012
|
Lon E. Bell
|
||
Report of Independent Registered Public Accounting Firm
|
F-1
|
Financial Statements of Aura Systems, Inc.:
|
|
Balance Sheets as of February 29, 2012 and February 28, 2011
|
F-2
|
Statements of Operations - Years ended February 29, 2012 and February 28, 2011
|
F-3
|
Statements of Stockholders' Equity/(Deficit) - Years ended February 29, 2012 and February 28, 2011
|
F-4
|
Statements of Cash Flows - Years ended February 29, 2012 and February 28, 2011
|
F-5 to F-6
|
Notes to Financial Statements
|
F-7 to F-18
|
As of
February 29, 2012
|
As of
February 28, 2011
|
|||||||
ASSETS
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$ | 6,260 | $ | 104,815 | ||||
Accounts receivable, net of allowance for doubtful accounts of $60,000 and $59,070 at February 29, 2012 and February 28, 2011, respectively
|
794,704 | 296,297 | ||||||
Inventory - current
|
1,000,000 | 1,000,000 | ||||||
Other current assets
|
535,768 | 450,843 | ||||||
Total current assets
|
2,336,732 | 1,851,955 | ||||||
Property, plant, and equipment, net
|
198,138 | 380,842 | ||||||
Inventory, non-current, net of allowance for obsolete inventory of $1,563,066 and $2,106,391 at February 29, 2012 and February 28, 2011, respectively
|
1,604,000 | 2,274,013 | ||||||
|
|
|||||||
Total assets
|
$ | 4,138,870 | $ | 4,506,810 | ||||
|
|
|||||||
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
||||||||
Current liabilities:
|
||||||||
Bank overdraft
|
$ | 16,068 | $ | - | ||||
Accounts payable
|
770,507 | 1,945,372 | ||||||
Accrued expenses
|
1,019,959 | 2,632,856 | ||||||
Customer advances
|
57,211 | 336,308 | ||||||
Notes payable
|
150,000 | 82,500 | ||||||
Convertible notes payable, net of discount
|
1,064,644 | 290,000 | ||||||
Notes payable and accrued interest- related party
|
12,562,743 | 10,148,352 | ||||||
|
|
|||||||
Total current liabilities
|
15,641,132 | 15,435,388 | ||||||
Convertible note payable, net of discount
|
96,786 | 500,000 | ||||||
|
|
|||||||
Total liabilities
|
15,737,918 | 15,935,388 | ||||||
Commitments and contingencies
|
||||||||
Stockholders' deficit :
|
||||||||
Common stock, $0.0001par value; 150,000,000 and 75,000,000 shares authorized at February 29, 2012 and February 28, 2011; 71,942,669 and 60,720,956 issued and outstanding at February 29, 2012 and February 28, 2011
|
7,194 | 6,072 | ||||||
Additional paid-in capital
|
393,801,622 | 379,819,510 | ||||||
Accumulated deficit
|
(405,407,864 | ) | (391,254,160 | ) | ||||
|
|
|||||||
Total stockholders' deficit
|
(11,599,048 | ) | (11,428,578 | ) | ||||
|
|
|||||||
Total liabilities and stockholders' deficit
|
4,138,870 | $ | 4,506,810 | |||||
|
|
For the year ended
February 29, 2012
|
For the year ended February 28, 2011
|
|||||||
Net revenues
|
$ | 3,335,985 | $ | 3,439,959 | ||||
Cost of goods sold
|
1,772,155 | 2,097,463 | ||||||
Gross profit
|
1,563,830 | 1,342,496 | ||||||
Operating expenses:
|
||||||||
Engineering, research and development
|
1,328,133 | 1,661,319 | ||||||
Selling, general, and administrative
|
13,059,291 | 9,824,524 | ||||||
Total operating expenses
|
14,387,424 | 11,485,843 | ||||||
Loss from operations
|
(12,823,594 | ) | (10,143,347 | ) | ||||
Other income (expense):
|
||||||||
Interest expense, net
|
(2,012,538 | ) | (918,301 | ) | ||||
Gain (Loss) on settlement of debt, net
|
656,838 | (129,032 | ) | |||||
Other income (expense), net
|
25,590 | (5,338 | ) | |||||
Total other expense
|
(1,330,110 | ) | (1,052,671 | ) | ||||
Net Loss
|
(14,153,704 | ) | $ | (11,196,018 | ) | |||
Basic and diluted loss per share
|
$ | (0.21 | ) | $ | (0.20 | ) | ||
*Weighted-average shares outstanding
|
66,912,617 | 55,591,847 | ||||||
Common
Stock Shares
|
Common
Stock Amount
|
Additional Paid-In Capital
|
Accumulated
Deficit
|
Total Stockholders' Deficit
|
||||||||||||||||
Balance, February 28, 2010
|
52,689,061 | 5,268 | 374,890,469 | (380,058,142 | ) | (5,162,405 | ) | |||||||||||||
Common stock issued in private placements, net
|
4,647,292 | 465 | 2,479,022 | - | 2,479,487 | |||||||||||||||
Shares issued for note conversions
|
338,408 | 34 | 238,850 | - | 238,884 | |||||||||||||||
Shares issued for settlement of accounts payable
|
367,619 | 37 | 269,992 | - | 270,029 | |||||||||||||||
Shares issued for services
|
1,641,434 | 164 | 1,208,450 | - | 1,208,614 | |||||||||||||||
Adjustment to prior issuance
|
150,000 | 15 | (15 | ) | - | - | ||||||||||||||
Shares issued in lieu of salary
|
887,142 | 89 | 487,839 | - | 487,928 | |||||||||||||||
Beneficial conversion feature
|
- | - | 72,000 | - | 72,000 | |||||||||||||||
Employee option expense
|
- | - | 172,903 | - | 172,903 | |||||||||||||||
Net Loss
|
- | - | - | (11,196,018 | ) | (11,196,018 | )) | |||||||||||||
Balance, February 28, 2011
|
60,720,956 | $ | 6,072 | $ | 379,819,510 | $ | (391,254,160 | ) | $ | (11,428,578 | ) | |||||||||
Common stock issued in private placements, net
|
2,460,849 | 246 | 1,453,274 | - | 1,453,520 | |||||||||||||||
Shares issued for note conversions
|
2,227,612 | 222 | 1,515,738 | - | 1,515,960 | |||||||||||||||
Shares issued for settlement of accounts payable
|
1,006,054 | 101 | 656,898 | - | 656,999 | |||||||||||||||
Shares issued for services
|
1,625,000 | 163 | 1,128,837 | - | 1,129,000 | |||||||||||||||
Shares issued for in lieu of salary
|
3,042,199 | 304 | 2,087,144 | - | 2,087,448 | |||||||||||||||
Shares issued as placement fees
|
859,999 | 86 | (86 | ) | - | - | ||||||||||||||
Allocation of proceeds from convertible notes payable issued with warrants
|
- | - | 3,366,248 | - | 3,366,248 | |||||||||||||||
Employee option and warrant expense
|
- | - | 3,774,059 | - | 3,774,059 | |||||||||||||||
Net Loss
|
- | - | - | (14,153,704 | ) | (14,153,704 | ) | |||||||||||||
Balance, February 29, 2012
|
71,942,669 | $ | 7,194 | $ | 393,801,622 | $ | (405,407,864 | ), | $ | (11,599,048 | ) | |||||||||
February 29, 2012
|
February 28, 2011
|
|||||||
Cash flows from operating activities:
|
||||||||
Net loss
|
$ | (14,153,704 | ) | $ | (11,196,018 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities:
|
||||||||
Depreciation and amortization
|
182,703 | 186,594 | ||||||
Provision for bad debt
|
7,547 | 61,831 | ||||||
Provision for inventory obsolescence
|
(543,325 | ) | (106,235 | ) | ||||
Amortization of prepaid issuance of shares
|
380,772 | - | ||||||
Stock option and warrant employee compensation expense
|
3,774,059 | 172,903 | ||||||
Warrant expense | 55,901 | - | ||||||
Amortization of debt discount
|
957,037 | 72,000 | ||||||
Beneficial conversion feature on convertible debt
|
70,641 | - | ||||||
(Gain) Loss on debt settlement
|
(656,838 | ) | 129,032 | |||||
Shares issued for services
|
754,000 | 803,255 | ||||||
(Increase) decrease in:
|
||||||||
Accounts receivable
|
(505,954 | ) | (44,457 | ) | ||||
Inventory
|
1,213,338 | 472,416 | ||||||
Other current assets
|
(90,697 | ) | 171,656 | |||||
Increase (decrease) in:
|
||||||||
Bank overdraft
|
16,068 | - | ||||||
Accounts payable and accrued expenses
|
1,269,829 | 3,048,847 | ||||||
Customer advances
|
37,048 | 75,308 | ||||||
Net cash used in operating activities
|
(7,231,575 | ) | (6,152,868 | ) | ||||
Cash flows from investing activities:
|
||||||||
Purchase of property, plant, and equipment
|
- | (9,598 | ) | |||||
February 29, 2012
|
February 28, 2011
|
|||||||
Cash flows from financing activities:
|
||||||||
Proceeds from notes payable
|
457,000 | 310,000 | ||||||
Proceeds from notes payable - related party, net
|
1,925,000 | 3,710,000 | ||||||
Payments on notes payable
|
(202,500 | ) | (277,500 | ) | ||||
Proceeds from convertible notes payable
|
3,500,000 | - | ||||||
Net proceeds from issuance of common stock
|
1,453,520 | 2,479,487 | ||||||
Net cash provided by financing activities
|
7,133,020 | 6,221,987 | ||||||
Net increase (decrease) in cash and cash equivalents
|
(98,555 | ) | 59,521 | |||||
Cash and cash equivalents, beginning of year
|
104,815 | 45,294 | ||||||
Cash and cash equivalents, end of year
|
$ | 6,260 | $ | 104,815 | ||||
Supplemental disclosures of cash flow information:
|
||||||||
Interest paid
|
$ | 43,456 | $ | 27,327 | ||||
Income taxes paid
|
$ | - | $ | - | ||||
Machinery and equipment
|
5 to 10 years
|
Furniture and fixtures
|
7 years
|
2012
|
2011
|
|||||||
Raw materials
|
$ | 1,812,523 | $ | 2,394,502 | ||||
Finished goods
|
2,354,543 | 2,985,902 | ||||||
4,167,066 | 5,380,404 | |||||||
Reserve for potential product obsolescence
|
(1,460,683 | ) | (1,991,241 | ) | ||||
Discount on long term inventory | (102,383 | ) | (115.150 | ) | ||||
2,604,000 | 3,274,013 | |||||||
Non-current portion
|
(1,604,000 | ) | (2,274,013 | ) | ||||
Current portion
|
$ | 1,000,000 | $ | 1,000,000 | ||||
2012
|
2011
|
|||||||
Machinery and equipment
|
$ | 964,111 | $ | 964,111 | ||||
Furniture and fixtures
|
163,302 | 163,302 | ||||||
Leasehold improvements
|
485,080 | 485,080 | ||||||
1,612,493 | 1,612,493 | |||||||
Less accumulated depreciation and amortization
|
( | 1,414,354 | ) | ( | 1,231,651 | ) | ||
Property, plant and equipment, net
|
$ | 198,139 | $ | 380,842 | ||||
February 29, 2012
|
February 28, 2011
|
|||||||
Demand note payable, at 10%
|
$ | 150,000 | $ | 82,500 | ||||
Convertible note payable, at 7%, convertible into common stock at $3 per share plus accrued interest, due in May 2013. This note was converted into 666,667 shares at face value plus $17,522 of accrued interest on November 30, 2011.
|
- | 500,000 | ||||||
Convertible note payable, at 10%, convertible into common stock at $0.75 per share plus accrued interest, due in September2011. This note was converted into 325,612 shares at face value plus $40,953 of accrued interest as of November 30, 2011.
|
- | 200,000 | ||||||
Convertible note payable, at 10%, convertible into common stock at $0.75 per share plus accrued interest, due in September 2011.
|
- | 90,000 | ||||||
Senior secured convertible note dated September 23, 2011, due March 23, 2013, with 12 monthly payments commencing April 23, 2012 of $306,250 per month. The notes have a stated interest rate of 0%, with prepaid interest of $175,000. Balance net of Beneficial Conversion Feature as of February 29, 2012
|
1,161,430 | - | ||||||
1,311,430 | 872,500 | |||||||
Less: Current portion
|
$ | 1,214,644 | $ | 372,500 | ||||
Long-term portion
|
$ | 96,786 | $ | 500,000 |
2012
|
2011
|
|||||||
Accrued payroll and related expenses
|
$ | 993,652 | $ | 2,520,107 | ||||
Accrued interest
|
82 | 112,749 | ||||||
Other
|
26,225 | - | ||||||
Total
|
$ | 1,019,959 | $ | 2,632,856 | ||||
2006 Plan
|
|||||||
Weighted-Average Exercise Price
|
Aggregate Intrinsic Value
|
Number of Options
|
|||||
|
|
|
|||||
Outstanding, February 28, 2010
|
$1.50
|
$0.00
|
6,283,500
|
||||
Granted
|
$0.75
|
424,000
|
|||||
Cancelled
|
$1.50
|
(3,000)
|
|||||
Re-characterized
|
$1.50
|
(1,400,000)
|
|||||
Outstanding, February 28, 2011
|
$0.75
|
$0.00
|
5,304,500
|
||||
Granted
|
$0.75-$1.00.
|
1,319,000
|
|||||
Cancelled
|
$0.75
|
(338,000)
|
|||||
Outstanding, February 29, 2012
|
$0.75-$1.00
|
$0.00
|
6,285,500
|
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
|
|||||||||||||
$0.75 - $1.00
|
6,285,500
|
3.3 years
|
$
|
0.80
|
3.3 years
|
5,056,444
|
$
|
0.76
|
Non-vested Shares
|
Shares
|
Weighted-Average
Grant-Date
Fair Value
|
||||||
Non-vested at February 28, 2011
|
508,916 | $ | 0.48 | |||||
Granted
|
1,319,000 | $ | 0.38 | |||||
Vested
|
(350,912 | ) | $ | 0.48 | ||||
Cancelled
|
(247,948 | ) | $ | 0.83 | ||||
Non-vested at February 29, 2012
|
1,229,056 | $ | 0.38 | |||||
Number of Shares
|
Exercise Prices
|
|||||||
Outstanding, February 28, 2011
|
8,688,576 | $ | 0.75-$4.00 | |||||
Granted
|
23,102,787 | $ | 1.00-$1.50 | |||||
Expired
|
(781,625 | ) | $ | 1.00-$4.00 | ||||
Outstanding, February 29, 2012
|
31,009,738 | $ | 0.75-$4.00 |
Stock Warrants Granted | Risk free rate of return | Volatility | Dividend Yield | Expected Life |
9,000,000 | 0.98% | 78.99% | 0% | 5 years |
400,000 | 0.625% | 78.83% | 0% | 5 years |
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
|
||||||
$1.00
|
6,225,000
|
5,825,000
|
55 months
|
$1.00
|
$1.00
|
$0.00
|
||||||
$1.00
|
16,722,787
|
16,722,787
|
53 months
|
$1.00
|
$1.00
|
$0.00
|
||||||
$1.50
|
155,000
|
155,000
|
49 months
|
$1.50
|
$1.50
|
$0.00
|
||||||
$0.75-1.50
|
2,693,286
|
2,693,286
|
35 months
|
$0.90
|
$0.90
|
$0.00
|
||||||
$0.75-1.25
|
1,314,710
|
1,314,710
|
29 months
|
$1.25
|
$1.25
|
$0.00
|
||||||
$1.50
|
1,900,000
|
1,900,000
|
27 months
|
$1.50
|
$1.50
|
$0.00
|
||||||
$1.00-$4.00
|
1,998,955
|
1,998,955
|
2 months
|
$3.90
|
$3.90
|
$0.00
|
||||||
31,009,738
|
30,609,738
|
2012
|
2011
|
||||||||||
Current:
|
$ | ||||||||||
Federal
|
- | - | |||||||||
State
|
800 | 800 | |||||||||
Total
|
800 | 800 | |||||||||
|
|||||||||||
Deferred
|
|||||||||||
Federal
|
- | - | |||||||||
State
|
- | - | |||||||||
Total
|
- | - | |||||||||
Total Income Tax Provision
|
|||||||||||
$ | 800 | $ | 800 |
2012
|
2011
|
|||
|
|
|||
Expected tax benefit
|
34.0%
|
34.0%
|
||
State income taxes, net of federal benefit
|
6.0
|
6.0
|
||
Changes in valuation allowance
|
(40.0)
|
(40.0)
|
||
Total
|
-%
|
- %
|
2012
|
2011
|
|||||||
Deferred tax asset
|
||||||||
Primarily relating to net operating loss carry-forwards, but also reserves for inventory and accounts receivable, stock-based compensation and other
|
$ | 113,000,000 | $ | 110,000,000 | ||||
Valuation allowance
|
(113,000,000 | ) | (110,000,000 | ) | ||||
Net deferred tax asset
|
$ | - | $ | - |
2012
|
2011
|
|||||||
United States
|
$ | 1,906,453 | $ | 1,866,723 | ||||
Canada
|
488,688 | 842,780 | ||||||
Europe
|
93,855 | 76,876 | ||||||
Asia
|
846,989 | 653,580 | ||||||
Total
|
$ | 3,335,985 | $ | 3,439,959 | ||||
By:
|
_/s/ Melvin Gagerman_____________________
|
Melvin Gagerman
|
|
Chief Executive Officer
|
|
By:
|
__/s/ Melvin Gagerman_______________________
|
Melvin Gagerman
|
|
Chief Financial Officer
|
|
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.
|
Date: May 29, 2012
|
By:
|
/s/ Melvin Gagerman________________________________
|
|
||
Melvin Gagerman
Chief Executive Officer, Chief
Financial Officer, Chief Accounting
Officer
|