SEC Scrutinizing Trading in Stock of Aura Systems
A controversial stock just got more so: Trading in shares of El Segundo-based research firm Aura Systems Inc. is being investigated by the Securities and Exchange Commission after the firm’s delay in filing year-end financial documents, according to a market source.
Aura’s shares suddenly tumbled $1.375 to close at $5.375 on the NASDAQ market Friday, a 20% decline in the heaviest trading since late April. Then on Monday, Aura announced that its financial report for the fiscal year ended Feb. 29 will be delayed because of an accounting change.
The report was due at the SEC by Friday, 90 days after the close of Aura’s fiscal year. But the firm, a self-proclaimed pioneer in new magnetic technologies, said its auditors needed more time.
Aura’s accounting firm, Deloitte & Touche, declined to comment. Harry Kurtzman, Aura’s president, said the delay stemmed mostly from a change in accounting for $2.5 million in revenue from an Air Force missile-testing contract. Those funds will be brought into the current fiscal year rather than recorded in 1991, he said, though he insisted that the shift is nothing out of the ordinary for government contract work.
Kurtzman said Aura’s stock most likely declined Friday because some investors were waiting for the year-end filing, “and when some people saw (no documents), they got nervous.” The stock recovered 50 cents Monday but fell 25 cents Tuesday to close at $5.625. The SEC investigation into the stock’s trading is believed to be informal at this point; the agency never confirms or denies its stock probes.
Throughout 1991, Aura intrigued investors with a flurry of press releases about potential applications for its magnetic technology. Across the spectrum of American industry, Aura’s grand goal is to replace today’s metal-on-metal moving parts--say, in a car door lock--with parts literally suspended in midair and moved up and down or back and forth using electromagnetic waves.
Aura’s stock soared from below $2 early in 1991 to $9.25 late in the year on excitement over its technology. The stock then ran up again earlier this year, to as high as $12.25.
But to date, virtually all of Aura’s revenue--which totaled $9.7 million in the nine months ended last Nov. 30--has come from one-shot research contracts from the government or large industrial companies. No company has yet committed to use Aura’s technology in a specific mass-produced product. The firm’s critics argue that Aura’s technology isn’t new and that magnetic-wave systems will always be too expensive for use in everyday products.
Kurtzman admitted that some investors may be disappointed that Aura has yet to land a production contract. But he denies rumors that the firm may face financial trouble without substantial new revenue soon.
Asked if Aura is in danger of running out of cash, Kurtzman said, “I don’t think so. . . . We’re fine.” He said the firm will report a loss for the year ended last February, but he declined to give a figure.
Kurtzman noted that the 5-year-old company is essentially debt-free, and he said Aura continues to receive new research contracts. He also noted that auto-parts maker Echlin Inc. paid Aura $1 million last year as an advance for potential future production contracts using Aura’s technology. No deal has yet materialized under that contract.
Another contract that had seemed secure earlier this year unraveled in February. Aura was building a prototype wave-making machine for W.R. Davis Engineering in Ottawa, but Davis spokesman Rod Bryce said this week that “the project is more or less terminated.”
Bryce said the project ended because of “a combination of a lot of things, but basically we just ran out of time (with Aura’s development process). Our customers couldn’t wait.”
Asked why the Davis contract was terminated, Kurtzman said, “I’m not exactly sure.”
Meanwhile, one of Aura’s biggest shareholders has been selling stock all year. Peter C. Jaquith, a Century City-based independent investor and an Aura board member, began selling shares last February when the stock was above $8, and he continued to let shares go through March and April even as the stock tumbled.
Jaquith, who was instrumental in bankrolling Aura in its early stages, owned 1,169,399 of Aura’s 26.4 million shares in mid-February. His stake had been cut to 798,299 by the end of April, when it stood at 3% of the company’s outstanding shares.
Reached last week, Jaquith said he believed that he had “an inordinate amount of my capital tied up in Aura” and needed cash to fund a new venture that publishes yearbooks for professional sports teams.
Of his remaining Aura stock, Jaquith insisted that he would “like to hold as much as I can.” Though he said he is no longer actively involved with Aura management, he said he believes that “you’re going to see over the next few months that production contracts are going to happen in a major way.”
A large number of Wall Street traders don’t believe it. The number of Aura shares sold “short”--that is, on the expectation the price will decline--reached 3.54 million by mid-May. That represents the 10th-largest short position among 4,000 NASDAQ-listed stocks.
Aura’s Slide
How shares of magnetic-systems developer Aura Systems have tumbled since the year began:
Weekly closes on NASDAQ, except latest
Tuesday close: $5.625
