Nasdaq Market Halts Trading in Aura Systems
Nasdaq Stock Market monitors on Thursday halted trading of Aura Systems Inc., a long-troubled El Segundo technology firm, after the company reported that it couldn’t afford to pay the outside auditors needed to finish its annual report.
Aura confirmed six months ago that its accounting practices were the subject of a Securities and Exchange Commission probe--for at least the second time in three years--and earlier this week delivered the latest grim news to its shareholders.
“The company’s continued operation will require an infusion” of additional cash and restructuring of about $35 million of debt, the firm said in an SEC filing Wednesday. Aura has raised more than $100 million in capital since 1993, despite never reporting an annual profit.
Aura said its recent financial troubles began when its former subsidiary, NewCom Inc., failed to repay its $20 million of debt due last fall. NewCom ceased daily operations after lender Deutsche Financial Services cut off its cash supply, the firm said. DFS also has launched legal proceedings to place a lien on Aura’s assets, it said.
When anticipated funds from NewCom failed to appear, Aura said, it was unable to pay its outside auditors, which the company did not identify.
Aura also said it has been forced to curb its expansion plans, eliminate or sell two divisions and lay off more than 50 employees since January. The firm said it still owes more than $10 million to creditors and is in arrears on leases or mortgages on six offices. Without more cash, Aura said, it risked being delisted from Nasdaq.
“Our feeling is [the halt] is a suspension until the Nasdaq has its questions answered,” Aura spokesman Larry Aldrich said. Aura “has been doing what it needs to survive.”
Wednesday’s filing was only the most recent example of Aura’s hunger for cash--an appetite it has tried to satisfy with repeated stock offerings that raised millions even though the firm remained unprofitable.
Zvi “Harry” Kurtzman, Aura’s president, did not return phone calls Thursday. In the past, he has described himself as a “consultant to major defense contractors,” who co-founded the firm in 1987 to do work for the Pentagon, then switched to selling electromagnetic products and audio speakers.
Even as profit remained elusive, the number of outstanding shares soared from 27 million in 1993 to 62.9 million in 1996, largely because the firm sold new shares at a discount overseas under an exemption from U.S. securities regulations.
Stock sales under the so-called Regulation S exemption allowed the firm to raise about $85 million in two years, which allowed it to continue in the face of huge operating losses. For U.S. stockholders, the overseas sales meant a major dilution of ownership.
“The money . . . was not thrown away,” Kurtzman said in 1996. “We own buildings, patents and technology.”
Aura raised more money after it bought NewCom’s predecessor out of bankruptcy in the mid-1990s. Aura then spun off NewCom, which made its own initial public offering in 1997 and raised about $19 million. Aura still owns at least 60% of the company.
Aura’s latest SEC filing indicates it has pinned its hopes on a product called AuraGen, a generator that it said is undergoing testing by the Army. An Army spokeswoman could not immediately comment.
More turbulence may lie ahead for Aura. In January, the firm confirmed that it received a subpoena from the SEC, which again is investigating its accounting practices. The Aura spokesman said Thursday the case has not yet been resolved.
In 1996, amid SEC accusations that it engaged in “sham” transactions to make its sales performance appear stronger, Aura settled the case without admitting or denying wrongdoing. In a consent order, the firm agreed not to commit such violations in the future.
The company’s shares closed at 22 cents, down 91% from their 52-week high of $2.41 a year ago.
