Shareholders Pay Price as Aura’s Story Worsens
Many hopeful individuals have owned shares of Aura Systems of El Segundo at some point in the last 13 years. For all of them, closure may finally be at hand in one of the sorriest investing sagas the Southland has ever known.
Last Thursday, trading in Aura’s shares was halted on the Nasdaq Stock Market after the company said it couldn’t scrape together enough money to pay its auditors to complete its 1998 annual report.
You can’t finish your annual report? That does sound like a problem.
Aura last traded Thursday at 22 cents a share. Nasdaq wants “additional information” before reopening the stock, but Aura was fairly clear about its future in a recent filing with the Securities and Exchange Commission.
“The company’s ability to maintain and expand its operations will require an infusion of working capital and the restructuring of Aura’s principal indebtedness,” Aura said. “There are no assurances that satisfactory agreements will be reached with these creditors.”
That filing was made with the same SEC that is investigating Aura for at least the second time this decade. “The investigation appears to relate to accounting matters in prior years,” Aura told shareholders earlier this year.
Companies come and go all the time in the harsh capitalist environment, of course, but Aura’s ability to hang on all these years has been remarkable in more ways than one.
Investors have ponied up somewhere in the neighborhood of $120 million for Aura’s many escapades since 1986--from magnetic technology that Aura insisted could change the world, to vibrating vests to be worn by video game players, to loudspeakers, to its latest venture, a mobile generator called the AuraGen.
Yet the company has never turned an annual profit.
According to Aura’s accounting, its sales in the nine months ended Nov. 30 totaled $105 million. The net loss on those sales was a stunning $37 million.
Critics of the mania for Internet stocks today note that most of the companies are losing money. Net investors, however, respond that they’re looking to the future, anticipating huge profits for many Net firms down the road.
Many Net companies can only hope they’ll be as lucky as Aura has been in terms of raising fresh capital despite a continuing torrent of red ink on the bottom line.
Aura has been creative about its financing, to say the least. When it apparently couldn’t float new stock to U.S. investors in the mid-1990s, it went overseas.
Nothing wrong with that, right? Ordinarily, no. But Aura used a loophole in securities laws that allowed it to sell stock to foreign investors at a 15% average discount to the shares’ market price on Nasdaq at the time.
Such financings, employed by a relative handful of companies, naturally played well with foreign investors who figured they could turn around quickly and sell their discounted shares at full price in the U.S. market.
In the meantime, each new offering further diluted the ownership stake of existing Aura shareholders.
Through the foreign offerings and other deals, Aura’s shares outstanding ballooned from 27 million in 1993 to 86 million by last November.
The share total also has grown as some of Aura’s convertible-bond debt financings over the years have been converted to common stock--further diluting existing shareholders. The company floated $29 million in such debt in 1997 and another $12 million last year.
Perhaps Aura’s biggest financing coup was its spinoff of NewCom Inc., a Westlake Village-based computer modem maker, in 1997. The offering raised $19 million as investors were somehow convinced to pay $9.50 a share for 2 million shares.
Less than two years later, NewCom is out of business: The company, which owes Aura $20 million, ceased operations May 25 after its primary lender pulled the plug on it. The stock appears to be worthless.
Where has all the money raised by Aura gone?
Not lately into research and development. Aura spent just $283,638 on R&D; in the quarter ended Nov. 30. A much bigger expense in the quarter: $1.3 million in legal costs.
Aura knows a lot about being sued. It has spent much of the last decade dealing with suits from competitors, former associates and shareholders--in addition to the SEC’s probings.
To settle some of the suits, Aura gave away--guess what--warrants to buy Aura stock. Yet more dilution for investors who already owned the stock.
All along, Aura has never been shy about spending money on public relations and press releases touting its big ideas. Red lights should have been flashing for investors when they saw releases like this one, as far back as 1990: “Aura announced it has entered into a contract with a major domestic auto maker to provide Aura’s electromagnetic actuator technology for the company’s automobiles.”
The auto maker? Not named.
The man who has presided over Aura since its inception is 52-year-old Zvi “Harry” Kurtzman. He isn’t talking publicly these days, but after a story I wrote three years ago about Aura--asking when shareholders might expect some kind of return on their investment--here’s what Kurtzman wrote me in a letter:
“While it has taken many years and tens of millions of dollars, the achievements [of the company] are remarkably measured by any standard. These achievements are now coming to market. Aura has a large investment in intellect value that is not reflected in its P/L [profit statement]. We hope you will see it soon.”
One can only wonder what the $120 million (or so) in capital raised by Aura might have accomplished in the hands of other Southland companies over the last 10 years.
Yet even now, Aura is trying to resuscitate itself. If it succeeds, however, it would be yet again at the expense of its poor common shareholders.
In its latest SEC filing, Aura says it has retained “one of the top five international accounting firms to assist it in implementing a restructuring.” The plan: Convert the company’s $35 million in debt into equity.
Absent such an agreement, Aura says, it will “explore other avenues”--none of which it attempts to spell out.
Tom Petruno can be reached by e-mail at tom.petruno@latimes.com.
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Aura’s Tortured Path
Quarterly closes and latest for shares of Aura Systems on Nasdaq:
Thursday: 22 cents
Source: Bloomberg News
