Aura Releases Message to the Shareholders
EL SEGUNDO, Calif.--(BUSINESS WIRE)--May 30, 2002--AURA SYSTEMS, INC. (OTC BB:AURA) has made available a message to the shareholders from Joshua Hauser, President and CEO regarding the fiscal year ending February 28, 2002.
Dear Shareholders:
The conclusion of Fiscal 2002 brought the end of an era for Aura Systems, Inc. The founders and long-time management team left the company on February 28, 2002. I join with the rest of the management team and the Board of Directors in recognizing that the technology they developed has made the AuraGen(R) product line possible. We remain convinced that this technology will change the way people think about and use mobile power.
Aura entered Fiscal 2002 with high expectations. Revenue for the year was essentially all from the sales of AuraGen systems and increased by 24% to $3.1 million from $2.5 million in Fiscal 2001. This growth was not near the levels that had been anticipated. The gross margin was a strong 52%, unchanged from Fiscal 2001. Operating expenses decreased from $21.9 million to $17.3 million. Total expenses increased from $22.2 million to $28.5 million. The expenses recognized in Fiscal 2002 include $10.6 million of one-time charges taken to more accurately reflect the current value of the Company's assets and future liabilities. Also reflected are costs associated with the settlement of all of the Company's material pending litigation. The gross interest expense was slightly higher at $2.5 million.
Significant improvements to the Balance Sheet were made as current and long term notes payable and other liabilities were reduced from $38.5 million to $10.9 million. Operating cash flows improved from
($13.3 million) to ($8.7 million). This cash usage was financed by the sale of additional equity.
During the year, the product line was greatly expanded with the introduction of the Inverter Charger System (ICS) and a selection of DC output systems to complement the AC output systems. The ICS allows operation from batteries when the vehicle engine is turned off. This is important in a range of applications including "silent watch" in military situations or evening maintenance work in residential areas where vehicle noise is objectionable.
Several exciting announcements were made in the past year that validated the AuraGen(R) product concept. General Motors recognized the AuraGen(R) by including it in two programs associated with their commercial vehicle sales, "2002 Fit for Profit," and "2002 Commercial Customer's Choice." AuraGen(R) equipped vehicles played a key role in the Homeland Security efforts at the Salt Lake City Olympics. The U.S. Army Europe Command successfully deployed AuraGen(R) VIPERS, the military version of the AuraGen(R). The South Korean Army approved the use of the VIPER. The National Oceanic & Atmospheric Administration (NOAA) selected the AuraGen(R) for use on an ocean research vessel. Schlumberger, a leader in oil field services, approved the AuraGen(R) for use on new trucks. Ford Motor Co. exhibited two F-Series trucks with AuraGen(R) /ICS systems installed at the International Truck and Bus Meeting and Exposition. Work done with Pierce Manufacturing, the fire engine division of Oshkosh Truck Corporation, led to an agreement to supply the AuraGen(R) for use in firefighting apparatus.
Although the sales in Fiscal 2002 showed substantial increase over the prior period, the trend throughout the year was disappointing. Sales declined in each quarter from the prior quarter. This sales trend was a result of ineffective sales and marketing efforts as well as some delay in introduction of new products. The shortfalls in the marketing programs occurred both in the level of support given to the distributor network and the focus of activities related to developing OEM sales opportunities. The result was a drop in the sales to our distributors who are adjusting inventories to reflect their current needs. In addition, the regular OEM shipments that were forecast in last year's Shareholder Letter did not materialize.
As Fiscal 2002 marked the end of an era, Fiscal 2003 is a new beginning for Aura. First and foremost, new management has been put into place to focus on growing the revenue and improving the operations of the company. The recent sales trends will take time and resources to improve. The process of strengthening sales and marketing resources of the company has begun. Mr. Craig Lipus, a seasoned sales and marketing professional, will join the Company in June. The support of the distribution channel has been assigned a high priority. A complete review of our promotional activities is taking place. We will narrow the industry focus of our efforts in the coming year. We have concluded that it is impractical at this point in time for Aura Systems to support simultaneous penetration of the broad range of market segments that have use for the AuraGen(R). We believe that the best strategies for some of these segments will include strategic partnerships and technology licensing.
Several steps have been taken since the beginning of the year to properly position the company for the future and address the negative cash flow situation. Some of these were described above and related to recognizing the appropriate value of assets based on the current state of the business. The major efforts going forward must be related to increasing the sales of our existing product line. This required a reassessment of the resources that we had in place. Unfortunately, we have had to make a substantial reduction in employment levels. The current number of employees is down 29% from the February 28, 2002 level. In addition to this step, other steps are being taken to control costs and monetize non-productive assets. There will be some modest increases in employment levels throughout the year as more efforts are devoted to sales and marketing.
Although we believe that AuraGen(R) sales will continue to grow, Fiscal 2003 will be a year for positioning the company. We began the year with a minimal order backlog. Orders and revenue are not expected to show improvement over recent trends in the first half of the year. The planned revenue increases and expense reductions in Fiscal 2003 should lead to losses in the current fiscal year lower than those experienced in Fiscal 2002. Operating cash flow is expected to remain negative, but should show improvement. Expenses in Fiscal 2003 should be lower as a result of the reduction in labor costs, the elimination of the depreciation and amortization costs relative to the non-performing assets that were written off, reduced legal and litigation expenses, and reduced interest expense due to the debt reduction that took place last year. The marketing and sales efforts in the coming year will be designed to support our distributor network and develop OEM opportunities. There are currently ongoing discussions with several potentially large users of AuraGen(R) which will be nurtured throughout the year.
We are committed to provide our shareholders and our employees with as much accurate and timely information as possible in the coming year. I would like to take this opportunity to thank all of the loyal shareholders and employees who have supported Aura Systems, Inc. through the past difficulties. I believe that with your continued support we will be successful.
Joshua A. Hauser
President & CEO |
