Dogged by Past Scandals, Aura Reinvents Itself One More Time

CORPORATE FOCUS
By RiSHAWN BIDDLE, Staff Reporter

Despite scrapes with the Securities and Exchange Commission, ties to stock promoter Rafi Khan and "going concern" warnings from its accountants, Aura Systems Inc. has somehow managed to avoid going bust.

Now the El Segundo-based firm's newest chief executive promises that a turnaround is coming.

"Our strength is product, product, product. We just have to make sure we do the blocking and tackling," said Neal Meehan, a former chief operating officer of Midway Airlines who last August became Aura's third chief executive in the past year.

He's counting on a portable power system called the AuraGen. Unlike standard portable generators, which can weigh as much as a quarter-ton, the AuraGen runs just 68 pounds and fits under the hood of a car. It provides 10 kilowatts of both AC and DC power whether the car engine is on or off.

Aura Systems touts AuraGen's portability; the company claims it rarely blows out, making it as reliable as the currents delivered to one's home. "You can operate your computer with an AuraGen and not worry about power surge," Meehan said.

Yet despite deals with the United States Army's Special Forces unit as well as with Ford Motor Co., Aura Systems hasn't made many inroads into the $2.5 billion mobile power market. For the third quarter ended Nov. 30, the company reported a net loss of $2.3 million on revenues of $423,066.

The problem lies in the time-consuming process of convincing government officials and auto manufacturers who make up the customer base to sign on. It can take as long as five years of testing before a manufacturer agrees to approve AuraGen for use with their vehicles.

Larger rivals like engine-maker Cummins Inc. and Honda Motor Co. have financial muscle and the name recognition. Aura Systems, on the other hand, is struggling to survive. The company reported that it had only $77,000 in cash at Nov. 30.

"It's a struggle. It's hard to sell people on a new technology and we're competing with established competitors," said Meehan.

Aura Systems is now focusing on the military and contracts with civilian federal agencies.

In April, it hired a former civilian official with the Army to peddle its wares to the Department of Homeland Security. Last March, a branch of the United States Department of Health and Human Services agreed to install AuraGen inside its emergency response vehicles.

Another avenue is its deal with Stewart & Stevenson, which won a contract in January to manufacture tactical vehicles for the Army.

But for all its outreach, AuraGen must deal with its past.

Last year, company cofounder, Zvi (Harry) Kurtzman resigned as chairman and chief executive after running afoul of the SEC for the second time in six years. This time, he and two other officials were accused of booking $26.5 million in fictitious sales over a two-year period.

Kurtzman's resignation ended an era of star-crossed entrepreneurial efforts. Since founding the company in 1987 to produce electromagnetic products for the Reagan-era "Star Wars" initiative, Kurtzman had presided over ill-fated efforts to peddle speakers, vests for video games and a curiosity called the "electromagnetic valve actuator."

Kurtzman also has ties to Khan, the stockbroker who, according to the SEC, had promoted Aura's stock before being banned from the securities industry in 2000. Kurtzman sat on the board of Ontro, a firm that the SEC says was promoted by a Khan affiliate.

While Kurtzman has settled with the SEC, and accepted a lifetime banishment from serving with a public company, he still claims the various probes were part of "a conspiracy" by enemies he refused to name.

"Did somebody put you up to this?" Kurtzman asked when contacted by a reporter.

Meanwhile, the company has cleaned house. In August, it handed over the reigns to Meehan, who joined the board after a previous housecleaning two years ago. Also helping out is Carl Albert, a former corporate lawyer who led the ouster of Kurtzman after the SEC's most recent probe, then served as chairman until stepping aside for Meehan in July.

But Kurtzman hasn't completely left the scene. He still controls 10 million shares of Aura Systems stock recently trading under $1 and he has an agreement to help the company raise money. In December, he helped Aura Systems sell its real estate assets for just $1.5 million, most of which had already been advanced before the deal was closed. As part of the deal, Aura also handed over warrants equal to 15 million shares of its stock.

For his work, the company says Kurtzman collected an as-yet undisclosed "success fee." Kurtzman denies he ever got a dime.

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