Aura stock levitates, but its products....

Aura Systems Inc. of El Segundo: Stellar purveyor of magnetic levitation systems, or just another Wall Street hype job?

Aura Systems, traded over-the-counter, has gained national attention for its promotion of magnetic suspension systems, which the company suggests could replace ordinary shock absorbers or ball bearings in everything from optical equipment to industrial machinery to airplanes to cars.

Most schoolchildren are familiar with magnetic levitation -- the repulsion felt when one pole of a magnet is pressed against another like pole. Conversely, opposite poles attract.

Aura Systems, which sports quarterly sales in the $3 million range, hopes to build magnetic aversion into a multibillion-dollar empire -- a prospect which has teased Wall Street into putting a $178 million market capitalization (shares outstanding times price) on the fledgling enterprise.

But the 126-employee company has also badly undercut its own reputation by repeatedly hinting at, or even outright announcing, large production contracts with major automakers -- contracts that never seem to materialize.

For example, on Aug. 21, 1990, Aura Systems, through its Westside-based public relations firm Rogers & Cowan, announced it had a production contract with a Detroit automaker to produce 1.7 million electromagnetic devices, and that production would commence in summer of 1991.

Production has not commenced. Aura Executive Vice President Arthur Schwartz last week said later releases cleared up the matter, but had no further comment on the matter.

And yet magnetic levitation remains alluring for investors and others. In particular, magnetically suspending a shaft inside an electric motor -- eliminating the need for ball bearings -- is a promising avenue, say industry experts such as Crawford Meeks, president of Northridge-based Avcon Advanced Control Inc., a maker of magnetic suspension systems for pumps.

"There are aircraft engines, heavy industrial pumps that could benefit from magnetic suspension," said Meeks. "Once installed, an engine with magnetic suspension has even lower maintenance costs than regular engines. There are no ball bearings that need lubrication, and need for a cooling system to cool the ball bearings."

Aura Systems is the brainchild of Zvi "Harry" Kurtzman, 45, who has likened the importance of magnetic suspension devices to the discovery of electricity.

Kurtzman studied physics at Cal State Northridge and the University of California at Riverside, stopping short of a doctorate. Thereafter he worked as a consultant to defense contractors, for Hughes Aircraft, and for a company named Science Application International, before starting Aura Systems.

Unavailable for comment for the past two weeks, Kurtzman told Los Angeles magazine in 1989 that magnetic levitation could be like electricity, a technology "we cannot live without. Similarly, we are offering a technology that could revolutionize our lives."

Kurtzman, paid $140,005 a year, also said that if Aura could sell suspension systems to automakers, the company's revenues would rocket into the billions.

But company officer Schwartz last week said Kurtzman is actually down-to-Earth about Aura System's business prospects. "I have never heard Harry (Kurtzman) talk about big numbers," said Schwartz. "He is a very strong optimist, the lifeblood of this company. He is a dreamer who has managed to make his dreams come true."

Still, competitors regard the Israeli-born Kurtzman as a high flyer. They say he tends to talk big while actual commercialization of many ideas remains years in the future -- and some applications may never be economically viable.

"Viable commercial production of products using magnetic suspension is a few years away yet," said Meeks of Avcon Advanced Control last week. "Kurtzman is a visionary, but he seems to overlook the years between a product idea and use in an actual market."

Meeks also claims that his company has bested Aura Systems for three recent defense industry contracts.

Moreover, Aura Systems naysayers charge that much simpler and cheaper devices, such as springs, ball bearings or shock absorbers, do the job adequately in the vast bulk of commercial applications -- and besides that, magnetic levitation is not an idea unique to Aura Systems.

"There are competitors in this field, and they say Aura has invented nothing new," said Charles Biderman, editor of the Santa Rosa-based Market Trim Tabs newsletter for short traders (investors who bet the price of a stock will go down). "Aura for years has been saying they were going to get a big contract. They never do."

Added Robert Bosley, president of the Long Beach-based Levitron Group, another company in magnetic suspension and also a former associate of Kurtzman's, "In the vast majority of applications, if you can use ball bearings or shock absorbers, then use 'em. Magnetic suspension is for spacecraft, petroleum pumps, certain specialty items."

Although a supporter of magnetic levitation technology, Bosley said that such technology is expensive in engines, requiring much more wiring. For that reason and others -- including personal, financial disputes with Kurtzman -- Bosley said he is short on Aura Systems stock.

Big contracts or no, for now Wall Street is enamored with Aura System's prospects: Though the 4-year-old company posted net income of just $498,032 on revenues of $3.16 million in the fiscal third quarter of 1991 (the latest reported period ended Nov. 30) it had 26.37 million shares outstanding at $6.75 each in late trading last week, making for a hefty market capitalization of $178 million.

Though actual sales have been meager, over the years official Aura Systems documents and news articles have repeatedly tossed up the possibility that regular automobiles would use magnetic suspension systems, rather than ordinary shock absorbers.

For example, in its July 1989 annual report to shareholders, Aura Systems reported, "The other major breakthrough in magnetic systems has been the utilization of technology to design an active suspension system for automobiles. This is a new and revolutionary approach to provide the performance of a sports car and the comfort of a luxury; all in one car at an affordable cost."

The company's 1990 10K also highlighted Aura's "patented active" suspension system for automobiles. Other company documents spoke of a system that would instantly respond to bumps or potholes in the road, and raise the tires up or down rapidly.

In August 1990, Aura Systems announced "it has entered into a contract with a major domestic automaker to provide Aura's electro-magnetic actuator technology for the company's automobiles. Pre-production development and testing is scheduled to begin immediately with an initial production of 1.7 million units scheduled to start in Summer 1991." But to date, no such production has commenced.

And a December 1990 issue of California Business magazine reported that the company "has announced a $34 million contract from a Detroit automaker to use the technology in an undisclosed application."

Again, in November 1991, Aura Systems' chief financial officer, Frank Phelan, told Bloomberg Business News wire service that the company would received between $42 million and $70 million in orders from auto giant General Motors Corp. That proclamation went out over the wires, although to date no large contract has been inked with GM. The Securities and Exchange Commission is investigating the announcement, and Phelan has since partially retracted his statement.

Last week, company officer Schwartz said work is ongoing, but no production has commenced on a auto suspension system.

In addition to somewhat optimistic company announcements, short trader newsletter editor Biderman has raised questions about "buy" recommendations put out in 1989 and 1990 by First Hanover Securities, a New York-based brokerage.

The chairman of First Hanover is Peter Jaquith, who is also a director at Aura Systems. At last report, Jaquith owns 1.1 million shares of Aura Systems stock, and he also sold 500,000 shares while the First Hanover buy recommendations were in effect. According to Biderman's newsletter, First Hanover's analyst "admits having initiated coverage at Jaquith's behest."

Jaquith, formerly senior managing director in corporate finance and investment banking in brokerage house Bear, Stearns & Co.'s Los Angeles offices, defended the analyst report and his sales when reached for a telephone interview.

"I wrote a check for a million dollars to this company when it didn't have a dime. I left my money in there for three or four years," said Jaquith. "Then for personal reasons I sold the stock. Nobody leaves venture capital in a company forever."

Of the First Hanover "buy" recommendation, Jaquith conceded the report on Aura Systems was written after Jaquith broached the idea with the analyst. But he insisted the report was objective, stating, "he's an independent analyst."

Despite the popularity on Wall Street, to date Aura has not landed a large contract. In its latest 10Q, the only mention of a contract is a $1 million deal inked with Branford, Conn.-based Echlin Inc., an auto parts maker.

Two local securities industry denizens say they are leery of Aura stock, because of the frequent rumors of major contracts that never seem to come to fruition.

"There have been so many rumors in the stock. Over a year ago there was talk of a Chrysler contract, a GM contract, that they were moving to the AMEX (American Stock Exchange)," said Wendy Feldman, broker with Bateman Eichler, Hill Richards in Century City. "I call it the country club circuit tout. I am not in the stock."

Said Seth Feinstein, senior analyst with Crowell Weedon & Co. in downtown Los Angeles, "I visited Aura Systems two and a half years ago, and they were talking about big numbers (sales) back then. So far those numbers haven't materialized. But the stock has done exceptionally well."