What changed in this filing

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Item 1. Financial Statements

2024-07-22 compared with 2024-01-16 · 500 added, 503 removed, 159 unchanged (86% of the section changed)

FINANCIAL STATEMENTS

SYSTEMS, INC.

BALANCE SHEETS

AURA SYSTEMS, INC.

CONDENSED BALANCE SHEETS

(amounts in thousands, except share data)

1 unchanged sentence

Cash and cash equivalents

Accounts receivables

Prepaid and other current assets

5 unchanged sentences

Current liabilities

Accounts payable and accrued expenses (including $ 396 and $ 376 due to related party, respectively)

Accrued interest (including $ 1,898 and $ 995 due to related party, respectively)

Accounts payable and accrued expenses

Accrued interest

Customer advances

Convertible notes payable , ($ 1,403 past due)

Convertible note payable-related party, ($ 3,000 past due)

Notes payable current portion

Convertible notes payable – past due

Convertible note payable-related party current portion

Notes payable-related parties, current portion

Operating lease liability, current portion

Derivative warrant liability

Derivative liability

Total current liabilities

Notes payable, non-current portion

Note payable-related party, non-current portion

Convertible note payable-related party, non-current portion

Operating lease liability

5 unchanged sentences

150,000,000 shares authorized;

101,242,286 and 94,648,346 issued and outstanding at November 30, 2023 and February 28, 2023, respectively.

and 104,591,648 issued and outstanding May 31, 2024, and February 29, 2024, respectively

Additional paid-in capital

2 unchanged sentences

Total liabilities and shareholders’ deficit

accompanying notes are an integral part of these unaudited financial statements.

SYSTEMS, INC.

STATEMENTS OF OPERATIONS

Three-Months Ended

Nine-Months Ended

The accompanying notes are an integral part of

these unaudited financial statements

AURA SYSTEMS, INC.

CONDENSED STATEMENTS OF OPERATIONS

Three Months Ending

(amounts in thousands, except share and per share data)

Cost of goods sold (includes inventory write-down of $ 32 and $ 90 for the three and nine months ended November 30, 2023)

Cost of goods

Gross profit (loss)

Operating expenses:

Engineering, research and development (including $ 29 , $ 50 , $ 117 and $ 119 to related party, respectively)

Engineering, research and development

Selling, general & administration

2 unchanged sentences

Other income (expense):

Interest expense, net (including $ 200 , $ 199 , $ 981 and $ 324 to related parties, respectively)

Change in fair value of derivative warrant liability

Interest expense, net (including $ 271 and $ 411 to related parties)

Loss on debt extinguishment - related party

Change in fair value derivative liability

Basic and diluted loss per share

Basic and diluted weighted-average shares outstanding

accompanying notes to these unaudited financial statements.

SYSTEMS, INC.

STATEMENTS OF SHAREHOLDERS’ DEFICIT

Months and Nine Months Ended November 30, 2023

(amounts in thousands, except share data)

See accompanying notes to these unaudited financial

AURA SYSTEMS, INC.

CONDENSED STATEMENTS OF SHAREHOLDERS’

ended May 31, 2024 and 2023

(in thousands, except share data)

Shareholders’

3 unchanged sentences

Balance, May 31, 2023 (unaudited)

Common shares issued for cash

Balance, August 31, 2023 (unaudited)

Common shares issued for cash

Fair value of warrants issued with convertible notes payable

Balance, November 30, 2023 (unaudited)

$ ( 475,915 )

Months and Nine Months Ended November 30, 2022

(amounts in thousands, except share data)

Shareholders’

Balance, February 29, 2024

1 unchanged sentence

Common shares issued for cash

Fair value of warrants issued for note settlement

Fair value of modified warrants - related party

Balance, May 31, 2024 (unaudited)

Common shares issued for cash

Balance, August 31, 2022 (unaudited)

Common shares issued for cash

Balance, November 30, 2022 (unaudited)

$ ( 494,248 )

accompanying notes to these unaudited financial statements.

SYSTEMS, INC.

STATEMENTS OF CASH FLOWS

Nine Months Ended

See accompanying notes to these unaudited financial

AURA SYSTEMS, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(amounts in thousands)

2 unchanged sentences

Inventory write-down

Change in fair value of derivative warrant liability

Loss on debt extinguishment – related party

Change in fair value of derivative liability

Changes in operating assets and liabilities:

Accounts receivable

Prepaid and other current assets

1 unchanged sentence

Accounts payable, accrued expenses and customer advances

Accrued interest on notes payable

Customer advances

Accrued interest

Operating lease liability

2 unchanged sentences

Purchase of property and equipment

Cash used in investing activities

Cash flows from financing activities:

Proceeds from issuance of common stock

Proceeds from issuance of convertible notes payable

Payment of notes payable

5 unchanged sentences

Supplemental schedule of non-cash transactions:

Note payable issued for software licensing agreement

Fair value of warrants issued for note settlement

accompanying notes to these unaudited financial statements.

SYSTEMS, INC.

Fair value of modified warrants - related party

Notes payable issued for the purchase of property and equipment

Fair value of convertible note payable

Extinguishment of note payable and accrued interest – related party

Conversion feature of convertible note payable – related party accounted as derivative liability

See accompanying notes to these unaudited financial

AURA SYSTEMS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

in thousands, except share and per share amounts)

1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

of Operations

Systems, Inc., (“Aura”, the “Company”) a Delaware corporation, is engaged in the development, commercialization,

and sale of products, systems, and components, using its patented and proprietary electromagnetic technology.

Aura develops and sells

AuraGen ® axial flux mobile induction power systems to the industrial, commercial, and defense mobile power generation

of Presentation

accompanying unaudited condensed financial statements as of and for the three and nine months ended November 30, 2023 and 2022, have

been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S.

the applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting.

Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S.

GAAP have been

condensed or omitted pursuant to such rules and regulations.

In the opinion of management, the unaudited condensed financial statements

reflect all adjustments of a normal recurring nature that are necessary for a fair presentation of the results for the periods presented.

The Condensed Balance Sheet information as of February 28, 2023, was derived from the Company’s audited Financial Statements as

of February 28, 2023, included in the Company’s Annual Report on Form 10-K filed with the SEC on May 26, 2023.

These financial

statements should be read in conjunction with that report.

The results of operations for the period ended November 30, 2023, may not

necessarily be indicative of the results that may be expected for the full fiscal year ending February 29, 2024.

Company’s fiscal year ends on the last calendar day of February.

Accordingly, the current fiscal year will end on February 29,

2024 and is referred to as “Fiscal 2024”.

Our prior fiscal years ended February 28, 2023, February 28, 2022 and 2021, and

are referred to as “Fiscal 2023”, “Fiscal 2022” and “Fiscal 2021”, respectively.

accompanying financial statements have been prepared assuming that the Company will continue as a going concern.

During the nine-month

period ended November 30, 2023, the Company recognized net loss of $ 3,171 and used cash in operating activities of $ 2,178 , respectively.

As of November 30, 2023, the Company also has a shareholder deficit of $ 21,247 and notes payable totaling $ 5,200 are also past due.

factors raise substantial doubt about the Company’s ability to continue as a going concern within one year of the date that the

financial statements are issued.

In addition, the Company’s independent registered public accounting firm, in its report on the

Company’s February 28, 2023, financial statements, raised substantial doubt about the Company’s ability to continue as a

THREE MONTHS ENDED MAY 31, 2024 AND 2023

(Amounts in thousands, except share and per

share amounts)

NOTE 1 – NATURE OF OPERATIONS AND SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Aura Systems Inc., (“Aura”, the “Company”)

a Delaware corporation, is engaged in the development, commercialization, manufacturing, licensing and sale of products and components

based on its Axial Flux Induction technology for electric motors and generators.

Our power generation solution based on axial flux induction

is known as the AuraGen ® for commercial and industrial applications and the VIPER for military applications.

developing axial flux induction electric motors for industrial/commercial applications as well as for two- and four-wheel EV applications.

Basis of Presentation

The accompanying unaudited condensed financial statements as of and

for the three months ended on May 31, 2024 and prior 2023, have been prepared in conformity with accounting principles generally accepted

in the United States of America (“U.S.

GAAP”) and the applicable rules and regulations of the Securities and Exchange Commission

(the “SEC”) regarding interim financial reporting.

Certain information and note disclosures normally included in the financial

statements prepared in accordance with U.S.

GAAP have been condensed or omitted pursuant to such rules and regulations.

In the opinion

of management, the unaudited condensed financial statements reflect all adjustments of a normal recurring nature that are necessary for

a fair presentation of the results for the periods presented.

The Condensed Balance Sheet information as of February 29, 2024, was derived

from the Company’s audited Financial Statements as of February 29, 2024, included in the Company’s Annual Report on Form 10-K

filed with the SEC on June 4, 2024.

These financial statements should be read in conjunction with that report.

The results of operations

for the period ended May 31, 2024, may not necessarily be indicative of the results of the full fiscal year ending February 28, 2025.

The Company’s fiscal year ends on the last

calendar day of February.

Accordingly, the current fiscal year will end on February 28, 2025, and is referred to as “Fiscal 2025”.

Our prior fiscal years ended February 29, 2024, February 28, 2023, and 2022, and are referred to as “Fiscal 2024”, “Fiscal

2023” and “Fiscal 2022”, respectively.

Going Concern

The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as

a going concern.

the event the Company is unable to generate profits and is unable to obtain financing for its working capital requirements, it may have

to curtail its business further or cease business altogether.

Substantial additional capital resources will be required to fund continuing

expenditures related to our research, development, manufacturing and business development activities.

The Company’s continuation

as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis, to retain

its current financing, to obtain additional financing, and ultimately to attain profitability.

the next twelve months the Company intends to continue to attempt to increase the Company’s operations and focus on the sale of

our AuraGen ® /VIPER products both domestically and internationally and to add to our existing management team.

addition, the Company plans to source new suppliers for manufacturing operations, rebuild the engineering and sales teams, and to the

extent appropriate, utilize third party contractors to support the operation.

The Company anticipates being able to obtain new sources

of funding to support these actions in the upcoming fiscal year.

inflation, the actions by the Federal Reserve Bank to address inflation, most notably continuing increases in interest rates, and the

volatility of energy prices create uncertainty about the future economic environment.

The Company expects that the impact of these issues

will continue to evolve.

The Company believes these factors impacted the Company’s business in fiscal 2023 and the nine months

of fiscal 2024 and will continue to impact the Company’s business in the remaining months of fiscal 2024 and fiscal 2025.

The implications

of higher government deficits and debt, tighter monetary policy, and higher long-term interest rates may drive a higher cost of capital

for the business and an increase in the Company’s operating expenses.

of the date of this filing, the COVID-19 pandemic has been declared to be officially over.

Despite this fact, there continues to be lingering

impacts of the COVID-19 pandemic in the regions in which the Company operates.

The Company has not observed any impairments of its assets

or a significant change in the fair value of its assets due to the COVID-19 pandemic.

At this time, it is not possible for the Company

to predict the duration or magnitude of the adverse results stemming from the outbreak and its lingering effects on the Company’s

business or results of operations, financial condition, or liquidity.

preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported

amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the

reported periods.

Significant estimates include assumptions made for inventory reserve, impairment testing of long-lived assets, the

valuation allowance for deferred tax assets, assumptions used in valuing derivative liabilities, assumptions used in valuing share-based

compensation, and accruals for potential liabilities.

The accompanying financial statements have been

prepared assuming that the Company will continue as a going concern.

The Company has not yet generated sufficient revenues to fund operations,

has experienced recurring operating losses and relies on debt and equity offerings to generate working capital.

During the three-month period ended May 31, 2024,

the Company recognized net loss of $ 15,258 from operations and used cash in operating activities of $ 784 .

As of May 31, 2024, the Company

also has a shareholder deficit of $ 35,627 and notes payable totaling $ 5,315 are also past due.

These factors raise substantial doubt about

the Company’s ability to continue as a going concern within one year of the date that the financial statements are issued.

the Company’s independent registered public accounting firm, in its report on the Company’s February 29, 2024, financial statements,

raised substantial doubt about the Company’s ability to continue as a going concern.

The financial statements do not include any

adjustments that might be necessary if the Company is unable to continue as a going concern.

In the event the Company is unable to generate

profits and is unable to obtain financing for its working capital requirements, it may have to curtail its business further or cease business

Substantial additional capital resources will be required to fund continuing expenditures related to our research, development,

manufacturing and business development activities.

The Company’s continuation as a going concern is dependent upon its ability to

generate sufficient cash flow to meet its obligations on a timely basis, to retain its current financing, to obtain additional financing,

and ultimately to attain profitability.

During the next twelve months the Company intends

to continue to attempt to increase the Company’s operations and focus on development and sale of a family of axial flux motos for

industrial/commercial and EV applications.

In addition, we also focus on development and sale of our axial flux induction generators

for commercial and military applications as well as for wind turbines and other environmental related applications.

In addition, the

Company plans to source new suppliers for manufacturing operations, rebuild the engineering and sales teams, and to the extent appropriate,

utilize third party contractors to support the operation.

Higher inflation, the actions by the Federal Reserve

Bank to address inflation, most notably continuing increases in interest rates, and the volatility of energy prices create uncertainty

about the future economic environment.

The Company expects that the impact of these issues will continue to evolve.

The Company believes

these factors impacted the Company’s business in fiscal 2023 and fiscal 2024 and will continue to impact the

Company’s business in fiscal 2025.

The implications of higher government deficits and debt, tighter monetary

policy, and higher long-term interest rates may drive a higher cost of capital for the business and an increase in the Company’s

operating expenses.

The COVID-19 pandemic

has been declared to be officially over.

Despite this fact, there continues to be lingering impacts of the COVID-19 pandemic in the regions

in which the Company operates.

The Company has not observed any impairments of its assets or a significant change in the fair value of

its assets due to the COVID-19 pandemic.

At this time, it is not possible for the Company to predict the duration or magnitude of the

adverse results stemming from the outbreak and its lingering effects on the Company’s business or results of operations, financial

condition, or liquidity.

Use of Estimates

The preparation of financial statements in

conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and

liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods.

Significant estimates include assumptions made for inventory valuation, impairment testing of long-lived assets, the valuation

allowance for deferred tax assets, assumptions used in valuing notes payable, derivative liabilities, assumptions used in valuing

share-based compensation, and accruals for potential liabilities.

Amounts could materially change in the future.

Actual results could differ from

those estimates.

Concentration

of November 30, 2023 and February 28, 2023, there were four vendors who accounted for over 10 % of the Company’s accounts payable.

Company recognizes revenue in accordance with Financial Accounting Standard Board’s (“FASB”) Accounting Standards Codification

(“ASC”) Topic 606, Revenue from Contracts with Customers.

primary source of revenue is the manufacture and delivery of generator sets used primarily in mobile power applications.

Our principal

sales channel is sales to a domestic distributor.

In accordance with ASC 606, the Company recognizes revenue, net of discounts, for our

generator sets at time of product delivery to the domestic distributor (i.e.

point-in-time), which also corresponds to the passage of

legal title to the customer and the satisfaction of our performance obligation to the customer.

Company periodically issues stock options and warrants, and shares of common stock to employees and non-employees in non-capital raising

transactions for services and for financing costs.

Share-based compensation cost is measured at the grant date, based on the estimated

fair value of the award, and is recognized as expense over the requisite service period.

Recognition of compensation expense for non-employees

is in the same period and manner as if the Company had paid cash for services.

Value of Financial Instruments

Company determines the fair values of its financial instruments based on a fair value hierarchy, which requires an entity to maximize

the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The classification of a financial

asset or liability within the hierarchy is based upon the lowest level input that is significant to the fair value measurement.

ASC 820, Fair Value Measurement and Disclosures (“ASC 820”), the fair value hierarchy prioritizes the inputs into

three levels that may be used to measure fair value:

1 – Quoted prices (unadjusted) for identical assets and liabilities in active markets;

2 – Inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly

or indirectly;

3 – Unobservable inputs.

recorded amounts of inventory, other current assets, accounts payable, and accrued expenses approximate their fair value due to their

short-term nature.

The carrying amounts of notes payable and convertible notes payable approximate their respective fair values because

of their current interest rates payable in relation to current market conditions.

following table sets forth by level, within the fair value hierarchy, the Company’s assets and liabilities at fair value as of

November 30, 2023 and February 28, 2023:

in thousands)

warrant liability

Company estimated the fair value of the derivative warrant liability using the Binomial Model.

following table provides a roll-forward of the warrant derivative liability measured at fair value on a recurring basis using unobservable

level 3 inputs for the period ended November 30, 2023 as follows:

Actual results

could differ from those estimates.

Vendor Concentration

As of May 31, 2024 , four vendors accounted for

39 %, 12 %, 11 % and 10 % of the Company’s accounts payable.

As of February 29, 2024, four vendors accounted

for 42 %, 11 %, 11 % and 10 % of accounts payable.

Revenue Recognition

The Company recognizes revenue in accordance with

Financial Accounting Standard Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue

from Contracts with Customers.

Our primary source of revenue is the manufacture and

delivery of axial flux induction motors and generator sets used primarily in mobile power applications.

Our principal sales channel is

sales to domestic end users and distributors and agents internationally.

In accordance with ASC 606, the Company recognizes revenue, net

of discounts, for our generator sets at the time of product delivery and acceptance by the customer (i.e.

point-in-time), which also corresponds

to the passage of legal title to the customer and the satisfaction of our performance obligation to the customer.

Share-Based Compensation

The Company periodically issues stock options and warrants, and shares

of common stock to employees and non-employees in non-capital raising transactions for services and for financing costs.

Share-based compensation

cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the requisite service

Recognition of compensation expense for non-employees is in the same period and manner as if the Company had paid cash for such

Fair Value of Financial Instruments

The Company determines the fair values of its

financial instruments based on a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize

the use of unobservable inputs when measuring fair value.

The classification of a financial asset or liability within the hierarchy is

based upon the lowest level input that is significant to the fair value measurement.

Under ASC 820, Fair Value Measurement and Disclosures

(“ASC 820”), the fair value hierarchy prioritizes the inputs into three levels that may be used to measure fair value:

Level 1 – Quoted prices (unadjusted) for identical assets and liabilities in active markets;

Level 2 – Inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly;

Level 3 – Unobservable inputs.

The recorded amounts of inventory, other current

assets, accounts payable, and accrued expenses approximate their fair value due to their short-term nature.

The carrying amounts of notes

payable and convertible notes payable approximate their respective fair values because of their current interest rates payable in relation

to current market conditions.

The following table sets

forth by level, within the fair value hierarchy, the Company’s assets and liabilities at fair value as of May 31, 2024 and February

(amounts in thousands)

Derivative liability – convertible note conversion option

February 29, 2024

Derivative liability

The Company estimated the fair value of the derivative liability using

the Binomial Model.

The following table provides a roll-forward of

the derivative liability measured at fair value on a recurring basis using unobservable level 3 inputs for the period ended May 31, 2024,

(amounts in thousands, except share data)

Derivative Warrants

Fair Value of Derivative Warrant Liability

Fair Value of

February 29, 2024

Change in fair value of derivative warrant liability

Gain on extinguishment on expiration of warrants

November 30, 2023

Reclassifications

February 28, 2023 balances have been reclassified to conform with the November 30, 2023 presentation.

In presenting the

Company’s balance sheet at February 28, 2023, the Company originally presented accrued interest of $ 1,389 and accrued payroll

and other expenses of $ 441 , totaling $ 1,830 as a separate line item called Accrued Expenses.

In addition, $ 82 of accrued interest

was included in notes payable-related parties, current portion.

In presenting the Company’s balance sheet at November 30,

2023, the Company has reclassified the balance of accrued interest of $ 1,471 as a separate line item, and the balance of accrued

payroll and other expenses of $ 441 as part of accounts payable and accrued expense and reduced notes payable-related parties, current portion by $ 82 .

Company’s loss per share amounts have been computed based on the weighted-average number of shares of common stock outstanding

for the period.

Basic earnings (loss) per share is computed by dividing net earnings (loss) available to common shareholders by the weighted

average number of shares of common stock outstanding during the period.

Diluted earnings (loss) per share is computed by dividing net

earnings (loss) available to common shareholders by the weighted average number of shares of common stock assuming all potential shares

had been issued, and the additional shares of common stock were dilutive.

Diluted earnings (loss) per share reflects the potential dilution,

using the as-if-converted method for convertible debt, and the treasury stock method for options and warrants, which could occur if all

potentially dilutive securities were exercised.

the nine-months ended November 30, 2023 and 2022, the calculations of basic and diluted loss per share are the same because potentially

dilutive securities would have had an anti-dilutive effect.

Recognition of derivative liability for a convertible note payable

conversion option

Change in fair value of derivative liability

Gain on extinguishment

Loss per share

The Company’s loss per share amounts have

been computed based on the weighted-average number of shares of common stock outstanding for the period.

Basic earnings (loss) per share

is computed by dividing net earnings (loss) available to common shareholders by the weighted average number of shares of common stock

outstanding during the period.

Diluted earnings (loss) per share is computed by dividing net earnings (loss) available to common shareholders

by the weighted average number of shares of common stock assuming all potential shares had been issued, and the additional shares of common

stock were dilutive.

Diluted earnings (loss) per share reflects the potential dilution, using the as-if-converted method for convertible

debt, and the treasury stock method for options and warrants, which could occur if all potentially dilutive securities were exercised.

For the three months ended May 31, 2024, and 2023,

the calculations of basic and diluted loss per share are the same because potentially dilutive securities would have had an anti-dilutive

The potentially dilutive securities consisted of the following:

Convertible notes

Accounting Pronouncements

Adopted Accounting Pronouncements

May 2021, the FASB issued ASU 2021-04 “Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50),

Compensation— Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic

815-40) Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options”

(“ASU 2021-04”).

ASU 2021-04 provides guidance as to how an issuer should account for a modification of the terms or conditions

or an exchange of a freestanding equity-classified written call option (i.e., a warrant) that remains equity classified after modification

or exchange as an exchange of the original instrument for a new instrument.

An issuer should measure the effect of a modification or

exchange as the difference between the fair value of the modified or exchanged warrant and the fair value of that warrant immediately

before modification or exchange and then apply a recognition model that comprises four categories of transactions and the corresponding

accounting treatment for each category (equity issuance, debt origination, debt modification, and modifications unrelated to equity issuance

and debt origination or modification).

ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021,

including interim periods within those fiscal years.

An entity should apply the guidance provided in ASU 2021-04 prospectively to modifications

or exchanges occurring on or after the effective date.

The Company adopted ASU 2021-04 effective March 1, 2022.

The adoption of ASU 2021-04

did not have any impact on the Company’s financial statement presentation or disclosures.

September 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments .

ASU 2016-13 requires

entities to use a forward-looking approach based on current expected credit losses (“CECL”) to estimate credit losses on

certain types of financial instruments, including trade receivables.

This may result in the earlier recognition of allowances for losses.

ASU 2016-13 is effective for the Company beginning March 1, 2023, and early adoption is permitted.

The Company adopted ASU 2021-04 effective

March 1, 2023.

The adoption of ASU 2016-13 did not have any impact on the Company’s financial statement presentation or disclosures.

recent accounting pronouncements and guidance issued by the FASB, including its Emerging Issues Task Force, the American Institute of

Certified Public Accountants, and the Securities and Exchange Commission (the “SEC”) did not or are not believed by management

to have a material impact on the Company’s present or future financial statements.

2 – CONVERTIBLE NOTES PAYABLE

notes payable consisted of the following:

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

Recent accounting pronouncements and guidance

issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities

and Exchange Commission (the “SEC”) did not or are not believed by management to have a material impact on the Company’s

present or future financial statements.

NOTE 2 – CONVERTIBLE NOTES PAYABLE

(amounts in thousands)

(a) Convertible notes payable 1 – past due

(b) Convertible notes payable 2

Convertible notes payable – past due

Unamortized debt discount

Fiscal 2013 and 2014, the Company issued six convertible notes payable in the aggregate of $ 4,000 .

The notes are unsecured, bear interest

at 5 % per annum and are convertible into shares of common stock at a conversion price of $ 1.40 per share, as adjusted.

The notes were

originally due in 2014 to 2017 and were all amended in 2018 and the maturity date for all the notes was changed to January 11, 2023.

As February 28, 2023, the outstanding balance of the convertible notes payable amounted to $ 1,403 and are past due.

the nine months ended November 30, 2023, the Company issued five convertible notes payable to unrelated individuals and entities totaling

$ 100,000 in exchange for cash.

The notes are unsecured, bear interest at rate of 10 % per annum, and mature in March 2024.

The notes payable

are convertible into shares of common stock at a conversion rate of $ 0.20 per share.

As part of the offering, the Company also

granted the note holders who participated in this offering, warrants to purchase a total of 60,000 shares of common stock, of which,

50,000 were issued to these noteholders.

The warrants are fully vested upon grant, expire in 18 months, and are exercisable into shares

of common stock at $ 0.50 per share.

The Company recorded a debt discount of $ 5 to account the relative fair value of the warrants granted.

The fair value of the warrants were computed using the BlackScholes Option Pricing Model with the following assumptions:

exercise price of $ 0.50 ;

expected life of 1.5 years;

volatility rate of 160 %;

and discount rate of 5 %.

will be amortized to interest expense over the expected term of the note payable.

of November 30, 2023, outstanding balance of convertible notes payable amounted to $ 1,503 , of which, $ 1,403 are past due.

3 – CONVERTIBLE NOTE PAYABLE-RELATED PARTY

note payable – related party consisted of the following:

In Fiscal 2013 and 2014,

the Company issued six convertible notes payable in the aggregate of $ 4,000 .

The notes are unsecured, bear interest at 5 % per annum and

are convertible into shares of common stock at a conversion price of $ 1.40 per share, as adjusted.

The notes were originally due in 2014

to 2017 and were all amended in 2018 to change the maturity date to January 11, 2023.

As of May 31, 2024 and February 29, 2024, the outstanding

balance of the convertible notes payable amounted to $ 1,403 and are past due.

In Fiscal 2024 the Company

issued convertible notes payable to unrelated individuals and entities totaling $ 110 in exchange for cash.

The notes are unsecured, bear

interest at rate of 10 % per annum, and mature in March 2024.

The notes payable are convertible into shares of common stock at a conversion

price of $ 0.20 per share.

As of May 31, 2024 and February 29, 2024, the outstanding balance of the convertible notes payable amounted

to $ 110 and $ 106 , respectively, and are past due.

NOTE 3 – CONVERTIBLE NOTE PAYABLE-RELATED

Convertible note payable – related party consisted of the following:

(amounts in thousands)

(a) Convertible note payable 1 – past due

(b) Convertible note payable 2

January 24, 2017, the Company entered into a debt refinancing agreement with a former director and current shareholder of the Company.

As part of the agreement, the Company issued a $ 3,000 convertible note.

The convertible note is unsecured, bears interest at 5 % per annum,

and was due February 2, 2023.

The convertible note is convertible into shares of common stock at a conversion price of $ 1.40 per share,

As of February 28, 2023, outstanding balance of the convertible note amounted to $ 3,000 and is past due.

the nine months ended November 30, 2023, the Company issued a convertible note payable of $ 20,000 in exchange for cash to a member of

the Company’s Board of Directors.

The convertible note is unsecured, bears interest at rate of 10 % per annum and will mature in

The convertible note payable is convertible to common stock at a conversion rate of $ 0.20 per share.

As part of the

offering, the Company also granted the note holders who participated in this offering a total of 60,000 warrants, of which, 10,000 warrants

were issued to the related party note holder (see Note 2).

of November 30, 2023, outstanding balance of the convertible notes payable-related party amounted to $ 3,020 , of which, $ 3,000 is past

4 – NOTES PAYABLE

payable consisted of the following:

(b) Convertible note payable 2 – past due

(a) On January 24, 2017, the Company

entered into a debt refinancing agreement with a former director and current shareholder of the Company.

As part of the agreement, the

Company issued a $ 3,000 convertible note.

The convertible note is unsecured, bears interest at 5 % per annum, and was due February 2,

The convertible note is convertible into shares of common stock at a conversion price of $ 1.40 per share, as adjusted.

of May 31, 2024 and February 29, 2024, outstanding balance of the convertible note amounted to $ 3,000 and is past due.

(b) On October 4, 2023, the Company issued a convertible note payable of

$ 20 in exchange for cash to a member of the Company’s Board of Directors.

The convertible note is unsecured, bears interest at rate

of 10 % per annum and matured in March 2024.

The convertible note payable is convertible to common stock at a conversion price of $ 0.20

As of May 31, 2024 and February 29, 2024, outstanding balance of the convertible note amounted to $ 3,000 and is past due.

On March 7, 2024, the Company amended the note payable to Kopple.

The amendment included, among other things (see Note 5) granting

Kopple a conversion right to be able to convert the note payable into equity of the Company at a conversion price of the lower of $ 1.00

per share or 50% of the 10 day volume weighted average price of the Company’s common stock.

As the amended Kopple note payable

is convertible into common stock, it is now reported as a convertible note payable The conversion right will be effective August 30,

The Company accounted for the amended terms of the note payable as a debt extinguishment and the existing note payable and accrued

interest totaling $ 12,164 was derecognized and the amended convertible note payable was recorded at its fair value of $ 9,261 (see Note

The convertible note payable is secured by tangible and intangible assets of the Company, bears interest at a rate of 10 % per annum

and matures in June 2029.

As of May 31, 2024, outstanding balance of the convertible note amounted to $ 9,261 .

The Company is also subject to certain affirmative and negative covenants such as periodic submission of financial statements to Kopple and restrictions on future financing and investing activities, as defined in the agreement, including the covenant to not create any indebtedness that is senior in right of payment to the Kopple debt.

Management believes such covenants are normal for this type of transaction and that management believes meeting these covenants will not affect the operations of the Company.

NOTE 4 – NOTES

Notes payable consisted of the following:

(amounts in thousands)

1 unchanged sentence

(a) Note payable-EID loan

(b) Notes payable-vehicle, equipment and software

(b) Notes payable-vehicle and equipment

(d) Notes payable – machinery and other equipment

Unsecured notes payable

Economic Injury Disaster (EID) Loan

July 1, 2020, the Company received a $ 150 loan under the United States Small Business Administration (“SBA”) Economic Injury

Disaster Loan (“EID Loan”) program.

The loan is due July 1, 2050, interest accrues at 3.75 % per annum, and is secured by

the assets of the Company .

Notes payable-vehicle, equipment and software

Fiscal 2022, the Company issued two notes payable to purchase equipment and a vehicle for $ 329 .

The notes are secured by the equipment

and vehicle purchased.

The first note for $ 210 is due October 31, 2024, and requires 36 equal monthly payments of approximately $ 6 , including

interest at 2.9 % per annum.

The second note for $ 78 is due January 20, 2027, and requires 72 equal monthly payments of approximately

$ 1.5 , including interest at 10.9 % interest per annum.

Fiscal 2024, the Company financed the annual subscription for engineering software for $ 155 .

The note is unsecured, due October 15, 2026

and requires 36 equal payments of approximately $ 5 , including interest at 8 % per annum.

of November 30, 2023 and February 28, 2023, the balance of the three notes was $ 278 and $ 188 , respectively.

These notes payable are secured

by the assets of the Company.

Note payable-other

of November 30, 2023 and February 28, 2023, the Company has one note payable due to an individual issued in September 2015 that is payable

on demand with an interest rate of 10 % per annum.

5 – NOTES PAYABLE-RELATED PARTIES

payable-related parties consisted of the following:

(e) Note payable-other

(a) Note payable-EID

During Fiscal 2021, the Company received a $ 150

loan under the United States Small Business Administration (“SBA”) Economic Injury Disaster Loan (“EID Loan”)

The loan is due July 1, 2050 , interest accrues at 3.75 % per annum, and is secured by the

assets of the Company .

(b) Notes payable-vehicle and equipment

During Fiscal 2022, the Company issued two notes

payable to purchase equipment and a vehicle for $ 329 .

The notes are secured by the equipment and vehicle purchased.

The first note for

$ 210 is due October 31, 2024, and requires 36 equal monthly payments of approximately $ 6 , including interest at 2.9 % per annum.

note for $ 78 is due January 20, 2027, and requires 72 equal monthly payments of approximately $ 1.5 , including interest at 10.9 % interest

During Fiscal 2024, the Company obtained a loan

of $ 155 from a financing institution to finance the use of a third-party software license by the Company.

The note payable is secured

by tangible and intangible assets of the Company, bears interest at an average rate of 8 % per annum and will mature in September

(d) Notes payable – machinery and other

During Fiscal 2025, the Company obtained a loan of

$ 274 from a financing institution to finance the purchase of a production machine by the Company.

The note payable is secured by the production

machine, bears a straight up fee of $ 74,285 to be paid over the course of the loan which will mature in April 2029.

In addition, the Company entered into a 60 month financing

lease for a forklift with a cost of $ 47 .

The lease has an interest rate of 8 %, include a bargain purchase option to acquire the forklift

at the end of the lease term for a payment of one dollar.

The aggregate total of the note payable and financing

lease obligation as of May 31, 2024 amounted $ 232 .

(e) Note payable-other

As of May 31, 2024, and February 29, 2024, the

Company has one note payable due to an individual issued in September 2015 that is payable on demand with an interest rate of 10 % per

NOTE 5 – NOTES PAYABLE-RELATED PARTIES

Notes payable-related parties consisted of the following:

(amounts in thousands)

Unsecured notes payable

(a) Notes payable-Kopple (as restructured)

(a) Note payable-Kopple

(b) Note payable- Gagerman

(a) Kopple Note

fiscals 2013 through 2018, the Company issued notes payable to Robert Kopple and associated entities (collectively “Kopple”)

in the aggregate principal amount of $ 6,107 .

Robert Kopple is the former Vice-Chairman of the Company’s Board of Directors and

is a current shareholder in the Company.

Between July 2017 and March 2022, the Company was engaged in litigation with Kopple relating

to more than $ 13,000 of principal and accrued interest due under the notes, and the equivalent of the approximately 23 million warrants.

March 14, 2022, the Company reached an agreement with Kopple and resolved all remaining litigation between them, including all amounts

owed to Kopple under the notes.

Under the terms of the settlement, the Company agreed to issue a new note and pay Kopple an aggregate

amount of $ 10,000 , including $ 3,000 initially due in June 2022, and $ 1,000 to be paid annually for seven years after the initial $ 3,000

Additionally, the settlement agreement granted Koppel a five year, fully vested warrant exercisable into 3,331,664 shares of

the Company’s common stock at a price of $ 0.85 per share with a fair value of $ 1,100 .

Company assessed the settlement with Kopple under ASC 470 and determined that the guidance under troubled debt restructuring should apply.

The carrying value of the restructured note remains the same as before the restructuring, reduced only by the fair value of the warrants

issued in connection with the transaction.

The Company determined that the future undiscounted cash flows of the restructured new Kopple

note exceeded the carrying value, and accordingly, no gain was recognized, and no adjustment was made to the carrying value of the debt,

other than the adjustment for the fair value of the warrants.

Interest expense on the new Kopple note is computed using a new effective

rate that equates the present value of the future cash payments specified by the new terms with the carrying value of the debt.

June 2022, the first installment of $ 3,000 became due, of which $ 150 was paid and $ 2,850 is still outstanding.

Subsequently, the note

was amended several times to extend the payment date of the remaining balance of $ 2,850 of the initial payment through January 2023,

and the Company incurred extension and forbearance fees totaling $ 335 .In January 2023, pursuant to the terms of the amended note payable,

the Company started accruing interest on the outstanding note balance at a rate of 6 % per annum, compounded annually.

As of February

28, 2023, outstanding principal balance amounted to $ 10,915 .

the nine months ended November 30, 2023, the note was again amended multiple times to extend the payment term of the remaining balance

of $ 2,850 of the initial payment and installment payment of $ 1,000 , originally due in June 2023, through August 1, 2023.

of these amendments, the Company incurred additional extension and forbearance fees totaling $ 390 and adjustment to principal balance

of November 30, 2023, the outstanding principal balance of amounted to $ 10,938 .

As of November 30, 2023 and the date of this report,

the Company and Kopple are currently in negotiations for another extension of the deadline for payment of the $ 3,850 , consisting of the

$ 2,850 initial payment and the installment payment of $ 1,000 .

Currently, Kopple has agreed in principle that such further amendment will

also indicate that the Company is not in default of the agreement as of November 30, 2023, and through the date that the financial statements

Based upon the foregoing no adjustments have been made to reflect the Kopple debt in default.

settlement agreement with Kopple provides for certain increases in the amounts payable to Kopple and the right of such parties to enter

a judgement against the Company if the Company remains in unsecured default in its payment obligations.

Pursuant to the settlement agreement,

the Company is also subject to certain affirmative and negative covenants such as periodic submission of financial statements to Koppel

and restrictions on future financing and investing activities, as defined in the agreement, including the covenant to not create any

indebtedness that is senior in right of payment to the Kopple debt.

Management believes such covenants are normal for this type of transaction

and that management believes meeting these covenants will not affect operations and the Company.

Note payable-Gagerman

Gagerman, the Company’s former CEO and CFO whose employment was permanently terminated in July 2019, claims that in April 2014

the Company issued an unsecured demand promissory note to him in the amount of $ 82 that bears interest at a rate of 10 % per annum.

claims that this note has not been repaid to date and is now owed.

June 2022, Gagerman brought suit against the Company for repayment of this alleged note.

Despite the fact that, based on Gagerman’s

allegations, the note was issued during a period when Gagerman was the Company’s CEO, CFO, Corporate Secretary and Chairman of

the Company’s Board of Directors, Gagerman has stated that he does not possess a copy of the alleged promissory note.

disputes that any amount is presently owed to Gagerman.

Additionally, the Company has filed a cross-complaint against Gagerman for, among

things, conversion, violation of California Business & Professions Code §17200, and various breaches of fiduciary duty that

the Company believes Gagerman committed against the Company.

the Company disputes Gagerman’s claims, under the guidance of ASC 450 – Contingencies , the Company has recorded the

claimed note payable $ 82 and corresponding accrued interest.

Jiangsu Shengfeng Note

November 20, 2019, the Company reached an agreement with a former joint venture partner Jiangsu Shengfeng regarding the return of $ 700

that had been advanced to the Company in prior years.

As a result, in November 2019, the Company issued a non-interest-bearing promissory

note for $ 700 to be paid over an 11-month period beginning March 15, 2020, through February 15, 2021.

As of November 30, 2023 and February

28, 2023, the outstanding balance of this note payable amounted to $ 700 .

Company is currently in negotiations with the noteholder to settle or extinguish the note payable.

(a) Note payable-Kopple

In fiscals 2013 through 2018, the Company issued

notes payable to Robert Kopple and associated entities (collectively “Kopple”) in the aggregate of $ 6,107 .

Robert Kopple is

the former Vice-Chairman of the Company’s Board of Directors and is a current shareholder in the Company.

The notes were unsecured,

bear interest at rates ranging from 5 % and 15 % per annum and were due in fiscal 2014 through fiscal 2018.

Beginning in 2017,

Kopple brought suit against the Company for repayment of the notes.

On March 14, 2022, the Company reached an agreement

with Kopple to resolve all remaining litigation between them, including all amounts owed to Kopple under the notes.

Under the terms of

the settlement, the Company agreed to issue a new note and pay Kopple an aggregate amount of $ 10,000 to be paid in installment, of

which, $ 3,000 was due in June 2022, and the remaining $ 7,000 to be annually for seven years at $ 1,000 per year.

Additionally,

the settlement agreement granted Kopple warrants exercisable into 3,331,664 shares of the Company’s common stock at a

price of $ 0.85 per share.

The Company used the Black-Scholes option pricing model to compute the fair value of the warrants of $ 1,051 .

The settlement provides for certain increases

in the amounts payable to Kopple and the right of such parties to enter judgement against the Company if the Company remains in uncured

default in its payment obligations.

Interest on the new note also began accruing in January 2023 at 6 % per annum.

The Company assessed the settlement with Kopple

under ASC 470 and determined that the guidance under troubled debt restructuring should apply as the Company was experiencing financial

difficulties and Kopple granted a concession.

Per ASC 470-60, the carrying value of the restructured note remains the same as before the

restructuring, reduced only by the fair value of the warrants issued in connection with the transaction.

The Company determined that the

future undiscounted cash flows of the restructured new Kopple note exceeded the carrying value, and accordingly, no gain was recognized,

and no adjustment was made to the carrying value of the debt, other than the adjustment for the fair value of the warrants.

In June 2022, the first installment of $ 3,000 became

due, of which $ 150 was only paid.

Subsequently, the note was amended several times to extend the payment date of the remaining balance

of $ 2,850 of the initial payment, and the Company incurred extension and forbearance fees totaling $ 335 that was recorded as

part of interest expense.

In January 2023, pursuant to the terms of the amended note payable, the Company started accruing interest on

the outstanding note balance at a rate of 6 % per annum, compounded annually.

As of February 29, 2024, outstanding principal balance

amount of $ 10,915 .

In March 2024, the Company and Kopple again amended

the note payable.

The amendment (i) replaced the requirement to pay the $ 3,850 past due principal balance with the requirement to

pay $ 2,000 on or before December 15, 2024;

(ii) increased the stated interest rate to 10 %;

(iii) added a fee of $ 15 monthly

until the Company makes a principal payment of $ 2 million by December 2024;

(iv) effective August 30, 2024, the Company will grant

Kopple the right (but not any obligation) to convert the note payable into equity of the Company at a conversion price equal to the lower

of one dollar per share or 50 % of the 10 day volume weighted average price per share of the Company’s common

(v) will require the Company to pay 20 % of all collected revenues within 10 days of the end of each fiscal quarter;

require the Company to pay Kopple 20 % of any amount raised in new capital in the form of equity, debt or convertible debt above $ 3.5 million;

(vii) reduces the exercise price of the warrants granted to Kopple in March 2022 from $ 0.85 per share to $ 0.50 per share;

(vii) extends the warrant expiration date from March 8, 2029, to March 31, 2031.

The Company accounted for the amended terms of

the note payable as a debt extinguishment because the present value of the cash flows under the amended debt terms is greater by 10% compared

to the present value of the remaining cash flows under the original existing debt terms.

Furthermore, the amendment granted a conversion

option to the note holder and is deemed substantially different from the existing note.

The Company recorded a loss on debt extinguishment

of $ 19,324 as a result of this amendment, which is the difference between (i) the fair value of the amended convertible note payable of

$ 9,261 , combined with the fair value of the conversion option of $ 22,194 (see Note 8), and the change in the fair value of the amended

warrants of $ 33 , and (ii) the net carrying amount of the existing note payable of $ 12,164 .

As a result, the net carrying amount of the

existing note payable of $ 12,164 was derecognized and amended note payable was recorded at its fair value of $ 9,261 .

As the Kopple

new note payable is now convertible to common stock, for financial reporting purposes, the new note payable of $ 9,261 is now

reported as a convertible note payable (see Note 3).

(b) Note payable-Gagerman

Melvin Gagerman, the

Company’s former CEO and CFO whose employment was permanently terminated in July 2019, claims that in April 2014 the Company issued

an unsecured demand promissory note to him in the amount of $ 82 that bears interest at a rate of 10 % per annum.

Gagerman claims that this

note has not been repaid to date and is now owed.

In June 2022, Gagerman

brought suit against the Company for repayment of this alleged note.

Despite the fact that, based on Gagerman’s allegations, the

note was issued during a period when Gagerman was the Company’s CEO, CFO, Corporate Secretary and Chairman of the Company’s

Board of Directors, Gagerman has stated that he does not possess a copy of the alleged promissory note.

The Company disputes that any

amount is presently owed to Gagerman.

Additionally, the Company has filed a cross-complaint against Gagerman for, among things, conversion,

violation of California Business & Professions Code §17200, and various breaches of fiduciary duty that the Company believes

Gagerman committed against the Company.

Although the Company

disputes Gagerman’s claims, under the guidance of ASC 450 – Contingencies , the Company has recorded the claimed note

payable $ 82 and corresponding accrued interest.

On November 20, 2019, the Company owned 49 % of

a Chinese joint venture named Jiangsu Shengfeng.

The Joint venture advanced Aura $ 700 in prior years for products that the Company failed

to deliver to the joint venture.

The Company reached an agreement with the joint venture regarding the return of $ 700 that had been advanced

to the Company in prior years.

As a result, in November 2019, the Company issued a non-interest-bearing promissory note for $ 700 to the

joint venture to be paid over an 11-month period beginning March 15, 2020, through February 15, 2021.

The joint venture stopped operations

in 2020 as a result of COVID-19 and never resumed or restarted operations.

In fiscal 2024 the joint venture was dissolved and liquidated.

As of May 31, 2024, and 2023, the outstanding balance of this note payable amounted to $ 700 .

The Company is currently in

negotiations with the noteholder to settle or extinguish the note payable.

NOTE 6 – ACCRUED INTEREST

2 unchanged sentences

Convertible notes payable (past due)

Convertible notes payable related party (past due)

Notes payable (related party)

Convertible notes payable - related party - Kopple

Convertible notes payable - related party - others

Notes payable - related party – Kopple

Notes payable - related party - others

Notes payable

8 unchanged sentences

lease terms using a 10 % per annum discount rate to arrive at the current lease liability.

Operating lease right-of-use (“ROU”)

assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

represent our right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make

lease payments arising from the lease.

Generally, the implicit rate of interest in arrangements is not readily determinable and the Company

utilizes its incremental borrowing rate in determining the present value of lease payments.

The operating lease ROU asset includes any

lease payments made and excludes lease incentives.

The components of lease expense and supplemental cash flow information

related to leases for the period are as follows:

(amounts in thousands)

Operating lease right-of-use

(“ROU”) assets and liabilities are recognized at commencement date based on the present value of lease payments over the

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent the

Company’s obligation to make lease payments arising from the lease.

Generally, the implicit rate of interest in arrangements

is not readily determinable and the Company utilizes its incremental borrowing rate in determining the present value of lease

The operating lease ROU asset includes any lease payments made and excludes lease incentives.

The components of lease expense and supplemental

cash flow information related to leases for the period are as follows:

(amounts in thousands) May 31,

Operating lease cost (included in general and administration in the Company’s statement of operations) $ 69 $ 70

12 unchanged sentences

Years Ending February 28:

2024 (3 months remaining)

2025 (9 months)

Total lease payments

imputed interest/present value discount

Present value of lease liabilities

NOTE 8 – DERIVATIVE WARRANT LIABILITY

In prior years the Company issued warrants that

include a fundamental transaction provision that could give rise to an obligation to pay cash to the warrant holder.

The Company determined

that the warrants do not satisfy the criteria for classification as equity instruments due to the existence of the cash settlement feature

that is not within the sole control of the Company, and the warrants are accounted for as liabilities in accordance with ASC 815.

fair value of the warrants is remeasured at each reporting period, and the change in the fair value is recognized in earnings in the accompanying

statements of operations.

The warrant liability will ultimately be converted into the Company’s equity when the warrants are exercised

or will be extinguished upon the expiration of the outstanding warrants.

Present value of lease liability

NOTE 8 – DERIVATIVE LIABILITY

In March 2024, pursuant to the amendment of the

Kopple note payable (see Note 5), the Company granted Kopple the right to convert the amended note payable into equity of the Company

at a conversion price equal to the lower of one-dollar per share or 50 % of the 10 day volume-weighted average price per share of the Company’s

common stock.

The Company analyzed the conversion option for derivative accounting consideration under ASC 815, Derivatives and Hedging,

and determined that the conversion option should be classified as a derivative liability since it does not have an explicit limit to the

number of shares to be delivered upon settlement of the conversion option.

The derivative liability is remeasured to fair value at each

reporting period, and the change in the fair value is recognized in earnings in the accompanying statements of operations.

estimated the fair value of the conversion option derivative liability using a Black-Scholes option pricing model and recorded the fair

value of the derivative liability of $ 22,194 at March 7, 2024, the date of issuance, and $ 17,171 at May 31, 2024.

The following tables summarize the derivative

warrant liability:

(amounts in thousands, except share and per share data)

2024 - Issuance

Risk free interest rate

2 unchanged sentences

Expected dividend yield

Number of warrant shares

Fair value of derivative warrant liability

Fair Value of

February 28, 2023

Change in fair value of derivative warrant liability

Gain on extinguishment on expiration of warrants

November 30, 2023

Number of common stock issuable

Fair value of derivative liability

NOTE 9 – SHAREHOLDERS’ DEFICIT

During the nine-months ended November 30, 2023,

the Company issued 6,593,940 shares of common stock for approximately $ 2,177 in net cash.

During the nine-months ended November 30, 2022

the Company issued 9,497,425 shares of common stock for approximately $ 2,600 in net cash.

During the three-months ended May 31, 2024, the Company issued 4,455,600

shares of common stock for approximately $ 1,117 in cash.

As part of the offering, the Company also granted certain investors warrants

to purchase 3,000,000 shares of common stock.

The warrants are fully vested, exercisable at $ 1.00 per share and will expire in 3 years.

During the three-months ended May 31, 2023, the

Company issued 2,586,362 shares of common stock for approximately $ 853 in cash

Stock Options

A summary of the Company’s stock option activity for the nine-months

ended November 30, 2023 is as follows:

A summary of the Company’s stock option activity for the three-months

ended May 31, 2024, is as follows:

(amounts in thousands, except share and per share data)

Outstanding, February 29, 2024

Outstanding, November 30, 2023

There was no intrinsic value as of November 30,

2023, as the exercise prices of these options were greater than the market price of the Company’s stock.

The exercise prices and

information related to options under the 2011 Plan outstanding on November 30, 2023 is as follows:

Range of Exercise Price

Stock Options

Weighted Average

Contractual Life

Weighted Average

Outstanding, May 31, 2024

As of May 31, 2024, the intrinsic value as these

stock options amounted to $ 382 .

The exercise prices and information related to options under the 2011 Plan outstanding on May 31, 2024

is as follows:

Exercise Price Stock Options

Outstanding Stock Options

Exercisable Weighted Average

Contractual Life Weighted Average

Exercise Price of

Options Outstanding

Weighted Average

Options Outstanding Weighted Average

Exercise Price of

Options Exercisable

50 4,250,000 4,250,000 1.92 $ 0.37 $ 0.37

The Company granted no stock options under its

stock option 2011 Plan for the nine-month period ended November 30, 2023 and the nine-month period ended November 30, 2022.

stock option 2011 Plan for the three-month period ended May 31, 2023, and the three-month period ended February 29, 2024.

A summary of the Company’s warrant activity

for the nine-months ended November 30, 2023 is as follows:

for the three-months ended May 31, 2024, is as follows:

Average Exercise

Outstanding, February 29, 2024

Outstanding, November 30, 2023

There was no intrinsic value as of November 30,

Outstanding, May 31, 2024

As noted above, during the three-months ended

May 31, 2024, the Company issued warrants to purchase 3,000,000 shares of common stock.

The warrants are fully vested, exercisable at

$ 1.00 per share and will expire in 3 years.

There was no intrinsic value as of May 31, 2024,

as the exercise prices of these warrants were greater than the market price of the Company’s stock.

The exercise prices and

information related to the warrants as of November 30, 2023 is as follows:

Range of Exercise Price

Stock Warrants

Weighted Average

Contractual Life

Weighted Average

The exercise prices and information

related to the warrants as of May 24, 2024, is as follows:

Exercise Price Stock Warrants

Outstanding Stock Warrants

Exercisable Weighted Average

Contractual Life Weighted Average

Exercise Price of

Warrants Outstanding

Weighted Average

Warrants Outstanding Weighted Average

Exercise Price of

1 unchanged sentence

$ 0.50 to $ 1.40 3,521,664 3,564,764 1.47 $ 0.83 0.83

In March 2022, pursuant to an agreement with a

note holder (see Note 5), the Company issued to Mr.

Kopple 3,331,664 warrants to purchase the Company’s common stock with a term

of 7 years and at an exercise price of $ 0.85 per share.

The Company determined the fair value of the Kopple Warrants was $ 1,051 using

a Black-Scholes model using the assumptions as set forth in the table below:

Warrants issued during the Nine-Months Ended November 30, 2022

Exercise Price

Risk-Free Rate

Expected Term (yrs.)

Dividend Rate

$ 1.00 3,000,000 3,000,000 3.00 $ 1.00 $ 1.00

NOTE 10 – RELATED PARTY TRANSACTIONS

As of November 30, 2023 and February 28, 2023,

Bettersea LLC (“Bettersea”) was an 9 % and 10 %, respectively, shareholder in the Company.

For the nine-months ended November 30, 2023 and

November 30, 2022, the Company incurred total fees to Bettersea of $ 117 and $ 119 , respectively, for various consulting services.

As of November 30, 2023 and February 28, 2023,

a total of $ 222 and $ 223 , respectively, was due to Bettersea and included in accounts payable and accrued expenses.

As of May 31, 2024, and February 29, 2024, BetterSea

LLC was an 8.4 % and 8.8 %, respectively, shareholder of the Company.

For the three months ending on May 31, 2024 and 2023, the Company

incurred consulting fees to BetterSea of $ 40 and $ 36 , respectively.

As of May 31, 2024, and February 29, 2024, a total of approximately

$ 221 and $ 213 respectively, was due to BetterSea and included accounts payable and accrued expenses.

NOTE 11 – CONTINGENCIES

8 unchanged sentences

adversely affected.

In 2017, the Company’s former COO was awarded

approximately $ 238 in accrued salary and related charges by the California labor board.

In August 2021, the Company reached a settlement

by which the Company agreed to pay approximately $ 330 , representing the principal award plus accrued interest.

As of the time of this

filing, the Company has paid approximately $ 318 toward the settlement amount.

The remaining balance of approximately $ 12 is to be

paid no later than January 31, 2024, and accrues interest of 10 % per annum until paid.

July 2017 and March 2022, the Company was engaged in litigation with a former director, Robert Kopple, relating to more than $ 13,000 and

the current equivalent of the approximately 23 million warrants, exercisable for seven years at a price of $ 0.10 per share, which Mr.

Kopple and his affiliated entities (collectively “Kopple”) claimed should have been originally issued to them pursuant to

various agreements with the Company entered into between 2013 and 2016.

In March 2022, the Company reached a settlement (the “Binding

Term Sheet”) with Kopple that resolved all claims asserted against the Company without any admission, concession or finding of any

fault, liability, or wrongdoing on the part of the Company.

Under the terms of the settlement, the Company agreed to pay an aggregate

amount of $ 10,000 over a period of seven years , including $ 3,000 initial payment to be paid in June 2022.

$ 150 was paid in June 2022,

and the balance of the initial payment of $ 2,850 was extended to August 1, 2023.

The Company and Koppel have agreed in principle to another

extension of the deadlines for payments owed by the Company to Kopple and intend to memorialize such an agreement in writing in January

Such further amendment will also indicate that by such extension the Company is not in default on the Binding Term Sheet

as of November 30, 2023, and through the date that the financial statements are

All amounts, including all accrued interest and deferred fees, are to be paid no later than eight years from the date of the initial

The settlement also provides for standard mutual general release provisions and includes customary representations, warranties,

and covenants, including certain increases in the amount payable to the Kopple Parties and the right of such parties to enter judgment

against the Company if the Company remains in uncured default in its payment obligations under the settlement (see Note 5).

On March 26, 2019, various stockholders of the

Company controlling a combined total of more than 27.5 million shares delivered a signed written consent to the Company removing Ronald

Buschur as a member of the Company’s Board and electing Cipora Lavut as a director of the Company.

On March 27, 2019, those

same stockholders delivered a further signed written consent to the Company removing William Anderson and Si Ryong Yu as members of the

Company’s Board and electing Robert Lempert and David Mann as directors of the Company.

These written consents represented a majority

of the outstanding shares of the Company’s common stock as of March 26, 2019 and March 27, 2019, respectively.

of Aura’s refusal to recognize the legal effectiveness of the consents, on April 8, 2019 the stockholders filed suit in the

Court of Chancery of the State of Delaware pursuant to Section 225 of the Delaware General Corporations Law, seeking an order confirming

the validity of the consents and declaring that Aura’s Board consists of Ms.

Diaz-Versón, Jr.

On July 8, 2019 the Court of Chancery entered final judgment in favor of the stockholder plaintiffs,

confirming that (a) Ronald Buschur, Si Ryong Yu and William Anderson had been validly removed by the holders of a majority of the Company’s

outstanding stock acting by written consent (b) Ms.

Lempert had been validly elected by the holders of a majority

of the Company’s outstanding stock acting by written consent, and (c) the Company’s Board of Directors validly consists of

Cipora Lavut, David Mann, Robert Lempert, Gary Douglas and Salvador Diaz-Versón, Jr.

As a result of prior management’s unsuccessful

opposition to this stockholders’ action filed in the Court of Chancery, such stockholders may be potentially entitled to recoup

their litigation costs from the Company under Delaware’s corporate benefit doctrine and/or other legal provisions.

To date, no final

determination has been made as to the amount of recoupment, if any, to which such stockholders may be entitled.

In June 2022, Melvin Gagerman, the Company’s

8 unchanged sentences

and various breaches of fiduciary duty that the Company believes Gagerman committed against Aura, including without limitation, Gagerman’s

actions in opposing the valid 2019 stockholder consent action.

actions in opposing the valid 2019 stockholder consent action (see Note 5).

On March 26, 2019, various stockholders of the

Company controlling a combined total of more than 27.5 million shares delivered a signed written consent to the Company removing Ronald

Buschur as a member of the Company’s Board and electing Cipora Lavut as a director of the Company.

On March 27, 2019, those same

stockholders delivered a further signed written consent to the Company removing William Anderson and Si Ryong Yu as members of the Company’s

Board and electing Robert Lempert and David Mann as directors of the Company.

These written consents represented a majority of the outstanding

shares of the Company’s common stock as of March 26, 2019, and March 27, 2019, respectively.

Because of Aura’s refusal to

recognize the legal effectiveness of the consents, on April 8, 2019, the stockholders filed suit in the Court of Chancery of the State

of Delaware pursuant to Section 225 of the Delaware General Corporations Law, seeking an order confirming the validity of the consents

and declaring that Aura’s Board consists of Ms.

Douglas and Mr.

Diaz-Versón, Jr.

8, 2019 the Court of Chancery entered final judgment in favor of the stockholder plaintiffs, confirming that (a) Ronald Buschur, Si Ryong

Yu and William Anderson had been validly removed by the holders of a majority of the Company’s outstanding stock acting by written

consent (b) Ms.

Lempert had been validly elected by the holders of a majority of the Company’s outstanding

stock acting by written consent, and (c) the Company’s Board of Directors validly consists of Cipora Lavut, David Mann, Robert Lempert,

Gary Douglas and Salvador Diaz- Versón, Jr.

As a result of prior management’s unsuccessful opposition to this stockholders’

action filed in the Court of Chancery, such stockholders may be potentially entitled to recoup their litigation costs from the Company

under Delaware’s corporate benefit doctrine and/or other legal provisions.

To date, no final determination has been made as to the

amount of recoupment, if any, to which such stockholders may be entitled.

NOTE 12 – SUBSEQUENT EVENTS

Subsequent to November 30, 2023, the Company issued

766,668 shares of common stock in exchange for cash proceeds of approximately $ 253 .

Subsequent to May 31, 2024, the Company issued 2,480,000 shares of

common stock for cash $ 235 .

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements