AURA SYSTEMS INC 10-K

ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures We conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. The term “disclosure controls and procedures”, as defined in Rules 13a-15I and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (“Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our President and Chief Financial Officer concluded as of February 29, 2024, that our disclosure controls and procedures were effective. Management’s Annual Report on Internal Control Over Financial Reporting The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with United States generally accepted accounting principles. Internal control over financial reporting includes policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with United States generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use or disposition of the Company’s assets that could have a material effect on the financial statements. Management has assessed the effectiveness of the Company’s internal control over financial reporting as of February 29, 2024. In making these assessments, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. Based on these assessments, and on those criteria, the Company’s management concluded that as of February 29, 2024, the Company’s internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Changes in Internal Control Over Financial Reporting There were no changes in the Company’s internal control over financial reporting that occurred during the Company’s fiscal year ended February 29, 2024, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Inherent Limitations on Effectiveness of Controls The Company does not expect that its disclosure controls and procedures or its internal control over financial reporting will prevent all errors and all fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable not absolute assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any control procedure also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected. ITEM 9B. OTHER INFORMATION None Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. None 30 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Directors and Executive Officers In March 2019, stockholders of the Company controlling a majority of the outstanding shares of the Company’s common stock delivered signed written consents to the Company removing Ronald Buschur, William Anderson, and Si Ryong Yu as members of the Company’s Board and electing Ms. Cipora Lavut, Mr. David Mann, and Dr. Robert Lempert as directors of the Company in their stead. As a result of Aura’s refused to recognize the legal effectiveness of the consents, in April 2019, 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. 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. Lavut, Mr. Mann and Dr. 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 stockholder 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 July 2019 the employment of Melvin Gagerman was terminated. (See Item 3, Legal Proceedings for more information.) Also in July 2019, the Board of Directors appointed Ms. Lavut to succeed Mr. Gagerman as President of Aura, appointed Mr. Mann to succeed Mr. Gagerman as Chief Financial Officer of the Company, and appointed Dr. Lempert Secretary of Aura. In February 2022, the Board of Directors appointed Mr. Steven Willett to succeed Mr. Mann as the Company’s Chief Financial Officer. Mr. Mann remains on the Board of Directors. The following table sets forth the names, ages, and offices of all our current directors and executive officers. Our officers are appointed by, and serve at the pleasure of, the Board of Directors. The stockholders at the annual meeting elect our directors to serve until the next meeting. Name Age Title Gary Douglas (1) 76 Director, Member of the Audit Committee Salvador Diaz-Verson, Jr. (1) 65 Director, Chairman of the Audit Committee David Mann (2), (3) 52 Director, Chairman of the Compensation Committee, Member of the Nominating Committee and Member of the Audit Committee, former Chief Financial Officer Cipora Lavut (2) 68 President, Chairman of the Board, Member of Nominating Committee and Member of the Compensation Committee Robert Lempert (2) 80 Secretary, Director, Chairman of the Nominating Committee and Member of the Compensation Committee Gary Campbell (4) 57 Chief Financial Officer (1) Mr. Douglas and Mr. Diaz-Verson, Jr. were appointed to the Board of Directors on March 29, 2018, by the written consent of stockholders holding a majority of the Company’s shares. (2) In March 2019, stockholders of the Company controlling a combined total of more than 27.5 million shares delivered signed written consents to the Company electing Ms. Lavut, Mr. Mann and Dr. Lempert to the Company’s Board of Directors. Because of Aura’s refusal to recognize the legal effectiveness of the consents, in April 2019 the stockholders filed suit in the Court of Chancery of the State of Delaware seeking an order confirming the validity of the elections. On July 8, 2019, the Court of Chancery entered final judgment in favor of the stockholder plaintiffs, confirming that Ms. Lavut, Mr. Mann and Dr. Lempert had been validly elected by the holders of a majority of the Company’s outstanding stock acting by written consent. In July 2019, the Board of Directors appointed Ms. Lavut President and Chairman of the Board, appointed Mr. Mann as Chief Financial Officer and appointed Dr. Lempert as Secretary. (3) On February 14, 2022, Mr. Mann resigned as Chief Financial Officer. (4) On August 15, 2023, Mr. Campbell was appointed as Chief Financial Officer. 31 Biographical information with respect to our current directors and executive officer is provided below. Salvador Diaz-Versón, Jr . Mr. Diaz-Versón, Jr. was elected as a director on March 29, 2018. Previously, he served as a director of the Company from 1997-2005 and again from June 2007 until January 2018. Mr. Diaz-Versón, Jr. is the founder, Chairman and President of Diaz-Verson Capital Investments, Inc., and was a registered investment advisor with the Securities and Exchange Commission until 2009. Mr. Diaz-Versón, Jr. served as President and member of the board of directors of American Family Corporation (AFLAC, INC.) from 1976 until 1992. Mr. Diaz-Versón, Jr. served as President and Chief Investment Officer of American Family Life Assurance Company, a subsidiary of AFLAC, Inc. He is currently Chairman of Miramar Securities. Mr. Diaz-Versón, Jr. has received two presidential appointments to the Christopher Columbus Fellowship Foundation; first by President George H.W. Bush in 1992 and subsequently by President Clinton in 2000. Mr. Diaz-Versón, Jr. is a trustee of the Florida State University Foundation and is a national trustee of the Boys and Girls Club of America. He also serves as a trustee of Clark Atlanta University. Mr. Diaz-Versón, Jr. is a graduate of Florida State University and was selected as a director in view of his lengthy experience in managing companies and his knowledge of capital investments. Gary Douglas . Mr. Douglas was elected as a director on March 29, 2018. Mr. Gary Douglas has a BBA in Management degree, with extensive experience in cooperate communication and investment banking. He is a principal in Douglas Strategic Communications LLC, a marketing strategy and communications consultancy, and Ex officio Chairman of Picture Marketing, Inc., a digital marketing company. Mr. Douglas also formally served as Chief Marketing Officer of O’Melveny Consulting LLP, a unit of a global law firm. He also served as President of SP/Hambros America and Division President of Geneva Learning Systems and Group Vice President of Business Development for the five Geneva Companies, both SP/Hambros and The Geneva companies were middle market investment bankers. Mr. Douglas brings to the Board extensive experience in cooperate communication and investment banking. Cipora Lavut . Ms. Lavut was one of Aura’s original founding members. From 1987 to 2002 Ms. Lavut served on Aura’s Board and as a Senior Vice President. During this period, Ms. Lavut was instrumental to Aura receiving large contracts from The Boeing Company, Litton Industries and the United States Air Force. Ms. Lavut also provided critical investor relations and marketing support during this time. Ms. Lavut left Aura in 2002. Ms. Lavut presently provides marketing and business consulting to a variety of retail and service-oriented businesses. She holds a B.A. Business degree from California State University, Northridge. Robert Lempert . Dr. Lempert graduated from the University of Pennsylvania and conducted his residency at the Albert Einstein Medical Center in Philadelphia. Dr. Lempert also served as a Captain in the U.S. Army and previously served on the Company’s Board from November 28, 2017 (when he was appointed by the then-Board to fill one of the two existing vacancies) until January 11, 2018. Dr. Lempert has been a significant investor, shareholder and an active advocate of Aura’s technology for more than 20 years. David Mann . Mr. Mann has been Vice President of Marketing for Mann Marketing, a manufacturing and import company, since 1990 and the Vice President of Sales of that company since 2007. From 2000 until 2007, Mr. Mann also served as Vice President of Operations. Mr. Mann has extensive experience dealing with all aspects of marketing and sales, as well as suppliers in both North America and China. Mr. Mann has been an investor in the Aura since 2007 and previously served as a director of the Company from November 28, 2017 (when he was appointed by the then-Board to fill one of the two existing vacancies) until January 11, 2018. Mr. Mann holds a degree in Business Administration from College St. Laurent, Montreal, Canada. 32 Gary Campbell . Mr. Campbell has a BA degree in Business & Finance from University of Western Ontario in Canada. He has obtained a professional CPA designation in both Canada and the USA. He spent 8 years in audit working for E&Y and Withey Addison in Canada. He has international business exposure in the reinsurance industry as VP of Finance for American Safety Insurance while living in Bermuda. He served as CFO for both a private boarding school and a payroll outsourcing company while living in Hawaii. Since moving to California 11 years ago, he has been doing contract work for many different industries as Controller or fractional CFO. Prior to joining Aura Systems Inc., he spent 4 years as the Controller for the public company Charlie’s Holdings Inc., which sells its products in 80 different countries. Delinquent Section 16(a) Reports Our shares of common stock are registered under the Securities Exchange Act of 1934, and therefore our executive officers and directors and persons who beneficially own more than 10% of a registered class of our equity securities to file with the SEC initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common shares and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% stockholders are required by the Securities and Exchange Commission regulations to furnish us with copies of all Section 16(a) reports they file. Based on our review of the copies of such forms received by us, and to the best of our knowledge, no executive officers, directors and persons holding greater than 10% of our issued and outstanding stock have filed the required reports during the years ended February 29, 2024, and February 28, 2023. Code of Ethics We have adopted a Code of Ethics applicable to the Company’s Chief Executive Officer, Chief Financial Officer and all other members of the Company’s Finance Department. This Code of Ethics is posted on the Company’s website within a broader Code of Business Conduct and Ethics at www.aurasystems.com in the Investor Relations section. We intend to satisfy the disclosure requirement under Item 10 of Form 8-K regarding an amendment to, or a waiver from, the provision of our Code of Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions and that relates to any element of such provision of our Code of Ethics by posting such information on our website within four business days of the date of such amendment or waiver. In the case of a waiver, the nature of the waiver, the name of the person to whom the waiver was granted and the date of the waiver will also be disclosed. Family Relationships None of our directors or executive officers is related to one another. 33 Committees of the Board of Directors The Board maintains the following committees to assist it in discharging its oversight responsibilities. Audit Committee . The Audit Committee does not have a formal charter but is responsible primarily for overseeing the services performed by our independent registered public accounting firm, evaluating our accounting policies and system of internal controls, and reviewing our annual and quarterly reports before filing with the Securities and Exchange Commission. The current members of the Audit Committee are Mr. Salvador Diaz Versón Jr., Mr. David Mann and Mr. Gary Douglas. The Board of Directors has determined that the Audit Committee does not have a member who is an “audit committee financial expert” as such term is defined by the rules and regulations of the Securities and Exchange Commission. While the Board recognizes that the Board members serving on the Audit Committee do not meet the qualifications required of an “audit committee financial expert,” the Board believes that the appointment of a new director to the Board of Directors and to the Audit Committee at this time is not necessary as the level of financial knowledge and experience of the current member of the Audit Committee, including such member’s ability to read and understand fundamental financial statements, is sufficient to adequately discharge the Audit Committee’s responsibilities Compensation Committee . The Compensation Committee does not have a formal charter but reviews and recommends to the full Board the amounts and types of compensation to be paid to the Chairman and Chief Executive Officer; reviews and approves the amounts and types of compensation to be paid to our other executive officers and the non-employee directors; reviews and approves, on behalf of the Board, salary, bonus and equity guidelines for our other employees; and administers our equity plans. The Compensation Committee is currently comprised of Mr. David Mann, Ms. Cipora Lavut and Dr. Robert Lempert. Nominating Committee . The Nominating Committee does not have a formal charter but assists the Board in identifying qualified individuals to become directors, determines the composition of the Board and its committees, monitors the process to assess the Board’s effectiveness and helps develop and implement our corporate governance guidelines. The Nominating Committee also considers nominees proposed by stockholders. The Nominating Committee currently consists of Mr. David Mann, Ms. Cipora Lavut and Dr. Robert Lempert. Director Compensation Although we do not currently compensate our directors in cash for their service as members of our Board of Directors, the Board may, in its discretion, elect to compensate directors for attending Board and Committee meetings and to reimburse directors for out-of-pocket expenses incurred in connection with attending such meetings. Additionally, our directors are eligible to receive stock options under the 2011 Directors and Executive Officer Stock Option Plan. During Fiscal 2024, no stock compensation was awarded to any of the Company’s directors. During Fiscal 2023, no stock compensation was awarded to any of the Company’s directors. 34 ITEM 11. EXECUTIVE COMPENSATION The following table sets forth the compensation earned by or paid to the principal executive officer and the named executive officers during the Fiscal years ended February 29, 2024 and February 28, 2023. 2022 Summary Compensation Table Fiscal Salary Option Awards Non-Equity Incentive Compensation All Other Compensation Total Name and Principal Position Year ($) ($) ($) ($) ($) Cipora Lavut 2024 204,713 (1) - - - 204,713 President 2023 269,315 (2) - - 269,315 Gary Campbell 2024 94,154 (3) - - - 94,154 Chief Financial Officer (1) For Fiscal 2024, Ms. Lavut has been accruing an annual salary of $250,000 and has been paid $204,713 in cash over the same period, deferring the balance. (2) For Fiscal 2023, Ms. Lavut has been accruing an annual salary of $250,000 and has been paid $269,315 in cash over the same period, as she was paid out a portion of her previously deferred wages balance. (3) For Fiscal 2024, Mr. Campbell began serving as Chief Financial Officer in August 2023. The amount in the table represents the pro rata compensation received for the seven-month period since his appointment. Outstanding Equity Awards at 2024 Fiscal Year-End The Board of Directors and Executive Officers have been granted various options to acquire the Company’s common stock under the Company’s 2011 Directors and Executive Officers Stock Option Plan (the “2011 Plan”) as detailed in the table below. All of these options were outstanding as of February 29, 2024. Stock Options & Warrants Outstanding Weighted Average Remaining Contractual Life in Years Weighted Average Exercise Price of Options & Warrants Outstanding Cipora Lavut, President and Board Chair 750,000 2.67 $ 0.42 Salvador Diaz-Verson, Jr., Director 750,000 1.77 $ 0.61 Gary Douglas, Director 500,000 1.82 $ 0.58 David Mann, Director 400,000 2.32 $ 0.25 Robert Lempert, Director 360,000 2.26 $ 0.25 Option Exercises and Stock Vesting During Fiscal 2024 No stock options were exercised during Fiscal 2024 by the individuals named in the Summary Compensation Table. No stock options were granted nor was there any vesting of previously granted stock options during Fiscal 2024 related to the individuals named in the Summary Compensation Table. Option Exercises and Stock Vesting During Fiscal 2024 No stock options were exercised during Fiscal 2024 or Fiscal 2023 by the individuals named in the Summary Compensation Table. Also, during Fiscal 2022, stock options granted in Fiscal 2021 became fully vested. On December 10, 2020, the Board of Directors approved the grant of an aggregate total of 1,000,000 options to acquire the Company’s common stock to four of the five current Board members in varying amounts for services provided outside of standard Board responsibilities under the Company’s 2011 Plan. The options were granted with pro rata monthly vesting over a one-year vesting period, with a five-year expiration term, and with an exercise price of $0.25 per option share. 35 Employment Contracts, Termination of Employment Contracts and Change in Control Arrangements We do not currently have any employment agreements with any of our Named Executive Officers. Potential Payments to the Named Executive Officers Upon Termination or Change in Control None of the named executive officers is entitled to any payments or benefits upon termination, whether by change in control or otherwise, other than benefits available generally to all employees. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, to the extent of our knowledge, certain information regarding our common stock owned as of February 29, 2024 (i) by each person who is known to be the beneficial owner of more than 5% of our outstanding common stock, (ii) by each of our Directors and the named executive officers in the Summary Compensation Table, and (iii) by all Directors and current executive officers as a group: Beneficial Ownership Table Beneficial Owner (1) Number of Shares of Common Stock Percent of Common Stock Salvador Diaz-Verson, Jr. (2) 819,750 * % Gary Douglas (3) 500,000 * % Cipora Lavut (4) 2,639,660 2.5 % Robert Lempert (5) 507,343 * % David Mann (6) 1,811,931 1.7 % Gary Campbell (7) 197,453 * % All current executive officers and Directors as a group (six) (2) (3) (4) (5) (6) (7) 6,476,137 6.0 % 5% Stockholders Warren Breslow (8) 9,733,163 9.1 % BetterSea LLC (9) 9,179,912 8.8 % Robert Kopple (10) 6,005,469 5.6 % * Less than 1% of outstanding shares (1) Beneficial ownership is determined in accordance with rules of the Securities and Exchange Commission. The calculation of the percentage of beneficial ownership is based upon 104,591,648 shares of common stock outstanding on February 29, 2024. In computing the number of shares beneficially owned by any stockholder and the percentage ownership of such stockholder, shares of common stock which may be acquired by a such stockholder upon exercise or conversion of warrants or options which are currently exercisable or exercisable within 60 days of February 29, 2024, are deemed to be exercised and outstanding. Such shares, however, are not deemed outstanding for purposes of computing the beneficial ownership percentage of any other person. Shares issuable upon exercise of warrants and options which are subject to stockholder approval are not deemed outstanding for purposes of determining beneficial ownership. Except as indicated by footnote, to our knowledge, the persons named in the table above have the sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them. The mailing address for each of the officers and directors is c/o Aura Systems, Inc., 20431 North Sea, Lake Forest, CA 92630. (2) Includes 750,000 warrants exercisable within 60 days of February 29, 2024. (3) Includes 500,000 warrants exercisable within 60 days of February 29, 2024 (4) Includes 750,000 warrants exercisable within 60 days of February 29, 2024. (5) Includes warrants to purchase 360,000 shares exercisable within 60 days of February 29, 2024. (6) Includes warrants to purchase 400,000 shares exercisable within 60 days of February 29, 2023, as well as 1,411,931 shares, 979,204 of which Mr. Mann has sole dispositive power and approximately 432,727 of which, Mr. Mann holds a power of attorney to vote such shares. (7) Includes common shares only as of February 29, 2024. (8) Includes the right to convert $3,000,000 and accrued interest of $863,322 convertible note payable to 2,759,516 common shares at a conversion price of $1.40. (9) Includes common shares only as of February 29, 2024. (10) Includes warrants to purchase 3,331,664 shares exercisable within 60 days of February 29, 2024. 36 Securities Authorized for Issuance Under Equity Compensation Plans as of February 29, 2024 Equity Compensation Plan Information as of February 29, 2024 a. b. c. Plan Category Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights Weighted Average Exercise Price for Options, Warrants and Rights Number of Securities For Future Issuances Under Equity Compensation Plans (Excluding Securities Reflected in Column (a.) Equity compensation plans approved by equity holders 3,292,857 $ 0.48 10,904,394 Equity compensation plans not approved by equity holders 1,500,000 $ 0.50 - (1) Reflects options under the 2006 Stock Option Plan and the 2011 Stock Option Plan, of which both were approved by Company shareholders. Additionally, it includes options which were authorized by the Board but cannot be issued until the proposal for renewal of the employee stock option plan is approved by the shareholders. The 2006 Stock Option Plan authorizes the Company to grant stock options exercisable for up to an aggregate number of shares of common stock equal to the greater of (i) 10,000,000 shares of common stock, or (ii) 10% of the number of shares of common stock outstanding from time to time. The 2011 Stock Option Plan authorizes the Company to grant stock options or warrants to executive officers and directors exercisable for up to an aggregate number of shares equivalent to 15% of the number of shares of common stock outstanding from time to time. The numbers in this table are as of February 29, 2024 (See Note 13 to the Financial Statements). For additional information regarding options and warrants, see Note 13 to our financial statements appearing elsewhere in this report. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Review and Approval of Related Party Transactions Our Audit Committee is responsible for the review and approval of all related party transactions required to be disclosed to the public under SEC rules. This procedure has been established by our Board of Directors in order to serve the interests of our shareholders. Related party transactions are reviewed and approved by the Audit Committee on a case-by-case basis. Under existing, unwritten policy no related party transaction can be approved by the Audit Committee unless it is first determined that the terms of such transaction is on terms no less favorable to us than could be obtained from an unaffiliated third party on an arms-length basis and is otherwise in our best interest. Director Independence Using the definition of “independence” included in the listing rules of The Nasdaq Stock Market, our Board has determined that Salvador Diaz-Versón, Jr. and Gary Douglas are both independent directors. 37 ITEM 14. PRINCIPAL ACCOUNTING FEES AND DISCLOSURES Weinberg & Company, P.A. (“Weinberg”) was engaged to be the Company’s principal accountant and auditor in April 2022. The following table sets forth the aggregate fees billed to us by Weinberg for the year ended February 29, 2024, and for the year ended February 28, 2023: Year Ended (amounts in thousands) February 29, 2024 February 28, 2023 Audit Fees $ 89 $ 134 Audit-related fees - - Tax fees - - All other fees - - Total $ 89 $ 134 As defined by the SEC, (i) “audit fees” are fees for professional services rendered by our principal accountant for the audit of our annual financial statements and review of financial statements included in our Form 10-K, or for services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those Fiscal years; (ii) “audit-related fees” are fees for assurance and related services by our principal accountant that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “audit fees;” (iii) “tax fees” are fees for professional services rendered by our principal accountant for tax compliance, tax advice, and tax planning; and (iv) “all other fees” are fees for products and services provided by our principal accountant, other than the services reported under “audit fees,” “audit-related fees,” and “tax fees.” Audit Fees Services provided to us by Weinberg with respect the audit of our annual financial statements and review of our annual report on Form 10-K for the year ended February 28, 2023, and for reviews of the financial statements which are included in our quarterly reports on Form 10-Q for the first three quarters of the year ended February 29, 2024. Audit Related Fees Weinberg did not provide any professional services to us during Fiscal 2024 or Fiscal 2023 which would constitute “audit related fees”. Tax Fees Weinberg did not provide any professional services to us during Fiscal 2024 or Fiscal 2023 which would constitute “tax fees”. All Other Fees Weinberg did not provide any professional services to us during Fiscal 2024 or Fiscal 2023 which would constitute “other fees”. Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors Under the SEC’s rules, the Audit Committee is required to pre-approve the audit and permissible non-audit services performed by the independent registered public accounting firm in order to ensure that they do not impair the auditors’ independence. The SEC’s rules specify the types of non-audit services that an independent auditor may not provide to its audit client and establish the Audit Committee’s responsibility for administration of the engagement of the independent registered public accounting firm. Consistent with the SEC’s rules, the Audit Committee pre-approves all audit and permissible non-audit services provided by our independent auditors. These services may include audit services, audit-related services, tax and other services. Pre-approval is generally provided for up to one year, and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent auditors and management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent auditors in accordance with this pre-approval, and the fees for the services performed to date. The Audit Committee may also pre-approve particular services on a case-by-case basis. During Fiscal 2024 and Fiscal 2023 all services provided by Weinberg were pre-approved by the Audit Committee in accordance with this policy. There were no hours expended on the principal accountant’s engagement to audit the registrant’s financial statements for the most recent Fiscal year that were attributed to work performed by persons other than the principal accountant’s full-time, permanent employees. 38 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES Documents filed as part of this Form 10-K: 1. Financial Statements See Index to Financial Statements at page F-1 2. Financial Statement Schedules See Index to Financial Statements at page F-1 3. Exhibits See Exhibit Index ITEM 16. FORM 10-K SUMMARY None. 39 INDEX TO EXHIBITS Description of Documents 3.1 Amended and Restated Certificate of Incorporation of Aura Systems, Inc. (Incorporated by reference to Exhibit 3.1 to Aura Systems, Inc.’s Form 10-K filed on June 15, 2009) 3.1(a) Certificate of Amendment to the Amended and Restated Certificate of Incorporation, dated February 14, 2018 (Incorporated by reference to Exhibit 3.1 to Aura Systems, Inc.’s Current Report on Form 8-K filed on February 21, 2018) 3.2 Amended and Restated Bylaws of Aura Systems, Inc. (Incorporated by reference to Exhibit 3.2 to Aura Systems, Inc.’s Report on Form 10-K filed on June 15, 2009) 10.1* Aura Systems, Inc. 2006 Stock Option Plan (Incorporated by reference to Exhibit 10.4 to Aura System, Inc.’s Form 10-K filed on March 25, 2008) 10.2* Form of Aura Systems, Inc. Non-Statutory Stock Option Agreement (Incorporated by reference to Exhibit 10.5 to Aura System, Inc.’s Form 10-K filed on March 25, 2008) 10.3 Second Amendment to Transaction Documents dated March 14, 2017 among Registrant and those persons who have signed the signature page thereto (Incorporated by reference to Exhibit 10.1 to Aura Systems, Inc.’s Quarterly Report on Form 10-Q filed on October 25, 2017) 10.4 Third Amendment to Transaction Documents dated April 8, 2017 among Registrant and those persons who have signed the signature page thereto (Incorporated by reference to Exhibit 10.2 to Aura Systems, Inc.’s Quarterly Report on Form 10-Q filed on October 25, 2017) 10.5 Second Amendment to Debt Refinancing Agreement dated April 9, 2017 by and between Aura Systems, Inc., on the one hand, and Warren Breslow and the Survivor’s Trust Under the Warren L. Breslow Trust, on the other hand (Incorporated by reference to Exhibit 10.3 to Aura Systems, Inc.’s Quarterly Report on Form 10-Q filed on October 25, 2017) 10.6 First Amendment to Unsecured Convertible Promissory Note dated June 15, 2017 by and between the Survivor’s Trust Under the Warren L. Breslow Trust and the Registrant (Incorporated by reference to Exhibit 10.1 to Aura Systems, Inc.’s Quarterly Report on Form 10-Q filed on October 25, 2017) 10.7 Agreement entered into on June 19, 2017 between Aura Systems Inc. and BetterSea LLC (Incorporated by reference to Exhibit 10.1 to Aura Systems, Inc.’s Current Report on Form 8-K/A filed on May 9, 2018) 10.11 Sino-Foreign Cooperative Joint Venture Contract dated January 27, 2017 between Aura Systems, Inc. and Jiangsu AoLunTe Electrical Machinery Industrial Col, Ltd. (Incorporated by reference to Exhibit 10.1 to Aura Systems, Inc.’s Form 8-K filed on February 1, 2017) 10.12* Aura Systems, Inc. Directors and Executive Officers Stock Option Plan (Incorporated by reference to Exhibit 10.67 to Aura Systems, Inc.’s Form S-1 filed on November 30, 2011) 14.1 Code of Ethics (Incorporated by reference to Exhibit 14.1 to Aura Systems, Inc.’s Annual Report on Form 10-K filed on June 13, 2018) 31.1 CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 31.2 CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.1 Certification pursuant to 18 U.S.C. Section 1350 101.INS Inline XBRL Instance Document 101.SCH Inline XBRL Taxonomy Extension Schema Document 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) * Indicates a management contract or compensatory plan or arrangement. In accordance with SEC Release 33-8238, Exhibit 32.1 and 32.2 are being furnished and not filed. Furnished herewith. XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections. 40 Signatures Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AURA SYSTEMS, INC. Dated: June 4, 2024 By: /s/ Cipora Lavut Cipora Lavut President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. Signatures Title Date /s/ Cipora Lavut President (Principal Executive Officer), Board Chair June 4, 2024 Cipora Lavut /s/ Gary Campbell Chief Financial Officer (Principal Financial Officer) June 4, 2024 Gary Campbell /s/ David Mann Director June 4, 2024 David Mann /s/ Robert Lempert Director June 4, 2024 Robert Lempert /s/ Gary Douglas Director June 4, 2024 Gary Douglas /s/ Salvador Diaz-Verson, Jr. Director June 4, 2024 Salvador Diaz-Verson, Jr. 41 Index to Financial Statements Report of Independent Registered Public Accounting Firm (PCAOB Firm ID: 572 ) F-2 Financial Statements of Aura Systems, Inc.: Balance Sheets as of February 29, 2024 and February 28, 2023 F-4 Statements of Operations - Years ended February 29, 2024 and February 28, 2023 F-5 Statements of Stockholders’ Deficit - Years ended February 29, 2024 and February 28, 2023 F-6 Statements of Cash Flows - Years ended February 29, 2024 and February 28, 2023 F-7 Notes to Financial Statements F-8 to F-26 F- 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Aura Systems, Inc. Opinion on the Financial Statements We have audited the accompanying balance sheets of Aura Systems, Inc. (the “Company”) as of February 29, 2024, and February 28, 2023, the related statements of operations, stockholders’ deficit, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of February 29, 2024, and February 28, 2023, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, during the year ended February 29, 2024, the Company incurred a net loss of $4.2 million, used cash in operations of $3 million, and at February 29, 2024, had a stockholders’ deficit of $21.5 million. In addition, at February 29, 2024, notes payable and related accrued interest with an aggregate balance of $6.7 million have reached maturity and are past due. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which it relates. F- 2 Going Concern Analysis As described in Note 1 to the financial statements, for the year ended February 29, 2024, the Company recorded a net loss of $4.2 million, used cash in operations of $3 million, and at February 29, 2024, had a stockholders’ deficit of $21.5 million. In addition, at February 29, 2024, notes payable and related accrued interest with an aggregate balance of $6.7 million have reached maturity and are past due. The conditions described in Note 1 raise substantial doubt regarding the Company’s ability to continue as a going concern for a period of at least one year from the date of issuance of the financial statements. We identified the going concern analysis and evaluation of the related disclosures as a critical audit matter because of the significant judgements and assumptions made by management in developing its cash flow forecast and the risk of bias in management’s judgments and assumptions in estimating these cash flows. There was a high degree of auditor judgement and subjectivity in performing our procedures to evaluate the reasonableness of the cash flow forecast. The primary procedures we performed to address this critical audit matter included: ● We obtained management’s cash flow forecast and evaluated the reasonableness of the cash flow forecast by comparing it to historical operating results, considering management’s ability to accurately forecast and perform sensitivity analysis on revenue, cash expenditures and commitments. ● We performed sensitivity analyses on the projected revenue and operating margins used in the Company’s cash flow forecast to evaluate the impact on the conclusions reached by management. ● We assessed the appropriateness and sufficiency of the disclosures included within the financial statements relating to liquidity and going concern and compared to other audit evidence obtained to determine whether such information is consistent with the Company’s disclosures. We have served as the Company’s auditor since 2022. /s/ Weinberg & Company, P.A . Los Angeles, California June 4, 2024 F- 3 AURA SYSTEMS, INC. BALANCE SHEETS February 29, 2024 February 28, 2023 (amounts in thousands, except share data) Assets Current assets Cash and cash equivalents $ 124 $ 15 Inventories 20 155 Prepaid and other current assets 175 142 Total current assets 319 312 Property and equipment, net 378 461 Operating lease right-of-use asset 607 816 Security deposit 160 160 Total assets $ 1,464 $ 1,749 Liabilities and Shareholders’ Deficit Current liabilities Accounts payable and accrued expenses (including $ 223 and $ 226 due to related party, respectively) $ 2,625 $ 2,758 Accrued interest (including $ 2,076 and $ 1,145 due to related party, respectively) 2,598 1,471 Customer advances 447 454 Notes payable, current portion 119 92 Convertible notes payable, current portion-past due 1,508 1,403 Convertible note payable-related party-past due 3,020 3,000 Notes payable-related parties, current portion (includes $ 700 past due) 4,632 4,632 Operating lease liability, current portion 238 207 Derivative warrant liability - 9 Total current liabilities 15,187 14,026 Notes payable, net of current portion 286 256 Note payable-related party, net of current portion 7,088 7,065 Operating lease liability, net of current portion 423 660 Total liabilities 22,984 22,007 Commitments and contingencies - - Shareholders’ deficit Common stock: $ 0.0001 par value; 150,000,000 shares authorized; 104,591,648 and 94,648,346 issued and outstanding at February 29, 2024 and February 28, 2023, respectively. 10 9 Additional paid-in capital 457,460 454,507 Accumulated deficit ( 478,990 ) ( 474,774 ) Total shareholders’ deficit ( 21,520 ) ( 20,258 ) Total liabilities and shareholders’ deficit $ 1,464 $ 1,749 See accompanying notes to these financial statements. F- 4 AURA SYSTEMS, INC. STATEMENTS OF OPERATIONS Fiscal Years Ended February 29, 2024 February 28, 2023 (amounts in thousands, except share and per share data) Net revenue $ 56 $ 71 Cost of goods sold 193 88 Gross loss ( 137 ) ( 17 ) Operating expenses: Engineering, research and development (including $ 151 and $ 150 to related party, respectively) 750 850 Selling, general and administration 1,873 2,636 Total operating expenses 2,623 3,486 Loss from operations ( 2,760 ) ( 3,503 ) Other income (expense): Interest expense, net (including $ 1,064 and $ 545 to related parties, respectively) ( 1,465 ) ( 727 ) Gain on extinguishment of derivative warrant liability - 237 Change in fair value of derivative warrant liability 9 582 Other income - 1 Net loss $ ( 4,216 ) $ ( 3,410 ) Basic and diluted loss per share $ ( 0.04 ) $ ( 0.04 ) Basic and diluted weighted-average shares outstanding 99,379,779 88,947,803 See accompanying notes to these financial statements. F- 5 AURA SYSTEMS INC. STATEMENTS OF SHAREHOLDERS’ DEFICIT (in thousands, except share data) Common Stock Shares Common Stock Amount Additional Paid-In Capital Accumulated Deficit Total Shareholders’ Deficit Balance, February 28, 2022 83,119,104 $ 8 $ 450,137 $ ( 471,364 ) $ ( 21,219 ) Common shares issued for cash 11,529,242 1 3,269 - 3,270 Fair value of warrants issued for note settlement - - 1,051 - 1,051 Fair value of warrants issued for services 50 50 Net loss - - - ( 3,410 ) ( 3,410 ) Balance, February 28, 2023 94,648,346 9 454,507 ( 474,774 ) ( 20,258 ) Common shares issued for cash 9,918,302 1 2,942 - 2,943 Common shares issued for services 25,000 - 6 - 6 Fair value of warrants issued with convertible notes payable - - 5 - 5 Net loss ( 4,216 ) ( 4,216 ) Balance, February 29, 2024 104,591,648 $ 10 $ 457,460 $ ( 478,990 ) $ ( 21,520 ) See accompanying notes to these financial statements. F- 6 AURA SYSTEMS, INC. STATEMENTS OF CASH FLOWS Fiscal Years Ended February 29, 2024 February 28, 2023 (amounts in thousands) Net loss $ ( 4,216 ) $ ( 3,410 ) Adjustments to reconcile net loss to cash used in operating activities Depreciation 105 78 Inventory write-down 123 4 Gain on extinguishment of derivative warrant liability, net - ( 237 ) Change in fair value of derivative warrant liability ( 9 ) ( 582 ) Common stock issued for services 6 - Amortization of debt discount 4 - Common stock warrants issued for services - 50 Changes in operating assets and liabilities: Inventory 12 ( 15 ) Prepaid and other current assets ( 33 ) 114 Operating lease right-of-use asset 209 184 Accounts payable and accrued expenses ( 133 ) 364 Accrued interest on notes payable 1,150 492 Customer advances ( 7 ) 14 Operating lease liability ( 206 ) ( 179 ) Cash used in operating activities ( 2,995 ) ( 3,123 ) Cash used in investing activities: Purchase of property and equipment ( 22 ) ( 54 ) Cash flows from financing activities: Proceeds from issuance of common stock 2,943 3,270 Proceeds from issuance of notes payable 281 - Principal payments of notes payable ( 98 ) ( 228 ) Cash provided by financing activities 3,126 3,042 Net increase (decrease) in cash and cash equivalents 109 ( 135 ) Cash and cash equivalents-beginning of year 15 150 Cash and cash equivalents-end of year $ 124 $ 15 Cash paid for: Interest $ 185 $ 166 Supplemental schedule of non-cash transactions: Fair value of warrants issued for note payable $ 5 $ - Fair value of warrants issued for note settlement $ - $ 1,051 See accompanying notes to these financial statements. F- 7 AURA SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS Years ended February 29, 2024, and February 28, 2023 (In thousands, except share and per share amounts) NOTE 1 – ORGANIZATION AND OPERATIONS Aura Systems, Inc., (“Aura”, “We” or 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 markets. Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. In accordance with Accounting Standards Codification (“ASC”) 205-40, Going Concern , the Company’s management has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the accompanying financial statements were issued. During the fiscal year ended February 29, 2024, the Company incurred a net loss of $ 4.2 million, used cash in operating activities of $ 3 million, and at February 29, 2024, had a stockholders deficit of $ 21.5 million. In addition, at February 29, 2024, notes payable and related accrued interest with an aggregate balance of $ 6.7 million have reached maturity and are past due. These factors raise substantial doubts about the Company’s ability to continue as a going concern within one year of the date that these financial statements are issued. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Subsequent to February 29, 2024, the Company issued 4,455,600 shares of common stock in exchange for cash proceeds of $ 1.1 million. The Company’s ability to continue as a going concern is dependent upon its ability to continue to implement its business plan. During the next twelve months we intend to continue to attempt to increase the Company’s sale of our AuraGen ® /VIPER products both domestically and internationally and to add to our existing management team. In addition, we plan to continue to rebuild the engineering and sales teams, and to the extent appropriate, utilize third party contractors to support the operation. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, if needed, it may contain undue restrictions on its operations, in the case of debt financing, or cause substantial dilution for its stockholders, in the case of equity financing. 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 altogether. NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates The 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 realizability of deferred tax assets and the related valuation allowance, assumptions used in valuing derivative liabilities, notes payable, assumptions used in valuing share-based compensation, and accruals for potential liabilities. Amounts could materially change in the future. F- 8 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 . To determine revenue recognition under ASC 606, an entity performs the following five-steps (i) identifies the contract(s) with a customer; (ii) identifies the performance obligations in the contract; (iii) determines the transaction price; (iv) allocates the transaction price to the performance obligations in the contract; and (v) recognizes revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-steps to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. Our primary source of revenue is the manufacture and delivery of generator sets used primarily in mobile power applications, which represented nearly 100 % of our revenues of $ 56 and $ 71 for the fiscal years ended February 29, 2024, and February 28, 2023, respectively. Our principal sales channel is sales to a domestic distributor. In accordance with ASC 606, we recognize 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 obligations to the customer. Our payment terms are cash payment due upon delivery and typically includes a 2 % price discount off the selling price in accordance with this policy. Our commercial terms and conditions do not include a right of return for reasons other than a defect in performance or quality. We offer a 24-month assurance-type warranty covering material and manufacturing defects, which we account for under the guidance of ASC 460, Guarantees. We have a limited history of sales and warranty claims, and, as such, we have not recorded a warranty liability on our balance sheets at February 29, 2024 and February 28, 2023, respectively; however, we expect warranty claims to be immaterial. Cost of Goods Sold Cost of goods sold primarily consists of the salaries of certain employees and contractors, purchase price of consumer products, packaging supplies, inventory reserve and customer shipping and handling expenses. Shipping costs to receive products from our suppliers are included in our inventory and recognized as cost of revenue upon sale of products to our customers. Cash and Cash Equivalents Cash and equivalents include cash on hand and cash in time deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less. Inventories Inventories are valued at the lower of cost (first-in, first-out) or net realizable value, on an average cost basis. We review the components of inventory on a regular basis for excess or obsolete inventory based on estimated future usage and sales. When evidence exists that the net realizable value of inventory is lower than its cost, the difference is recognized as a loss in the period in which it occurs. Once inventory has been written down, it creates a new cost basis for inventory that may not be subsequently written up. During the years ended February 29, 2024, and February 28, 2023, the Company wrote-down inventories of $ 123 and $ 4 , respectively. F- 9 Property and Equipment Property and equipment are recorded at historical cost and depreciated on a straight-line basis over their estimated useful lives of approximately three years up to ten years once the individual assets are placed in service. Leasehold improvements are amortized over the shorter of the useful life or the remaining period of the applicable lease term. Management assesses the carrying value of property and equipment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If there is an indication of impairment, management prepares an estimate of future cash flows expected to result from the use of the asset and its eventual disposition. If these cash flows are less than the carrying amount of the asset, an impairment loss is recognized to write down the asset to its estimated fair value at that time. At February 29, 2024 and February 28, 2023, management determined there were no impairments of the Company’s property and equipment. Impairment of Long-lived Assets The Company reviews its property and equipment, right-of-use asset, and other long-lived assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Recoverability is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. For the years ended February 29, 2024, and February 28, 2023, the Company had no impairment of long-lived assets. Leases The Company determines whether a contract is, or contains, a lease at inception. Right-of-use assets represent the Company’s right to use an underlying asset during the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at lease commencement based upon the estimated present value of unpaid lease payments over the lease term. The Company uses its incremental borrowing rate based on the information available at lease commencement in determining the present value of unpaid lease payments. Customer Advances Customer advances represent consideration received from customers under revenue contracts for which the Company has not yet delivered to the customer the ordered goods or services. Concentration of Credit and Other Risks Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and accounts receivable. Cash is deposited with a limited number of financial institutions. The balances held at any one financial institution at times may be in excess of Federal Deposit Insurance Corporation (“FDIC”) insurance limits of up to $ 250 . We have not experienced any losses in such accounts and believe we are not exposed to any significant risk on cash and cash equivalents. During the year ended February 29, 2024, one customer accounted for 55 % and one customer accounted for 12 % of revenues. During the year ended February 28, 2023, one customer accounted for 55 % and one customer accounted for 10 % of revenues. As of February 29, 2024, four vendors accounted for 42 %, 11 %, 11 % and 10 % of accounts payable. As of February 28, 2023, four vendors accounted for 38 %, 13 %, 10 % and 10 % of accounts payable. F- 10 Research and Development The Company engages in research and development to stay current with changes in vehicle manufacture and design and to maintain an advantage over potential competition. Research and development expenses relate primarily to the development, design, and testing of preproduction prototypes and models and are expensed as incurred. Research and development costs for Fiscal 2024 and 2023 were approximately $ 750 and $ 850 , respectively. 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 period. Recognition of compensation expense for non-employees is in the same period and manner as if the Company had paid cash for services. Income Taxes The Company uses an asset and liability approach for accounting and reporting for income taxes that allows recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain. The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. Derivative Warrant Liability The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date. The Company uses Level 3 inputs for its valuation methodology for the derivative liabilities as their fair values were determined by using a Binomial pricing model. The Company’s derivative liabilities are adjusted to reflect fair value at each reporting date, with any increase or decrease in the fair value being recorded in the statement of operations. F- 11 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; and ● 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 February 29, 2024, and February 28, 2023: February 29, 2024 Level 1 Level 2 Level 3 Total (amounts in thousands) Liabilities Derivative warrant liability $ - $ - $ - $ - Total $ - $ - $ - $ - February 28, 2023 Level 1 Level 2 Level 3 Total Liabilities Derivative warrant liability $ - $ - $ 9 $ 9 Total $ - $ - $ 9 $ 9 The Company estimated the fair value of the derivative warrant liability using the Binomial Model (see Note 12). Reclassifications Certain February 28, 2023 balances have been reclassified to conform with the February 29, 2024 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 February 29, 2024, 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 . F- 12 Earnings (loss) per share The Company’s earnings (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 following information sets forth the computation of basic and diluted net increase in the Company’s net assets per share resulting from operations for the years ended February 29, 2024, and February 28, 2023: Year Ended February 29, 2024 2023 (amounts in thousands, except share and per share data) Numerator Net loss ( 4,216 ) ( 3,410 ) Denominator Denominator for basic weighted average share 99,380,061 88,947,803 Earnings (loss) per share Basic loss per share: ( 0.04 ) ( 0.04 ) Diluted loss per share ( 0.04 ) ( 0.04 ) For the years ended February 29, 2024, and February 28, 2023, the calculations of basic and diluted loss per share are the same because potential dilutive securities would have had an anti-dilutive effect. The potentially dilutive securities consisted of the following: February 29, 2024 February 28, 2023 Warrants 3,521,664 3,564,764 Options 4,250,000 4,792,857 Convertible notes 4,685,445 3,907,187 Total 12,457,109 12,264,808 COVID-19 The aftermath of the pandemic has had a significant negative impact on our overall operations including revenues, productivity, and liquidity. The pandemic has resulted in labor shortages, disruptions in the chain of supply, and higher material costs. We believe that COVID-19 will be an ongoing challenge for years to come and to adapt will require us to further globalize our vendors, engineering, and customers. The Company’s business is directly dependent upon, and correlates closely with, the marketing levels and ongoing business activities of its existing customers and suppliers. The extent to which COVID-19 may impact the Company’s business activities and capital raising efforts will depend on future developments, which are uncertain and cannot be predicted. Inflation The continuing impact of higher inflation, the actions by the Federal Reserve to address inflation, create uncertainty about the future economic environment which will continue to evolve and, we believe, has impacted the Company’s business in 2024 and may continue to impact its business in 2025. The implications of higher government deficits and debt, tighter monetary policy, and potentially higher long-term interest rates may drive a higher cost of capital for the business and an increase in the Company’s operating expenses. Segments Under ASC 280, Segment Reporting , operating segments are defined as components of an enterprise where discrete financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”), in deciding how to allocate resources and in assessing performance. The Company’s operating segment consists of one component, and the Company’s Chief Executive Officer, who is also the CODM, makes decisions and manages the Company’s operations as a single operating segment. F- 13 Recently Issued Accounting Pronouncements In 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. The Company adopted ASU 2016-13 on March 1, 2023, and there was no impact of the new guidance and related codification improvements to the Company’s financial position, results of operations and cash flows. Other 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 3 – INVENTORIES Inventories consisted of the following: February 29, 2024 February 28, 2023 (amounts in thousands) Raw materials $ 13 $ 114 Work-in-process 6 22 Finished goods 1 19 Total inventory $ 20 $ 155 F- 14 NOTE 4 – PREPAID AND OTHER CURRENT ASSETS Prepaid and other current assets consisted of the following: February 29, 2024 February 28, 2023 (amounts in thousands) Prepaid annual software licenses $ 158 $ 92 Vendor advances 9 8 Prepaid insurance 2 11 Other prepaid expenses 6 31 Total prepaid and other current assets $ 175 $ 142 NOTE 5 – PROPERTY AND EQUIPMENT, NET Property and equipment consisted of the following: February 29, 2024 2023 (amounts in thousands) Leasehold improvements $ 57 $ 57 Machinery and equipment 301 301 Vehicle 96 96 Computer equipment 80 80 Computer software 22 - Furniture and fixtures 20 20 576 554 Less accumulated depreciation and amortization ( 198 ) ( 93 ) $ 378 $ 461 Depreciation expense for the years ended February 29, 2024, and February 28, 2023 was $ 105 and $ 78 , respectively. NOTE 6 – CONVERTIBLE NOTES PAYABLE Convertible notes payable consisted of the following: February 29, 2024 February 28, 2023 (amounts in thousands) Convertible notes payable -past due $ 1,509 $ 1,403 Unamortized debt discount ( 1 ) - Net 1,508 1,403 Non-current - - Current $ 1,508 $ 1,403 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 to 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 of February 28, 2023, outstanding balance of the convertible notes payable amounted to $ 1,403 During the year ended February 29, 2024, the Company issued convertible notes payable in the aggregate of $ 106 in exchange for cash. The notes are unsecured, bear interest at 10 % per annum and are convertible to shares of common stock at a conversion price of $ 0.20 per share and matured in March 2024. As part of the offering, the Company also granted the note holders warrants to purchase 50,000 shares of common stock. The warrants are exercisable at $ 0.50 per share, will expire in 1.5 years from grant date and with an estimated fair value of $ 5 using the BlackScholes Option Pricing Model. The Company accounted the fair value of the warrants as a debt discount and is being amortized to interest expense over the term of the convertible notes payable. As of February 29, 2024, the outstanding balance of the convertible notes payable amounted to $ 1,509 and unamortized debt discount of $ 1 , for a net balance of $ 1,508 . As of February 29, 2024, the convertible notes of $ 1,403 have reached maturity and are past due. As of the date of this report, the entire convertible notes payable of $ 1,509 are past due and the Company is in negotiations with the noteholders to convert or settle these convertible notes payable. F- 15 NOTE 7 – CONVERTIBLE NOTE PAYABLE-RELATED PARTY Convertible note payable – related party consisted of the following: February 29, 2024 February 28, 2023 (amounts in thousands) Convertible note payable -past due $ 3,020 $ 3,000 Non-current - - Current $ 3,020 $ 3,000 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, was due February 2, 2023, and is convertible into shares of common stock at a conversion price of $ 1.40 per share, as adjusted. As of February 28, 2023, the outstanding balance of the convertible note payable amounted to $ 3 million. During the year ended February 29, 2024, the Company issued convertible note payable of $ 20 in exchange for cash. The note is unsecured, bear interest at 10 % per annum and are convertible to shares of common stock at a conversion price of $ 0.20 per share and matured in March 2024. As part of the offering, the Company also granted the note holder warrants to purchase 10,000 shares of common stock. The warrants are exercisable at $ 0.50 per share, will expire in 1.5 years from grant date and with de minimis fair value using the BlackScholes Option Pricing Model. As of February 29, 2024, the convertible note of $ 3,020 , of which, $ 3,000 is past due. As of the date of this report, the entire convertible notes payable of $ 3,020 are past due and the Company is in negotiations with the noteholders to convert or settle these convertible notes payable. NOTE 8 – NOTES PAYABLE Notes payable consisted of the following: February 29, 2024 February 28, 2023 (amounts in thousands) Secured notes payable (a) Note payable-EID loan $ 150 $ 150 (b) Notes payable-vehicle and equipment 106 188 (c) Notes payable-software license 139 - Unsecured notes payable (d) Note payable-other 10 10 Total $ 405 $ 348 Current ( 119 ) ( 92 ) Non-current 286 256 (a) Economic Injury Disaster (EID) Loan Entities negatively impacted by the COVID-19 pandemic were eligible to apply for loans sponsored by the United States Small Business Administration (“SBA”) Economic Injury Disaster Loan (“EID Loan”) program. On July 1, 2020, the Company received a $ 150 loan under this program. The proceeds can be used to fund payroll, healthcare benefits, rent and other qualifying expenses, and the loan is not subject to a loan forgiveness provision. The loan is due July 1, 2050, interest accrues at 3.75 % per annum, and is secured by the assets of the Company. F- 16 (b) Notes payable-vehicle and equipment During Fiscal 2022, the Company purchased two pieces of equipment and a vehicle for approximately $ 329 as a part of its efforts to expand its operations and research and development capacities. The Company made down payments aggregating $ 41 with the balance financed by two notes payable aggregating to approximately $ 288 . The notes are secured by the equipment and vehicle purchased. One note is due in 36 equal monthly payments of approximately $ 6 each, including interest at 2.9 % per annum. The second note is due in 72 equal monthly payments of approximately $ 1.5 each, including interest at 10.9 % interest per annum. As of February 29, 2024, the balance of the notes was approximately $ 106 . (c) Note payable-software license During Fiscal 2024, the Company obtained a loan of $ 155,000 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 2026. As of February 29, 2024, the balance of the loan was approximately $ 139 . (d) Other notes payable Demand promissory notes as of February 29, 2024, and February 28, 2023, are for one individual issued in September 2015 that is payable on demand with an interest rate of 10 % per annum. NOTE 9 – NOTES PAYABLE-RELATED PARTIES Notes payable-related parties consisted of the following: February 29, 2024 February 28, 2023 (amounts in thousands) Unsecured notes payable (a) Notes payable - Kopple (restructured) $ 10,915 $ 10,915 (b) Note payable- Gagerman 82 82 (c) Note payable-Jiangsu Shengfeng-past due 700 700 Total $ 11,720 $ 11,697 Non-current ( 7,088 ) ( 7,065 ) Current $ 4,632 $ 4,632 (a) Kopple Notes 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. As of February 28, 2022, the outstanding balance of the Kopple notes payable and accrued interest amounted to approximately $ 12,141 . F- 17 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 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. 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 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, 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 28, 2023, outstanding principal balance amounted to $ 10,915 . During the year ended February 29, 2024, the note was amended multiple times to extend the payment dates of the balance of the initial payment of $ 2,850 , originally due in June 2022, and the first installment payment of $ 1,000 , originally due in June 2023 (collectively, the “past due principal”) for a total installment due of $ 3,850 . As a result of these amendments, the Company incurred additional extension and forbearance fees totaling $ 450 and adjustment to principal balance of $ 23 that was recorded as part of interest expense. As of February 29, 2024, outstanding principal balance amounted to $ 10,938 , including the $ 3,850 past due principal (see below). 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 due December 15, 2024, effectively extending the payment of $ 1,850 to future periods; (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 a conversion right that gives Kopple the option 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; (v) during Fiscal 2025, will require the Company to pay 20 % of all collected revenues within 10 days of the end of each fiscal quarter; (vi) will 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; and (vii) extends the warrant expiration date from March 8, 2029, to March 31, 2031. The Company will account for this amendment in the first quarter ended March 31, 2024, for fiscal year 2025. F- 18 (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. Based on Gagerman’s claims, as of February 29, 2024, and February 28, 2023, the outstanding balance of the Gagerman notes payable and accrued interest would amount to approximately $ 172 and $ 164 , respectively. As of February 29, 2024, and February 28, 2023, despite the fact that the Company disputes Gagerman’s claims, under the guidance of ASC 450 - Contingencies , the Company has recorded the amount being claimed by Gagerman. (c) Jiangsu Shengfeng Note On 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, and 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 February 29, 2024, and 2023, the principal due was $ 700 , respectively, and was past due. NOTE 10 – ACCRUED INTEREST Accrued interest consisted of the following: February 29, 2024 February 28, 2023 (amounts in thousands) Accrued interest-convertible notes payable (past due) $ 425 $ 354 Accrued interest-convertible notes payable related party (past due) 863 713 Accrued interest-notes payable – related party 1288 363 Accrued interest-notes payable and other 22 41 $ 2,598 $ 1,471 F- 19 NOTE 11 – LEASES In February 2021, the Company consolidated our administrative and production operations, including warehousing, within an approximately 18 square foot facility in Lake Forest, California. The Lake Forest facility lease is for 66-months effective February 2021 through August 31, 2026. The initial monthly base rental rate was approximately $ 22 per month and escalates 3 % each year to approximately $ 26 per month in 2026. The lease liability was determined by discounting the future lease payments under the 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. 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 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: Year ended February 29, 2024 Year ended February 28, 2023 (amounts in thousands) Lease Cost Operating lease cost (included in general and administration in the Company’s statement of operations) $ 285 $ 279 Other Information Cash paid for amounts included in the measurement of lease liabilities for the years ended February 29, 2024, and 2023, respectively $ 285 $ 274 Weighted average remaining lease term – operating leases (in years) 2.5 3.5 Average discount rate – operating leases 10.0 % 10.0 % The supplemental balance sheet information related to leases for the period is as follows: At February 29, 2024 Operating leases Long-term right-of-use assets $ 607 Short-term operating lease liabilities $ 238 Long-term operating lease liabilities 423 Total operating lease liabilities $ 661 F- 20 Maturities of the Company’s lease liability is as follows: Year Ending February 28: Operating Lease 2025 $ 291 2026 299 2027 155 Total lease payments 745 Less: Imputed interest/present value discount ( 84 ) Present value of lease liabilities $ 661 NOTE 12 – DERIVATIVE WARRANT LIABILITY The Company issued warrants in prior years 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. The 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 on the expiration of the outstanding warrants. The following tables summarize the derivative warrant liability: February 29, 2024 February 28, 2023 (amounts in thousands, except share and per share data) Stock price $ 0.16 $ 0.25 Risk free interest rate 5.2 % 4.7 % Expected volatility 178 % 190 % Expected life in years 0.4 0.97 Expected dividend yield 0 % 0 % Number of warrants 10,000 113,100 Fair value of derivative warrant liability $ - $ 9 Number of Warrants Outstanding Fair Value of Derivative Warrant Liability (amounts in thousands, except share data) February 28, 2022 4,800,834 $ 828 Change in fair value of derivative warrant liability - ( 582 ) Gain on extinguishment on expiration of warrants ( 4,687,734 ) ( 237 ) February 28, 2023 113,100 $ 9 Gain on extinguishment on expiration of warrants ( 103,100 ) ( 9 ) February 29, 2024 10,000 $ - F- 21 NOTE 13 – STOCKHOLDERS’ DEFICIT Common Stock On February 29, 2024, and February 28, 2023, the Company had 150,000,000 shares of $ 0.0001 par value common stock authorized for issuance. During the year ended February 29, 2024, the Company issued 9,918,302 shares of common stock for net proceeds of approximately $ 2,943 in cash and services. In addition, the Company also issued 25,000 shares of common stock for services rendered with a fair value of $ 6 . During the year ended February 28, 2023, the Company issued 11,529,242 shares of common stock for net proceeds of approximately $ 3,270 in cash. Stock Options In October 2011, the Company’s shareholders approved the 2011 Director and Executive Officers Stock Option Plan (the “2011 Plan”). Under the 2011 Plan, the Company may grant options, or warrants, for up to 15% of the number of shares of Common Stock of the Company outstanding from time to time. Pursuant to this plan, the Board or a committee of the Board may grant an option to any person who is elected or appointed a director or executive officer of the Company. The exercise price of each option shall be at least equal to the fair market value of such shares on the date of grant, and the term of the options may not be greater than five years. A summary of the Company’s stock option activity is as follows: Number of Shares Exercise Price Weighted Average Intrinsic Value (amounts in thousands, except share and per share data) Total options, February 28, 2022 5,059,769 $ 0.55 $ 360 Granted - - - Exercised - - - Expired ( 266,912 ) 1.40 - Total options, February 28, 2023 4,792,857 $ 0.48 $ 394 Granted - - - Exercised - - - Expired ( 542,857 ) 1.40 - Total options, February 29, 2024 4,250,000 $ 0.37 $ - Exercisable, February 29, 2024 4,250,000 $ 0.37 $ - The exercise prices and information related to options under the 2011 Plan outstanding on February 29, 2024, are as follows: Range of Exercise Price Stock Options Outstanding Stock Options Exercisable Weighted Average Remaining Contractual Life Weighted Average Exercise Price of Options Outstanding Weighted Average Exercise Price of Options Exercisable $ 0.25 to $ 1.40 4,250,000 4,250,000 1.67 $ 0.37 $ 0.37 F- 22 Warrants Number of Warrants Exercise Price Outstanding, February 28, 2022 4,800,834 $ 1.40 Granted 3,451,664 0.82 Exercised - - Expired ( 4,687,734 ) 1.40 Outstanding, February 28, 2023 3,564,764 $ 0.86 Granted 60,000 0.50 Exercised - - Expired ( 103,100 ) 1.40 Outstanding, February 29, 2024 3,521,664 $ 0.83 There was no intrinsic value as of February 29, 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 under the 2011 Plan outstanding on February 29, 2024, are as follows: Range of Exercise Price Stock Warrants Outstanding Stock Warrants Exercisable Weighted Average Remaining Contractual Life Weighted Average Exercise Price of Warrants Outstanding Weighted Average Exercise Price of Warrants Exercisable $ 0.50 to $ 1.40 3,521,664 3,521,664 4.9 $ 0.83 $ 0.83 F- 23 The fair values of warrants issued during the year ended February 29, 2024, and February 28, 2023, were computed using various option pricing models including Black-Scholes model (notes payable warrants) and binomial model (services warrants) using the weighted average assumptions as set forth in the table below: Weighted Average Assumptions for Warrants Issued During the Fiscal 2024 Weighted Average Assumptions for Warrants Issued During the Fiscal 2023 Exercise Price $ 0.50 $ 0.84 Share Price $ 0.164 $ 0.341 Volatility % 160 % 224.6 % Risk-Free Rate 4.9 % 2.04 % Expected Term (yrs.) 1.5 6.9 Dividend Rate 0 % 0 % NOTE 14 – INCOME TAXES For the years ended February 29, 2024, and February 28, 2023, the Company had no income tax expense. FY2024 FY2023 Current: Federal $ - $ - State - - Total current $ - $ - Deferred: Federal $ - $ - State - - Total deferred $ - $ - Total Provision $ - $ - For the years ended February 29, 2024 and February 28, 2023, a reconciliation of the effective income tax rate to the U.S. statutory rate is as follows: FY2024 FY2023 Federal tax benefit at statutory rate 21 % 21 % State tax benefit, net of federal benefit 7 % 7 % Change in valuation allowance ( 28 )% ( 28 )% Total 0 % 0 % F- 24 As of February 29, 2024, and February 28, 2023, the following table summarizes our deferred tax asset: FY2024 FY2023 (amounts in thousands) Deferred tax asset Net operating loss carryforwards $ 39,374 $ 42,141 Gross deferred tax assets 39,374 42,141 Valuation allowance ( 39,374 ) ( 42,141 ) Net deferred tax asset (liability) $ - $ - The provisions of ASC Topic 740, Accounting for Income Taxes, require an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable. For the years ended February 29, 2024, and February 28, 2023, based on all available objective evidence, including the existence of cumulative losses, the Company determined that it was more likely than not that the net deferred tax assets were not fully realizable. Accordingly, the Company established a full valuation allowance against its net deferred tax assets. The Company intends to maintain a full valuation allowance on net deferred tax assets until sufficient positive evidence exists to support reversal of the valuation allowance. During the years ended February 29, 2024, and February 28, 2023, the valuation allowance decreased by $ 2.7 million and $ 2.7 million, respectively. At February 29, 2024, the Company had available Federal and state net operating loss carryforwards (“NOL”s) to reduce future taxable income. For Federal purposes the amounts available were approximately $ 144.7 million and for state purposes the amounts available were approximately $ 102.5 million. The Federal carryforwards expire on various dates through 2044 and the state carryforwards expire on various dates through 2044. Due to restrictions imposed by Internal Revenue Code Section 382 regarding substantial changes in ownership of companies with loss carryforwards, the utilization of the Company’s NOL may be limited as a result of changes in stock ownership. The Company’s operations are based in California, and it is subject to Federal and California state income tax. Tax years after 2017 are open to examination by United States and state tax authorities. The Company follows the guidance of ASC 740, which requires companies to determine whether it is “more likely than not” that a tax position will be sustained upon examination by the appropriate taxing authorities before any tax benefit can be recorded in the financial statements. ASC 740 also provides guidance on the recognition, measurement, classification and interest and penalties related to uncertain tax positions. As of February 29, 2024, and February 28, 2023, no liability for unrecognized tax benefits was required to be recorded or disclosed. Our continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of February 29, 2024, and February 28, 2023, we have no accrued interest and penalties related to uncertain tax positions. We are subject to taxation in the U.S. and California. Our tax years for 2014 and forward are subject to examination by our tax authorities. We are not currently under examination by any tax authority. The Company has failed to file its California tax returns for the years ended February 28, 2015, through February 29, 2024, due to its inability to pay the minimum annual franchise tax payment of eight hundred dollars. The balance of accrued income taxes related to unpaid California franchise tax of $ 5.6 represents six years of minimum taxes due. F- 25 NOTE 15 – RELATED PARTY TRANSACTIONS As of February 29, 2024, and February 28, 2023, Bettersea LLC (“Bettersea”) was an 8.8 % and 9.7 %, respectively, shareholder in the Company. For the years ended February 29, 2024, and February 28, 2023, the Company incurred total fees to Bettersea of $ 151 and $ 150 , respectively, for consulting services. As of February 29, 2024, and February 28, 2023, a total of approximately $ 223 and $ 226 , respectively, was due to Bettersea and included in accounts payable and accrued expenses. As of February 29, 2024, and February 28, 2023, accrued expenses includes accrued payroll due to officers and shareholders of $ 213 and $ 141 , respectively. NOTE 16 – CONTINGENCIES The Company is subject to legal proceedings and claims that have arisen in the ordinary course of business. Our management evaluates our exposure to these claims and proceedings individually and in the aggregate and evaluates potential losses on such litigation if the amount of the loss is estimable and the loss is probable. However, the outcome of legal proceedings and claims brought against the Company is subject to significant uncertainty. Although management considers the likelihood of such an outcome to be remote, if one or more of these legal matters were resolved against the Company for amounts in excess of management’s expectations, the Company’s financial statements for that reporting period could be materially adversely affected. In June 2022 Melvin Gagerman (the Company’s former CEO, CFO and Secretary) brought suit against the Company alleging approximately $ 150,000 being owed to him pursuant to an April 2014 promissory note. The Company denies that any amount is owed to Mr. Gagerman and has filed a cross-complaint against Mr. Gagerman in that action alleging, among other things, breach of fiduciary duty, conversion and violations of various California Business and Professions Codes. Trial in this case is currently scheduled for October 2024. In March 2023, Mr. Gagerman offered to settle the matter for $ 120,000 but the Company has rejected that offer (See Note 9). 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. Lavut, Mr. Mann, Dr. Lempert, Mr. Douglas and Mr. 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. Lavut, Mr. Mann and Dr. 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 17 – SUBSEQUENT EVENTS Subsequent to February 29, 2024, the Company issued 4,455,600 shares of common stock in exchange for cash proceeds of $ 1.1 million. F- 26