What changed in this filing

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Item 1. Financial Statements

2025-07-21 compared with 2025-01-21 · 297 added, 355 removed, 348 unchanged (65% of the section changed)

9 unchanged sentences

Operating lease right-of-use asset

Lease security deposit

Security deposit

Liabilities and Shareholders’ Deficit

3 unchanged sentences

Customer advances

Convertible notes payable – past due

Convertible notes payable-related party, current portion – $ 3,020 past due

Convertible notes payable, current portion-past due

Convertible note payable-related party-including $ 3,020 and $ 3,020 , respectively past due

Notes payable, current portion

Notes payable-related parties, current portion – past due

Operating lease liability, current portion

Notes payable-related party, current portion - past due

Lease liabilities, current portion

Derivative liability

Total current liabilities

Notes payable, non-current portion

Convertible note payable-related party, non-current portion

Notes payable-related parties, non-current portion

Operating lease liability

Notes payable, net of current portion

Lease liabilities, net of current portion

Total liabilities

4 unchanged sentences

150,000,000 shares authorized;

114,860,011 and 104,591,648 issued and outstanding November 30, 2024, and February 29, 2024, respectively

121,711,600 and 118,296,448 issued and outstanding at May 31, 2025 and February 25, 2025, respectively.

Additional paid-in capital

2 unchanged sentences

Total liabilities and shareholders’ deficit

The accompanying notes are an integral part of

these unaudited financial statements

See accompanying notes to these financial statements.

AURA SYSTEMS, INC.

1 unchanged sentence

Three Months Ended

Nine-Months Ended

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

Cost of goods sold

Gross profit (loss)

Operating expenses:

Engineering, research and development

Selling, general & administration

Selling, general and administration

Total operating expenses

3 unchanged sentences

Loss on debt extinguishment – related party

Change in fair value of derivative warrant liability

Change in fair value of derivative liability

Basic and diluted loss per share

Basic and diluted weighted-average shares outstanding

See accompanying notes to these unaudited financial

See accompanying notes to these financial statements.

AURA SYSTEMS, INC.

CONDENSED STATEMENTS OF SHAREHOLDERS’

and Nine Months Ended November 30, 2024

Ended May 31, 2025

(amounts in thousands, except share data)

3 unchanged sentences

Common shares issued for cash

Fair value of modified warrants - related party

Balance, May 31, 2025 (unaudited)

Common shares issued for cash

Fair value of stock options

Balance, August 31, 2024 (unaudited)

$ ( 502,969 )

Common shares issued for cash

Balance, November 30, 2024 (unaudited)

$ ( 501,178 )

and Nine Months Ended November 30, 2023

Three Months Ended May 31, 2024

(amounts in thousands, except share data)

3 unchanged sentences

Common shares issued for cash

Fair value of modified warrants - related party

Balance, May 31, 2024 (unaudited)

Common shares issued for cash

Balance, August 30, 2023 (unaudited)

$ ( 477,035 )

Common shares issued for cash

Fair value of warrants issued with convertible notes payable

Balance, November 30, 2023 (unaudited)

$ ( 477,945 )

See accompanying notes to these unaudited financial

1 unchanged sentence

CONDENSED STATEMENTS OF CASH FLOWS

Nine Months Ended

Three Months Ended

(amounts in thousands)

1 unchanged sentence

Depreciation and amortization

Amortization of debt discount

Inventory write-down

1 unchanged sentence

Change in fair value of derivative liability

Fair value of stock options

Changes in operating assets and liabilities:

Accounts receivable

Prepaid and other current assets

Operating lease right-of-use asset

Accounts payable, accrued expenses and customer advances

Accounts payable and accrued expenses

Accrued interest

Customer advances

Operating lease liability

5 unchanged sentences

Proceeds from issuance of common stock

Proceeds from issuance of convertible notes payable

Principal payments of convertible notes payable

Principal payments of notes payable

7 unchanged sentences

Notes payable issued for the purchase of property and equipment

Fair value of a convertible note payable

Extinguishment of note payable and accrued interest – related party

Fair value of convertible note payable

Extinguishment of note payable – related party

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

Reclassification of prepaid expense to property and equipment

Adjustment to interest expense to account for the effective interest rate of note payable

See accompanying notes to these unaudited financial

1 unchanged sentence

NOTES TO CONDENSED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED NOVEMBER 30, 2024

THREE MONTHS ENDED MAY 31, 2025 AND 2024

(Amounts in thousands, except share and per

3 unchanged sentences

Nature of Operations

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

a Delaware corporation, is engaged in the development, manufacturing, licensing and sale of products and components based on the Company’s

Axial Flux Induction technology for electric motors, generators, electric motors for industrial/commercial applications, as well as for

two-and four-wheel EV applications.

The Company’s power generation solution based on axial flux induction is known as the AuraGen ® for

commercial and industrial applications and the VIPER for military applications.

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.

Basis of Presentation

The accompanying unaudited condensed financial

statements as of and for the nine months ended on November 30, 2024 and 2023, have been prepared in conformity with accounting principles

statements as of and for the three months ended on May 31, 2025 and 2024, have been prepared in conformity with accounting principles

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

10 unchanged sentences

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

results of operations for the period ended November 30, 2024, may not necessarily be indicative of the results of the full fiscal year

ending February 28, 2025.

results of operations for the period ended May 31, 2025, may not necessarily be indicative of the results of the full fiscal year ending

February 28, 2026.

The Company’s fiscal year ends on the last

1 unchanged sentence

Accordingly, the current fiscal year will end on February 28, 2026, and is referred to as “Fiscal 2026”.

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

2023” and “Fiscal 2022”, respectively.

Our prior fiscal years ended February 28, 2025, February 29, 2024, and February 28, 2023, and are referred to as “Fiscal 2025”,

“Fiscal 2024” and “Fiscal 2023”, respectively.

Going Concern

3 unchanged sentences

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

During the nine-month period ended November 30,

2024, the Company recognized a net loss from operations of $ 4,026 and used cash in operating activities of $ 2,483 .

As of November 30,

2024, the Company also has a shareholder deficit of $ 39,451 and notes payable totaling $ 5,315 are also past due.

These factors raise substantial

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

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

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

The financial statements

do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

During the three month period ended May 31, 2025,

the Company recognized a net loss of $ 2,841 and used cash in operating activities of $ 746 .

As of May 31, 2025, the Company also has a

shareholder deficit of $ 39,586 and notes payable totaling $ 5,266 are also past due.

These factors raise substantial doubt about the Company’s

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

In addition, the Company’s

independent registered public accounting firm, in its report on the Company’s February 28, 2025, financial statements, raised substantial

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

The financial statements do not include any adjustments that might

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

In the event if the Company is unable to generate

5 unchanged sentences

and ultimately to attain profitability.

Higher inflation, the actions by the Federal Reserve

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

about the future economic environment.

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

The Company believes

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

in fiscal 2025.

The implications of higher government deficits and debt, tighter monetary policy, and higher long-term interest rates

may drive a higher cost of capital for the business and an increase in the Company’s operating expenses.

The COVID-19 pandemic has been declared to be

officially over.

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

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

COVID-19 pandemic.

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

from the outbreak and its lingering effects on the Company’s business or results of operations, financial condition, or liquidity.

Use of Estimates

8 unchanged sentences

Actual results could differ from those estimates.

Vendor Concentration

As of November 30, 2024, four vendors accounted

for 40 %, 12 %, 11 % and 9 % of accounts payable.

As of February 29, 2024, four vendors accounted

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

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 three months ended May 31, 2025, one

customer accounted for 90 % and one customer accounted for 10 % of revenues.

During the three months ended May 31, 2024, one customer accounted

for 55 % and one customer accounted for 12 % of revenues.

No other customer accounted for more than 10% of revenues.

As of May 31, 2025, four vendors accounted for

40 %, 12 %, 12 % and 10 % of accounts payable.

As of February 28, 2025, four vendors accounted for 42 %, 12 %, 11 % and 9 % of accounts payable.

Revenue Recognition

17 unchanged sentences

if the Company had paid cash for such services.

Derivative Financial Instruments

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.

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.

To determine the number of authorized but unissued

shares available to satisfy outstanding convertible securities, the Company uses a sequencing method to prioritize its convertible securities

as prescribed by ASC 815-40-35.

At each reporting date, the Company reviews its convertible securities to determine their classification

is appropriate.

Fair Value of Financial Instruments

6 unchanged sentences

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

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

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

Level 3 – Unobservable inputs.

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

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

Unobservable inputs.

The recorded amounts of inventory, other current

4 unchanged sentences

The following table sets forth by level, within

the fair value hierarchy, the Company’s assets and liabilities at fair value as of November 30, 2024 and February 29, 2024:

November 30, 2024

the fair value hierarchy, the Company’s assets and liabilities at fair value as of May 31, 2025 and February 28, 2025:

(amounts in thousands)

1 unchanged sentence

February 28, 2025

Derivative liability

Derivative liability – convertible note conversion option

The Company estimated the fair value of the derivative

1 unchanged sentence

The following table provides a roll-forward of

the derivative liability measured at fair value on a recurring basis using unobservable level 3 inputs for the period ended November 30,

2024, as follows:

the derivative liability measured at fair value on a recurring basis using unobservable level 3 inputs for the period ended May 31, 2025,

(amounts in thousands)

1 unchanged sentence

February 28, 2025

Recognition of derivative liability for a convertible note payable conversion option

Change in fair value of derivative liability

November 30, 2024

Convertible Instruments

The Company evaluates its various freestanding

financial instruments, including warrants and convertible notes payable, to determine if such instruments are liability classified, pursuant

to ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) or derivatives or contain features that qualify as embedded

derivatives pursuant to ASC 815, Derivatives and Hedging (“ASC 815”).

The classification of instruments, including whether

such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.

Under ASC 815-40-35, the Company has adopted a sequencing

policy to determine equity or liability classification for contracts involving the Company’s own equity that require cash settlement

if sufficient shares are not available to settle the contracts in equity.

The sequencing policy is applied consistently in determining

the classification of freestanding financial instruments.

Loss per share

9 unchanged sentences

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

For the nine months ended November 30, 2024, and

For the three months ended May 31, 2025 and 2024,

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

2 unchanged sentences

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In November 2024, the FASB issued ASU No.

“Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation

of Income Statement Expenses” which includes amendments that require disclosure in the notes to financial statements of specified

information about certain costs and expenses, including purchases of inventory;

In November 2024, the Financial Accounting Standards

Board (FASB) issued Accounting Standards Update (ASU) No.

2024-03, Income Statement—Reporting Comprehensive Income—Expense

Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses which includes amendments that require

disclosure in the notes to financial statements of specified information about certain costs and expenses, including purchases of inventory;

employee compensation;

and depreciation, amortization

and depletion expenses for each caption on the income statement where such expenses are included.

The amendments are effective for the

Company’s annual periods beginning March 1, 2027, with early adoption permitted, and should be applied either prospectively or retrospectively.

The Company is in the process of evaluating this ASU to determine its impact on the Company’s disclosures.

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.

and depreciation, amortization and depletion expenses for each caption on the income statement where such expenses

are included.

The amendments are effective for the Company’s annual periods beginning January 1, 2027, with early adoption permitted,

and should be applied either prospectively or retrospectively.

The Company is in the process of evaluating this ASU to determine its impact

on the Company’s disclosures.

In November 2023, the FASB issued ASU 2023-07, Segment

Reporting (Topic 280):

Improvements to Reportable Segment Disclosure .

These amendments expand a public entity’s segment disclosures

by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker, requiring other

new disclosures, and requiring enhanced interim disclosures.

ASU 2023-07 requires public entities with a single reportable segment to

provide all the disclosures required by this standard and all existing segment disclosures in Topic 280 on an interim and annual basis.

ASU 2023-07 is effective for annual periods beginning after December 15, 2023, and interim periods beginning after December 15, 2024,

applied retrospectively with early adoption permitted.

As of December 31, 2024, the Company has adopted ASU 2023-07.

The adoption of this

standard did not have a material impact on the Company’s consolidated financial statements but has resulted in additional disclosures

within the footnotes to our consolidated financial statements (See Note 12).

Other recent accounting pronouncements issued

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

did not or are not believed by management to have a material impact on the Company’s present or future financial statements.

NOTE 2 – CONVERTIBLE NOTES PAYABLE

Convertible notes payable consisted of the following:

(amounts in thousands)

1 unchanged sentence

(b) Convertible notes payable 2 – past due

Unamortized debt discount

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

The notes are unsecured, bear interest

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

The notes were

originally due in 2014 to 2017 and were all amended in 2018 to change the maturity date to January 11, 2023.

As of November 30, 2024

and February 29, 2024, the outstanding balance of the convertible notes payable amounted to $ 1,403 and are past due.

Fiscal 2024 the Company issued convertible notes payable to unrelated individuals and entities totaling $ 110 in exchange for cash.

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

The notes payable are convertible into shares

of common stock at a conversion price of $ 0.20 per share.

As of November 30, 2024 and February 29, 2024, the outstanding balance of the

convertible notes payable amounted to $ 110 and $ 106 , respectively, and are past due.

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

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

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

As of May 31, 2025 and February 28, 2025, the outstanding balance of the convertible notes payable amounted to $ 1,403 and are past due.

(b) In Fiscal 2024 the Company issued convertible notes payable to unrelated individuals and entities totaling $ 110 in exchange for cash.

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

The notes payable are convertible into shares of common stock at a conversion price of $ 0.20 per share.

As of May 31, 2025 and February 28, 2025, the outstanding balance of the convertible notes payable amounted to $ 90 and $ 110 , respectively, and are past due.

At May 31, 2025, the total outstanding convertible

notes payable of $ 1,493 and accrued interest of $ 526 are convertible into 1,887,215 shares of common stock at conversion rates ranging

from $ 0.20 to $ 1.40 per share.

NOTE 3 – CONVERTIBLE NOTE PAYABLE-RELATED

1 unchanged sentence

(amounts in thousands)

(a) Convertible note payable 1 – past due

(b) Convertible note payable 2 – past due

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

(a) Convertible note payable to former director – past due

(b) Convertible note payable to director – past due

(a) Convertible note payable-former Director

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

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

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

and was due February 2, 2023.

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

As of November 30, 2024 and February 29, 2024, the outstanding balance of the convertible note amounted to $ 3,000

and is past due.

October 4, 2023, the Company issued a convertible note payable of $ 20 in exchange for cash to a member of the Company’s Board of

The convertible note is unsecured, bears interest at 5 % per annum, and was due February 2, 2023.

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

As of May 31, 2025 and February 28, 2025, the outstanding balance of the convertible note amounted to $ 3,000 and is past due.

(b) Convertible note payable-Director

On October 4, 2023, the Company issued a convertible note payable of $ 20 in exchange for cash to a member of the Company’s Board of Directors.

The convertible note is unsecured, bears interest at rate of 10 % per annum and matured in March 2024.

The convertible note

payable is convertible to common stock at a conversion price of $ 0.20 per share.

As of November 30, 2024 and February 29, 2024, the outstanding

balance of the convertible note amounted to $ 20 and is past due.

March 2022, the Company issued a note payable to Kopple (see Note 5).

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

The amendment included, among other things granting Kopple a conversion right to be able to convert the note payable into equity of the

Company at a conversion price of the lower of $ 1.00 per share or 50 % of the 10 day volume weighted average price of the Company’s

common stock.

As the amended Kopple note payable is convertible into common stock, it is now reported as a convertible note payable.

conversion right became effective on August 30, 2024.

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

and the existing note payable and accrued interest totaling $ 12,164 was derecognized and the amended convertible note payable was recorded

at its fair value of $ 9,259 .

The convertible note payable is secured by tangible and intangible assets of the Company, bears interest

at a rate of 10 % per annum and matures in June 2029.

As of November 30, 2024, the outstanding balance of the convertible note amounted

An installment payment of $ 2 million, due in December 2024, was extended to February 27, 2025.

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

As of May 31, 2025 and February 28, 2025, the outstanding balance of the convertible note amounted to $ 20 and is past due.

In March 2022, the Company entered into a binding term sheet agreement (“note payable”) with Robert Kopple and associated entities (collectively “Kopple”) in the aggregate of $ 10,000 .

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

In March 2024, the Company and Kopple amended the note payable, which, among other things, added a conversion feature to the note payable.

Accordingly, the amended note payable is reported as a convertible note payable-related party.

The convertible note payable to Kopple is secured by tangible and intangible assets of the Company, bears interest at a rate of 10 % per annum ( 15 % on default) and matures in June 2029.

As of May 31, 2025 and February 28, 2025, the outstanding balance of the convertible note payable was $ 9,259 .

March 2024 amendment to the Kopple note payable

The amendment to the Kopple note payable (i) replaced a requirement to pay the $ 3,850 past due principal balance with the requirement to pay $ 2,000 on or before December 15, 2024 (see extension below);

(ii) increased the stated interest rate to 10 % ( 15 % on default);

(iii) added a fee of $ 15 monthly until the Company makes a principal payment of $ 2,000 by December 2024;

(iv) effective August 30, 2024, the Company granted Kopple a 36 month right (but not any obligation) to convert the note payable into equity of the Company at a conversion price equal to the lower of $ 1 per share or 50 % of the 10 day volume weighted average price per share of the Company’s common stock;

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

(vi) requires the Company to pay Kopple 20 % of any amount raised in new capital in the form of equity, debt or convertible debt above $ 3,500 ;

(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 (viii) extends the warrant expiration date of the warrants granted to Kopple from March 8, 2029, to March 31, 2031.

On February 28, 2025, an installment payment of $ 2,000 , due in December 2024, was extended to March 31, 2025 in exchange for a cash payment of $ 100,000 , which was recorded as interest expense.

On April 28, 2025, Kopple agreed to further extend the installment payment of $ 2,000 due March 31, 2025, to June 30, 2025, in exchange for another cash payment of $ 100,000 .

Accounting for March 2024 amendment to the Kopple note payable as debt extinguishment

The Company accounted for the amended terms of the Kopple note payable as a debt extinguishment because the present value of the cash flows under the amended debt terms is greater by more than 10 % compared to the present value of the remaining cash flows under the original existing debt terms.

Furthermore, the amendment granted a conversion option to the note holder and is deemed substantially different from the existing note.

The Company recorded a loss on debt extinguishment of $ 19,324 as a result of this amendment, which is the difference between (i) the fair value of the amended convertible note payable of $ 9,259 , combined with the fair value of the conversion option upon issuance of $ 22,194 , and the change in the fair value of the amended warrants of $ 33 , and (ii) the net carrying amount of the former note payable of $ 12,162 .

At February 28, 2025, Kopple alleged that the Company failed to comply with certain non-monetary terms including failing to hold a shareholders’ meeting by August 1, 2024, or otherwise secure additional shares needed to allow the exercise Kopple’s conversion rights, and failure to pay 20 % of all collected revenues within 10 days of the end of each fiscal quarter.

In addressing the alleged violation of terms, the Company has provided for interest at the rate of 15 % per annum and reported the entire convertible note payable as current.

The Company is also subject to certain

4 unchanged sentences

these covenants will not affect the operations of the Company.

At May 31, 2025, the total outstanding

convertible notes payable-related party of $ 12,279 and accrued interest of $ 2,749 are convertible into 96,701,184 shares of common stock

at conversion rates ranging from $ 0.20 to $ 1.40 per share.

NOTE 4 – NOTES PAYABLE

16 unchanged sentences

The notes are secured by the equipment and vehicle purchased.

The first note for

$ 210 was paid in full in October 2024.

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

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

The first note with

the original principal of $ 210 was paid in full in October 2024.

The second note with original principal of $ 78 is due January 20, 2027,

and requires 72 equal monthly payments of approximately $ 1.5 , including interest at 10.9 % interest per annum .

8 unchanged sentences

The aggregate total of the note payable-software

licenses as of November 30, 2024, amounted to $ 232 .

licenses as of May 31, 2025, amounted to $ 171 .

(d) Notes payable – machinery and other

During Fiscal 2025, the Company obtained a loan

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

The note payable is secured by the

production machine and will mature in April 2029.

In addition, the Company entered into a 60-month

financing lease for a forklift with a cost of $ 47 .

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

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

The aggregate total of the note payable and financing

lease obligation as of November 30, 2024, amounted to $ 289 .

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

The note payable is secured by the production machine

and will mature in April 2029.

As of May 31, 2025, the outstanding balance of the note payable amounted to $ 197 .

(e) Note payable-other

As of November 30, 2024, and February 29, 2024,

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

As of May 31, 2025, and February 28, 2025, the

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

NOTE 5 – NOTES PAYABLE-RELATED PARTIES

Notes payable-related parties consisted of the

Notes payable-related parties

consisted of the following:

(amounts in thousands)

(a) Note payable-Kopple (see Note 3)

(b) Note payable- Gagerman – past due

(a) Note payable-Kopple

In fiscals 2013 through 2018, the Company issued

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

Robert Kopple is

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

Beginning in 2017, Kopple

brought suit against the Company for repayment of the notes.

On March 14, 2022, the Company reached an agreement with Kopple to resolve

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

Under the terms of the settlement, the Company

agreed to issue a new note and pay Kopple an aggregate amount of $ 10,000 to be paid in installments, of which, $ 3,000 was due

in June 2022, and the remaining $ 7,000 to be paid over 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.

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

due, of which $ 150 was only paid.

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

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

part of interest expense.

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

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

As of February 29, 2024, outstanding principal balance

amount of $ 10,915 .

In March 2024, the Company and Kopple again amended

the note payable.

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

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

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

(iii) added a fee of $ 15 monthly

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

(iv) effective November 30, 2024, the Company granted

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

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

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

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

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

(vii) extends the warrant expiration date of the warrants granted to Kopple in March 2022 from March 8, 2029, to March 31, 2031.

installment payment of $ 2.0 million, which became due in December 2024, was extended to February 27, 2025.

The Company accounted for the amended terms of

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

than 10% compared to the present value of the remaining cash flows under the original existing debt terms.

Furthermore, the amendment

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

The Company recorded a loss

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

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

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

As a result, the net carrying amount of the existing

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

As the Kopple new note payable

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

payable-related party (see Note 3).

(b) Note payable-Gagerman

Melvin Gagerman, the Company’s former CEO

and CFO whose employment was permanently terminated in July 2019, claims that in April 2014 the Company issued an unsecured demand promissory

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

Gagerman claims that this note has not been repaid to

date and is now owed.

In June 2022, Gagerman brought suit against the

Company for repayment of this alleged note.

Despite the fact that, based on Gagerman’s allegations, the note was issued during a

period when Gagerman was the Company’s CEO, CFO, Corporate Secretary and Chairman of the Company’s Board of Directors, Gagerman

has stated that he does not possess a copy of the alleged promissory note.

The Company disputes that any amount is presently owed to Gagerman.

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

& Professions Code §17200, and various breaches of fiduciary duty that the Company believes Gagerman committed against the Company.

Although the Company disputes Gagerman’s

claims, under the guidance of ASC 450 – Contingencies , the Company has recorded the claimed note payable $ 82 and corresponding

accrued interest .

(a) Note payable-Jiangsu Shengfeng – past due

(a) Jiangsu Shengfeng Note

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

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

to the Company in prior years.

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

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

The joint venture stopped operations

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

In early fiscal 2024 the joint venture was dissolved and liquidated

without filing any demands or claims for payments.

As of November 30, 2024, and February 29, 2024, the outstanding balance of this note

payable amounted to $ 700 .

to the Company in prior years provided the joint venture remains as an operating company.

As a result, in November 2019, the Company issued

a non-interest-bearing promissory note for $ 700 to the joint venture to be paid over an 11-month period beginning March 15, 2020, through

February 15, 2021.

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

early fiscal 2024 the joint venture was dissolved and liquidated without filing any demands or claims for payments.

As of May 31, 2025

and February 28, 2025, the outstanding balance of this note payable amounted to $ 733 .

NOTE 6 – ACCRUED INTEREST

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(amounts in thousands)

Convertible notes payable (past due)

Convertible notes payable - related party – Kopple

Convertible notes payable - related party – others

Notes payable - related party – Kopple

Notes payable - related party – others

Notes payable

Convertible notes payable (past due) (see Note 2)

Convertible notes payable - related party – Kopple (see Note 3)

Convertible notes payable - related party – others (see Note 3)

Notes payable (see Note 4)

NOTE 7 – LEASES

Our administrative and production operations,

including warehousing, are housed in an approximately 18,000 square foot facility in Lake Forest, California.

The Lake Forest lease is

for 66-months effective February 2021 through November 30, 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.

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 determine the lease liability.

In April 2024, the Company entered into a 60-month

financing lease for a forklift with a cost of $ 47 .

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

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

Operating lease right-of-use (“ROU”)

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lease payments made and excludes lease incentives.

The components of lease expense and supplemental

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

(amounts in thousands) November 30,

2024 November 30,

The components of lease expense and supplemental cash flow information

related to leases for the period are as follows:

Three Months ended

2025 Three Months ended

(amounts in thousands)

Operating lease cost (included in general and administration in the Company’s statement of operations) $ 63 $ 69

Other Information

Cash paid for amounts included in the measurement of lease liabilities $ 141 $ 212

Cash paid for amounts included in the measurement of lease liabilities for the years ended May 31, 2025 and 2024, respectively $ 78 $ 72

Weighted average remaining lease term – operating leases (in years) 1.5 2.25

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Total operating lease liabilities

Maturities of the Company’s lease liability is as follows:

Years Ending February 28:

2025 (3 months)

Maturities of the Company’s lease liability

is as follows:

Year Ending February 28:

2026 - Remaining

Total lease payments

Imputed interest/present value discount

Present value of lease liability

Present value of lease liabilities

NOTE 8 – DERIVATIVE LIABILITY

In March 2024, pursuant to the amendment of the

Kopple note payable (see Notes 3 and 5), the Company granted Kopple the right to convert the amended note payable into equity of the Company

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

Kopple note payable (see Note 3), the Company granted Kopple the right to convert the amended note payable into equity of the Company

at a conversion price equal to the lower of $ 1.00 per share or 50 % of the 10 day volume-weighted average price per share of the Company’s

common stock.

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

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

value of the derivative liability of $ 22,194 at March 7, 2024, the date of issuance, and $ 19,993 at November 30, 2024.

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

The fair value of the

derivative liability at May 31, 2025 and February 28, 2025 was $ 19,135 and $ 17,565 , respectively.

The following tables summarize the derivative

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

2024 - Issuance

Risk free interest rate

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NOTE 9 – SHAREHOLDERS’ DEFICIT

During the nine-months ended November 30, 2024,

the Company issued 10,268,363 shares of common stock for approximately $ 2,623 in cash.

As part of the offering, the Company also granted

certain investors warrants to purchase 3,000,000 shares of common stock.

The warrants are fully vested, exercisable at $ 1.00 per share,

and will expire in 3 years.

During the nine-months ended November 30, 2023,

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

On May 31, 2025 and February 28, 2025, the Company

had 150,000,000 shares of $ 0.0001 par value common stock authorized for issuance.

During the three months ended May 31, 2025, the

Company issued 3,415,152 shares of common stock for approximately $ 848 in cash.

During the three months ended May 31, 2024, the

Company issued 4,455,600 shares of common stock for approximately $ 1,117 in cash.

As part of the offering, the Company also granted certain

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

The warrants are fully vested, exercisable at $ 1.00 per share and will

expire in 3 years.

On May 31, 2025, there were insufficient authorized

and unissued shares for the Company to satisfy all of its commitments to deliver shares.

The Company’s sequencing policy resulted

in the allocation of authorized and unissued shares in the following order at May 31, 2025 (i) Warrants, and (ii) Convertible Notes Payable

and Convertible Notes Payable-Related Party (excluding the Convertible Note Payable-Kopple).

The sequence is based upon reclassifying

securities with the earliest maturity date first.

This sequencing and the lack of sufficient authorized shares required the Company to

classify the conversion option of the convertible note payable-Kopple as liabilities recorded at fair value at May 31, 2025 (see Note

Stock Options

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

ended November 30, 2024, is as follows:

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.

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

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

Outstanding, February 29, 2024

Outstanding, November 30, 2024

During the nine months ended November 30, 2024,

the Company’s Board of Directors approved options exercisable into 4,000,000 shares to be issued pursuant to the Company’s

3,000,000 options were issued to Board members and 1,000,000 options were issued to an employee, with immediate vesting.

The stock options are exercisable at a price of

$ 0.50 per share and expire in ten years .

The total fair value of these options at grant date was approximately $ 1,601 , which was determined

using a Black-Scholes option pricing model with the following average assumption:

stock price of $ 0.42 share, expected term of five years ,

volatility of 182 %, dividend rate of 0 %, and weighted average risk-free interest rate of 4.52 %.

The expected term represents the weighted-average

period of time that share option awards granted are expected to be outstanding giving consideration to vesting schedules and historical

participant exercise behavior;

the expected volatility is based upon historical volatility of the Company’s common stock;

dividend yield is based on the fact that the Company has not paid dividends in the past and does not expect to pay dividends in the future;

and the risk-free interest rate is based on the U.S.

Treasury yield curve in effect at the time of measurement corresponding with the

expected term of the share option award.

During the nine-month period ended November 30,

2023, the Company granted no stock options under the Company’s 2011 Plan.

As of November 30, 2024, the intrinsic value as

these stock options amounted to $ 68 .

The exercise prices and information related to options under the 2011 Plan outstanding on November

30, 2024 is as follows:

Total options, February 28, 2025

( 1,250,000 )

Total options, May 31, 2025

Exercisable, May 31, 2025

As of May 31, 2025, the intrinsic value as these

stock options amounted to $ 0 .

The exercise prices and information related to options under the 2011 Plan outstanding on May 31, 2025,

are as follows:

Exercise Price Stock Options

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50 7,000,000 7,000,000 5.41 $ 0.46 $ 0.46

A summary of the Company’s warrant activity

for the nine-months ended November 30, 2024, is as follows:

Average Exercise

Outstanding, February 28, 2025

Outstanding, November 30, 2024

There was no intrinsic value as of November 30,

Outstanding, May 31, 2025

There was no intrinsic value as of May 31, 2025,

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

The exercise prices and

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

The exercise prices and information

related to the warrants as May 31, 2025, are as follows:

Exercise Price Stock Warrants

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NOTE 10 – RELATED PARTY TRANSACTIONS

As of November 30, 2024, and February 29, 2024,

BetterSea LLC was an 7.3 % and 8.8 %, respectively, shareholder of the Company.

For the nine months ending on November 30, 2024 and 2023,

the Company incurred consulting fees to BetterSea of $ 120 and $ 117 , respectively.

As of November 30, 2024, and February 29, 2024, a total

of approximately $ 218 and $ 213 respectively, was due to BetterSea and included accounts payable and accrued expenses.

As of May 31, 2025 and February 29, 2024, Bettersea

LLC (“Bettersea”) was an 6.9 % and 7.1 %, respectively, shareholder in the Company.

For the three months ended May 31, 2025

and 2024, the Company incurred total fees to Bettersea of $ 42 and $ 40 , respectively, for consulting services.

As of May 31, 2025 and February

28, 2025, a total of approximately $ 247 and $ 225 , respectively, was due to Bettersea and included in accounts payable and accrued expenses.

As of May 31, 2025 and February 28, 2025, accrued

expenses include accrued payroll due to officers and of $ 292 and $ 272 , respectively.

NOTE 11 – CONTINGENCIES

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adversely affected.

In June 2022, Melvin Gagerman, the Company’s

former CEO and CFO whose employment with Aura was permanently terminated in July 2019, brought suit against the Company for repayment

of an allegedly unsecured demand promissory note in the principal amount of $ 82 which he claims was entered into in April 2014 and bears

interest at a rate of 10 % per annum.

Despite the fact that, based on Gagerman’s allegations, the note was issued during a period

when he was the Company’s CEO, CFO, Corporate Secretary and Chairman of Aura’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 and has

filed a cross-complaint against him for, among things, conversion, violation of California Business& Professions Code §17200,

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

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

On March 26, 2019, various stockholders of the

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

SEGMENT INFORMATION

The Company operates and manages its business

as one reportable and operating segment.

The measure of segment assets is reported on the balance sheet as total consolidated assets.

The Company derives revenue primarily in the United States of America and manages its business activities on a consolidated basis.

The Company’s chief operating decision maker

(CODM), its Chief Executive Officer, reviews financial information presented on a consolidated basis and decides how to allocate resources

based on net loss.

Consolidated net loss is used for evaluating financial performance.

The monitoring of budgeted versus actual results

is used in assessing performance of the Company and in establishing management’s compensation.

Significant segment expenses include employee

compensation, stock-based compensation, merchant fees, and consulting and outside provider costs.

Other operating expenses include all

remaining costs necessary to operate our business and primarily include advertising, corporate compliance, and overhead expenses.

following table presents the significant segment expenses and other segment items regularly reviewed by our CODM:

Three Months Ended

Cost of sales

Employee compensation and benefits

Consulting and outside provider costs

Property lease and utility costs

Depreciation expense

Program software and licensing expense

Other operating expenses

Total operating expenses

Loss from operations

NOTE 13 – SUBSEQUENT EVENTS

Subsequent to November 30, 2024, the Company issued

Subsequent to May 31, 2025, the Company issued

980 shares of common stock in exchange for cash proceeds of approximately $ 245 .

Subsequent to November 30, 2024, all litigation

with Gagerman (see Note 11) was settled with no cost to the Company.

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

What changed 10-Q

Item 1. Financial Statements