AURA SYSTEMS INC 10-Q

ITEM 1. FINANCIAL STATEMENTS AURA SYSTEMS, INC. CONDENSED BALANCE SHEETS May 31, 2025 February 28, 2025 (amounts in thousands, except share data) (Unaudited) Assets Current assets Cash and cash equivalents $ 21 $ 23 Inventories 5 38 Prepaid and other current assets 173 220 Total current assets 199 281 Property and equipment, net 574 618 Operating lease right-of-use asset 355 418 Security deposit 160 160 Total assets $ 1,288 $ 1,477 Liabilities and Shareholders’ Deficit Current liabilities Accounts payable and accrued expenses $ 2,512 $ 2,544 Accrued interest 3,312 2,875 Customer advances 447 447 Convertible notes payable, current portion-past due 1,493 1,513 Convertible note payable-related party-including $ 3,020 and $ 3,020 , respectively past due 12,279 12,279 Notes payable, current portion 230 212 Notes payable-related party, current portion - past due 733 733 Lease liabilities, current portion 290 279 Derivative liability 19,135 17,565 Total current liabilities 40,431 38,447 Notes payable, net of current portion 338 440 Lease liabilities, net of current portion 105 183 Total liabilities 40,874 39,070 Commitments and contingencies - - Shareholders’ deficit Common stock: $ 0.0001 par value; 150,000,000 shares authorized; 121,711,600 and 118,296,448 issued and outstanding at May 31, 2025 and February 25, 2025, respectively. 12 12 Additional paid-in capital 463,371 462,523 Accumulated deficit ( 502,969 ) ( 500,128 ) Total shareholders’ deficit ( 39,586 ) ( 37,593 ) Total liabilities and shareholders’ deficit $ 1,288 $ 1,477 See accompanying notes to these financial statements. 1 AURA SYSTEMS, INC. CONDENSED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended May 31, 2025 2024 (amounts in thousands, except share and per share data) Net revenue $ 185 $ 47 Cost of goods sold 25 47 Gross profit 160 - Operating expenses: Engineering, research and development 353 310 Selling, general and administration 484 374 Total operating expenses 837 684 Loss from operations ( 677 ) ( 684 ) Other income (expense): Interest expense, net (including $ 385 and $ 271 to related parties, respectively) ( 594 ) ( 275 ) Loss on debt extinguishment – related party - ( 19,324 ) Change in fair value of derivative liability ( 1,570 ) 5,023 Other income - 2 Net loss $ ( 2,841 ) $ ( 15,258 ) Basic and diluted loss per share $ ( 0.02 ) $ ( 0.14 ) Basic and diluted weighted-average shares outstanding 119,994,325 106,140,039 See accompanying notes to these financial statements. 2 AURA SYSTEMS, INC. CONDENSED STATEMENTS OF SHAREHOLDERS’ DEFICIT (Unaudited) Three Months Ended May 31, 2025 (amounts in thousands, except share data) Common Stock Shares Common Stock Amount Additional Paid-In Capital Accumulated Deficit Total Shareholders’ Deficit Balance, February 28, 2025 118,296,448 $ 12 $ 462,523 $ ( 500,128 ) $ ( 37,593 ) Common shares issued for cash 3,415,152 - 848 - 848 Net loss - - - ( 2,841 ) ( 2,841 ) Balance, May 31, 2025 (unaudited) 121,711,600 $ 12 $ 463,371 $ ( 502,969 ) $ ( 39,586 ) Three Months Ended May 31, 2024 (amounts in thousands, except share data) Common Stock Shares Common Stock Amount Additional Paid-In Capital Accumulated Deficit Total Shareholders’ Deficit Balance, February 29, 2024 104,591,648 $ 10 $ 457,460 $ ( 478,990 ) $ ( 21,520 ) Common shares issued for cash 4,455,600 1 1,117 - 1,118 Fair value of modified warrants - related party - - 33 - 33 Net loss - - - ( 15,258 ) ( 15,258 ) Balance, May 31, 2024 (unaudited) 109,047,248 11 458,610 ( 494,248 ) ( 35,627 ) See accompanying notes to these unaudited financial statements. 3 AURA SYSTEMS, INC. CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended May 31, 2025 2024 (amounts in thousands) Net loss $ ( 2,841 ) $ ( 15,258 ) Adjustments to reconcile net loss to cash used in operating activities Depreciation and amortization 44 25 Inventory write-down - 20 Loss on debt extinguishment – related party - 19,324 Change in fair value of derivative liability 1,570 ( 5,023 ) Changes in operating assets and liabilities: Accounts receivable - ( 15 ) Inventory 33 - Prepaid and other current assets 47 35 Operating lease right-of-use asset 63 48 Accounts payable and accrued expenses ( 32 ) ( 218 ) Accrued interest 437 335 Operating lease liability ( 67 ) ( 57 ) Cash used in operating activities ( 746 ) ( 784 ) Cash used in investing activities: Purchase of property and equipment - ( 36 ) Cash used in investing activities - ( 36 ) Cash flows from financing activities: Proceeds from issuance of common stock 848 1,117 Principal payments of convertible notes payable ( 20 ) - Principal payments of notes payable ( 84 ) ( 124 ) Cash provided by financing activities 744 993 Net increase (decrease) in cash and cash equivalents ( 2 ) 173 Cash and cash equivalents-beginning of period 23 124 Cash and cash equivalents-end of period $ 21 $ 297 Cash paid for: Interest $ - $ - Income taxes $ - $ - Supplemental schedule of non-cash transactions: Fair value of modified warrants - related party $ - $ 33 Notes payable issued for the purchase of property and equipment $ - $ 321 Fair value of convertible note payable $ - $ 9,261 Extinguishment of note payable – related party - $ 12,164 Conversion feature of convertible note payable – related party accounted as derivative liability $ - $ 22,194 See accompanying notes to these unaudited financial statements. 4 AURA SYSTEMS, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS THREE MONTHS ENDED MAY 31, 2025 AND 2024 (Unaudited) (Amounts in thousands, except share and per share amounts) NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations Aura Systems, Inc., (“Aura”, “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 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. GAAP”) and the applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the unaudited condensed financial statements reflect all adjustments of a normal recurring nature that are necessary for a fair presentation of the results for the periods presented. The Condensed Balance Sheet information as of February 28, 2025, was derived from the Company’s audited Financial Statements as of February 28, 2025, included in the Company’s Annual Report on Form 10-K filed with the SEC on June 13, 2025. These financial statements should be read in conjunction with that report. The 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 calendar day of February. Accordingly, the current fiscal year will end on February 28, 2026, and is referred to as “Fiscal 2026”. 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 The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has not yet generated sufficient revenues to fund operations, has experienced recurring operating losses and relies on debt and equity offerings to generate working capital. During the three month period ended May 31, 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 profits and is unable to obtain financing for its working capital requirements, it may have to curtail its business further or cease business altogether. Substantial additional capital resources will be required to fund continuing expenditures related to our research, development, manufacturing and business development activities. The Company’s continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis, to retain its current financing, to obtain additional financing, and ultimately to attain profitability. 5 Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. Significant estimates include assumptions made for inventory valuation, impairment testing of long-lived assets, the valuation allowance for deferred tax assets, assumptions used in valuing notes payable, derivative liabilities, assumptions used in valuing share-based compensation, and accruals for potential liabilities. Amounts could materially change in the future. Actual results could differ from those estimates. Concentration of 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 The Company recognizes revenue in accordance with Financial Accounting Standard Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers . Our primary source of revenue is the manufacture and delivery of axial flux induction motors and generator sets used primarily in mobile power applications. Our principal sales channel is sales to domestic end users and distributors and agents internationally. In accordance with ASC 606, the Company recognizes revenue, net of discounts, for our generator sets at the time of product delivery and acceptance by the customer (i.e. point-in-time), which also corresponds to the passage of legal title to the customer and the satisfaction of our performance obligation to the customer. Share-Based Compensation The Company periodically issues stock options and warrants, and shares of common stock to employees and non-employees in non-capital raising transactions for services and for financing costs. Share-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the requisite service period. Recognition of compensation expense for non-employees is in the same period and manner as 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. 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. 6 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 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 May 31, 2025 and February 28, 2025: May 31, 2025 (amounts in thousands) Level 1 Level 2 Level 3 Total Liabilities Derivative liability – convertible note conversion option $ - $ - $ 19,135 $ 19,135 Total $ - $ - $ 19,135 $ 19,135 February 28, 2025 Level 1 Level 2 Level 3 Total Liabilities Derivative liability – convertible note conversion option $ - $ - $ 17,565 $ 17,565 Total $ - $ - $ 17,565 $ 17,565 The Company estimated the fair value of the derivative liability using the Binomial Model. The following table provides a roll-forward of the derivative liability measured at fair value on a recurring basis using unobservable level 3 inputs for the period ended May 31, 2025, as follows: (amounts in thousands) Fair Value of Derivative Warrant Liability February 28, 2025 $ 17,565 Change in fair value of derivative liability 1,570 May 31, 2025 $ 19,135 7 Loss per share The Company’s loss per share amounts have been computed based on the weighted average number of shares of common stock outstanding for the period. Basic earnings (loss) per share is computed by dividing net earnings (loss) available to common shareholders by the weighted average number of shares of common stock outstanding during the period. Diluted earnings (loss) per share is computed by dividing net earnings (loss) available to common shareholders by the weighted average number of shares of common stock assuming all potential shares had been issued, and the additional shares of common stock were dilutive. Diluted earnings (loss) per share reflects the potential dilution, using the as-if-converted method for convertible debt, and the treasury stock method for options and warrants, which could occur if all potentially dilutive securities were exercised. For the three months ended May 31, 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 effect. The potentially dilutive securities consisted of the following: May 31, 2025 May 31, 2024 Warrants 6,451,664 6,521,664 Options 7,000,000 4,250,000 Convertible notes 98,588,399 46,756,007 Total 112,040,063 57,527,671 Recent Accounting Pronouncements 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 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. 8 NOTE 2 – CONVERTIBLE NOTES PAYABLE Convertible notes payable consisted of the following: May 31, 2025 February 29, 2024 (amounts in thousands) (a) Convertible notes payable 1 – past due $ 1,403 $ 1,403 (b) Convertible notes payable 2 – past due 90 110 Net $ 1,493 $ 1,513 (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 PARTY Convertible note payable – related party consisted of the following: May 31, 2025 February 28, 2025 (amounts in thousands) (a) Convertible note payable to former director – past due $ 3,000 $ 3,000 (b) Convertible note payable to director – past due 20 20 (c) Convertible note payable – Kopple 9,259 9,259 Total $ 12,279 $ 12,279 (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 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 May 31, 2025 and February 28, 2025, the outstanding balance of the convertible note amounted to $ 20 and is past due. 9 (c) Convertible note payable-Kopple 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 . Other 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 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. 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. 10 NOTE 4 – NOTES PAYABLE Notes payable consisted of the following: (amounts in thousands) May 31, 2025 February 28, 2025 Secured notes payable (a) Note payable-EID loan $ 150 $ 150 (b) Notes payable-vehicle and equipment 40 46 (c) Note payable - software license 171 208 (d) Notes payable – machinery and other equipment 197 238 Unsecured notes payable (e) Note payable-other 10 10 Total $ 568 $ 652 Current ( 230 ) ( 212 ) Non-current $ 338 $ 440 (a) Note payable-EID loan During Fiscal 2021, the Company received a $ 150 loan under the United States Small Business Administration (“SBA”) Economic Injury Disaster Loan (“EID Loan”) program. The loan is due July 1, 2050 , interest accrues at 3.75 % per annum and is secured by the assets of the Company. (b) Notes payable-vehicle and equipment During Fiscal 2022, the Company issued two notes payable to purchase equipment and a vehicle for $ 288 . The notes are secured by the equipment and vehicle purchased. 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 . (c) Note payable-software license During Fiscal 2024, the Company obtained a loan of $ 150 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. During Fiscal 2025, the Company obtained a loan of $ 179 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 14.41 % per annum and will mature in November 2025. The aggregate total of the note payable-software licenses as of May 31, 2025, amounted to $ 171 . (d) Notes payable – machinery and other equipment During Fiscal 2025, the Company obtained a loan 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 . 11 (e) Note payable-other 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 annum. NOTE 5 – NOTES PAYABLE-RELATED PARTIES Notes payable-related parties consisted of the following: (amounts in thousands) May 31, 2025 February 28, 2025 (a) Note payable-Jiangsu Shengfeng – past due $ 733 $ 733 Total 733 733 Non-current - - Current $ 733 $ 733 (a) Jiangsu Shengfeng Note On November 20, 2019, the Company owned 49 % of a Chinese joint venture named Jiangsu Shengfeng. The Joint venture advanced Aura $ 700 in prior years for products that the Company failed to deliver to the joint venture. The Company reached an agreement with the joint venture regarding the return of $ 700 that had been advanced to the Company in prior years 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. In 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 Accrued interest consisted of the following: May 31, 2025 February 28, 2025 (amounts in thousands) Convertible notes payable (past due) (see Note 2) $ 529 $ 509 Convertible notes payable - related party – Kopple (see Note 3) 1,709 1,329 Convertible notes payable - related party – others (see Note 3) 1,054 1,016 Notes payable (see Note 4) 20 21 Total $ 3,312 $ 2,875 NOTE 7 – 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 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. 12 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: Three Months ended May 31, 2025 Three Months ended May 31, 2024 (amounts in thousands) Lease Cost 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 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 Average discount rate – operating leases 10.0 % 10.0 % The supplemental balance sheet information related to leases for the period is as follows: At May 31, 2025 Operating leases Long-term right-of-use assets $ 355 Short-term operating lease liabilities $ 290 Long-term operating lease liabilities 105 Total operating lease liabilities $ 395 Maturities of the Company’s lease liability is as follows: Year Ending February 28: Operating Lease 2026 - Remaining $ 233 2027 166 2028 11 2029 11 2030 1 Total lease payments 422 Less: Imputed interest/present value discount ( 27 ) Present value of lease liabilities $ 395 13 NOTE 8 – DERIVATIVE LIABILITY In March 2024, pursuant to the amendment of the 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. The Company analyzed the conversion option for derivative accounting consideration under ASC 815, Derivatives and Hedging, and determined that the conversion option should be classified as a derivative liability since it does not have an explicit limit to the number of shares to be delivered upon settlement of the conversion option. The derivative liability is remeasured to fair value at each reporting period, and the change in the fair value is recognized in earnings in the accompanying statements of operations. The Company 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 liability: (amounts in thousands, except share and per share data) May 31, 2025 February 28, 2025 Stock price $ 0.24 $ 0.34 Risk free interest rate 2.76 % 4.01 % Expected volatility 162 % 173 % Expected life in years 2.25 4.33 Expected dividend yield 0 % 0 % Number of common stock issuable 93,688,958 54,128,933 Fair value of derivative liability $ 19,135 $ 17,565 NOTE 9 – SHAREHOLDERS’ DEFICIT Common Stock 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 8). 14 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, 2025 8,250,000 $ 0.43 $ - Granted - - - Exercised - - - Expired ( 1,250,000 ) 0.25 - Total options, May 31, 2025 7,000,000 $ 0.46 $ - Exercisable, May 31, 2025 7,000,000 $ 0.46 $ - 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: 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 $. 50 7,000,000 7,000,000 5.41 $ 0.46 $ 0.46 Warrants Number of Warrants Exercise Price Outstanding, February 28, 2025 6,511,664 $ 0.73 Granted - - Exercised - - Expired ( 60,000 ) 0.50 Outstanding, May 31, 2025 6,451,664 $ 0.73 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 May 31, 2025, 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 3,451,664 3,451,664 5.72 $ 0.50 0.50 $ 1.00 3,000,000 3,000,000 1.94 $ 1.00 $ 1.00 NOTE 10 – RELATED PARTY TRANSACTIONS 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. 15 NOTE 11 – 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. 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 12. 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. The following table presents the significant segment expenses and other segment items regularly reviewed by our CODM: Three Months Ended May 31, 2025 Three Months Ended May 31, 2024 Net sales $ 185 $ 47 Cost of sales 25 47 Gross profit 160 - Less: Employee compensation and benefits 385 384 Consulting and outside provider costs 84 153 Property lease and utility costs 91 114 Depreciation expense 48 23 Program software and licensing expense 57 54 Other operating expenses 172 ( 44 ) Total operating expenses 837 684 Loss from operations $ ( 677 ) $ ( 684 ) NOTE 13 – SUBSEQUENT EVENTS Subsequent to May 31, 2025, the Company issued 980 shares of common stock in exchange for cash proceeds of approximately $ 245 . 16