AURA SYSTEMS INC 10-Q

ITEM 1. FINANCIAL STATEMENTS AURA SYSTEMS, INC. CONDENSED BALANCE SHEETS (Amounts in thousands, except share data) May 31, 2026 February 28, 2026 (Unaudited) Assets Current assets Cash and cash equivalents $ 27 $ 11 Inventories 5 5 Prepaid and other current assets 161 232 Total current assets 193 248 Property and equipment, net 744 799 Operating lease right-of-use asset 86 156 Security deposit 160 160 Total assets $ 1,183 $ 1,363 Liabilities and Shareholders’ Deficit Current liabilities Accounts payable and accrued expenses $ 2,605 $ 2,555 Accrued interest 4,954 4,528 Customer advances 474 457 Convertible notes payable, current portion - past due 1,493 1,493 Convertible note payable-related party, including $ 3,020 and $ 3,020 , respectively - past due 12,279 12,279 Notes payable, current portion 349 365 Notes payable-related party, including $ 733 and $ 733 , respectively - past due 733 733 Operating lease liabilities, current portion 86 160 Derivative liability 31,023 22,844 Total current liabilities 53,996 45,414 Notes payable, net of current portion 734 734 Operating lease liabilities, net of current portion 19 21 Total liabilities 54,749 46,169 Commitments and contingencies Shareholders’ deficit Common stock: $ 0.0001 par value; 150,000,000 shares authorized; 148,261,844 and 141,401,844 issued and outstanding at May 31, 2026 and February 28, 2026, respectively. 15 14 Additional paid-in capital 465,888 466,241 Accumulated deficit ( 519,469 ) ( 511,061 ) Total shareholders’ deficit ( 53,566 ) ( 44,806 ) Total liabilities and shareholders’ deficit $ 1,183 $ 1,363 See accompanying notes to these financial statements. 1 AURA SYSTEMS, INC. CONDENSED STATEMENTS OF OPERATIONS (Unaudited) (Amounts in thousands, except share and per share data) Three Months Ended May 31, 2026 2025 Net revenue $ 2 $ 185 Cost of goods sold - 25 Gross profit 2 160 Operating expenses: Engineering, research and development 386 353 Selling, general and administration 468 484 Total operating expenses 854 837 Loss from operations ( 852 ) ( 677 ) Other income (expense): Interest expense, net (including $ 385 and $ 385 to related parties, respectively) ( 480 ) ( 594 ) Loss on reclassification of equity-classified instruments to derivative liability ( 48 ) - Change in fair value of derivative liability ( 7,028 ) ( 1,570 ) Net loss $ ( 8,408 ) $ ( 2,841 ) Basic and diluted loss per share $ ( 0.06 ) $ ( 0.02 ) Basic and diluted weighted-average shares outstanding 144,831,844 119,994,325 See accompanying notes to these financial statements. 2 AURA SYSTEMS, INC. CONDENSED STATEMENTS OF SHAREHOLDERS’ DEFICIT (Unaudited) (Amounts in thousands, except share data) Three Months Ended May 31, 2026 Common Stock Shares Common Stock Amount Additional Paid-In Capital Accumulated Deficit Total Shareholders’ Deficit Balance, February 28, 2026 141,401,844 $ 14 $ 466,241 $ ( 511,061 ) $ ( 44,806 ) Reclassification of equity-classified instruments to derivative liability ( 1,103 ) - ( 1,103 ) Common shares issued for cash 6,860,000 1 750 - 751 Net loss - - - ( 8,408 ) ( 8,408 ) Balance, May 31, 2026 (unaudited) 148,261,844 $ 15 $ 465,888 $ ( 519,469 ) $ ( 53,566 ) Three Months Ended May 31, 2025 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 ) See accompanying notes to these unaudited financial statements. 3 AURA SYSTEMS, INC. CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (Amounts in thousands, except share data) Three Months Ended May 31, 2026 2025 Net loss $ ( 8,408 ) $ ( 2,841 ) Adjustments to reconcile net loss to cash used in operating activities Depreciation and amortization 55 44 Loss on reclassification of equity-classified instruments to derivative liability 48 - Change in fair value of derivative liability 7,028 1,570 Changes in operating assets and liabilities: Inventory - 33 Prepaid and other current assets 71 47 Operating lease right-of-use asset 70 63 Accounts payable and accrued expenses 50 ( 32 ) Accrued interest 426 437 Customer advances 17 - Operating lease liability ( 76 ) ( 67 ) Cash used in operating activities ( 719 ) ( 746 ) Cash flows from financing activities: Proceeds from issuance of common stock 751 848 Principal payments of convertible notes payable - ( 20 ) Principal payments of notes payable ( 16 ) ( 84 ) Cash provided by financing activities 735 744 Net increase (decrease) in cash and cash equivalents 16 ( 2 ) Cash and cash equivalents-beginning of period 11 23 Cash and cash equivalents-end of period $ 27 $ 21 Supplemental disclosures of cash flow information: Cash paid for: Interest $ 15 $ - Income taxes $ - $ - Non-cash investing and financing activities: Reclassification of equity-classified instruments to derivative liability $ 1,151 $ - See accompanying notes to these unaudited financial statements. 4 AURA SYSTEMS, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS THREE MONTHS ENDED MAY 31, 2026 AND 2025 (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 May 31, 2026 and 2025, 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, 2026, was derived from the Company’s audited Financial Statements as of February 28, 2026, included in the Company’s Annual Report on Form 10-K filed with the SEC on September 10, 2026. These financial statements should be read in conjunction with that report. The results of operations for the period ended May 31, 2026, may not necessarily be indicative of the results of the full fiscal year ending February 28, 2027. The Company’s fiscal year ends on the last calendar day of February. Accordingly, the current fiscal year will end on February 28, 2027, and is referred to as “Fiscal 2027”. Our prior fiscal years ended February 28, 2026, February 28, 2025, and February 29, 2024, and are referred to as “Fiscal 2026”, “Fiscal 2025,” and “Fiscal 2024”, 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, 2026, the Company recognized a net loss of $ 8,408 and used $ 719 in cash for operating activities. As of May 31, 2026, the Company also had a shareholders’ deficit of $ 53,566 and notes payable totaling $ 5,446 were 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, 2026 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 cannot continue as a going concern. If the Company is unable to generate profits and obtain financing for its working capital requirements, it may have to further curtail its business or cease operations 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 depends on its ability to generate sufficient cash flow to meet its obligations on a timely basis, retain its current financing, obtain additional financing, and ultimately 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 may subject the Company to concentration of credit risk include cash and accounts receivable. The Company deposits cash with a limited number of financial institutions. Balances held at any one financial institution may at times exceed Federal Deposit Insurance Corporation 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, 2026, one customer accounted for 90 % and one customer accounted for 10 % of revenues. During the three months ended May 31, 2025, one customer accounted for 90 % and one customer accounted for 10 % of revenues. No other customer accounted for more than 10% of revenues. As of May 31, 2026, four vendors accounted for 34 %, 14 %, 13 %, and 11 % of accounts payable. As of February 28, 2026, five vendors accounted for 34 %, 13 %, 11 %, 10 %, and 10 % of accounts payable. Revenue Recognition The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers . Our primary source of revenue is manufacturing and delivering axial flux induction motors and generator sets used primarily in mobile power applications. Our principal sales channels are domestic end users and international distributors and agents. 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, warrants, and shares of common stock to employees and non-employees in non-capital raising transactions for services and financing costs. The Company measures share-based compensation cost at the grant date, based on the estimated fair value of the award, and recognizes it as expense over the requisite service period. The Company recognizes compensation expense for non-employees in the same period and manner as if it had paid cash for the services. Derivative Financial Instruments The Company evaluates its financial instruments to determine whether they are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments accounted for as liabilities, the Company initially records the instrument at fair value and then remeasures it at each reporting date, with changes in 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 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 Black-Scholes 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 whether 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 on the lowest-level input that is significant to the fair value measurement. Under ASC 820, Fair Value Measurement and Disclosures , 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 fair value because of 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, 2026 and February 28, 2026: May 31, 2026 Level 1 Level 2 Level 3 Total Liabilities Derivative liability – convertible note conversion option $ - $ - $ 31,023 $ 31,023 Total $ - $ - $ 31,023 $ 31,023 February 28, 2026 Level 1 Level 2 Level 3 Total Liabilities Derivative liability – convertible note conversion option $ - $ - $ 22,844 $ 22,844 Total $ - $ - $ 22,844 $ 22,844 The Company estimated the fair value of the derivative liability using the Black-Scholes Model. 7 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, 2026, as follows: Fair Value of Derivative Liability February 28, 2026 $ 22,844 Reclassification of equity-classified instruments to derivative liability 1,151 Change in fair value of derivative liability 7,028 May 31, 2026 $ 31,023 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, 2026 and 2025, 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, 2026 May 31, 2025 Warrants 6,451,664 6,451,664 Options 4,000,000 7,000,000 Convertible notes 219,003,782 98,588,399 Total 229,455,446 112,040,063 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 evaluating this ASU to determine its impact on the Company’s disclosures. 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 have not had and are not expected 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, 2026 February 28, 2026 (a) Convertible notes payable 1 – past due $ 1,403 $ 1,403 (b) Convertible notes payable 2 – past due 90 90 Total $ 1,493 $ 1,493 (a) In Fiscal 2013 and 2014, the Company issued nine 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 amended in 2017 to extend maturity to April 8, 2022. As of May 31, 2026 and February 28, 2026, the outstanding balance of the convertible notes payable amounted to $ 1,403 and is 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 a 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, 2026, and February 28, 2026, the outstanding balance of the convertible notes payable amounted to $ 90 and is past due. At May 31, 2026, the total outstanding convertible notes payable of $ 1,493 and accrued interest of $ 602 are convertible into 1,982,321 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, 2026 February 28, 2026 (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. Under the agreement, the Company issued a $ 3,000 convertible note. The convertible note is unsecured, bears interest at 5 % per annum, and was due January 24, 2022. 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, 2026 and February 28, 2026, 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 a 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, 2026 and February 28, 2026, the outstanding balance of the convertible note amounted to $ 20 and is past due. (c) Convertible note payable-Kopple The convertible note payable to Robert Kopple and associated entities (collectively “Kopple”), as amended in March 2024, 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 . During fiscal 2025, the Company accounted for the amended terms of the Kopple note payable as a debt extinguishment. As of May 31, 2026 and February 28, 2026, the outstanding balance of the convertible note payable was $ 9,259 . Robert Kopple is the former Vice-Chairman of the Company’s Board of Directors and is a current shareholder in the Company. 9 The convertible note (i) requires $ 2,000 due December 2024 (extended to December 2025); (ii) added a fee of $ 15 monthly until the Company makes a principal payment of $ 2,000 ; (iii) effective August 30, 2024, the Company granted Kopple a 36 month right (but not an 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; (iv) during Fiscal 2025, requires the Company to pay 20 % of all collected revenues within 10 days of the end of each fiscal quarter; (v) 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 ; (vi) reduces the exercise price of the warrants granted to Kopple in March 2022 from $ 0.85 per share to $ 0.50 per share; and (vii) extends the warrant expiration date of the warrants granted to Kopple from March 8, 2029, to March 31, 2031. During the year ended February 28, 2026, the $ 2,000 installment payment originally due in December 2024 was extended through December 31, 2025. In exchange for the extension, the Company incurred fees totaling $ 325 , recorded as interest expense. The Company is currently negotiating with the noteholder for another installment payment extension to September 30, 2026. 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 of Kopple’s conversion rights, and failure to pay 20 % of all collected revenues within 10 days of the end of each fiscal quarter in Fiscal 2025. In addressing the alleged violation of the terms, the Company has provided for interest using a default rate of 15 % per annum and reported the entire convertible note payable as current. The Company disputes Kopple’s alleged failures to perform the non-monetary terms and is currently in discussion with Kopple to resolve this matter. 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 investment activities, as defined in the agreement, including a covenant not to 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 meeting them will not affect the Company’s operations. As of May 31, 2026, the total outstanding convertible notes payable-related party of $ 12,279 and accrued interest of $ 4,310 are potentially convertible into 217,021,460 shares of common stock at a conversion price at an average price of $ 0.076 per share. NOTE 4 – NOTES PAYABLE Notes payable consisted of the following: May 31, 2026 February 28, 2026 Secured notes payable (a) Note payable – EID loan $ 150 $ 150 (b) Notes payable – vehicle 28 32 (c) Note payable – software license 344 344 (d) Notes payable – machinery and other equipment 551 563 Unsecured notes payable (e) Note payable – other 10 10 Total $ 1,083 $ 1,099 Current ( 349 ) ( 365 ) Non-current $ 734 $ 734 (a) Note payable – EID loan During Fiscal 2021, the Company received a $ 150 loan under the United States Small Business Administration Economic Injury Disaster Loan (“EID Loan”) program. The loan is due July 1, 2050 , accrues interest at 3.75 % per annum, and is secured by the Company’s assets. As of May 31, 2026 and February 28, 2026, the outstanding balance of the EID Loan amounted to $ 150 . 10 (b) Notes payable – vehicle During Fiscal 2022, the Company issued a note payable to purchase a vehicle for $ 78 . The note is secured by the vehicle purchased. The note, with an original principal of $ 78, is due January 20, 2027, and requires 72 equal monthly payments of approximately $ 1.5 , including interest at 10.9 % per annum . As of May 31, 2026 and February 28, 2026, the outstanding balance of the note payable amounted to $ 28 and $ 32 , respectively. (c) Note payable – software license During Fiscal 2024, the Company obtained a loan of $ 155 from a financing institution to finance the use of a third-party software license. The note payable is secured by tangible and intangible assets of the Company, bears interest at an average rate of 8 % per annum, and will mature in September 2026 . As of May 31, 2026 and February 28, 2026, the outstanding balance of the note payable amounted to $ 64 . During Fiscal 2026, the Company obtained a loan of $ 280 from a financing institution to finance the Company’s use of a third-party software license. The note payable is secured by tangible and intangible assets of the Company, bears interest at an average rate of 13.70 % per annum, and will mature in October 2026 . As of May 31, 2026, the outstanding balance of the note payable amounted to $ 280 , of which $ 200 is past due. The Company is currently in discussion with the note holder to resolve this matter. The aggregate total of the note payable-software licenses as of May 31, 2026 and February 28, 2026, amounted to $ 344 . (d) Notes payable – machinery and other equipment During Fiscal 2025, the Company obtained a $ 274 loan 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, 2026 and February 28, 2026, the outstanding balance of the note payable amounted to $ 175 and $ 197 , respectively. During Fiscal 2026, the Company obtained a $ 390 loan 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 August 2032 . As of May 31, 2026 and February 28, 2026, the outstanding balance of the note payable amounted to $ 376 and $ 366 , respectively. The aggregate total of the note payable-machinery and other equipment as of May 31, 2026 and February 28, 2026, amounted to $ 551 and $ 563 , respectively. (e) Note payable – other As of May 31, 2026, and February 28, 2026, 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. 11 NOTE 5 – NOTES PAYABLE-RELATED PARTIES Notes payable-related parties consisted of the following: May 31, 2026 February 28, 2026 Note payable-Jiangsu Shengfeng – past due $ 733 $ 733 On November 20, 2019, the Company owned 49 % of a Chinese joint venture named Jiangsu Shengfeng. The joint venture advanced $ 700 to Aura in prior years for products that the Company failed to deliver to the joint venture. The Company reached a preliminary agreement with the joint venture to return the $ 700 advanced in prior years, provided the joint venture remains an operating company. As a result, in November 2019, the Company issued a non-interest-bearing promissory note to the joint venture for $ 700 , payable over an 11-month period beginning on March 15, 2020, and ending on February 15, 2021. The joint venture ceased operations in 2020 due to COVID-19 and has not resumed operations. In early fiscal 2024, the joint venture was dissolved and liquidated without filing any demands or claims for payment. As of May 31, 2026 and February 28, 2026, the outstanding balance of this note payable amounted to $ 733 , all of which is past due. NOTE 6 – ACCRUED INTEREST Accrued interest consisted of the following: May 31, 2026 February 28, 2026 Convertible notes payable (past due) (see Note 2) $ 602 $ 585 Convertible notes payable - related party – Kopple (see Note 3) 3,104 2,763 Convertible notes payable - related party – Others (see Note 3) 1,206 1,168 Notes payable (see Note 4) 42 12 Total $ 4,954 $ 4,528 NOTE 7 – LEASES During the three months ended May 31, 2026 and 2025, lease costs totaled $ 72 and $ 63 , respectively. As of February 28, 2026, operating lease liabilities totaled $ 181 . During the three months ended May 31, 2026, the Company made aggregate payments of $ 76 towards its operating lease liability. As of May 31, 2026, operating lease liabilities totaled $ 105 , of which $ 86 was current. As of May 31, 2026, the weighted average remaining lease terms for an operating lease are 0.95 years. As of May 31, 2026, the weighted average discount rate on the operating lease is 10.0 %. In June 2026, the Company amended its facility lease agreement to extend the lease term to August 2028 and revise the monthly lease payments. The amendment will be accounted for as a lease modification in June 2026, including remeasurement of the lease liability and corresponding right-of-use asset using the discount rate in effect on the modification date. 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 per share or 50 % of the 10-day volume-weighted average price of the Company’s common stock. The Company evaluated this conversion option under ASC 815, Derivatives and Hedging and determined that it is not indexed to the Company's own stock because the number of shares issuable upon conversion has no explicit limit. Accordingly, the conversion feature has been accounted for as a derivative liability, remeasured to fair value each reporting period, with changes in fair value recognized in the statements of operations. This conversion feature was the Company's only derivative liability as of February 28, 2026. 12 The Company has also issued other convertible notes payable and warrants that provide for the issuance of common stock upon conversion or exercise. As discussed in Note 9, when the number of shares issuable under the Company's outstanding convertible securities and warrants exceeds the number of authorized and unissued shares available, the Company applies a sequencing policy — allocating remaining authorized shares first to warrants, then to convertible notes payable — to determine which instruments are covered. As of February 28, 2026, the Company's remaining authorized and unissued shares, after this allocation, were sufficient to cover all such other convertible notes payable and warrants, which accordingly remained classified in equity. During the three months ended May 31, 2026, the number of shares potentially issuable under the Company's outstanding convertible notes payable and warrants, together with other outstanding commitments to issue common stock, increased to the point that the Company's remaining authorized and unissued shares were no longer sufficient to cover all of these instruments. As a result, in addition to the Kopple conversion feature, the conversion and exercise features of certain other convertible notes payable and warrants that had previously been classified in equity were reclassified as derivative liabilities as of May 31, 2026. The Company intends to seek stockholder approval to increase its authorized shares of common stock. If additional shares are authorized, the Company will reassess the classification of these instruments at that time. The Company measures the derivative liability at fair value using a Black-Scholes option-pricing model. The fair value of the derivative liability was $ 31,023 and $ 22,844 as of May 31, 2026 and February 28, 2026, respectively. The increase reflects both the change in fair value of the Kopple conversion feature and the addition of the other convertible notes payable and warrants reclassified into liability treatment during the quarter, as described above. The following tables summarize the derivative liability: May 31, 2026 February 28, 2026 Stock price $ 0.17 $ 0.16 Risk free interest rate 3.79 % 3.46 % Expected volatility 187 % 170 % Expected life in years 1.25 1.51 Expected dividend yield 0 % 0 % Number of common stock issuable 223,717,290 174,520,697 Fair value of derivative liability $ 31,023 $ 22,844 NOTE 9 – SHAREHOLDERS’ DEFICIT Common Stock On May 31, 2026 and February 28, 2026, the Company had 150,000,000 shares of $ 0.0001 par value common stock authorized for issuance. During the three months ended May 31, 2026, the Company issued 6,860,000 shares of common stock for approximately $ 751 in cash. During the three months ended May 31, 2025, the Company issued 3,415,152 shares of common stock for approximately $ 848 in cash. On May 31, 2026, the Company had insufficient authorized and unissued shares to satisfy all 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, 2026 (i) warrants, and (ii) convertible notes payable and convertible note payable-related party. The sequence is based upon reclassifying securities with the earliest maturity date first. This sequencing and the lack of sufficient authorized shares resulted in the Company recording the conversion option of the warrants, convertible notes payable, and convertible note payable-Kopple as a derivative liability (see Note 8). 13 Stock Options A summary of the Company’s stock option activity is as follows: Number of Shares Exercise Price Weighted Average Intrinsic Value Total options, February 28, 2026 4,000,000 $ 0.50 $ - Granted - - - Exercised - - - Expired - - - Total options, May 31, 2026 4,000,000 $ 0.50 $ - Exercisable, May 31, 2026 4,000,000 $ 0.50 $ - There was no intrinsic value as of May 31, 2026, as the exercise prices of these options were greater than the market price of the Company’s stock. The exercise prices and information related to options under the 2011 Plan outstanding on May 31, 2026, 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 $ 0.50 4,000,000 4,000,000 8.00 $ 0.50 $ 0.50 Warrants A summary of the Company’s warrant activity is as follows: Number of Warrants Exercise Price Outstanding, February 28, 2026 6,451,664 $ 0.73 Granted - - Exercised - - Expired Outstanding, May 31, 2026 6,451,664 $ 0.73 There was no intrinsic value as of May 31, 2026, 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 May 31, 2026, 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 4.72 $ 0.50 0.50 $ 1.00 3,000,000 3,000,000 0.94 $ 1.00 $ 1.00 NOTE 10 – RELATED PARTY TRANSACTIONS As of May 31, 2026 and February 28, 2026, BetterSea LLC (“BetterSea”) was a 6.9 % and 7.1 % shareholder in the Company, respectively. For the three months ended May 31, 2026 and 2025, the Company incurred total fees to BetterSea of $ 46 and $ 42 , respectively, for consulting services. As of May 31, 2026 and February 28, 2026, approximately $ 310 and $ 297 , respectively, were due to BetterSea and included in accounts payable and accrued expenses. As of May 31, 2026 and February 28, 2026, accrued expenses include accrued payroll due to officers of $ 396 and $ 368 , respectively. 14 NOTE 11 – CONTINGENCIES The Company is subject to legal proceedings and claims arising in the ordinary course of business. Our management evaluates our exposure to these claims and proceedings individually and in the aggregate and assesses potential losses from 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 Company reports segment assets 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. Net loss is used for evaluating financial performance. The Company monitors budgeted versus actual results to assess performance and establish 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, 2026 2025 Net sales $ 2 $ 185 Cost of sales - 25 Gross profit 2 160 Less: Employee compensation and benefits 463 385 Consulting and outside provider costs 64 84 Property lease and utility costs 154 91 Depreciation expense 55 44 Program software and licensing expense 93 57 Other operating expenses 25 176 Total operating expenses 854 837 Loss from operations $ ( 852 ) $ ( 677 ) NOTE 13 – SUBSEQUENT EVENTS Subsequent to May 31, 2026, the Company issued and sold 1,140,000 shares of its common stock for aggregate cash proceeds of approximately $ 171 . In addition, aggregate proceeds of $ 617 were received for the issuance of 4,148,533 shares of common stock. However, the shares have not been issued due to lack of authorized shares, and the proceeds will be classified as a liability pending the Company obtaining the necessary stockholders’ and regulatory approvals to increase its authorized shares or otherwise resolving the matter. 15