What changed in this filing

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Item 1. Financial Statements

2026-10-20 compared with 2026-09-22 · 134 added, 113 removed, 342 unchanged (42% of the section changed)

17 unchanged sentences

Customer advances 478 457

Shares subscription liability 1,019 -

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, current portion, including $ 200 and $ 0 , respectively - past due 286 365

Notes payable-related party, including $ 733 and $ 733 , respectively - past due 733 733

10 unchanged sentences

150,000,000 shares authorized;

148,261,844 and 141,401,844 issued and outstanding at May 31, 2026 and February 28, 2026, respectively.

147,967,526 and 141,401,844 issued and outstanding at August 31, 2026 and February 28, 2026, respectively.

Additional paid-in capital 465,769 466,241

2 unchanged sentences

Total liabilities and shareholders’ Deficit $ 1,509 $ 1,363

See accompanying notes to these financial statements.

The accompanying notes are an integral part of these condensed financial statements.

AURA SYSTEMS, INC.

2 unchanged sentences

Three-Months Ended

Six-Months Ended

Net revenue $ 34 $ - $ 36 $ 185

3 unchanged sentences

Engineering, research and development 396 336 782 689

Selling, general and administration 468 484

Selling, general & administration 556 578 1,024 1,062

Total operating expenses 952 914 1,806 1,751

4 unchanged sentences

Change in fair value of derivative liability 4,796 ( 3,181 ) ( 2,232 ) ( 4,751 )

Net loss $ ( 8,408 ) $ ( 2,841 )

Basic and diluted loss per share $ ( 0.06 ) $ ( 0.02 )

Net income (loss) $ 3,396 $ ( 4,764 ) $ ( 5,012 ) $ ( 7,605 )

Basic and diluted income (loss) per share $ 0.02 $ ( 0.04 ) $ ( 0.03 ) $ ( 0.06 )

Basic and diluted weighted-average shares outstanding 147,967,526 123,419,176 146,184,315 121,711,600

See accompanying notes to these financial statements.

The accompanying notes are an integral part of these condensed financial statements.

AURA SYSTEMS, INC.

1 unchanged sentence

(Amounts in thousands, except share data)

Three Months Ended May 31, 2026

Three Months Ended August 31, 2026

Shareholders’

Balance, May 31, 2026 (unaudited) 148,261,844 $ 15 $ 465,888 $ ( 519,469 ) $ ( 53,566 )

Reclassification of common shares to shares subscription liability ( 294,318 ) - ( 119 ) - ( 119 )

Net income - - - 3,396 3,396

Balance, August 31, 2026 (unaudited) 147,967,526 $ 15 $ 465,769 $ ( 516,073 ) $ ( 50,289 )

Six Months Ended August 31, 2026

Shareholders’

Balance, February 28, 2026 141,401,844 $ 14 $ 466,241 $ ( 511,061 ) $ ( 44,806 )

2 unchanged sentences

Net loss - - - ( 5,012 ) ( 5,012 )

Balance, August 31, 2026 (unaudited) 147,967,526 $ 15 $ 465,769 $ ( 516,073 ) $ ( 50,289 )

Three Months Ended August 31, 2025

Shareholders’

Balance, May 31, 2025 (unaudited) 121,711,600 $ 12 $ 463,371 $ ( 502,969 ) $ ( 39,586 )

Three Months Ended May 31, 2025

Common shares issued for cash 3,415,152 - 849 - 849

Net loss - - - ( 4,764 ) ( 4,764 )

Balance, August 31, 2025 (unaudited) 125,126,752 $ 12 $ 464,220 $ ( 507,733 ) $ ( 43,501 )

Six Months Ended August 31, 2025

Shareholders’

2 unchanged sentences

Net loss - - - ( 7,605 ) ( 7,605 )

Balance, May 31, 2025 (unaudited) 121,711,600 $ 12 $ 463,371 $ ( 502,969 ) $ ( 39,586 )

See accompanying notes to these unaudited financial statements.

Balance, August 31, 2025 (unaudited) 125,126,752 $ 12 $ 464,220 $ ( 507,733 ) $ ( 43,501 )

The accompanying notes are an integral part of these condensed financial statements.

AURA SYSTEMS, INC.

1 unchanged sentence

(Amounts in thousands, except share data)

Three Months Ended

Six Months Ended

Net loss $ ( 5,012 ) $ ( 7,605 )

12 unchanged sentences

Cash used in operating activities ( 1,569 ) ( 1,510 )

Cash used in investing activities:

Purchase of property and equipment - ( 5 )

Cash used in investing activities - ( 5 )

Cash flows from financing activities:

Proceeds from issuance of common stock 632 1,697

Shares subscription liability 1,019 -

Principal payments of convertible notes payable - ( 20 )

1 unchanged sentence

Cash provided by financing activities 1,571 1,516

Net increase (decrease) in cash and cash equivalents 16 ( 2 )

Net increase in cash and cash equivalents 2 1

Cash and cash equivalents-beginning of period 11 23

6 unchanged sentences

Reclassification of equity-classified instruments to derivative liability $ 1,103 $ -

See accompanying notes to these unaudited financial statements.

Recording of right-of-use asset and lease liability $ 586 $ -

The accompanying notes are an integral part of these condensed financial statements.

AURA SYSTEMS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

THREE MONTHS ENDED MAY 31, 2026 AND 2025

THREE AND SIX MONTHS ENDED AUGUST 31, 2026 AND 2025

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

5 unchanged sentences

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.

The accompanying unaudited condensed financial statements as of and for the six months ended August 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.

4 unchanged sentences

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 results of operations for the period ended August 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.

4 unchanged sentences

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.

During the six-month period ended August 31, 2026, the Company recognized a net loss of $ 5,012 and used $ 1,569 in cash for operating activities.

As of August 31, 2026, the Company also had a shareholders’ deficit of $ 50,289 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.

4 unchanged sentences

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.

Authorized Capital

In May 2026, the Company had utilized substantially all of its authorized shares of 150 million shares.

The Company is in the process of obtaining the stockholder and regulatory approvals necessary to increase its authorized shares or otherwise resolve the matter.

Accordingly, the Company has recorded, and will continue to record, as a liability the proceeds received from sales of common stock for which shares cannot yet be issued, until the number of authorized shares is increased (see Note 9).

In addition, the Company also accounted for certain stock warrants and convertible notes as derivative liability because of the lack of authorized shares pursuant to current accounting guidelines (see Note 8).

Use of Estimates

9 unchanged sentences

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.

During the three months ended August 31, 2026, one customer accounted for 48 % and one customer accounted for 33 % 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.

During the six months ended August 31, 2026, one customer accounted for 47 % and one customer accounted for 32 % of revenues.

During the six months ended August 31, 2025, 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 August 31, 2026, four vendors accounted for 35 %, 16 %, 11 %, and 11 % of accounts payable.

As of February 28, 2026, five vendors accounted for 34 %, 13 %, 11 %, 10 %, and 10 % of accounts payable.

15 unchanged sentences

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

7 unchanged sentences

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:

Level 1 Level 2 Level 3 Total

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

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.

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:

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

The Company’s derivative liabilities at August 31, 2026 and February 28, 2026 were computed using the Black-Scholes Model and using Level 3 inputs.

Loss per share

3 unchanged sentences

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.

For the six months ended August 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:

2026 August 31,

Warrants 6,451,664 6,451,664

20 unchanged sentences

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.

As of August 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.

1 unchanged sentence

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.

As of August 31, 2026, and February 28, 2026, the outstanding balance of the convertible notes payable amounted to $ 90 and is past due.

At August 31, 2026, the convertible notes payable are potentially convertible into 2,006,097 shares of common stock at conversion rates ranging from $ 0.20 to $ 1.40 per share.

The conversion feature of the notes is accounted for as a derivative liability and is remeasured at fair value at each reporting date, with changes in fair value recognized in the statements of operations (see Note 8).

NOTE 3 – CONVERTIBLE NOTE PAYABLE-RELATED PARTY

10 unchanged sentences

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.

As of August 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

2 unchanged sentences

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.

As of August 31, 2026 and February 28, 2026, the outstanding balance of the convertible note amounted to $ 20 and is past due.

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.

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 ;

In March 2022, the Company issued a convertible note payable to Robert Kopple and certain affiliated entities (collectively, “Kopple”).

The convertible note was subsequently amended in March 2024, and the amendment was accounted for as an extinguishment of the original debt pursuant to current accounting guidelines.

The convertible note is secured by certain tangible and intangible assets of the Company, bears interest at an annual rate of 10 %, which increases to 15 % upon an event of default, and matures in June 2029 .

Kopple is a former Vice-Chairman of the Company’s Board of Directors and is currently a stockholder of the Company.

The convertible note (i) requires installment payment of $ 2,000 originally due in December 2024 but extended to December 31, 2026;

(ii) added an extension fee in the aggregate of $ 325 that was recorded in Fiscal 2025;

(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;

3 unchanged sentences

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.

As of August 31, 2026 and February 28, 2026, the outstanding principal balance of the Kopple convertible note payable was $ 9,259 .

The conversion feature of the note is accounted for as a derivative liability and is remeasured at fair value at each reporting date, with changes in fair value recognized in the statements of operations (see Note 8).

Kopple also alleged that the Company failed to comply with certain non-monetary provisions of the convertible note, including the Company’s failure to hold a stockholders’ meeting by August 1, 2024, or otherwise secure sufficient authorized shares to permit the exercise of Kopple’s conversion rights, and its failure to remit 20 % of collected revenues within 10 days following the end of each fiscal quarter during fiscal 2025.

In light of the alleged defaults, the Company has accrued interest on the convertible note using the default interest rate of 15 % per annum and has classified the entire outstanding balance of the convertible note as a current liability.

The Company disputes Kopple’s allegations that it failed to comply with the applicable non-monetary provisions of the convertible note and is currently engaged in discussions with Kopple to resolve the matter, including payment extension of the installment due to $ 2 million.

As of August 31, 2026, the total outstanding convertible notes payable-related-related party and accrued interest are potentially convertible into 133,452,611 shares of common stock at a conversion price at an average price of $ 0.57 per share.

NOTE 4 – NOTES PAYABLE

14 unchanged sentences

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 .

As of August 31, 2026, and February 28, 2026, the outstanding balance of the EID Loan was $ 149 and $ 150 , respectively.

(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 vehicle secures the note.

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.

As of August 31, 2026 and February 28, 2026, the outstanding balance of the note payable was $ 24 and $ 32 , respectively.

1 unchanged sentence

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 .

As of August 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 .

As of August 31, 2026 and February 28, 2026, the outstanding balance of the note payable amounted to $ 233 and $ 280 , respectively.

As of August 31, 2026, the principal balance of $ 200 is past due, and 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 August 31, 2026 and February 28, 2026, amounted to $ 297 and $ 344 , respectively.

(d) Notes payable – machinery and other equipment

1 unchanged sentence

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.

As of August 31, 2026 and February 28, 2026, the outstanding balance of the note payable amounted to $ 185 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.

As of August 31, 2026 and February 28, 2026, the outstanding balance of the note payable amounted to $ 355 and $ 366 , respectively.

The aggregate total of the note payable-machinery and other equipment as of August 31, 2026 and February 28, 2026, amounted to $ 540 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.

NOTE 5 – NOTES PAYABLE-RELATED PARTIES

Notes payable-related parties consisted of the following:

2026 February 28,

Note payable-Jiangsu Shengfeng – past due $ 733 $ 733

As of August 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.

NOTE 5 – NOTES PAYABLE-RELATED PARTIES – PAST DUE

On November 20, 2019, the Company owned 49 % of a Chinese joint venture named Jiangsu Shengfeng.

3 unchanged sentences

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.

In fiscal 2024, the joint venture was dissolved and liquidated without filing any demands or claims for payment.

As of August 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

7 unchanged sentences

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.

The lease extension was accounted for as a modification of the existing lease in accordance with ASC 842, Leases .

As a result of the modification, the Company remeasured the lease liability based on the present value of the remaining lease payments over the revised lease term using a discount rate of 7 %.

As of the effective date of the lease modification, the remeasurement increased the operating lease right-of-use asset and the operating lease liability by approximately $ 586 .

The modification did not change the lease classification.

In addition, the Company applied $ 54 of its lease deposit made in the prior year to the operating lease liability, and it made aggregate payments of $ 101 toward its operating lease liability.

As of August 31, 2026, operating lease liabilities totaled $ 612 , of which $ 283 was current.

During the six months ended August 31, 2026 and 2025, lease costs totaled $ 130 and $ 127 , respectively.

NOTE 8 – DERIVATIVE LIABILITY

2 unchanged sentences

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.

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:

This conversion feature was the Company’s only derivative liability as of February 28, 2026 with a fair value of $ 22,844 using a Black-Scholes option-pricing model.

In prior years, the Company issued certain convertible notes payable and warrants that were classified as equity and provide for the issuance of shares of the Company’s common stock upon conversion or exercise.

In May 2026, the Company had utilized substantially all of its 150 million authorized shares of common stock (see Note 9).

As a result, the Company no longer had sufficient authorized and unissued shares available to settle the conversion and exercise features of the outstanding convertible notes and warrants through the issuance of common stock.

Accordingly, the conversion and exercise features associated with these convertible notes and warrants no longer qualified for equity classification.

The Company reclassified the fair value of these features that were recorded in the prior years, totaling $ 1,151 , from stockholders’ equity to derivative liabilities.

The derivative liabilities are subsequently remeasured at fair value at each reporting date, with changes in fair value recognized in the statements of operations .

The fair value of the derivative liability as of August 31, 2026 was $ 26,227 .

The Company intends to seek stockholder approval to increase the number of authorized shares of common stock.

If the increase in authorized shares is approved and becomes effective, the Company will reassess the classification of the conversion and exercise features associated with the convertible notes payable and warrants that were reclassified as derivative liabilities in May 2026 to determine whether they qualify for equity classification at that time.

The following table provides a roll-forward of the derivative liability:

February 28, 2026 $ 22,844

Reclassification of equity-classified instruments to derivative liability 1,151

Change in fair value of derivative liability 2,232

August 31, 2026 $ 26,227

The following tables summarize the average inputs used in the computation of the derivative liability:

August 31, 2026 February 28, 2026

Stock price $ 0.23 $ 0.16

6 unchanged sentences

NOTE 9 – SHAREHOLDERS’ DEFICIT

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).

On August 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 six months ended August 31, 2026, the Company issued 6,565,682 shares of common stock for approximately $ 632 in cash.

During the six months ended August 31, 2025, the Company issued 6,830,304 shares of common stock for approximately $ 1,697 in cash.

Authorized Shares

In May 2026 and through the date of this report, the Company had utilized substantially all of its authorized shares of 150 million shares.

The Company is in the process of obtaining the stockholder and regulatory approvals necessary to increase its authorized shares or otherwise resolve the matter.

From May 2026 through August 2026, aggregate proceeds of $ 1,019 were received for the issuance of 6,932,474 shares of common stock.

However, the shares have not been issued due to lack of authorized shares, and the proceeds are classified as a liability and reported as “Proceeds Received for Common Stock in Excess of Authorized Shares” in the accompanying balance sheets.

The liability will remain outstanding until the Company has sufficient authorized shares available to satisfy its obligation or the obligation is otherwise settled in accordance with the applicable agreements.

The Company also accounted certain stock warrants and convertible notes as derivative liability because of the lack of authorized shares pursuant to current accounting guidelines (see Note 8).

Stock Options

6 unchanged sentences

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:

Total options, August 31, 2026 4,000,000 $ 0.50 $ -

Exercisable, August 31, 2026 4,000,000 $ 0.50 $ -

There was no intrinsic value as of August 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 August 31, 2026, are as follows:

Exercise Price Stock Options

10 unchanged sentences

Exercised - -

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:

Outstanding, August 31, 2026 6,451,664 $ 0.73

There was no intrinsic value as of August 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 August 31, 2026, are as follows:

Exercise Price Stock Warrants

8 unchanged sentences

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.

As of August 31, 2026 and February 28, 2026, BetterSea LLC (“BetterSea”) was a 6.0 % and 7.1 % shareholder in the Company, respectively.

For the six months ended August 31, 2026 and 2025, the Company incurred total fees to BetterSea of $ 95 and $ 78 , respectively, for consulting services.

As of August 31, 2026 and February 28, 2026, approximately $ 329 and $ 297 , respectively, were due to BetterSea and included in accounts payable and accrued expenses in the accompanying balance sheets.

As of August 31, 2026 and February 28, 2026, accrued expenses include accrued payroll due to officers of $ 423 and $ 368 , respectively.

NOTE 11 – CONTINGENCIES

24 unchanged sentences

Three Months Ended

August 31, Six Months Ended

2026 2025 2026 2025

Net Sales $ 34 $ - $ 36 $ 185

1 unchanged sentence

Gross profit 23 - 25 160

Operating expenses

Employee compensation and benefits 474 452 937 837

7 unchanged sentences

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.

Subsequent to August 31, 2026, the Company received aggregate cash proceeds of $ 451 for the subscription of 3,013,333 shares of its common stock for.

The shares have not been issued because the Company lacks sufficient authorized shares.

The Company is obtaining the necessary stockholders’ and regulatory approvals to increase its authorized shares or otherwise resolve the matter.

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