UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~August~~November 3130, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

AURA SYSTEMS, INC.

(Exact name of Registrant as specified in its charter)

Delaware		95-4106894
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

20431 North Sea Circle

Lake Forest, CA 92630

(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code: (310) 643-5300

Former name, former address and former fiscal year, if changed since last report:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: YES ☒ NO ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES ☐ NO ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	☐	Accelerated Filer	☐
Non-accelerated filer	☒	Smaller Reporting Company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date.

Class		Outstanding ~~October~~January 1216, ~~2023~~2024
Common Stock, par value $0.0001 per share		~~100~~102,~~322~~008,~~587~~954 shares

AURA SYSTEMS, INC.

INDEX

Index			Page No.
PART I. FINANCIAL INFORMATION
	ITEM 1.	Financial Statements (Unaudited)	1
		Condensed Balance Sheets as of August 31, 2023 and February 28, 2023	1
		Condensed Balance Sheets as of November 30, 2023 (unaudited) and February 28, 2023	1
		Condensed Statements of Operations for the Three months and Six months ended August 31, 2023 and 2022	2
		Condensed Statements of Operations for the Three months and Nine months ended November 30, 2023 and 2022 (unaudited)	2
		Condensed Statements of Changes in Shareholders’ Deficit for the Three months and Six months ended August 31, 2023 and 2022	3
		Condensed Statements of Changes in Shareholders’ Deficit for the Three months and Nine months ended November 30, 2023 and 2022 (unaudited)	3
		Condensed Statements of Cash Flows for the Six months ended August 31, 2023 and 2022	4
		Condensed Statements of Cash Flows for the Nine months ended November 30, 2023 and 2022 (unaudited)	4
		Notes to Condensed Financial Statements	5
	ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1820
	ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	2326
	ITEM 4.	Controls and Procedures	2326
PART II. OTHER INFORMATION
	ITEM 1.	Legal Proceedings	2427
	ITEM 1A.	Risk Factors	2528
	ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2528
	ITEM 3.	Defaults Upon Senior Securities	2528
	ITEM 4.	Mine Safety Disclosures	2528
	ITEM 5.	Other Information	2528
	ITEM 6.	Exhibits	2629
SIGNATURES AND CERTIFICATIONS			2730

ITEM 1. FINANCIAL STATEMENTS

AURA SYSTEMS, INC.

CONDENSED BALANCE SHEETS

(Unaudited)

	August 31, 2023			February 28, 2023
	November 30, 2023			February 28, 2023
(amounts in thousands, except share data)	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	5245		$	15
Inventories		~~101~~47			155
Prepaid and other current assets		28169			142
Total current assets		~~181~~261			312
Property and equipment, net		~~430~~405			461
Operating lease right-of-use asset		~~717~~660			816
Security deposit		160			160
Lease security deposit		160			160
Total assets	$	1,~~488~~486		$	1,749
Liabilities and Shareholders’ Deficit
Current liabilities
Accounts payable and accrued expenses (including $371 and $376 due to related party, respectively)	$	2,621		$	2,758
Accounts payable and accrued expenses (including $396 and $376 due to related party, respectively)	$	2,496		$	2,758
Accrued interest (including $1,701 and $995 due to related party, respectively)		2,129			1,389
Accrued interest (including $1,898 and $995 due to related party, respectively)		2,400			1,471
Customer advances		447			454
Convertible notes payable, past due		1,403			1,403
Convertible notes payable , ($1,403 past due)		1,498			1,403
Convertible note payable-related party, past due		3,000			3,000
Convertible note payable-related party, ($3,000 past due)		3,020			3,000
Notes payable, current portion		93136			92
Notes payable-related parties, current portion		4,~~718~~632			4,~~714~~632
Operating lease liability, current portion		~~222~~230			207
Derivative warrant liability		1-			9
Total current liabilities		14,~~634~~859			14,026
Notes payable, non-current portion		~~214~~301			256
Note payable-related party, non-current portion		7,~~004~~088			7,065
Operating lease liability		~~545~~485			660
Total liabilities		22,~~397~~733			22,007
Commitments and contingencies		-			-
Shareholders’ deficit
Common stock: $0.0001 par value; 150,000,000 shares authorized; 99,525,617 and 94,648,346 issued and outstanding at August 31, 2023 and February 28, 2023, respectively.		10			9
Common stock: $0.0001 par value; 150,000,000 shares authorized; 101,242,286 and 94,648,346 issued and outstanding at November 30, 2023 and February 28, 2023, respectively.		10			9
Additional paid-in capital		456,~~116~~688			454,507
Accumulated deficit		(477,~~035~~945	)		(474,774	)
Total shareholders’ deficit		(2021,~~909~~247	)		(20,258	)
Total liabilities and shareholders’ deficit	$	1,~~488~~486		$	1,749

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

AURA SYSTEMS, INC.

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

	Three-Months Ended						~~Six~~Nine-Months Ended
	August 31,						August 31,
	November 30,						November 30,
	2023			2022			2023			2022
(amounts in thousands, except share and per share data)
Net revenue	$	-47		$	1054		$	1057		$	1770
Cost of goods sold (includes inventory write-down of $58 for the three and six months ended August 31, 2023)		80			16			95			30
Cost of goods sold (includes inventory write-down of $32 and $90 for the three and nine months ended November 30, 2023)		99			26			194			55
Gross loss		(80	)		(6	)		(85	)		(13	)
Gross profit (loss)		(52	)		28			(137	)		15
Operating expenses
Engineering, research and development (including $36, $35, $52 and $34 to related party, respectively)		287			244			494			411
Engineering, research and development (including $29, $50, $117 and $119 to related party, respectively)		33			229			528			640
Selling, general & administration		~~342~~494			~~556~~622			~~850~~1,344			12,~~406~~028
Total operating expenses		~~629~~527			~~800~~851			1,~~344~~872			12,~~817~~668
Loss from operations		(~~709~~579	)		(~~806~~823	)		(12,~~429~~009	)		(12,~~830~~653	)
Other income (expense):
Interest expense, net (including $319, $40, $781 and $125 to related parties, respectively)		(412	)		(147	)		(840	)		(229	)
Interest expense, net (including $200, $199, $981 and $324 to related parties, respectively)		(332	)		(260	)		(1,171	)		(489	)
Change in fair value of derivative warrant liability		1			~~187~~(181	)		89			~~741~~560
Net loss	$	(~~1,120~~910	)	$	(~~766~~1,264	)	$	(23,~~261~~171	)	$	(12,~~318~~582	)
Basic and diluted loss per share	$	(0.01	)	$	(0.01	)	$	(0.0203	)	$	(0.0203	)
Basic and diluted weighted-average shares outstanding		98100,~~332~~396,~~041~~097			8790,~~304~~759,~~610~~938			9798,~~184~~247,~~290~~106			8587,~~789~~433,~~014~~942

See accompanying notes to these unaudited financial statements.

AURA SYSTEMS, INC.

CONDENSED STATEMENTS OF SHAREHOLDERS’ DEFICIT

(Unaudited)

Three ~~Months~~ Months and ~~Six~~Nine Months Ended ~~August~~November 3130, 2023

(amounts in thousands, except share data)	Common Stock Shares		Common Stock Amount		Additional Paid-In Capital		Accumulated Deficit			Total Shareholders’ Deficit
Balance, February 28, 2023		94,648,346	$	9	$	454,507	$	(474,774	)	$	(20,258	)
Common shares issued for cash		2,586,362		-		853		-			853
Net loss		-		-		-		(1,141	)		(1,141	)
Balance, May 31, 2023		97,234,708		9		455,360		(475,915	)		(20,546	)
Balance, May 31, 2023 (unaudited)		97,234,708		9		455,360		(475,915	)		(20,546	)
Common shares issued for cash		2,290,909		1		756		-			757
Net loss		-		-		-		(1,120	)		(1,120	)
Balance, August 31, 2023 (unaudited)		99,525,617	$	10	$	456,116	$	(477,035	)	$	(20,909	)
Common shares issued for cash		1,716,669		-		567		-			567
Fair value of warrants issued with convertible notes payable						5					5
Net loss		-		-		-		(910	)		(910	)
Balance, November 30, 2023 (unaudited)		101,242,286	$	10	$	456,688	$	(477,945	)	$	(21,247	)

Three ~~Months~~ Months and ~~Six~~Nine Months Ended ~~August~~November 3130, 2022

(amounts in thousands, except share data)	Common Stock Shares		Common Stock Amount		Additional Paid-In Capital		Accumulated Deficit			Total Shareholders’ Deficit
Balance, February 28, 2022		83,119,104	$	8	$	450,137	$	(471,364	)	$	(21,220	)
Common shares issued for cash		2,116,665		-		635		-			635
Fair value of warrants issued for note settlement		-		-		1,051		-			1,051
Net loss		-		-		-		(~~552~~553	)		(552	)
Balance, May 31, 2022		85,235,769		8		451,823		(471,916	)		(20,086	)
Balance, May 31, 2022 (unaudited)		85,235,769		8		451,823		(471,917	)		(20,086	)
Common shares issued for cash		3,943,668		1		1,033		-			1,034
Net loss		-		-		-		(766	)		(766	)
Balance, August 31, 2022 (unaudited)		89,179,437	$	9	$	452,856	$	(472,~~682~~683	)	$	(19,818	)
Common shares issued for cash		3,437,092		-		931		-			932
Net loss		-		-		-		(1,264	)		(1,264	)
Balance, November 30, 2022 (unaudited)		92,616,529	$	9	$	453,787	$	(473,947	)	$	(20,150	)

See accompanying notes to these unaudited financial statements.

AURA SYSTEMS, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended
	Nine Months Ended
	August 31, 2023			August 31, 2022
	November 30, 2023			November 30, 2022
(amounts in thousands)
Net loss	$	(23,~~261~~171	)	$	(12,~~318~~582	)
Adjustments to reconcile net loss to cash used in operating activities
Depreciation and amortization		5279			3757
Inventory write-down		5890			4
Change in fair value of derivative warrant liability		(89	)		(~~741~~560	)
Changes in operating assets and liabilities:
Inventory		(418	)		(1429	)
Prepaid and other current assets		93128			~~147~~73
Operating lease right-of-use asset		99156			89136
Accounts payable, accrued expenses and customer advances		(~~137~~262	)		~~266~~583
Accrued interest on notes payable		~~683~~952			~~118~~183
Customer advances		(7	)		-14
Operating lease liability		(~~100~~152	)		(87133	)
Cash used in operating activities		(12,~~532~~178	)		(12,~~499~~254	)
Cash used in investing activities:
Purchase of property and equipment		-(23	)		(2354	)
Cash flows from financing activities:
Proceeds from issuance of common stock		12,~~610~~177			12,~~668~~600
Principal payments of notes payable		(41	)		(188	)
Proceeds from issuance of convertible notes payable		120			-
Cash provided by financing activities		1,569			1,480
Payment of notes payable		(66	)		(208	)
Net increase (decrease) in cash and cash equivalents		37			(41	)
Cash provided by financing activities		2,231			2,392
Net increase in cash and cash equivalents		30			84
Cash and cash equivalents-beginning of period		15			150
Cash and cash equivalents-end of period	$	5245		$	~~108~~234
Cash paid for:
Interest	$	85160		$	91128
Income taxes	$	-		$	-
Supplemental schedule of non-cash transactions:
Reclassification of prepaid expense to property and equipment	$	21		$	-
Note payable issued for software licensing agreement	$	155		$	-
Adjustment to interest expense to account for the effective interest rate of note payable	$	61		$	-
Fair value of warrants issued for note settlement	$	-		$	1,051

See accompanying notes to these unaudited financial statements.

AURA SYSTEMS, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (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”, 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 and ~~six~~nine months ended ~~August~~November 3130, 2023 and 2022, 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, 2023, was derived from the Company’s audited Financial Statements as of February 28, 2023, included in the Company’s Annual Report on Form 10-K filed with the SEC on May 26, 2023. These financial statements should be read in conjunction with that report. The results of operations for the period ended ~~August~~November 3130, 2023, may not necessarily be indicative of the results that may be expected for the full fiscal year ending February 2829, 2024.

The Company’s fiscal year ends on the last calendar day of February. Accordingly, the current fiscal year will end on February 29, 2024 and is referred to as “Fiscal 2024”. Our prior fiscal years ended February 28, 2023, February 28, 2022 and 2021, and are referred to as “Fiscal 2023”, “Fiscal 2022” and “Fiscal 2021”, respectively.

Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. During the ~~six~~nine-month period ended ~~August~~November 3130, 2023, the Company recognized net loss of $23,~~261~~171 and used cash in operating activities of $12,~~532~~178, respectively. As of ~~August~~November 3130, 2023, the Company also has a shareholder deficit of $2021,~~909~~247 and notes payable totaling $5,200 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, 2023, 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 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.

During the next twelve months the Company intends to continue to attempt to increase the Company’s operations and focus on the sale of our AuraGen®/VIPER products both domestically and internationally and to add to our existing management team. In addition, the Company plans to source new suppliers for manufacturing operations, rebuild the engineering and sales teams, and to the extent appropriate, utilize third party contractors to support the operation. The Company anticipates being able to obtain new sources of funding to support these actions in the upcoming fiscal year.

Inflation

Higher inflation, the actions by the Federal Reserve Bank to address inflation, most notably continuing increases in interest rates, and ~~rising~~the volatility of energy prices create uncertainty about the future economic environment. The Company expects that the impact of these issues will continue to evolve. The Company believes these factors impacted the Company’s business in fiscal 2023 and the ~~first~~nine ~~six~~ months of fiscal 2024 and will continue to impact the Company’s business in the remaining months of fiscal 2024 and fiscal 2025. The implications of higher government deficits and debt, tighter monetary policy, and higher long-term interest rates may drive a higher cost of capital for the business and an increase in the Company’s operating expenses.

COVID-19

As of the date of this filing, the COVID-19 pandemic has been declared to be officially over. Despite this fact, there continues to be lingering impacts of the COVID-19 pandemic in the regions in which the Company operates. The Company has not observed any impairments of its assets or a significant change in the fair value of its assets due to the COVID-19 pandemic. At this time, it is not possible for the Company to predict the duration or magnitude of the adverse results stemming from the outbreak and its lingering effects on the Company’s business or results of operations, financial condition, or liquidity.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reported periods. Significant estimates include assumptions made for inventory reserve, impairment testing of long-lived assets, the valuation allowance for deferred tax assets, assumptions used in valuing 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.

Vendor Concentration

As of ~~August~~November 3130, 2023 and February 28, 2023, there were four vendors who accounted for over 10% of the Company’s ~~consolidated~~ 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 generator sets used primarily in mobile power applications. Our principal sales channel is sales to a domestic distributor. In accordance with ASC 606, the Company recognizes revenue, net of discounts, for our generator sets at time of product delivery to the domestic distributor (i.e. point-in-time), which also corresponds to the passage of legal title to the customer and the satisfaction of our performance obligation to the customer.

~~Share-Based Compensation~~6

~~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,~~Based ~~and is recognized as expense over the requisite service period. Recognition of compensation expense for non-employees is in the same period and manner as if the Company had paid cash for services.~~Compensation

6The Company periodically issues stock options and warrants, and shares of common stock to employees and non-employees in non-capital raising transactions for services and for financing costs. Share-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the requisite service period. Recognition of compensation expense for non-employees is in the same period and manner as if the Company had paid cash for services.

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 November ~~August 31~~30, 2023 and February 28, 2023:

(amounts in thousands)	~~August~~November 3130, 2023
	Level 1		Level 2		Level 3		Total
Liabilities
Derivative warrant liability	$	-	$	-	$	1-	$	1-
Total	$	-	$	-	$	1-	$	1-

	February 28, 2023
	Level 1		Level 2		Level 3		Total
Liabilities
Derivative warrant liability	$	-	$	-	$	9	$	9
Total	$	-	$	-	$	9	$	9

The Company estimated the fair value of the derivative warrant liability using the Binomial Model.

The following table provides a roll-forward of the warrant derivative liability measured at fair value on a recurring basis using unobservable level 3 inputs for the period ended August 31, 2023 as follows:7

(amounts in thousands, except share data)	Number of Derivative Warrants Outstanding		Fair Value of Derivative Warrant Liability
February 28, 2023		113,100	$	9
Change in fair value of derivative warrant liability		-		(8	)
Gain on extinguishment on expiration of warrants		-		-
August 31, 2023		113,100	$	1

(amounts in thousands, except share data)	Number of Derivative Warrants Outstanding		Fair Value of Derivative Warrant Liability
February 28, 2023		113,100	$	9
Change in fair value of derivative warrant liability		-		(9	)
Gain on extinguishment on expiration of warrants		-		-
November 30, 2023		113,100	$	-

Reclassifications

Certain February 28, 2023 balances have been reclassified to conform with the ~~August~~November 3130, 2023 presentation. In presenting the Company’s ~~consolidated~~ balance sheet at February 28, 2023, the Company originally presented accrued interest of $1,389 and accrued payroll and other expenses of $441, totaling $1,830 as a separate line item called Accrued Expenses. In addition, $82 of accrued interest was included in notes payable-related parties, current portion. In presenting the Company’s ~~consolidated~~ balance sheet at ~~August~~November 3130, 2023, the Company has reclassified the balance of accrued interest of $1,~~389~~471 as a separate line item, and the balance of accrued payroll and other expenses of $441 as part of accounts payable and accrued expense and reduced notes payable-related parties, current portion by $82.

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 ~~six~~nine-months ended ~~August~~November 3130, 2023 and ~~August 31,~~ 2022, 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:

	August 31, 2023		August 31, 2022
	November 30, 2023		November 30, 2022
Warrants		3,~~564~~624,764		8,132,498
Options		4,250,000		5,059,769
Convertible notes		3,986,274		3,~~829~~868,~~208~~414
Total		11,~~801~~861,038		17,~~021~~060,~~475~~681

~~Recent Accounting Pronouncements~~8

~~Recently Adopted~~ Recent Accounting Pronouncements

~~In May 2021, the FASB issued~~Recently ~~ASU~~Adopted 2021-04 “Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation— Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options” (“ASU 2021-04”). ASU 2021-04 provides guidance as to how an issuer should account for a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option (i.e., a warrant) that remains equity classified after modification or exchange as an exchange of the original instrument for a new instrument. An issuer should measure the effect of a modification or exchange as the difference between the fair value of the modified or exchanged warrant and the fair value of that warrant immediately before modification or exchange and then apply a recognition model that comprises four categories of transactions and the corresponding accounting treatment for each category (equity issuance, debt origination, debt modification, and modifications unrelated to equity issuance and debt origination or modification). ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the guidance provided in ASU 2021-04 prospectively to modifications or exchanges occurring on or after the effective date. The Company adopted ASU 2021-04 effective March 1, 2022. The adoption of ASU 2021-04 did not have any impact on the Company’s financial statement presentation or disclosures.Pronouncements

8In May 2021, the FASB issued ASU 2021-04 “Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation— Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options” (“ASU 2021-04”). ASU 2021-04 provides guidance as to how an issuer should account for a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option (i.e., a warrant) that remains equity classified after modification or exchange as an exchange of the original instrument for a new instrument. An issuer should measure the effect of a modification or exchange as the difference between the fair value of the modified or exchanged warrant and the fair value of that warrant immediately before modification or exchange and then apply a recognition model that comprises four categories of transactions and the corresponding accounting treatment for each category (equity issuance, debt origination, debt modification, and modifications unrelated to equity issuance and debt origination or modification). ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the guidance provided in ASU 2021-04 prospectively to modifications or exchanges occurring on or after the effective date. The Company adopted ASU 2021-04 effective March 1, 2022. The adoption of ASU 2021-04 did not have any impact on the Company’s financial statement presentation or disclosures.

In September 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires entities to use a forward-looking approach based on current expected credit losses (“CECL”) to estimate credit losses on certain types of financial instruments, including trade receivables. This may result in the earlier recognition of allowances for losses. ASU 2016-13 is effective for the Company beginning March 1, 2023, and early adoption is permitted. The Company adopted ASU 2021-04 effective March 1, 2023. The adoption of ASU 2016-13 did not have any impact on the Company’s financial statement presentation or disclosures.

Other recent accounting pronouncements and guidance issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission (the “SEC”) did not or are not believed by management to have a material impact on the Company’s present or future financial statements.

NOTE 2 – CONVERTIBLE NOTES PAYABLE~~, PAST DUE~~

Convertible notes payable consisted of the following:

	August 31, 2023			February 28, 2023
	November 30, 2023			February 28, 2023
(amounts in thousands)
Convertible notes payable – past due	$	1,403		$	1,403
(a) Convertible notes payable 1 – past due	$	1,403		$	1,403
Non-current		-			-
(b) Convertible notes payable 2		100			-
Current	$	1,403		$	1,403
Total		1,503			1,403
Unamortized debt discount		(5	)		-
Net	$	1,498		$	1,403

(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 tointo shares of common stock at a conversion price of $1.40 per share, as adjusted. The notes were originally due in 2014 to 2017, and were all amended in 2018 and the maturity date for all the notes was changed to January 11, 2023. As February 28, 2023, the outstanding balance of the convertible notes payable amounted to $1,403 and are past due.

~~As of August 31, 2023 and February 28, 2023, the outstanding balance of the convertible notes payable amounted to $1,403 and are past due.~~9

~~NOTE~~(b) 3During –the ~~CONVERTIBLE~~nine ~~NOTE~~months ~~PAYABLE-RELATED PARTY~~ended November 30, ~~PAST~~2023, ~~DUE~~the Company issued five convertible notes payable to unrelated individuals and entities totaling $100,000 in exchange for cash. The notes are unsecured, bear interest at rate of 10% per annum, and mature in March 2024. The notes payable are convertible into shares of common stock at a conversion rate of $0.20 per share.

~~Convertible~~As part of the offering, the Company also granted the note ~~payable~~holders –who ~~related~~participated ~~party~~in ~~consisted~~this offering, warrants to purchase a total of 60,000 shares of common stock, of which, 50,000 were issued to these noteholders. The warrants are fully vested upon grant, expire in 18 months, and are exercisable into shares of common stock at $0.50 per share. The Company recorded a debt discount of $5 to account the relative fair value of the warrants granted. The fair value of the warrants were computed using the BlackScholes Option Pricing Model with the following assumptions: stock price of $0.17; exercise price of $0.50; expected life of 1.5 years; volatility rate of 160%; and discount rate of 5%. The discount will be amortized to interest expense over the expected term of the note payable.

	August 31, 2023		February 28, 2023
(amounts in thousands)
Convertible note payable – past due	$	3,000	$	3,000
Non-current		-		-
Current	$	3,000	$	3,000

As of November 30, 2023, outstanding balance of convertible notes payable amounted to $1,503, of which, $1,403 are past due.

~~On January 24, 2017,~~NOTE ~~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.~~CONVERTIBLE ~~The~~NOTE ~~convertible~~PAYABLE-RELATED ~~note~~PARTY ~~is unsecured, bears interest at 5% per annum, was due February 2, 2023, and is convertible into shares of common stock at a conversion price of $1.40 per share, as adjusted.~~

~~As of August 31, 2023~~Convertible ~~and~~note ~~February~~payable ~~28,~~– ~~2023,~~related ~~the~~party ~~convertible~~consisted ~~note~~ of ~~$3,000~~the ~~and is past due.~~following:

	November 30, 2023		February 28, 2023
(amounts in thousands)
(a) Convertible note payable 1 – past due	$	3,000	$	3,000
(b) Convertible note payable 2		20		-

Non-current		-		-
Current	$	3,020	$	3,000

~~NOTE~~(a) 4On –January ~~NOTES PAYABLE~~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 February 28, 2023, outstanding balance of the convertible note amounted to $3,000 and is past due.

~~Notes~~(b) During the nine months ended November 30, 2023, the Company issued a convertible note payable ~~consisted~~of $20,000 in exchange for cash to a member of the ~~following:~~Company’s Board of Directors. The convertible note is unsecured, bears interest at rate of 10% per annum and will mature in March 2024. The convertible note payable is convertible to common stock at a conversion rate of $0.20 per share. As part of the offering, the Company also granted the note holders who participated in this offering a total of 60,000 warrants, of which, 10,000 warrants were issued to the related party note holder (see Note 2).

(amounts in thousands)	August 31, 2023		February 28, 2023
Secured notes payable
(a) Note payable-EID loan	$	150	$	150
(b) Notes payable-vehicles and equipment		147		188
Unsecured notes payable
(c) Note payable-other		10		10
Total	$	307	$	348
Non-current		214		256
Current		93		92

As of November 30, 2023, outstanding balance of the convertible notes payable-related party amounted to $3,020, of which, $3,000 is past due.

~~(a) Economic Injury Disaster (EID) Loan~~10

~~On July 1, 2020, the Company received a $150 loan~~NOTE ~~under~~4 ~~the~~– ~~United~~NOTES 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.PAYABLE

~~(b)~~ Notes payable~~-vehicle~~ ~~and~~consisted ~~equipment~~of the following:

During Fiscal 2022, the Company issued notes payable to purchase two pieces of equipment and a vehicle for $329. The notes are secured by the equipment and vehicle purchased. One note for $210 is due October 31, 2024, and requires 36 equal monthly payments of approximately $6 each, including interest at 2.9% per annum. The second note for $78 is due January 20, 2027, and requires 72 equal monthly payments of approximately $1.5 each, including interest at 10.9% interest per annum. As of August 31, 2023 and February 28, 2023, the balance of the two notes was $147 and $188, respectively.

(amounts in thousands)	November 30, 2023		February 28, 2023
Secured notes payable
(a) Note payable-EID loan	$	150	$	150
(b) Notes payable-vehicle, equipment and software		278		188

Unsecured notes payable
(c) Note payable-other		10		10
Total	$	438	$	348
Non-current		302		256
Current		136		92

(ca) Economic ~~Note~~Injury ~~payable-other~~Disaster (EID) Loan

AsOn July of1, ~~August 31~~2020, ~~2023~~the ~~and~~Company ~~February~~received ~~28,~~a ~~2023,~~$150 loan under the ~~Company~~ ~~has~~United ~~one~~States ~~note~~Small ~~payable~~Business ~~due~~Administration to(“SBA”) anEconomic ~~individual~~Injury Disaster ~~issued~~Loan in(“EID ~~September~~Loan”) ~~2015~~program. ~~that~~The loan is ~~payable~~due onJuly ~~demand~~1, ~~with~~2050, an interest ~~rate~~accrues ofat 103.75% per annum, and is secured by the assets of the Company.

~~NOTE~~(b) Notes 5payable-vehicle, –equipment ~~NOTES~~and ~~PAYABLE-RELATED PARTIES~~ software

~~Notes~~During Fiscal 2022, the Company issued two notes payable~~-related~~ ~~parties~~to ~~consisted~~purchase ofequipment and a vehicle for $329. The notes are secured by the ~~following:~~equipment and vehicle purchased. The first note for $210 is due October 31, 2024, and requires 36 equal monthly payments of approximately $6, including interest at 2.9% per annum. The second note for $78 is due January 20, 2027, and requires 72 equal monthly payments of approximately $1.5, including interest at 10.9% interest per annum.

(amounts in thousands)	August 31, 2023		February 28, 2023
Unsecured notes payable
(a) Notes payable-Kopple (as restructured)	$	10,855	$	10,915
(b) Note payable- Gagerman		82		82
Accrued interest-Gagerman		85		82
Subtotal-Gagerman		167		164
(c) Note payable-Jiangsu Shengfeng – past due		700		700
Total	$	11,722	$	11,779
Non-current		7,004		7,065
Current	$	4,718	$	4,714

During Fiscal 2024, the Company financed the annual subscription for engineering software for $155. The note is unsecured, due October 15, 2026 and requires 36 equal payments of approximately $5, including interest at 8% per annum.

10As of November 30, 2023 and February 28, 2023, the balance of the three notes was $278 and $188, respectively. These notes payable are secured by the assets of the Company.

(ac) ~~Kopple~~ Note payable-other

InAs of ~~fiscals~~November ~~2013 through 2018~~30, ~~the~~2023 ~~Company issued notes payable to Robert Kopple~~ and ~~associated~~February ~~entities~~28, ~~(collectively~~2023, ~~“Kopple”) in~~ the ~~aggregate~~Company ~~principal~~has ~~amount~~one ofnote ~~$6,107. Robert~~payable ~~Kopple~~due isto ~~the~~an ~~former~~individual ~~Vice-Chairman~~issued ofin ~~the~~September ~~Company’s~~2015 ~~Board~~that ~~of Directors and~~ is ~~a current shareholder in the Company. Between~~payable ~~July~~on ~~2017~~demand ~~and March 2022, the Company was engaged in litigation~~ with ~~Kopple~~an ~~relating to more than $13,000 of principal and accrued~~ interest ~~due~~ ~~under~~rate ~~the notes, and the equivalent~~ of ~~the~~10% ~~approximately~~per ~~23 million warrants~~annum.

On March 14, 2022, the Company reached an agreement with Kopple and resolved all remaining litigation between them, including all amounts owed to Kopple under the notes. Under the terms of the settlement, the Company agreed to issue a new note and pay Kopple an aggregate amount of $10,000, including $3,000 initially due in June 2022, and $1,000 to be paid annually for seven years after the initial $3,000 is paid. Additionally, the settlement agreement granted Koppel a five year, fully vested warrant exercisable into 3,331,664 shares of the Company’s common stock at a price of $0.85 per share with a fair value of $1,100.11

~~The Company assessed the settlement with Kopple~~NOTE ~~under~~5 ~~ASC~~– ~~470~~NOTES ~~and~~PAYABLE-RELATED ~~determined~~PARTIES that the guidance under troubled debt restructuring should apply. The carrying value of the restructured note remains the same as before the restructuring, reduced only by the fair value of the warrants issued in connection with the transaction. The Company determined that the future undiscounted cash flows of the restructured new Kopple note exceeded the carrying value, and accordingly, no gain was recognized, and no adjustment was made to the carrying value of the debt, other than the adjustment for the fair value of the warrants. Interest expense on the new Kopple note is computed using a new effective rate that equates the present value of the future cash payments specified by the new terms with the carrying value of the debt.

~~In June 2022, the first installment of $3,000~~Notes ~~became~~payable-related ~~due,~~parties ofconsisted ~~which $150 was paid and $2,850 is still outstanding. Subsequently, the note was amended several times to extend the payment date~~ of the ~~remaining balance of $2,850 of the initial payment through January 2023, and the Company incurred extension and forbearance fees totaling $335.~~following:

In January 2023, pursuant to the terms of the amended note payable, the Company started accruing interest on the outstanding note balance at a rate of 6% per annum, compounded annually. As of February 28, 2023, outstanding principal balance amounted to $10,915.

(amounts in thousands)	November 30, 2023			February 28, 2023
Unsecured notes payable
(a) Notes payable-Kopple (as restructured)	$	10,938		$	10,915

(b) Note payable- Gagerman		82			82
(c) Note payable-Jiangsu Shengfeng – past due		700			700
Total	$	11,720		$	11,697
Non-current		(7,088	)		(7,065	)
Current	$	4,632		$	4,632

~~During~~ the six months ended August 31, 2023, the note was amended multiple times to extend the payment term of the remaining balance of $2,850 of the initial payment and installment payment of $1,000, originally due in June 2023, through August 1, 2023. As (a) ~~result~~Kopple of these amendments, the Company incurred extension and forbearance fees totaling $390. In addition, the Company recorded a reduction of $60 to the note to adjust stated interest of 6% to an effective interest rate of 4.5%. As of August 31, 2023, outstanding balance of the note payable amounted to $10,855.Note

~~Subsequent~~In fiscals to2013 ~~August~~through 312018, ~~2023,~~ the Company ~~and~~issued ~~Kopple have~~notes ~~agreed~~payable into ~~principle~~Robert ~~for~~Kopple ~~another~~and ~~extension~~associated ofentities (collectively “Kopple”) in the ~~deadline~~aggregate ~~for~~principal ~~payment~~amount of ~~the~~ $26,~~850~~107. ofRobert ~~the~~Kopple ~~initial~~is ~~payment~~the ~~and~~former ~~installment~~Vice-Chairman ~~payment~~ of ~~$1,000~~the ~~and~~Company’s ~~intend~~Board toof ~~memorialize~~Directors ~~such~~and is ana ~~agreement~~current shareholder in ~~writing~~the byCompany. ~~end~~Between ofJuly ~~October~~2017 ~~2023.~~and ~~Such~~March ~~further~~2022, ~~amendment~~the ~~will~~Company ~~also~~was ~~indicate~~engaged ~~that by~~in ~~such~~litigation ~~extension,~~with ~~the~~Kopple ~~Company~~relating to ismore ~~not~~than in$13,000 ~~default~~ of ~~the~~principal ~~agreement~~and asaccrued ofinterest ~~August~~due ~~31,~~under ~~2023~~the notes, and ~~through~~ the ~~date~~equivalent ~~that~~of the ~~financial~~approximately ~~statements are~~23 ~~issued~~million warrants.

11On March 14, 2022, the Company reached an agreement with Kopple and resolved all remaining litigation between them, including all amounts owed to Kopple under the notes. Under the terms of the settlement, the Company agreed to issue a new note and pay Kopple an aggregate amount of $10,000, including $3,000 initially due in June 2022, and $1,000 to be paid annually for seven years after the initial $3,000 is paid. Additionally, the settlement agreement granted Koppel a five year, fully vested warrant exercisable into 3,331,664 shares of the Company’s common stock at a price of $0.85 per share with a fair value of $1,100.

The Company ~~settlement~~assessed ~~agreement~~the settlement with Kopple ~~provides for~~under ~~certain~~ASC ~~increases~~470 inand ~~the~~determined ~~amounts~~that ~~payable~~the toguidance ~~Kopple~~under ~~and~~troubled ~~the~~debt ~~right~~restructuring ofshould ~~such~~apply. The ~~parties~~carrying tovalue ~~enter~~of athe ~~judgement~~restructured ~~against~~note remains the ~~Company~~same ifas before the ~~Company remains~~restructuring, inreduced ~~unsecured~~only ~~default~~by inthe ~~its~~fair ~~payment~~value ~~obligations.~~of ~~Pursuant~~the towarrants issued ~~the~~in ~~settlement~~connection ~~agreement,~~with the ~~Company~~transaction. isThe ~~also~~Company ~~subject~~determined tothat ~~certain affirmative~~the ~~and~~future ~~negative~~undiscounted ~~covenants~~cash ~~such~~flows asof ~~periodic~~the ~~submission~~restructured ofnew ~~financial~~Kopple note ~~statements~~exceeded tothe ~~Koppel~~carrying value, and ~~restrictions~~accordingly, onno ~~future~~gain ~~financing and~~was ~~investing activities~~recognized, asand ~~defined~~no inadjustment ~~the~~was ~~agreement,~~made ~~including~~to the ~~covenant~~carrying tovalue ~~not~~of ~~create~~the ~~any~~debt, other ~~indebtedness~~than ~~that~~the isadjustment ~~senior~~for inthe ~~right~~fair value of ~~payment~~ to the ~~Kopple debt~~warrants. ~~Management~~Interest ~~believes~~expense ~~such~~on ~~covenants~~the ~~are~~new ~~normal~~Kopple ~~for~~note ~~this~~is ~~type~~computed ofusing ~~transaction~~a ~~and~~new effective rate that ~~management~~equates ~~believes~~the ~~meeting these~~present ~~covenants~~value ~~will~~of ~~not~~the ~~affect~~future ~~operations~~cash ~~and~~payments ~~the~~specified ~~Company~~by ~~was~~the innew ~~compliance~~terms with ~~all~~the ~~covenants~~carrying asvalue of ~~August~~the ~~31, 2023~~debt.

~~(b)~~In June ~~Note~~2022, the first installment of $3,000 became due, of which $150 was paid and $2,850 is still outstanding. Subsequently, the note was amended several times to extend the payment date of the remaining balance of $2,850 of the initial payment through January 2023, and the Company incurred extension and forbearance fees totaling $335.In January 2023, pursuant to the terms of the amended note payable~~-Gagerman~~, the Company started accruing interest on the outstanding note balance at a rate of 6% per annum, compounded annually. As of February 28, 2023, outstanding principal balance amounted to $10,915.

Melvin Gagerman, the Company’s former CEO and CFO whose employment was permanently terminated in July 2019, claims that in April 2014 the Company issued an unsecured demand promissory note to him in the amount of $82 that bears interest at a rate of 10% per annum. Gagerman claims that this note has not been repaid to date and is now owed.12

~~In June 2022, Gagerman~~During ~~brought suit against~~ the ~~Company~~nine ~~for~~months ~~repayment~~ended ofNovember ~~this alleged note. Despite the fact that~~30, ~~based on Gagerman’s allegations~~2023, the note was ~~issued~~again ~~during~~amended amultiple ~~period~~times ~~when~~to ~~Gagerman~~extend ~~was~~ the ~~Company’s~~payment ~~CEO,~~term ~~CFO, Corporate Secretary and Chairman~~ of the ~~Company’s Board~~remaining balance of ~~Directors~~$2,850 ~~Gagerman~~of ~~has~~the ~~stated~~initial ~~that~~payment heand ~~does~~installment ~~not~~payment ~~possess a copy~~ of ~~the~~$1,000, ~~alleged~~originally ~~promissory~~due ~~note.~~in ~~The~~June ~~Company~~2023, ~~disputes~~through ~~that~~August ~~any amount~~1, is2023. ~~presently~~As ~~owed~~a toresult of ~~Gagerman.~~these ~~Additionally~~amendments, the Company ~~has~~incurred ~~filed~~additional aextension ~~cross-complaint~~and ~~against~~forbearance ~~Gagerman~~fees ~~for,~~totaling ~~among~~$390 ~~things, conversion, violation of California Business & Professions Code §17200,~~ and ~~various~~adjustment ~~breaches~~to ofprincipal ~~fiduciary duty that the Company believes~~balance ~~Gagerman~~of ~~committed against the Company~~$23.

~~Although the Company~~As ~~disputes~~of ~~Gagerman’s~~November ~~claims~~30, ~~under~~2023, the ~~guidance~~outstanding ofprincipal ~~ASC~~balance ~~450~~of –amounted ~~Contingencies~~to $10,938. ~~the~~As ~~Company~~of ~~has~~November ~~recorded~~30, 2023 and the ~~claimed~~date ~~notes~~of this report, ~~payable~~the Company and ~~accrued~~Kopple ~~interest~~are currently in negotiations for another extension of ~~approximately~~the deadline for payment of the $~~167~~3,850, consisting of the $2,850 initial payment and the installment payment of $~~164~~1,000. Currently, Kopple has agreed in principle that such further amendment will also indicate that the Company is not in default of the agreement as of ~~August~~November 3130, 2023, and ~~February~~through ~~28,~~the ~~2023,~~date ~~respectively~~that the financial statements are issued. Based upon the foregoing no adjustments have been made to reflect the Kopple debt in default.

~~(c)~~The settlement ~~Jiangsu~~agreement ~~Shengfeng~~with Kopple provides for certain increases in the amounts payable to Kopple and the right of such parties to enter ~~Note~~a judgement against the Company if the Company remains in unsecured default in its payment obligations. Pursuant to the settlement agreement, the Company is also subject to certain affirmative and negative covenants such as periodic submission of financial statements to Koppel 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 operations and the Company.

~~On November 20, 2019, the Company reached an agreement~~(b) ~~with~~Note ~~a former joint venture partner Jiangsu Shengfeng regarding the return of $700 that had been advanced to the Company in prior years. As a result, in November 2019, the Company issued a non~~payable-~~interest-bearing promissory note for $700 to be paid over an 11-month period beginning March 15, 2020, through February 15, 2021.~~Gagerman

AsMelvin Gagerman, ofthe ~~August~~Company’s ~~31,~~former ~~2023~~CEO and ~~February~~CFO ~~28,~~whose ~~2023~~employment was permanently terminated in July 2019, ~~the~~claims that in April 2014 ~~principal~~the ~~due~~Company ~~was~~issued an unsecured demand promissory note to him in the amount of $~~700,~~82 that bears interest at a rate of 10% per annum. Gagerman claims that this note has not been repaid to date and ~~was~~is ~~past~~now ~~due~~owed.

~~NOTE~~In June 62022, –Gagerman ~~ACCRUED~~brought ~~INTEREST~~suit against the Company for repayment of this alleged note. Despite the fact that, based on Gagerman’s allegations, the note was issued during a period when Gagerman was the Company’s CEO, CFO, Corporate Secretary and Chairman of the Company’s Board of Directors, Gagerman has stated that he does not possess a copy of the alleged promissory note. The Company disputes that any amount is presently owed to Gagerman. Additionally, the Company has filed a cross-complaint against Gagerman for, among things, conversion, violation of California Business & Professions Code §17200, and various breaches of fiduciary duty that the Company believes Gagerman committed against the Company.

~~Accrued~~Although the ~~expenses~~Company ~~consisted~~disputes Gagerman’s claims, under the guidance of ASC 450 – Contingencies, the ~~following:~~Company has recorded the claimed note payable $82 and corresponding accrued interest.

	August 31, 2023		February 28, 2023
(amounts in thousands)
Accrued interest-convertible notes payable (past due)	$	389	$	354
Accrued interest-convertible notes payable related party (past due)		789		713
Accrued interest and fees- Kopple note payable (related party)		912		282
Accrued interest-notes payable		21		23
Accrued interest- other		18		17
	$	2,129	$	1,389

12On November 20, 2019, the Company reached an agreement with a former joint venture partner Jiangsu Shengfeng regarding the return of $700 that had been advanced to the Company in prior years. As a result, in November 2019, the Company issued a non-interest-bearing promissory note for $700 to be paid over an 11-month period beginning March 15, 2020, through February 15, 2021. As of November 30, 2023 and February 28, 2023, the outstanding balance of this note payable amounted to $700.

~~NOTE~~The Company 7is –currently ~~LEASES~~in negotiations with the noteholder to settle or extinguish the note payable.

Our administrative and production operations including warehousing, are housed in an approximately 18,000 square foot facility in Lake Forest, California. The Lake Forest lease is for 66-months effective February 2021 through August 31, 2026. The initial monthly base rental rate was approximately $22 per month and escalates 3% each year to approximately $26 per month in 2026. The lease liability was determined by discounting the future lease payments under the lease terms using a 10% per annum discount rate to arrive at the current lease liability.13

~~Operating~~NOTE ~~lease~~6 ~~right-of-use~~– ~~(“ROU”) assets~~ACCRUED 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.INTEREST

~~The~~Accrued ~~components~~interest consisted of ~~lease expense and supplemental cash flow information related to leases for~~ the ~~period are as follows~~following:

(amounts in thousands)	Six-Months ended August 31, 2023			Six-Months ended August 31, 2022
	November 30, 2023			February 28, 2023
Lease Cost
(amounts in thousands)
Operating lease cost (included in general and administration in the Company’s statement of operations)	$	139		$	139
Convertible notes payable (past due)	$	408		$	354
Other Information
Convertible notes payable related party (past due)		826			713
Cash paid for amounts included in the measurement of lease liabilities	$	141		$	137
Notes payable (related party)		1,145			364
Weighted average remaining lease term – operating leases (in years)		3.00			4.00
Notes payable		21			23
Average discount rate – operating leases		10.0	%		10.0	%
Other		-			17
	$	2,400		$	1,471

~~The~~NOTE ~~supplemental~~7 ~~balance~~– ~~sheet information related to leases for the period is as follows:~~LEASES

	At August 31, 2023
Operating leases
Long-term right-of-use assets	$	717
Short-term operating lease liabilities	$	222
Long-term operating lease liabilities		545
Total operating lease liabilities	$	767

~~Maturities~~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 ~~liability~~payments arising from the lease. Generally, the implicit rate of interest in arrangements is asnot ~~follows:~~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.

	Operating Lease
Years Ending February 28:
2024 (6 months remaining)	$	141
2025		291
2026		300
2027		154
Total lease payments		886
Less: Imputed interest/present value discount		(119	)
Present value of lease liabilities	$	767

The components of lease expense and supplemental cash flow information related to leases for the period are as follows:

(amounts in thousands)	Nine-Months ended November 30, 2023			Nine-Months ended November 30, 2022
Lease Cost
Operating lease cost (included in general and administration in the Company’s statement of operations)	$	209		$	209

Other Information
Cash paid for amounts included in the measurement of lease liabilities	$	212		$	206
Weighted average remaining lease term – operating leases (in years)		2.75			3.75
Average discount rate – operating leases		10.0	%		10.0	%

~~NOTE 8 – DERIVATIVE WARRANT LIABILITY~~14

InThe ~~prior~~supplemental ~~years~~balance ~~the~~sheet ~~Company~~information ~~issued~~related ~~warrants that include a fundamental transaction provision that could give rise~~ to anleases ~~obligation to pay cash to the warrant holder. The Company determined that the warrants do not satisfy the criteria~~ for ~~classification as equity instruments due to~~ the ~~existence of the cash settlement feature~~ ~~that~~period is ~~not within the sole control of the Company, and the warrants are accounted for~~ as liabilities in accordance with ASC 815. The fair value of the warrants is remeasured at each reporting period, and the change in the fair value is recognized in earnings in the accompanying statements of operations. The warrant liability will ultimately be converted into the Company’s equity when the warrants are exercised or will be extinguished upon the expiration of the outstanding warrants.follows:

The following tables summarize the derivative warrant liability:

	At November 30, 2023
Operating leases
Long-term right-of-use assets	$	660

Short-term operating lease liabilities	$	230
Long-term operating lease liabilities		485
Total operating lease liabilities	$	715

(amounts in thousands, except share and per share data)	August 31, 2023			February 28, 2023
Stock price	$	0.20		$	0.25
Risk free interest rate		5.2	%		4.7	%
Expected volatility		171	%		190	%
Expected life in years		0.46			0.97
Expected dividend yield		0	%		0	%
Number of warrant shares		113,100			113,100
Fair value of derivative warrant liability	$	1		$	9

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

	Number of Derivative Warrants Outstanding			Fair Value of Derivative Warrant Liability
	Operating Lease
February 28, 2023		113,100		$	9
Years Ending February 28:
Change in fair value of derivative warrant liability		-			(8	)
2024 (3 months remaining)	$	70
Gain on extinguishment on expiration of warrants		-			-
2025		291
August 31, 2023		113,100		$	1
2026		300
2027		154
Total lease payments		815
Less: Imputed interest/present value discount		(100	)
Present value of lease liabilities	$	715

NOTE 98 – ~~SHAREHOLDERS’~~DERIVATIVE ~~DEFICIT~~WARRANT LIABILITY

~~Common~~In ~~Stock~~prior years the Company issued warrants that include a fundamental transaction provision that could give rise to an obligation to pay cash to the warrant holder. The Company determined that the warrants do not satisfy the criteria for classification as equity instruments due to the existence of the cash settlement feature that is not within the sole control of the Company, and the warrants are accounted for as liabilities in accordance with ASC 815. The fair value of the warrants is remeasured at each reporting period, and the change in the fair value is recognized in earnings in the accompanying statements of operations. The warrant liability will ultimately be converted into the Company’s equity when the warrants are exercised or will be extinguished upon the expiration of the outstanding warrants.

~~During~~The ~~the~~following ~~six-months~~tables ~~ended~~summarize ~~August 31, 2023,~~ the derivative ~~Company~~warrant ~~issued 4,877,271 shares of common stock for approximately $1,610 in cash.~~liability:

During the six-months ended August 31, 2022 the Company issued 6,060,333 shares of common stock for approximately $1,669.

(amounts in thousands, except share and per share data)	November 30, 2023			February 28, 2023
Stock price	$	0.17		$	0.25
Risk free interest rate		5.2	%		4.7	%
Expected volatility		171	%		190	%
Expected life in years		0.21			0.97
Expected dividend yield		0	%		0	%
Number of warrant shares		113,100			113,100
Fair value of derivative warrant liability	$	-		$	9

~~Stock Options~~15

A summary of the Company’s stock option activity for the six-months ended August 31, 2023 is as follows:

	Number of Derivative Warrants Outstanding		Fair Value of Derivative Warrant Liability
February 28, 2023		113,100	$	9
Change in fair value of derivative warrant liability		-		(9	)
Gain on extinguishment on expiration of warrants		-		-
November 30, 2023		113,100	$	-

(amounts in thousands, except share and per share data)	Number of Options			Exercise Price		Weighted Average Intrinsic Value
Outstanding, February 28, 2023		4,792,857		$	0.48	$	-
Granted		-			-		-
Exercised		-			-		-
Cancelled		(542,857	)		1.40		-
Outstanding, August 31, 2023		4,250,000		$	0.37	$	-

NOTE 9 – SHAREHOLDERS’ DEFICIT

14Common Stock

~~There~~During ~~was~~the nonine-months ~~intrinsic~~ended ~~value~~November ~~as of August 31~~30, 2023, as the ~~exercise~~Company ~~prices~~issued of6,593,940 ~~these~~shares ~~options were greater than the market price~~ of ~~the~~common ~~Company’s~~ stock. ~~The~~for ~~exercise~~approximately ~~prices and information related to options under the 2011 Plan outstanding on August 31~~$2,177 ~~2023~~in isnet ~~as follows:~~cash.

Range of Exercise Price		Stock Options Outstanding				Stock Options Exercisable				Weighted Average Remaining Contractual Life				Weighted Average Exercise Price of Options Outstanding				Weighted Average Exercise Price of Options Exercisable
$0.25 to $1.40			4,250,000				4,250,000				2.16			$	0.37			$	0.37

During the nine-months ended November 30, 2022 the Company issued 9,497,425 shares of common stock for approximately $2,600 in net cash.

~~The~~Stock ~~Company granted no stock options under its stock option 2011 Plan for the six-month period ended August 31, 2023 and the six-month period ended August 31, 2022.~~Options

~~Warrants~~A summary of the Company’s stock option activity for the nine-months ended November 30, 2023 is as follows:

A summary of the Company’s warrant activity for the six-months ended August 31, 2023 is as follows:

(amounts in thousands, except share and per share data)	Number of Options			Exercise Price		Weighted Average Intrinsic Value
Outstanding, February 28, 2023		4,792,857		$	0.48	$	-
Granted		-			-		-
Exercised		-			-		-
Cancelled		(542,857	)		1.40		-
Outstanding, November 30, 2023		4,250,000		$	0.37	$	-

	Number of Warrants		Exercise Price
Outstanding, February 28, 2023		3,564,764	$	0.86
Granted		-		-
Exercised		-		-
Cancelled		-		-
Outstanding, August 31, 2023		3,564,764	$	0.86

There was no intrinsic value as of November 30, 2023, 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 November 30, 2023 is as follows:

There was no intrinsic value as of August 31, 2023, 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, 2023 is 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				4,250,000				4,250,000				1.92			$	0.37			$	0.37

Range of Exercise Price		Stock Warrants Outstanding				Stock Warrants Exercisable				Weighted Average Remaining Contractual Life				Weighted Average Exercise Price of Warrants Outstanding				Weighted Average Exercise Price of Warrants Exercisable
$0.50 to $1.40			3,564,764				3,564,764				5.33			$	0.86			$	0.86

The Company granted no stock options under its stock option 2011 Plan for the nine-month period ended November 30, 2023 and the nine-month period ended November 30, 2022.

In March 2022, pursuant to an agreement with a note holder (see Note 5), the Company issued to Mr. Kopple 3,331,664 warrants to purchase the Company’s common stock with a term of 7 years and at an exercise price of $0.85 per share. The Company determined the fair value of the Kopple Warrants was $1,051 using a Black-Scholes model using the assumptions as set forth in the table below:16

Warrants issued during the Six-Months Ended August 31, 2022
Exercise Price	$	0.85
Share Price	$	0.317
Volatility %		225	%
Risk-Free Rate		1.98	%
Expected Term (yrs.)		7.0
Dividend Rate		0	%

Warrants

15A summary of the Company’s warrant activity for the nine-months ended November 30, 2023 is as follows:

NOTE 10 – RELATED PARTY TRANSACTIONS

	Number of Warrants		Exercise Price
Outstanding, February 28, 2023		3,564,764	$	0.86
Granted		60,000		0.50
Exercised		-		-
Cancelled		-		-
Outstanding, November 30, 2023		3,624,764	$	0.85

AsThere ofwas ~~August~~no ~~31,~~intrinsic ~~2023~~value ~~and~~as ~~February~~of ~~28,~~November 30, 2023, ~~Bettersea LLC~~as ~~(“Bettersea”)~~the ~~was~~exercise anprices ~~9.2%~~of ~~and~~these ~~9.7%,~~warrants ~~respectively,~~were ~~shareholder~~greater inthan the market price of the Company’s stock. The exercise prices and information related to the warrants as of November 30, 2023 is as follows:

For the six-months ended August 31, 2023 and August 31, 2022, the Company incurred total fees to Bettersea of $88 and $69, respectively, for various consulting services.

Range of Exercise Price				Stock Warrants Outstanding				Stock Warrants Exercisable				Weighted Average Remaining Contractual Life				Weighted Average Exercise Price of Warrants Outstanding				Weighted Average Exercise Price of Warrants Exercisable
	$0.50 to $1.40				3,624,764				3,564,764				5.02			$	0.85			$	0.85

AsIn ofMarch ~~August 31~~2022, ~~2023~~pursuant ~~and~~to ~~February~~an 28agreement with a note holder (see Note 5), ~~2023~~the Company issued to Mr. Kopple 3,331,664 warrants to purchase the Company’s common stock with a term ~~total~~of 7 years and at an exercise price of $~~229~~0.85 ~~and~~per share. The Company determined the fair value of the Kopple Warrants was $~~216~~1,051 ~~respectively,~~using a ~~was~~Black-Scholes ~~due~~model tousing ~~Bettersea~~the ~~and~~assumptions ~~included~~as inset ~~accounts~~forth ~~payable~~in ~~and~~the ~~accrued~~table ~~expenses.~~below:

NOTE 11 – CONTINGENCIES

Warrants issued during the Nine-Months Ended November 30, 2022
Exercise Price	$	0.85
Share Price	$	0.317
Volatility %		225	%
Risk-Free Rate		1.98	%
Expected Term (yrs.)		7.0
Dividend Rate		0	%

~~The~~NOTE ~~Company~~10 – isRELATED ~~subject~~PARTY 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.TRANSACTIONS

InAs ~~2017,~~of ~~the~~November ~~Company’s~~30, ~~former~~2023 ~~COO was awarded approximately $238 in accrued salary~~ and ~~related~~February ~~charges by the California labor board. In August 2021~~28, ~~the Company reached a settlement~~2023, byBettersea ~~which~~LLC ~~the~~(“Bettersea”) ~~Company~~was ~~agreed~~an to9% ~~pay~~and ~~approximately $330~~10%, ~~representing the principal award plus accrued interest. As of the time of this filing~~respectively, ~~the~~shareholder ~~Company~~in ~~has paid approximately $292 toward~~ the ~~settlement amount~~Company. ~~The remaining balance of approximately $38 is to be paid no later than December 31, 2023, and accrues interest of 10% per annum until paid.~~

~~Between~~For ~~July 2017 and March 2022,~~ the ~~Company was~~nine-months ~~engaged~~ended inNovember ~~litigation with a former director~~30, ~~Robert~~2023 ~~Kopple, relating to more than $13,000~~ and ~~the current equivalent of the approximately~~ 23November ~~million warrants~~30, exercisable for seven years at a price of $0.10 per share, which Mr. Kopple and his affiliated entities (collectively “Kopple”) claimed should have been originally issued to them pursuant to various agreements with the Company entered into between 2013-2016. In March 2022, the Company ~~reached~~incurred atotal ~~settlement~~fees (the “Binding Term Sheet”) with Kopple that resolved all claims asserted against the Company without any admission, concession or finding of any fault, liability, or wrongdoing on the part of the Company. Under the terms of the settlement, the Company agreed to ~~pay~~Bettersea ~~an aggregate amount~~ of $~~10,000~~117 ~~over a period of seven years, including $3,000 initial payment to be paid in June 2022. $150 was paid in June 2022,~~ and ~~the balance of the initial payment of~~ $2119,~~850 was~~ ~~extended to August 1~~respectively, ~~2023. The Company and Koppel have agreed in principle to another extension of the deadlines~~ for ~~payments~~various ~~owed by~~consulting ~~the Company to Kopple and intend to memorialize such an agreement in writing on or before October 31, 2023~~services. Such further amendment will also indicate that by such extension the Company is not in default on the Binding Term Sheet as of September 30, 2023, and through the date that the financial statements are issued. All amounts, including all accrued interest and deferred fees, are to be paid no later than eight years from the date of the initial payment. The settlement also provides for standard mutual general release provisions and includes customary representations, warranties, and covenants, including certain increases in the amount payable to the Kopple Parties and the right of such parties to enter judgment against the Company if the Company remains in uncured default in its payment obligations under the settlement (see Note 5).

16As of November 30, 2023 and February 28, 2023, a total of $222 and $223, respectively, was due to Bettersea and included in accounts payable and accrued expenses.

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.17

InNOTE ~~June~~11 ~~2022,~~– Melvin Gagerman, the Company’s former CEO and CFO whose employment with Aura was permanently terminated in July 2019, brought suit against the Company for repayment of an allegedly unsecured demand promissory note in the principal amount of $82 which he claims was entered into in April 2014 and bears interest at a rate of 10% per annum. Despite the fact that, based on Gagerman’s allegations, the note was issued during a period when he was the Company’s CEO, CFO, Corporate Secretary and Chairman of Aura’s Board of Directors, Gagerman has stated that he does not possess a copy of the alleged promissory note. The Company disputes that any amount is presently owed to Gagerman and has filed a cross-complaint against him for, among things, conversion, violation of California Business& Professions Code §17200, and various breaches of fiduciary duty that the Company believes Gagerman committed against Aura, including without limitation, Gagerman’s actions in opposing the valid 2019 stockholder consent action.CONTINGENCIES

~~NOTE~~The ~~12 –~~Company ~~SUBSEQUENT~~is ~~EVENTS~~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.

~~Subsequent~~In to2017, the Company’s former COO was awarded approximately $238 in accrued salary and related charges by the California labor board. In August 312021, ~~2023,~~ the Company ~~issued~~reached a settlement ~~796~~by which the Company agreed to pay approximately $330,~~972~~ ~~shares~~representing ofthe ~~common~~principal ~~stock~~award inplus ~~exchange~~accrued ~~for~~interest. ~~cash~~As ~~proceeds~~of the time of this filing, the Company has paid approximately $~~263~~318 toward the settlement amount. The remaining balance of approximately $12 is to be paid no later than January 31, 2024, and accrues interest of 10% per annum until paid.

17Between July 2017 and March 2022, the Company was engaged in litigation with a former director, Robert Kopple, relating to more than $13,000 and the current equivalent of the approximately 23 million warrants, exercisable for seven years at a price of $0.10 per share, which Mr. Kopple and his affiliated entities (collectively “Kopple”) claimed should have been originally issued to them pursuant to various agreements with the Company entered into between 2013 and 2016. In March 2022, the Company reached a settlement (the “Binding Term Sheet”) with Kopple that resolved all claims asserted against the Company without any admission, concession or finding of any fault, liability, or wrongdoing on the part of the Company. Under the terms of the settlement, the Company agreed to pay an aggregate amount of $10,000 over a period of seven years, including $3,000 initial payment to be paid in June 2022. $150 was paid in June 2022, and the balance of the initial payment of $2,850 was extended to August 1, 2023. The Company and Koppel have agreed in principle to another extension of the deadlines for payments owed by the Company to Kopple and intend to memorialize such an agreement in writing in January 2024. Such further amendment will also indicate that by such extension the Company is not in default on the Binding Term Sheet as of November 30, 2023, and through the date that the financial statements are issued. All amounts, including all accrued interest and deferred fees, are to be paid no later than eight years from the date of the initial payment. The settlement also provides for standard mutual general release provisions and includes customary representations, warranties, and covenants, including certain increases in the amount payable to the Kopple Parties and the right of such parties to enter judgment against the Company if the Company remains in uncured default in its payment obligations under the settlement (see Note 5).

In June 2022, Melvin Gagerman, the Company’s former CEO and CFO whose employment with Aura was permanently terminated in July 2019, brought suit against the Company for repayment of an allegedly unsecured demand promissory note in the principal amount of $82 which he claims was entered into in April 2014 and bears interest at a rate of 10% per annum. Despite the fact that, based on Gagerman’s allegations, the note was issued during a period when he was the Company’s CEO, CFO, Corporate Secretary and Chairman of Aura’s Board of Directors, Gagerman has stated that he does not possess a copy of the alleged promissory note. The Company disputes that any amount is presently owed to Gagerman and has filed a cross-complaint against him for, among things, conversion, violation of California Business& Professions Code §17200, and various breaches of fiduciary duty that the Company believes Gagerman committed against Aura, including without limitation, Gagerman’s actions in opposing the valid 2019 stockholder consent action.

NOTE 12 – SUBSEQUENT EVENTS

Subsequent to November 30, 2023, the Company issued 766,668 shares of common stock in exchange for cash proceeds of approximately $253.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

Forward Looking Statements

This Report contains forward-looking statements within the meaning of the federal securities laws. Statements other than statements of historical fact included in this Report, including the statements under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” regarding future events or prospects are forward-looking statements. The words “approximates,” “believes,” “forecasts,” “expects,” “anticipates,” “estimates,” “intends,” “plans” “would,” “could,” “should,” “seek,” “may,” or other similar expressions in this Report, as well as other statements regarding matters that are not historical fact, constitute forward-looking statements. We caution investors that any forward-looking statements presented in this Report are based on the beliefs of, assumptions made by, and information currently available to, us. Such statements are based on assumptions and the actual outcome will be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control or ability to predict. Although we believe that our assumptions are reasonable, they are not guarantees of future performance and some will inevitably prove to be incorrect. As a result, our actual future results may differ from our expectations, and those differences may be material. Accordingly, investors should use caution in relying on forward-looking statements to anticipate future results or trends.

Some of the risks and uncertainties that may cause our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include the following:

●

Our ability to generate positive cash flow from operations;

●

Our ability to obtain additional financing to fund our operations;

●

The impact of economic, political and market conditions on us and our customers;

●

The impact of unfavorable results of legal proceedings;

●

Our exposure to potential liability arising from possible errors and omissions, breach of fiduciary duty, breach of duty of care, waste of corporate assets and/or similar claims that may be asserted against us;

●

Our ability to compete effectively against competitors offering different technologies;

●

Our business development and operating development;

●

Our expectations of growth in demand for our products; and

●

Other risks described under the heading “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q and those risks discussed in our other filings with the Securities and Exchange Commission, including those risks discussed under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended February 28, 2023, issued on May 26, 2023 (as the same may be updated from time to time in subsequent quarterly reports), which discussion is incorporated herein by this reference.

We do not intend to update or revise any forward-looking statements, whether because of new information, future events or otherwise except to the extent required by law. You should interpret all subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf as being expressly qualified by the cautionary statements in this Report. As a result, you should not place undue reliance on these forward-looking statements.

1820

Overview

Our business is based on the exploitation of our Axial Flux Induction solution known as the AuraGen^® for commercial and industrial applications and the VIPER for military applications. Our business model consists of two major components: (i) sales and marketing, (ii) design and engineering. Our sales and marketing approaches are composed of direct sales in North America and the use of agents and distributors in other areas. In North America, our primary focus is in (a) mobile exportable power applications, (b) EV applications, (c) U.S. Military applications and (d) industrial applications. The second component of our business model is focused on the design of new products and engineering support for the sales activities described above. The engineering support consists of the introduction of new features for our AuraGen^®/VIPERsolution such as higher power/torque solutions, and different input and output voltages (DC and AC input and output versions).

In Fiscal 2020 stockholders of the Company successfully removed Ronald Buschur, William Anderson and Si Ryong Yu from the Company’s Board of Directors and elected Ms. Cipora Lavut, Mr. David Mann and Dr. Robert Lempert as directors of the Company in their stead. See Item 3, Legal Proceedings for more information. Also, in Fiscal 2020, Melvin Gagerman –– Aura’s CEO and CFO since 2006 –– was replaced. In July 2019 Ms. Lavut succeeded Mr. Gagerman as President and Mr. Mann succeeded Mr. Gagerman as CFO. Dr. Lempert was appointed as Secretary of the Company by the Board of Directors also in July 2019. In the second half of Fiscal 2020, the Company began significantly increasing its engineering, manufacturing and marketing activities. From July 8, 2019 through the end of Fiscal year 2022 (February 28, 2022), we shipped more than 140 units to customers (more than a ten-fold increase over Fiscal 2019). Although our operations were impacted in Fiscal 2022 and Fiscal 2021 by the COVID-19 pandemic, during these periods we continued to expand our engineering and manufacturing capabilities. See “Item 1. Business. Impact of the COVID-19 Pandemic” included in our Annual Report on Form 10-K for fiscal 2022 for information regarding the impact of COVID-19 on our operations. Our engineering, research and development costs for the ~~six~~nine months ended ~~August~~November 3130, 2023, ~~and~~ and the ~~six~~nine months ended ~~August~~November 3130, 2022 were approximately $~~494~~228 and $411, respectively. During the three months ended May 31, 2021, we relocated all administrative offices and operations to a new state-of-the-art facility consisting of approximately 18,000 square feet in Lake Forest, California. This new facility is wholly occupied by Aura.

During Fiscal 2018 and Fiscal 2019, the Company’s engineering, manufacturing, sales, and marketing activities were reduced while we focused on renegotiating numerous financial obligations. During this time, the Company’s agreements with numerous customers, third party vendors, and organizations and entities material to the operation of the Company business were canceled, delayed or terminated. During Fiscal 2018, the Company successfully restructured in excess of $30,000 of debt. Robert Kopple, our former Vice Chairman of the Board, was the only significant unsecured note holder that did not executed formal agreements regarding the restructure of his debt. See “Item 3. Legal Proceedings” included in our Annual Report on Form 10-K for Fiscal 2022 filed with the SEC on June 21, 2022, and Part II, Other Information Item 1, contained in this Quarterly Report for information regarding the dispute and settlement with Mr. Kopple regarding these transactions. In March 2022, the Company reached a settlement that resolves the various claims asserted against us by Mr. Kopple and his affiliated entities (collectively the “Kopple Parties”). Under the terms of the settlement, we have agreed to pay an aggregate amount of $10,000 over a period of seven years; $3,000 of which is to be paid within approximately four months of the settlement date, after which, interest will accrue on the unpaid balance at a rate of 6%, compounded annually. All amounts, including all accrued interest, are to be paid no later than eight years from the date of the initial payment. The Kopple Parties have also received seven-year warrants to purchase up to an aggregate of 3,331,664 shares of our common stock at a price of $0.85 per share. The settlement also provides for standard mutual general release provisions and includes customary representations, warranties, and covenants, including certain increases in the amount payable to the Kopple Parties and the right of such parties to enter judgment against the Company if the Company remains in uncured default in its payment obligations under the settlement.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial conditions and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of financial statements requires management to make estimates and disclosures on the date of the financial statements. In preparing our financial statements, we have made our best estimates and judgments of certain amounts included in the financial statements. We use authoritative pronouncements, historical experience and other assumptions as the basis for making judgments. For these key estimates and assumptions, we made appropriate accounting estimates based on the facts and circumstances available as of the reporting date. To the extent that there are significant differences between these estimates and actual results, our financial statements may be materially affected. Significant estimates include assumptions made for inventory reserve, impairment testing of long-lived assets, the valuation allowance for deferred tax assets, assumptions used in valuing 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. There were no changes to our critical accounting policies described in the ~~consolidated~~ financial statements included in our Annual Report on Form 10-K for the fiscal year ended February 28, 2023, that impacted our condensed financial statements and related notes included herein.

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. In accordance with ASC 606, we recognize revenue, net of discounts, for our generator sets at time of product delivery to the domestic distributor (i.e. point-in-time), which also corresponds to the passage of legal title to the customer and the satisfaction of our performance obligations to the customer.

Inventories

Inventories are valued at the lower of cost (first-in, first-out) or net realizable value, on an average cost basis. We review the components of inventory on a regular basis for excess or obsolete inventory based on estimated future usage and sales. When evidence exists that the net realizable value of inventory is lower than its cost, the difference is recognized as a loss in the period in which it occurs. Once inventory has been written down, it creates a new cost basis for inventory that may not be subsequently written up.

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.

Inflation

Higher inflation, the actions by the Federal Reserve Bank to address inflation, most notably continuing increases in interest rates, and rising energy prices create uncertainty about the future economic environment. The Company expects that the impact of these issues will continue to evolve. The Company believes these factors impacted the Company’s business in 2023 and the first ~~six~~nine months of 2024 and will continue to impact the Company’s business in 2024 and 2025. The implications of higher government deficits and debt, tighter monetary policy, and higher long-term interest rates may drive a higher cost of capital for the business and an increase in the Company’s operating expenses.

COVID-19

Results of Operations

Three months ended ~~August~~November 3130, 2023 compared to three months ended ~~August~~November 3130, 2022

Net revenue was $047 for the three-months ended ~~August~~November 3130, 2023 compared to $1054 for the three-months ended ~~August~~November 3130, 2022. Revenues continue to be negatively impacted due to a generally low level of resources on our legacy products as well as our shift to the development and production of the prototype for our new product line. We cannot project with confidence the timing or amount of revenue that we can expect until the prototype is completed which should be in Fiscal 2024.

Cost of goods sold was $8098 in the three-months ended ~~August~~November 3130, 2023 compared to $9526 for the three-months ended ~~August~~November 3130, 2022. This resulted in a gross loss of $8052 compared to a gross ~~loss~~ profit of $8528 for the three-months ended ~~August~~November 3130, 2022. The gross loss and related gross margin loss for both the three-month ~~periods~~ periods were largely influenced by the low volume of shipments in this quarter which reduced our ability to fully absorb fixed operating costs. In addition, the gross margin loss in the three-months ended ~~August~~November 3130, 2023 included an increase in the inventory reserve of $5832.

Engineering, research and development expenses were $~~287~~34 in the three-months ended ~~August~~November 3130, 2023, compared to $~~244~~229 for the three-months ended ~~August~~November 3130, 2022. The ~~increase~~decrease was ~~due~~ due to ~~increased~~decreased development by the engineering staff of the new prototype for our new product line as we get closer to completion.

Selling, general and administration (“SG&A”) expenses decreased by $~~213~~113 or 3819% to $~~342~~494 in the three-month period ending ~~August~~November 3130, 2023 compared to the three-months ended ~~August 31,~~November 30, 2022. The decrease was principally attributed to lower legal costs of $73142, ~~lower audit fees of $42~~ and lower selling fees of $835 due to lower sales.

Interest expense increased $~~263~~71 during the three-months ended ~~August~~November 3130, 2023 compared to the three-months ended ~~August~~November 3130, 2022 due principally to the settlement of the Kopple litigation ~~which~~ which resulted in the conversion of the Kopple notes payable into a new note. The new note did not accrue interest until January 2023, so the three-months ended ~~August~~November 3130, 2022 did not include any Kopple-based interest.

~~Six~~Nine months ended ~~August~~November 3130, 2023 compared to ~~six~~to nine months ended ~~August~~November 3130, 2022

Net revenue was approximately $1057 for the ~~six~~nine-months ended ~~August~~November 3130, 2023 (“Fiscal Q2Q3 2024”) compared to approximately $1770 for the ~~six~~nine-months ended ~~August~~November 3130, 2022 (“Fiscal Q2Q3 2023”). Revenues continue to be negatively ~~impacted~~due byto ~~both the lingering effects of the COVID-19 pandemic, as well as~~ a generally low level of resources. Weof ~~cannot~~our ~~project~~Legacy ~~with~~products ~~confidence~~as ~~the timing or amount of revenue that~~ we ~~can expect despite improvements in the~~concentrate ~~pandemic~~on ~~being~~building ~~under~~our ~~more~~new ~~control~~product ~~globally including a successful rollout of the vaccine programs~~line. To increase revenues which were impacted by the economic effects of the pandemic, the Company needs to augment its marketing and sales efforts substantially. Astowards ~~the~~our ~~Company’s focus has been on~~ new product ~~engineering~~line ~~and~~to ~~development,~~be ~~the~~released ~~current limited resources prevent executing the increased selling efforts~~ in ~~the~~early ~~near~~Fiscal ~~term~~2025.

Cost of goods sold was approximately $95194 in ~~Fiscal~~ Q2Fiscal Q3 2024 compared to approximately $3056 in Fiscal Q2Q3 2023. This resulted in a gross loss of approximately $85137 or a gross margin loss of ~~815~~ 239%, and approximately $1315 gross ~~loss~~profit and a gross margin ~~loss~~gain of 7921%, in Fiscal Q2Q3 2024 and Fiscal Q2Q3 2023, respectively. The gross loss and related gross margin loss for both the ~~six~~nine-month periods were largely influenced by the low volume of shipments in both quarters which reduced our ability to fully absorb fixed operating costs. In addition, the gross margin loss in Fiscal Q2Q3 2024 included an increase in the inventory reserve of $5832.

Engineering, research and development expenses were approximately $494 in Fiscal Q2 2024, compared to approximately $411 in the Fiscal Q2 2023, or an increase of 20%. Fiscal Q2 2024 includes a higher engineering staff level and a concentrated effort to optimize the Company’s several new designs of its generators and motors. Fiscal Q2 2023 reflects the Company’s initial efforts to increase its development program, including costs for engineering several new designs, as well as increased testing of its new electronic control unit (“ECU”).23

21Engineering, research and development expenses were approximately $528 in Fiscal Q3 2024, compared to approximately $640 in the Fiscal Q3 2023, or a decrease of 18%. Fiscal Q2 2024 includes a higher engineering staff level and a concentrated effort to optimize the Company’s several new designs of its generators and motors. Fiscal Q3 2023 reflects the Company’s initial efforts to increase its development program, including costs for engineering several new designs, as well as increased testing of its new electronic control unit (“ECU”).

Selling, general and administration (“SG&A”) expenses decreased by approximately $~~556~~684 or 4034% to approximately $~~850~~1,344 in the Fiscal Q2Q3 2024 period from approximately $12,~~406~~028 in the ~~Fiscal~~ Q2Fiscal Q3 2023 period. The decrease during Fiscal Q2Q3 2024 was principally attributed to lower legal costs of $~~406~~548 almost exclusively related to the settlement of the Kopple litigation in the Fiscal Q1 2023 period. Accounting fees were also down by $6331. Selling costs were down by $8994 due to lower sales.

Interest expense in Fiscal Q2Q3 2024 increased approximately $~~610~~681 or ~~266~~139%, to approximately $~~840~~1,171 from approximately $~~229~~489 in the Fiscal Q2Q3 2023 period due principally to the settlement of the Kopple litigation which resulted in the conversion of the Kopple notes payable into a new note. The new note did not accrue interest until January 2023, so ~~FQ2~~FQ3 2023 included no Kopple-based interest. In Fiscal Q2Q3 2024, $~~315~~472 of interest was accrued on the unpaid balance of the restructured Kopple note, and in addition, the Company recorded $390 of extension and forbearance fees, which are being categorized as interest.

Other income in the Fiscal Q2Q3 2024 period was approximately $89 which represents the favorable change in the fair value of the derivative warrant liability for the ~~six~~nine-months, measured as of ~~August~~November 3130, 2023. Comparatively, the revaluation of the derivative warrant liability in Fiscal Q2Q3 2023, measured as of ~~August 31,~~November 30, 2022, resulted in a favorable change in the fair value of approximately $~~741~~560 for the ~~six~~nine-month period.

Net loss for the ~~six~~nine-month period of Fiscal Q2Q3 2024 increased by approximately $~~943~~589, to a loss of approximately $23,~~261~~171 from a net loss of approximately $12,~~318~~582 in the ~~six~~nine-month period of Fiscal Q2Q3 2023. This was attributed to (i) a significantly lower net gain related to derivative liability valuation of approximately $~~733~~551 and (ii) higher interest expense of approximately $~~610~~681, which were partially offset by (i) a decreased operating loss of $~~400~~644 principally attributable to the lower legal expenses related to the Kopple settlement.

Liquidity and Capital Resources

Going Concern

During the ~~six~~nine-month period ended ~~August~~November 3130, 2023, the Company reported a net loss of $23,~~261~~171 and used cash in operating activities of approximately $12,~~532~~178. 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, 2023, financial statements, raised substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

During the next twelve months we intend to continue to attempt to increase the Company’s operations and focus on the sale of our AuraGen^®®/VIPER products both domestically and internationally and to add to our existing management team. In addition, we plan to source new suppliers for manufacturing operations, rebuild the engineering and sales teams, and to the extent appropriate, utilize third party contractors to support the operation. We anticipate being able to obtain new sources of funding to support these actions in the upcoming fiscal year.

At August 31, 2023, we had cash of approximately $52, compared to cash of approximately $15 at February 28, 2023. Subsequent to August 31, 2023, the Company issued 796,970 shares of common stock in exchange for cash proceeds of approximately $263. Working capital deficit at August 31, 2023 was a $14,400 deficit as compared to an $13,700 deficit at February 28, 2023. At August 31, 2023 and February 28, 2023, we had no accounts receivable.24

22At November 30, 2023, we had cash of approximately $45, compared to cash of approximately $15 at February 28, 2023. Subsequent to November 30, 2023, the Company issued 766,668 shares of common stock in exchange for cash proceeds of approximately $253. Working capital deficit at November 30, 2023 was a $14,600 deficit as compared to an $13,700 deficit at February 28, 2023. At November 30, 2023 and February 28, 2023, we had no accounts receivable.

Prior to Fiscal 2020, in order to maintain liquidity, we relied upon external sources of financing, principally equity financing and private indebtedness. We have no bank line of credit and will require additional debt or equity financing to fund ongoing operations. Based on a cash flow analysis performed by management, we estimate that we will need an additional $6,000 to maintain existing operations for Fiscal ~~2024~~2025 and increase the volume of shipments to customers. We cannot assure the reader that additional financing will be available nor that the commercial targets will be met in the amounts required to keep the business operating. The issuance of additional shares of equity in connection with such financing could dilute the interests of our existing stockholders, and such dilution could be substantial. If we cannot raise the needed funds, we will also be forced to make further substantial reductions in our operating expenses, which could adversely affect our ability to implement our current business plan and ultimately our viability as a company.

See “Item 3. Legal Proceedings” and “Part IV, Item 15, Notes 9 and 17 to the Financial Statements” included in the Company’s Annual Report on Form 10-K filed with the SEC on May 26, 2023 for information regarding the dispute and settlement with Mr. Kopple regarding these transactions.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

As a smaller reporting company, we are not required to provide disclosure under this Item 3.

ITEM 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our President and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this Report. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Securities and Exchange Act of 1934 Rules 13a-15(f). Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of August 31, 2023.

Changes in Internal Control over Financial Reporting

There have been no other changes in our internal control over financial reporting during our fiscal quarter ended ~~August~~November 3130, 2023, not previously identified in our Annual Report on ~~Form~~ Form 10-K, for the fiscal year ended February 28, 2023 and issued on May 26, 2023 which have materially affected or are reasonably likely to to materially affect our internal control over financial reporting.

2326

PART II - OTHER INFORMATION

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

ITEM 1. Legal Proceedings

We are subject to the legal proceedings and claims discussed below as well as certain other legal proceedings and claims that have not been fully resolved and that have arisen in the ordinary course of business. Our management evaluates our exposure to these claims and proceedings individually and in the aggregate and evaluates potential losses on such litigation if the amount of the loss is estimable and the loss is probable. However, the outcome of legal proceedings and claims brought against the Company is subject to significant uncertainty. Although management considers the likelihood of such an outcome to be remote, if one or more of these legal matters were resolved against the Company for amounts in excess of management’s expectations, the Company’s financial statements for that reporting period could be materially adversely affected.

In 2017, the Company’s former COO was awarded approximately $238 in accrued salary and related charges by the California labor board. In August 2021, the Company reached a settlement by which the Company agreed to pay approximately $330, representing the principal award plus accrued interest. As of the time of this filing, the Company has paid approximately $~~292~~317 toward the settlement amount. The remaining balance of approximately $3813 is to be paid no later than ~~December~~February 3128, ~~2023~~2024 and accrues interest of 10% per annum until paid.

Between July 2017 and March 2022, the Company was engaged in litigation with a former director, Robert Kopple, relating to more than $13,000 and the current equivalent of the approximately 23 million warrants, exercisable for seven years at a price of $0.10 per share, which Mr. Kopple and his affiliated entities (collectively the “Kopple Parties”) claimed should have been originally issued to them pursuant to various agreements with the Company entered to between 2013-2016. In March 2022, the Company reached a settlement with the Kopple Parties that resolved all claims asserted against the Company without any admission, concession or finding of any fault, liability or wrongdoing on the part of the Company. Under the terms of the settlement, the Company agreed to pay an aggregate amount of $10,000 over a period of seven years, including $3,000 initial payment to be paid in June 2022. $150 was paid in June 2022, and the balance of the initial payment of $2,850 was extended to August 1, 2023, In exchange for the extension, the Company was required to pay $195 in extension and forbearance fees in cash and $530 in accrued forbearance fees. Beginning in January 2023, interest accrues on the unpaid balance at a rate of 6%, compounded annually. All amounts, including all accrued interest and deferred fees, are to be paid no later than eight years from the date of the initial payment. The Kopple Parties have also received seven-year warrants to purchase up to an aggregate of 3,331,664 shares of our common stock at a price of $0.85 per share. The settlement also provides for standard mutual general release provisions and includes customary representations, warranties, and covenants, including certain increases in the amount payable to the Kopple Parties and the right of such parties to enter judgment against the Company if the Company remains in uncured default in its payment obligations under the settlement. As of the date of this report, the Company has not yet paid the full $3,000 installment due to Kopple, having made an initial payment of $150 in June 2022. The Company and Koppel have agreed in principle to another extension of the deadlines for payments owed by Aura to Plaintiffs and intend to memorialize such an agreement in writing on or before ~~October~~January 31, ~~2023~~2024. Such further amendment will also indicate that by such extension Aura is not in default on the Binding Term Sheet (See Part I, Note 5 to the Financial Statements).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.

2427

ITEM 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the risk factors disclosed in Item 1A, “Risk Factors,” of the Company’s Fiscal 2023 Annual Report on Form 10-K issued on May 26, 2023.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the ~~six~~nine-months ended ~~August~~November 3130, 2023, we we issued 46,~~877~~593,~~271~~940 shares of common stock for cash proceeds of approximately $12,~~609~~175. The proceeds from the sale were used for general ~~working~~ working capital purposes.

ITEM 3. Defaults Upon Senior Securities.

None

ITEM 4. Mine Safety Disclosures

Not applicable.

ITEM 5. Other Information.

None.

2528

ITEM 6. Exhibits

31.1		Certification pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.

31.2		Certification pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.

32.1		Certification of Principal Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. § 1350, as Adopted Pursuant to § 906 of the Sarbanes-Oxley Act of 2002.

101.INS		Inline XBRL Instance Document

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

2629

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: October 18, 2023	AURA SYSTEMS, INC.
Date: January 16, 2024	AURA SYSTEMS, INC.
	(Registrant)
	By:	/s/ Cipora Lavut
		Cipora Lavut
		President

2730

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2024 Yes No 0.01 0.01 0.03 0.03 100396097 87433942 90759938 98247106 Kopple Note In fiscals 2013 through 2018, the Company issued notes payable to Robert Kopple and associated entities (collectively “Kopple”) in the aggregate principal amount of $6,107. Robert Kopple is the former Vice-Chairman of the Company’s Board of Directors and is a current shareholder in the Company. Between July 2017 and March 2022, the Company was engaged in litigation with Kopple relating to more than $13,000 of principal and accrued interest due under the notes, and the equivalent of the approximately 23 million warrants. On March 14, 2022, the Company reached an agreement with Kopple and resolved all remaining litigation between them, including all amounts owed to Kopple under the notes. Under the terms of the settlement, the Company agreed to issue a new note and pay Kopple an aggregate amount of $10,000, including $3,000 initially due in June 2022, and $1,000 to be paid annually for seven years after the initial $3,000 is paid. Additionally, the settlement agreement granted Koppel a five year, fully vested warrant exercisable into 3,331,664 shares of the Company’s common stock at a price of $0.85 per share with a fair value of $1,100. The Company assessed the settlement with Kopple under ASC 470 and determined that the guidance under troubled debt restructuring should apply. The carrying value of the restructured note remains the same as before the restructuring, reduced only by the fair value of the warrants issued in connection with the transaction. The Company determined that the future undiscounted cash flows of the restructured new Kopple note exceeded the carrying value, and accordingly, no gain was recognized, and no adjustment was made to the carrying value of the debt, other than the adjustment for the fair value of the warrants. Interest expense on the new Kopple note is computed using a new effective rate that equates the present value of the future cash payments specified by the new terms with the carrying value of the debt. In June 2022, the first installment of $3,000 became due, of which $150 was paid and $2,850 is still outstanding. Subsequently, the note was amended several times to extend the payment date of the remaining balance of $2,850 of the initial payment through January 2023, and the Company incurred extension and forbearance fees totaling $335.In January 2023, pursuant to the terms of the amended note payable, the Company started accruing interest on the outstanding note balance at a rate of 6% per annum, compounded annually. As of February 28, 2023, outstanding principal balance amounted to $10,915. During the nine months ended November 30, 2023, the note was again amended multiple times to extend the payment term of the remaining balance of $2,850 of the initial payment and installment payment of $1,000, originally due in June 2023, through August 1, 2023. As a result of these amendments, the Company incurred additional extension and forbearance fees totaling $390 and adjustment to principal balance of $23. As of November 30, 2023, the outstanding principal balance of amounted to $10,938. As of November 30, 2023 and the date of this report, the Company and Kopple are currently in negotiations for another extension of the deadline for payment of the $3,850, consisting of the $2,850 initial payment and the installment payment of $1,000. Currently, Kopple has agreed in principle that such further amendment will also indicate that the Company is not in default of the agreement as of November 30, 2023, and through the date that the financial statements are issued. Based upon the foregoing no adjustments have been made to reflect the Kopple debt in default. The settlement agreement with Kopple provides for certain increases in the amounts payable to Kopple and the right of such parties to enter a judgement against the Company if the Company remains in unsecured default in its payment obligations. Pursuant to the settlement agreement, the Company is also subject to certain affirmative and negative covenants such as periodic submission of financial statements to Koppel 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 operations and the Company. Note payable-Gagerman Melvin Gagerman, the Company’s former CEO and CFO whose employment was permanently terminated in July 2019, claims that in April 2014 the Company issued an unsecured demand promissory note to him in the amount of $82 that bears interest at a rate of 10% per annum. Gagerman claims that this note has not been repaid to date and is now owed. In June 2022, Gagerman brought suit against the Company for repayment of this alleged note. Despite the fact that, based on Gagerman’s allegations, the note was issued during a period when Gagerman was the Company’s CEO, CFO, Corporate Secretary and Chairman of the Company’s Board of Directors, Gagerman has stated that he does not possess a copy of the alleged promissory note. The Company disputes that any amount is presently owed to Gagerman. Additionally, the Company has filed a cross-complaint against Gagerman for, among things, conversion, violation of California Business & Professions Code §17200, and various breaches of fiduciary duty that the Company believes Gagerman committed against the Company. Although the Company disputes Gagerman’s claims, under the guidance of ASC 450 – Contingencies, the Company has recorded the claimed note payable $82 and corresponding accrued interest. Jiangsu Shengfeng Note On November 20, 2019, the Company reached an agreement with a former joint venture partner Jiangsu Shengfeng regarding the return of $700 that had been advanced to the Company in prior years. As a result, in November 2019, the Company issued a non-interest-bearing promissory note for $700 to be paid over an 11-month period beginning March 15, 2020, through February 15, 2021. As of November 30, 2023 and February 28, 2023, the outstanding balance of this note payable amounted to $700. 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