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 ~~May~~August 31, 2024

☐ 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 ~~July~~October 1911, 2024
Common Stock, par value $0.0001 per share		~~111~~114,~~527~~420,~~248~~081 shares

AURA SYSTEMS, INC.

INDEX

Index		Page No.
PART I. FINANCIAL INFORMATION
ITEM 1.	Financial Statements (Unaudited)	1
	Condensed Balance Sheets as of May 31, 2024 (unaudited) and February 29, 2024	1
	Condensed Balance Sheets as of August 31, 2024 (unaudited) and February 29, 2024	1
	Condensed Statements of Operations May 31, 2024 and May 31, 2023	2
	Condensed Statements of Operations for the three and six months ended August 31, 2024 and August 31, 2023	2
	Condensed Statements of Shareholders Deficit as of May 31, 2024 and May 31, 2023	3
	Condensed Statements of Shareholders Deficit as of August 31, 2024 and August 31, 2023	3
	Condensed Statements of Cash Flows May 31, 2024 and May 31, 2023	4
	Condensed Statements of Cash Flows August 31, 2024 and August 31, 2023	4
	Notes to Condensed Financial Statements	5
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1817
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	2321
ITEM 4.	Controls and Procedures	2322
PART II. OTHER INFORMATION
ITEM 1.	Legal Proceedings	2423
ITEM 1A.	Risk Factors	2524
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2524
ITEM 3.	Defaults Upon Senior Securities	2524
ITEM 4.	Mine Safety Disclosures	2524
ITEM 5.	Other Information	2524
ITEM 6.	Exhibits	2624
SIGNATURES AND CERTIFICATIONS		2725

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

AURA SYSTEMS, INC.

CONDENSED BALANCE SHEETS

	May 31, 2024			February 29, 2024
	August 31, 2024			February 29, 2024
(amounts in thousands, except share data)	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	~~297~~15		$	124
Accounts receivables		15			-
Accounts receivable		16			-
Inventories		-33			20
Prepaid and other current assets		~~140~~83			175
Total current assets		~~452~~147			319
Property and equipment, net		~~710~~701			378
Operating lease right-of-use asset		~~559~~496			607
Lease security deposit		160			160
Total assets	$	1,~~881~~504		$	1,464
Liabilities and Shareholders’ Deficit
Current liabilities
Accounts payable and accrued expenses	$	2,~~407~~398		$	2,625
Accrued interest		1,~~702~~989			2,598
Customer advances		447			447
Notes payable current portion		163			119
Convertible notes payable – past due		1,513			1,508
Convertible note payable-related party current portion		4,270			3,020
Convertible notes payable-related party, current portion – $3,020 past due		5,020			3,020
Notes payable-related parties, current portion		782			4,632
Notes payable current portion		145			119
Operating lease liability, current portion		246			238
Notes payable-related parties, current portion – past due		782			4,632
Derivative liability		17,171			-
Operating lease liability, current portion		257			238
Total current liabilities		28,701			15,187
Derivative liability		20,799			-
Notes payable, non-current portion		438			286
Total current liabilities		33,350			15,187
Convertible note payable-related party, non-current portion		8,011			7,088
Notes payable, non-current portion		395			286
Operating lease liability		358			423
Convertible note payable-related party, non-current portion		7,261			-
Total liabilities		37,508			22,984
Notes payable-related parties, non-current portion		-			7,088
Operating lease liability		268			423
Total liabilities		41,274			22,984
Commitments and contingencies		-			-
Shareholders’ deficit
Common stock: $0.0001 par value; 150,000,000 shares authorized; 109,047,248 and 104,591,648 issued and outstanding May 31, 2024, and February 29, 2024, respectively		11			10
Common stock: $0.0001 par value; 150,000,000 shares authorized; 111,544,011 and 104,591,648 issued and outstanding August 31, 2024, and February 29, 2024, respectively		11			10
Additional paid-in capital		~~458~~460,~~610~~857			457,460
Accumulated deficit		(~~494~~500,~~248~~638	)		(478,990	)
Total shareholders’ deficit		(3539,~~627~~770	)		(21,520	)
Total liabilities and shareholders’ deficit	$	1,~~881~~504		$	1,464

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

AURA SYSTEMS, INC.

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ending May 31
	Three-Months Ended						Six-Months Ended
	2024			2023
	August 31,						August 31,
(amounts in thousands, except share and per share data)
	2024			2023			2024			2023
Net revenue	$	47		$	10
(amounts in thousands, except share and per share data)
Cost of goods		(47	)		15
Net revenue	$	3		$	-		$	50		$	10
Gross profit (loss)		-			(5	)
Cost of goods sold		(18	)		80			29			95
Operating expenses:
Gross profit (loss)		21			(80	)		21			(85	)
Engineering, research and development		310			207
Operating expenses
Selling, general & administration		374			508
Engineering, research and development		239			287			549			494
Total operating expenses		684			715
Selling, general & administration		2,255			342			2,629			850
Loss from operations		(684	)		(720	)
Total operating expenses		2,494			629			3,178			1,344
Other income (expense):
Loss from operations		(2,473	)		(709	)		(3,157	)		(1,429	)
Interest expense, net (including $271 and $411 to related parties)		(275	)		(428	)
Other income (expense):
Loss on debt extinguishment - related party		(19,324	)		-
Interest expense, net (including $282, $319, $553 and $781 to related parties, respectively)		(289	)		(412	)		(564	)		(840	)
Change in fair value derivative liability		5,023			-
Loss on debt extinguishment – related party		-			-			(19,324	)		-
Other		2			7
Change in fair value of derivative warrant liability		(3,628	)		-			1,395			8
Net loss	$	(15,258	)	$	(1,141	)
Other		-			1			2			-
Basic and diluted loss per share	$	(0.14	)	$	(0.01	)
Net loss	$	(6,390	)	$	(1,120	)	$	(21,648	)	$	(2,261	)
Basic and diluted weighted-average shares outstanding		106,140,039			96,036,536
Basic and diluted loss per share	$	(0.06	)	$	(0.01	)	$	(0.20	)	$	(0.02	)
Basic and diluted weighted-average shares outstanding		111,377,205			98,332,041			108,509,632			97,184,290

See accompanying notes to these unaudited financial statements.

AURA SYSTEMS, INC.

CONDENSED STATEMENTS OF SHAREHOLDERS’ DEFICIT

(Unaudited)

Three Months ~~ended~~and ~~May~~Six ~~31,~~Months ~~2024~~Ended ~~and~~August 31, 2023

(in thousands, except share data)	Common Stock Shares		Common Stock Amount		Additional Paid-In Capital		Accumulated Deficit			Total Shareholders’ Deficit
(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 (unaudited)		97,234,708	$	9	$	455,360	$	(475,915	)	$	(20,546	)
Balance, May 31, 2023		97,234,708		9		455,360		(475,915	)		(20,546	)
Balance, February 29, 2024		104,591,648	$	10	$	457,460	$	(478,990	)	$	(21,520	)
Common shares issued for cash		2,290,909		1		756		-			757
Common shares issued for cash		4,455,600		1		1,117		111			1,117
Net loss		-		-		-		(1,120	)		(1,120	)
Fair value of modified warrants - related party						33					33
Balance, August 31, 2023 (unaudited)		99,525,617	$	10	$	456,116	$	(477,035	)	$	(20,909	)
Net loss		-		-				(15,258	)		(15,258	)
Balance, May 31, 2024 (unaudited)		109,047,248	$	11	$	458,610	$	(494,248	)	$	(35,627	)

Three Months and Six Months Ended August 31, 2024

(amounts in thousands, except share data)	Common Stock Shares		Common Stock Amount		Additional Paid-In Capital		Accumulated Deficit			Total Shareholders’ Deficit
Balance, February 29, 2024		104,591,648	$	10	$	457,460	$	(478,990	)	$	(21,520	)
Common shares issued for cash		4,455,600		1		1,117		-			1,118
Fair value of modified warrants - related party						33					33
Net loss		-		-		-		(15,258	)		(15,258	)
Balance, May 31, 2024		109,047,248		11		458,610		(494,248	)		(35,627	)
Common shares issued for cash		2,496,763		-		646		-			646
Fair value of stock options						1,601					1,601
Net loss		-		-		-		(6,390	)		(6,390	)
Balance, August 31, 2024 (unaudited)		111,544,011	$	11	$	460,857	$	(500,638	)	$	(39,770	)

See accompanying notes to these unaudited financial statements.

AURA SYSTEMS, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

	May 31, 2024			May 31, 2023
	Six Months Ended
	August 31, 2024			August 31, 2023
(amounts in thousands)
Net loss	$	(1521,~~258~~648	)	$	(12,~~141~~261	)
Adjustments to reconcile net loss to cash used in operating activities
Depreciation and amortization		2565			2652
Inventory write-down		20			-
Amortization of debt discount		5			-
Inventory write-down		20			58
Loss on debt extinguishment – related party		19,324			-
Change in fair value of derivative liability		(51,~~023~~395	)		(78	)
Fair value of stock options		1,601			-
Changes in operating assets and liabilities:
Accounts receivable		(1516	)		-
Inventory		-(33	)		(74	)
Prepaid and other current assets		3592			(993	)
Operating lease right-of-use asset		48111			4999
Accounts payable, accrued expenses and customer advances		(~~218~~226	)		(3137	)
Accrued interest		~~335~~617			~~345~~683
Operating lease liability		(57	)		(50	)
Customer advances		-			(7	)
Cash used in operating activities		(784	)		(797	)
Operating lease liability		(136	)		(100	)
Cash used in operating activities		(1,619	)		(1,532	)
Cash used in investing activities:
Purchase of property and equipment		(3667	)		(1-	)
Cash used in investing activities		(3667	)		(1	)
Cash flows from financing activities:
Proceeds from issuance of common stock		1,~~117~~764			~~853~~1,610
Payment of notes payable		(124	)		(20	)
Principal payments of notes payable		(187	)		(41	)
Cash provided by financing activities		~~993~~1,577			~~833~~1,569
Net increase in cash and cash equivalents		173			35
Net increase (decrease) in cash and cash equivalents		(109	)		37
Cash and cash equivalents-beginning of period		124			15
Cash and cash equivalents-end of period	$	~~297~~15		$	5052
Cash paid for:
Interest	$	-		$	6785
Income taxes	$	-		$	-
Supplemental schedule of non-cash transactions:
Fair value of modified warrants - related party	$	33		$	-
Notes payable issued for the purchase of property and equipment	$	321		$	-
Fair value of convertible note payable	$	9,261		$	-
Fair value of a convertible note payable	$	9,261		$	-
Extinguishment of note payable and accrued interest – related party	$	12,164		$	-
Conversion feature of convertible note payable – related party accounted as derivative liability	$	22,194		$	-
Reclassification of prepaid expense to property and equipment	$	-		$	21
Adjustment to interest expense to account for the effective interest rate of note payable	$	-		$	61

See accompanying notes to these unaudited financial statements.

AURA SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS

THREE AND SIX MONTHS ENDED ~~MAY~~AUGUST 31, 2024 AND 2023 (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, manufacturing, licensing and sale of products and components based on its Axial Flux Induction technology for electric motors and generators. Our power generation solution based on axial flux induction is known as the AuraGen® for commercial and industrial applications and the VIPER for military applications. We are developing axial flux induction electric motors for industrial/commercial applications as well as for two- and four-wheel EV applications.

Basis of Presentation

The accompanying unaudited condensed financial statements as of and for the ~~three~~six months ended on ~~May~~August 31, 2024 and prior 2023, 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 29, 2024, was derived from the Company’s audited Financial Statements as of February 29, 2024, included in the Company’s Annual Report on Form 10-K filed with the SEC on June 4, 2024. These financial statements should be read in conjunction with that report. The results of operations for the period ended ~~May~~August 31, 2024, may not necessarily be indicative of the results of the full fiscal year ending February 28, 2025.

The Company’s fiscal year ends on the last calendar day of February. Accordingly, the current fiscal year will end on February 28, 2025, and is referred to as “Fiscal 2025”. Our prior fiscal years ended February 29, 2024, February 28, 2023, and 2022, and are referred to as “Fiscal 2024”, “Fiscal 2023” and “Fiscal 2022”, respectively.

Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has not yet generated sufficient revenues to fund operations, has experienced recurring operating losses and relies on debt and equity offerings to generate working capital.

During the ~~three~~six-month period ended ~~May~~August 31, 2024, the Company recognized a net loss from operations of $1521,~~258~~648 ~~from operations~~ and used cash in operating activities of $~~784~~1,619. As of ~~May~~August 31, 2024, the Company also has a shareholder deficit of $3539,~~627~~770 and notes payable totaling $5,315 are also past due. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year of the date that the financial statements are issued. In addition, the Company’s independent registered public accounting firm, in its report on the Company’s February 29, 2024, financial statements, raised substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

In the event if the Company is unable to generate profits and is unable to obtain financing for its working capital requirements, it may have to curtail its business further or cease business altogether. Substantial additional capital resources will be required to fund continuing expenditures related to our research, development, manufacturing and business development activities. The Company’s continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis, to retain its current financing, to obtain additional financing, and ultimately to attain profitability.

InDuring the ~~event~~next twelve months the Company isintends to ~~unable~~continue to ~~generate profits~~attempt ~~and is unable~~ to ~~obtain~~increase ~~financing~~the ~~for~~Company’s ~~its~~operations ~~working~~and ~~capital~~focus ~~requirements,~~on itthe ~~may~~development ~~have~~and tosale ~~curtail~~of ~~its~~a ~~business~~family ~~further~~of oraxial ~~cease~~flux ~~business~~motos ~~altogether.~~for ~~Substantial~~industrial/commercial ~~additional~~and ~~capital~~EV ~~resources~~applications. ~~will~~In beaddition, ~~required~~we toalso ~~fund~~focus ~~continuing~~on ~~expenditures~~development ~~related~~and tosale of our ~~research,~~axial ~~development, manufacturing~~flux ~~and~~induction ~~business~~generators for ~~development~~commercial ~~activities.~~and ~~The~~military ~~Company’s~~applications ~~continuation~~as well as afor ~~going~~wind ~~concern~~turbines isand ~~dependent~~other ~~upon~~environmental ~~its~~related ~~ability~~applications. ~~to generate~~In ~~sufficient~~addition, ~~cash~~the ~~flow~~Company plans to ~~meet~~source ~~its~~new ~~obligations~~suppliers onfor amanufacturing ~~timely basis~~operations, torebuild ~~retain~~the ~~its~~engineering ~~current~~and ~~financing~~sales teams, and to ~~obtain~~the ~~additional~~extent ~~financing~~appropriate, utilize ~~and~~third ~~ultimately~~party contractors to ~~attain~~support ~~profitability~~the operation.

During the next twelve months the Company intends to continue to attempt to increase the Company’s operations and focus on development and sale of a family of axial flux motos for industrial/commercial and EV applications. In addition, we also focus on development and sale of our axial flux induction generators for commercial and military applications as well as for wind turbines and other environmental related applications. 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.

Inflation

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

COVID-19

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 U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. Significant estimates include assumptions made for inventory valuation, impairment testing of long-lived assets, the valuation allowance for deferred tax assets, assumptions used in valuing notes payable, derivative liabilities, assumptions used in valuing share-based compensation, and accruals for potential liabilities. Amounts could materially change in the future. Actual results could differ from those estimates.

Vendor Concentration

As of ~~May~~August 31, 2024 , four vendors accounted ~~for~~ 39for 38%, 12%, 11% and 10% of ~~the Company’s~~ accounts payable.

As of February 29, 2024, four vendors accounted for 42%, 11%, 11% and 10% of accounts payable.

Revenue Recognition

The Company recognizes revenue in accordance with Financial Accounting Standard Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers.

Our primary source of revenue is the manufacture and delivery of axial flux induction motors and generator sets used primarily in mobile power applications. Our principal sales channel is sales to domestic end users and distributors and agents internationally. In accordance with ASC 606, the Company recognizes revenue, net of discounts, for our generator sets at the time of product delivery and acceptance by the customer (i.e. point-in-time), which also corresponds to the passage of legal title to the customer and the satisfaction of our performance obligation to the customer.

Share-Based Compensation

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

Fair Value of Financial Instruments

The Company determines the fair values of its financial instruments based on a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The classification of a financial asset or liability within the hierarchy is based upon the lowest level input that is significant to the fair value measurement. Under ASC 820, Fair Value Measurement and Disclosures (“ASC 820”), the fair value hierarchy prioritizes the inputs into three levels that may be used to measure fair value:

●

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

●

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

●

Level 3 – Unobservable inputs.

The recorded amounts of inventory, other current assets, accounts payable, and accrued expenses approximate their fair value due to their short-term nature. The carrying amounts of notes payable and convertible notes payable approximate their respective fair values because of their current interest rates payable in relation to current market conditions.

The following table sets forth by level, within the fair value hierarchy, the Company’s assets and liabilities at fair value as of ~~May~~August 31, 2024 and February 29, 2024:

(amounts in thousands)

May 31, 2024

August 31, 2024

Level 1

Level 2

Level 3

Total

(amounts in thousands)

Level 1

Level 2

Level 3

Total

Liabilities

Derivative liability – convertible note conversion option

1720,~~171~~799

Total

1720,~~171~~799

February 29, 2024

February 29, 2023

Level 1

Level 2

Level 3

Total

Liabilities

Derivative liability

Total

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

The following table provides a roll-forward of the derivative liability measured at fair value on a recurring basis using unobservable level 3 inputs for the period ended August 31, 2024, as follows:

(amounts in thousands, except share data)	Fair Value of Derivative Warrant Liability
February 29, 2024	$	-
Recognition of derivative liability for a convertible note payable conversion option		22,194
Change in fair value of derivative liability		(1,395	)
Gain on extinguishment		-
August 31, 2024	$	20,799

The following table provides a roll-forward of the derivative liability measured at fair value on a recurring basis using unobservable level 3 inputs for the period ended May 31, 2024, as follows:

(amounts in thousands, except share data)	Fair Value of Derivative Warrant Liability
February 29, 2024	$	-
Recognition of derivative liability for a convertible note payable conversion option		22,194
Change in fair value of derivative liability		(5,023	)
Gain on extinguishment		-
May 31, 2024	$	17,171

Loss per share

The Company’s loss per share amounts have been computed based on the weighted- average number of shares of common stock outstanding for the period. Basic earnings (loss) per share is computed by dividing net earnings (loss) available to common shareholders by the weighted average number of shares of common stock outstanding during the period. Diluted earnings (loss) per share is computed by dividing net earnings (loss) available to common shareholders by the weighted average number of shares of common stock assuming all potential shares had been issued, and the additional shares of common stock were dilutive. Diluted earnings (loss) per share reflects the potential dilution, using the as-if-converted method for convertible debt, and the treasury stock method for options and warrants, which could occur if all potentially dilutive securities were exercised.

For the ~~three~~six months ended ~~May~~August 31, 2024, and 2023, the calculations of basic and diluted loss per share are the same because potentially dilutive securities would have had an anti-dilutive effect. The potentially dilutive securities consisted of the following:

	May 31 2024		May 31, 2023
	August 31 2024		August 31, 2023
Warrants		6,~~521~~511,664		3,564,764
Options		48,250,000		4,250,000
Convertible notes		4671,~~756~~472,~~007~~044		3,~~946~~986,~~823~~274
Total		5786,~~527~~233,~~671~~708		1211,~~500~~801,~~209~~038

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

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

	May 31 2024		February 29, 2024,
	August 31 2024		February 29, 2024,
(amounts in thousands)
Convertible notes payable – past due	$	1,513	$	1,509
(a) Convertible notes payable 1 – past due	$	1,403	$	1,403
(b) Convertible notes payable 2 – past due		110	$	106
Unamortized debt discount		-		(1	)
Net	$	1,513	$	1,508

(a) In Fiscal 2013 and 2014, the Company issued six convertible notes payable in the aggregate of $4,000. The notes are unsecured, bear interest at 5% per annum and are convertible into shares of common stock at a conversion price of $1.40 per share, as adjusted. The notes were originally due in 2014 to 2017 and were all amended in 2018 to change the maturity date to January 11, 2023. As of ~~May~~August 31, 2024 and February 29, 2024, the outstanding balance of the convertible notes payable amounted to $1,403 and are past due.

(b) In Fiscal 2024 the Company issued convertible notes payable to unrelated individuals and entities totaling $110 in exchange for cash. The notes are unsecured, bear interest at rate of 10% per annum, and ~~mature~~matured in March 2024. The notes payable are convertible into shares of common stock at a conversion price of $0.20 per share. As of ~~May~~August 31, 2024 and February 29, 2024, the outstanding balance of the convertible notes payable amounted to $110 and $106, respectively, and are past due.

NOTE 3 – CONVERTIBLE NOTE PAYABLE-RELATED PARTY

Convertible note payable – related party consisted of the following:

	May 31, 2024			February 29, 2024
	August 31, 2024			February 29, 2024
(amounts in thousands)
(a) Convertible note payable 1 – past due	$	3,000		$	3,000
(b) Convertible note payable 2 – past due		20			20
(c) Convertible note payable 3 - Kopple		9,261			-
(c) Convertible note payable 3 – Kopple (see Note 5)		9,261			-
Total	$	12,281		$	3,020
Current		(5,020	)		-
Non-current	$	7,261		$	-

(a) On January 24, 2017, the Company entered into a debt refinancing agreement with a former director and current shareholder of the Company. As part of the agreement, the Company issued a $3,000 convertible note. The convertible note is unsecured, bears interest at 5% per annum, and was due February 2, 2023. The convertible note is convertible into shares of common stock at a conversion price of $1.40 per share, as adjusted. As of ~~May~~August 31, 2024 and February 29, 2024, the outstanding balance of the convertible note amounted to $3,000 and is past due.

(b) On October 4, 2023, the Company issued a convertible note payable of $20 in exchange for cash to a member of the Company’s Board of Directors. The convertible note is unsecured, bears interest at rate of 10% per annum and matured in March 2024. The convertible note payable is convertible to common stock at a conversion price of $0.20 per share. As of ~~May~~August 31, 2024 and February 29, 2024, the outstanding balance of the convertible note amounted to $~~3,000~~20 and is past due.

(c) In March 2022, the Company issued a note payable to Kopple (see Note 5). On March 7, 2024, the Company amended the note payable to Kopple. The amendment included, among other things granting Kopple a conversion right to be able to convert the note payable into equity of the Company at a conversion price of the lower of $1.00 per share or 50% of the 10 day volume weighted average price of the Company’s common stock. As the amended Kopple note payable is convertible into common stock, it is now reported as a convertible note payable. The conversion right became effective on August 30, 2024. The Company accounted for the amended terms of the note payable as a debt extinguishment and the existing note payable and accrued interest totaling $12,164 was derecognized and the amended convertible note payable was recorded at its fair value of $9,261. The convertible note payable is secured by tangible and intangible assets of the Company, bears interest at a rate of 10% per annum and matures in June 2029. As of August 31, 2024, the outstanding balance of the convertible note amounted to $9,261.

(c) In March 2022, the Company issued a note payable to Kopple (see Note 5). On March 7, 2024, the Company amended the note payable to Kopple. The amendment included, among other things (see Note 5) granting Kopple a conversion right to be able to convert the note payable into equity of the Company at a conversion price of the lower of $1.00 per share or 50% of the 10 day volume weighted average price of the Company’s common stock. As the amended Kopple note payable is convertible into common stock, it is now reported as a convertible note payable The conversion right will be effective August 30, 2024. The Company accounted for the amended terms of the note payable as a debt extinguishment and the existing note payable and accrued interest totaling $12,164 was derecognized and the amended convertible note payable was recorded at its fair value of $9,261 (see Note 5). The convertible note payable is secured by tangible and intangible assets of the Company, bears interest at a rate of 10% per annum and matures in June 2029. As of May 31, 2024, outstanding balance of the convertible note amounted to $9,261.

The Company is also subject to certain affirmative and negative covenants such as periodic submission of financial statements to Kopple and restrictions on future financing and investing activities, as defined in the agreement, including the covenant to not create any indebtedness that is senior in right of payment to the Kopple debt. Management believes such covenants are normal for this type of transaction and that management believes meeting these covenants will not affect the operations of the Company.

NOTE 4 – NOTES PAYABLE

Notes payable consisted of the following:

(amounts in thousands)	~~May~~August 31, 2024			February 29, 2024
Secured notes payable
(a) Note payable-EID loan	$	150		$	150
(b) Notes payable-vehicle and equipment		8566			106
(c) Note payable - software license		~~124~~21			139
(d) Notes payable – machinery and other equipment		~~232~~293			-
Unsecured notes payable
(e) Note payable-other		10			10
Total	$	~~601~~540		$	405
Current		(~~163~~145	)		(119	)
Non-current	$	~~438~~395		$	286

(a) Note payable-EID loan

During Fiscal 2021, the Company received a $150 loan under the United States Small Business Administration (“SBA”) Economic Injury Disaster Loan (“EID Loan”) program. The loan is due July 1, 2050, interest accrues at 3.75% per annum, and is secured by the assets of the Company.

(b) Notes payable-vehicle and equipment

During Fiscal 2022, the Company issued two notes payable to purchase equipment and a vehicle for $329. The notes are secured by the 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.

During Fiscal 2024, the Company obtained a loan of $155 from a financing institution to finance the use of a third-party software license by the Company. The note payable is secured by tangible and intangible assets of the Company, bears interest at an average rate of 8% per annum and will mature in September 2026.

(d) Notes payable – machinery and other equipment

During Fiscal 2025, the Company obtained a loan of $274 from a financing institution to finance the purchase of a production machine by the Company. The note payable is secured by the production machine, bears a straight up fee of $74,285 to be paid over the course of the loan which will mature in April 2029.

In addition, the Company entered into a 60 -month ~~financing~~ financing lease for a forklift with a cost of $47. The lease has an interest rate of 8%, ~~include~~including a bargain purchase option to acquire the forklift at the end of the lease term for a payment of one dollar.

The aggregate total of the note payable and financing lease obligation as of ~~May~~August 31, 2024, amounted to $~~232~~293.

(e) Note payable-other

As of ~~May~~August 31, 2024, and February 29, 2024, ~~the~~ the Company has one note payable due to an individual issued in September 2015 that is payable on demand with an interest rate of 10% ~~per~~ per annum.

NOTE 5 – NOTES PAYABLE-RELATED PARTIES

Notes payable-related parties consisted of the following:

(amounts in thousands)	~~May~~August 31 2024		February 29, 2024
(a) Note payable-Kopple	$	-	$	10,915
(a) Note payable-Kopple (see Note 3)	$	-	$	10,915
(b) Note payable- Gagerman		82		82
(b) Note payable- Gagerman – past due		82		82
(c) Note payable-Jiangsu Shengfeng		700		700
(c) Note payable-Jiangsu Shengfeng – past due		700		700
Total		782		11,697
Non-current		-		(7,065	)
Current	$	782	$	4,632

(a) Note payable-Kopple

In fiscals 2013 through 2018, the Company issued notes payable to Robert Kopple and associated entities (collectively “Kopple”) in the aggregate of $6,107. Robert Kopple is the former Vice-Chairman of the Company’s Board of Directors and is a current shareholder in the Company. ~~The~~Beginning in 2017, Kopple brought suit against the Company for repayment of the notes. ~~were~~On ~~unsecured~~March 14, 2022, the Company reached an agreement with Kopple to resolve ~~bear~~all ~~interest~~remaining atlitigation ~~rates~~between ~~ranging~~them, ~~from 5%~~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 ~~15%~~to ~~per~~be ~~annum~~paid ~~and~~in ~~were~~installments, ~~due~~of which, $3,000 was due in ~~fiscal~~June ~~2014~~2022, ~~through~~and ~~fiscal~~the ~~2018.~~remaining ~~Beginning~~$7,000 to inbe ~~2017~~paid over seven years at $1,000 per year. Additionally, the settlement agreement granted Kopple ~~brought~~warrants ~~suit~~exercisable ~~against~~into 3,331,664 shares of the Company’s ~~for~~common ~~repayment~~stock at a price of ~~the~~$0.85 per ~~notes~~share.

On March 14, 2022, the Company reached an agreement with Kopple to resolve all remaining litigation between them, including all amounts owed to Kopple under the notes. Under the terms of the settlement, the Company agreed to issue a new note and pay Kopple an aggregate amount of $10,000 to be paid in installment, of which, $3,000 was due in June 2022, and the remaining $7,000 to be annually for seven years at $1,000 per year. Additionally, the settlement agreement granted Kopple warrants exercisable into 3,331,664 shares of the Company’s common stock at a price of $0.85 per share. The Company used the Black-Scholes option pricing model to compute the fair value of the warrants of $1,051.

The settlement provides for certain increases in the amounts payable to Kopple and the right of such parties to enter judgement against the Company if the Company remains in uncured default in its payment obligations. Interest on the new note also began accruing in January 2023 at 6% per annum.

The Company assessed the settlement with Kopple under ASC 470 and determined that the guidance under troubled debt restructuring should apply as the Company was experiencing financial difficulties and Kopple granted a concession. Per ASC 470-60, 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.

In June 2022, the first installment of $3,000 became due, of which $150 was only paid. Subsequently, the note was amended several times to extend the payment date of the remaining balance of $2,850 of the initial payment, and the Company incurred extension and forbearance fees totaling $335 that was recorded as part of interest expense. In January 2023, pursuant to the terms of the amended note payable, the Company started accruing interest on the outstanding note balance at a rate of 6% per annum, compounded annually. As of February 29, 2024, outstanding principal balance amount of $10,915.

In March 2024, the Company and Kopple again amended the note payable. The amendment (i) replaced the requirement to pay the $3,850 past due principal balance with the requirement to pay $2,000 on or before December 15, 2024; (ii) increased the stated interest rate to 10%; (iii) added a fee of $15 monthly until the Company makes a principal payment of $2 million by December 2024; (iv) effective August 30, 2024, the Company ~~will~~granted ~~grant~~ Kopple the right (but not any obligation) to convert the note payable into equity of the Company at a conversion price equal to the lower of of one dollar per share or 50% of the 10 day volume weighted average price per share of the Company’s common stock; (v) will require the Company to pay 20% of all collected revenues within 10 days of the end of each fiscal quarter; (vi) will ~~require~~ require the Company to pay Kopple 20% of any amount raised in new capital in the form of equity, debt or convertible debt above $3.5 million; (vii) reduces the exercise price of the warrants granted to Kopple in March 2022 from $0.85 per share to $0.50 per share; and (vii) extends the warrant expiration date of the warrants granted to Kopple in March 2022 from March 8, 2029, to March 31, 2031.

The Company accounted for the amended terms of the note payable as a debt extinguishment because the present value of the cash flows under the amended debt terms is greater by more than 10% compared to the present value of the remaining cash flows under the original existing debt terms. Furthermore, the amendment granted a conversion option to the note holder and is deemed substantially different from the existing note. The Company recorded a loss on debt extinguishment of $19,324 as a result of this amendment, which is the difference between (i) the fair value of the amended convertible note payable of $9,261, combined with the fair value of the conversion option of $22,194 (see Note 8), and the change in the fair value of the amended warrants of $33, and (ii) the net carrying amount of the existing note payable of $12,164.

As a result, the net carrying amount of the ~~existing~~ existing note payable of $12,164 was derecognized and amended note payable was recorded at its fair value of $9,261. As the Kopple new note payable is now convertible to common stock, for financial reporting purposes, the new note payable of $9,261 is ~~now~~ reported as a convertible note payable (see Note 3).

(b) Note payable-Gagerman

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

In June 2022, Gagerman brought suit against the Company for repayment of this alleged note. Despite the fact that, based on Gagerman’s allegations, the note was issued during a period when Gagerman was the Company’s CEO, CFO, Corporate Secretary and Chairman of the Company’s Board of Directors, Gagerman has stated that he does not possess a copy of the alleged promissory note. The Company disputes that any amount is presently owed to Gagerman. Additionally, the Company has filed a cross-complaint against Gagerman for, among things, conversion, violation of California Business & Professions Code §17200, and various breaches of fiduciary duty that the Company believes Gagerman committed against the Company.

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

On November 20, 2019, the Company owned 49% of a Chinese joint venture named Jiangsu Shengfeng. The Joint venture advanced Aura $700 in prior years for products that the Company failed to deliver to the joint venture. The Company reached an agreement with the joint venture regarding the return of $700 that had been advanced to the Company in prior years. As a result, in November 2019, the Company issued a non-interest-bearing promissory note for $700 to the joint venture to be paid over an 11-month period beginning March 15, 2020, through February 15, 2021. The joint venture stopped operations in 2020 as a result of COVID-19 and never resumed or restarted operations. In early fiscal 2024 the joint venture was dissolved and liquidated. As of ~~May~~August 31, 2024, and December 31, 2023, the outstanding balance of this note payable amounted to $700.

The Company is currently in negotiations with the noteholder to settle or extinguish the note payable.

NOTE 6 – ACCRUED INTEREST

Accrued interest consisted of the following:

	May 31, 2024		February 29, 2024
	August 31, 2024		February 29, 2024
(amounts in thousands)
Convertible notes payable (past due)	$	~~455~~470	$	425
Convertible notes payable - related party - Kopple		232		-
Convertible notes payable - related party – Kopple		463		-
Convertible notes payable - related party - others		901		863
Convertible notes payable - related party – others		940		863
Notes payable - related party – Kopple		-		1,226
Notes payable - related party - others		92		62
Notes payable - related party – others		94		62
Notes payable		22		22
Total	$	1,~~702~~989	$	2,598

NOTE 7 – LEASES

Our administrative and production operations ~~including~~, 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.

Operating lease right-of-use (“ROU”) assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Generally, the implicit rate of interest in arrangements is not readily determinable and the Company utilizes its incremental borrowing rate in determining the present value of lease payments. The operating lease ROU asset includes any lease payments made and excludes lease incentives.

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

(amounts in thousands)	~~May~~August 31, 2024			~~May~~August 31, 2023
Lease Cost
Operating lease cost (included in general and administration in the Company’s statement of operations)	$	69187		$	70139
Other Information
Cash paid for amounts included in the measurement of lease liabilities	$	72141		$	71141
Weighted average remaining lease term – operating leases (in years)		2.2500			3.2500
Average discount rate – operating leases		10.0	%		10.0	%

The supplemental balance sheet information related to leases for the period is as follows:

	At May 31, 2024
	At August 31, 2024
Operating leases
Long-term right-of-use assets	$	~~559~~496
Short-term operating lease liabilities	$	~~246~~257
Long-term operating lease liabilities		~~358~~268
Total operating lease liabilities	$	~~604~~525

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

	Operating Lease
Years Ending February 28:
2025 (9 months)	$	225
2025 (6 months)	$	121
2026		299
2027		155
Total lease payments		~~679~~575
Less: imputed interest/present value discount		(6850	)
Present value of lease liability	$	~~604~~525

NOTE 8 – DERIVATIVE LIABILITY

In March 2024, pursuant to the amendment of the Kopple note payable (see ~~Note~~Notes 3 and 5), the Company granted Kopple the right to convert the amended note payable into equity of the Company at a conversion price equal to the lower of one-dollar per share or 50% of the 10 day volume-weighted average price per share of the Company’s common stock. The Company analyzed the conversion option for derivative accounting consideration under ASC 815, Derivatives and Hedging, and determined that the conversion option should be classified as a derivative liability since it does not have an explicit limit to the number of shares to be delivered upon settlement of the conversion option. The derivative liability is remeasured to fair value at each reporting period, and the change in the fair value is recognized in earnings in the accompanying statements of operations. The Company estimated the fair value of the conversion option derivative liability using a Black-Scholes option pricing model and recorded the fair value of the derivative liability of $22,194 at March 7, 2024, the date of issuance, and $1720,~~171~~799 at ~~May~~August 31, 2024.

1413

The following tables summarize the derivative liability:

(amounts in thousands, except share and per share data)	~~May~~August 31, 2024			March 7, 2024 - Issuance
Stock price	$	0.4232		$	0.15
Risk free interest rate		43.5271	%		4.07	%
Expected volatility		~~181~~184	%		182	%
Expected life in years		54.0883			5.31
Expected dividend yield		0	%		0	%
Number of common stock issuable		4166,~~964~~625,~~867~~475			151,481,943
Fair value of derivative liability	$	1720,~~171~~799		$	22,194

NOTE 9 – SHAREHOLDERS’ DEFICIT

Common Stock

During the ~~three~~six-months ended ~~May~~August 31, 2024, the Company issued 46,~~455~~952,~~600~~ 363 shares of common stock for approximately $1,~~117~~764 in cash. As part of the offering, the Company also granted certain investors warrants to purchase 3,000,000 shares of common stock. The warrants are fully vested, exercisable at $1.00 per share, and will expire in 3 years.

During the ~~three~~six-months ended ~~May~~August 31, 2023, the Company issued 24,~~586~~877,~~362~~271 shares of common stock for approximately $~~853~~1,610 in cash.

Stock Options

A summary of the Company’s stock option activity for the ~~three~~six-months ended ~~May~~August 31, 2024, is as follows:

(amounts in thousands, except share and per share data)	Number of Options		Exercise Price		Weighted Average Intrinsic Value
Outstanding, February 29, 2024		4,250,000	$	0.37	$	-
Granted		-4,000,000		-0.50		-
Exercised		-		-		-
Cancelled		-		-		-
Outstanding, May 31, 2024		4,250,000	$	0.37	$	-
Outstanding, August 31, 2024		8,250,000	$	0.37	$	-

AsThe ofCompany ~~May~~granted ~~31,~~no ~~2024,~~stock ~~the~~options ~~intrinsic~~under ~~value as these~~its stock ~~options~~option ~~amounted~~2011 toPlan ~~$382.~~for ~~The exercise prices and information related to options under~~ the ~~2011~~six-month ~~Plan~~period ~~outstanding~~ended onAugust ~~May~~ 31, ~~2024 is as follows:~~2023.

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

During the six months ended August 31, 2024, the Company’s Board of Directors approved options exercisable into 4,000,000 shares to be issued pursuant to the Company’s 2011 Plan. 3,000,000 options were issued to Board members and 1,000,000 options were issued to an employee, with immediate vesting.

The ~~Company~~stock ~~granted~~options noare ~~stock~~exercisable at a price of $0.50 per share and expire in ten years. The total fair value of these options ~~under~~at ~~its~~grant date was approximately $1,601, which was determined ~~stock~~using a Black-Scholes option ~~2011~~pricing ~~Plan~~model ~~for~~with the ~~three-month~~following ~~period~~average ~~ended~~assumption: ~~May~~stock 31price of $0.42 share, ~~2023~~expected term of five years, volatility of 182%, dividend rate of 0%, and ~~the~~weighted ~~three~~average risk-~~month~~free interest rate of 4.52%. The expected term represents the weighted-average period ~~ended~~of ~~February~~time ~~29,~~that ~~2024~~share option awards granted are expected to be outstanding giving consideration to vesting schedules and historical participant exercise behavior; the expected volatility is based upon historical volatility of the Company’s common stock; the expected dividend yield is based on the fact that the Company has not paid dividends in the past and does not expect to pay dividends in the future; and the risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of measurement corresponding with the expected term of the share option award.

1514

As of August 31, 2024, the intrinsic value as these stock options amounted to $158. The exercise prices and information related to options under the 2011 Plan outstanding on August 31, 2024 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				8,250,000				8,250,000				5.31			$	0.43			$	0.43

Warrants

A summary of the Company’s warrant activity for the ~~three~~six-months ended ~~May~~August 31, 2024, is as follows:

	Number of Warrants			Weighted Average Exercise Price
Outstanding, February 29, 2024		3,521,664		$	0.83
Granted		3,000,000			1.00
Exercised		-			-
Cancelled		-(10,000	)		-1.40
Outstanding, May 31, 2024		6,521,664		$	0.77
Outstanding, August 31, 2024		6,511,664		$	0.73

AsThere ~~noted~~was ~~above,~~no ~~during~~intrinsic ~~the~~value ~~three-months~~as ~~ended May~~of August 31, 2024, as the ~~Company~~exercise ~~issued~~prices of these warrants towere ~~purchase~~greater ~~3,000,000~~than ~~shares~~the market price of ~~common~~the Company’s stock. The ~~warrants~~exercise ~~are~~prices ~~fully~~and information ~~vested,~~related ~~exercisable~~to ~~at $1.00~~the ~~per~~warrants ~~share~~as ~~and~~of ~~will~~August ~~expire~~24, in2024, 3is ~~years.~~as follows:

There was no intrinsic value as of May 31, 2024, as the exercise prices of these warrants were greater than the market price of the Company’s stock. The exercise prices and information related to the warrants as of May 24, 2024, is as follows:

Range of Exercise Price		Stock Warrants Outstanding		Stock Warrants Exercisable		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price of Warrants Outstanding		Weighted Average Exercise Price of Warrants Exercisable
$	0.50		3,511,664		3,511,664		6.37	$	0.50		0.50
$	1.00		3,000,000		3,000,000		2.68	$	1.00	$	1.00

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		3,521,664		3,564,764		1.47	$	0.83		0.83
$	1.00		3,000,000		3,000,000		3.00	$	1.00	$	1.00

NOTE 10 – RELATED PARTY TRANSACTIONS

As of ~~May~~August 31, 2024, and February 29, 2024, ~~BetterSea~~ BetterSea LLC was an 8.4% and 8.8%, respectively, shareholder of the Company. For the ~~three~~six months ending on ~~May~~August 31, 2024 and 2023, the ~~Company~~ Company incurred consulting fees to BetterSea of $82 40 and $3680, respectively. As of ~~May~~August 31, 2024, and February 29, 2024, a total of approximately $213 ~~221~~ and $213 respectively, was due to BetterSea and included accounts payable and accrued expenses.

NOTE 11 – CONTINGENCIES

The Company is subject to legal proceedings and claims that have arisen in the ordinary course of business. Our management evaluates our exposure to these claims and proceedings individually and in the aggregate and evaluates potential losses on such litigation if the amount of the loss is estimable and the loss is probable. However, the outcome of legal proceedings and claims brought against the Company is subject to significant uncertainty. Although management considers the likelihood of such an outcome to be remote, if one or more of these legal matters were resolved against the Company for amounts in excess of management’s expectations, the Company’s financial statements for that reporting period could be materially adversely affected.

In June 2022, Melvin Gagerman, the Company’s former CEO and CFO whose employment with Aura was permanently terminated in July 2019, brought suit against the Company for repayment of an allegedly unsecured demand promissory note in the principal amount of $82 which he claims was entered into in April 2014 and bears interest at a rate of 10% per annum. Despite the fact that, based on Gagerman’s allegations, the note was issued during a period when he was the Company’s CEO, CFO, Corporate Secretary and Chairman of Aura’s Board of Directors, Gagerman has stated that he does not possess a copy of the alleged promissory note. The Company disputes that any amount is presently owed to Gagerman and has filed a cross-complaint against him for, among things, conversion, violation of California Business& Professions Code §17200, and various breaches of fiduciary duty that the Company believes Gagerman committed against Aura, including without limitation, Gagerman’s actions in opposing the valid 2019 stockholder consent action (see Note 5).

On March 26, 2019, various stockholders of the Company controlling a combined total of more than 27.5 million shares delivered a signed written consent to the Company removing Ronald Buschur as a member of the Company’s Board and electing Cipora Lavut as a director of the Company. On March 27, 2019, those same stockholders delivered a further signed written consent to the Company removing William Anderson and Si Ryong Yu as members of the Company’s Board and electing Robert Lempert and David Mann as directors of the Company. These written consents represented a majority of the outstanding shares of the Company’s common stock as of March 26, 2019, and March 27, 2019, respectively. Because of Aura’s refusal to recognize the legal effectiveness of the consents, on April 8, 2019, the stockholders filed suit in the Court of Chancery of the State of Delaware pursuant to Section 225 of the Delaware General Corporations Law, seeking an order confirming the validity of the consents and declaring that Aura’s Board consists of Ms. Lavut, Mr. Mann, Dr. Lempert, Mr. Douglas and Mr. Diaz-Versón, Jr. On July 8, 2019 the Court of Chancery entered final judgment in favor of the stockholder plaintiffs, confirming that (a) Ronald Buschur, Si Ryong Yu and William Anderson had been validly removed by the holders of a majority of the Company’s outstanding stock acting by written consent (b) Ms. Lavut, Mr. Mann and Dr. Lempert had been validly elected by the holders of a majority of the Company’s outstanding stock acting by written consent, and (c) the Company’s Board of Directors validly consists of Cipora Lavut, David Mann, Robert Lempert, Gary Douglas and Salvador Diaz- Versón, Jr. As a result of prior management’s unsuccessful opposition to this stockholders’ action filed in the Court of Chancery, such stockholders may be potentially entitled to recoup their litigation costs from the Company under Delaware’s corporate benefit doctrine and/or other legal provisions. To date, no final determination has been made as to the amount of recoupment, if any, to which such stockholders may be entitled.

NOTE 12 – SUBSEQUENT EVENTS

Subsequent to ~~May~~August 31, 2024, the Company issued 2,~~480~~876,~~000~~070 shares of common stock for cash $~~235~~719.

1716

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 29, 2024, issued on June 4, 2024 (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.

1817

Overview

Our business is based on the exploitation of our Axial Flux Induction technology for both electric motors and generators. Our power generation solution based on axial flux induction is known as the AuraGen^® for commercial and industrial applications and the VIPER for military applications. Aura’s axial flux induction technology provide: (i) higher motor/generator efficiency, that directly translated to lower cost for operations (ii) lighter and smaller machines that lead to lower manufacturing cost, (iii) higher reliability that results in less down time and maintenance cost, (iv) the only raw materials used for construction are copper and steel without any rare earth or any other types of permanent magnets. This immediately results in global availability without market risks as well as geopolitical risks of dependence on single source, and (v) the use of approximately 60% less of copper than the equivalent radial flux induction machines, results in less needed mining to extract the needed copper with direct positive environmental impact.

Our business model consists of three major components: (i) sales and marketing, iii) design and engineering and (iii) axial flux induction motors and generators manufacturing. Our sales and marketing approaches are composed of direct sales in North America and the use of agents and distributors in other areas. In addition, we are also exploring limited licensing of our technology to very large potential users as well as potential joint ventures with existing industrial motor/generator suppliers. The second component of our business model is focused on the design, engineer and commercialize of new commercial and industrial electric motors based on our axial flux induction for numerous applications such as pumps, compressors, and HVAC. We are also designing electric motors for both 2- and 4-wheel EV application, as well as, expending the product line for electric power generation. The third component of our business model is to set up manufacturing of the axial flux induction products being engineered and design.

We are currently completing a 250-kW electric motor prototype based on our axial flux induction for EV applications. This activity is in conjunction with a large European tier 1 automotive supplier interest and inputs. We have also in May 2024 completed the installation of our new smaller 10-kW mobile power generator on a Polaris type ATV platform for US military applications. We expect in the coming months to start shipping this new product to a specific customer. We are also currently in discussions for usage of our technology for numerous wind turbines applications.

In fiscal 2024 and first quarter of fiscal 2025 we have significantly increased our engineering capabilities with having hired experts’ engineers in thermo dynamics (Ph.D.), electromagnetic motor design (Ph.D.) Power electronics & control (Ph.D.) and mechanical design (M.S.M.E). We have also acquired the latest in advance engineering tools such as Ansys Maxwell finite elements, MATLAB and 3-D solid work. Our engineering, research and development costs for the three months ended ~~May~~August 31, 2024, were approximately $98.4.

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.

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 financial statements included in our Annual Report on Form 10-K for the fiscal year ended February 29, 2024, 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 fiscals 2023 and 2024 and will continue to impact the Company’s business in fiscal 2025. The implications of higher government deficits and debt, tighter monetary policy, and higher long-term interest rates may drive a higher cost of capital for the business and an increase in the Company’s operating expenses.

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.

Results of Operations

Three months ended ~~May~~August 31, 2024, compared to to three months ended ~~May~~August 31, 2023

Net revenue was $473 for the three-months ended ~~May~~August 31, 2024, compared to $100 for the three-months ended ~~May~~August 31, 2023. 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 2025.

Cost of goods sold was $47(18) in the three-months ended ~~May~~August 31, 2024, compared to $1580 for the three-months ended ~~May~~August 31, 2023. ~~This resulted in a gross profit of $0 compared to a gross loss of $5 for the three-months ended May 31, 2023.~~ The gross loss and related gross margin loss 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 cost of goods sold in the three-months ended May 31, 2024, included an increase in the inventory reserve of $32.~~

~~Engineering, research and development expenses were $310 in the three-months ended May 31, 2024, compared to $207 for the three-months ended May 31, 2023.~~19

~~Selling~~Engineering, ~~general~~research and ~~administration~~development ~~(“SG&A”)~~ expenses were ~~for~~$239 in the three -months ~~ending~~ended ~~May~~August 31, 2024, ~~were $396 as~~ compared to $~~508~~287 for the three ~~months ending May 31, 2024. A decreased by $112 or 22% in the three~~-~~month period ending May 31, 2024, compared to the three-~~months ended ~~May~~August 31, 2023.

~~Interest~~Selling, ~~expense~~general ~~decreased~~and byadministration (“SG&A”) expenses for the three months ending August 31, 2024, were $~~153~~2,255 as compared to $~~275~~342 ~~from $428~~ for the three months ending ~~May~~August 31, ~~2024~~2023, an increased by $1,913 or 559%. The increase in SG&A was due to increased headcount and ~~2023~~pay ~~respectively~~increases, and $1,601 in stock-based compensation, which did not occur in the prior year period.

Interest expense decreased by $123 to $289 from $412 for the three months ending August 31, 2024, and 2023 respectively.

Six months ended August 31, 2024, compared to six months ended August 31, 2023

Net revenue was $50 for the six-months ended August 31, 2024, compared to $10 for the six-months ended August 31, 2023. 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 2025.

Cost of goods sold was $29 in the six months ended August 31, 2024, compared to $95 for the six-months ended August 31, 2023. This resulted in a gross profit of $21 compared to a gross loss of $85 for the six-months ended August 31, 2023. The cost of goods sold in the six-months ended August 31, 2024, included an increase in the inventory reserve of $20. The gross loss and related gross margin for the six-months ended August 31, 2023 were largely influenced by the low volume of shipments in this quarter which reduced our ability to fully absorb fixed operating costs.

Engineering, research and development expenses were $549 in the six-months ended August 31, 2024, compared to $494 for the six-months ended August 31, 2023.

Selling, general and administration (“SG&A”) expenses for the six months ending August 31, 2024, were $2,629 as compared to $850 for the six months ending August 31, 2023, an increased by $1,779 or 209%. The increase in SG&A was due to increased headcount and pay increases, and $1,601 in stock-based compensation, which did not occur in the prior period.

Interest expense decreased by $276 to $564 from $840 for the six months ending August 31, 2024, and 2023 respectively.

Liquidity and Capital Resources

Going Concern

During the ~~three~~six-month period ended ~~May~~August 31, 2024, the Company recognized net loss of $1521,~~258~~648 from operation and used cash in operating activities of $~~784~~1,619. As of ~~May~~August 31, 2024, the ~~Company~~ Company also has a shareholder deficit of $3539,~~627~~770 and notes payable totaling $5,315 are also past due. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year of the date that the financial statements are issued. In addition, the Company’s independent registered public accounting firm, in its report on the Company’s February 29, 2024, financial statements, raised substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

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 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 ~~May~~August 31, 2024, we had cash of ~~approximately~~ $~~297~~15, compared to cash of approximately $124 at February 29, 2024. Subsequent to ~~May~~August 31, 2024, the Company issued ~~920~~2,~~000~~876,070 shares of common ~~stock~~ stock in exchange for cash proceeds of approximately $~~235~~719.

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 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.

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”) 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 Kopple that resolves 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, we have agreed to pay an aggregate amount of $10,000 over a period of seven years; $3,000 of which was originally to be paid in June 2022, and subsequently extended to August 1, 2023. Beginning in January 2023, interest began to accrue on the unpaid balance at a rate of 6%, compounded annually. All amounts, including all accrued interest and deferred forbearance fees, are to be paid no later than eight years from the date of the initial payment. As of the date of this report, the Company has not yet paid the full $3,000 installment due to Kopple; having only made a partial payment of $150 in June 2022. In March 2024, the Company and Kopple again amended the note payable. The amendment (i) replaced the requirement to pay the $3,850 past due principal balance with the requirement to pay $2,000 due December 15, 2024, effectively extending the payment of $1,850 to future periods; (ii) increased the stated interest rate to 10%; (iii) added a fee of $15 monthly until the Company makes a principal payment of $2 million by December 2024; (iv) effective August 30, 2024, the Company will grant Kopple a conversion right that gives Kopple the option to be able to convert the note payable into equity of the Company at a conversion price of the lower of $1.00 per share or 50% of the 10 day volume weighted average price of the Company’s common stock; (v) during Fiscal 2025, will require the Company to pay 20% of all collected revenues within 10 days of the end of each fiscal quarter; (vi) will require the Company to pay Kopple 20% of any amount raised in new capital in the form of equity, debt or convertible debt above $3.5 million; (vii) reduces the exercise price of the warrants granted to Kopple in March 2022 from $0.85 per share to $0.50 per share; and (vii) extends the warrant expiration date from March 8, 2029, to March 31, 2031.

22See “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 August 31, 2024 for information regarding the dispute and settlement with Mr. Kopple regarding these transactions.

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 31, 2024 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 ~~May~~August 31, 2024, not previously identified in our Annual Report on Form 10-K, for the fiscal year ended February 29, 2024 and issued on ~~May~~August 31, 2024 which have materially affected or are reasonably likely to to materially affect our internal control over financial reporting.

2322

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 the full amount toward the settlement amount., ~~The~~leaving no remaining balance ~~is zero~~.

In March 2024, the Company and Kopple again amended the note payable. The amendment (i) replaced the requirement to pay the $3,850 past due principal balance with the requirement to pay $2,000 due December 15, 2024, effectively extending the payment of $1,850 to future periods; (ii) increased the stated interest rate to 10%; (iii) added a fee of $15 monthly until the Company makes a principal payment of $2 million by December 2024; (iv) effective August 30, 2024, the Company will grant Kopple a conversion right that gives Kopple the option to be able to convert the note payable into equity of the Company at a conversion price of the lower of $1.00 per share or 50% of the 10 day volume weighted average price of the Company’s common stock; (v) during Fiscal 2025, will require the Company to pay 20% of all collected revenues within 10 days of the end of each fiscal quarter; (vi) will require the Company to pay Kopple 20% of any amount raised in new capital in the form of equity, debt or convertible debt above $3.5 million; (vii) reduces the exercise price of the warrants granted to Kopple in March 2022 from $0.85 per share to $0.50 per share; and (vii) extends the warrant expiration date from March 8, 2029, to March 31, 2031. The Company will account for this amendment in the first quarter ended March 31, 2024, for fiscal year 2025.

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.

2423

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 2024 Annual Report on Form 10-K issued on June 4, 2024.

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

During the ~~three~~six-months ended ~~May~~August 31, 2024, the Company issued 47,~~455~~875,600 shares of common stock for approximately $1,~~117~~763 in net cash.

ITEM 3. Defaults Upon Senior Securities.

None

ITEM 4. Mine Safety Disclosures

Not applicable.

ITEM 5. Other Information.

None.

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.
32.2		Certification of 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).

2624

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: July 22, 2024	AURA SYSTEMS, INC.
Date: October 21, 2024	AURA SYSTEMS, INC.
	(Registrant)
	By:	/s/ Cipora Lavut
		Cipora Lavut
		President

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