AURA SYSTEMS, INC.

INDEX

ITEM 1. FINANCIAL STATEMENTS

AURA SYSTEMS, INC.

CONDENSED BALANCE SHEETS

(Unaudited)

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

AURA SYSTEMS, INC.

CONDENSED STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED NOVEMBER 30, 2017 AND 2016(Unaudited)

(Unaudited)

See accompanying notes to these unaudited financial statements.

AURA SYSTEMS, INC.

CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 2017 AND 2016
SHAREHOLDERS’ DEFICIT

(Unaudited)

Three Months and Six Months Ended August 31, 2023

Unaudited supplemental disclosure of non-cash investing

Three Months and financing activities:Six Months Ended August 31, 2022

During the nine months ended November 30, 2016, 950,000 shares of common stock were issued to settle a note payable balance of $150,000 plus accrued interest of $15,588.

See accompanying notes to these unaudited financial statements.

AURA SYSTEMS, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

AURA SYSTEMS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

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

NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Accounting principlesNature of Operations

InAura Systems, Inc., (“Aura”, the opinion“Company”) a Delaware corporation, is engaged in the development, commercialization, and sale of management,products, systems, and components, using its patented and proprietary electromagnetic technology. Aura develops and sells AuraGen® axial flux mobile induction power systems to the industrial, commercial, and defense mobile power generation markets.

Basis of Presentation

The accompanying balance sheetsunaudited condensed financial statements as of and related interim statements of incomefor the three and comprehensive income,six months ended August 31, 2023 and cash flows include all adjustments, consisting only of normal recurring items, necessary for their fair presentation2022, have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Interim results 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 not necessarily indicativenecessary for a fair presentation of the results for a full year.the periods presented. The Condensed Balance Sheet information as of February 28, 2023, was derived from the Company’s audited Financial Statements as of February 28, 2023, included in thisthe Company’s Annual Report on Form 10-Q10-K filed with the SEC on May 26, 2023. These financial statements should be read in conjunction with information included in the Company’s annual report on Form 10-Kthat report. The results of operations for the period ended August 31, 2023, may not necessarily be indicative of the results that may be expected for the full fiscal year ending February 28, 2024.

The Company’s fiscal year ends on the last calendar day of February. Accordingly, the current fiscal year will end on February 29, 2024 and is referred to as “Fiscal 2024”. Our prior fiscal years ended February 28, 2017 filed on September 18, 2017 with the U.S. Securities2023, February 28, 2022 and Exchange Commission.2021, and are referred to as “Fiscal 2023”, “Fiscal 2022” and “Fiscal 2021”, respectively.

EstimatesGoing Concern

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Recently Issued Accounting Pronouncements

In January 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) 2016-01, which amends the guidance in U.S. GAAP on the classification and measurement of financial instruments. Changes to the current guidance primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the ASU clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017, and upon adoption, an entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted except for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. The Company is currently evaluating the impact of adopting this guidance.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Topic 842 affects any entity that enters into a lease, with some specified scope exemptions. The guidance in this Update supersedes Topic 840, Leases. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For public companies, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are currently evaluating the impact of adopting ASU No. 2016-02 on our financial statements.

In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) that clarifies how to apply revenue recognition guidance related to whether an entity is a principal or an agent. ASU 2016-08 clarifies that the analysis must focus on whether the entity has control of the goods or services before they are transferred to the customer and provides additional guidance about how to apply the control principle when services are provided and when goods or services are combined with other goods or services. The effective date for ASU 2016-08 is the same as the effective date of ASU 2014-09 as amended by ASU 2015-14, for annual reporting periods beginning after December 15, 2017, including interim periods within those years. The Company has not yet determined the impact of ASU 2016-08 on its financial statements.

In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which provides further guidance on identifying performance obligations and improves the operability and understandability of licensing implementation guidance. The effective date for ASU 2016-10 is the same as the effective date of ASU 2014-09 as amended by ASU 2015-14, for annual reporting periods beginning after December 15, 2017, including interim periods within those years.  In May 2016, the FASB issued ASU 2016-12 “Revenue from Contracts with Customers (Topic 606) - Narrow-Scope Improvements and Practical Expedients,” which amends the guidance on transition, collectability, non-cash consideration, and the presentation of sales and other similar taxes. ASU 2016-12 clarifies that, for a contract to be considered completed at transition, all (or substantially all) of the revenue must have been recognized under legacy GAAP. In addition, ASU 2016-12 clarifies how an entity should evaluate the collectability threshold and when an entity can recognize nonrefundable consideration received as revenue if an arrangement does not meet the standard’s contract criteria. The standard allows for both retrospective and modified retrospective methods of adoption. The Company has not yet determined the impact of ASU 2016-10 on its financial statements.

In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Statements,” which requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2019 (fiscal year 2021 for the Company). The Company has not yet determined the potential effects of the adoption of ASU 2016-13 on its Financial Statements.

In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments,” which aims to eliminate diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics. ASU 2016-15 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2017 (fiscal year 2019 for the Company). The Company has not yet determined the potential effects of the adoption of ASU 2016-15 on its Financial Statements.

Reclassifications

Certain reclassifications have been made to the comparative financial statements to conform to the current period presentation.

NOTE 2 – GOING CONCERN

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. During the nine monthssix-month period ended November 30, 2017 and November 30, 2016,August 31, 2023, the Company incurred lossesrecognized net loss of $5,215,524$2,261 and $3,535,724, respectively and had negativeused cash flows fromin operating activities of $2,064,340$1,532, respectively. As of August 31, 2023, the Company also has a shareholder deficit of $20,909 and $752,305, respectively.notes payable totaling $5,200 are also past due. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year of the date that the financial statements are issued. In addition, the Company’s independent registered public accounting firm, in its report on the Company’s February 28, 2023, financial statements, raised substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

IfIn the event the Company is unable to generate profits and is unable to continue to obtain financing for its working capital requirements, it may have to curtail its business sharplyfurther 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.

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that could result from the outcome of this uncertainty.

During the next twelve months we intendthe Company intends to restartcontinue to attempt to increase the Company’s operations and focus on the sale of our AuraGen/AuraGen^®/VIPER businessproducts both domestically and internationally. At the next shareholders meeting the shareholders will vote for an entire new slate of five board candidates. The new board when elected will hire a newinternationally and to add to our existing management team. In addition, we planthe Company plans to acquire asource new facility of approximately 45,000 square feetsuppliers for manufacturing operations, as well as, rebuild the engineering QA and sales teams, and to the extent appropriate, utilize third party contractors to support the operation. We anticipateThe Company anticipates being able to fundobtain new sources of funding to support these additionsactions in the upcoming fiscal year.

NOTE 3 – NOTES PAYABLEInflation

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

COVID-19

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

Use of Estimates

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

Vendor Concentration

As of August 31, 2023 and February 28, 2023, there were four vendors who accounted for over 10% of the Company’s consolidated accounts payable.

Revenue Recognition

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

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

Share-Based Compensation

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 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:

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 August 31, 2023 and February 28, 2023:

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

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

Reclassifications

Certain February 28, 2023 balances have been reclassified to conform with the August 31, 2023 presentation. In presenting the Company’s consolidated balance sheet at February 28, 2023, the Company originally presented accrued interest of $1,389 and accrued payroll and other expenses of $441, totaling $1,830 as a separate line item called Accrued Expenses. In presenting the Company’s consolidated balance sheet at August 31, 2023, the Company has reclassified the balance of accrued interest of $1,389 as a separate line item, and the balance of accrued payroll and other expenses of $441 as part of accounts payable and accrued expense.

Loss per share

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

For the six-months ended August 31, 2023 and August 31, 2022, the calculations of basic and diluted loss per share are the same because potentially dilutive securities would have had an anti-dilutive effect. The potentially dilutive securities consisted of the following:

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

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

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

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

NOTE 2 – CONVERTIBLE NOTES PAYABLE, PAST DUE

Convertible notes payable consisted of the following:

CONVERTIBLE DEBT

On May 7,In Fiscal 2013 and 2014, the Company transferred 4issued six convertible notes payable with a total principal valuein the aggregate of $1,000,000 together with accrued$4,000. The notes are unsecured, bear interest at 5% per annum and consulting feesare convertible to a senior secured convertible note with a principal value of $1,087,000 and warrants to Kenmont Capital Partners. This new note has a 1-year maturity date and is convertible into shares of common stock at the conversion price of $0.75 per share. The warrants entitle the holder to acquire 1,449,333 shares of common stock, have an initial exercise price of $0.75 per share, and have a 7-year term. The Company recorded $342,020 as a discount, which will be amortized over the life of the note.

On May 7, 2013, the Company transferred 2 note payables with a total principal value of $550,000 together with accrued interest to a senior secured convertible note with a principal value of $558,700 and warrants to LPD Investments, Ltd. This new note has a 1-year maturity date and is convertible into shares of common stock at the conversion price of $0.75 per share. The warrants entitle the holder to acquire 744,933 shares of common stock, have an initial exercise price of $0.75 per share, and have a 7-year term. The Company recorded $175,793 as a discount, which will be amortized over the life of the note.

On May 7, 2013, the Company entered into an agreement with an individual for the sale of a secured convertible note payable in the original principal amount of $750,000 and warrants. This note has a 1-year maturity date and is convertible into shares of common stock at the conversion price of $0.75 per share. The warrants entitle the holder to acquire 1,000,000 shares of common stock, have an initial exercise price of $0.75 per share, and have a 7-year term. The Company recorded $235,985 as a discount, which will be amortized over the life of the note.

On June 20, 2013, the Company entered into an agreement with four individuals for the sale of secured convertible notes payable in the original amount of $325,000 and warrants. These Notes have a 1-year maturity date and are convertible into shares of common stock at the conversion price of $0.50 per share. The warrants entitle the holders to acquire 433,334 shares of common stock, have an initial exercise price of $0.75 per share, and have a 7-year term. The Company recorded $63,622 as a discount, which will be amortized over the life of the notes.

On August 19, 2013, the Company entered into an agreement with a member of its Board of Directors for the sale of $2,500,000 of unsecured convertible notes payable and warrants. These notes carry a base interest rate of 9.5%, have a 4-year maturity date and are convertible into shares of common stock at the conversion price of $0.50 per share. The warrants entitle the holder to acquire 5,000,000 shares of common stock, have an initial exercise price of $0.75 per share and have a 7-year term. The Company recorded $667,118 as a discount, which will be amortized over the life of the note.

All convertible notes payable are due within twelve months or have not been paid when originally due.

CONVERTIBLE PROMISSORY NOTES

At February 28, 2013, the three other unsecured convertible promissory notes payable amounted to $1,447,938, net of discounts of $402,063. These convertible notes bear interest at 7% per annum, and are convertible into common stock of the Company at $0.76 per share (as well as variable conversion rates as described below). These notes are due on August 10, 2017, October 2, 2017, and January 4, 2013. On May 7, 2013, the note due on January 4, 2013 was converted into a portion of the note due June 15, 2013, which carries an interest rate of 12%.

During the quarter ended November 30, 2017, the company entered into agreements with various individuals for the aggregate sale of $615,953 of unsecured convertible notes and warrants. Pursuant to the terms of these notes, such notes will be converted in their entirety into shares of common stock of the Company at the conversion price of $0.07 per share upon stockholder approval of a 1-for-7 reverse stock split. The warrants entitle the holders to acquire up to an aggregate of 132,000 shares of common stock and have an initial exercise price of $0.20 per share which will be adjusted to $1.40 per share upon stockholder approval of a 1-for-7 reverse stock split. The stockholders approved the reverse stock split at the Company’s stockholder meeting on January 11, 2018.

7% Convertible Promissory Notes:

On August 10, 2012 the Company entered into an agreement with an individual for the sale of an unsecured convertible promissory note in the original principal amount of $1,000,000. This convertible promissory note is due and payable on August 10, 2017 and bears an interest rate is 7% per annum.  Interest on the unpaid principal amount of this note is payable monthly in arrears, on the tenth day of each calendar month, commencing September 10, 2012. Interest is computed on the actual number of days elapsed over a 360-day year. The Holder has the right to convert any outstanding and unpaid principal portion of this convertible promissory note into shares of common stock. The company recorded $310,723 as a debt discount, which will be amortized over the life of the note.

On October 2, 2012 the Company entered into an agreement with an individual for the sale of an unsecured convertible promissory note in the original principal amount of $500,000. This convertible promissory note is due and payable on October 2, 2017 and bears an interest rate is 7% per annum.  Interest on the unpaid principal amount of this note is payable monthly in arrears on the second day of each calendar month, commencing November 2, 2012. Interest is computed on the actual number of days elapsed over a 360-day year. The Holder has the right to convert any outstanding and unpaid principal portion of this convertible promissory note into shares of common stock. The company recorded $137,583 as a debt discount, which will be amortized over the life of the note.

On January 30, 2017 the Company entered into an agreement entitled First Amendment to Transaction Documents with five of seven of its secured creditors. These creditors hold a security interest in all of the Company’s assets except for its patents and other intellectual properties. The original agreement dated May 7, 2013 provided that if the holders of at least 75% of the stock issuable upon conversion of the convertible notes votes to amend the agreement, then such amendments will be binding on all the secured creditors. The five secured creditors signing the amendment total in excess of 95% of the issuable stock upon conversion and, therefore the agreement is binding on all seven of the secured creditors. The amended agreement provides that all accrued and unpaid interest will be added to the principal amount, the amended notes bear interest at the rate of 0% through the sooner of (i) January 15, 2018 or (ii) the fifth business day following a stockholder meeting and 5% per annum thereafter, subject to reduction to comply with applicable law, and mature in 60 months from the effective date of a proposed 1-for-7 reverse stock split (which may only be effected if approved by the stockholders at the next annual meeting of stockholders). Upon certain financings, within five business days following stockholder approval of a 1-for-7 reverse stock split, the Company is obligated to make a payment to the holders of the amended notes in the amount of 20% of the outstanding secured notes. Upon the effectiveness of a proposed 1-for-7 reverse stock split, the remaining 80% balance of the amended notes is converted into shares of the Company’s common stock. After the effectiveness of a proposed 1-for-7 reverse stock split, the secured note holders may voluntarily convert the unpaid principal and interest thereon into the Company’s common stock at the conversion price of $1.40 per share.

share, as adjusted. The notes were originally due in 2014 to 2017, and were all amended in 2018 and the maturity date for all the notes was changed to January 11, 2023.

OnAs of August 31, 2023 and February 21, 201728, 2023, the Company entered into debt refinancing agreements with several debt holders relating to aggregate unsecured debt totaling $2,237,456 including interestoutstanding balance of $489,466. This refinancing agreement waives any past events of default and provides for new five-yearthe convertible notes which bear no interest through the sooner of (i) January 15, 2018 or (ii) the fifth business day following a stockholder meetingpayable amounted to $1,403 and 5% per annum thereafter. Upon stockholder approval of a 1-for-7 reverse stock split, these notes will be converted into a total of 1,164,555 shares of common stock. The notes also provide various default provisions.are past due.

NOTE 3 – CONVERTIBLE NOTE PAYABLE-RELATED PARTY, PAST DUE

The stockholders approved the reverse split at the Company’s stockholder meeting on January 11, 2018.

NOTE 4Convertible note payable – ACCRUED EXPENSES

Accrued expensesrelated party consisted of the following:

Accrued payroll and related expenses consists of salaries and vacation time accrued but not paid to employees due to our lack of financial resources.

NOTE 5 – SHAREHOLDERS’ EQUITY

Common Stock

During the nine months ended November 30, 2017, we issued 5,000,000 shares of common stock for $1,000,000 in conjunction with our Chinese Joint Venture, we issued 5,116,959 shares of common stock valued at $665,204 as part of a settlement agreement, and we issued 2,500,000 shares of common stock valued at $325,000 in connection with a consulting agreement.

During the nine months ended November 30, 2016, we issued 950,000 shares of common stock as a settlement for a note payable balance of $150,000 plus accrued interest of $15,288.

Employee Stock Options

During the nine months ended November 30, 2017, there were no stock options granted to employees.

In September, 2006, our Board of Directors adopted the 2006 Employee Stock Option Plan. Activity in this plan is as follows:

The exercise prices for the options outstanding at November 30, 2017, and information relating to these options is as follows:

Warrants

Activity in issued and outstanding warrants is as follows:

The exercise prices for the warrants outstanding at November 30, 2017, and information relating to these warrants is as follows:

NOTE 5 – RELATED PARTIES TRANSACTIONS

On January 24, 2017, the Company entered into a Debt Refinancing Agreementdebt refinancing agreement with Mr. Warren Breslow, who served as a Directorformer director and current shareholder of the Company. As part of the agreement, the Company from 2006issued a $3,000 convertible note. The convertible note is unsecured, bears interest at 5% per annum, was due February 2, 2023, and is convertible into shares of common stock at a conversion price of $1.40 per share, as adjusted.

As of August 31, 2023 and February 28, 2023, the convertible note of $3,000 and is past due.

NOTE 4 – NOTES PAYABLE

Notes payable consisted of the following:

(a) Economic Injury Disaster (EID) Loan

On July 1, 2020, 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 notes payable to 2017. Mr. Breslow resigned his positionpurchase two pieces of equipment and a vehicle for $329. The notes are secured by the equipment and vehicle purchased. One note for $210 is due October 31, 2024, and requires 36 equal monthly payments of approximately $6 each, including interest at 2.9% per annum. The second note for $78 is due January 20, 2027, and requires 72 equal monthly payments of approximately $1.5 each, including interest at 10.9% interest per annum. As of August 31, 2023 and February 28, 2023, the balance of the two notes was $147 and $188, respectively.

(c) Note payable-other

As of August 31, 2023 and February 28, 2023, the Company has one note payable due to an individual issued in September 2015 that is payable on our boarddemand with an interest rate of 10% per annum.

NOTE 5 – NOTES PAYABLE-RELATED PARTIES

Notes payable-related parties consisted of the following:

(a) Kopple Note

In fiscals 2013 through 2018, the Company issued notes payable to Robert Kopple and associated entities (collectively “Kopple”) in the aggregate principal amount of $6,107. Robert Kopple is the former Vice-Chairman of the Company’s Board of Directors and is a current shareholder in the Company. Between July 2017 and March 2017. Pursuant2022, the Company was engaged in litigation with Kopple relating to thismore than $13,000 of principal and accrued interest due under the notes, and the equivalent of the approximately 23 million warrants.

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

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

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

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

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

Subsequent to August 31, 2023, the Company and Kopple have agreed in principle for another extension of the deadline for payment of the $2,850 of the initial payment and installment payment of $1,000 and intend to memorialize such an agreement in writing by end of October 2023. Such further amendment will also indicate that total debt owedby such extension, the Company is not in default of the agreement as of August 31, 2023, and through the date that the financial statements are issued.

The settlement agreement with Kopple provides for certain increases in the amounts payable to Mr. BreslowKopple and his affiliatesthe right of such parties to enter a judgement against the Company if the Company remains in unsecured default in its payment obligations. Pursuant to the settlement agreement, the Company is also subject to certain affirmative and negative covenants such as periodic submission of financial statements to Koppel and restrictions on future financing and investing activities, as defined in the agreement, including the covenant to not create any indebtedness that is senior in right of payment to the Kopple debt. Management believes such covenants are normal for this type of transaction and that management believes meeting these covenants will not affect operations and the Company was $23,872,614 including $8,890,574in compliance with all covenants as of accrued interest. Mr. Breslow agreedAugust 31, 2023.

(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 cancel and forgive all interest due, waive any past events of default and sign a new, five-year unsecured convertible note,him in the amount of $14,982,041. This new note$82 that bears no interest through the sooner of (i) January 15, 2018 or (ii) the fifth business day following a shareholder meeting, and 5% per annum thereafter. This new note also provides various default provisions. The refinancing agreement further provides that $11,982,041 of Mr. Breslow’s new note will be converted into 7,403,705 shares of common stock upon stockholder approval of a 1-for-7 reverse stock split within eighteen months of entering into that agreement; the remaining balance may thereafter be converted at any time. In the absence of stockholder approval of a 1-for-7 reverse stock split within eighteen months, the refinancing agreement will become null and void. The Company has elected to continue to accrue interest on this agreement until such time as the 1-for-7 reverse stock split has been approved. The stockholders approved the reverse split at the Company’s stockholder meeting on January 11, 2018.

At November 30, 2017, the balance in Notes Payable and accrued interest-related party, current, includes $14,982,041 of unsecured notes payable plus accrued interest of $10,010,053 to Mr. Breslow, a member of our Board of Directors, payable on demand, bearing 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 balance was $14,982,041 plusCompany 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 notes payable and accrued interest of $8,890,574approximately $167 and $164 as of August 31, 2023 and February 28, 2017. 2023, respectively.

(c) Jiangsu Shengfeng Note

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

As of August 31, 2023 and February 28, 2023, the principal due was $700, and was past due.

NOTE 6 – ACCRUED INTEREST

Accrued expenses consisted of the following:

NOTE 7 – LEASES

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

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:

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

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

NOTE 8 – DERIVATIVE WARRANT LIABILITY

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

The following tables summarize the derivative warrant liability:

NOTE 9 – SHAREHOLDERS’ DEFICIT

Common Stock

During the periodssix-months ended November 30, 2017August 31, 2023, the Company issued 4,877,271 shares of common stock for approximately $1,610 in cash.

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

Stock Options

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

There was no intrinsic value as of August 31, 2023, as the exercise prices of these options were greater than the market price of the Company’s stock. The exercise prices and November 30, 2016, interest amountinginformation related to $1,119,480options under the 2011 Plan outstanding on August 31, 2023 is as follows:

The Company granted no stock options under its stock option 2011 Plan for the six-month period ended August 31, 2023 and $993,647 respectively,the six-month period ended August 31, 2022.

Warrants

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

There was incurred onno intrinsic value as of August 31, 2023, as the exercise prices of these notes. Related Parties Transactions also includes $82,000warrants were greater than the market price of unsecured notes payable plus accrued interestthe Company’s stock. The exercise prices and information related to the warrants as of $35,268 and $29,141 to our CEOAugust 31, 2023 is as follows:

In March 2022, pursuant to an agreement with a demand note entered into on April 5, 2014 and an unsecured note payableholder (see Note 5), the Company issued to Mr. Kopple another member3,331,664 warrants to purchase the Company’s common stock with a term of our Board7 years and at an exercise price of Directors$0.85 per share. The Company determined the fair value of the Kopple Warrants was $1,051 using a Black-Scholes model using the assumptions as set forth in the total amounttable below:

NOTE 10 – RELATED PARTY TRANSACTIONS

As of $3,029,930 and $3,587,322 plus accrued interest of $2,040,533 and $2,098,616 pursuant to 10% demand note payable as of November 30, 2017August 31, 2023 and February 28, 2017, respectively. At November 30, 2017,2023, Bettersea LLC (“Bettersea”) was an 9.2% and 9.7%, respectively, shareholder in the balanceCompany.

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

As of August 31, 2023 and February 28, 2023, a total of $229 and $216, respectively, was due to Bettersea and included in Convertible noteaccounts payable and accrued interest-related party, long term, includes $2,000,000 of secured convertible notes payable plus accrued interest of $1,145,258 to Mr. Kopple.expenses.

NOTE 711 – COMMITMENTS

Leases

Our facilities consist of approximately 20,000 rented square feet in Stanton, California. The Stanton facility is currently being used for small quantity assembly and testing using components that are produced by various suppliers as well as for general offices, engineering and warehousing. The rent for the Stanton facility is $10,000 per month. The facility is not sufficient for our near term anticipated needs and the Company is actively looking for a new facility. The Company arrangements for the Stanton facility are on a month per month rent.

Joint Venture

On January 27, 2017, the Company entered into a joint venture (JV) agreement with a Chinese company to manufacture market and distribute certain mobile power products based on Aura’s patented technology solely for the Peoples Republic of China territories. The JV is owned 49% by the Company and 51% by the Chinese company. The Company has contributed $250,000 and a license to specific technology and the Chinese company is required to contribute $9,750,000. In addition, the Chinese company will invest $2,000,000 in Aura at $0.20 per share for a total of 10,000,000 shares of common stock. Additionally, the Chinese company will purchase a minimum of $1,250,000 of product supported by letters of credit for distribution until the joint venture factory is built, equipped, and staffed. In order to assure proper training of joint venture personnel, Aura has also committed to supply instructional personnel for six months at no cost other than reimbursement for travel, room and board. The agreement was subject to the approval of the Chinese Government which was received in April, 2017.

NOTE 8 – SUBSEQUENT EVENTS:CONTINGENCIES

The Company is presentlysubject 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 2017, the Company’s former COO was awarded approximately $238 in accrued salary and related charges by the California labor board. In August 2021, the Company reached a settlement by which the Company agreed to pay approximately $330, representing the principal award plus accrued interest. As of the time of this filing, the Company has paid approximately $292 toward the settlement amount. The remaining balance of approximately $38 is to be paid no later than December 31, 2023, and accrues interest of 10% per annum until paid. 

Between July 2017 and March 2022, the Company was engaged in litigation with a dispute with one of its directors,former director, Robert Kopple, relating to more than $13,000 and the current equivalent of the approximately $5.4 million and approximately 2223 million warrants, exercisable for seven years at a price of $0.10 per share, which Mr. Kopple and his affiliated entities (collectively “Kopple”) claimed should have been originally issued to them pursuant to various agreements with the Company entered into between 2013-2016. In March 2022, the Company reached a settlement (the “Binding Term Sheet”) with Kopple that resolved all claims asserted against the Company without any admission, concession or finding of any fault, liability, or wrongdoing on the part of the Company. Under the terms of the settlement, the Company agreed to pay an aggregate amount of $10,000 over a period of seven years, including $3,000 initial payment to be owedpaid in June 2022. $150 was paid in June 2022, and the balance of the initial payment of $2,850 was extended to himAugust 1, 2023. The Company and his affiliatesKoppel have agreed in principle to another extension of the deadlines for payments owed by the Company to Kopple and intend to memorialize such an agreement in writing on or before October 31, 2023. Such further amendment will also indicate that by such extension the Company is not in default on the Binding Term Sheet as of September 30, 2023, and through the date that the financial statements are issued. All amounts, including all accrued interest and deferred fees, are to be paid no later than eight years from the date of the initial payment. The settlement also provides for standard mutual general release provisions and includes customary representations, warranties, and covenants, including certain increases in the amount payable to the Kopple Parties and the right of such parties to enter judgment against the Company if the Company remains in uncured default in its payment obligations under the settlement (see Note 5).

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.

In June 2022, Melvin Gagerman, the Company’s former CEO and CFO whose employment with Aura was permanently terminated in July 2017, Mr. Kopple filed2019, brought suit against the Company as well as against currentfor 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, Mr.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 Mr. Diaz-Verson together with former Directors Mr. Breslowhas filed a cross-complaint against him for, among things, conversion, violation of California Business& Professions Code §17200, and Mr. Howsmon in connection with these allegations. Thevarious breaches of fiduciary duty that the Company believes that it hasGagerman committed against Aura, including without limitation, Gagerman’s actions in opposing the valid defenses in these matters and intends to vigorously defend against these claims.2019 stockholder consent action.

NOTE 12 – SUBSEQUENT EVENTS

Subsequent to August 31, 2023, the Company issued 796,972 shares of common stock in exchange for cash proceeds of approximately $263.

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:

We do not intend to update or revise any forward-looking statements, whether as a resultbecause 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.

Overview

Our business is based on the exploitation of our patented mobile powerAxial Flux Induction solution known as the AuraGen^® for commercial and industrial applications and the VIPER for military applications. Our business model consists of threetwo major components: (i) sales and marketing, (ii) engineering,design and (iii) customer service and support.

(i)engineering. Our sales and marketing approach isapproaches are composed of direct sales in North America and the use of agents and distributors and joint ventures for sales internationally.in other areas. In North America, our primary focus is in (a) transport refrigeration, andmobile exportable power applications, (b) EV applications, (c) U.S. Military applications and (d) industrial applications.

(ii) The second component of our business model is focused on the design of new products and engineering support for the sales activities described above. The engineering support consists of the introduction of new features for our AuraGen/AuraGen^®/VIPERsolution such as higher power,power/torque solutions, and different input and output voltages three phase options, shore power systems, higher current solutions as well as interface kits for different platforms.(DC and AC input and output versions).

(iii)      The third component of our business model is customer service. In fiscal 2018, we expect to rehire several previously trained field engineers to support our product in North America. In addition, we are working closely with our Chinese Joint Venture partner to train their staff to support our products overseas.

During the first halfFiscal 2020 stockholders of fiscal 2016, the Company significantly reduced operations due to lacksuccessfully removed Ronald Buschur, William Anderson and Si Ryong Yu from the Company’s Board of financial resources. DuringDirectors and elected Ms. Cipora Lavut, Mr. David Mann and Dr. Robert Lempert as directors of the Company in their stead. See Item 3, Legal Proceedings for more information. Also, in Fiscal 2020, Melvin Gagerman –– Aura’s CEO and CFO since 2006 –– was replaced. In July 2019 Ms. Lavut succeeded Mr. Gagerman as President and Mr. Mann succeeded Mr. Gagerman as CFO. Dr. Lempert was appointed as Secretary of the Company by the Board of Directors also in July 2019. In the second half of Fiscal 2020, the Company began significantly increasing its engineering, manufacturing and marketing activities. From July 8, 2019 through the end of Fiscal year 2022 (February 28, 2022), we shipped more than 140 units to customers (more than a ten-fold increase over Fiscal 2019). Although our operations were impacted in Fiscal 2022 and Fiscal 2021 by the COVID-19 pandemic, during these periods we continued to expand our engineering and manufacturing capabilities. See “Item 1. Business. Impact of the COVID-19 Pandemic” included in our Annual Report on Form 10-K for fiscal 20162022 for information regarding the impact of COVID-19 on our operations. Our engineering, research and development costs for the six months ended August 31, 2023, and the six months ended August 31, 2022 were approximately $494 and $411, respectively. During the three months ended May 31, 2021, we relocated all administrative offices and operations to a new state-of-the-art facility consisting of approximately 18,000 square feet in Lake Forest, California. This new facility is wholly occupied by Aura.

During Fiscal 2018 and Fiscal 2019, the Company’s operations were disrupted when the Company was forced to move from its facilities in Redondo Beach, California to a smaller facility in Stanton, California. Operations during the second half of fiscal 2016 were sporadic. During fiscal 2017, the Company suspended its engineering, manufacturing, sales, and marketing activities to focuswere reduced while we focused on renegotiating numerous financial obligations.

The Company has been successful in restructuring its secured debt During this time, the Company’s agreements with numerous customers, third party vendors, and has reached an agreement with its secured creditors whereby all defaultsorganizations and penalties have been waived and 80%entities material to the operation of the secured debt will be converted into shares of the Company’s common stock as soon asCompany business were canceled, delayed or terminated. During Fiscal 2018, the Company holds an annual meetingsuccessfully restructured in excess of stockholders to elect a new board$30,000 of directors. The balance (the remaining 20%), is to be paid to the secured creditors in cash within five business days following stockholder approval of a 1-for-7 reverse stock split provided that certain financings milestones have been reached by the Company. Upon conversion, the converting secured creditors will receive approximately 3.9 million new common shares in exchange for approximately $5.73 million of converting debt.

The Company has also been successful in restructuring approximately $27.5 million of unsecured debt. Various unsecured creditors have agreed to waive all defaults and penalties, to forgive an aggregate of approximately $9.3 million in debt, and convert an aggregate of approximately $15.2 million of unsecured debt into approximately 10.2 million common shares. As of the date of this filing, Robert Kopple, the Company’sour former Vice Chairman of the Board, iswas the only significant unsecured note holder that hasdid not executed formal agreements regarding the restructure of his debt. See “Item 3. Legal Proceedings” included in our Annual Report on Form 10-K for Fiscal 2022 filed with the SEC on June 21, 2022, and Part II, Other Information Item 1, contained in this Quarterly Report for information regarding the dispute and settlement with Mr. Kopple regarding these transactions. In March 2022, the Company reached a settlement that resolves the various claims asserted against us by Mr. Kopple and his affiliated entities (collectively the “Kopple Parties”). Under the terms of the settlement, we have agreed to restructure his debt. Mr. Kopple claimspay an aggregate amount of $10,000 over a period of seven years; $3,000 of which is to be owedpaid within approximately $5.4 million on terms significantly preferable to other similarly-situated unsecured creditors. Mr. Kopple has not acceptedfour months of the Company’s offer to restructure this debt to-date.

Our financial statements included in this report have been preparedsettlement date, after which, interest will accrue on the assumption that we will continue asunpaid balance at a going concern, which contemplatesrate of 6%, compounded annually. All amounts, including all accrued interest, are to be paid no later than eight years from the realizationdate of assetsthe initial payment. The Kopple Parties have also received seven-year warrants to purchase up to an aggregate of 3,331,664 shares of our common stock at a price of $0.85 per share. The settlement also provides for standard mutual general release provisions and satisfaction of liabilitiesincludes customary representations, warranties, and covenants, including certain increases in the normal course of business. However, as a result of our losses from operations, there is substantial doubt about our abilityamount payable to continue as a going concern. Our independent auditors, in their report on the Company’s financial statements for the year ended February 28, 2017 expressed substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amount and classification of liabilities that may result from our possible inability to continue as a going concern.

Our ability to continue as a going concern is dependent upon the successful achievement of profitable operations,Kopple Parties and the abilityright of such parties to generate sufficient cash from operations and obtain financing resources to meet our obligations. There is no assurance that such efforts will be successful.

Our current level of sales reflects our efforts to introduce a new product intoenter judgment against the marketplace. Until recently, many purchases ofCompany if the product were for evaluation purposes. Recently we started to receive repeat orders for larger quantities as different organizations are integrating our products into their vehicles. We seek to achieve profitable operations by obtaining market acceptance ofCompany remains in uncured default in its payment obligations under the AuraGen^® as a competitive - if not superior - product providing mobile power anywhere anytime. There can be no assurance that this success will be achieved.settlement.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial conditionconditions and results of operations are based upon our consolidated 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. On an on-going basis,In preparing our financial statements, we evaluatehave made our best estimates including, but not limited to, those related to revenue recognition.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. We believe that the followingThere were no changes to our critical accounting policies affect our more significant judgments and estimatesdescribed in the preparationconsolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended February 28, 2023, that impacted our condensed financial statements and related notes included herein.

Revenue Recognition

The Company recognizes revenue in accordance with Financial Accounting Standard Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers. In accordance with ASC 606, we recognize revenue, net of discounts, for our generator sets at time of product delivery to the domestic distributor (i.e. point-in-time), which also corresponds to the passage of legal title to the customer and the satisfaction of our consolidated financial statements.

Revenue Recognition

We are required to make judgments based on historical experience and future expectations, asperformance obligations to the reliability of shipments made to our customers. These judgments are required to assess the propriety of the recognition of revenue based on Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition,” and related guidance. Because sales are currently in limited volume and many sales are for evaluative purposes, we have not booked a general reserve for returns. We will consider an appropriate level of reserve for product returns when our sales increase to commercial levels.customer.

Inventory Valuation and ClassificationInventories

Inventories consist primarily of components and completed units for our AuraGen^® product. Inventories are valued at the lower of cost (first-in, first-out) or market. Provisionnet 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 madelower 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 estimated amounts of current inventoriesinventory that will ultimately become obsolete duemay 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 product itselffair value reported in the statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or vehicle engine typesas 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 go outthe impact of production. Managementthese issues will continue to evolve. The Company believes that existing inventories can,these factors impacted the Company’s business in 2023 and the first six months of 2024 and will be soldcontinue to impact the Company’s business in 2024 and 2025. The implications of higher government deficits and debt, tighter monetary policy, and higher long-term interest rates may drive a higher cost of capital for the business and an increase in the future without significant costs to upgrade it to current models and that the valuationCompany’s operating expenses.

COVID-19

As of the inventories accurately reflectsdate of this filing, the realizable valuesCOVID-19 pandemic has been declared to be officially over. Despite this fact, there continues to be lingering impacts of these assets.the COVID-19 pandemic in the regions in which the Company operates. The AuraGen^® product being sold currentlyCompany 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 technologically differentpossible for the Company to predict the duration or magnitude of the adverse results stemming from those in current use. Existing finished goods inventories can be upgraded to the current model with only a small amount of materialsoutbreak and manpower. We make these assessments basedits lingering effects on the following factors: i) existing orders, ii) ageCompany’s business or results of the inventory, iii) historical experience and iv) our expectations as to future sales. If expected sales volumes do not materialize, there would be a material impact on ouroperations, financial statements.condition, or liquidity.

Valuation of Long-Lived Assets

Long-lived assets, consisting primarily of property and equipment, and patents and trademarks, comprise a portion of our total assets.  Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying values August not be recoverable. Recoverability of assets is measured by a comparison of the carrying value of an asset to the future net cash flows expected to be generated by those assets. Net cash flows are estimated based on expectations as to the realize-ability of the asset. Factors that could trigger a review include significant changes in the manner of an asset’s use or our overall strategy.

Specific asset categories are treated as follows:

Accounts Receivable: We record an allowance for doubtful accounts based on our expectation of collect-ability of current and past due accounts receivable.

Property, Plant and Equipment: We depreciate our property and equipment over various useful lives ranging from five to ten years. Adjustments are made as warranted when market conditions and values indicate that the current value of an asset is less than its net book value.

When we determine that an asset is impaired, we measure any such impairment by discounting an asset’s realizable value to the present using a discount rate appropriate to the perceived risk in realizing such value. When we determine that an impaired asset has no foreseeable realizable value, we write such asset down to zero.

Results of Operations

NineThree months ended November 30, 2017August 31, 2023 compared to ninethree months ended November 30, 2016August 31, 2022

Net revenues wererevenue was $0 for the nine monthsthree-months ended November 30, 2017 (the “Nine Months FY 2018”) andAugust 31, 2023 compared to $10 for the nine monthsthree-months ended November 30, 2016 (the “Nine Months FY 2017”). The Company has virtually ceased operationsAugust 31, 2022. Revenues continue to be negatively impacted due to a lackgenerally low level of adequate financial resources on our legacy products as well as our shift to conduct operations.the development and production of the prototype for our new product line. We cannot project with confidence the timing or amount of revenue that we can expect until the prototype is completed which should be in Fiscal 2024.

Cost of goods were $0sold was $80 in the Nine Months FY 2018three-months ended August 31, 2023 compared to $95 for the three-months ended August 31, 2022. This resulted in a gross loss of $80 compared to a gross loss of $85 for the three-months ended August 31, 2022. The gross loss and related gross margin loss for both the Nine Months FY 2017 as a resultthree-month periods were largely influenced by the low volume of shipments in this quarter which reduced our ability to fully absorb fixed operating costs. In addition, the virtual cessationgross margin loss in the three-months ended August 31, 2023 included an increase in the inventory reserve of operations as noted above.$58.

Engineering, research and development expenses decreased $8,959 (26%) to $25,250were $287 in the Nine Months FY 2018 from $34,209 inthree-months ended August 31, 2023, compared to $244 for the Nine Months FY 2017. All the expense in the current year period isthree-months ended August 31, 2022. The increase was due to increased development by the Company redesigningengineering staff of the ECUnew prototype for the Auragen system.our new product line.

Selling, general and administrativeadministration (“SG&A”) expenses decreased by $213 or 38% to $342 in the three-month period ending August 31, 2023 compared to the three-months ended August 31, 2022. The decrease was principally attributed to lower legal costs of $73, lower audit fees of $42 and lower selling fees of $83 due to lower sales.

Interest expense increased $434,273(33%)$263 during the three-months ended August 31, 2023 compared to $1,753,419the three-months ended August 31, 2022 due principally to the settlement of the Kopple litigation which resulted in the Nine Months FY 2018 from $1,319,146conversion of the Kopple notes payable into a new note. The new note did not accrue interest until January 2023, so the three-months ended August 31, 2022 did not include any Kopple-based interest.

Six months ended August 31, 2023 compared to six months ended August 31, 2022

Net revenue was approximately $10 for the six-months ended August 31, 2023 (“Fiscal Q2 2024”) compared to approximately $17 for the six-months ended August 31, 2022 (“Fiscal Q2 2023”). Revenues continue to be negatively impacted by both the lingering effects of the COVID-19 pandemic, as well as a generally low level of resources. We cannot project with confidence the timing or amount of revenue that we can expect despite improvements in the Nine Months FY 2017.pandemic being under more control globally including a successful rollout of the vaccine programs. To increase revenues which were impacted by the economic effects of the pandemic, the Company needs to augment its marketing and sales efforts substantially. As the Company’s focus has been on new product engineering and development, the current limited resources prevent executing the increased selling efforts in the near term.

Cost of goods sold was approximately $95 in Fiscal Q2 2024 compared to approximately $30 in Fiscal Q2 2023. This resulted in a gross loss of approximately $85 or a gross margin loss of 815%, and approximately $13 gross loss and a gross margin loss of 79%, in Fiscal Q2 2024 and Fiscal Q2 2023, respectively. The increase is primarily attributablegross loss and related gross margin loss for both the six-month periods were largely influenced by the low volume of shipments in both quarters which reduced our ability to fully absorb fixed operating costs. In addition, the gross margin loss in Fiscal Q2 2024 included an increase in legal expensesthe inventory reserve of approximately $445,000.$58.

Net interest expense in the Nine Months FY 2018 increased $373,899 (17%) to $2,628,323 from $2,254,424 in the Nine Months FY 2017.

Our net loss for the Nine Months FY 2018 increased $1,679,800 to $5,215,524 from $3,535,724 in the Nine Months FY 2017.

Three months ended November 30, 2017 compared to three months ended November 30, 2016

Net revenues were $0 for the three months ended November 30, 2017 (the “Third Quarter FY 2018”) and the three months ended November 30, 2016 (the “Third Quarter FY 2017”). The Company has virtually ceased operations due to a lack of funding.

Cost of goods were $0 in the Third Quarter FY 2018 and the Third Quarter FY 2017 as a result of the virtual cessation of operations as noted above.

Engineering, research and development expenses increased $24,929were approximately $494 in Fiscal Q2 2024, compared to $25,250approximately $411 in the Third Quarter FY 2018 from $321 inFiscal Q2 2023, or an increase of 20%. Fiscal Q2 2024 includes a higher engineering staff level and a concentrated effort to optimize the Third Quarter FY 2017. AllCompany’s several new designs of its generators and motors. Fiscal Q2 2023 reflects the expense in the current year period is dueCompany’s initial efforts to the Company redesigning the ECUincrease its development program, including costs for the Auragen system.engineering several new designs, as well as increased testing of its new electronic control unit (“ECU”).

Selling, general and administrative expense increased $351,891 (75%administration (“SG&A”) expenses decreased by approximately $556 or 40% to $822,616approximately $850 in the Third Quarter FY 2018Fiscal Q2 2024 period from $470,725approximately $1,406 in the Third Quarter FY 2017.Fiscal Q2 2023 period. The decrease during Fiscal Q2 2024 was principally attributed to lower legal costs of $406 almost exclusively related to the settlement of the Kopple litigation in the Fiscal Q1 2023 period. Accounting fees were also down by $63. Selling costs were down by $89 due to lower sales.

Net interestInterest expense in the Third Quarter FY 2018Fiscal Q2 2024 increased $199,598 (33%)approximately $610 or 266%, to $802,272approximately $840 from $602,674approximately $229 in the Third Quarter FY 2017.Fiscal Q2 2023 period due principally to the settlement of the Kopple litigation which resulted in the conversion of the Kopple notes payable into a new note. The new note did not accrue interest until January 2023, so FQ2 2023 included no Kopple-based interest. In Fiscal Q2 2024, $315 of interest was accrued on the unpaid balance of the restructured Kopple note, and in addition, the Company recorded $390 of extension and forbearance fees, which are being categorized as interest.

Our netOther income in the Fiscal Q2 2024 period was approximately $8 which represents the favorable change in the fair value of the derivative warrant liability for the six-months, measured as of August 31, 2023. Comparatively, the revaluation of the derivative warrant liability in Fiscal Q2 2023, measured as of August 31, 2022, resulted in a favorable change in the fair value of approximately $741 for the six-month period.

Net loss for the Third Quarter FY 2018six-month period of Fiscal Q2 2024 increased $587,814by approximately $943, to $1,661,534a loss of approximately $2,261 from $1,073,720a net loss of approximately $1,318 in the Third Quarter FY 2017.six-month period of Fiscal Q2 2023. This was attributed to (i) a significantly lower net gain related to derivative liability valuation of approximately $733 and (ii) higher interest expense of approximately $610, which were partially offset by (i) a decreased operating loss of $400 principally attributable to the lower legal expenses related to the Kopple settlement.

Liquidity and Capital Resources

Going Concern

During the six-month period ended August 31, 2023, the Company reported a net loss of $2,261 and used cash in operating activities of approximately $1,532. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year of the date that the financial statements are issued. In addition, the Company’s independent registered public accounting firm, in its report on the Company’s February 28, 2023, financial statements, raised substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

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

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

At August 31, 2023, we had cash of approximately $1,178,000 and $256,000$52, compared to cash of approximately $15 at February 28, 2023. Subsequent to August 31, 2023, the Company issued 796,970 shares of common stock in exchange for cash proceeds of approximately $263. Working capital deficit at August 31, 2023 was a $14,400 deficit as of November 30, 2017,compared to an $13,700 deficit at February 28, 2023. At August 31, 2023 and February 28, 2017, respectively.  We2023, we had a working capital deficit at November 30, 2017, and February 28, 2017 of $56,107,466 and $52,809,884, respectively. The working capital deficit includes notes payable and accrued interest to related parties of $30,364,278 and $29,669,693 as of November 30 and February 28, 2017, respectively.

Net cash used in operations for the nine months ended November 30, 2017, was $3,123,197, an increase of $2,370,892 from the comparable period in the prior fiscal year. Net cash used in investing activities consists of our investment of $250,000 in our Chinese joint venture. Net cash provided by financing activities during the nine months ended November 30, 2017, was $4,295,481, resulting from net proceeds from notes payable of $2,295,481, the issuance of common stock for $1,000,000, and an investor advance of $1,000,000.

There were no acquisitions of property and equipment in the Nine months FY 2018 or the Nine months FY 2017.accounts receivable.

Accrued expenses as of November 30, 2017 increased $1,000,319 to $6,939,570 from $5,939,251 as of February 28, 2017. Approximately $1,335,000 of accrued expenses is salaries accrued but unpaid to certain employees and ex-employees due to a lack of resources, and approximately $500,000 is accrued but unused vacation time earned by employees.

Net proceeds from the issuance of debt totaled $2,295,481 in the nine months FY 2018, compared with $841,504 in the nine months FY 2017. As of November 30, 2017, the total amount owing a board member is $14,982,040 plus accrued interest of approximately $10,010,053. We also owe another Board member a total of $5,288,081 plus accrued interest of approximately $3,217,903. If the Board members were to demand repayment, we do not currently have the resources to make the payments.

The Company had a deficit of $55,853,966 in shareholders’ equity as of November 30, 2017, compared to $52,806,384 as of February 28, 2017.

Since 2002 substantially all of our revenues from operations have been derived from sales of the AuraGen^®. The cash flow generated from our operationsPrior to date has not been sufficient to fund our working capital needs, and we cannot predict when operating cash flow will be sufficient to fund working capital needs.

In the past,Fiscal 2020, in order to maintain liquidity, we have relied upon external sources of financing, principally equity financing and private indebtedness. We have no bank line of credit and will require additional debt or equity financing to fund ongoing operations. Based on a cash flow analysis performed by management, we estimate that we will need an additional $6,000 to maintain existing operations for Fiscal 2024 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 any such financing could dilute the interests of our existing stockholders, and such dilution could be substantial. If we cannot raise the needed funds, we wouldwill 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.

Capital Transactions

DuringBetween July 2017 and March 2022, the nine months ended November 30, 2017, weCompany 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 5,000,000 sharesto them pursuant to various agreements with the Company entered to between 2013-2016. In March 2022, the Company reached a settlement (the “Binding Term Sheet”) with Kopple that resolves all claims asserted against the Company without any admission, concession or finding of common stock for $1,000,000 in conjunction with our Chinese Joint Venture, we issued 5,116,959 shares of common stock valued at $665,204 asany 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 settlement agreement,period of seven years; $3,000 of which was originally to be paid in June 2022, and we issued 2,500,000 sharessubsequently extended to August 1, 2023. Beginning in January 2023, interest began to accrue on the unpaid balance at a rate of common stock valued at $325,000 in connection with a consulting agreement.

During the nine months ended November 30, 2016, we issued 950,000 shares of common stock to settle a note payable balance of $150,000 plus6%, compounded annually. All amounts, including all accrued interest of $15,588.

Inventories

Inventories consist primarily of components and completed unitsdeferred forbearance fees, are to be paid no later than eight years from the date of the Company’s AuraGen^® product.

Early in our AuraGen^® program, we determined it was most cost-effective to outsource productioninitial payment. As of components and subassemblies to volume-oriented manufacturers, rather than produce these parts in house. As a resultthe date of this decision,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. The Company and based on then anticipated sales, we purchased, priorKoppel have agreed in principle to fiscal 2001, a substantial inventory of components at volume prices. Since sales did not meet such expectations, we have been selling product from this inventory for several years.

Most of our inventory consists of a variety of (i) metallic, mechanical components, and (ii) electrical components including metallic chassis to hold the assembled electrical systems. The vast majority of mechanical components are not aged and mostanother extension of the electrical components aredeadlines for payments owed by Aura to Plaintiffs and intend to memorialize such an agreement in writing on or before October 31, 2023. Such further amendment will also indicate that by such extension the Company is not aged. The components that are aged are relatedin default on the Binding Term Sheet (See Part I, Note 5 to the prime mover/Generator interface that may not be in demand any longer.Financial Statements).

In the past we have offeredSee “Item 3. Legal Proceedings” and ship three different basic models of systems; (i) a 5 kW based systems, (ii) an 8.5 kW based system“Part IV, Item 15, Notes 9 and (iii) a 16 kW based systems (two 8.5 kW systems configured in tandem back-to-back). Each of these systems can be configured with different options such as 110 VAC only, 220 VAC only, 24 VDC only, 12 VDC only and AC/DC combinations of the same or different voltages. In addition, the system can be configured with single phase, split phase or three-phase output.

A number of the mechanical components are common to all three of the above configurations, while others are very specific. For example, the stators and rotors for the 5 kW systems are different from the 8.5 kW systems, but the housings are the same. Similarly, the electrical components consist of some parts that are geared for a specific configuration while others are generic and can be used for all of the configurations. The electrical chassis are also interchangeable between the 5 kW and 8.5 kW configurations. Due17 to the natureFinancial Statements” included in the Company’s Annual Report on Form 10-K filed with the SEC on May 26, 2023 for information regarding the dispute and mix of the product being sold, frequently, the 5 kW electrical systems are upgraded to 8.5 kW systems by replacing some components.settlement with Mr. Kopple regarding these transactions.

From the above description one can understand that the inventory consists of numerous components and subassemblies but not finished systems; therefore, each system that is sold and shipped to a customer is built from some components that are in inventory and others that need to be purchased to be able to configure the required system.

8.5 kW systems represent the majority of product previously shipped. These systems are built by using existing inventory subassemblies and parts, including some that can be used for both 5 kW and 8.5 kW systems, and additional parts that are purchased to provide the required configuration. Typically, such systems are built using approximately 20 to 25 percent of existing inventory and approximately 75% of additional parts that are purchased.

However, most of the systems sold to the Korean military consist of 5 kW systems. They have been purchasing approximately 100 systems per year and have indicated to us that they will continue to do so for the next five years. To date we have shipped over 500 such systems (in this case 100% of the rotors and stators are used from existing inventory and over 50% of the electrical parts are also from inventory).

In addition to the above, we have encountered demand for different and unique configurations that require the purchase of additional parts.

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

The Company maintainsOur management, with the participation of our President and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures designedpursuant to ensure that information required to be disclosed in reports filedRule 13a-15 under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported within the specified time periods. For the last 3 fiscal years, these control and procedures broke down due to insufficient capital to maintain such controls and procedures. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to its management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Asamended (the “Exchange Act”) as of the end of the period covered by this report,Report. In designing and evaluating the Company’sdisclosure controls and procedures, management evaluated,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 the Company’sour management, including our Chief Executive Officer and actingour Chief Financial Officer, the effectivenesswe 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. Based on the evaluation, the Company’s Chief Executive Officer and acting Chief Financial Officer concluded that these controls and procedures were ineffective for the last 3 fiscal years in ensuring that information requiring disclosure is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms.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 November 30, 2017,August 31, 2023, not previously identified in our Annual Report on Form 10-K, for the fiscal year ended February 28, 2023 and issued on May 26, 2023 which have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

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 consolidated financial statements for that reporting period could be materially adversely affected. The Company settled certain matters subsequent to year end that did not individually or in the aggregate have a material impact on the Company’s financial condition or operating results.

In 2016, the Company was sued by a former employee for a work-related injury. The plaintiff is seeking $45,000. The Company has made the plaintiff a settlement offer which, as of the date of this filing, has not been accepted.

In November 2016, the Company was sued by a former customer for approximately $111,712 relating to an alleged failure by the Company to partially deliver against an advanced payment. In connection with its claims, the plaintiff has asserted that by virtue of the Company’s failure to fully deliver upon the contracted order, the plaintiff has obtained a perpetual worldwide license to utilize the Company’s actuator technology. The Company disputes the plaintiff’s claims and believes that it holds various claims against the plaintiff. In April 2017, the plaintiff’s action was involuntarily dismissed by the court although plaintiff sought to have the dismissal set aside on the grounds of attorney error. In June 2017, the court granted plaintiff’s motion and the Company intends to oppose this action and file a counterclaim.

Subsequent to year end, the Company’s former COO has beenwas awarded approximately $238,000$238 in accrued salary and related charges by the California labor board. In August 2021, the Company reached a settlement by which the Company agreed to pay approximately $330, representing the principal award plus accrued interest. As of the time of this filing, the Company has paid approximately $292 toward the settlement amount. The remaining balance of approximately $38 is to be paid no later than December 31, 2023 and accrues interest of 10% per annum until paid.

Between July 2017 and March 2022, the Company believeswas engaged in litigation with a former director, Robert Kopple, relating to more than $13,000 and the current equivalent of the approximately 23 million warrants, exercisable for seven years at a price of $0.10 per share, which Mr. Kopple and his affiliated entities (collectively the “Kopple Parties”) claimed should have been originally issued to them pursuant to various agreements with the Company entered to between 2013-2016. In March 2022, the Company reached a settlement with the Kopple Parties that this award does not reflectresolved all claims asserted against the Company without any admission, concession or finding of any fault, liability or wrongdoing on the part of the Company. Under the terms of the settlement, the Company agreed to pay an aggregate amount of $10,000 over a period of seven years, including $3,000 initial payment to be paid in June 2022. $150 was paid in June 2022, and the balance of the initial payment of $2,850 was extended to August 1, 2023, In exchange for the extension, the Company was required to pay $195 in extension and forbearance fees in cash and $530 in accrued forbearance fees. Beginning in January 2023, interest accrues on the unpaid balance at a rate of 6%, compounded annually. All amounts, including all accrued interest and deferred fees, are to be paid no later than eight years from the date of the initial payment. The Kopple Parties have also received seven-year warrants to purchase up to an aggregate of 3,331,664 shares of our common stock at a price of $0.85 per share. The settlement also provides for standard mutual general release provisions and includes customary representations, warranties, and covenants, including certain increases in the amount owed which is significantly lowerpayable to the Kopple Parties and is exploring allthe right of such parties to enter judgment against the Company if the Company remains in uncured default in its options and available remedies and is working towardpayment obligations under the settlement. As of the date of this report, the Company has not yet paid the full $3,000 installment due to Kopple, having made an offer to settle this matter.

initial payment of $150 in June 2022. The Company and Koppel have agreed in principle to another extension of the Company’s Chief Executive Officer, Melvin Gagerman, are among several defendants nameddeadlines for payments owed by Aura to Plaintiffs and intend to memorialize such an agreement in a lawsuit filedwriting on or before October 31, 2023. Such further amendment will also indicate that by two secured creditors demanding repaymentsuch extension Aura is not in default on the Binding Term Sheet (See Part I, Note 5 to the Financial Statements).On March 26, 2019, various stockholders of loans totaling $125,000 plus accrued interest and exemplary damages. In January 2017, the Company entered into an agreement with all secured creditors othercontrolling a combined total of more than the two plaintiffs. However, because secured creditors holding in excess of 97% of the issuable stock upon conversion have executed the agreement, the agreement is binding on all of the secured creditors, including the two plaintiffs. That agreement, among other provisions, waives all past events of default. It is the Company’s position that the two plaintiffs are not entitled27.5 million shares delivered a signed written consent to any payment or other relief at this time and therefore that they have no valid claim against the Company or Mr. Gagerman. In March 2017, plaintiffs moved for partial summary adjudication against the Company and Mr. Gagerman; however, the Court denied plaintiff’s motion. Thereafter, the Court sustained demurrers by Mr. Gagerman and the Company but granted plaintiffs leave to amend. In response to the plaintiffs’ second amended complaint, both the Company and Mr. Gagerman intend to further demurrer seeking dismissal of this action.

In June 2015, the landlordremoving Ronald Buschur as a member of the Company’s primary facility in Redondo Beach, California initiated litigation against us seekingBoard and electing Cipora Lavut as a director of the Company.  On March 27, 2019, those same stockholders delivered a further signed written consent to terminatethe Company removing William Anderson and Si Ryong Yu as members of the Company’s leaseBoard and requireelecting Robert Lempert and David Mann as directors of the CompanyCompany. 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 vacaterecognize the premises priorlegal 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 scheduled lease end.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 thatprior 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 was forced to vacate its primary facility and relocate to its present facility in Stanton, California.under Delaware’s corporate benefit doctrine and/or other legal provisions. To date, no action seeking damages or any other amountfinal determination has been filed against the Company by the landlord, nor does the Company believe it has any further liabilitymade as to the landlord.amount of recoupment, if any, to which such stockholders may be entitled.

In June 2022, Melvin Gagerman, the Company’s former CEO and CFO whose employment with Aura was permanently terminated in a dispute with one of its directors, Robert Kopple, relating to approximately $5.4 million and approximately 22 million warrants which Mr. Kopple claims to be owed to him and his affiliates by the Company. In July 2017, Mr. Kopple filed2019, brought suit against the Company as well as against currentfor 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, Mr.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 Mr. Diaz-Verson together with former Directors Mr. Breslowhas filed a cross-complaint against him for, among things, conversion, violation of California Business& Professions Code §17200, and Mr. Howsmon in connection with these allegations. Thevarious breaches of fiduciary duty that the Company believes that it hasGagerman committed against Aura, including without limitation, Gagerman’s actions in opposing the valid defenses in these matters and intends to vigorously defend against these claims.2019 stockholder consent action.

ITEM 1A. Risk Factors.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 annual reportFiscal 2023 Annual Report on Form 10-K for the year ended February 28, 2017.issued on May 26, 2023.

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

During the quartersix-months ended November 30, 2017,August 31, 2023, we did not issue anyissued 4,877,271 shares of common stock.

Allstock for cash proceeds of approximately $1,609. The proceeds from the sales of unregistered securities are believed to be exempt from registration pursuant to Section 4(2) of the Securities Act of 1933 as these offeringssale were a private placement to a limited number of qualified investors without public solicitation or advertising.used for general working capital purposes.

ITEM 3. Defaults Upon Senior Securities.

We have commitments to pay investors and lenders $40,553,920 comprising principal and accrued interest on various convertible notes, non-convertible notes and loans payable through November 30, 2017. Due to our lack of financial resources, the Company was unable to make various required principal and interest payments under a number of notes payable, and in 2017, the Company has been successful in restructuring a total of approximately $33.7 million of debt (the “Restructured Debt”) through agreements reached with all of the Company’s secured creditors and the majority of the Company’s unsecured creditors. Pursuant to these restructuring agreements, any and all defaults and penalties with respect to the Restructured Debt have been waived, approximately $9.3 million in accrued interest has been forgiven, and approximately $20.9 million will be converted into approximately 14.1 million shares of the Company’s common stock upon stockholder approval of a 1-for-7 reverse stock split and the election a new board of directors. Prior to the restricting of the Restructured Debt, the Company was in potential default on $13,535,679 of debt. However, as of the date of filing, all notes payable other than $7,289,838 have been restructured and any potential defaults with respect to this restructured amount have been resolved.None

As of the date of this filing, Robert Kopple, the Company’s Vice Chairman of the Board, is the only significant unsecured note holder that has not agreed to restructure his debt. Mr. Kopple claims to be owed approximately $5.4 million plus interest and approximately 22 million warrants on terms significantly preferable to other similarly-situated unsecured creditors. To-date, Mr. Kopple has not accepted the Company’s multiple offers to restructure his debt. The Company is presently engaged in a dispute with Mr. Kopple relating to the debt and securities which Mr. Kopple claims to be owed to him and his affiliates by the Company. See, “Note 3 – Notes Payable”, “Note 5 – Related Parties Transactions”, “Note 8 –Subsequent Events” to the Company’s condensed financial statements and “Liquidity and Capital Resources” in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” elsewhere in this quarterly report on Form 10-Q for additional information regarding amounts that may be owed under the Company’s notes payable and the recent restructuring of certain Company debt.

ITEM 4. Mine Safety Disclosures

Not applicable.

ITEM 5. Other Information.

None.

ITEM 6. Exhibits