AURA SYSTEMS INC 2026财年中期财报：净收入36万美元，股东权益赤字超5000万美元

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended August 31, 2026

OR

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

For the transition period from ______________ to______________

Commission File Number: 000-17249 

AURA SYSTEMS, INC.

(Exact name of Registrant as specified in its charter)

20431 North Sea Circle

Lake Forest, CA 92630

(Address of principal executive offices and zip code)

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

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

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

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

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

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

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

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

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

AURA SYSTEMS, INC.

INDEX

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

AURA SYSTEMS, INC.

CONDENSED BALANCE SHEETS

(Amounts in thousands, except share data)

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

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AURA SYSTEMS, INC.

CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)

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

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

2

AURA SYSTEMS, INC.

CONDENSED STATEMENTS OF SHAREHOLDERS’ DEFICIT

(Unaudited)

(Amounts in thousands, except share data)

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

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AURA SYSTEMS, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

(Amounts in thousands, except share data)

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

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AURA SYSTEMS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

THREE AND SIX MONTHS ENDED AUGUST 31, 2026 AND 2025
(Unaudited)

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

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

Nature of Operations

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

Basis of Presentation

The accompanying unaudited condensed financial statements as of and for the six months ended August 31, 2026 and 2025, have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the unaudited condensed financial statements reflect all adjustments of a normal recurring nature that are necessary for a fair presentation of the results for the periods presented. The Condensed Balance Sheet information as of February 28, 2026, was derived from the Company’s audited Financial Statements as of February 28, 2026, included in the Company’s Annual Report on Form 10-K filed with the SEC on September 10, 2026. These financial statements should be read in conjunction with that report. The results of operations for the period ended August 31, 2026, may not necessarily be indicative of the results of the full fiscal year ending February 28, 2027.

The Company’s fiscal year ends on the last calendar day of February. Accordingly, the current fiscal year will end on February 28, 2027, and is referred to as “Fiscal 2027”. Our prior fiscal years ended February 28, 2026, February 28, 2025, and February 29, 2024, and are referred to as “Fiscal 2026”, “Fiscal 2025,” and “Fiscal 2024”, respectively.

Going Concern

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

During the six-month period ended August 31, 2026, the Company recognized a net loss of $5,012 and used $1,569 in cash for operating activities. As of August 31, 2026, the Company also had a shareholders’ deficit of $50,289 and notes payable totaling $5,446 were past due. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year of the date that the financial statements are issued. In addition, the Company’s independent registered public accounting firm, in its report on the Company’s February 28, 2026 financial statements, raised substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company cannot continue as a going concern.

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

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Authorized Capital

In May 2026, the Company had utilized substantially all of its authorized shares of 150 million shares. The Company is in the process of obtaining the stockholder and regulatory approvals necessary to increase its authorized shares or otherwise resolve the matter.

Accordingly, the Company has recorded, and will continue to record, as a liability the proceeds received from sales of common stock for which shares cannot yet be issued, until the number of authorized shares is increased (see Note 9). In addition, the Company also accounted for certain stock warrants and convertible notes as derivative liability because of the lack of authorized shares pursuant to current accounting guidelines (see Note 8).

Use of Estimates

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

Concentration of Credit and Other Risks

Financial instruments that may subject the Company to concentration of credit risk include cash and accounts receivable. The Company deposits cash with a limited number of financial institutions. Balances held at any one financial institution may at times exceed Federal Deposit Insurance Corporation insurance limits of up to $250. We have not experienced any losses in such accounts and believe we are not exposed to any significant risk on cash and cash equivalents.

During the three months ended August 31, 2026, one customer accounted for 48% and one customer accounted for 33% of revenues. No other customer accounted for more than 10% of revenues.

During the six months ended August 31, 2026, one customer accounted for 47% and one customer accounted for 32% of revenues. During the six months ended August 31, 2025, one customer accounted for 55% and one customer accounted for 12% of revenues. No other customer accounted for more than 10% of revenues.

As of August 31, 2026, four vendors accounted for 35%, 16%, 11%, and 11% of accounts payable. As of February 28, 2026, five vendors accounted for 34%, 13%, 11%, 10%, and 10% of accounts payable.

Revenue Recognition

The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers.

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

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Share-Based Compensation

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

Derivative Financial Instruments

The Company evaluates its financial instruments to determine whether they are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments accounted for as liabilities, the Company initially records the instrument at fair value and then remeasures it at each reporting date, with changes in fair value reported in the statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date. 

The Company uses Level 3 inputs for its valuation methodology for the derivative liabilities as their fair values were determined by using a Black-Scholes pricing model. The Company’s derivative liabilities are adjusted to reflect fair value at each reporting date, with any increase or decrease in the fair value being recorded in the statement of operations. 

Fair Value of Financial Instruments

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

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

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

Loss per share

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.

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For the six months ended August 31, 2026 and 2025, the calculations of basic and diluted loss per share are the same because potentially dilutive securities would have had an anti-dilutive effect. The potentially dilutive securities consisted of the following:

Recent Accounting Pronouncements

In November 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses which includes amendments that require disclosure in the notes to financial statements of specified information about certain costs and expenses, including purchases of inventory; employee compensation; and depreciation, amortization and depletion expenses for each caption on the income statement where such expenses are included. The amendments are effective for the Company’s annual periods beginning January 1, 2027, with early adoption permitted, and should be applied either prospectively or retrospectively. The Company is evaluating this ASU to determine its impact on the Company’s disclosures.

Other recent accounting pronouncements issued by the FASB, its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission have not had and are not expected by management to have a material impact on the Company’s present or future financial statements. 

NOTE 2 – CONVERTIBLE NOTES PAYABLE

Convertible notes payable consisted of the following:  

At August 31, 2026, the convertible notes payable are potentially convertible into 2,006,097 shares of common stock at conversion rates ranging from $0.20 to $1.40 per share. The conversion feature of the notes is accounted for as a derivative liability and is remeasured at fair value at each reporting date, with changes in fair value recognized in the statements of operations (see Note 8).

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NOTE 3 – CONVERTIBLE NOTE PAYABLE-RELATED PARTY

Convertible note payable – related party consisted of the following:

The convertible note (i) requires installment payment of $2,000 originally due in December 2024 but extended to December 31, 2026; (ii) added an extension fee in the aggregate of $325 that was recorded in Fiscal 2025; (iii) effective August 30, 2024, the Company granted Kopple a 36 month right (but not an obligation) to convert the note payable into equity of the Company at a conversion price equal to the lower of $1 per share or 50% of the 10 day volume weighted average price per share of the Company’s common stock; (iv) during Fiscal 2025, requires the Company to pay 20% of all collected revenues within 10 days of the end of each fiscal quarter; (v) requires the Company to pay Kopple 20% of any amount raised in new capital in the form of equity, debt or convertible debt above $3,500; (vi) reduces the exercise price of the warrants granted to Kopple in March 2022 from $0.85 per share to $0.50 per share; and (vii) extends the warrant expiration date of the warrants granted to Kopple from March 8, 2029, to March 31, 2031.

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

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As of August 31, 2026 and February 28, 2026, the outstanding principal balance of the Kopple convertible note payable was $9,259. The conversion feature of the note is accounted for as a derivative liability and is remeasured at fair value at each reporting date, with changes in fair value recognized in the statements of operations (see Note 8).

Kopple also alleged that the Company failed to comply with certain non-monetary provisions of the convertible note, including the Company’s failure to hold a stockholders’ meeting by August 1, 2024, or otherwise secure sufficient authorized shares to permit the exercise of Kopple’s conversion rights, and its failure to remit 20% of collected revenues within 10 days following the end of each fiscal quarter during fiscal 2025. In light of the alleged defaults, the Company has accrued interest on the convertible note using the default interest rate of 15% per annum and has classified the entire outstanding balance of the convertible note as a current liability. The Company disputes Kopple’s allegations that it failed to comply with the applicable non-monetary provisions of the convertible note and is currently engaged in discussions with Kopple to resolve the matter, including payment extension of the installment due to $2 million.

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

NOTE 4 – NOTES PAYABLE

Notes payable consisted of the following:

(a) Note payable – EID loan

During Fiscal 2021, the Company received a $150 loan under the United States Small Business Administration Economic Injury Disaster Loan (“EID Loan”) program. The loan is due July 1, 2050, accrues interest at 3.75% per annum, and is secured by the Company’s assets. As of August 31, 2026, and February 28, 2026, the outstanding balance of the EID Loan was $149 and $150, respectively. 

(b) Notes payable – vehicle

During Fiscal 2022, the Company issued a note payable to purchase a vehicle for $78. The vehicle secures the note. The note, with an original principal of $78, is due January 20, 2027, and requires 72 equal monthly payments of approximately $1.5, including interest at 10.9% per annum. As of August 31, 2026 and February 28, 2026, the outstanding balance of the note payable was $24 and $32, respectively.

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(c) Note payable – software license

During Fiscal 2024, the Company obtained a loan of $155 from a financing institution to finance the use of a third-party software license. The note payable is secured by tangible and intangible assets of the Company, bears interest at an average rate of 8% per annum, and will mature in September 2026. As of August 31, 2026 and February 28, 2026, the outstanding balance of the note payable amounted to $64.

During Fiscal 2026, the Company obtained a loan of $280 from a financing institution to finance the Company’s use of a third-party software license. The note payable is secured by tangible and intangible assets of the Company, bears interest at an average rate of 13.70% per annum, and will mature in October 2026. As of August 31, 2026 and February 28, 2026, the outstanding balance of the note payable amounted to $233 and $280, respectively. As of August 31, 2026, the principal balance of $200 is past due, and the Company is currently in discussion with the note holder to resolve this matter.

The aggregate total of the note payable-software licenses as of August 31, 2026 and February 28, 2026, amounted to $297 and $344, respectively.

(d) Notes payable – machinery and other equipment

During Fiscal 2025, the Company obtained a $274 loan from a financing institution to finance the purchase of a production machine. The note payable is secured by the production machine and will mature in April 2029. As of August 31, 2026 and February 28, 2026, the outstanding balance of the note payable amounted to $185 and $197, respectively.  

During Fiscal 2026, the Company obtained a $390 loan from a financing institution to finance the purchase of a production machine. The note payable is secured by the production machine and will mature in August 2032. As of August 31, 2026 and February 28, 2026, the outstanding balance of the note payable amounted to $355 and $366, respectively.

The aggregate total of the note payable-machinery and other equipment as of August 31, 2026 and February 28, 2026, amounted to $540 and $563, respectively.

(e) Note payable – other

As of August 31, 2026, and February 28, 2026, the Company has one note payable due to an individual issued in September 2015 that is payable on demand with an interest rate of 10% per annum.

NOTE 5 – NOTES PAYABLE-RELATED PARTIES – PAST DUE

On November 20, 2019, the Company owned 49% of a Chinese joint venture named Jiangsu Shengfeng. The joint venture advanced $700 to Aura in prior years for products that the Company failed to deliver to the joint venture. The Company reached a preliminary agreement with the joint venture to return the $700 advanced in prior years, provided the joint venture remains an operating company. As a result, in November 2019, the Company issued a non-interest-bearing promissory note to the joint venture for $700, payable over an 11-month period beginning on March 15, 2020, and ending on February 15, 2021. The joint venture ceased operations in 2020 due to COVID-19 and has not resumed operations. In fiscal 2024, the joint venture was dissolved and liquidated without filing any demands or claims for payment.

As of August 31, 2026 and February 28, 2026, the outstanding balance of this note payable amounted to $733, all of which is past due.

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NOTE 6 – ACCRUED INTEREST

Accrued interest consisted of the following: 

NOTE 7 – LEASES

As of February 28, 2026, operating lease liabilities totaled $181.

In June 2026, the Company amended its facility lease agreement to extend the lease term to August 2028 and revise the monthly lease payments. The lease extension was accounted for as a modification of the existing lease in accordance with ASC 842, Leases.

As a result of the modification, the Company remeasured the lease liability based on the present value of the remaining lease payments over the revised lease term using a discount rate of 7%. As of the effective date of the lease modification, the remeasurement increased the operating lease right-of-use asset and the operating lease liability by approximately $586. The modification did not change the lease classification. In addition, the Company applied $54 of its lease deposit made in the prior year to the operating lease liability, and it made aggregate payments of $101 toward its operating lease liability. As of August 31, 2026, operating lease liabilities totaled $612, of which $283 was current.  

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

NOTE 8 – DERIVATIVE LIABILITY 

In March 2024, pursuant to the amendment of the Kopple note payable (see Note 3), the Company granted Kopple the right to convert the amended note payable into equity of the Company at a conversion price equal to the lower of $1 per share or 50% of the 10-day volume-weighted average price of the Company’s common stock. The Company evaluated this conversion option under ASC 815, Derivatives and Hedging and determined that it is not indexed to the Company’s own stock because the number of shares issuable upon conversion has no explicit limit. Accordingly, the conversion feature has been accounted for as a derivative liability, remeasured to fair value each reporting period, with changes in fair value recognized in the statements of operations. This conversion feature was the Company’s only derivative liability as of February 28, 2026 with a fair value of $22,844 using a Black-Scholes option-pricing model. 

In prior years, the Company issued certain convertible notes payable and warrants that were classified as equity and provide for the issuance of shares of the Company’s common stock upon conversion or exercise. In May 2026, the Company had utilized substantially all of its 150 million authorized shares of common stock (see Note 9). As a result, the Company no longer had sufficient authorized and unissued shares available to settle the conversion and exercise features of the outstanding convertible notes and warrants through the issuance of common stock. Accordingly, the conversion and exercise features associated with these convertible notes and warrants no longer qualified for equity classification. The Company reclassified the fair value of these features that were recorded in the prior years, totaling $1,151, from stockholders’ equity to derivative liabilities. The derivative liabilities are subsequently remeasured at fair value at each reporting date, with changes in fair value recognized in the statements of operations.

The fair value of the derivative liability as of August 31, 2026 was $26,227. The Company intends to seek stockholder approval to increase the number of authorized shares of common stock. If the increase in authorized shares is approved and becomes effective, the Company will reassess the classification of the conversion and exercise features associated with the convertible notes payable and warrants that were reclassified as derivative liabilities in May 2026 to determine whether they qualify for equity classification at that time.

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

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

NOTE 9 – SHAREHOLDERS’ DEFICIT

Common Stock

On August 31, 2026 and February 28, 2026, the Company had 150,000,000 shares of $0.0001 par value common stock authorized for issuance.

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

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

Authorized Shares

In May 2026 and through the date of this report, the Company had utilized substantially all of its authorized shares of 150 million shares. The Company is in the process of obtaining the stockholder and regulatory approvals necessary to increase its authorized shares or otherwise resolve the matter. Accordingly, the Company has recorded, and will continue to record, as a liability the proceeds received from sales of common stock for which shares cannot yet be issued, until the number of authorized shares is increased.

From May 2026 through August 2026, aggregate proceeds of $1,019 were received for the issuance of 6,932,474 shares of common stock. However, the shares have not been issued due to lack of authorized shares, and the proceeds are classified as a liability and reported as “Proceeds Received for Common Stock in Excess of Authorized Shares” in the accompanying balance sheets. The liability will remain outstanding until the Company has sufficient authorized shares available to satisfy its obligation or the obligation is otherwise settled in accordance with the applicable agreements.

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

Stock Options

A summary of the Company’s stock option activity is as follows:

There was no intrinsic value as of August 31, 2026, as the exercise prices of these options were greater than the market price of the Company’s stock. The exercise prices and information related to options under the 2011 Plan outstanding on August 31, 2026, are as follows:

Warrants

A summary of the Company’s warrant activity is as follows: 

There was no intrinsic value as of August 31, 2026, as the exercise prices of these warrants were greater than the market price of the Company’s stock. The exercise prices and information related to the warrants as of August 31, 2026, are as follows:

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NOTE 10 – RELATED PARTY TRANSACTIONS

As of August 31, 2026 and February 28, 2026, BetterSea LLC (“BetterSea”) was a 6.0% and 7.1% shareholder in the Company, respectively. For the six months ended August 31, 2026 and 2025, the Company incurred total fees to BetterSea of $95 and $78, respectively, for consulting services. As of August 31, 2026 and February 28, 2026, approximately $329 and $297, respectively, were due to BetterSea and included in accounts payable and accrued expenses in the accompanying balance sheets.

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

NOTE 11 – CONTINGENCIES

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

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

NOTE 12 - SEGMENT INFORMATION

The Company operates and manages its business as one reportable and operating segment. The Company reports segment assets on the balance sheet as total consolidated assets. The Company derives revenue primarily in the United States of America and manages its business activities on a consolidated basis.

The Company’s chief operating decision maker (CODM), its Chief Executive Officer, reviews financial information presented on a consolidated basis and decides how to allocate resources based on net loss. Net loss is used for evaluating financial performance. The Company monitors budgeted versus actual results to assess performance and establish management’s compensation.

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Significant segment expenses include employee compensation, stock-based compensation, merchant fees, and consulting and outside provider costs. Other operating expenses include all remaining costs necessary to operate our business and primarily include advertising, corporate compliance, and overhead expenses. The following table presents the significant segment expenses and other segment items regularly reviewed by our CODM:

NOTE 13 – SUBSEQUENT EVENTS

Subsequent to August 31, 2026, the Company received aggregate cash proceeds of $451 for the subscription of 3,013,333 shares of its common stock for. The shares have not been issued because the Company lacks sufficient authorized shares. The Company is obtaining the necessary stockholders’ and regulatory approvals to increase its authorized shares or otherwise resolve the matter.

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

Overview

Our business is based on the application of our axial flux induction technology to both electric motors and generators. Our power generation solution based on axial flux induction is known as the AuraGen^® for commercial and industrial applications and the VIPER for military applications. Aura’s axial flux induction technology provides: (i) higher motor/generator efficiency, which directly translates into lower operating costs; (ii) lighter and smaller machines that lead to lower manufacturing costs; (iii) higher reliability that results in less downtime and lower maintenance costs; (iv) construction uses only copper and steel, without rare earth materials or other types of permanent magnets. This supports global availability and reduces market and geopolitical risks associated with dependence on a single source; and (v) the use of approximately 60% less copper than equivalent radial flux induction machines, resulting in less mining to extract the needed copper and a direct positive environmental impact.

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Our business model consists of three major components: (i) sales and marketing; (ii) design and engineering; and (iii) manufacturing axial flux induction motors and generators. Our sales and marketing approach consists of direct sales in North America and the use of agents and distributors in other regions. In addition, we are exploring limited licensing of our technology to very large potential users, as well as potential joint ventures with existing industrial motor and generator suppliers. The second component of our business model focuses on designing, engineering, and commercializing new commercial and industrial electric motors based on our axial flux induction technology for numerous applications, such as pumps, compressors, and HVAC systems. We are also designing electric motors for both two- and four-wheel electric vehicle applications and expanding the product line for electric power generation. The third component of our business model is to establish manufacturing capabilities for the axial flux induction products being engineered and designed.

We recently completed designs for 1.5 kW, 3.75 kW, and new 10 kW machines, as well as second-generation 250 kW machines, for both electric motor and generator applications. We are also currently designing 50 kW and new 5 kW machines for specific military applications. We are also in discussions regarding the use of our technology in numerous wind turbine applications.

In fiscal 2025 and 2026, we significantly increased our engineering capabilities by hiring expert engineers in thermodynamics (Ph.D.), electromagnetic motor design (Ph.D.), power electronics and controls (Ph.D.), and mechanical design (M.S.M.E.). We also acquired advanced engineering tools, including Ansys Maxwell finite element software, MATLAB, and 3D SolidWorks. Our engineering, research and development costs for fiscal 2026 were approximately $1.6 million.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. Preparing financial statements requires management to make estimates and disclosures as of the date of the financial statements. In preparing our financial statements, we have made our best estimates and judgments of certain amounts included in the financial statements. We use authoritative pronouncements, historical experience, and other assumptions as the basis for making judgments. For these key estimates and assumptions, we made appropriate accounting estimates based on the facts and circumstances available as of the reporting date. To the extent that there are significant differences between these estimates and actual results, our financial statements may be materially affected. Significant estimates include assumptions made for inventory reserve, impairment testing of long-lived assets, the valuation allowance for deferred tax assets, assumptions used in valuing derivative liabilities, assumptions used in valuing share-based compensation, and accruals for potential liabilities. Amounts could materially change in the future. Actual results could differ from those estimates. There were no changes to our critical accounting policies described in the financial statements included in our Annual Report on Form 10-K for the fiscal year ended February 28, 2026, that impacted our condensed financial statements and related notes included herein. 

Revenue Recognition

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

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Derivative Financial Instruments

The Company evaluates its financial instruments to determine whether they are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments accounted for as liabilities, the Company initially records the instrument at fair value and then remeasures it at each reporting date, with changes in fair value reported in the statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

Inflation

Higher inflation, the actions by the Federal Reserve Bank to address inflation, most notably continuing increases in interest rates, and rising energy prices create uncertainty about the future economic environment. The Company expects that the impact of these issues will continue to evolve. The Company believes these factors impacted the Company’s business in fiscal 2025 and 2026 and will continue to impact the Company’s business in fiscal 2027. 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 increase the Company’s operating expenses.

Results of Operations

Three months ended August 31, 2026, compared to three months ended August 31, 2025

Revenues

Net revenue was $34 for the three months ended August 31, 2026, compared to $0 for the three months ended August 31, 2025. Revenues continue to be negatively impacted by generally low resources for our legacy products and our shift to developing and producing the prototype for our new product line. We cannot confidently project the timing or amount of revenue we can expect until the prototype is completed, which should be in Fiscal 2027.

Cost of Goods

Cost of goods sold was $11 in the three months ended August 31, 2026, compared to $0 for the three months ended August 31, 2025.

Engineering, Research and Development

Engineering, research and development expenses were $396 in the three months ended August 31, 2026, compared to $336 for the three months ended August 31, 2025. The increase is primarily attributable to the purchase of engineering software and program licenses.

Selling, General and Administrative Expense

Selling, general and administrative expenses for the three months ended August 31, 2026, were $556, down from $578 for the three months ended August 31, 2025, a decrease of $22 or 4%. The decrease is primarily attributable to lower professional services fees, offset by higher travel and meeting expenses and increased health insurance premiums during the period.

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Other Income (Expense) and Interest Expense

Interest expense decreased by $198 to $471 for the three months ended August 31, 2026, as compared to $669 for the three months ended August 31, 2025. The Company estimated the fair value of the conversion option derivative liability using a Black-Scholes option pricing model and recorded changes in the fair value of the derivative liability of $4,796 and $(3,181) for the three months ended August 31, 2026 and 2025, respectively.

Net Loss

We recorded a net income of $3,396 for the three months ended August 31, 2026, as compared to a net loss of $4,764 for the three months ended August 31, 2025. Our net loss decreased because gross profit increased and gain from the change in fair value of our derivative liability.

Six months ended August 31, 2026, compared to six months ended August 31, 2025

Revenues

Net revenue was $36 for the six months ended August 31, 2026, compared to $185 for the six months ended August 31, 2025. Revenues continue to be negatively impacted by generally low resources for our legacy products and our shift to developing and producing the prototype for our new product line. We cannot confidently project the timing or amount of revenue we can expect until the prototype is completed, which we expect in Fiscal 2027.

Cost of Goods

Cost of goods sold was $11 in the six months ended August 31, 2026, compared to $25 for the six months ended August 31, 2025.

Engineering, Research and Development

Engineering, research and development expenses were $782 in the six months ended August 31, 2026, compared to $689 for the six months ended August 31, 2025. The increase is primarily attributable to the purchase of engineering software and program licenses.

Selling, General and Administrative Expense

Selling, general and administrative expenses for the six months ended August 31, 2026, were $1,024 compared to $1,062 for the six months ended August 31, 2025, a decrease of $38 or 4%. The decrease is primarily attributable to lower professional services fees, offset by higher travel and meeting expenses and increased health insurance premiums during the period.

Other Income (Expense) and Interest Expense

Interest expense decreased by $312 to $951 for the six months ended August 31, 2026, as compared to $1,263 for the six months ended August 31, 2025. The Company estimated the fair value of the conversion option derivative liability using a Black-Scholes option pricing model and recorded changes in the fair value of the derivative liability of $2,232 and $4,751 for the six months ended August 31, 2026 and 2025, respectively.

Net Loss

We recorded net losses of $5,012 and $7,605 for the six months ended August 31, 2026 and 2025, respectively. Our net loss decreased due to lower gross profit, higher operating expenses, and changes in the fair value of our derivative liability.

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Liquidity and Capital Resources

For the six months ended August 31, 2026, we recorded a net loss of $5,012, used $1,569 in cash for operations, and, as of August 31, 2026, had a shareholders’ deficit of $50,289. In addition, notes payable with an aggregate balance of $5,446 had reached maturity and were past due. These conditions raise substantial doubt about our ability to continue as a going concern for at least one year from the date of issuance of these financial statements. In addition, the Company’s independent registered public accounting firm, in its report on the Company’s February 28, 2026, audited financial statements, raised substantial doubt about the Company’s ability to continue as a going concern.

Prior to Fiscal 2026, we relied on external financing, principally equity and private indebtedness, to maintain liquidity. We have no bank line of credit and will require additional debt or equity financing to fund ongoing operations. Based on management’s cash flow analysis, we estimate we will need an additional $3,000 to maintain existing operations for Fiscal 2027 and increase shipment volume 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. Issuing additional equity shares in connection with such financing could dilute the interests of our existing stockholders, and the dilution could be substantial. If we cannot raise the funds needed, we will also be forced to make further substantial reductions in our operating expenses, which could adversely affect our ability to implement our current business plan and ultimately our viability as a company.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

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

ITEM 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our President and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this Report. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. As of August 31, 2026, management’s assessment identified the following material weaknesses in the Company’s internal control over financial reporting:

We continue to have a material weakness in our internal control over financial reporting as disclosed in the February 28, 2026, Annual Report on Form 10-K, in that we have an insufficient number of full-time personnel with an appropriate level of U.S. GAAP knowledge and experience and ongoing training in the application of U.S. GAAP and SEC disclosure requirements commensurate with the Company’s financial reporting requirements.

Notwithstanding the identified material weaknesses, management has concluded that the Financial Statements included in this Quarterly Report on Form 10-Q present fairly, in all material respects, the Company’s financial position, results of operations and cash flows for the periods disclosed in conformity with U.S. GAAP.

Changes in Internal Control over Financial Reporting

There have been no other changes in our internal control over financial reporting during our fiscal quarter ended August 31, 2026, not previously identified in our Annual Report on Form 10-K, for the fiscal year ended February 28, 2026 and issued on September 10, 2026, which have materially affected or are reasonably likely to materially affect our internal control over financial reporting. 

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PART II - OTHER INFORMATION

ITEM 1. Legal Proceedings

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

Between July 2017 and March 2022, the Company was engaged in litigation with a former director, Robert Kopple, relating to debt and warrants, which Mr. Kopple and his affiliated entities (collectively, “Kopple”) claimed should originally have been issued to them pursuant to various agreements entered into with the Company between 2013 and 2016.

In March 2022, the Company reached a settlement 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 million over a period of seven years, including an initial payment of $3 million to be paid in June 2022. In June 2022, $150 was paid, and the balance of the initial payment of $2.85 million was extended to May 29, 2023. In exchange for the extension, the Company was required to pay $165 in extension and forbearance fees in cash and $430 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. Kopple has also received seven-year warrants to purchase up to an aggregate of approximately 3.3 million shares of our common stock at a price of $0.85 per share. The settlement also provides for standard mutual general release provisions and includes customary representations, warranties, and covenants, including certain increases in the amount payable to Kopple 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. 

In March 2024, the Company and Kopple again amended the note payable. The amendment (i) replaced the requirement to pay the $3,850 past due principal balance with the requirement to pay $2,000 due December 15, 2024, effectively extending the payment of $1,850 to future periods; (ii) increased the stated interest rate to 10%; (iii) added a fee of $15 monthly until the Company makes a principal payment of $2 million by December 2024; (iv) effective August 30, 2024, the Company will grant Kopple for 36 month conversion right that gives Kopple the option to be able to convert the note payable into equity of the Company at a conversion price of the lower of $1.00 per share or 50% of the 10 day volume weighted average price of the Company’s common stock; (v) only during Fiscal 2025, will require the Company to pay 20% of all collected revenues within 10 days of the end of each fiscal quarter; toward the outstanding debt reduction (vi) will require the Company to pay Kopple 20% of any amount raised in new capital in the form of equity, debt or convertible debt above $3.5 million toward the outstanding debt reduction; (vii) reduces the exercise price of the warrants granted to Kopple in March 2022 from $0.85 per share to $0.50 per share; and (vii) extends the warrant expiration date from March 8, 2029, to March 31, 2031.  The principal payment of $2 million was extended to March 31, 2025, for $100,000. Subsequently, the principal payment was extended several times up to September 30, 2026.

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.

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ITEM 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the risk factors disclosed in Item 1A, “Risk Factors,” of the Company’s Fiscal 2026 Annual Report on Form 10-K issued on September 10, 2026.

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

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

ITEM 3. Defaults Upon Senior Securities.

None

ITEM 4. Mine Safety Disclosures

Not applicable.

ITEM 5. Other Information.

None.

ITEM 6. Exhibits

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SIGNATURES

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

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