AUSI 10-K
Aura Systems Inc (AUSI)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Documents incorporated by reference:
TABLE OF CONTENTS
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SPECIAL NOTE REGARDING 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 headings “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and elsewhere in this Report regarding future events or prospects are forward-looking statements. The words “approximates,” “believes,” “forecast,” “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 may inevitably prove to be incorrect. As a result, our actual future results may differ from our expectations, and those differences may be material. Accordingly, investors should use caution in relying on forward-looking statements to anticipate future results or trends.
Some of the risks and uncertainties that may cause our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include the following:
| ● | Our ability to generate positive cash flow from operations; |
| ● | Our ability to obtain additional financing to fund our operations; |
| ● | The impact of economic, political and market conditions on us and our customers; |
| ● | The impact of unfavorable results of legal proceedings; |
| ● | Our exposure to potential liability arising from possible errors and omissions, breach of fiduciary duty, breach of duty of care, waste of corporate assets and/or similar claims that may be asserted against us; |
| ● | Our ability to compete effectively against competitors offering different technologies; |
| ● | Our business development and operating development; |
| ● | Our expectations of growth in demand for our products; and |
| ● | Other risks described under the heading “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K |
We do not intend to update or revise any forward-looking statements, whether as a result 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.
References in this Report to “we”, “us”, “the Company,” “Aura” or “Aura Systems” means Aura Systems, Inc. As used herein, reference to “Fiscal 2026” refers to the fiscal year ending February 28, 2026, “Fiscal 2025” refers to the fiscal year ending February 28, 2025, and so forth.
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PART I
ITEM 1. BUSINESS
Introduction
Aura Systems, Inc. (“Aura”), is a Delaware corporation founded in 1987. The Company innovated and commercialized the technology for Axial Flux Induction electric motors and generators.
“Axial flux motors represent a leap forward in motor technology, offering high efficiency, compact design, and lightweight construction. As industries continue to push for more efficient technologies, the axial flux motor design is a promising solution that combines power, scalability, and superior performance. Its ability to deliver energy savings while minimizing space and weight is likely to propel this motor design into wide use across many sectors, shaping the future of motor-driven systems.”1
Aura’s axial flux induction motor technology (“AAFIM”) provides an industrial solution that does not use any permanent magnets, no rare earth elements, is smaller and lighter, uses (i) significant less materials (just copper and steel), (ii) provides very high efficiency, (iii) significantly less copper, (iv) highly reliably and (v) does not require scheduled maintenance.
Electric motors are employed in infrastructure, major structures, and industries all around the world. Each year, almost 30 million motors are sold for industrial use alone3. Electric motors find application in a variety of equipment throughout industry. Common industrial applications include: (i) compressors, (ii) fans and blowers, (iii) heavy duty equipment, (iv) HVAC systems, (v) pumps and (vi) machine tools (lathes and mills, etc.).
The universal global trend for electrification has created in addition to the industrial demand for motors a very large demand for motors used in electric transportation for vehicles, planes, and boats (“EV”). In such applications, one or more electric motors are used for propulsion. Most electric motors currently used for electric mobility employ high energy rare earth permanent magnets4 due to their high efficiency and small size. The magnetic material is usually sintered neodymium–iron–boron (NdFeB) made or processed in China.
It is expected that over 100 million electric motors will be required per year by 2032 to meet the demand for the growing EV market5.
San Global Research 2024 stated “Various motor types, including the switched reluctance motor (SRM), interior permanent magnet synchronous motor (IPM), induction motor (IM), and switched flux motor (SFM), have been employed in EV applications. Among these options, the axial flux induction motor (AFIM) stands out, drawing attention for its distinct advantages over conventional motors when integrated into EV systems. The AFIM boasts superior power-to-weight and diameter-to-length ratios, compact construction, high efficiency, optimal utilization of active materials, and enhanced ventilation and cooling. These unique features position the axial flux induction motor as a promising and strategic choice, contributing to the ongoing evolution and improvement of electric vehicle technology.”
For Electric Vehicle applications, Aura’s axial flux induction motors (“AAFIM”) provide efficiencies that are equal to or higher than ones provided by the best high energy rare earth permanent magnet solution (“PM”). AAFIM have higher reliability, are more robust, have larger operating speed range, are not limited to 100 degrees C operating temperature for the equivalent PM machine. In addition, AAFIM costs are significantly lower than the equivalent PM machines.
| 1 | Aerospace and Defense | 4th September 2024 |
| 2 | Markets & Markets Electric Motor Market Published Date: November 2020 | Report Code: EP 3882 |
| 3 | Precedence Research October 6, 2021 |
| 4 | Will rare earth be eliminated in EV motor-Dr. James Edmondson November 2, 2020 |
| 5 | Emerging Electric Motor Technologies for the EV Market September 28, 2021, Luke Gear |
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The history of electric machines reveals that the earliest machines were, in fact, axial flux machines. However, after the first radial flux machines were demonstrated in the beginning of the 20th century, radial flux machines were accepted as the mainstream configuration. The reason for shelving the axial flux machines were multifold and can be summarized as follows: (i) strong axial magnetic attraction force between the stator and the rotor, (ii) fabrication difficulties such as cutting the slots in laminated cores, (iii) high cost involved in manufacturing the laminated stator core, (iv) difficulties in assembling the machine and keeping a uniform air gap and (v) providing a laminated rotor that can withstand the large centripetal forces.
In recent years there has been great interest in axial flux topology for numerous industrial, commercial, and electric mobility motor and power generation applications. However, to date the commercial focus in axial flux motors has been designs using rare earth permanent magnets (“PM”).
Nearly all the supply chain for rare earths is concentrated in China and the chemistry associated with processing rare earths is challenging, expensive, and hazardous. Reliance on China for raw material and magnet production, can influence global markets through (i) production decisions and (ii) geo-political decisions by the Chinese government.
The extraction of rare earths “produce mountains of toxic waste. For every ton of rare earth produced, the mining process yields 13-kg of dust, 9,600-12,000 cubic meters of waste gas, 75 cubic meters of wastewater, and one ton of radioactive residue. This stems from the fact that rare earth element ores have metals that, when mixed with leaching pond chemicals, contaminate air, water, and soil. Most worrying is that rare earth ores are often laced with radioactive thorium and uranium, which result in especially detrimental health effects. Overall, for every ton of rare earth, 2,000 tons of toxic waste are produced.6
On April 15, 2025, China has restricted the export of several crucial rare earth minerals to the United States in response to President Donald Trump’s tariff increases. China has used its rare earths monopoly as a weapon before, notably against Japan in 2010. In September of that year, the Japanese coast guard arrested the captain of a Chinese fishing boat that collided with Japanese ships off the cost of the disputed Senkaku Islands. China retaliated by choking off Japan’s supply of rare earth minerals. Japan quickly gave in and released the fishing boat captain, but it still suffered significant economic damage from the rare earths blacklist for years to come.7
A significant reason for industry passing on Axial Flux Induction solution and focus on a PM solution could potentially be attributed to page 6 in Jacek F Gieras book, where they pointed out that it is “difficult to manufacture a laminated rotor with a cage winding for an axial flux machine. If the cage windings are replaced with nonmagnetic high conductivity (Cu or AL) homogenous disk or steel disk coated with Cu layer, the performance of the machine drastically deteriorates.”
Aura Systems with its axial flux induction technology solved the issues related to the rotor back in 2002 and has shipped over 11,000 axial flux induction machines in the 5-15 kW range to numerous military and commercial users. Aura’s proprietary rotor does not require any laminates and provides the structural integrity to withstand very large centripetal forces while, at the same time, providing the proper electric and magnetic properties without the usual issues associated with a solid rotor or a steel disk coated with a copper layer.
Aura has during the last few years optimized its axial flux induction machine technology (no PM) where the performance (efficiency, torque, energy density) is now equal to or greater than the very best of both axial and radial permanent magnet machines. Of course, this is done using only copper and steel with aluminum for housing at a fraction of the cost of equivalent PM machines.
| 6 | Not so “green” technology: the complicated legacy of rare earth mining 12.aug.2021 Harvard international review |
| 7 | Breitbart news John Hayward April 15, 2025 |
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Aura’s Axial Flux Induction technology is the culmination of decades of cutting-edge electromagnetic research and more than $150 million in development by Aura scientists and engineers. Aura’s axial flux induction technology used for mobile power generation was first used in a combat zone by U.S. forces in the U.N actions in the Balkans and since then, the U.S. military has used it in combat zones in both Iraq and Afghanistan. To date the Company shipped over 11,000 systems for mobile power applications in the 5-15 kW range of which over 3,000 systems were for various military applications.
Aura’s Axial Flux Induction Machine has inherited advantages such as (i) no rare earth or any other kind of permanent magnets, (ii) significantly less copper (60% less) than equivalent traditional radial flux induction motors, (iii) significantly higher energy density, (iv) fewer overall materials, and (v) high efficiency. In addition, being an induction machine, Aura’s solution does not have any brushes or commutators and therefore do not have any potential for sparks.
Aura’s Axial Flux induction (“AAFIM”) Competitive Edge
| ○ | Performance- AAFIM provides the highest power density across all other known motor technologies with energy density of more than 45 kW/liter for machines in the 250-kW range. In addition, Aura’s solution provides efficiencies that are higher than any other solutions for commercial and industrial applications. For 250 kW EV applications Aura’s designs show efficiency of more than 97%. AAFIM solution also has significantly lower rotor inertia than other solutions. This increases the machine efficiency even further since it requires less input torque to move the rotor. |
| ○ | Size and weight-Aura’s solution is significantly smaller in volume and has lower weight than any known solution for equivalent power rated machines (even includes PM machines). When compared to traditional radial flux (“RF”) induction machines, AAFIM has less than 40% of the weight and more than 40% reduction in volume. The AAFIM pancake design creates a solution that can be integrated with vehicles and boats for seamless exportable power. |
| ○ | Cost-AAFIM provides a significant cost advantage over equivalent induction and PM machines. The cost advantage comes from (a) the higher energy density which means less materials and (b) in the case of PM machines significant cost advantage for equivalent machines by just elimination of the permanent magnets. When compared to radial flux induction, Aura’s solution uses approximately 60% less copper. Due to the fractional materials used and the simple manufacturing processes Aura’s high-performance machines are less expensive to manufacture than other equivalent machines. |
| ○ | Other Advantages-Aura’s solution is extremely reliable with the only components to wear out are the bearings. AAFIM do not require any scheduled maintenance, and the only materials used are copper and steel for the active components and aluminum for the housing. These materials are readily available everywhere and are not controlled by any country or political group. In addition to the performance, Aura’s rotor lends itself to mass manufacturing. Many of Aura’s axial flux induction machines have been operating for twenty years and have shown remarkable reliability. |
Our recent efforts have resulted in our new 10 kW mobile power generator that is approximately 20% smaller in diameter and 10% smaller in axial length than the legacy 8.5 kW solution. This new 10 kW has generated interest from the US military. We completed the design and fabricated a prototype of a 250-kW axial flux motor which has approximately the same dimensions as our legacy 8.5 kW mobile power solution and is oil cooled. This new 250 kW motor has a base speed of 5,000 rpm and an operating range of up to 20,000 rpm. We have also completed the design for a 250-kW generator that is air cooled and will operate at 3600 rpm. We already have interest for this new 250-kw generator from Israel, South Korea, and others. We recently completed the designs for a 5-horsepower motor (3.75kW) for swimming pools applications and a 1.5 kW motor for some industrial applications.
In March 2019, stockholders of the Company represented a majority of the outstanding shares of the Company’s common stock delivered signed written consents to the Company removing Ronald Buschur, William Anderson and Si Ryong Yu as members of the Company’s Board and electing Ms. Cipora Lavut, Mr. David Mann, and Dr. Robert Lempert as directors of the Company in their stead. Because of Aura’s refusal to recognize the legal effectiveness of the consents, in April 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. 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. See Item 3, Legal Proceedings for more information. Following this ruling by the Court of Chancery, the newly confirmed Board of Directors terminated the employment of Melvin Gagerman, who had served as CEO and CFO of the Company since 2006, and installed Ms. Lavut as President, Mr. Mann as Chief Financial Officer and Dr. Lempert as Secretary of the Company.
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Business Arrangements
During Fiscal 2018, the Company signed a joint venture agreement with a Chinese company to build, service and distribute AuraGen® mobile power products in China. Under the Jiangsu Shengfeng joint venture agreement, the Chinese partner owns 51% of the joint venture and the Company owns 49%. The Company contributed $250,000 in cash as well as a limited license. The limited license sold to the joint venture, however, does not permit the venture to manufacture the AuraGen® rotor; rather, the joint venture is required to purchase all rotor subassemblies as well as certain software elements directly from the Company. During Fiscal 2018, Jiangsu Shengfeng placed a $1,000,000 order with the Company including a $700,000 advance payment of which the Company has failed to deliver product in accordance with the order received. On November 20, 2019, the Company reached a preliminary agreement with Jiangsu Shengfeng regarding the return of $700,000 previously advanced to the Company. The preliminary agreement reached consists of a non-interest-bearing promissory note and a payment plan pursuant to which the $700,000 was to be paid over an 11-month period beginning March 15, 2020, through February 15, 2021. The preliminary agreement was subject to the JV continuous operation. However, starting in January 2020 the JV was shut down by the Chinese authority due to the COVID-19 virus. In 2023, the JV was dissolved and liquidated.
As of February 28, 2026, the unpaid balance of $700,000 was reported as part of notes payables – related party in the accompanying financial statements. The $700,000 advance payment was from the JV of which Aura owned 49%). During Fiscal 2020, the Company recorded an impairment expense of $250,000 to fully write-off the Jiangsu Shengfeng investment due to the uncertainty of the operation. In 2023 the JV was dissolved and liquidated.
Recent Developments
In fiscal 2026 the Company completed the design of 1.5 kW, 3.75 kW, a new 10 and second generation of 250 kW motors and generators of its axial flux induction technology. In the first 6 months of 2026 the Company also designed a 50kW solution consisting of 40 kW of AC power and 10kW of DC power, as well as a new 5 kW solution consisting of 2.5 kW of AC and 2.5 kW of DC power with an ability to handle up to 2.5 kW of unscheduled power spikes. Both the 50 kW and the 5 kW are for specific U.S military applications and customers are paying for the first unis to be evaluated.
The AuraGen®/VIPER Product Overview:
Markets Served by the AuraGen®/VIPER
Induction Motor Applications
Aura’s axial flux induction machine can be used as either an electric motor or generator as described above. Due to the inherit advantages of Aura’s axial flux induction machine, such as (i) no rare earth or any other kind of permanent magnets, (ii) significantly less copper (60% less) than equivalent traditional induction motors (iii) higher energy density and (iv) fewer overall materials, we believe Aura’s axial flux induction motor can be used across a wide range of industries and applications. Even a small percent increase in motor efficiency translates to a very large market-wide savings of dollars per year. Since Aura’s axial flux motor designs are more efficient than equivalent radial flux induction motors, we believe that with the proper financial resources, over time, the Company can capture a reasonable share of the global electric motor market.
Electric motor are the main users of electricity, accounting for approximately 53% of the global demand for electricity. Over 65% of the energy used to support electric motors is used for industrial motor systems.8 The increase in global electricity consumption, and the use of electrical equipment and machines in different industries and the renewables sector are major factors driving growth in the electric motor market.
| 8 | Identification of Technoeconomic Opportunities with the Use of Premium Efficiency Motors as Alternative for Developing Countries -Julio R. Gómez etc. Published: October 16, 2020 |
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Aura’s machines use approximately 60% less copper, are approximately 1/3 the size and weight and are more efficient than the equivalent traditional radial flux (“RF”) induction machine.
When compared to radial and axial flux permanent magnet machines, Aura machines are less expensive to manufacture, do not use any rare earths, do not use any permanent magnets, are not dependent on supply from China, are more robust, have a higher operating speed range, have lower maintenance, have a longer lifetime, and are generally smaller, lighter and higher in efficiency.
EV applications
The universal global trend for electrification has created in addition to the industrial demand for motors also a very large demand for motors used in electric transportation for vehicles, planes, and boats (“EV”). In such applications, one or more electric motors are used for propulsion. The power to drive the electric motors is generally a battery system or fuel cell. Both batteries and fuel cells convert some form of fuel to electricity through some chemical process. EVs include, but are not limited to, road and off-road vehicles, surface and underwater vessels, electric aircraft, and electric spacecraft.
The global Electric Vehicle Market size is projected to grow from 4 million units in 2021 to 34.76 million units by 2030.10 The AC motor (most power by alternating current) is expected to witness the fastest growth in the electric motor market during the forecast period.
There are several key performance metrics for electric motors. Power and torque density enables improved driving dynamics in a smaller and lighter package, with weight and space being at a premium in EVs. Another critical area is efficiency. Improving efficiency means that less energy stored in the battery is wasted when accelerating the vehicle, resulting in improved range from the same battery capacity. Smaller motor system weight will also contribute to increase in range since less weight needs to be moved.
Most electric motors currently used for electric mobility employ high energy permanent magnets.11 The magnetic material is usually sintered neodymium–iron–boron (NdFeB) made or processed in China. Neodymium is one of the rare earth elements. China has around a third of all rare earth reserves and around 80% of global production.12
| 9 | Emerging Electric Motor Technologies for the EV Market September 28, 2021, Luke Gear |
| 10 | Market & market Electric Vehicle Market May 2021 Report code AT4907 |
| 11 | IDTechEx Dr. James Edmonson Dec 6 2024 |
| 12 | Polytechnique Insight January 29, 2025, by Mathieu Xemand |
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In 1987 the Chinese President Deng Xiaoping famously said, “the middle East has Oil; China has rare earths”. An Oxford Analytics Expert briefing on July 30, 2020, states that “(i) Permanent Magnets will account for 3⁄4 of rare earth demand by 2030 up from 1⁄4 in 2020 and (ii)Electric vehicles and offshore wind will drive demand and be most vulnerable to supply shocks”.
Permanent magnet (“PM”) machines can be extremely light in weight and highly efficient. In PM machines the magnetic field B is fixed by the magnets and the only way to change this is with a bucking field. These bucking currents result in an increase in temperature that could affect the magnetization of the permanent magnets.
In PM machines the operating temperature must be kept below 100oC because at that temperature the magnets start to lose some of their magnetization and at 180oC they become completely demagnetized. However, in EV applications at low speed, one needs to use a lot of current (generating high heat) to get the required torque; similarly, at high speeds one needs a lot of current for the bucking fields to reduce the B field. Thus, PM machines for electric mobility require a very complex cooling system. All the components in the machine are designed for maximum specifications but operationally the machine is limited by temperature requirements of the magnets. The cost of such machines is high due to (i) The permanent magnets, (ii) the complex cooling system and (iii) complex controller.
Unlike the PM machines, Aura’s axial flux induction machines do not use any permanent magnets and therefore the controller can change the B fields since B is proportionate to the voltage divided by the frequency (V/f). Thus, the Aura machine, when operated with a smart inverter, has an advantage over a PM machine. The Aura machine has a smaller volume, equal or better efficiency, more reliable and a large cost advantage. This advantage becomes increasingly important as performance is increased.
Mobile and Remote Power Applications
The global generator sales market was $20.3 billion in 2019 and is estimated to reach $27.16 billion by 2027 (Fortune Business Insight). Most industries dealing with construction and infrastructure rely on mobile generators to support modern computers, digital sensors and instruments as well as electrical driven tools. Current automotive alternators cannot supply the existing demanded power for many such applications and thus the common solution is the use of stand-alone gensets (often referred to a “Auxiliary Power Units” or simply “APUs”). These APUs, however, (i) consume large amounts of fuel, (ii) are heavy and bulky and accordingly must often be towed on trailers, and (iii) require constant maintenance. Additionally, traditional APUs are generally not considered to be environmentally friendly power solutions based on their high fuel consumption, loud operating noise levels, and the emissions they secrete into the air. In comparison, the AuraGen® system is small and light enough to generally be integrated directly into existing vehicles, does not require maintenance, nor do they require any set-up or tear-down time. In addition, there is no heavy lifting required and to contact with hot surfaces. The AuraGen® operation when integrated in a vehicle or a boat is completely seamless and transparent to the user. In addition, Aura’s solution provides higher efficiency and the ability to provide both AC and DC voltages simultaneously.
| 13 | Motor Intelligence. Automotive alternator market growth trends forecast 2021-2026 |
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Competition
The Company is involved in the application of its AuraGen® technology to electric motors and mobile power. Therefore, it faces substantial competition from companies offering different technologies.
Electric Motors
There are four (4) basic approaches for electrical machines: (i) the rotor can be electrically excited such that it creates a magnetic field with constant orientation (as in synchronous machines) that usually uses brushes and or commutators; (ii) the shape of the rotor can induce reluctance variations in the stator (as in switched reluctance machines); (iii) the rotor can be permanently magnetized with permanent magnets (“PM “) as in brushless DC machines; and (iv) the rotor field can be induced from the stator due to the rotor’s structure as in induction machines. Our axial flux technology is an induction machine.
AC induction machine (no PM) is the most common electrical machine in use today. A changing magnetic field in the stator induces a current in the rotor. The current in the rotor produces its own magnetic field, which then interacts with the magnetic field of the stator, causing the rotor to turn. The name induction comes from the fact that current is induced in the rotor by the changing magnetic field of the stator. Radial flux induction machines have been the workhorse of industry due to their robustness, attractive cost, and ease of control; however, they are relatively, heavy and bulky. On the other hand, Aura’s axial flux (“AF”) induction machines, have all of the advantages of the radial flux machines but with the advantage of higher energy density and higher efficiency resulting in a smaller and lighter machine with equivalent or better performance. Unlike the PM machines, induction machines do not use any permanent magnets and therefore the controller can change the B fields since B is proportionate to the voltage divided by the frequency (V/f).
Although our axial flux induction technology provides significant advantages in both cost (significant less copper, steel and aluminum), size/weight and performance, most of our competitors have far greater financial, technical, and marketing resources than we have. They have larger budgets for research, new product development and marketing, and have long-standing customer relationships.
Key players in the market are (i) Nidec Motor Corporation, (ii) ABB Ltd., (iii) Siemens AG, (iv) WEG Electric Corp, (v) Regal Beloit Corporation, (vi) Wolong, and (vii) Teco Westinghouse.
Generators
Gensets AKA APU. Portable generators meet the large market need for auxiliary power. Millions of units per year are sold in North America alone, and millions more are sold across the world to meet market demands for 1 to 20 Kilowatts of portable power. The market for these power levels addresses the commercial, leisure and residential markets, and is essentially divided into: (a) higher power, higher quality and higher price commercial level units; and (b) lower power, lower quality and lower price level units. Gensets provide the strongest competition across the widest marketplace for auxiliary power. Onan, Honda, Generac and Kohler, among others, are well established and respected brand names in the genset market for higher reliability auxiliary power generation. There are over 40 registered genset-manufacturing companies in the United States.
Some of the key suppliers are Caterpillar (US), Cummins (US), Rolls-Royce Holdings (UK), Atlas Copco (Sweden), Mitsubishi Heavy Industries, Ltd. (Japan), Yanmar (Japan), Generac (US), ABB (Switzerland), Siemens Energy (Germany), Weichai Group (China), Kohler Co. (US), Kirloskar Oil Engines Ltd. (India), Denyo (Japan), and Sterling & Wilson (India),
High Output Alternators. There are many High Output Alternator manufacturers. Some of the better-known ones are Delco-Remy, Bosh, Nippon Densu, Hitachi, Mitsubishi and Prestolite. All alternators provide their rated power at very high RPM and significantly less power at lower RPM. In addition, alternators are generally only 35% efficient at the low RPM range and increase to 60% efficiency at the high RPM range.
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Others
Evans Electric in Australia has introduced an axial flux machine with a complete conductive rotor. Such a machine was first introduced by Brinner more than 20 years ago and was abandoned because the rotor lacked the required rigidity to withstand the magnetic and centrifugal forces. The Brinner machine is cited in Aura’s issued patents.
Emil recently claims to have developed an axial flux induction motor for EV applications.
Numerous companies are introducing axial flux machines; however, they generally use rare earth NeFeB magnets (made in China) and are thus not induction machines but rather permanent magnet machines. Some of the better-known companies are YASA, EVO, Magnax and Phi Power.
Most of our competitors have far greater financial, technical, and marketing resources than we have. They have larger budgets for research, new product development and marketing, and have long-standing customer relationships. We also compete with many larger and more established companies in the hiring and retention of qualified personnel. Our financial condition has limited our ability to market the AuraGen®.
The AuraGen® uses a different technology and because our product is radically different from traditionally available mobile power solutions, users may require lengthy evaluation periods to gain confidence in the product. OEMs and large fleet users also typically require considerable time to make changes to their planning and production.
Competitive Advantages of the AuraGen® Axial Flux Induction technology
As a motor-Aura’s Axial Flux (“AF”) induction motor/generator is increasingly attracting attention from high impact potential users seeking advantages over conventional motors, particularly for Electric Vehicle applications. These advantages include (i) compact construction, (ii) better power to weight ratio, (iii) shorter axial length, (iv) better efficiency, (v) better torque to volume and weight ratio, (vi) very high utilization of active materials (less than 60% of the copper) and (vii) excellent ventilation and cooling. Induction machines (i) do not use any rare earth elements and have no permanent magnets. Due to their flat shape, lower weight and compact construction, Aura’s axial flux motors are ideal for pumps, fans, food processors, HVHC, etc. An axial flux machine is also preferred in applications where the rotor can be integrated with the rotating part of mechanical loads.
The AuraGen® motor’s operational range is between -40 and 340-degrees F; therefore, it is suitable to operate in a harsh environment.
As an alternator. Aura’s induction machine provides significant advantages in power generation, particularly in mobile applications. Its smaller volume and higher efficiency, when combined with the geometric shape means it can be integrated with existing vehicles and boats. Such integrated solutions do not require set up time. There are no heavy weights to lift (gensets), usable cargo space is optimized and there is no need for separate fuel/containers. Remarkably, there is no scheduled maintenance required.
The AuraGen® alternator’s operational range is between -40- and 340-degrees F; therefore, it is suitable for operating under the hood of a vehicle where the ambient temperature can easily be above 200 degrees F.
Earth-Forward, Green Technology. The AuraGen® system is significantly more environmentally friendly than traditional motors and generators. Because of its extreme efficiency and smaller size, the AuraGen® system utilizes fewer resources and materials to manufacture (in particular less than 60% of the copper). When used in power generation, the AuraGen® uses a vehicle’s primary automotive engine, which is already highly regulated for environmental protection. Traditional mobile power solutions, in comparison, use small, less efficient, auxiliary engines that produce significantly higher levels of emissions per unit of power output than the automobile engine.
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Durability; No Scheduled Maintenance. The AuraGen® motor/generator solution does not require any scheduled maintenance. The historical failure rate for Aura’s machines over a 20-year period is less than 0.5%. The bearings are rated for 28,000 hours.
Aura’s axial flux induction (no PM) can be summarized as:
| ● | Disruptive since it addresses the entire field of electrical motors and generators by providing a solution that is smaller, lighter, more efficient, cost less to manufacture and does not use any permanent magnets. |
| ● | Aura has demonstrated mass production of this technology with more than 11,000 machines. |
| ● | The economic value proposition is well defined in terms of cost, performance and size. |
| ● | The Aura solution provides significant global reduction in the use of raw materials such as copper, steel, and aluminum. |
| ● | The higher efficiency of Aura’s motor, when used in a manufacturing environment, can lead to a noticeable reduction in the global consumption of energy. |
| ● | When used for mobile power generation, Aura’s technology leads to a significant reduction in global pollution by being able to reduce and, in many situations, eliminate completely small diesel and gasoline engines used in power generation. |
| ● | When used for electric vehicles, the smaller size, weight, and increased efficiency could lead to an increase in range and/or reduced battery weight. |
| ● | When used in remote stand-alone diesel power generation such as cell towers, Aura’s increased efficiency, lower rotor inertia, voltages flexibility and load-following architecture results in a significant reduction in fuel usage (and, of course, reduced pollution). |
| ● | Aura’s significantly (65% less) lower rotor inertia and variable speed capabilities make Aura’s solution ideal for small hydro applications that are currently being ignored because of construction cost, low head, and slow flow situations. |
Targeted Market
The Company is re-examining and identifying new key markets to focus on as the Company expands operations.
The global drive for electrification is in search of better, more effective electric motors. The recent realization by many potential users of such motors that permanent magnet motors are depending on NeFeB rare earth magnets from China has created a need for alternative to the PM motors. Our axial flux induction machine is a solution that does not use any magnets and has the required performance characteristics as well as fit and form for numerous applications.
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Electric motors
Electric motors for industrial applications. We have completed the design of 1.5, 3.75, 10, 50, and 250 kW machines. The designs show significantly increased efficiency as compared to equivalent other designs, and in addition they are a fraction of the size and weight, use approximately 50-60% less copper and cost less to manufacture.
Electric motors for high end electric cars. We now have a completed the design and fabrication of a prototype 250-kW axial flux induction (no PM) with energy density of more than 45 kW per liter (the best other known design is approximately 40 kW/liter using rare earth permanent magnets) and efficiency of more than 95%.
Mobile power generation
Military market. One focused market for the Company’s VIPER (military name for our axial flux induction generator) is military applications. We are currently designing machines for use in unmanned ground vehicles applications and for platforms that can be used for anti-drone applications. We are also working with the USMC for our new 10 kW solution that fits on the Polaris alfa ATV.
Facilities, Manufacturing Process and Suppliers
During Fiscal 2026 and 2025, the Company occupied approximately 18,000 square feet of space in Lake Forest, California. The Lake Forest facility is subject to a lease agreement with a 66-month lease period effective from February 2021, through August 31, 2026. The monthly base lease rate for the Lake Forest Facility is currently $24,239 per month with a 3% annual escalation. We expect to expand operations next year that will require additional space. In 2026 the Company extended the lease to two more years as we look for a larger facility outside of California.
As the Company continues to expand its operations, we will need to renew relationships and contracts with our suppliers or locate suitable new suppliers for subassemblies and other components.
Research and Development
We believe that ongoing research and development is important to the success of our product in order to utilize the most recent technology, develop additional products and additional uses for existing products, stay current with changes in vehicle manufacture and design and to maintain an advantage over potential competition. Our engineering, research and development costs for Fiscal 2026 were approximately $1.6 million compared to approximately $1.2 million in Fiscal 2025.
Patents and Intellectual Property
Our intellectual property portfolio consists of trademarks, proprietary know-how, trade secrets, and patents. Historically the Company obtained 78 patents in electromagnetic and electrooptical technologies. During fiscal 2025 the Company filed 3 new patent applications covering (i) new winding patterns can be made to increase current density for increasing the torque density and the power density and (ii) two patent applications for the development of novel cooling systems which make better heat dissipation is used to reach the highest torque and power density. The Company is preparing numerous additional patent applications to be filed over the next few months.
The basic philosophy followed by Aura is to build layers of defense to protect the Company’s IP. This is achieved through the development of fundamental patents and surrounds them with application patents. The detailed fabrication of the rotor is kept as a trade secret since this is a critical component in Aura’s proprietary intellectual assets.
The challenges of implementing a patent philosophy are based on cost. Patent maintenance costs are expensive, particularly international patents. In order to maximize a limited budget, our approach is to first file a number of new US patents. This will provide a year before international patents need to be filed.
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Government Regulation
We are subject to laws and regulations that affect the Company’s activities, which include, but are not limited to, the areas of labor, intellectual property and ownership and infringement, tax, import and export requirements, environmental, and health and safety. As we recommence operations, our operations will again be subject to federal, state and local laws and regulations governing the occupational health and safety of our employees and wage regulations. For example, we are subject to the requirements of the federal Occupational Safety and Health Act, as amended, or OSHA, and comparable state laws that protect and regulate employee health and safety. We expect to expend resources to maintain compliance with OSHA requirements and industry best practices.
Employees
As of the date of this filing, the Company has a total of twelve (12) full-time employees in research and development, sales, operations and administration. Additionally, the Company engages independent contractors, on an as-needed basis, to support various areas of the business. During Fiscal 2026 we engaged three independent contractors to support engineering developments.
Significant Customers
In Fiscal 2026, one significant customer, CBOL, accounted for 55% of revenues. In Fiscal 2025, one significant customer, CBOL, accounted for 55% of revenues, however no customer is considered significant.
Raw Materials
The most important raw materials we use in manufacturing our products are steel, copper, and aluminum. Raw materials are purchased domestically. We have no significant long-term supply contracts. When possible, we maintain a number of sources for our raw materials, which we believe contribute to our ability to obtain competitive pricing. The cost of some of our raw materials and shipping costs are dependent on petroleum cost. Higher material prices, cost of petroleum, and costs of sourced products could have an adverse effect on margins.
Available Information
We file annual, quarterly and current reports and other information with the Securities and Exchange Commission (the “SEC” or the “Commission”). These materials can be inspected and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Copies of these materials may also be obtained by mail at prescribed rates from the S.E.C’s Public Reference Room at the above address. Information about the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
On our website, www.aurasystems.com, we provide free of charge our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments thereto, as soon as reasonably practicable after they have been electronically filed or furnished to the SEC. Information contained on our website is not part of this Annual Report on Form 10-K or our other filings with the SEC.
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ITEM 1A. Risk Factors
We have been a party to litigation, a consent solicitation and a proxy contest with shareholders controlling a majority of the Company’s stock, which is costly and time-consuming and has had a material adverse effect on our business, results of operations and financial condition and could adversely affect our stock price.
In March 2019, stockholders of the Company representing a majority of the outstanding shares of the Company’s common stock delivered signed written consents to the Company removing Ronald Buschur, William Anderson and Si Ryong Yu as members of the Company’s Board and electing Ms. Cipora Lavut, Mr. David Mann and Dr. Robert Lempert as directors of the Company. 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. 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. Aura’s refusal to recognize the legal effectiveness of the consents and the decision by the Company’s former leadership team to utilize corporate resources to vigorously contest the shareholder action has consumed significant financial resources, temporarily stagnated operations, and resulted in substantial costs, all of which had a material adverse effect on our business, operating results and financial condition.
Going Concern
The Company’s financial statements have been prepared under the assumption that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, during the year ended February 28, 2026, the Company incurred a net loss of $10.9 million, used cash in operations of $3.2 million, and at February 28, 2026, had a stockholders’ deficit of $44.8 million. In addition, at February 28, 2026, notes payable and related accrued interest with an aggregate balance of $5.2 million have reached maturity and are 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 their audit report on the Company’s February 28, 2026, audited financial statements, included an explanatory paragraph regarding substantial doubt about the Company’s ability to continue as a going concern.
Our ability to continue as a going concern is dependent upon our ability to increase revenues, obtain additional financing, drive further operating efficiencies, reduce expenditures, and ultimately, create profitable operations. In the event that the Company does not generate sufficient cash flows from operations and is unable to obtain funding, the Company will be forced to delay, reduce, or eliminate some or all of its discretionary spending, which could adversely affect the Company’s business prospects, ability to meet long-term liquidity needs or ability to continue operations. The Company does not have any sufficient committed sources of capital and does not know whether additional financing will be available when needed on terms that are acceptable, if at all. This going concern statement from our independent public accounting firm may discourage some investors from purchasing our stock or providing alternative capital financing. The failure to satisfy our capital requirements will adversely affect our business, financial condition, results of operations and prospects.
The effects of a pandemic or widespread outbreak of an illness, such as the COVID-19 pandemic, has had and could continue to have a material adverse impact on our business, results of operations and financial condition.
While the impact of the COVID-19 pandemic on our business has largely abated, uncertainties continue from the ongoing effects of the pandemic and an economic slowdown. The effects of government agency actions and the Company’s policies and those of third parties to combat future pandemics may negatively impact productivity and the Company’s ability to market and sell its products, cause disruptions to its supply chain anon d impair its ability to execute its business development strategy. These and other disruptions in the Company’s operations and the global economy could negatively impact the Company’s business, operating results and financial condition.
Additional discussion related to the various risks and uncertainties described above is included elsewhere within this “Risk Factors” section of our Form 10-K.
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We derive a substantial portion of our revenues from customers in industries susceptible to trends and factors affecting those industries.
Our axial flux induction technology is geared toward industrial, commercial and EV motor users, and in addition, our mobile power solution is geared to end-markets such as commercial vehicles, communications, transportation industries, and consumer and industrial equipment markets. Factors negatively affecting these industries also negatively affect our business, financial condition and results of operations. Any adverse occurrence, including industry slowdown, recession, costly or constraining regulations, excessive inflation, prolonged disruptions in one or more of our customers’ production schedules or labor disturbances, that results in significant decline in the volume of sales in these industries, or in an overall downturn in the business and operations of our customers in these industries, could materially adversely affect our business, financial condition and results of operations.
We will need additional capital in the future to meet our obligations, and financing may not be available. During Fiscal 2026 and Fiscal 2025, the Company increased its engineering and manufacturing activities, but it still struggled with meeting its financial requirements. If we cannot obtain additional capital, we will not be able to continue our operations.
For Fiscal 2026 and Fiscal 2025, we had approximately $3.2 million negative and $3.2 million negative cash flows from operations, respectively. The Company’s engineering and manufacturing activities remained limited due to our inability to increase sales and raise significant amounts of new financing. Our ability to continue as a going concern is directly dependent upon our ability to obtain additional operating capital and generating sufficient operating cash flow. Increased interest rates and inflation have caused significant uncertainty and volatility in the credit markets and there can be no assurance that lenders or investors will make additional commitments to provide financing to us under current circumstances. As a result, we may be required to raise additional capital and our access to and cost of financing will depend on, among other things, global economic conditions, conditions in the global financing markets, the availability of sufficient amounts of financing, and our prospects. If we are unable to obtain additional funding as and when we need it, we will not be able to recommence operations or undertake our planned expansion.
If we do not receive additional financing when and as needed, we may not be able to continue the research, development and commercialization of our technology and products. In that case, our business and results of operations would be materially and adversely affected.
Our capital requirements have been and will continue to be significant. We will require substantial additional funds in excess of our current financial resources for research, development and commercialization of products, to obtain and maintain patents and other intellectual property rights in these technologies and products, and for working capital and other purposes, the timing and amount of which are difficult to ascertain. When and as we need additional funds, such funds may not be available on commercially reasonable terms or at all. If we cannot obtain additional funding when and as needed, our business and results of operation would be materially and adversely affected.
Our intellectual property rights are valuable, and any inability or failure to protect them could reduce the value of our products, services and brand, which would have a material adverse effect on our business.
Our patents, trademarks, and all of our other intellectual property rights are important assets for us. There are events that are outside of our control that pose a threat to our intellectual property rights. For example, effective intellectual property protection may not be available in every country in which our products and services are distributed or made available. Also, the efforts we have taken to protect our proprietary rights may not be sufficient or effective. Due to our lack of financial resources, we may not be able to adequately protect our technology portfolio or apply for new patents to extend our intellectual property portfolio. The expiration of patents in our patent portfolio may also have an adverse effect on our business. Any significant impairment of our intellectual property rights could harm our business and our ability to compete. Protecting our intellectual property rights is costly and time consuming and we may need to resort to litigation to enforce our patent rights or to determine the scope and validity of third-party intellectual property rights and we may not have the financial resources to pay for such litigation. Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources.
We seek to obtain patent protection for our innovations. It is possible, however, that some of these innovations may not be protectable. In addition, given the costs of obtaining patent protection, we may choose not to protect certain innovations that later turn out to be important. Furthermore, there is always the possibility, despite our efforts, that the scope of the protection gained will be insufficient or that an issued patent may be deemed invalid or unenforceable. Our inability or failure to protect our intellectual property rights could have a material adverse effect on our business by reducing the value of our products, services and brand.
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We occasionally become subject to commercial disputes that could harm our business by distracting our management from the operation of our business, by increasing our expenses and, if we do not prevail, by subjecting us to potential monetary damages and other remedies.
From time to time, we are engaged in disputes regarding our commercial transactions. These disputes could result in monetary damages or other remedies that could adversely impact our financial position or operations. Even if we prevail in these disputes, they may distract our management from operating our business and the cost of defending these disputes would reduce our operating results.
In the future we may be named in litigation, all of which will require significant management time and attention, result in significant legal expenses and may result in an unfavorable outcome, which could have a material adverse effect on our business, operating results and financial condition.
We have been in the past and may in the future become subject to various legal proceedings and claims that arise in or outside the ordinary course of business.
The results of lawsuits and future legal proceedings cannot be predicted with certainty. Also, our insurance coverage may be insufficient or not provide any coverage at all for certain claims, our assets may be insufficient to cover any amounts that exceed our insurance coverage, and we may have to pay damage awards or otherwise may enter into settlement arrangements in connection with such claims. Any such payments or settlement arrangements in current or future litigation could have a material adverse effect on our business, operating results or financial condition. Even if the plaintiffs’ claims are not successful, current future litigation could result in substantial costs and significantly and adversely impact our reputation and divert management’s attention and resources, which could have a material adverse effect on our business, operating results or financial condition. In addition, such lawsuits may make it more difficult to finance our operations.
We have substantial indebtedness and obligations to pay interest.
We currently have, and will likely continue to have, a substantial amount of indebtedness and obligations to pay interest from various financing and settlement arrangements. Our indebtedness and interest obligations could, among other things, make it more difficult for us to satisfy our debt obligations, require us to use a large portion of our cash flow from operations to repay and service our debt or otherwise create liquidity problems, limit our flexibility to adjust to market conditions, and place us at a competitive disadvantage.
On February 28, 2026, we had total liabilities of $46.2 million, of which $22.8 million was due to a derivative liability related to debt conversion rights to a related party. The current liability portion was $45.4 million, of which $22.8 million was due to a derivative liability related to debt conversion rights to a related party. On February 28, 2025, we had total liabilities of $39.0 million, of which $17.6 million was due to a derivative liability related to debt conversion rights to a related party. The current liability portion was $38.4 million, of which $17.6 million was due to a derivative liability related to debt conversion rights to a related party.
We expect to obtain the money to pay our expenses and pay the principal and interest on our indebtedness from cash flow from our operations and from securities offerings. Accordingly, our ability to meet our obligation depends on our future performance and capital-raising activities, which will be affected by financial, business, economic and other factors, many of which are beyond our control. If our cash flow and capital resources prove inadequate to allow us to pay the principal and interest on our debt and meet our other obligations, we could face substantial liquidity problems and might be required to dispose of material assets or operations, restructure or refinance our debt, which we may be unable to do on acceptable terms and forego attractive business opportunities. In addition, the terms of our existing or future debt agreements may restrict us from pursuing any of these alternatives.
Our business is not diversified. If we cannot increase market acceptance of our products, modify our products and services, or compete with new technologies, we may never be profitable.
We currently focus all of our resources on the successful commercialization of our axial flux induction motors and AuraGen® mobile power family of products. Because we have elected to focus our business on a single technology line rather than diversifying into other areas, our success will be dependent upon the commercial success of these products. If we are unable to increase market acceptance of our products, if we are unable to modify our products and services on a timely basis so that we lose customers, or if new technologies make our technology obsolete, we may never be profitable.
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Most of our competitors are larger and better financed than we are and have a greater presence in the marketplace. Our business may be adversely affected by industry competition.
Both in the U.S. and internationally, the industries in which we operate are extremely competitive. We face substantial competition from companies that have a long history of offering traditional auxiliary power units (portable generators), traditional automotive alternators, and inverters (a device that inverts battery direct current electricity to alternating current). Most of our competitors have substantially greater financial resources, spend considerably larger sums than we spend on research, new product development and marketing, and have long-standing customer relationships. Furthermore, we must compete with many larger and better-established companies in the hiring and retention of qualified personnel. Although we believe we have significant technological advantages over our competitors, realizing and maintaining such advantages will require us to develop customer relationships and will also depend on market acceptance of our products. We may not have the financial resources, technical expertise, or marketing and support capabilities to compete successfully, which would materially and adversely affect our business.
We may not be able to establish an effective distribution network or strategic OEM relationships; in which case our sales will not increase as expected and our financial condition and results of operations would be adversely affected.
We are in the very beginning stages of developing our distribution network and establishing strategic relationships with original equipment manufacturer (OEM) customers. We may not be able to identify appropriate distributors or OEM customers on a timely basis. The distributors with which we partner may not focus adequate resources on selling our products or may otherwise be unsuccessful in selling them. In addition, we cannot assure you that we will be able to establish OEM relationships on favorable terms or at all. The lack of success of distributors or OEM customers in marketing our products would adversely affect our financial condition and results of operations.
If we are successful in executing our business plan to grow our business, our failure to efficiently manage our growth could have an adverse effect on our business.
If we successfully execute our business plan, we may experience growth that could place significant strain on our management and other resources. Our ability to manage this growth will require us to successfully assimilate new employees, improve existing management information systems, and reorganize our operations. If we fail to manage growth efficiently, our business could be adversely affected.
We may experience delays in product shipments and increased product costs because we depend on third party manufacturers for certain product components. Delays in product shipment or an inability to replace certain suppliers could have a material adverse effect on our business and results of operations.
We currently do not have the capability to manufacture most of the AuraGen® components on a commercial scale. Therefore, we rely extensively on contracts with third party manufacturers for such components. The use of third-party manufacturers increases the risk of delay of shipments to our customers and increases the risk of higher costs if our manufacturers are not available when required. Our suppliers and manufacturers may not supply us with a sufficient number of components or components of adequate quality, which would delay production of our product. We do not currently have written agreements with any suppliers. Furthermore, those suppliers who make certain components may not be easily replaced. Any of these disruptions in the supply of components could have a material adverse effect on our business or results of operations. Furthermore, we are monitoring the impact of the COVID-19 pandemic on the operations of the Company, particularly with respect to possible delays and other disruptions to the supply chain.
Although we generally aim to use standard parts and components for our products, some of our components are currently available only from limited sources.
We may experience delays in production of the AuraGen® if we fail to identify alternate vendors, or if any parts supply is interrupted or reduced or if there is a significant increase in production costs, each of which could materially adversely and affect our business and operations.
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We will need to renew sources of component supplies to meet increases in demand for our Axial flux Induction machine®. There is no assurance that our suppliers can or will supply the components to us on favorable terms or at all.
As we recommence our operations and in order to meet future demand for AuraGen® systems, we will need to renew contracts or form new contracts with our prior manufacturers and suppliers or locate other suitable manufacturers and suppliers for subassemblies and other components. Recently, we entered into discussions with several of our prior suppliers and we are in the process of negotiating settlements of old payables and arranging new supply contracts. Although we believe that there are a number of potential manufacturers and suppliers of the components, we cannot guarantee that contracts for components can be obtained on favorable terms or at all. Any material adverse change in terms of the purchase of these components could increase our cost of goods.
We need to invest in tooling to have a more extensive line of products. If we cannot expand our tooling, it may not be possible for us to expand our operations.
We are currently limited in the products that we are able to manufacture because of the limitations of our tooling capabilities. In order to have a broader line of products that address industrial and commercial needs, we must make a significant investment in additional tooling or pursue new alternatives to replace traditional tooling. We do not currently have the funds required to acquire new tooling or to obtain replacements and no assurances can be given that we will have the required funds in the future. If we do not acquire the required funds for tooling or replacement tooling, we may not be able to expand our product line to meet industrial and commercial needs.
We are subject to government regulation that may restrict our ability to use certain suppliers outside the U.S. or to sell our products into certain countries. If we cannot obtain the required approval from government agencies, then our business may be adversely affected.
We depend on third party suppliers for our parts and components... We use copper, steel and aluminum in our product and in the event of government regulations or restrictions of these materials we may experience a shortage of these materials to manufacture our product. Furthermore, U.S. law restricts us from selling products in some potential foreign markets without U.S. government approval. If we cannot obtain the required approvals from government agencies to obtain materials or contract with suppliers or if we are restricted by government regulation from selling our products into certain countries, our business may be adversely affected.
We rely on highly skilled personnel and, if we are unable to retain or motivate key personnel or hire qualified personnel, we may not be able to grow effectively.
Our performance is largely dependent on the talents and efforts of highly skilled individuals. Our future success depends on our continuing ability to identify, hire, develop, motivate, and retain highly skilled personnel for all areas of our organization. We are currently in default under several agreements with various key consultants which may make those parties unwilling to continue to work with the Company. Our continued ability to compete effectively depends on our ability to attract new employees and to retain and motivate our existing employees and consultants. The incentives to attract, retain and motivate employees and consultants provided by our ability to pay competitive salaries and rates as well as offering additional incentives such as stock option grants or by future arrangements may not be as effective as in the past. If we do not succeed in attracting excellent personnel or retaining or motivating existing personnel, we may be unable to grow effectively.
Our business is subject to the risks of earthquakes and other natural catastrophic events, and to interruptions by man-made problems such as computer viruses, terrorism, or pandemics.
Our corporate headquarters and our research and development operations are located in the State of California in regions known for seismic activity. A significant natural disaster, such as an earthquake, in this region could have a material adverse effect on our business, financial condition and results of operations. In addition, our servers are vulnerable to computer viruses, break-ins, and similar disruptions from unauthorized tampering with our computer systems. Any such event could have a material adverse effect on our business, financial condition and results of operations.
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Failure to maintain effective internal controls over financial reporting could adversely affect our business and the market price of our Common Stock.
Pursuant to rules adopted by the SEC under the Sarbanes-Oxley Act of 2002, we are required to assess the effectiveness of our internal controls over financial reporting and provide a management report on our internal controls over financial reporting in all annual reports. This report contains, among other matters, a statement as to whether our internal controls over financial reporting are effective and the disclosure of any material weaknesses in our internal controls over financial reporting identified by management. Section 404 also requires our independent registered public accounting firm to audit the effectiveness of our internal control over financial reporting.
As described in ITEM 9A, Controls and Procedures contained herein in this Annual Report, management has concluded that as of February 28, 2026, its internal controls over financial reporting were not effective. While the Company believes it has addressed and remediated material weaknesses, there can be no guarantee that other weaknesses in its financial reporting controls will not be identified in the future. Presently, the Company does not have the financial resources to fully comply with all the requirements of Section 404. If, in the future, we identify one or more material weaknesses in our internal controls over financial reporting during this continuous evaluation process, our management may not be able to assert that such internal controls are effective. Therefore, if we are unable to assert that our internal controls over financial reporting are effective in the future, or if our auditors are unable to attest that our internal controls are effective or they are unable to express an opinion on the effectiveness of our internal controls, we could lose investor confidence in the accuracy and completeness of our financial reports, which would have an adverse effect on our business and the market price of our Common Stock.
Trading on the OTC Markets is volatile and sporadic, which could depress the market price of our common stock and make it difficult for our stockholders to resell their shares.
Our common stock is quoted on the Pink Sheets of the OTC Markets. Trading in stock quoted on the OTC Markets is often thin and characterized by wide fluctuations in trading prices, due to many factors, some of which may have little to do with our operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to operating performance. Moreover, the OTC Markets is not a stock exchange, and trading of securities on the OTC Markets is often more sporadic than the trading of securities listed on a quotation system like NASDAQ or a stock exchange like the New York Stock Exchange. These factors may result in investors having difficulty reselling any shares of our common stock.
The Company may not have sufficient authorized shares of common stock to satisfy the full conversion of its outstanding convertible securities.
As described in Notes 6, 7, and 13 to the financial statements, the number of shares of common stock potentially issuable upon conversion of the Company’s outstanding convertible notes, and the exercise of options and warrants, currently exceeds the number of authorized but unissued shares of common stock available. The Company does not have a present obligation to issue shares in excess of its authorized share capital. However, if holders of such securities seek conversion or exercise and the Company does not have sufficient authorized shares available, the Company would be required to obtain shareholder approval to amend its Certificate of Formation to increase the number of authorized shares. There can be no assurance that such approval would be obtained in a timely manner or at all. If the Company is unable to obtain the necessary authorization, holders of these securities may be unable to convert or exercise their securities when otherwise entitled to do so.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
ITEM 1C. CYBERSECURITY.
Risk Management and Strategy
The Company’s policies and practices are based on frameworks and standards that address risks through a comprehensive, cross-functional approach that assess, identify, monitor, and mitigate material risks from cybersecurity threats as part of the overall enterprise risk management (“ERM”) process. This includes the collection and storage of data, and being responsive to incidents as they occur. Further, the Company’s processes and technology are utilized to develop, implement, and maintain appropriate measures to safeguard information systems in protecting the integrity, availability, and confidentiality of data. Additionally, the Company engages certain
The Company’s cybersecurity program focuses on the following areas:
| ● | Technological safeguards that are designed to protect the Company’s information systems from cybersecurity threats, including the prevention and detection of systems, access controls, and firewalls, which the Company assesses the vulnerability and cybersecurity threat and makes necessary improvements. |
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| ● | Utilization of |
| ● | The Company maintains an incident plan that addresses the Company’s response to a cybersecurity event, which is periodically reviewed and updated. |
While the Company is working to adopt the National Institute of Standards and Technology (“NIST”) cybersecurity framework, the Company’s on-going investment in information systems and utilization of external 3rd parties represents the best means for extensively testing both the design and operational effectiveness of cybersecurity controls, and to ensure continuity and functionality of the Company’s operating systems.
Governance
The IT Director is responsible for assessing, monitoring, and managing the Company’s cybersecurity risks.
The IT Director, along with members of management, inform the Audit Committee on cybersecurity risks by providing periodic updates regarding (i) Status of ongoing cybersecurity initiatives and strategies, (ii) The overall state of the Company’s security program and potential exposure to risks, and (iii) Incident reports and learning from any cybersecurity events. Further, the IT Director maintains an open dialog regarding any significant developments in cybersecurity risks, ensuring the Audit Committee’s oversight is proactive and responsive.
In addition to periodic updates to the Audit Committee, the IT Director, in his capacity, regularly informs the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”) regarding matters related to cybersecurity risks and incidents. This ensures the highest level of management are informed of potential risks associated with cybersecurity that could have a material and adverse effect on the Company.
ITEM 2. PROPERTIES
The Company occupies approximately 18,000 square feet of space in Lake Forest, California. The Lake Forest facility is subject to a lease agreement with a 66-month term, effective from February 2021 through August 31, 2026. The monthly base lease rate for the Lake Forest Facility is currently $24,239 per month with a 3% annual escalation. In June 2026 we extended the lease for two more years.
ITEM 3. 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.
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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 the “Kopple Parties”) claimed should have been originally issued to them pursuant to various agreements with the Company entered to between 2013-2016.
In March 2022, the Company reached a settlement with the Kopple Parties that resolved all claims asserted against the Company without any admission, concession or finding of any fault, liability or wrongdoing on the part of the Company. Under the terms of the settlement, the Company agreed to pay an aggregate amount of $10 million over a period of seven years, including $3 million initial payment to be paid in June 2022. $150 was paid in June 2022, 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. The Kopple Parties have 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 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.
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, for an additional deferred payment.
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.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our shares are quoted on the Pink Sheets operated by OTC Markets, Inc. under the symbol “AUSI”. Set forth below are high and low bid prices for our common stock for each quarterly period in the two most recent Fiscal years. Such quotations reflect inter-dealer prices, without retail mark-up, markdown or commissions and may not necessarily represent actual transactions in the common stock. We had approximately 3,418 stockholders of record as of July 2 2026.
| Period | High | Low | ||||||
| Fiscal 2026 | ||||||||
| First Quarter ended May 31, 2025 | $ | 0.40 | $ | 0.22 | ||||
| Second Quarter ended August 31, 2025 | $ | 0.29 | $ | 0.18 | ||||
| Third Quarter ended November 30, 2025 | $ | 0.36 | $ | 0.13 | ||||
| Fourth Quarter ended February 28, 2026 | $ | 0.16 | $ | 0.07 | ||||
| Fiscal 2025 | ||||||||
| First Quarter ended May 31, 2024 | $ | 0.49 | $ | 0.15 | ||||
| Second Quarter ended August 31, 2024 | $ | 0.44 | $ | 0.18 | ||||
| Third Quarter ended November 30, 2024 | $ | 0.43 | $ | 0.22 | ||||
| Fourth Quarter ended February 28, 2025 | $ | 0.46 | $ | 0.21 | ||||
On July 24, 2026, the reported closing sales price for our common stock was $0.165.
Dividend Policy
We have not paid any dividends on our common stock, and we do not anticipate paying any dividends on our common stock in the foreseeable future.
Sales of Unregistered Securities
During the year ended February 28, 2026, we issued 22,830,396 shares of common stock, for a total of approximately $3.6 million.
During the year ended February 28, 2025, we issued 13,704,800 shares of common stock, for a total of approximately $3.4 million.
Funds raised were for general corporate working capital purposes. All such securities were issued and sold in reliance on the exemption from registration contained in Section 4(2) of the Securities Act of 1933, and the certificates representing such securities contain a restrictive legend reflecting the limitations on future transfer of those securities. The offer and sale of these securities was made without public solicitation or advertising. The investors represented to us that they were knowledgeable and sophisticated and were experienced in business and financial matters so as to be capable of evaluating an investment in our securities and were an “accredited investor” within the meaning of Regulation D promulgated under the Securities Act of 1933. Each of these investors was afforded full access to information regarding our business.
Repurchases of Equity Securities
We did not repurchase any shares of our common stock during the fiscal years ended February 28, 2026 and 2025.
ITEM 6. [Reserved]
As a smaller reporting company, we are not required to provide disclosure under this Item 6.
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations include forward-looking statements. For cautions about relying on such forward-looking statements, please refer to the section entitled “Forward Looking Statements” at the beginning of this Report immediately prior to “Item 1”.
Overview
Our business is based on the exploitation of our Axial Flux Induction technology for both electric motors and generators. Our power generation solution based on axial flux induction is known as the AuraGen® for commercial and industrial applications and the VIPER for military applications. Aura’s axial flux induction technology provide: (i) higher motor/generator efficiency, that directly translated to lower cost for operations (ii) lighter and smaller machines that lead to lower manufacturing cost, (iii) higher reliability that results in less down time and maintenance cost, (iv) the only raw materials used for construction are copper and steel without any rare earth or any other types of permanent magnets. This immediately results in global availability without market risks as well as geopolitical risks of dependence on single source, and (v) the use of approximately 60% less of copper than the equivalent radial flux induction machines, results in less needed mining to extract the needed copper with direct positive environmental impact.
Our business model consists of three major components: (i) sales and marketing, iii) design and engineering and (iii) axial flux induction motors and generators manufacturing. Our sales and marketing approaches are composed of direct sales in North America and the use of agents and distributors in other areas. In addition, we are also exploring limited licensing of our technology to very large potential users as well as potential joint ventures with existing industrial motor/generator suppliers. The second component of our business model is focused on the design, engineer and commercialize of new commercial and industrial electric motors based on our axial flux induction for numerous applications such as pumps, compressors, and HVAC. We are also designing electric motors for both 2- and 4-wheel EV application, as well as, expending the product line for electric power generation. The third component of our business model is to set up manufacturing of the axial flux induction products being engineered and design.
We recently completed the design for 1.5, 3.75 kW a new 10 kW and second generation of 250 kW machines for both electric motor and generator applications. We also currently designed a 50 kW and a new 5 kW machines for specific military applications. We are also currently in discussions for usage of our technology for numerous wind turbines applications.
In fiscal 2025 and 2026 we have significantly increased our engineering capabilities with having hired experts’ engineers in thermo dynamics (Ph.D.), electromagnetic motor design (Ph.D.) Power electronics & control (Ph.D.) and mechanical design (M.S.M.E). We have also acquired the latest in advanced engineering tools such as Ansys Maxwell finite elements, MATLAB and 3-D solid work. 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 conditions and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of financial statements requires management to make estimates and disclosures on the date of the financial statements. In preparing our financial statements, we have made our best estimates and judgments of certain amounts included in the financial statements. We use authoritative pronouncements, historical experience and other assumptions as the basis for making judgments. For these key estimates and assumptions, we made appropriate accounting estimates based on the facts and circumstances available as of the reporting date. To the extent that there are significant differences between these estimates and actual results, our financial statements may be materially affected. Significant estimates include assumptions made for inventory reserve, impairment testing of long-lived assets, the valuation allowance for deferred tax assets, assumptions used in valuing derivative liabilities, assumptions used in valuing share-based compensation, and accruals for potential liabilities. Amounts could materially change in the future. Actual results could differ from those estimates. There were no changes to our critical accounting policies described in the financial statements included in our Annual Report on Form 10-K for the fiscal year ended February 28, 2026, that impacted our condensed financial statements and related notes included herein.
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Revenue Recognition
The Company recognizes revenue in accordance with Financial Accounting Standard Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers. In accordance with ASC 606, we recognize revenue, net of discounts, for our generator sets at time of product delivery to the domestic distributor (i.e. point-in-time), which also corresponds to the passage of legal title to the customer and the satisfaction of our performance obligations to the customer.
Inventories
Inventories are valued at the lower of cost (first-in, first-out) or net realizable value, on an average cost basis. We review the components of inventory on a regular basis for excess or obsolete inventory based on estimated future usage and sales. When evidence exists that the net realizable value of inventory is lower than its cost, the difference is recognized as a loss in the period in which it occurs. Once inventory has been written down, it creates a new cost basis for inventory that may not be subsequently written up.
Derivative Financial Instruments
The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.
Inflation
Higher inflation, the actions by the Federal Reserve Bank to address inflation, most notably continuing increases in interest rates, and rising energy prices create uncertainty about the future economic environment. The Company expects that the impact of these issues will continue to evolve. The Company believes these factors impacted the Company’s business in fiscals 2025 and 2026 and will continue to impact the Company’s business in fiscal 2027. 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.
Results of Operations
Fiscal 2026 compared to Fiscal 2025
Revenues
Net revenue was $278,000 for Fiscal 2026, compared to $50,000 for Fiscal 2025. Revenues continue to be negatively impacted due to a generally low level of resources on our legacy products as well as our shift to the development and production of numerous prototypes for our new product line. We cannot project with confidence the timing or amount of revenue that we can expect until the prototypes are completed, which should be in Fiscal 2026.
Cost of Goods
Cost of goods sold was $25,000 for Fiscal 2026, compared to $29,000 for Fiscal 2025. This resulted in a gross profit of $253,000 for Fiscal 2026, compared to gross profit of $21,000 for Fiscal 2025. The increase in gross profit was due to the increase in net revenue.
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Engineering, Research and Development
Engineering, research and development expenses were approximately $1.6 million for Fiscal 2026, compared to $1.2 million for Fiscal 2025. The increase is a result of the Company’s augmented engineering activities, including (i) successfully recruiting new additions to the engineering staff; (ii) licensing of modeling and design software tools for the full 12-month period; as well as (iii) additional expenses incurred in the process of designing, fabricating and testing the new version of our electronic control unit (“ECU”) for our AuraGen®/VIPER products.
Selling, General and Administrative Expense
Selling, general and administration (“SG&A”) expenses for Fiscal 2026 were $2.2 million as compared to $3.6 million for Fiscal 2025. The decrease in SG&A was due to a $1.5 million decrease in stock-based compensation.
Other Income (Expense) and Interest Expense
Interest expense increased by $0.4 million to $2.2 million for Fiscal 2026, as compared to $1.8 million for Fiscal 2025. The Company estimated the fair value of the conversion option derivative liability using a Black-Scholes option pricing model and recorded the change in fair value of the derivative liability of $(5.3) million and $4.6 million at February 28, 2026 and 2025, respectively.
Net Loss
We recorded net losses of approximately $10.9 million and $21.1 million for Fiscal 2026 and 2025, respectively. The decrease in our net loss was due to several factors, as noted above, including decreased stock-based compensation expense, the recording of a loss on debt extinguishment to a related party in the prior year, and the change in fair value of our derivative liability.
Liquidity and Capital Resources
For the year ended February 28, 2026, we recorded a net loss of $10.9 million, used cash in operations of $3.2 million, and at February 28, 2026, had a stockholders’ deficit of $44.8 million. In addition, at February 28, 2026, notes payable and related accrued interest with an aggregate balance of $5.2 million have reached maturity and are past due. These conditions raise substantial doubt regarding our ability to continue as a going concern for a period of at least one year from the date of issuance of these financial statements. In addition, the Company’s independent registered public accounting firm, in their 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, to maintain liquidity, we relied on external sources of financing, principally equity 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 conducted by management, we estimate that we will need an additional $5 million to maintain existing operations for Fiscal 2027 and to 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. The issuance of 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.
See “Item 3. Legal Proceedings” and “Part IV, Item 15, and Note 9 to the Financial Statements” included elsewhere in this Annual Report on Form 10-K for information regarding the dispute and settlement with Mr. Kopple regarding these transactions.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to provide the information required by this Item 7A.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements at page F-1.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
For the year ended February 28, 2026, there were no disagreements or any reportable events to disclose.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. The term “disclosure controls and procedures”, as defined in Rules 13a-15I and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (“Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
Based on this evaluation, and as a result of the material weakness described below, our President and Chief Financial Officer concluded as of February 28, 2026, that our disclosure controls and procedures were not effective.
Management’s Annual Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with United States generally accepted accounting principles. Internal control over financial reporting includes policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with United States generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Management has assessed the effectiveness of the Company’s internal control over financial reporting as of February 28, 2026. In making these assessments, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework.
Based on this assessment, because of the material weakness described below, the Company’s management concluded that as of February 28, 2026, the Company’s internal control over financial reporting was not effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
Management identified a material weakness in our internal control over financial reporting related to the Company having 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 Annual Report on Form 10-K 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.
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Planned Remediation of Material Weaknesses
Our management has been actively engaged in developing and implementing remediation plans to address material weakness described above. These remediation efforts are ongoing and include or are expected to include increasing personnel resources and technical accounting expertise within the accounting function. During Fiscal 2026, and as of the date of this Report, we continue to work with an outside consultant with experience and expertise in U.S. GAAP and public company SEC accounting and reporting requirements to assist management with its accounting and reporting of complex and/or non-recurring transactions and related disclosures.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s internal control over financial reporting that occurred during the Company’s fiscal year ended February 28, 2026, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
The Company does not expect that its disclosure controls and procedures or its internal control over financial reporting will prevent all errors and all fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable not absolute assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any control procedure also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.
ITEM 9B. OTHER INFORMATION
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
None
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
In March 2019, stockholders of the Company controlling a majority of the outstanding shares of the Company’s common stock delivered signed written consents to the Company removing Ronald Buschur, William Anderson, and Si Ryong Yu as members of the Company’s Board and electing Ms. Cipora Lavut, Mr. David Mann, and Dr. Robert Lempert as directors of the Company in their stead. As a result of Aura’s refusal to recognize the legal effectiveness of the consents, in April 2019, 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. 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 stockholder 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 July 2019 the employment of Melvin Gagerman was terminated. (See Item 3, Legal Proceedings for more information.) Also in July 2019, the Board of Directors appointed Ms. Lavut to succeed Mr. Gagerman as President of Aura, appointed Mr. Mann to succeed Mr. Gagerman as Chief Financial Officer of the Company, and appointed Dr. Lempert Secretary of Aura. In February 2022, the Board of Directors appointed Mr. Steven Willett to succeed Mr. Mann as the Company’s Chief Financial Officer. Mr. Mann remains on the Board of Directors.
The following table sets forth the names, ages, and offices of all our current directors and executive officers. Our officers are appointed by, and serve at the pleasure of, the Board of Directors. The stockholders at the annual meeting elect our directors to serve until the next meeting.
| Name | Age | Title | ||
| Gary Douglas | 78 | Director, Member of the Audit Committee | ||
| Salvador Diaz-Verson, Jr. | 72 | Director, Chairman of the Audit Committee | ||
| David Mann | 53 | Director, Chairman of the Compensation Committee, Member of the Nominating Committee and Member of the Audit Committee, Acting Chief Financial Officer | ||
| Cipora Lavut | 70 | President, Chairman of the Board, Member of Nominating Committee and Member of the Compensation Committee | ||
| Robert Lempert | 81 | Secretary, Director, Chairman of the Nominating Committee and Member of the Compensation Committee |
Biographical information with respect to our current directors and executive officer is provided below.
Salvador Diaz-Versón, Jr. Mr. Diaz-Versón, Jr. was elected as a director on March 29, 2018. Previously, he served as a director of the Company from 1997-2005 and again from June 2007 until January 2018. Mr. Diaz-Versón, Jr. is the founder, Chairman and President of Diaz-Verson Capital Investments, Inc., and was a registered investment advisor with the Securities and Exchange Commission until 2009. Mr. Diaz-Versón, Jr. served as President and member of the board of directors of American Family Corporation (AFLAC, INC.) from 1976 until 1992. Mr. Diaz-Versón, Jr. served as President and Chief Investment Officer of American Family Life Assurance Company, a subsidiary of AFLAC, Inc. He is currently Chairman of Miramar Securities. Mr. Diaz-Versón, Jr. has received two presidential appointments to the Christopher Columbus Fellowship Foundation; first by President George H.W. Bush in 1992 and subsequently by President Clinton in 2000. Mr. Diaz-Versón, Jr. is a trustee of the Florida State University Foundation and is a national trustee of the Boys and Girls Club of America. He also serves as a trustee of Clark Atlanta University. Mr. Diaz-Versón, Jr. is a graduate of Florida State University and was selected as a director in view of his lengthy experience in managing companies and his knowledge of capital investments.
Gary Douglas. Mr. Douglas was elected as a director on March 29, 2018. Mr. Gary Douglas has a BBA in Management degree, with extensive experience in cooperate communication and investment banking. He is a principal in Douglas Strategic Communications LLC, a marketing strategy and communications consultancy, and Ex officio Chairman of Picture Marketing, Inc., a digital marketing company. Mr. Douglas also formally served as Chief Marketing Officer of O’Melveny Consulting LLP, a unit of a global law firm. He also served as President of SP/Hambros America and Division President of Geneva Learning Systems and Group Vice President of Business Development for the five Geneva Companies, both SP/Hambros and The Geneva companies were middle market investment bankers. Mr. Douglas brings to the Board extensive experience in corporate communication and investment banking.
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Cipora Lavut. Is the current President and Chairwoman of the Board. She was one of Aura’s original founding members. From 1987 to 2002 Ms. Lavut served on Aura’s Board and as a Senior Vice President. During this period, Ms. Lavut was instrumental to Aura receiving large contracts from The Boeing Company, Litton Industries, and the United States Air Force. Ms. Lavut also provided critical investor relations and marketing support during this time. Ms. Lavut left Aura in 2002. At the request of Aura’s then Board of Directors and management, in 2006, Ms. Lavut returned to Aura as Vice President in charge of investor relations and corporate communication. In January 2016, Ms. Lavut left the Company to pursue other business ventures. She returned to Aura in June 2019. She holds a B.S degree in business from California State University, Northridge.
Robert Lempert. Dr. Lempert graduated from the University of Pennsylvania and conducted his residency at the Albert Einstein Medical Center in Philadelphia. Dr. Lempert also served as a Captain in the U.S. Army and previously served on the Company’s Board from November 28, 2017 (when he was appointed by the then-Board to fill one of the two existing vacancies) until January 11, 2018. Dr. Lempert has been a significant investor, shareholder and an active advocate of Aura’s technology for more than 20 years.
David Mann. Mr. Mann has been Vice President of Marketing for Mann Marketing, a manufacturing and import company, since 1990 and the Vice President of Sales of that company since 2007. From 2000 until 2007, Mr. Mann also served as Vice President of Operations. Mr. Mann has extensive experience dealing with all aspects of marketing and sales, as well as suppliers in both North America and China. Mr. Mann has been an investor in the Aura since 2007 and previously served as a director of the Company from November 28, 2017 (when he was appointed by the then-Board to fill one of the two existing vacancies) until January 11, 2018. Mr. Mann holds a degree in Business Administration from College St. Laurent, Montreal, Canada.
Delinquent Section 16(a) Reports
Our shares of common stock are registered under the Securities Exchange Act of 1934, and therefore our executive officers and directors and persons who beneficially own more than 10% of a registered class of our equity securities to file with the SEC initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common shares and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% stockholders are required by the Securities and Exchange Commission regulations to furnish us with copies of all Section 16(a) reports they file. Based on our review of the copies of such forms received by us, and to the best of our knowledge, no executive officers, directors and persons holding greater than 10% of our issued and outstanding stock have filed the required reports during the years ended February 28 2026, and February 28, 2025.
Code of Ethics
We have adopted a Code of Ethics applicable to the Company’s Chief Executive Officer, Chief Financial Officer and all other members of the Company’s Finance Department. This Code of Ethics is posted on the Company’s website within a broader Code of Business Conduct and Ethics at www.aurasystems.com in the Investor Relations section. We intend to satisfy the disclosure requirement under Item 10 of Form 8-K regarding an amendment to, or a waiver from, the provision of our Code of Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions and that relates to any element of such provision of our Code of Ethics by posting such information on our website within four business days of the date of such amendment or waiver. In the case of a waiver, the nature of the waiver, the name of the person to whom the waiver was granted, and the date of the waiver will also be disclosed.
27
Family Relationships
None of our directors or executive officers is related to one another.
Committees of the Board of Directors
The Board maintains the following committees to assist it in discharging its oversight responsibilities.
Audit Committee. The Audit Committee does not have a formal charter but is responsible primarily for overseeing the services performed by our independent registered public accounting firm, evaluating our accounting policies and system of internal controls, and reviewing our annual and quarterly reports before filing with the Securities and Exchange Commission. The current members of the Audit Committee are Mr. Salvador Diaz Versón Jr., Mr. David Mann and Mr. Gary Douglas. The Board of Directors has determined that the Audit Committee does not have a member who is an “audit committee financial expert” as such term is defined by the rules and regulations of the Securities and Exchange Commission. While the Board recognizes that the Board members serving on the Audit Committee do not meet the qualifications required of an “audit committee financial expert,” the Board believes that the appointment of a new director to the Board of Directors and to the Audit Committee at this time is not necessary as the level of financial knowledge and experience of the current member of the Audit Committee, including such member’s ability to read and understand fundamental financial statements, is sufficient to adequately discharge the Audit Committee’s responsibilities
Compensation Committee. The Compensation Committee does not have a formal charter but reviews and recommends to the full Board the amounts and types of compensation to be paid to the Chairman and Chief Executive Officer; reviews and approves the amounts and types of compensation to be paid to our other executive officers and the non-employee directors; reviews and approves, on behalf of the Board, salary, bonus and equity guidelines for our other employees; and administers our equity plans. The Compensation Committee is currently comprised of Mr. David Mann, Ms. Cipora Lavut and Dr. Robert Lempert.
Nominating Committee. The Nominating Committee does not have a formal charter but assists the Board in identifying qualified individuals to become directors, determines the composition of the Board and its committees, monitors the process to assess the Board’s effectiveness and helps develop and implement our corporate governance guidelines. The Nominating Committee also considers nominees proposed by stockholders. The Nominating Committee currently consists of Mr. David Mann, Ms. Cipora Lavut and Dr. Robert Lempert.
Director Compensation
Although we do not currently compensate our directors in cash for their service as members of our Board of Directors, the Board may, in its discretion, elect to compensate directors for attending Board and Committee meetings and to reimburse directors for out-of-pocket expenses incurred in connection with attending such meetings. Additionally, our directors are eligible to receive stock options under the 2011 Directors and Executive Officer Stock Option Plan.
During Fiscal 2026, no stock compensation was awarded to the Company’s directors.
During Fiscal 2025, stock compensation for an aggregate of 3,000,000 stock options, with a fair value of $1,342, was awarded to the Company’s directors.
28
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation earned by or paid to the principal executive officer and the named executive officers during the Fiscal years ended February 28, 2026 and February 28, 2025.
Summary Compensation Table
| Fiscal | Salary | Option Awards | Non-Equity Incentive Compensation | All Other Compensation | Total | |||||||||||||||||||
| Name and Principal Position | Year | ($) | ($) | ($) | ($) | ($) | ||||||||||||||||||
| Cipora Lavut | 2026 | 140,000 | (1) | - | - | 539 | 140,539 | |||||||||||||||||
| President | 2025 | 140,000 | (1) | - | - | 539 | 140,539 | |||||||||||||||||
| (1) | For Fiscal 2026, Ms. Lavut has been accruing an annual salary of $250,000 and has been paid $140,000 in cash over the same period, with the balance deferred. |
| (2) | For Fiscal 2025, Ms. Lavut has been accruing an annual salary of $250,000 and has been paid $140,000 in cash over the same period, with the balance deferred. |
Outstanding Equity Awards at 2026 Fiscal Year-End
The Board of Directors and Executive Officers have been granted various options to acquire the Company’s common stock under the Company’s 2011 Directors and Executive Officers Stock Option Plan (the “2011 Plan”) as detailed in the table below. All of these options were outstanding as of February 28, 2026.
| Name and Principal Position | Stock Options & Warrants Outstanding | Weighted Average Remaining Contractual Life in Years | Weighted Average Exercise Price of Options & Warrants Outstanding | |||||||||
| Cipora Lavut, President and Board Chair | 1,000,000 | 8.26 | $ | 0.50 | ||||||||
| Salvador Diaz-Verson, Jr., Director | 500,000 | 8.26 | $ | 0.50 | ||||||||
| Gary Douglas, Director | 500,000 | 8.26 | $ | 0.50 | ||||||||
| David Mann, Director | 500,000 | 8.26 | $ | 0.50 | ||||||||
| Robert Lempert, Director | 500,000 | 8.26 | $ | 0.50 | ||||||||
Option Exercises and Stock Vesting During Fiscal 2026
No stock options were exercised during Fiscal 2026 by the individuals named in the Summary Compensation Table.
Option Exercises and Stock Vesting During Fiscal 2025
No stock options were exercised during Fiscal 2026 by the individuals named in the Summary Compensation Table.
Employment Contracts, Termination of Employment Contracts and Change in Control Arrangements
We do not currently have any employment agreements with any of our Named Executive Officers.
Potential Payments to the Named Executive Officers Upon Termination or Change in Control
None of the named executive officers is entitled to any payments or benefits upon termination, whether by change in control or otherwise, other than benefits available generally to all employees.
29
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, to the extent of our knowledge, certain information regarding our common stock owned as of February 28, 2026 (i) by each person who is known to be the beneficial owner of more than 5% of our outstanding common stock, (ii) by each of our Directors and the named executive officers in the Summary Compensation Table, and (iii) by all Directors and current executive officers as a group:
| Beneficial Ownership Table | ||||||||
| Beneficial Owner (1) | Number of Shares of Common Stock | Percent of Common Stock | ||||||
| Salvador Diaz-Verson, Jr. (2) | 819,750 | * | % | |||||
| Gary Douglas (3) | 500,000 | * | % | |||||
| Cipora Lavut (4) | 1,888,382 | 1.3 | % | |||||
| Robert Lempert (5) | 507,343 | * | % | |||||
| David Mann (6) | 1,023,609 | * | % | |||||
| All current executive officers and Directors as a group (six) (2) (3) (4) (5) (6) | 4,739,084 | 3.35 | % | |||||
| 5% Stockholders | ||||||||
| Warren Breslow (7) | 6,342,385 | 4.49 | % | |||||
| BetterSea LLC (8) | 8,364,735 | 5.93 | % | |||||
| * | Less than 1% of outstanding shares |
| (1) | Beneficial ownership is determined in accordance with rules of the Securities and Exchange Commission. The calculation of the percentage of beneficial ownership is based upon 141,401,844 shares of common stock outstanding on February 28, 2026. In computing the number of shares beneficially owned by any stockholder and the percentage ownership of such stockholder, shares of common stock which may be acquired by a such stockholder upon exercise or conversion of warrants or options which are currently exercisable or exercisable within 60 days of February 28, 2026, are deemed to be exercised and outstanding. Such shares, however, are not deemed outstanding for purposes of computing the beneficial ownership percentage of any other person. Shares issuable upon exercise of warrants and options which are subject to stockholder approval are not deemed outstanding for purposes of determining beneficial ownership. Except as indicated by footnote, to our knowledge, the persons named in the table above have the sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them. The mailing address for each of the officers and directors is c/o Aura Systems, Inc., 20431 North Sea, Lake Forest, CA 92630. |
| (2) | Includes 500,000 options exercisable within 60 days of February 28, 2026. |
| (3) | Includes 500,000 options exercisable within 60 days of February 28, 2026 |
| (4) | Includes 1,000,000 options exercisable within 60 days of February 28, 2026. |
| (5) | Includes 500,000 options exercisable within 60 days of February 28, 2026. |
| (6) | Includes 500,000 options exercisable within 60 days of February 28, 2026, as well as 1,411,931 shares, 979,204 of which Mr. Mann has sole dispositive power and approximately 432,727 of which, Mr. Mann holds a power of attorney to vote such shares. |
| (7) | Includes the right to convert $3,000,000 and accrued interest of $1,162,911 convertible note payable to 2,946,722 common shares at a conversion price of $1.40. |
| (8) | Includes common shares only as of February 28, 2026. |
30
Securities Authorized for Issuance Under Equity Compensation Plans as of February 28, 2026
Equity Compensation Plan Information as of February 28, 2026
| a. | b. | c. | ||||||||||
| Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | Weighted Average Exercise Price for Options, Warrants and Rights | Number of Securities For Future Issuances Under Equity Compensation Plans (Excluding Securities Reflected in Column (a.) | |||||||||
| Equity compensation plans approved by equity holders | 8,250,000 | $ | 0.44 | 10,904,394 | ||||||||
| Equity compensation plans not approved by equity holders | 1,500,000 | $ | 0.50 | - | ||||||||
| (1) | Reflects options under the 2006 Stock Option Plan and the 2011 Stock Option Plan, of which both were approved by Company shareholders. Additionally, it includes options which were authorized by the Board but cannot be issued until the proposal for renewal of the employee stock option plan is approved by the shareholders. The 2006 Stock Option Plan authorizes the Company to grant stock options exercisable for up to an aggregate number of shares of common stock equal to the greater of (i) 10,000,000 shares of common stock, or (ii) 10% of the number of shares of common stock outstanding from time to time. The 2011 Stock Option Plan authorizes the Company to grant stock options or warrants to executive officers and directors exercisable for up to an aggregate number of shares equivalent to 15% of the number of shares of common stock outstanding from time to time. The numbers in this table are as of February 28, 2026 (See Note 13 to the Financial Statements). |
For additional information regarding options and warrants, see Note 13 to our financial statements appearing elsewhere in this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Review and Approval of Related Party Transactions
Our Audit Committee is responsible for the review and approval of all related party transactions required to be disclosed to the public under SEC rules. This procedure has been established by our Board of Directors in order to serve the interests of our shareholders. Related party transactions are reviewed and approved by the Audit Committee on a case-by-case basis. Under existing, unwritten policy no related party transaction can be approved by the Audit Committee unless it is first determined that the terms of such transaction is on terms no less favorable to us than could be obtained from an unaffiliated third party on an arms-length basis and is otherwise in our best interest.
Director Independence
Using the definition of “independence” included in the listing rules of The Nasdaq Stock Market, our Board has determined that Salvador Diaz-Versón, Jr. and Gary Douglas are both independent directors.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND DISCLOSURES
Weinberg & Company, P.A. (“Weinberg”) was engaged to be the Company’s principal accountant and auditor in April 2022. The following table sets forth the aggregate fees billed to us by Weinberg for the years ended February 28, 2026 and 2025:
Year Ended February 28, | ||||||||
| (amounts in thousands) | 2026 | 2025 | ||||||
| Audit Fees | $ | 147,000 | $ | 129,000 | ||||
| Audit-related fees | - | - | ||||||
| Tax fees | - | - | ||||||
| All other fees | - | - | ||||||
| Total | $ | 147,000 | $ | 129,000 | ||||
31
As defined by the SEC, (i) “audit fees” are fees for professional services rendered by our principal accountant for the audit of our annual financial statements and review of financial statements included in our Form 10-K, or for services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those Fiscal years; (ii) “audit-related fees” are fees for assurance and related services by our principal accountant that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “audit fees;” (iii) “tax fees” are fees for professional services rendered by our principal accountant for tax compliance, tax advice, and tax planning; and (iv) “all other fees” are fees for products and services provided by our principal accountant, other than the services reported under “audit fees,” “audit-related fees,” and “tax fees.”
Audit Fees
Services provided to us by Weinberg with respect the audit of our annual financial statements and review of our annual report on Form 10-K for the year ended February 28, 2025, and for reviews of the financial statements which are included in our quarterly reports on Form 10-Q for the first three quarters of the year ended February 28, 2026.
Audit Related Fees
Weinberg did not provide any professional services to us during Fiscal 2026 or Fiscal 2025 which would constitute “audit related fees”.
Tax Fees
Weinberg did not provide any professional services to us during Fiscal 2026 or Fiscal 2025 which would constitute “tax fees”.
All Other Fees
Weinberg did not provide any professional services to us during Fiscal 2026 or Fiscal 2025 which would constitute “other fees”.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors
Under the SEC’s rules, the Audit Committee is required to pre-approve the audit and permissible non-audit services performed by the independent registered public accounting firm in order to ensure that they do not impair the auditors’ independence. The SEC’s rules specify the types of non-audit services that an independent auditor may not provide to its audit client and establish the Audit Committee’s responsibility for administration of the engagement of the independent registered public accounting firm.
Consistent with the SEC’s rules, the Audit Committee pre-approves all audit and permissible non-audit services provided by our independent auditors. These services may include audit services, audit-related services, tax and other services. Pre-approval is generally provided for up to one year, and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent auditors and management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent auditors in accordance with this pre-approval, and the fees for the services performed to date. The Audit Committee may also pre-approve particular services on a case-by-case basis. During Fiscal 2026 and Fiscal 2025 all services provided by Weinberg were pre-approved by the Audit Committee in accordance with this policy.
There were no hours expended on the principal accountant’s engagement to audit the registrant’s financial statements for the most recent Fiscal year that were attributed to work performed by persons other than the principal accountant’s full-time, permanent employees.
32
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Documents filed as part of this Form 10-K:
| 1. | Financial Statements |
See Index to Financial Statements at page F-1
| 2. | Financial Statement Schedules |
See Index to Financial Statements at page F-1
| 3. | Exhibits |
See Exhibit Index
ITEM 16. FORM 10-K SUMMARY
None.
INDEX TO EXHIBITS
Description of Documents
| * | Indicates a management contract or compensatory plan or arrangement. |
In accordance with SEC Release 33-8238, Exhibit 32.1 and 32.2 are being furnished and not filed.
Furnished herewith. XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
33
Signatures
Pursuant to the requirements of Section 13 or 15 (d) 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.
AURA SYSTEMS, INC.
Dated: September 9, 2026
| By: | /s/ Cipora Lavut | |
| Cipora Lavut | ||
| President |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
| Signatures | Title | Date | ||
| /s/ Cipora Lavut | President (Principal Executive Officer), Board Chair | September 9, 2026 | ||
| Cipora Lavut | ||||
| /s/ David Mann | Director | September 9, 2026 | ||
| David Mann | ||||
| /s/ Robert Lempert | Director | September 9, 2026 | ||
| Robert Lempert | ||||
| /s/ Gary Douglas | Director | September 9, 2026 | ||
| Gary Douglas | ||||
| /s/ Salvador Diaz-Verson, Jr. | Director | September 9, 2026 | ||
Salvador Diaz-Verson, Jr. |
34
Index to Financial Statements
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Aura Systems, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Aura Systems, Inc. (the “Company”) as of February 28, 2026 and 2025, the related statements of operations, stockholders’ deficit, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of February 28, 2026 and 2025, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, during the year ended February 28, 2026, the Company incurred a net loss of $10.9 million, used cash in operations of $3.4 million, and at February 28, 2026, had a stockholders’ deficit of $44.8 million. In addition, at February 28, 2026, notes payable and related accrued interest with an aggregate balance of $5.2 million have reached maturity and are past due. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
F-2
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Derivative Liability
As discussed in Notes 7 and 12, the Company’s has a convertible note with a conversion feature that is accounted for as derivative liability. The derivative liability is measured at fair value at each reporting date, with changes in fair value recognized in earnings.
The Company estimated the fair value of the derivative liability using the Black-Scholes option pricing model. The valuation requires management to make significant estimates and assumptions, including the expected volatility of the Company's common stock, expected term, risk-free interest rate, expected dividend yield, and, where applicable, assumptions regarding the probability and timing of future events.
We identified the accounting and valuation of the derivative liability as a critical audit matter due to the significant judgements and assumptions used by management. As a result, a high degree of auditor judgement and effort was required in performing audit procedures to evaluate the accounting treatment.
The primary procedures we performed to address this critical audit matter included:
| ● | Obtaining and reading the convertible note agreement, as amended. |
| ● | Evaluating the valuation model management selected to determine the fair value, and evaluating the reasonableness of management’s significant valuation assumptions. |
| ● | Performing a recalculation of the fair value estimate. |
We have served as the Company’s auditor since 2022.
/s/
September 9, 2026
1925 Century Park East, Suite 1120
Los Angeles, California 90067
Telephone: 310.601.2200
www.weinbergla.com
F-3
AURA SYSTEMS, INC.
BALANCE SHEETS
| February 28, 2026 |
February 28, 2025 |
|||||||
| (amounts in thousands, except share data) | ||||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Inventories | ||||||||
| Prepaid and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use asset | ||||||||
| Security deposit | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Shareholders’ Deficit | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accrued interest | ||||||||
| Customer advances | ||||||||
| Convertible notes payable, current portion-past due | ||||||||
| Convertible note payable-related party, including $ | ||||||||
| Notes payable, current portion | ||||||||
| Notes payable-related party, including $ | ||||||||
| Operating lease liabilities, current portion | ||||||||
| Derivative liability | ||||||||
| Total current liabilities | ||||||||
| Notes payable, net of current portion | ||||||||
| Operating lease liabilities, net of current portion | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Shareholders’ deficit | ||||||||
| Common stock: $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total shareholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and shareholders’ deficit | $ | $ | ||||||
See accompanying notes to these financial statements.
F-4
AURA SYSTEMS, INC.
STATEMENTS OF OPERATIONS
Fiscal Years Ended February 28, |
||||||||
| 2026 | 2025 | |||||||
| (amounts in thousands, except share and per share data) | ||||||||
| Net revenue | $ | $ | ||||||
| Cost of goods sold | ||||||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| Engineering, research and development | ||||||||
| Selling, general and administration | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income (expense): | ||||||||
| Interest expense, net (including $ | ( | ) | ( | ) | ||||
| Gain on debt settlement | ||||||||
| Loss on debt extinguishment – related party | ( | ) | ||||||
| Change in fair value of derivative liability | ( | ) | ||||||
| Other income | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted loss per share | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted weighted-average shares outstanding | ||||||||
See accompanying notes to these financial statements.
F-5
AURA SYSTEMS, INC.
STATEMENTS OF SHAREHOLDERS’ DEFICIT
(in thousands, except share data)
| Common Stock Shares |
Common Stock Amount |
Additional Paid-In Capital |
Accumulated Deficit |
Total Shareholders’ Deficit |
||||||||||||||||
| Balance, February 29, 2024 | $ | | $ | $ | ( | ) | $ | ( | ) | |||||||||||
| Fair value of vested stock options | ||||||||||||||||||||
| Modification of warrant agreement - related party | ||||||||||||||||||||
| Common shares issued for cash | ||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||
| Balance, February 28, 2025 | ( | ) | ( | ) | ||||||||||||||||
| Common shares issued for services | ||||||||||||||||||||
| Common shares issued for cash | ||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||
| Balance, February 28, 2026 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
See accompanying notes to these financial statements.
F-6
AURA SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
Fiscal Years Ended February 28, |
||||||||
| 2026 | 2025 | |||||||
| (amounts in thousands) | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to cash used in operating activities | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of debt discount | ||||||||
| Inventory write-down | ||||||||
| Gain on debt settlement | ( | ) | ||||||
| Loss on debt extinguishment – related party | ||||||||
| Change in fair value of derivative liability | ( | ) | ||||||
| Fair value of vested stock options | ||||||||
| Common stock issued for services | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Inventory | ( | ) | ||||||
| Prepaid and other current assets | ||||||||
| Operating lease right-of-use asset | ||||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Accrued interest | ||||||||
| Customer advances | ||||||||
| Operating lease liability | ( | ) | ( | ) | ||||
| Cash used in operating activities | ( | ) | ( | ) | ||||
| Cash used in investing activities: | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of common stock | ||||||||
| Proceeds from issuance of notes payable | ||||||||
| Principal payments of notes payable and convertible notes payable | ( | ) | ( | ) | ||||
| Cash provided by financing activities | ||||||||
| Net increase (decrease) in cash and cash equivalents | ( | ) | ( | ) | ||||
| Cash and cash equivalents-beginning of year | ||||||||
| Cash and cash equivalents-end of year | $ | $ | ||||||
| Cash paid for: | ||||||||
| Interest | $ | $ | ||||||
| Supplemental schedule of non-cash transactions: | ||||||||
| Right of use asset and lease liability | $ | $ | ||||||
| Notes payable issued for the purchase of property and equipment | $ | $ | ||||||
| Notes payable issued for the purchase of annual software license | $ | $ | ||||||
See accompanying notes to these financial statements.
F-7
AURA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
Years ended February 28, 2026,and 2025
(In thousands, except share and per share amounts)
NOTE 1 – ORGANIZATION AND 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.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. In accordance with Accounting Standards Codification (“ASC”) 205-40, Going Concern, the Company’s management has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the accompanying financial statements were issued. During the fiscal year ended February 28, 2026, the Company incurred a net loss of $
Subsequent to February 28, 2026, the Company issued
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 the valuation of inventory, impairment testing of long-lived assets, the realizability of deferred tax assets and the related valuation allowance, 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.
Revenue Recognition
The Company recognizes revenue in accordance with Financial Accounting Standard Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers.
Our primary source of revenue is the manufacture and delivery of axial flux induction motors and generator sets used primarily in mobile power applications. Our principal sales channel is sales to domestic end users and distributors and agents internationally. In accordance with ASC 606, the Company recognizes revenue, net of discounts, for our generator sets at the time of product delivery and acceptance by the customer (i.e. point-in-time), which also corresponds to the passage of legal title to the customer and the satisfaction of our performance obligation to the customer.
F-8
Cost of Goods Sold
Cost of goods sold primarily consists of the salaries of certain employees and contractors, purchase price of consumer products, packaging supplies, inventory reserve and customer shipping and handling expenses. Shipping costs to receive products from our suppliers are included in our inventory and recognized as cost of revenue upon sale of products to our customers.
Cash and Cash Equivalents
Cash and equivalents include cash on hand and cash in time deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less.
Inventories
Inventories are valued at the lower of cost (first-in, first-out) or net realizable value, on an average cost basis. We review the components of inventory on a regular basis for excess or obsolete inventory based on estimated future usage and sales. When evidence exists that the net realizable value of inventory is lower than its cost, the difference is recognized as a loss in the period in which it occurs. Once inventory has been written down, it creates a new cost basis for inventory that may not be subsequently written up. During the years ended February 28, 2026 and 2025, the Company wrote down inventories of $ and $
Property and Equipment
Property and equipment are recorded at historical cost and depreciated on a straight-line basis over their estimated useful lives of approximately
Management assesses the carrying value of property and equipment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If there is an indication of impairment, management prepares an estimate of future cash flows expected to result from the use of the asset and its eventual disposition. If these cash flows are less than the carrying amount of the asset, an impairment loss is recognized to write down the asset to its estimated fair value at that time. At February 28, 2026 and 2025, management determined there were no impairments of the Company’s property and equipment.
Impairment of Long-lived Assets
The Company reviews its property and equipment, right-of-use asset, and other long-lived assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Recoverability is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. For the years ended February 28, 2026 and 2025, the Company had no impairment of long-lived assets.
Leases
The Company determines whether a contract is, or contains, a lease at inception. Right-of-use assets represent the Company’s right to use an underlying asset during the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at lease commencement based upon the estimated present value of unpaid lease payments over the lease term. The Company uses its incremental borrowing rate based on the information available at lease commencement in determining the present value of unpaid lease payments.
F-9
Customer Advances
Customer advances represent consideration received from customers under revenue contracts for which the Company has not yet delivered to the customer the ordered goods or services.
Concentration of Credit and Other Risks
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and accounts receivable. Cash is deposited with a limited number of financial institutions. The balances held at any one financial institution may at times exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance limit of $
During the year ended February 28, 2026, one customer accounted for
As of February 28, 2026, five vendors accounted for
Research and Development
Research and development expenses relate primarily to the development, design, and testing of preproduction prototypes and models and are expensed as incurred. Research and development costs for Fiscal 2026 and 2025 were approximately $
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 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 in the same manner as if the Company had paid cash for services.
Income Taxes
The Company uses an asset-and-liability approach to accounting and reporting of income taxes, which allows recognition and measurement of deferred tax assets based on the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not that these items will either expire before the Company can realize their benefits or that their future deductibility is uncertain. The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense.
Derivative Liabilities
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 instrument is initially recorded at fair value and is then revalued 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 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.
F-10
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 option 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.
To determine the number of authorized but unissued shares available to satisfy outstanding convertible securities, the Company uses a sequencing method to prioritize its convertible securities as prescribed by ASC 815-40-35. At each reporting date, the Company reviews its convertible securities to determine whether their classification is appropriate.
Fair Value of Financial Instruments
The Company determines the fair values of its financial instruments using a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The classification of a financial asset or liability within the hierarchy is based upon the lowest level input that is significant to the fair value measurement. Under ASC 820, Fair Value Measurement and Disclosures (“ASC 820”), the fair value hierarchy prioritizes the inputs into three levels that may be used to measure fair value:
| ● | Level 1 – Quoted prices (unadjusted) for identical assets and liabilities in active markets; |
| ● | Level 2 – Inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly; and |
| ● | Level 3 – Unobservable inputs. |
The recorded amounts of inventory, other current assets, accounts payable, and accrued expenses approximate their fair value due to their short-term nature. The carrying amounts of notes payable and convertible notes payable approximate their respective fair values because of their current interest rates payable in relation to current market conditions.
The following table sets forth by level, within the fair value hierarchy, the Company’s assets and liabilities at fair value as of February 28, 2026 and 2025:
| February 28, 2026 | ||||||||||||||||
| (amounts in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Liabilities | ||||||||||||||||
| Derivative liability – convertible note conversion option | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| February 28, 2025 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Liabilities | ||||||||||||||||
| Derivative liability – convertible note conversion option | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
The Company estimated the fair value of the derivative liability using the Black-Scholes option pricing model.
The following table provides a roll-forward of the derivative liability measured at fair value on a recurring basis using unobservable level 3 inputs for the period ended February 28, 2026, as follows:
| (amounts in thousands) | Fair Value of Derivative Warrant Liability | |||
| February 28, 2025 | $ | |||
| Change in fair value of derivative liability | ||||
| February 28, 2026 | $ | |||
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Earnings (loss) per share
The Company’s earnings (loss) per share amount has 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 years ended February 28, 2026 and 2025, the calculations of basic and diluted loss per share are the same because potential dilutive securities would have had an anti-dilutive effect. The potentially dilutive securities consisted of the following:
| February 28, 2026 | February 28, 2025 | |||||||
| Warrants | ||||||||
| Options | ||||||||
| Convertible notes | ||||||||
| Total | ||||||||
Inflation
The continuing impact of higher inflation and the actions by the Federal Reserve to address inflation create uncertainty about the future economic environment, which will continue to evolve and, we believe, has impacted the Company’s business in 2026 and may continue to impact its business in 2027. The implications of higher government deficits and debt, tighter monetary policy, and potentially higher long-term interest rates may drive up the cost of capital for the business and increase the Company’s operating expenses.
Segments
Under ASC 280, Segment Reporting, operating segments are defined as components of an enterprise for which discrete financial information is available and evaluated regularly by the chief operating decision maker (“CODM”) to decide how to allocate resources and assess performance. The Company’s operating segment consists of one component, and the Company’s Chief Executive Officer, who is also the CODM, makes decisions and manages the Company’s operations as a single operating segment.
Recently Issued 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 in the process of 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 did not or are not believed by management to have a material impact on the Company’s present or future financial statements.
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NOTE 3 – INVENTORIES
Inventories consisted of the following:
| February 28, 2026 | February 28, 2025 | |||||||
| (amounts in thousands) | ||||||||
| Raw materials | $ | $ | | |||||
| Work-in-process | ||||||||
| Finished goods | ||||||||
| Total inventory | $ | $ | ||||||
NOTE 4 – PREPAID AND OTHER CURRENT ASSETS
Prepaid and other current assets consisted of the following:
| February 28, 2026 | February 28, 2025 | |||||||
| (amounts in thousands) | ||||||||
| Prepaid annual software licenses | $ | | $ | | ||||
| Prepaid insurance | ||||||||
| Other prepaid expenses | ||||||||
| Total prepaid and other current assets | $ | $ | ||||||
NOTE 5 – PROPERTY AND EQUIPMENT, NET
Property and equipment consisted of the following:
| February 28, 2026 | February 28, 2025 | |||||||
| (amounts in thousands) | ||||||||
| Leasehold improvements | $ | | $ | | ||||
| Machinery and equipment | ||||||||
| Vehicle | ||||||||
| Computer equipment | ||||||||
| Computer software | ||||||||
| Furniture and fixtures | ||||||||
| Less accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| $ | $ | |||||||
Depreciation expense for the years ended February 28, 2026 and 2025 was $
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NOTE 6 – CONVERTIBLE NOTES PAYABLE
Convertible notes payable consisted of the following:
| February 28, 2026 | February 28, 2025 | |||||||
| (amounts in thousands) | ||||||||
| (a) Convertible notes payable 1 – past due | $ | | $ | | ||||
| (b) Convertible notes payable 2 – past due | ||||||||
| Net | $ | $ | ||||||
| (a) |
| (b) |
At February 28, 2026, the total outstanding convertible notes payable of $
NOTE 7 – CONVERTIBLE NOTE PAYABLE-RELATED PARTY
Convertible note payable – related party consisted of the following:
| February 28 2026 | February 28, 2025 | |||||||
| (amounts in thousands) | ||||||||
| (a) Convertible note payable to former director – past due | $ | | $ | | ||||
| (b) Convertible note payable to director – past due | ||||||||
| (c) Convertible note payable – Kopple | ||||||||
| Total | $ | $ | ||||||
| (a) | Convertible note payable-former Director |
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| (b) | Convertible note payable-Director |
| (c) | Convertible note payable-Kopple
The convertible note payable to Robert Kopple and associated entities (collectively “Kopple”), as amended in March 2024, is secured by tangible and intangible assets of the Company, bears interest at a rate of
The convertible note (i) requires $
During the year ended February 28, 2026, the $2,000 installment payment originally due in December 2024, was extended through December 31, 2025. In exchange for the extension, fees totaling $
Other
At February 28, 2025, Kopple alleged that the Company failed to comply with certain non-monetary terms, including failing to hold a shareholders’ meeting by August 1, 2024, or otherwise secure additional shares needed to allow the exercise of Kopple’s conversion rights, and failure to pay
The Company disputes Kopple’s alleged failures to perform the non-monetary terms and is currently in discussion with Kopple to resolve this matter.
|
The Company is also subject to certain affirmative and negative covenants, such as periodic submission of financial statements to Kopple and restrictions on future financing and investment activities, as defined in the agreement, including a covenant not to create any indebtedness that is senior in right of payment to the Kopple debt. Management believes such covenants are normal for this type of transaction and that meeting them will not affect the Company's operations.
At February 28, 2026, the total outstanding convertible notes payable-related party of $
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NOTE 8 – NOTES PAYABLE
Notes payable consisted of the following:
| (amounts in thousands) | February 28, 2026 | February 28, 2025 | ||||||
| Secured notes payable | ||||||||
| (a) Note payable-EID loan | $ | | $ | | ||||
| (b) Notes payable-vehicle | ||||||||
| (c) Note payable - software license | ||||||||
| (d) Notes payable – machinery and other equipment | ||||||||
| Unsecured notes payable | ||||||||
| (e) Note payable-other | ||||||||
| Total | $ | $ | ||||||
| Current | ( | ) | ( | ) | ||||
| Non-current | $ | $ | ||||||
(a)
During Fiscal 2021, the Company received a $
(b)
During Fiscal 2022, the Company issued a note payable to purchase a vehicle for $
(c)
During Fiscal 2024, the Company obtained a loan of $
During Fiscal 2025, the Company obtained a loan of $
During Fiscal 2026, the Company obtained a loan of $
The aggregate total of the note payable-software licenses as of February 28, 2026, amounted to $
(d)
During Fiscal 2025, the Company obtained a loan of $
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During Fiscal 2026, the Company obtained a loan of $
The aggregate total of the note payable-machinery and other equipment as of February 28, 2026, amounted to $
(e)
As of February 28, 2026 and 2025, the Company has one note payable due to an individual issued in September 2015 that is payable on demand with an interest rate of
NOTE 9 – NOTES PAYABLE-RELATED PARTIES
Notes payable-related parties consisted of the following:
| (amounts in thousands) | February 28, 2026 | February 28, 2025 | ||||||
| Note payable-Jiangsu Shengfeng – past due | $ | $ | ||||||
On November 20, 2019, the Company owned
NOTE 10 – ACCRUED INTEREST
Accrued interest consisted of the following:
| February 28, 2026 | February 28, 2025 | |||||||
| (amounts in thousands) | ||||||||
| Convertible notes payable (past due) (see Note 6) | $ | $ | ||||||
| Convertible notes payable - related party – Kopple (see Note 7) | ||||||||
| Convertible notes payable - related party – Others (see Note 7) | ||||||||
| Notes payable (see Note 8) | ||||||||
| Total | $ | $ | ||||||
NOTE 11 – LEASES
In February 2021, the Company consolidated its administrative and production operations, including warehousing, into an approximately
In April 2024, the Company entered into a 60-month financing lease for a forklift with a cost of $
Operating lease right-of-use (“ROU”) assets and liabilities are recognized at the 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.
F-17
The components of lease expense and supplemental cash flow information related to leases for the period are as follows:
| Year ended February 28, 2026 | Year ended February 28, 2025 | |||||||
| (amounts in thousands) | ||||||||
| Lease Cost | ||||||||
| Operating lease cost (included in general and administration in the Company’s statement of operations) | $ | | $ | | ||||
| Other Information | ||||||||
| Cash paid for amounts included in the measurement of lease liabilities for the years ended February 28, 2026 and 2025, respectively | $ | $ | ||||||
| Weighted average remaining lease term – operating leases (in years) | ||||||||
| Average discount rate – operating leases | % | % | ||||||
The supplemental balance sheet information related to leases for the period is as follows:
| At February 28, 2026 | ||||
| Operating leases | ||||
| Long-term right-of-use assets | $ | | ||
| Short-term operating lease liabilities | $ | |||
| Long-term operating lease liabilities | ||||
| Total operating lease liabilities | $ | |||
Maturities of the Company’s lease liability is as follows:
| Year Ending February 28: | Operating Lease | |||
| 2027 | $ | | ||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| 2031 | ||||
| Total lease payments | ||||
| Less: Imputed interest/present value discount | ( | ) | ||
| Present value of lease liabilities | $ | |||
In June 2026, the Company amended its facility lease agreement to extend the lease term to August 2028 and revise the monthly lease payments. The amendment will be accounted for as a lease modification in June 2026, including remeasurement of the lease liability and corresponding right-of-use asset using the discount rate in effect on the modification date.
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NOTE 12 – DERIVATIVE LIABILITY
In March 2024, pursuant to the amendment of the Kopple note payable (see Note 7), 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
The following tables summarize the derivative liability:
| (amounts in thousands, except share and per share data) | February 28, 2026 | February 28, 2025 | ||||||
| Stock price | $ | $ | ||||||
| Risk free interest rate | % | % | ||||||
| Expected volatility | % | % | ||||||
| Expected life in years | ||||||||
| Expected dividend yield | % | % | ||||||
| Number of common stock issuable | ||||||||
| Fair value of derivative liability | $ | $ | ||||||
NOTE 13 – STOCKHOLDERS’ DEFICIT
Common Stock
On February 28, 2026 and 2025, the Company had
During the year ended February 28, 2026, the Company issued
During the year ended February 28, 2026, the Company issued
During the year ended February 28, 2025, the Company issued
On February 28, 2026, there were insufficient authorized and unissued shares for the Company to satisfy all of its commitments to deliver shares. The Company’s sequencing policy resulted in the allocation of authorized and unissued shares in the following order at February 28, 2026 (i) Warrants, and (ii) Convertible Notes Payable and Convertible Notes Payable-Related Party. The sequence is based upon reclassifying securities with the earliest maturity date first. This sequencing and the lack of sufficient authorized shares resulted in the Company recording the conversion option of the convertible note payable-Kopple as a derivative liability (see Note 12).
F-19
Stock Options
In October 2011, the Company’s shareholders approved the 2011 Director and Executive Officers Stock Option Plan (the “2011 Plan”). Under the 2011 Plan, the Company may grant options, or warrants, for up to
| Number of Shares | Exercise Price | Weighted Average Intrinsic Value | ||||||||||
| (amounts in thousands, except share and per share data) | ||||||||||||
| Total options, February 29, 2024 | $ | | $ | |||||||||
| Granted | ||||||||||||
| Exercised | ||||||||||||
| Expired | ||||||||||||
| Total options, February 28, 2025 | $ | $ | ||||||||||
| Granted | ||||||||||||
| Exercised | ||||||||||||
| Expired | ( | ) | ||||||||||
| Total options, February 28, 2026 | $ | $ | ||||||||||
| Exercisable, February 28, 2026 | $ | $ | ||||||||||
During the year ended February 28, 2026, stock options were granted. During the year ended February 28, 2025, the Company’s Board of Directors approved options exercisable into
The stock options are exercisable at a price of $
There was intrinsic value as of February 28, 2026, as the exercise prices of these options were greater than the market price of the Company’s stock.
| Range of Exercise Price | Stock Options Outstanding | Stock Options Exercisable | Weighted Average Remaining Contractual Life | Weighted Average Exercise Price of Options Outstanding | Weighted Average Exercise Price of Options Exercisable | |||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||
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Warrants
| Number of Warrants | Exercise Price | |||||||
| Outstanding, February 29, 2024 | $ | |||||||
| Granted | ||||||||
| Exercised | ||||||||
| Expired | ( | ) | ||||||
| Outstanding, February 28, 2025 | $ | |||||||
| Granted | ||||||||
| Exercised | ||||||||
| Expired | ( | ) | ||||||
| Outstanding, February 28, 2026 | $ | |||||||
There was intrinsic value as of February 28, 2026, as the exercise prices of these warrants were greater than the market price of the Company’s stock.
| Range of Exercise Price | Stock Warrants Outstanding | Stock Warrants Exercisable | Weighted Average Remaining Contractual Life | Weighted Average Exercise Price of Warrants Outstanding | Weighted Average Exercise Price of Warrants Exercisable | |||||||||||||||||
| $ | $ | |||||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||
NOTE 14 – INCOME TAXES
For the years ended February 28, 2026 and 2025, the Company had no income tax expense due to recurring net loss.
For the years ended February 28, 2026 and 2025, a reconciliation of the effective income tax rate to the U.S. statutory rate is as follows:
| Year ended February 28, 2026 | Year ended February 28, 2025 | |||||||
| Federal tax benefit at statutory rate | % | % | ||||||
| State tax benefit, net of federal benefit | % | % | ||||||
| Change in valuation allowance | ( | )% | ( | )% | ||||
| Total | % | % | ||||||
As of February 28, 2026 and 2025, the following table summarizes our deferred tax asset:
| February 28, 2026 | February 28, 2025 | |||||||
| (amounts in thousands) | ||||||||
| Deferred tax asset | ||||||||
| Net operating loss carryforwards | $ | $ | ||||||
| Gross deferred tax assets | ||||||||
| Valuation allowance | ( | ) | ( | ) | ||||
| Net deferred tax asset (liability) | $ | $ | ||||||
F-21
The provisions of ASC Topic 740, Accounting for Income Taxes, require an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable. For the years ended February 28, 2026 and 2025, based on all available objective evidence, including the existence of cumulative losses, the Company determined that it was more likely than not that the net deferred tax assets were not fully realizable. Accordingly, the Company established a full valuation allowance against its net deferred tax assets. The Company intends to maintain a full valuation allowance on net deferred tax assets until sufficient positive evidence exists to support reversal of the valuation allowance. During the years ended February 28, 2026,and 2025, the valuation allowance increased by $
At February 28, 2026, the Company had available Federal and state net operating loss carryforwards (“NOLs) to reduce future taxable income. For purposes the amounts available were approximately $
The Company’s operations are based in California, and it is subject to Federal and California state income tax. Tax years after 2017 are open to examination by United States and state tax authorities.
The Company follows the guidance of ASC 740, which requires companies to determine whether it is “more likely than not” that a tax position will be sustained upon examination by the appropriate taxing authorities before any tax benefit can be recorded in the financial statements. ASC 740 also provides guidance on the recognition, measurement, classification and interest and penalties related to uncertain tax positions. As of February 28, 2026 and 2025, liability for unrecognized tax benefits was required to be recorded or disclosed.
Our continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of February 28, 2026 and 2025, we have accrued interest and penalties related to uncertain tax positions.
We are subject to taxation in the U.S. and California. Our tax years for 2015 and forward are subject to examination by our tax authorities. We are not currently under examination by any tax authority.
NOTE 15 – RELATED PARTY TRANSACTIONS
As of February 28, 2026 and 2025, BetterSea LLC (“BetterSea”) was a
As of February 28, 2026 and 2025, accrued expenses include accrued payroll due to officers of $
NOTE 16 – 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.
F-22
On March 26, 2019, various stockholders of the Company controlling a combined total of more than
NOTE 17. SEGMENT INFORMATION
The Company operates and manages its business as
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.
| Year Ended February 28, 2026 | Year Ended February 28, 2025 | |||||||
| Net sales | $ | $ | ||||||
| Cost of sales | ||||||||
| Gross profit | ||||||||
| Less: | ||||||||
| Employee compensation and benefits | ||||||||
| Stock-based compensation expense | ||||||||
| Consulting and outside provider costs | ||||||||
| Property lease and utility costs | ||||||||
| Depreciation expense | ||||||||
| Program software and licensing expense | ||||||||
| Other operating expenses | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | $ | ( | ) | $ | ( | ) | ||
NOTE 18 – SUBSEQUENT EVENTS
Subsequent to February 28, 2026, the Company issued and sold
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