Aura Systems Inc 10-Q for FY2025 Q3
Aura Systems Inc (AUSI)
About this 10-Q
Aura Systems Inc filed this 10-Q on January 21, 2025, covering the quarter ended November 30, 2024 (FY2025 Q3).
Headline figures
Quarter ended November 30, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net loss
- $540K
- compared with a net loss of $910K a year earlier
- Diluted EPS
- $0.00
- compared with -$0.01 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
For the quarterly period ended
OR
For the transition period from ______________ to ______________
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| Large Accelerated Filer | ☐ | Accelerated Filer | ☐ |
| ☒ | Smaller Reporting Company | ||
| Emerging growth company | |||
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Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date.
| Class | Outstanding January 17, 2025 | |
| Common Stock, par value $0.0001 per share |
AURA SYSTEMS, INC.
INDEX
i
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AURA SYSTEMS, INC.
CONDENSED BALANCE SHEETS
| November 30, 2024 | February 29, 2024 | |||||||
| (amounts in thousands, except share data) | (Unaudited) | |||||||
| 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 | ||||||||
| Lease security deposit | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Shareholders’ Deficit | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accrued interest | ||||||||
| Customer advances | ||||||||
| Convertible notes payable – past due | ||||||||
| Convertible notes payable-related party, current portion – $ | ||||||||
| Notes payable current portion | ||||||||
| Notes payable-related parties, current portion – past due | ||||||||
| Operating lease liability, current portion | ||||||||
| Derivative liability | ||||||||
| Total current liabilities | ||||||||
| Notes payable, non-current portion | ||||||||
| Convertible note payable-related party, non-current portion | ||||||||
| Notes payable-related parties, non-current portion | ||||||||
| Operating lease liability | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Shareholders’ deficit | ||||||||
| Common stock: $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total shareholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and shareholders’ deficit | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited financial statements
1
AURA SYSTEMS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
| Three-Months Ended | Nine-Months Ended | |||||||||||||||
| November 30, | November 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| (amounts in thousands, except share and per share data) | ||||||||||||||||
| Net revenue | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| Gross profit (loss) | ( | ) | ( | ) | ||||||||||||
| Operating expenses | ||||||||||||||||
| Engineering, research and development | ||||||||||||||||
| Selling, general & administration | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense, net (including $ | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss on debt extinguishment – related party | ( | ) | ||||||||||||||
| Change in fair value of derivative warrant liability | ||||||||||||||||
| Other | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic and diluted loss per share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic and diluted weighted-average shares outstanding | ||||||||||||||||
See accompanying notes to these unaudited financial statements.
2
AURA SYSTEMS, INC.
CONDENSED STATEMENTS OF SHAREHOLDERS’ DEFICIT
(Unaudited)
Three Months and Nine Months Ended November 30, 2024
| (amounts in thousands, except share data) | Common Stock Shares | Common Stock Amount | Additional Paid-In Capital | Accumulated Deficit | Total Shareholders’ Deficit | |||||||||||||||
| Balance, February 29, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Common shares issued for cash | ||||||||||||||||||||
| Fair value of modified warrants - related party | ||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance, May 31, 2024 (unaudited) | ( | ) | ( | ) | ||||||||||||||||
| Common shares issued for cash | ||||||||||||||||||||
| Fair value of stock options | ||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance, August 31, 2024 (unaudited) | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Common shares issued for cash | ||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance, November 30, 2024 (unaudited) | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
Three Months and Nine Months Ended November 30, 2023
| (amounts in thousands, except share data) | Common Stock Shares | Common Stock Amount | Additional Paid-In Capital | Accumulated Deficit | Total Shareholders’ Deficit | |||||||||||||||
| Balance, February 28, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Common shares issued for cash | ||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance, May 31, 2023 (unaudited) | ( | ) | ( | ) | ||||||||||||||||
| Common shares issued for cash | ||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance, August 30, 2023 (unaudited) | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Common shares issued for cash | - | |||||||||||||||||||
| Fair value of warrants issued with convertible notes payable | ||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance, November 30, 2023 (unaudited) | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
See accompanying notes to these unaudited financial statements.
3
AURA SYSTEMS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine Months Ended | ||||||||
| November 30, 2024 | November 30, 2023 | |||||||
| (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 | ||||||||
| Loss on debt extinguishment – related party | ||||||||
| Change in fair value of derivative liability | ( | ) | ( | ) | ||||
| Fair value of stock options | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Inventory | ( | ) | ||||||
| Prepaid and other current assets | ||||||||
| Operating lease right-of-use asset | ||||||||
| Accounts payable, accrued expenses and customer advances | ( | ) | ( | ) | ||||
| 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 convertible notes payable | ||||||||
| Principal payments of notes payable | ( | ) | ( | ) | ||||
| Cash provided by financing activities | ||||||||
| Net increase (decrease) in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents-beginning of period | ||||||||
| Cash and cash equivalents-end of period | $ | $ | ||||||
| Cash paid for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| Supplemental schedule of non-cash transactions: | ||||||||
| Fair value of modified warrants - related party | $ | $ | ||||||
| Notes payable issued for the purchase of property and equipment | $ | $ | ||||||
| Fair value of a convertible note payable | $ | $ | ||||||
| Extinguishment of note payable and accrued interest – related party | $ | $ | ||||||
| Conversion feature of convertible note payable – related party accounted as derivative liability | $ | $ | ||||||
| Reclassification of prepaid expense to property and equipment | $ | $ | ||||||
| Adjustment to interest expense to account for the effective interest rate of note payable | $ | $ | ||||||
See accompanying notes to these unaudited financial statements.
4
AURA SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED NOVEMBER 30, 2024
AND 2023
(Unaudited)
(Amounts in thousands, except share and per share amounts)
NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Aura Systems Inc., (“Aura”, the “Company”) a Delaware corporation, is engaged in the development, manufacturing, licensing and sale of products and components based on the Company’s Axial Flux Induction technology for electric motors, generators, electric motors for industrial/commercial applications, as well as for two-and four-wheel EV applications. The Company’s power generation solution based on axial flux induction is known as the AuraGen® for commercial and industrial applications and the VIPER for military applications.
Basis of Presentation
The accompanying unaudited condensed financial statements as of and for the nine months ended on November 30, 2024 and 2023, have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the unaudited condensed financial statements reflect all adjustments of a normal recurring nature that are necessary for a fair presentation of the results for the periods presented. The Condensed Balance Sheet information as of February 29, 2024, was derived from the Company’s audited Financial Statements as of February 29, 2024, included in the Company’s Annual Report on Form 10-K filed with the SEC on June 4, 2024. These financial statements should be read in conjunction with that report. The results of operations for the period ended November 30, 2024, may not necessarily be indicative of the results of the full fiscal year ending February 28, 2025.
The Company’s fiscal year ends on the last calendar day of February. Accordingly, the current fiscal year will end on February 28, 2025, and is referred to as “Fiscal 2025”. Our prior fiscal years ended February 29, 2024, February 28, 2023, and 2022, and are referred to as “Fiscal 2024”, “Fiscal 2023” and “Fiscal 2022”, respectively.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has not yet generated sufficient revenues to fund operations, has experienced recurring operating losses and relies on debt and equity offerings to generate working capital.
During the nine-month period ended November 30,
2024, the Company recognized a net loss from operations of $
In the event if the Company is unable to generate profits and is unable to obtain financing for its working capital requirements, it may have to curtail its business further or cease business altogether. Substantial additional capital resources will be required to fund continuing expenditures related to our research, development, manufacturing and business development activities. The Company’s continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis, to retain its current financing, to obtain additional financing, and ultimately to attain profitability.
5
Inflation
Higher inflation, the actions by the Federal Reserve Bank to address inflation, most notably continuing increases in interest rates, and the volatility of energy prices create uncertainty about the future economic environment. The Company expects that the impact of these issues will continue to evolve. The Company believes these factors impacted the Company’s business in fiscal 2023 and fiscal 2024 and will continue to impact the Company’s business in fiscal 2025. The implications of higher government deficits and debt, tighter monetary policy, and higher long-term interest rates may drive a higher cost of capital for the business and an increase in the Company’s operating expenses.
COVID-19
The COVID-19 pandemic has been declared to be officially over. Despite this fact, there continues to be lingering impacts of the COVID-19 pandemic in the regions in which the Company operates. The Company has not observed any impairments of its assets or a significant change in the fair value of its assets due to the COVID-19 pandemic. At this time, it is not possible for the Company to predict the duration or magnitude of the adverse results stemming from the outbreak and its lingering effects on the Company’s business or results of operations, financial condition, or liquidity.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. Significant estimates include assumptions made for inventory valuation, impairment testing of long-lived assets, the valuation allowance for deferred tax assets, assumptions used in valuing notes payable, derivative liabilities, assumptions used in valuing share-based compensation, and accruals for potential liabilities. Amounts could materially change in the future. Actual results could differ from those estimates.
Vendor Concentration
As of November 30, 2024, four vendors accounted
for
As of February 29, 2024, four vendors accounted
for
Revenue Recognition
The Company recognizes revenue in accordance with Financial Accounting Standard Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers.
Our primary source of revenue is the manufacture and delivery of axial flux induction motors and generator sets used primarily in mobile power applications. Our principal sales channel is sales to domestic end users and distributors and agents internationally. In accordance with ASC 606, the Company recognizes revenue, net of discounts, for our generator sets at the time of product delivery and acceptance by the customer (i.e. point-in-time), which also corresponds to the passage of legal title to the customer and the satisfaction of our performance obligation to the customer.
Share-Based Compensation
The Company periodically issues stock options and warrants, and shares of common stock to employees and non-employees in non-capital raising transactions for services and for financing costs. Share-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the requisite service period. Recognition of compensation expense for non-employees is in the same period and manner as if the Company had paid cash for such services.
6
Fair Value of Financial Instruments
The Company determines the fair values of its financial instruments based on a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The classification of a financial asset or liability within the hierarchy is based upon the lowest level input that is significant to the fair value measurement. Under ASC 820, Fair Value Measurement and Disclosures (“ASC 820”), the fair value hierarchy prioritizes the inputs into three levels that may be used to measure fair value:
| ● | Level 1 – Quoted prices (unadjusted) for identical assets and liabilities in active markets; |
| ● | Level 2 – Inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly; and |
| ● | Level 3 – Unobservable inputs. |
The recorded amounts of inventory, other current assets, accounts payable, and accrued expenses approximate their fair value due to their short-term nature. The carrying amounts of notes payable and convertible notes payable approximate their respective fair values because of their current interest rates payable in relation to current market conditions.
| November 30, 2024 | ||||||||||||||||
| (amounts in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Liabilities | ||||||||||||||||
| Derivative liability – convertible note conversion option | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| February 29, 2024 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Liabilities | ||||||||||||||||
| Derivative liability | $ | $ | ||||||||||||||
| Total | $ | $ | ||||||||||||||
The Company estimated the fair value of the derivative liability using the Binomial Model.
| (amounts in thousands) | Fair Value of Derivative Warrant Liability | |||
| February 29, 2024 | $ | |||
| Recognition of derivative liability for a convertible note payable conversion option | ||||
| Change in fair value of derivative liability | ( | ) | ||
| November 30, 2024 | $ | |||
7
Convertible Instruments
The Company evaluates its various freestanding financial instruments, including warrants and convertible notes payable, to determine if such instruments are liability classified, pursuant to ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) or derivatives or contain features that qualify as embedded derivatives pursuant to ASC 815, Derivatives and Hedging (“ASC 815”). The classification of instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.
Under ASC 815-40-35, the Company has adopted a sequencing policy to determine equity or liability classification for contracts involving the Company’s own equity that require cash settlement if sufficient shares are not available to settle the contracts in equity. The sequencing policy is applied consistently in determining the classification of freestanding financial instruments.
Loss per share
The Company’s loss per share amounts have been computed based on the weighted average number of shares of common stock outstanding for the period. Basic earnings (loss) per share is computed by dividing net earnings (loss) available to common shareholders by the weighted average number of shares of common stock outstanding during the period. Diluted earnings (loss) per share is computed by dividing net earnings (loss) available to common shareholders by the weighted average number of shares of common stock assuming all potential shares had been issued, and the additional shares of common stock were dilutive. Diluted earnings (loss) per share reflects the potential dilution, using the as-if-converted method for convertible debt, and the treasury stock method for options and warrants, which could occur if all potentially dilutive securities were exercised.
| November 30 2024 | November 30, 2023 | |||||||
| Warrants | ||||||||
| Options | ||||||||
| Convertible notes | ||||||||
| Total | ||||||||
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In November 2024, the FASB issued 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 March 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 and guidance issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission (the “SEC”) did not or are not believed by management to have a material impact on the Company’s present or future financial statements.
8
NOTE 2 – CONVERTIBLE NOTES PAYABLE
| November 30 2024 |
February 29, 2024, |
|||||||
| (amounts in thousands) | ||||||||
| (a) Convertible notes payable 1 – past due | $ | $ | ||||||
| (b) Convertible notes payable 2 – past due | $ | |||||||
| Unamortized debt discount | ( |
) | ||||||
| Net | $ | $ | ||||||
| (a) |
| (b) |
NOTE 3 – CONVERTIBLE NOTE PAYABLE-RELATED PARTY
| November 30, 2024 |
February 29, 2024 |
|||||||
| (amounts in thousands) | ||||||||
| (a) Convertible note payable 1 – past due | $ | $ | ||||||
| (b) Convertible note payable 2 – past due | ||||||||
| (c) Convertible note payable 3 – Kopple (see Note 5) | ||||||||
| Total | $ | $ | ||||||
| Current | ( |
) | ||||||
| Non-current | $ | $ | ||||||
| (a) |
| (b) |
9
| (c) |
The Company is also subject to certain affirmative and negative covenants such as periodic submission of financial statements to Kopple and restrictions on future financing and investing activities, as defined in the agreement, including the covenant to not create any indebtedness that is senior in right of payment to the Kopple debt. Management believes such covenants are normal for this type of transaction and that management believes meeting these covenants will not affect the operations of the Company.
NOTE 4 – NOTES PAYABLE
| (amounts in thousands) | November 30, 2024 |
February 29, 2024 |
||||||
| Secured notes payable | ||||||||
| (a) Note payable-EID loan | $ | $ | ||||||
| (b) Notes payable-vehicle and equipment | ||||||||
| (c) Note payable - software license | ||||||||
| (d) Notes payable – machinery and other equipment | ||||||||
| Unsecured notes payable | ||||||||
| (e) Note payable-other | ||||||||
| Total | $ | $ | ||||||
| Current | ( |
) | ( |
) | ||||
| Non-current | $ | $ | ||||||
(a) Note payable-EID loan
During Fiscal 2021, the Company received a $
(b) Notes payable-vehicle and equipment
During Fiscal 2022, the Company issued two notes
payable to purchase equipment and a vehicle for $
(c) Note payable-software license
During Fiscal 2024, the Company obtained a loan
of $
10
During Fiscal 2025, the Company obtained a loan
of $
The aggregate total of the note payable-software
licenses as of November 30, 2024, amounted to $
(d) Notes payable – machinery and other equipment
During Fiscal 2025, the Company obtained a loan
of $
In addition, the Company entered into a 60-month
financing lease for a forklift with a cost of $
The aggregate total of the note payable and financing
lease obligation as of November 30, 2024, amounted to $
(e) Note payable-other
As of November 30, 2024, and February 29, 2024,
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 5 – NOTES PAYABLE-RELATED PARTIES
| (amounts in thousands) | November 30 2024 | February 29, 2024 | ||||||
| (a) Note payable-Kopple (see Note 3) | $ | $ | ||||||
| (b) Note payable- Gagerman – past due | ||||||||
| (c) Note payable-Jiangsu Shengfeng – past due | ||||||||
| Total | ||||||||
| Non-current | ( | ) | ||||||
| Current | $ | $ | ||||||
(a) Note payable-Kopple
In fiscals 2013 through 2018, the Company issued
notes payable to Robert Kopple and associated entities (collectively “Kopple”) in the aggregate of $
In June 2022, the first installment of $
11
In March 2024, the Company and Kopple again amended
the note payable. The amendment (i) replaced the requirement to pay the $
The Company accounted for the amended terms of
the note payable as a debt extinguishment because the present value of the cash flows under the amended debt terms is greater by more
than 10% compared to the present value of the remaining cash flows under the original existing debt terms. Furthermore, the amendment
granted a conversion option to the note holder and is deemed substantially different from the existing note. The Company recorded a loss
on debt extinguishment of $
As a result, the net carrying amount of the existing
note payable of $
(b) Note payable-Gagerman
Melvin Gagerman, the Company’s former CEO
and CFO whose employment was permanently terminated in July 2019, claims that in April 2014 the Company issued an unsecured demand promissory
note to him in the amount of $
In June 2022, Gagerman brought suit against the Company for repayment of this alleged note. Despite the fact that, based on Gagerman’s allegations, the note was issued during a period when Gagerman was the Company’s CEO, CFO, Corporate Secretary and Chairman of the Company’s Board of Directors, Gagerman has stated that he does not possess a copy of the alleged promissory note. The Company disputes that any amount is presently owed to Gagerman. Additionally, the Company has filed a cross-complaint against Gagerman for, among things, conversion, violation of California Business & Professions Code §17200, and various breaches of fiduciary duty that the Company believes Gagerman committed against the Company.
Although the Company disputes Gagerman’s
claims, under the guidance of ASC 450 – Contingencies, the Company has recorded the claimed note payable $
(c) Jiangsu Shengfeng Note
On November 20, 2019, the Company owned
12
NOTE 6 – ACCRUED INTEREST
| November 30, 2024 | February 29, 2024 | |||||||
| (amounts in thousands) | ||||||||
| Convertible notes payable (past due) | $ | $ | ||||||
| Convertible notes payable - related party – Kopple | ||||||||
| Convertible notes payable - related party – others | ||||||||
| Notes payable - related party – Kopple | ||||||||
| Notes payable - related party – others | ||||||||
| Notes payable | ||||||||
| Total | $ | $ | ||||||
NOTE 7 – LEASES
Our administrative and production operations,
including warehousing, are housed in an approximately
Operating lease right-of-use (“ROU”) assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Generally, the implicit rate of interest in arrangements is not readily determinable and the Company utilizes its incremental borrowing rate in determining the present value of lease payments. The operating lease ROU asset includes any lease payments made and excludes lease incentives.
| (amounts in thousands) | November 30, 2024 | November 30, 2023 | ||||||
| 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 | $ | $ | ||||||
| Weighted average remaining lease term – operating leases (in years) | ||||||||
| Average discount rate – operating leases | % | % | ||||||
13
| At November 30, 2024 | ||||
| Operating leases | ||||
| Long-term right-of-use assets | $ | |||
| Short-term operating lease liabilities | $ | |||
| Long-term operating lease liabilities | ||||
| Total operating lease liabilities | $ | |||
| Operating Lease | ||||
| Years Ending February 28: | ||||
| 2025 (3 months) | $ | |||
| 2026 | ||||
| 2027 | ||||
| Total lease payments | ||||
| Less: imputed interest/present value discount | ( | ) | ||
| Present value of lease liability | $ | |||
NOTE 8 – DERIVATIVE LIABILITY
In March 2024, pursuant to the amendment of the
Kopple note payable (see Notes 3 and 5), the Company granted Kopple the right to convert the amended note payable into equity of the Company
at a conversion price equal to the lower of one-dollar per share or
| (amounts in thousands, except share and per share data) | November 30, 2024 | March 7, 2024 - Issuance | ||||||
| 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 9 – SHAREHOLDERS’ DEFICIT
Common Stock
During the nine-months ended November 30, 2024,
the Company issued
During the nine-months ended November 30, 2023,
the Company issued
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Stock Options
| (amounts in thousands, except share and per share data) | Number of Options | Exercise Price | Weighted Average Intrinsic Value | |||||||||
| Outstanding, February 29, 2024 | $ | $ | ||||||||||
| Granted | ||||||||||||
| Exercised | ||||||||||||
| Cancelled | ||||||||||||
| Outstanding, November 30, 2024 | $ | $ | ||||||||||
During the nine months ended November 30, 2024,
the Company’s Board of Directors approved options exercisable into
The stock options are exercisable at a price of
$
During the nine-month period ended November 30, 2023, the Company granted no stock options under the Company’s 2011 Plan.
As of November 30, 2024, the intrinsic value as
these stock options amounted to $
| 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 | |||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||
Warrants
| Number of Warrants | Weighted Average Exercise Price | |||||||
| Outstanding, February 29, 2024 | $ | |||||||
| Granted | ||||||||
| Exercised | ||||||||
| Cancelled | ( | ) | ||||||
| Outstanding, November 30, 2024 | $ | |||||||
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There was no intrinsic value as of November 30,
2024, 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 10 – RELATED PARTY TRANSACTIONS
As of November 30, 2024, and February 29, 2024,
BetterSea LLC was an
NOTE 11 – CONTINGENCIES
The Company is subject to legal proceedings and claims that have arisen in the ordinary course of business. Our management evaluates our exposure to these claims and proceedings individually and in the aggregate and evaluates potential losses on such litigation if the amount of the loss is estimable and the loss is probable. However, the outcome of legal proceedings and claims brought against the Company is subject to significant uncertainty. Although management considers the likelihood of such an outcome to be remote, if one or more of these legal matters were resolved against the Company for amounts in excess of management’s expectations, the Company’s financial statements for that reporting period could be materially adversely affected.
In June 2022, Melvin Gagerman, the Company’s
former CEO and CFO whose employment with Aura was permanently terminated in July 2019, brought suit against the Company for repayment
of an allegedly unsecured demand promissory note in the principal amount of $
On March 26, 2019, various stockholders of the
Company controlling a combined total of more than
NOTE 12 – SUBSEQUENT EVENTS
Subsequent to November 30, 2024, the Company issued
Subsequent to November 30, 2024, all litigation with Gagerman (see Note 11) was settled with no cost to the Company.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Amounts in thousands, except share and per share amounts)
Forward Looking Statements
This Report contains forward-looking statements within the meaning of the federal securities laws. Statements other than statements of historical fact included in this Report, including the statements under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” regarding future events or prospects are forward-looking statements. The words “approximates,” “believes,” “forecasts,” “expects,” “anticipates,” “estimates,” “intends,” “plans” “would,” “could,” “should,” “seek,” “may,” or other similar expressions in this Report, as well as other statements regarding matters that are not historical fact, constitute forward-looking statements. We caution investors that any forward-looking statements presented in this Report are based on the beliefs of, assumptions made by, and information currently available to, us. Such statements are based on assumptions and the actual outcome will be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control or ability to predict. Although we believe that our assumptions are reasonable, they are not guarantees of future performance and some will inevitably prove to be incorrect. As a result, our actual future results may differ from our expectations, and those differences may be material. Accordingly, investors should use caution in relying on forward-looking statements to anticipate future results or trends.
Some of the risks and uncertainties that may cause our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include the following:
| ● | Our ability to generate positive cash flow from operations; |
| ● | Our ability to obtain additional financing to fund our operations; |
| ● | The impact of economic, political and market conditions on us and our customers; |
| ● | The impact of unfavorable results of legal proceedings; |
| ● | Our exposure to potential liability arising from possible errors and omissions, breach of fiduciary duty, breach of duty of care, waste of corporate assets and/or similar claims that may be asserted against us; |
| ● | Our ability to compete effectively against competitors offering different technologies; |
| ● | Our business development and operating development; |
| ● | Our expectations of growth in demand for our products; and |
| ● | Other risks described under the heading “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q and those risks discussed in our other filings with the Securities and Exchange Commission, including those risks discussed under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended February 29, 2024, issued on June 4, 2024 (as the same may be updated from time to time in subsequent quarterly reports), which discussion is incorporated herein by this reference. |
We do not intend to update or revise any forward-looking statements, whether because of new information, future events or otherwise except to the extent required by law. You should interpret all subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf as being expressly qualified by the cautionary statements in this Report. As a result, you should not place undue reliance on these forward-looking statements.
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.
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Our business model consists of three major components: (i) sales and marketing, iii) design and engineering and (iii) axial flux induction motors and generators manufacturing. Our sales and marketing approaches are composed of direct sales in North America and the use of agents and distributors in other areas. In addition, we are also exploring limited licensing of our technology to very large potential users as well as potential joint ventures with existing industrial motor/generator suppliers. The second component of our business model is focused on the design, engineer and commercialize of new commercial and industrial electric motors based on our axial flux induction for numerous applications such as pumps, compressors, and HVAC. We are also designing electric motors for both 2- and 4-wheel EV application, as well as, expending the product line for electric power generation. The third component of our business model is to set up manufacturing of the axial flux induction products being engineered and design.
We are currently completing a 250-kW electric motor prototype based on our axial flux induction for EV applications. This activity is in conjunction with a large European tier 1 automotive supplier interest and inputs. We have also in May 2024 completed the installation of our new smaller 10-kW mobile power generator on a Polaris type ATV platform for US military applications. We expect in the coming months to start shipping this new product to a specific customer. We are also currently in discussions for usage of our technology for numerous wind turbines applications.
In fiscal 2024 and first nine months of fiscal 2025 we have significantly increased our engineering capabilities with having hired experts’ engineers in thermo dynamics (Ph.D.), electromagnetic motor design (Ph.D.) Power electronics & control (Ph.D.) and mechanical design (M.S.M.E). We have also acquired the latest in advance engineering tools such as Ansys Maxwell finite elements, MATLAB and 3-D solid work. Our engineering, research and development costs for the nine months ended November 30, 2024, were approximately $745
In Fiscal 2020 stockholders of the Company successfully removed Ronald Buschur, William Anderson and Si Ryong Yu from the Company’s Board of Directors and elected Ms. Cipora Lavut, Mr. David Mann and Dr. Robert Lempert as directors of the Company in their stead. See Item 3, Legal Proceedings for more information. Also, in Fiscal 2020, Melvin Gagerman –– Aura’s CEO and CFO since 2006 –– was replaced. In July 2019 Ms. Lavut succeeded Mr. Gagerman as President and Mr. Mann succeeded Mr. Gagerman as CFO. Dr. Lempert was appointed as Secretary of the Company by the Board of Directors also in July 2019.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial conditions and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of financial statements requires management to make estimates and disclosures on the date of the financial statements. In preparing our financial statements, we have made our best estimates and judgments of certain amounts included in the financial statements. We use authoritative pronouncements, historical experience and other assumptions as the basis for making judgments. For these key estimates and assumptions, we made appropriate accounting estimates based on the facts and circumstances available as of the reporting date. To the extent that there are significant differences between these estimates and actual results, our financial statements may be materially affected. Significant estimates include assumptions made for inventory reserve, impairment testing of long-lived assets, the valuation allowance for deferred tax assets, assumptions used in valuing derivative liabilities, assumptions used in valuing share-based compensation, and accruals for potential liabilities. Amounts could materially change in the future. Actual results could differ from those estimates. There were no changes to our critical accounting policies described in the financial statements included in our Annual Report on Form 10-K for the fiscal year ended February 29, 2024, that impacted our condensed financial statements and related notes included herein.
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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 2023 and 2024 and will continue to impact the Company’s business in fiscal 2025. The implications of higher government deficits and debt, tighter monetary policy, and higher long-term interest rates may drive a higher cost of capital for the business and an increase in the Company’s operating expenses.
COVID-19
As of the date of this filing, the COVID-19 pandemic has been declared to be officially over. Despite this fact, there continues to be lingering impacts of the COVID-19 pandemic in the regions in which the Company operates. The Company has not observed any impairments of its assets or a significant change in the fair value of its assets due to the COVID-19 pandemic. At this time, it is not possible for the Company to predict the duration or magnitude of the adverse results stemming from the outbreak and its lingering effects on the Company’s business or results of operations, financial condition, or liquidity.
Results of Operations
Three months ended November 30, 2024, compared to three months ended November 30, 2023
Net revenue was $0 for the three-months ended November 30, 2024, compared to $47 for the three-months ended November 30, 2023. Revenues continue to be negatively impacted due to a generally low level of resources on our legacy products as well as our shift to the development and production of the prototype for our new product line. We cannot project with confidence the timing or amount of revenue that we can expect until the prototype is completed, which should be in Fiscal 2025.
Cost of goods sold was $0 in the three-months ended November 30, 2024, compared to $99 for the three-months ended November 30, 2023. The gross loss and related gross margin loss were largely influenced by the low volume of shipments in this quarter which reduced our ability to fully absorb fixed operating costs.
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Engineering, research and development expenses were $196 in the three-months ended November 30, 2024, compared to $33 for the three-months ended November 30, 2023
Selling, general and administration (“SG&A”) expenses for the three months ending November 30, 2024, were $673 as compared to $494 for the three months ending November 30, 2023, an increased by $179 or 36%. The increase in SG&A was due to increased headcount and pay increases.
Interest expense decreased by $147 to $479 from $332 for the three months ending November 30, 2024, and 2023 respectively.
Nine months ended November 30, 2024, compared to nine months ended November 30, 2023
Net revenue was $50 for the nine-months ended November 30, 2024, compared to $57 for the nine-months ended November 30, 2023. Revenues continue to be negatively impacted due to a generally low level of resources on our legacy products as well as our shift to the development and production of the prototype for our new product line. We cannot project with confidence the timing or amount of revenue that we can expect until the prototype is completed, which should be in Fiscal 2025.
Cost of goods sold was $29 in the nine months ended November 30, 2024, compared to $194 for the nine-months ended November 30, 2023. This resulted in a gross profit of $21 compared to a gross loss of $137 for the nine-months ended November 30, 2023. The cost of goods sold in the nine-months ended November 30, 2024, included an increase in the inventory reserve of $20. The gross loss and related gross margin for the nine-months ended November 30, 2023 were largely influenced by the low volume of shipments in this quarter which reduced our ability to fully absorb fixed operating costs.
Engineering, research and development expenses were $745 in the nine-months ended November 30, 2024, compared to $528 for the nine-months ended November 30, 2023.
Selling, general and administration (“SG&A”) expenses for the nine months ending November 30, 2024, were $3,302 as compared to $1,344 for the nine months ending November 30, 2023, an increased by $1,958 or 146%. The increase in SG&A was due to increased headcount and pay increases, and $1,601 in stock-based compensation, which did not occur in the prior period.
Interest expense increased by $128 to $1,043 from $1,171 for the nine months ending November 30, 2024, and 2023 respectively.
Liquidity and Capital Resources
Going Concern
During the nine-month period ended November 30, 2024, the Company recognized loss from operations of $4,026 and used cash in operating activities of $2,483. As of November 30, 2024, the Company also has a shareholder deficit of $39,451 and notes payable totaling $5,315 are also past due. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year of the date that the financial statements are issued. In addition, the Company’s independent registered public accounting firm, in its report on the Company’s February 29, 2024, financial statements, raised substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
In the event the Company is unable to generate profits and is unable to obtain financing for its working capital requirements, it may have to curtail its business further or cease business altogether. Substantial additional capital resources will be required to fund continuing expenditures related to our research, development, manufacturing and business development activities. The Company’s continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis, to retain its current financing, to obtain additional financing, and ultimately to attain profitability.
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During the next twelve months we intend to continue to attempt to increase the Company’s operations and focus on the sale of our AuraGen®®/VIPER products both domestically and internationally and to add to our existing management team. In addition, we plan to source new suppliers for manufacturing operations, rebuild the engineering and sales teams, and to the extent appropriate, utilize third party contractors to support the operation. We anticipate being able to obtain new sources of funding to support these actions in the upcoming fiscal year.
At November 30, 2024 we had cash of $21, compared to cash of approximately $124 at February 29, 2024. Subsequent to November 30, 2024, the Company issued 920,000 shares of common stock in exchange for cash proceeds of approximately $230,000.
Prior to Fiscal 2020, in order to maintain liquidity, we relied upon external sources of financing, principally equity financing and private indebtedness. We have no bank line of credit and will require additional debt or equity financing to fund ongoing operations. Based on a cash flow analysis performed by management, we estimate that we will need an additional $6,000 to maintain existing operations for Fiscal 2025 and increase the volume of shipments to customers. We cannot assure the reader that additional financing will be available nor that the commercial targets will be met in the amounts required to keep the business operating. The issuance of additional shares of equity in connection with such financing could dilute the interests of our existing stockholders, and such dilution could be substantial. If we cannot raise the needed funds, we will also be forced to make further substantial reductions in our operating expenses, which could adversely affect our ability to implement our current business plan and ultimately our viability as a company.
Between July 2017 and March 2022, the Company was engaged in litigation with a former director, Robert Kopple, relating to more than $13,000 and the current equivalent of the approximately 23 million warrants, exercisable for seven years at a price of $0.10 per share, which Mr. Kopple and his affiliated entities (collectively the “Kopple”) claimed should have been originally issued to them pursuant to various agreements with the Company entered to between 2013-2016. In March 2022, the Company reached a settlement with Kopple that resolves all claims asserted against the Company without any admission, concession or finding of any fault, liability or wrongdoing on the part of the Company. Under the terms of the settlement, we have agreed to pay an aggregate amount of $10,000 over a period of seven years; $3,000 of which was originally to be paid in June 2022, and subsequently extended to November 1, 2023. Beginning in January 2023, interest began to accrue on the unpaid balance at a rate of 6%, compounded annually. All amounts, including all accrued interest and deferred forbearance fees, are to be paid no later than eight years from the date of the initial payment. As of the date of this report, the Company has not yet paid the full $3,000 installment due to Kopple; having only made a partial payment of $150 in June 2022. In March 2024, the Company and Kopple again amended the note payable. The amendment (i) replaced the requirement to pay the $3,850 past due principal balance with the requirement to pay $2,000 due December 15, 2024, effectively extending the payment of $1,850 to future periods; (ii) increased the stated interest rate to 10%; (iii) added a fee of $15 monthly until the Company makes a principal payment of $2 million by December 2024; (iv) effective November 30, 2024, the Company will grant Kopple a conversion right that gives Kopple the option to be able to convert the note payable into equity of the Company at a conversion price of the lower of $1.00 per share or 50% of the 10 day volume weighted average price of the Company’s common stock; (v) during Fiscal 2025, will require the Company to pay 20% of all collected revenues within 10 days of the end of each fiscal quarter; (vi) will require the Company to pay Kopple 20% of any amount raised in new capital in the form of equity, debt or convertible debt above $3.5 million; (vii) reduces the exercise price of the warrants granted to Kopple in March 2022 from $0.85 per share to $0.50 per share; and (vii) extends the warrant expiration date from March 8, 2029, to March 31, 2031. The installment payment of $ 2.0 million, which became due in December 2024, was extended to February 27, 2025.
See “Item 3. Legal Proceedings” and “Part IV, Item 15, Notes 9 and 17 to the Financial Statements” included in the Company’s Annual Report on Form 10-K filed with the SEC on November 30, 2024 for information regarding the dispute and settlement with Mr. Kopple regarding these transactions.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, we are not required to provide disclosure under this Item 3.
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ITEM 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our President and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this Report. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Securities and Exchange Act of 1934 Rules 13a-15(f). Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of November 30, 2024.
Changes in Internal Control over Financial Reporting
There have been no other changes in our internal control over financial reporting during our fiscal quarter ended November 30, 2024, not previously identified in our Annual Report on Form 10-K, for the fiscal year ended February 28, 2024 and issued on June 4, 2024 which have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
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PART II - OTHER INFORMATION
(Amounts in thousands, except share and per share amounts)
ITEM 1. Legal Proceedings
We are subject to the legal proceedings and claims discussed below as well as certain other legal proceedings and claims that have not been fully resolved and that have arisen in the ordinary course of business. Our management evaluates our exposure to these claims and proceedings individually and in the aggregate and evaluates potential losses on such litigation if the amount of the loss is estimable and the loss is probable. However, the outcome of legal proceedings and claims brought against the Company is subject to significant uncertainty. Although management considers the likelihood of such an outcome to be remote, if one or more of these legal matters were resolved against the Company for amounts in excess of management’s expectations, the Company’s financial statements for that reporting period could be materially adversely affected.
In 2017, the Company’s former COO was awarded approximately $238 in accrued salary and related charges by the California labor board. In November 2021, the Company reached a settlement by which the Company agreed to pay approximately $330, representing the principal award plus accrued interest. As of the time of this filing, the Company has paid the full amount toward the settlement amount, leaving no remaining balance.
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 November 30, 2024, the Company will grant Kopple a conversion right that gives Kopple the option to be able to convert the note payable into equity of the Company at a conversion price of the lower of $1.00 per share or 50% of the 10 day volume weighted average price of the Company’s common stock; (v) during Fiscal 2025, will require the Company to pay 20% of all collected revenues within 10 days of the end of each fiscal quarter; (vi) will require the Company to pay Kopple 20% of any amount raised in new capital in the form of equity, debt or convertible debt above $3.5 million; (vii) reduces the exercise price of the warrants granted to Kopple in March 2022 from $0.85 per share to $0.50 per share; and (vii) extends the warrant expiration date from March 8, 2029, to March 31, 2031. The installment payment of $ 2.0 million, which became due in December 2024, was extended to February 27, 2025.
On March 26, 2019, various stockholders of the Company controlling a combined total of more than 27.5 million shares delivered a signed written consent to the Company removing Ronald Buschur as a member of the Company’s Board and electing Cipora Lavut as a director of the Company. On March 27, 2019, those same stockholders delivered a further signed written consent to the Company removing William Anderson and Si Ryong Yu as members of the Company’s Board and electing Robert Lempert and David Mann as directors of the Company. These written consents represented a majority of the outstanding shares of the Company’s common stock as of March 26, 2019, and March 27, 2019, respectively. Because of Aura’s refusal to recognize the legal effectiveness of the consents, on April 8, 2019, the stockholders filed suit in the Court of Chancery of the State of Delaware pursuant to Section 225 of the Delaware General Corporations Law, seeking an order confirming the validity of the consents and declaring that Aura’s Board consists of Ms. Lavut, Mr. Mann, Dr. Lempert, Mr. Douglas and Mr. Diaz-Versón, Jr. On July 8, 2019 the Court of Chancery entered final judgment in favor of the stockholder plaintiffs, confirming that (a) Ronald Buschur, Si Ryong Yu and William Anderson had been validly removed by the holders of a majority of the Company’s outstanding stock acting by written consent (b) Ms. Lavut, Mr. Mann and Dr. Lempert had been validly elected by the holders of a majority of the Company’s outstanding stock acting by written consent, and (c) the Company’s Board of Directors validly consists of Cipora Lavut, David Mann, Robert Lempert, Gary Douglas and Salvador Diaz-Versón, Jr. As a result of prior management’s unsuccessful opposition to this stockholders’ action filed in the Court of Chancery, such stockholders may be potentially entitled to recoup their litigation costs from the Company under Delaware’s corporate benefit doctrine and/or other legal provisions. To date, no final determination has been made as to the amount of recoupment, if any, to which such stockholders may be entitled.
In June 2022, Melvin Gagerman, the Company’s former CEO and CFO whose employment with Aura was permanently terminated in July 2019, brought suit against the Company for repayment of an allegedly unsecured demand promissory note in the principal amount of $82 which he claims was entered into in April 2014 and bears interest at a rate of 10% per annum. Despite the fact that, based on Gagerman’s allegations, the note was issued during a period when he was the Company’s CEO, CFO, Corporate Secretary and Chairman of Aura’s Board of Directors, Gagerman has stated that he does not possess a copy of the alleged promissory note. The Company disputes that any amount is presently owed to Gagerman and has filed a cross-complaint against him for, among things, conversion, violation of California Business& Professions Code §17200, and various breaches of fiduciary duty that the Company believes Gagerman committed against Aura, including without limitation, Gagerman’s actions in opposing the valid 2019 stockholder consent action. As of the time of this filing, all disputes with Gagerman have been settled with zero payment from the Company.
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ITEM 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the risk factors disclosed in Item 1A, “Risk Factors,” of the Company’s Fiscal 2024 Annual Report on Form 10-K issued on June 4, 2024.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the nine-months ended November 30, 2024, the Company issued 10,268,363 shares of common stock for approximately $2,623 in net cash.
ITEM 3. Defaults Upon Senior Securities.
None
ITEM 4. Mine Safety Disclosures
Not applicable.
ITEM 5. Other Information.
ITEM 6. Exhibits
| 31.1 | Certification pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. | |
| 31.2 | Certification pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. | |
| 32.1 | Certification of Principal Executive Officer Pursuant to 18 U.S.C. § 1350, as Adopted Pursuant to § 906 of the Sarbanes-Oxley Act of 2002. | |
| 32.2 | Certification of Chief Financial Officer Pursuant to 18 U.S.C. § 1350, as Adopted Pursuant to § 906 of the Sarbanes-Oxley Act of 2002. | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Date: January 21, 2025 | AURA SYSTEMS, INC. | |
| (Registrant) | ||
| By: | /s/ Cipora Lavut | |
| Cipora Lavut | ||
| President | ||
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Exhibit 31.1
Certification of Chief Executive Officer
Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
I, Cipora Lavut, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Aura Systems, Inc. |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report. |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: January 21, 2025 | /s/ Cipora Lavut |
| Cipora Lavut | |
Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
Certification of Chief Financial Officer
Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
I, Cipora Lavut and David Mann, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Aura Systems, Inc. |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: January 21, 2025 | /s/ Cipora Lavut |
| Cipora Lavut | |
| Principal Financial and Accounting Officer |
| Date: January 21, 2025 | /s/ David Mann |
| David Mann | |
| CFO |
Exhibit 32.1
Certification of Chief Executive Officer
Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code
Pursuant to U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned Chief Executive Officer of Aura Systems, Inc. (the “Company”) does hereby certify, to the best of such officer’s knowledge, that:
| 1. | The Quarterly Report on Form 10-Q of the Company for the quarterly period ended November 30, 2024 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and | |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Dated: | January 21, 2025 | /s/ Cipora Lavut | |
| Cipora Lavut | |||
Chief Executive Officer (Principal Executive Officer) |
The certifications set forth above are being furnished as an exhibit solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended.
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Aura Systems, Inc. and will be retained by Aura Systems, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
Certification of Chief Financial Officer
Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code
Pursuant to U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned Principal Financial Officer of Aura Systems, Inc. (the “Company”) does hereby certify, to the best of such officer’s knowledge, that:
| 1. | The Quarterly Report on Form 10-Q of the Company for the quarterly period ended November 30, 2024 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and | |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Dated: | January 21, 2025 | /s/ Cipora Lavut | |
| Cipora Lavut | |||
Chief Executive Officer (Principal Financial and Accounting Officer) |
| Dated: | January 21, 2025 | /s/ David Mann | |
David Mann | |||
CFO (Chief Financial Officer) |
The certifications set forth above are being furnished as an exhibit solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended.
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Aura Systems, Inc. and will be retained by Aura Systems, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.