Quarterly Report for Quarter Ending November 30, 2025 (Form 10-Q)

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:

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Our ability to generate positive cash flow from operations;

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Our ability to obtain additional financing to fund our operations;

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The impact of economic, political and market conditions on us and our customers;

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The impact of unfavorable results of legal proceedings;

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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;

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Our ability to compete effectively against competitors offering different technologies;

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Our business development and operating development;

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Our expectations of growth in demand for our products; and

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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 28, 2025, issued on June 13, 2025 (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.

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 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 also completed the design for a 250-kW generator based on our axial flux induction technology. We expect to build this new generator over the next few months. 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 started working directly with Polaris to perfect the output from the new generator on their platform. We completed the designs for 5 horsepower axial flux induction motor for swimming pool pump applications, and we also completed the design for a 10 horsepower axial flux induction motor for irrigation pump applications. We are also currently in discussions for usage of our technology for numerous wind turbines applications. During fiscal 2025 we also applied for 3 new patents related to axial flux induction machines.

In fiscal 2024 and 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.

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 28, 2025, that impacted our condensed financial statements and related notes included herein.

Revenue Recognition

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

Inventories

Inventories are valued at the lower of cost (first-in, first-out) or net realizable value, on an average cost basis. We review the components of inventory on a regular basis for excess or obsolete inventory based on estimated future usage and sales. When evidence exists that the net realizable value of inventory is lower than its cost, the difference is recognized as a loss in the period in which it occurs. Once inventory has been written down, it creates a new cost basis for inventory that may not be subsequently written up.

Derivative Financial Instruments

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

Results of Operations

Three months ended November 30, 2025, compared to three months ended November 30, 2024

Revenues

Net revenue was $80 for the three months ended November 30, 2025, compared to $0 for the three months ended November 30, 2024. 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 2026.

Cost of Goods

Cost of goods sold was $0 in the three months ended November 30, 2025, compared to $0 for the three months ended November 30, 2024.

Engineering, Research and Development

Engineering, research and development expenses were $459 in the three months ended November 30, 2025, compared to $196 for the three months ended November 30, 2024.

Selling, General and Administrative Expense

Selling, general and administration ("SG&A") expenses for the three months ending November 30, 2025, were $466 as compared to $673 for the three months ending November 30, 2025, a decrease of $207 in the three-month period ending November 30, 2025, compared to the three months ended November 30, 2024.

Other Income (Expense) and Interest Expense

Interest expense decreased by $121 to $358 for the three months ended November 30, 2025, as compared to $479 for the three months ended November 30, 2024. 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 $6,705 and $808 at November 30, 2025 and November 30, 2024, respectively.

Net Loss

We recorded net income of $5,502 and net losses of approximately $540 for the three months ended November 30, 2025 and 2024, respectively. The decrease in our net loss was due to several factors, as noted above, including the change in fair value of our derivative liability.

Nine months ended November 30, 2025, compared to nine months ended November 30, 2024

Revenues

Net revenue was $265 for the nine months ended November 30, 2025, compared to $50 for the nine months ended November 30, 2024. 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 2026.

Cost of Goods

Cost of goods sold was $25 in the nine months ended November 30, 2025, compared to $29 for the nine months ended November 30, 2024.

Engineering, Research and Development

Engineering, research and development expenses were $1,149 in the nine months ended November 30, 2025, compared to $745 for the nine months ended November 30, 2024.

Selling, General and Administrative Expense

Selling, general and administration ("SG&A") expenses for the nine months ending November 30, 2025, were $1,528 as compared to $3,302 for the nine months ending November 30, 2025, a decreased of $1,774 in the nine-month period ending November 30, 2025, compared to the nine months ended November 30, 2024. The decrease was from $1,601 of stock-based compensation recorded in the prior year period, which did not occur during the current year period.

Other Income (Expense) and Interest Expense

Interest expense increased by $578 to $1,621 for the nine months ended November 30, 2025, as compared to $1,043 for the nine months ended November 30, 2024. During the nine months ended November 30, 2024, the Company recorded a loss on debt extinguishment of $19,324, which did not occur in the current year period. 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 $1,954 and $2,203 at November 30, 2025 and November 30, 2024, respectively.

Net Loss

We recorded net losses of approximately $2,103 and $22,188 for the nine months ended November 30, 2025 and 2024, respectively. The decrease in our net loss was due to several factors, as noted above, including the recording of a loss on debt extinguishment to a related party, the prior year recording of stock stock-based compensation, and the change in fair value of our derivative liability.

Liquidity and Capital Resources

For the nine months ended November 30, 2025, we recorded a net loss of $2,104, used cash in operations of $2,457, and at November 30, 2025, had a stockholders' deficit of $36,928. In addition, at November 30, 2025, notes payable and related accrued interest with an aggregate balance of $5,266 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, 2025, audited financial statements, raised substantial doubt about the Company's ability to continue as a going concern.

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 million to maintain existing operations for Fiscal 2026 and increase the volume of shipments to customers. We cannot assure 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 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.