Notes Payable-Related Parties (Tables)

9 Months Ended

Nov. 30, 2024

Notes Payable-Related Parties [Abstract]

Schedule of Notes Payable-Related Parties

Notes payable-related parties consisted of the following:

(amounts in thousands)	November 30 2024		February 29, 2024
(a) Note payable-Kopple (see Note 3)	$	-	$	10,915
(b) Note payable- Gagerman – past due		82		82
(c) Note payable-Jiangsu Shengfeng – past due		700		700
Total		782		11,697
Non-current		-		(7,065	)
Current	$	782	$	4,632

(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 $6,107. Robert Kopple is the former Vice-Chairman of the Company’s Board of Directors and is a current shareholder in the Company. Beginning in 2017, Kopple brought suit against the Company for repayment of the notes. On March 14, 2022, the Company reached an agreement with Kopple to resolve all remaining litigation between them, including all amounts owed to Kopple under the notes. Under the terms of the settlement, the Company agreed to issue a new note and pay Kopple an aggregate amount of $10,000 to be paid in installments, of which, $3,000 was due in June 2022, and the remaining $7,000 to be paid over seven years at $1,000 per year. Additionally, the settlement agreement granted Kopple warrants exercisable into 3,331,664 shares of the Company’s common stock at a price of $0.85 per share.

In June 2022, the first installment of $3,000 became due, of which $150 was only paid. Subsequently, the note was amended several times to extend the payment date of the remaining balance of $2,850 of the initial payment, and the Company incurred extension and forbearance fees totaling $335 that was recorded as part of interest expense. In January 2023, pursuant to the terms of the amended note payable, the Company started accruing interest on the outstanding note balance at a rate of 6% per annum, compounded annually. As of February 29, 2024, outstanding principal balance amount of $10,915. 

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 on or before December 15, 2024; (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 granted Kopple the right (but not any obligation) to convert the note payable into equity of the Company at a conversion price equal to the lower of one dollar per share or 50% of the 10 day volume weighted average price per share of the Company’s common stock; (v) 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 of the warrants granted to Kopple in March 2022 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.

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 $19,324 as a result of this amendment, which is the difference between (i) the fair value of the amended convertible note payable of $9,261, combined with the fair value of the conversion option of $22,194 (see Note 8), and the change in the fair value of the amended warrants of $33, and (ii) the net carrying amount of the existing note payable of $12,164.

As a result, the net carrying amount of the existing note payable of $12,164 was derecognized and amended note payable was recorded at its fair value of $9,261. As the Kopple new note payable is now convertible to common stock, for financial reporting purposes, the new note payable of $9,261 is reported as a convertible note payable-related party (see Note 3).

(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 $82 that bears interest at a rate of 10% per annum. Gagerman claims that this note has not been repaid to date and is now owed.

In June 2022, Gagerman brought suit against the Company for repayment of this alleged note. Despite the fact that, based on Gagerman’s allegations, the note was issued during a period when Gagerman was the Company’s CEO, CFO, Corporate Secretary and Chairman of the Company’s Board of Directors, Gagerman has stated that he does not possess a copy of the alleged promissory note. The 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 $82 and corresponding accrued interest. 

(c) Jiangsu Shengfeng Note

On November 20, 2019, the Company owned 49% of a Chinese joint venture named Jiangsu Shengfeng. The Joint venture advanced Aura $700 in prior years for products that the Company failed to deliver to the joint venture. The Company reached an agreement with the joint venture regarding the return of $700 that had been advanced to the Company in prior years. As a result, in November 2019, the Company issued a non-interest-bearing promissory note for $700 to the joint venture to be paid over an 11-month period beginning March 15, 2020, through February 15, 2021. The joint venture stopped operations in 2020 as a result of COVID-19 and never resumed or restarted operations. In early fiscal 2024 the joint venture was dissolved and liquidated without filing any demands or claims for payments. As of November 30, 2024, and February 29, 2024, the outstanding balance of this note payable amounted to $700.